Canadian Real Estate Investment Trusts

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The concept of Real Estate Investment Trusts (REITs) began in the United States, and covered companies that owned and managed real estate (equity REITs) and those that financed it in various ways (mortgage REITs).

Canada picked up on the ideas, but there they are not corporations, but mutual fund trusts akin to other Canadian income trusts. And owning and managing real estate is their main source of income. Unlike US REITs, they don't much engage in the development of real estate.

The first REIT listed on a Canadian stock exchange was Canadian Real Estate Trust which began on the Toronto Stock Exchange in September 1993.

Canadian real estate trusts are flow through entities (FTEs). The trust pays no taxes as long as they pay out at least 90% of net profits to the unitholders. These people then are responsible for paying their individual taxes to Canada's equivalent of the IRS -- Canada Revenue Authority (CRA).

This is through the Canadian Income Tax Act.

Unlike with corporations, therefore, there is no double taxation of net revenue. This should be quite an attractive situation to investors.

Standard & Poor’s announced that it would add income trusts to its Canadian indices.

Since one form of real estate expense is depreciation, some of the money sent to unit holders is considered return of capital. Return of capital is not taxed, because it's return of capital NOT income.

(That's because depreciation is not a cash expense. It's just assumed that a given building is worth 10% less than it was last year because of wear and tear. It increases net income, and therefore increases the amount of dividends payable to the trust's unitholders.)

(In Canada, this form of depreciation is known as Capital Cost Allowance (CCA).)

However, it lowers the unit holder's cost basis in the unit. That means that they'll pay higher taxes if they ever sell it.

On October 31, 2006 the Canadian government announced -- just after an election in which it promised to keep Canadian trust funds tax free -- that beginning in 2011 Canadian trust funds would be taxable.

This is known as the SIFT (Specified Investment Flow-Through) legislation. However, some Canadian REITs may have trouble meeting this exemption due to the nature of their assets. This is one troubling issue to Canadian real estate investment trusts.

Canadian Real Estate Investment Trusts Will Continue to Operate in 2011 and Beyond

However, this does not apply to Canadian real estate trusts, so they will remain tax-free in 2011 and beyond.

Canadian REITs fall into these categories --

Diversified

Hotel

Mortgage

Retirement

Industrial

Office

Residential

Retail

Canadian REITS Include:

Allied Properties -- Class 1 office buildings
Artis REIT -- concentrates on commercial real estate that's in Western Canada
BTB REIT -- focuses only on property east of Ottawa in Canada
Boardwalk -- residential apartment buildings
Calloway -- shopping centers anchored by a Wal-Mart
Canadian Apartment Properties -- multi-unit apartment buildings
Canadian REIT -- oldest real estate investment trust in Canada
Chartwell Seniors Housing -- long term care facilities for senior citizens
Cominar -- largest landlord in Quebec and Ottawa
Crombie -- largest landlord in Eastern Canada
Dundee -- largest owner of retail, office and industrial properties
Extendicare -- nursing homes in the United States and Canada
H&R REIT -- commercial properties in Canada
Holloway Lodging -- hotels under various brands
Huntingdon -- variety of commercial properties around Canada
InnVest -- owns Canada's largest portfolio of hotels
InterRent -- many apartment buildings in Southern Ontario
Lakeview -- chain of hotels in Canada
Lanesborough -- retail, office and industrial properties
Morguard -- Canada's largest integrated REIT of commercial properties
Northern -- apartment buildings in Northern Canada
Primaris -- mid-market and dominant shopping centers
Public Storage Canadian Properties -- owns many of Public Storage facilities in Canada
Retrocom -- owns mid-level commercial real estate properties
RioCan -- largest owner of commercial real estate trust in Canada
Royal Host -- owns hotels and resorts across Canada
Scott’s REIT -- leading operator and owner of small box retail properties
Temple Real Estate Investment Trust -- acquiring and managing hotels across Canada
Whiterock -- mid-market commercial retail, office and industrial properties in select locations across Canada
Firm Capital Mortgage -- Canada's only financing real estate investment trust
CANMARC REIT -- owns many different kinds of property all around Canada
Leisureworld Senior Care -- many long term care facilities for the elderly in Ontario
Northwest Healthcare Properties -- many healthcare facilities throughout Canada
TransGlobe Apartment -- owns a large number of apartment buildings in urban areas of Canada

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