Real estate investment trusts (REITs) resemble income trusts, but with a key difference: REITs invest in income-producing real estate, such as office buildings and hotels.

High-quality real estate investment trusts can make attractive, lower-risk additions to your portfolio. Even so, we continue to advise against overindulging in REITs.

But if you’re thinking of investing in some of Canada’s top REITs, here are 2 reasons why now is a great time to do so:

1. REITs can provide high, steady income: Top-quality REITs continue to have high occupancy rates and rising lease rates. That generates steady cash flow that helps them maintain—or increase—their distributions to unitholders.
   
   The best REITs also have good management and balance sheets strong enough to weather an economic downturn. They also have high-quality tenants, and they carefully match their debt obligations with income from their leases. The best ones are still doing well, despite the weak economy, and are taking advantage of low interest rates to refinance long-term mortgages.
2. Most REITs are exempt from the new tax on income-trust distributions: This new tax, which came into effect on January 1, 2011, has put income trusts on an equal tax footing with regular corporations. Many trusts have already converted to corporations in response, or plan to do so. Others will continue to operate as trusts.
   
   However, Ottawa feels the income-trust business structure is appropriate for REITs, so it has exempted REITs from the new income-trust tax. That’s great news for Canadian income seekers, at a time when Canadian stocks generally offer much lower yields.

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Real estate investment trusts: RioCan is exempt from the new income-trust tax

RioCan Real Estate Investment Trust (Toronto symbol REI.UN) is one of the REITs that is exempt from the new income-trust tax. The trust’s units yield a high 5.5%.

RioCan is Canada’s largest REIT. It operates or invests in 302 retail properties across Canada, mainly outdoor shopping malls. It also owns 31 malls in the U.S. through joint ventures, including its partnership with Cedar Shopping Centers Inc. (New York symbol CDR). RioCan owns 80% of the joint venture with Cedar, and 14% of Cedar itself.

RioCan has been growing rapidly over the last few years, mainly through acquisitions. That’s a risk factor. In light of RioCan’s recent purchases, we updated our buy/sell/hold advice on the REIT in the April 7, 2011 Successful Investor Email/Telephone Hotline.

This REIT’s aggressive growth strategy adds potential—and risk

In 2010, RioCan acquired 19 properties in Canada and 29 in the U.S. for a total of $986 million. In the first quarter of 2011, the trust spent $91.9 million on acquisitions in Canada. The trust has also agreed to buy two more properties in Canada for $41 million, plus four U.S. properties for $95 million U.S. It expects to complete these purchases in the second quarter of 2011.

These are big purchases for RioCan, which earned $303.0 million, or $1.23 a unit, in 2010.

In our April 7, 2011, Email/Telephone Hotline (which you can access when you become a subscriber to The Successful Investor), we’ve taken a close look at RioCan, and updated our buy/sell/hold advice on the trust, based on its latest purchases (and the risks of growing by acquisition) and the outlook for the retailers that are its anchor tenants.

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