Canada’s largest REIT boasts an attractive mix of retail, industrial, office and residential tenants, which supports its solid distributions for investors.
Those payments look secure during the current COVID-19 outbreak and beyond as the REIT continues to advance its long-term strategy to add value for investors.
CHOICE PROPERTIES REIT (Toronto symbol CHP.UN; www.choicereit.ca), Canada’s biggest REIT, creates value for investors through its 724 properties with a total of 65.6 million square feet of retail, industrial, office and residential space. Its occupancy rate is a high 97.5%. George Weston Ltd. (Toronto symbol WN) owns 62.9% of the trust.
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Choice last raised your monthly distribution in May 2017 by 4.2%. Investors now receive $0.0617 a unit instead of $0.0592. The new annual rate of $0.74 yields a high 6.1%.
Over the past five years, Choice’s revenue rose 73.6%, from $743 million in 2015 to $1.29 billion in 2019 (fiscal years end December 31). The higher revenue was due to its acquisition of Canadian Real Estate Investment Trust (CREIT) in May 2018. Choice paid $3.7 billion for CREIT, consisting of $1.65 billion in cash and 182.8 million in units.
Investors saw cash flow gain 87.8%, from $312.9 million in 2015 to $587.7 million in 2019. Due to the extra units outstanding, per-unit earnings rose at a slower rate of 10.4%, from $0.77 to $0.85.
Value Stocks: COVID-19 shouldn’t disrupt the business model and future plans
Many businesses have had to temporarily shut down due to the COVID-19 pandemic. Choice is now helping affected tenants on a case by case basis. For those that qualify, it will temporarily defer rental payments for 60 days.
Despite the COVID-19 disruption, overall revenue in the quarter ended March 31, 2020, rose 0.6%, to $324.9 million from $323.0 million a year earlier. However, due to higher spending on its properties, cash flow per unit declined 6.1%, to $0.217 from $0.231.
The REIT recently sold 30 of its properties (27 standalone retail centres and 3 distribution facilities) for a total of $426.3 million. All of the locations are in smaller towns.
Choice used that cash to add investor value by lowering its debt, which totaled $6.3 billion, or a high 74% of its market cap, on March 31, 2020.
However, high debt levels are common for REITs, reflecting mortgage loans secured by real estate. Steady rental income from its properties also helps Choice service its loans. The REIT ended the most-recent quarter with cash of $79.6 million.
To further build value for investors, Choice still plans to spend $1.1 billion on new projects over the next few years. It’s also increasing the density of units at 27 of its retail properties. The enhanced cash flow from those projects will enhance Choice’s already strong outlook.
It’s interesting to look at the breakdown of components that make up a REIT’s dividend, but generally REITs must payout at least 90% of their net earnings to as dividends. Thanks.
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I don’t trust REITs. Too much of the “return” is your own money coming back to you. Am I wrong?
It’s interesting to look at the breakdown of components that make up a REIT’s dividend, but generally REITs must payout at least 90% of their net earnings to as dividends. Thanks.