As already shown in previous articles, it is worthwhile Real Estate Investment Trusts (REITs) Thinking outside the box. REITs with a smaller market capitalization are almost always worth analyzing more closely, as they often have an interesting risk/return profile. And these REITs are not only found in the USA, but also in our neighbor to the north, for example. Today's article is therefore about Canadian REITs, in particular the residential sector there. As usual, I will present some of them. Enjoy reading!
The Canadian residential real estate market
To begin with, I would like to try to give a brief overview of the Canadian residential real estate market. It has been considered reliable and defensive for years. A stable regulatory framework (with some excesses), a persistent housing shortage in metropolitan areas and conservative financing structures ensure steady rental income. Ontario, British Columbia and parts of Québec in particular are markets with high demand, but also stricter rental regulation. Atlantic Canada, on the other hand, is less regulated and allows more flexible rent adjustments.
What is striking is the restrained construction activity in recent years, which is certainly likely to be a consequence of higher interest rates and regulatory hurdles (keyword: price brake). At the same time, net immigration is slowing, which could have a long-term impact on demand. Nevertheless, the basic problem remains: There is simply too little affordable housing in the major cities. And that is precisely why this article focuses on Canadian residential REITs!
Canadian Apartment Properties REIT
Canadian Apartment Properties REIT or CAPREIT (TWS ticker: CAR.UN, ISIN: CA1349211054) is the heavyweight REIT among Canadian residential real estate funds with around 65,000 units in Canada and also in Ireland and the Netherlands. The portfolio has been undergoing a transformation since 2024. Older or non-strategic properties are being sold and more modern units with higher rental potential are being acquired. In Q4 2024 alone, over CAD 300 million in properties were sold, including in Canada. At the same time, CAPREIT bought back its own shares (or units) for more than CAD 300 million. This does not happen very often with REITs; the management apparently recognizes the undervaluation.
The company is currently trading at a discount of around 15-20 % to NAV, although rents are continuing to rise. CAR.UN recently achieved a rent increase of 13.6 % on new lettings, which is particularly strong in a rather cooling rental market.
Debt is manageable and the interest rate profile is stable. In 2025, only around 11% of the debt will have to be refinanced and then very likely at a lower interest rate. The dividend was also only increased by 3 % in February 2025 and, as is so often the case in Canada, will be paid out monthly.
Killam Apartment REIT
Killam Apartment REIT (TWS ticker: KMP.UN, ISIN: CA49410M1023) is the largest private residential landlord in Atlantic Canada. With approximately 217 properties, including over 170 in the four Atlantic provinces, the REIT has a strong regional footprint - but is gradually expanding into Ontario, Alberta and BC. The REIT generates over 90 % of its NOI from apartments, supplemented by MHCs (Manufactured Home Communities) and small commercial spaces.
The 1st quarter of 2025 was strong! There were rent increases on new leases of +5.1 %, with occupancy of 97.4 % and FFO growth per unit of +7.7 %. The payout ratio is a conservative 60 % of funds from operations. Furthermore, the debt is well structured, with an average interest rate of 3.48 %. The valuation remains attractive, even though the share price has recovered quite a bit in the meantime. KMP.UN continues to trade at a slight discount to its intrinsic value and offers a dividend yield of around 3.8 %. The monthly dividend is also likely to be raised a little in Q3 or Q4.
Minto Apartment REIT
We are still in the small cap REIT segment, but with Minto Apartment REIT (TWS ticker: MI.UN, ISIN: CA60448E1034) we are now below the billion mark in terms of market capitalization. The REIT currently owns (only) 28 high-quality properties in urban centers, primarily in Ottawa, Toronto, Montréal, Calgary and Vancouver. Like its peers, MI.UN has been sold off heavily in recent quarters. Despite the price recovery, the valuation appears to be at a historically favorable level. The share price is currently CAD 14.72, but the net asset value is CAD 22.73, i.e. a discount of almost 40 %!
Despite short-term declines in FFO (-4.9 %) and NOI (-4.6 %) in Q1-2025, the substance remains intact. The average rent rose by +6.4 %, while new lettings amounted to +5.4 %. The slight increase in vacancies (occupancy 96.2 %) and higher costs (primarily energy) temporarily depressed MI.UN's margin.
On the other hand, the debt structure is exemplary: the weighted average maturity is 5.2 years and there are no major maturities until 2027. With a dividend yield of approx. 3.5% and high quality, Minto remains interesting in the long term, in my opinion also as a potential takeover target, as has recently been shown several times in the sector (e.g. with InterRent).
Northview Residential REIT
Northview Residential REIT (TWS ticker: NRR.UN, ISIN: CA66719E1025) is back on the market. NRR.UN is a former closed-end fund that had to cut its then double-digit dividend due to excessive debt and rising interest rates, which ultimately led to a price collapse. A recapitalization transaction in August 2023 transformed it into a REIT with assets worth USD 2.6 billion. The portfolio now comprises over 13,000 multi-residential suites in underserved regions such as Alberta, the Northwest Territories and Yukon. The valuation is particularly low: around 30 % discount to NAV with an FFO multiple of only 9.
At first glance, the balance sheet appears risky with 65 % loan-to-value, but this is put into perspective with an alternative valuation (cap rates below 6 %). The management structure is very shareholder-friendly, with two major shareholders jointly holding more than 50 % of the shares. Northview is currently growing rapidly: +6.5 % net operating income in the last quarter, +28 % FFO growth p.a. and the dividend yield of almost 7% is the highest in the sector. Of course, dividends are also paid monthly. All this has hardly had any impact on the valuation so far, because with a P/FFO of around 9x and a NAV discount of around 30%, the share is still very favorably valued, even in comparison with its peers (see below).
Options trading
I myself am also active as an options trader, but almost exclusively as a so-called "Style holder". Therefore, I am naturally also interested in these REITs, which options are suitable for additional cash flow or for a favorable entry by means of a tender offer. Unfortunately, the selection of Canadian residential REITs is very limited, with CAR.UN being the only option chain available.
Canadian Apartment REIT
CAR.UN offers options with a Strike of 44 CAD in September or as LEAP with Strike 44 CAD in June 2026 which, despite the currently quite low Volatility (VIX) and the increased spread still offer halfway reasonable premiums.
Conclusion
Canadian residential REITs offer an interesting setup in the current market phase, namely stable cash flows, predominantly high NAV discounts, monthly dividends and increasingly better financing conditions due to falling interest rates. CAPREIT, Killam, Minto and Northview represent different regions and focuses, but they have one thing in common, namely an attractive risk/reward ratio.
InterRent, which was recently acquired, was another example of how undervalued REITs are becoming a target for institutional buyers. The sector therefore remains exciting for both income investors and counter-cyclical investors.
