Canadian Real Estate 1H25 Review
Canadian REITs were a safe haven in the first half of 2025 with a total return of +8.2% after a decline of only -6.7% when US tariff fears peaked in April. US-dollar based investors earned an additional +5.9% through Canadian dollar appreciation. US REITs’ total return was only +2.8% in 1H25, and negative for international investors due to the declining US dollar.
Dream Residential was the top performer with a +55% return as the REIT began a review of strategic options to reduce the NAV discount
Interrent was +35% as Chairman Mike McGahan launched a buyout offer
Ravelin was -35% as an anticipated recapitalization plan will result in high equity dilution. Until the plan is finalized investors have no idea what they are buying here.
Themes
Articles this year have grouped management comments around major industry challenges:
Tariffs & Trump: REITs have seen very limited impact so far, but uncertainty has delayed tenant decisions, especially for Industrial property. Excerpts from 1Q25 conference calls and 4Q24 conference calls.
Immigration & Population: REIT managements are hopeful for easing of restrictions. Excerpts from 1Q25 conference calls and 4Q24 conference calls
Hudson’s Bay: REITs have very limited exposure and will benefit from releasing of vacant spaces at higher rates. Excerpts from 1Q25 conference calls
Key Ideas
H&R disclosed that a board special committee has been reviewing strategic alternatives since receiving unsolicited buyer interest in February (see 7/9 article for additional detail and commentary) The ytd unit total return is +35% as of 7/11.
Dream Office surpassed its deleveraging and leasing goals, but Artis REIT abruptly stopped adding to its 21% stake and has taken no apparent initiatives to force value realization. The ytd unit total return is -5% as of 7/11.
Retail REITs delivered strong operating results with vacancy rates at long-term lows. YTD unit returns as of 6/30 were temporarily depressed at Primaris and Riocan due to Hudson’s Bay concerns. All others ranged from +9% to +15%.
Dream Industrial dropped in April due to tariff fears and sale of a block by Dream Office. DIR has multiple initiatives to build value over the next year.
Sector Overview
The yield premium of cap rates over 10-year bond yields is near the middle of its historical range. Cap rates are less volatile than bonds - the spread tightens when bond yields rise and expands when bond yields fall.
REIT bond yield spreads continued to improve in 1H25 with spreads for many issuers 150bp below 12/31/23 levels. REITs with access to the unsecured public debt market can refinance on reasonable terms and invest with a positive return on their leverage.
Insiders at 22 of 34 REITs have been buyers since 12/31/24 (to 6/30), however buying dropped sharply since April. 3 REITs had small net insider sales. REITs repurchased $649mm of units in 1H25 with the largest buybacks at Interrent (4.2% of market cap), Primaris (3.8%), Minto (3.7%), Artis (3.6%), and Granite (3.3%).
The sector remains attractive with many companies able to provide favorable returns through ownership of quality properties and organic growth strategies. However, the drop in insider activity suggests that investors can be patient and reserve some capital to take advantage of bargains that are periodically created by macro news such as the tariff driven drop in Industrial and the HBC driven drop in Retail. Markets are now priced for Trump to Always Chicken Out, but he always starts a new conflict too.
Topics
Office Section with comments on Allied Properties and Dream Office
Retail Section with comments on Primaris
Multifamily Section with comments on the values implied by the Interrent buyout
Industrial Section with comments on Dream Industrial
Diversified Section with comments on H&R, Artis, and Morguard
REOCs with comments on Dream Unlimited