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Those seeking to avoid exposure to market meltdowns by investing in trade volatility for scrutiny.Kevin Van Paassen/The Globe and Mail

Investors in real estate investment trusts had little to complain about in 2012, with the sector boasting returns of 16 per cent – more than double the broader returns of the TSX.

But after four consecutive years of outperforming, is it time for investors to take profits?

RBC Dominion Securities doesn't think so. But it also believes investors won't be treated to quite those heady returns again as earnings growth begins to lighten up. It forecasts total returns from Canadian REITs of 10 per cent this year, with several trusts likely to continue to increase distributions.

Valuations may seem lofty, at about 18 times AFFO (adjusted funds from operations, a key ratio for REITs that measures a real estate company's available funds generated by operations). That's only about eight per cent from the all-time high. But RBC analysts, led by Neil Downey and Michael Markidis, contend the valuations aren't anything to be alarmed about given property values and credit conditions.

That said, RBC warns the operating and acquisition environment is unlikely to get any easier for REITs over the next several years. So it's important for investors to focus on quality at a reasonable price, putting the onus on them to seek out REITs with the best prospects.

Specifically, Mr. Downey and Mr. Markidis suggest investors seek out names that have have "institutional quality" property portfolios, longer-term track records, a well-defined investment strategy and lower financial leverage and payout ratios.

Among 30 TSX-listed REITs that RBC covers, it likes these eight the best. All have "outperform" ratings:

Allied Properties REIT (Price target $36)

Calloway REIT (Price target $33)

Canadian Apartment Properties REIT (Price target $27)

Canadian REIT (Price target $47)

Dundee REIT (Price target $43)

Granite REIT (Price target $41)

H&R REIT (Price target $27)

Morguard REIT (Price target $20)