Top 5 Picks For 2025 - Part 5 (Incl. Trade Alert)

Dear Landlords,

I want to extend a warm welcome to all our new members! We recommend that you start by reading our Welcome Letter by clicking here. It explains why we invest in real estate through REITs and how to get started.  

As a reminder, our most recent "Portfolio Review" was shared with the members of High Yield Landlord on November 6th, 2024, and you can read it by clicking here.

You can also access our three portfolios via Google Sheets by clicking here.

New members can start researching positions marked as Strong Buy and Buy while taking into account the corresponding risk ratings.

If you have any questions or need assistance, please let us know.

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Top 5 Picks For 2025 - Part 5 (Incl. Trade Alert)

I think that the Canadian REIT market is particularly attractive right now because of three key reasons: 

Reason #1: Lower Interest Rates

Firstly, their central bank has been a lot more aggressive than the Fed at cutting interest rates. It has already cut rates four times compared to just two times for the Fed. It cut interest rates by 25 basis points in June, July, and September, and just recently, it cut it by another 50 basis point, bringing interest rates down to 3.75%. In comparison, interest rates are still at 4.5% in the US. 

Reason #2: Lower Valuations

Despite the lower interest rates, many Canadian REITs are today a lot cheaper than their US counterparts. They didn't recover as much in the recent REIT market rally, which is especially surprising given that they have enjoyed greater cuts to interest rates. 

We think that this is because Canadian REIT investors are typically a lot more passive than US REIT investors. A greater share of them are retail investors and they mostly care about income. As a result, they are much slower to respond to shifts in the macro environment and this has recently caused many Canadian REITs to become undervalued relative to their US peers. 

Reason #3: Better Growth Prospects 

REITs can grow internally or externally.

Internal growth is what you achieve organically by hiking rents, growing your occupancy rate, reinvesting retained cash flow, etc. External growth is when you raise new capital to buy additional properties at a positive spread. 

From both perspective, Canadian REITs are often superior to US REITs. 

Many of them enjoy faster internal growth prospects because of more favorable supply and demand dynamics. 

Canada's population is growing at such a rapid pace that some researchers estimate that it could more than double within this century: 

Moreover, the population growth is even faster in large urban centers like Toronto and Vancouver, but it is very difficult to build new supply in those markets. 

Most land is already built out, zoning regulations are tighter in Canada, and the cost to build is excessively high following the recent surge in inflation. This strong supply / demand environment positions Canadian REITs for strong organic growth over the coming decade. 

But many Canadian REITs are also in a great position to grow externally.

Interest rates are lower, and yet, cap rates are at about the same level, resulting in larger spreads. Moreover, there are fewer REITs competing for acquisitions in Canada, often resulting in better investment opportunities. 

The bottom line is that Canadian REITs are historically attractive relative to other REIT markets at the moment. 

They offer good value for investors and we expect to add more capital to a number of them in the coming months. 

We currently own 5 Canadian REITs at High Yield Landlord and we think that each of them are attractive for unique reasons: