Real Estate Investment Trusts – or REITs for short – can be a fantastic source of returns, security, and growth for dividend investors. For example, Choice Properties Real Estate Investment Trust (PPRQF) has a dividend yield of 5%.

Choice Properties also pays off per month, which is rare in a world where the vast majority of dividend stocks pay quarterly.

We currently only cover 53 monthly dividend stocks. You can view our full list of monthly dividend stocks (along with price-to-earnings ratios, dividend yields, and payout ratios) by clicking the link below:

Choice Properties’ high dividend yield and monthly dividend payments make it a fascinating stock for dividend investors, even if dividend payments have stagnated in recent years.

This article analyzes Choice Properties’ investment prospects.

Business overview

Choice Properties is a Canadian REIT with concentrated activities in many of Canada’s largest markets. Because of its size and size, and the fact that its business is solely Canadian, it is one of Canada’s leading REITs. The trust has put a lot of money into the Canadian real estate market, and so far the strategy has worked.

The Company has a highQuality real ittate portfolio of over 700 Properties that matter over 6th0 Million square meters gross rentable area (GLA).

Source: Investor Presentation

Features include Sale, Iindustrial, officee, multifamily, and development financial assets. over 500 of Choice Properties’ investments are in their largest tenant, Canada largest retailer, Loblaw.

From an investment perspective, Choice Properties has some interesting properties, not least the return on investment. However, there is also an unusual dependency on a tenant, a lack of diversification, which we find a bit annoying.

While grocery stores are generally quite stable, this focus on one tenant is very rare. This lack of diversification is an important consideration for investors considering Choice Properties.

While it would be preferable for the company to diversify in order to fix its focus, it is a slow process. Since the tenant it so depends on is generally stable, we don’t necessarily see much of a risk due to the difficulties in the industry. However, this focus on one tenant is extremely unusual for a REIT and worth mentioning.

Growth prospects

Choice Properties has struggled with growth since it went public in 2013. Since late 2014, the trust’s first full year of operations as a publicly traded company, it has increased adjusted funds-from-operations per share at a rate of only ~ 1%. per year.

The trust has grown steadily in terms of portfolio size and turnover, but relatively high operating costs and dilution from stock issuance have contained returns for shareholders. History has shown that Choice Properties can have strong growth traits on a US dollar basis, but once converted to one share per share, investors lagged.

The fighting continued in 2021. On April 29th, Choice Properties released its first quarter results. Funds from Operations were $ 0.236 per diluted unit compared to $ 0.244 per diluted unit year over year. This was primarily due to an adverse change of $ 603.7 million in the fair value adjustment of the Exchangeable Units, the Trust had a net loss of $ 62.2 million.

The trust collected 98% of rents in the first quarter. Meanwhile, the company completed $ 163.4 million in acquisitions and $ 88.9 million on a proportionate basis in the first quarter.

We anticipate that Choice Properties will continue to grow very slightly at a rate of 3% per year for the next five years. The concentration of the fund portfolio and the constant dilution make Choice Properties unattractive from a growth perspective. When you factor in constant stock issuance, the outlook becomes even less attractive.

Dividend analysis

For all of its growth problems, Choice Properties’ dividend seems safe for now. The expected payout ratio for 2021 is 78%. While that’s high, it’s also true that REITs generally pay out almost all of their income, so it’s hardly uncommon for Choice’s payout ratio to be close to 80%.

The current distribution from Choice Properties gives the stock a yield of 5%, which is an attractive dividend yield.

Note: As a Canadian stock, US investors who invest in the company outside of a retirement account will be charged a 15% dividend tax. Check out our guide to Canadian taxes for US investors here.

Investors shouldn’t expect Choice Properties to be a dividend growth stock as the payout has been flat since May 2017. Given the high payout ratio and subdued FFO-per-share growth, investors shouldn’t expect the payout to wind up anytime soon.

Choice Properties has not cut its distribution and we do not see any imminent threat to it at this time. It’s worth noting, however, that due to its high payout ratio, the trust will likely have to cut its payout if the FFO per share deteriorates significantly in the future.

This is particularly true because we consider Choice Properties to have limited borrowing capacity given its already high level of debt. Choice Properties has a debt-to-EBITDA of 7.6X, which the company says is below industry peers but is still alarmingly high.

In addition, large amounts of debt will gradually fall due in the coming years, so that we now see the trust’s debt financing as almost exhausted. Choice has consistent debt maturities for the years to come, and while they are scattered, the amounts are sizeable. Choice has no way of paying these off when due, so refinancing seems like the only viable option.

Should there be a decline in earnings, Choice Properties would have to resort to more dilution for additional capital. Even if we don’t see a dividend cut in the near future, the combination of a lack of adjusted FFO per share growth, the high payout ratio and high debt seems risky.

Final thoughts

Choice Properties is a high-dividend stock, and its monthly dividend payments make it stand out for income investors. However, a number of factors make us cautious about Choice Properties today, such as the lack of diversification within the property portfolio and the alarmingly high level of debt.

With a somewhat risky dividend, we think the stock is unattractive for risk-averse investors. Investors looking for a REIT with monthly dividends have better choices with more favorable growth prospects, higher yields, and safer dividends.


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