The sudden reemergence of US-China trade tensions jolted global markets on 10/10. Despite the fresh anxiety, the day’s drop left indices only slightly below all-time highs (Canadian REITs -3.5%, US REITs -3.5%, TSX Composite -2.1%, S&P500 -3.0%). This is not yet a dip that with any meaningful impact on valuations, but it will be helpful to review where opportunities may emerge if markets become volatile.
Canadian REITs have been a safe haven in 2025 with a total return of +10.2% (XRE to 10/10) after a decline of only -6.7% when US tariff fears peaked in April. US-dollar based investors earned an additional +2/.7% through Canadian dollar appreciation. US REITs’ total return was only +2.2% in 2025, and negative for international investors due to the declining US dollar.
Sector Overview
The yield premium of cap rates over 10-year bond yields is near the middle of its historical range. The drop in GOC bond yields (-44bp from July peak and -26bp since 9/2) increases the investor appeal of REIT equities and also improves REIT cash flows by lowering borrowing costs. If the lower yields were attributable to significant economic slowdown then occupancy and rents might suffer, however Canada’s September labor survey showed showed surprisingly large employment gains.
REIT bond yield spreads continued to improve. Unsecured REIT debt issues are nearly all trading at yields under 5% and many are below 3.5%. Quality issuers can refinance on reasonable terms and invest with a positive return on their leverage.
Insiders at 25 of 37 REIT/REOCs have been buyers since 12/31/24 (to 10/10), however buying dropped sharply since April. 4 Issuers had net insider sales. REIT/REOCs have repurchased $762mm of equity ytd (reported to 10/10) with the largest buybacks at Artis (6.1% of market cap), Minto (4.6%), Primaris (4.6%), and Interrent (4.3% of market cap). Some REITs that were aggressive buyers in 1H25 reported no buybacks in September (Riocan, CAPREIT, Granite, and Minto).
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 and repurchase activity suggests that investors can be patient and reserve some capital to take advantage of bargains that are periodically created by macro news.
Topics
Valuation Comparison
Trade Ideas (Artis, H&R, Dream Unlimited, Dream Office, Allied Properties, Morguard REIT, Multifamily)