Canada’s real estate investment trust sector is showing a split personality this fall, with retail and diversified landlords refinancing debt and posting steady returns even as office and residential-focused trusts contend with falling unit prices, distribution pressure and a market still adjusting to years of higher borrowing costs.
The divergence was on display this month as Choice Properties Real Estate Investment Trust (TSX:CHP.UN) closed a $300 million private placement of senior unsecured debentures carrying a 4.836% coupon and maturing in 2033. The trust said it plans to use the proceeds, along with other resources, to repay $350 million of debentures due in November 2026. Choice Properties, which holds mainly retail and industrial assets across Canada and booked $1.46 billion in revenue, was trading at CA$14.96 per unit following the announcement. Its one-year total shareholder return stood at 6.75% and its five-year total return at 35.57%, even as its 90-day unit price declined 8%, according to Simply Wall St.
Refinancing and Valuation in Focus
Analysis from Simply Wall St pointed to a price-to-sales ratio of 3.4x for Choice Properties, well below the North American retail REIT industry average of 6.3x and a peer average of 5.4x, with an estimated fair multiple of 8.5x. The trust’s revenue is forecast to grow 15.8% annually, and a discounted cash flow model cited in the analysis put fair value at CA$21.30 per unit against the CA$14.96 trading price — a gap the report said reflects market caution around funding costs and the health of Canadian retail tenants rather than a straightforward bargain.
Other diversified and grocery-anchored landlords have drawn similar attention to portfolio resilience. Crombie Real Estate Investment Trust (TSX:CRR.UN) was reported by Kalkine to be gaining investor confidence tied to the strength of its portfolio and broader stability in its property holdings, part of a pattern in which retail-anchored REITs have fared better than segments more exposed to financing and leasing headwinds.
Office and Residential Segments Under Strain
Not every corner of the market has benefited. Allied Properties REIT (TSX:AP.UN) saw its units drop 4.06% amid what Kalkine described as continued office-market pressure, earnings concerns and risk to its distribution — underscoring how office landlords remain the most exposed to hybrid-work trends and softer leasing demand years after the pandemic reshaped downtown commercial real estate.
Residential landlords are facing their own adjustment. Aurelio Baglione, CEO of Virtus Group of Companies, told BNN Bloomberg that apartment rents have pulled back in some markets and that new rental projects are taking longer to lease than in the past. He said the multi-unit residential segment has felt the greatest impact from higher borrowing costs across his industry, even as retail — the strongest part of his own portfolio — has shown no impact from tariffs. Baglione noted federally insured mortgages through CMHC can still make some residential developments viable at interest rates he said remain below four per cent, but said properties acquired at capitalization rates around four and a half per cent, once considered premium “trophy” assets, are now difficult to make profitable. He said this dynamic has pushed a number of REITs in that space to cut distributions, cut redemptions, or absorb a negative hit to net asset value.
Dividend sustainability is also a live question for smaller, more leveraged trusts. Kalkine highlighted PRO REIT’s 6.24% dividend yield as a test case for whether payouts can hold up amid Canada’s shifting property market, a question that echoes broader concerns Baglione raised about distribution cuts across the sector.
Where Investors See Opportunity
Baglione said the changing conditions are also creating openings for buyers. He said owners of infill or development projects that have become difficult to sell are increasingly being forced to offload other assets, such as apartment buildings or commercial plazas, to raise cash — producing more supply of sellable properties than he has seen in recent years. He said his own REIT targets a seven per cent distribution rate plus three to four per cent built in annually from mortgage principal reduction, and that he avoids acquisitions that cannot yield that combination from the outset.
On newer property niches, Baglione was cautious about data centre REITs, saying the space is growing but that it remains unclear which operators will emerge as long-term winners a decade from now, comparing the enthusiasm to past waves of narrowly focused property trusts that have come and gone. Taken together, the recent moves across Choice Properties, Allied Properties, Crombie and PRO REIT illustrate a sector where refinancing activity, tenant mix and exposure to office or residential fundamentals are driving sharply different outcomes for unit prices and payouts.
Snapshot of Recent Canadian REIT Metrics
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