If you have been following Moose Markets, you are probably already fairly familiar with Real Estate Investment Trusts or REITS. REITs are companies primarily engaged in Real Estate and source most of their income from rents. To qualify as REITS (tax purposes) they need to distribute more than 90% of their net income to shareholders. This amongst other factors makes REITs a great option for income seekers looking for stable and decent dividends. At DSR we track 47 Canadian REITS! From that list, today we will be covering some of the higher-yielding companies (over 5% dividend yield). Although this might sound very appetizing make sure you do your due diligence because high yield is not always the same thing as high quality.
- Make sure you find a healthy dividend growth rate in the last few years (at least 5 years). If the company is increasing dividends at a rate lower than inflation, it means every single year you are getting a smaller paycheck.
- Some of these higher-yielding companies could also be dividend traps just looking to attract investors and their dividend is not sustainable, that is why you need to make sure you take a close look at the payout ratio (remember with REITs you use funds from operations (FFO) and not net income).
- Last but not least take a look at their track history, have they cut dividends in economic downturns? If they have how fast did they recover? This could give you an idea of what to expect next time things get rough for these companies.
BTB REIT (BTB.UN.TO)
Market Cap: $302M
Dividend Yield: 7.4%
Subsector: Diversified (Retail, Office, and Industrial)
BTB REIT owns approximately 66 retail, office, and industrial properties located in primary markets of the provinces of Quebec and Eastern Ontario. The company is diversified in three different Real Estate asset classes: Retail, Office, and Industrial. The trust has over 5.6 million square feet of leasable area. BTB’s asset value is approximately $962M. The REIT has impressive names as tenants in its portfolio, such as federal and provincial agencies and Provigo. BTB also offers services property services, which include maintenance and janitor services, elevators, heating, ventilation, air conditioning (HVAC), security, and management. BTB has a strong executive team, with a breadth of experience in all asset classes they operate. In addition, management has well-established relationships with property owners in geographical markets in Ontario and Quebec. These relationships have allowed the REIT to identify and complete acquisitions, through off-market transactions with little or no competition which are usually completed at a favorable valuation. The current geographic focus allows BTB to concentrate on sourcing new acquisitions in a well-defined and targeted geographical area. Due to BTB’s large exposure to Office and Retail, the company has struggled to recover after the pandemic, and the variants have not been helping. The REIT is now ready to move forward with its growth plan, including the recent acquisition of industrial property of more than 99,000 sq.ft. located at 6000 Kieran Street in Montréal. The REIT had to cut its dividend in 2020 and now shows a 5-year dividend CAGR of -4.15%.
Slate Grocery REIT (SGR.UN.TO)
Market Cap: $894M
Dividend Yield: 7.2%
Subsector: Retail (Grocery)
The REIT’s portfolio consists of approximately $1.9B of real estate assets across Canada and includes two assets in downtown Chicago, Illinois. The REIT’s 61% portfolio is comprised of government or credit-rated tenants. Slate entered this sector after the financial crisis, seeing an opportunity to acquire well-performing real estate with high-quality tenants at depressed valuations. Even though the retail asset class was adversely impacted during the pandemic, Slate operates in a specific class within retail. Even in a weaker economy and high competition from e-commerce, customers will continue to rely on neighborhood shopping centers for daily needs. The company focuses on acquiring properties selling for significantly less than replacement cost and peak value. Once the REIT owns the centers, they find ways to improve lease terms and drive occupancy, which in the end translates to higher rents. Slates Grocery’s top 5 tenants (representing approximately 25% of rents) are high quality and include Kroger, Walmart, Ahold Delhaize, Albertsons, and Publix. The REIT shows a 5-year dividend CAGR of 3.75%.
Smart REIT (BTB.UN.TO)
Market Cap: $4B
Dividend Yield: 6.0%
Subsector: Diversified (Retail, Multifamily, Office, and Self-Storage)
SmartCentres have been around for several decades in the Canadian community and is one of the largest fully integrated REITs. The Trust develops, leases, constructs, owns, and manages shopping centers, office buildings, high-rise and low-rise condominium and rental residences, seniors’ housing, townhouse units, and self-storage rental facilities in Canada. SmartCentres has approximately $10.2 billion in assets and owns 33.9 million square feet of income-producing value-oriented retail space with 97.6% occupancy, on 3,500 acres of owned land across Canada. The Company’s subsidiaries include Smart Limited Partnership, Smart Limited Partnership II, Smart Limited Partnership III, Smart Limited Partnership IV, Smart Oshawa South Limited Partnership, Smart Oshawa Taunton Limited Partnership, Smart Boxgrove Limited Partnership, ONR Limited Partnership and ONR Limited Partnership I. The REIT’s current major development -Project 512- is a $14.5B intensification program, consisting of rental apartments, condos, seniors’ residences, and hotels. The Project 512 is expected to start construction within the next five years and is expected to produce an additional 58.3 million sq. ft. of space. The new project is to be developed under the SmartCenters banner. SRU pays a monthly dividend and has successfully increased its distribution yearly since 2015. Unfortunately, they skipped the 2020 increase due to the pandemic. The REIT shows a 5-year dividend CAGR of 2.8%.
Truth about REITs
As you can tell, finding the perfect REITs for your portfolio is not an easy task. Especially when looking for high yield REITs, there are a lot of factors that you need to consider in order to be able to sleep well at night. You want to add to your portfolio a stable business with enough growth to at least beat inflation. If you get down to the weeds, looking at the actual portfolio and its growth might be a good resource to look into the future. At DSR we give you the tools to make sure you put your money to work with stable and growing companies so you can enjoy your passive income on the things that matter most!