Canadian REITs with Atlantic Exposure Poised to Gain from Defence Spending Boom, RBC Says

A significant increase in Canadian defence spending is poised to create a multi-year tailwind for real estate investment trusts with a strong presence in Atlantic Canada, according to a new research note from RBC Capital Markets. Analysts see the government's spending plans driving substantial job and population growth in the region, directly benefiting rental and industrial property demand.

Defence Spending to Fuel Regional Growth

Ottawa's plan to boost defence spending to 5% of GDP over the next decade implies an estimated C$122 billion in annual expenditures, RBC noted. A substantial portion of this investment is directed toward Nova Scotia, which is home to approximately 20% of Canada's military infrastructure.

Major initiatives are already underway, including the C$60 billion to C$100 billion River-Class destroyer program and a potential submarine program valued at up to C$80 billion. This has spurred defence-related hiring, with companies like Lockheed Martin adding hundreds of skilled jobs in the area.

REITs Positioned to Benefit

RBC identified two REITs as being particularly well-positioned to capitalize on this regional economic expansion. The brokerage maintained Outperform ratings on both.

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• Killam Apartment REIT (KMP.U): With 59% of its portfolio in Atlantic Canada and 33% in Nova Scotia, Killam is a direct beneficiary of rising housing demand. RBC has a C$22 price target on the REIT, citing strong Halifax occupancy of 98% in July and August and a significant 17% rent mark-to-market potential.
• PRO Real Estate Investment Trust (PRV.U): PRO REIT has 40% of its portfolio in the region and 27% in Nova Scotia. RBC's C$7.50 price target is supported by the upside in its Burnside industrial portfolio, which has a 17% gap between in-place and market rents. The portfolio's 93.5% occupancy rate is also a positive indicator.

Market Outlook and Potential Risks

The key catalysts highlighted by RBC are defence-driven employment, sustained rental growth, and tightening industrial markets, further bolstered by projects like Amazon's 1.2 million-square-foot fulfillment centre in Burnside. However, analysts also pointed to potential risks for investors to monitor.

These include a significant pipeline of new apartment supply, with about 14,000 units scheduled for completion in Halifax between 2026 and 2029. Broader economic challenges like labour shortages and the higher leverage on PRO REIT's balance sheet were also cited as factors to consider.