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ritten by Tony Dong, MSc, CETF at The Motley Fool Canada

    Canadian real estate stocks, particularly REITs, have been struggling lately. Initially, they saw a recovery as interest rates stabilized, but this momentum has reversed due to falling property values and the federal government's decision to scale back immigration targets, reducing demand for housing and commercial spaces.

    I'm not recommending Allied Properties REIT (TSX:AP.UN) or SmartCentres REIT (TSX:SRU.UN), despite their potential positives. Here's why:

    Allied's office properties in urban Toronto are highly sensitive to the economy, making it a suboptimal choice. While its price-to-AFFO ratio is low at 8.4 and yield is high at 10.57%, these metrics are largely driven by the stock's decline. Allied's occupancy rate of 87.2% is concerning, especially considering the return-to-office trend has been sluggish. AFFO per share has dropped 6.4% over the past year, raising questions about the REIT's ability to generate cash flow.

    SmartCentres REIT seems appealing at first glance, with a dominant anchor tenant in Walmart and a strong occupancy rate of 98.3%. However, its high payout ratio of 89.8% and debt-to-assets ratio of 42.2% are concerning. While it trades below the sector average valuation, I'm not convinced that this REIT is the best choice for investors looking to play the real estate market.