SmartCentres REIT is one of the largest fully integrated REITs in Canada. It deals with the acquisition, development, leasing, management and construction of real estate. The REIT currently has 3,400 tenants and 33.8 million square feet of rental space across Canada.

SmartCentres has a longstanding reputation for consistent performance, making it one of Canada’s leading real estate investment trusts. Over the years, SmartCentres has developed a strong focus on retail development and operations. The know-how has been expanded to include a variety of urban, mixed-use, residential and industrial developments in its portfolio. It owns and manages interests in shopping centers, rental housing, retirement homes, office buildings and self-storage facilities.

Located in prime locations in or near most of Canada’s fastest growing communities, these properties have high traffic and high visibility. More than 70% of its portfolio are Walmart-anchored shopping centers.

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Investment data

Sales growth and market exposure

SmartCentres REIT has a strong and diversified portfolio of 167 properties across Canada, ranging from shopping to downtown, valued at $ 10.7 billion on 34.1 million square feet. Total assets have grown by ~ 29% CAGR since 2002. The REIT portfolio has an average occupancy rate of 97.3% and an average age of 15 years.

SmartCentres asset growth
Source: Investor Presentation

SmartCentres’ real estate portfolio features stable retail income, long leases and a high quality tenant base made up of leading retail companies such as Walmart, Canadian Tire, Home Depot, Costco, Rona and Loblaws, Dollar Tree, Metro, etc. The remaining lease term was at the end of December 2020 4.6 years. More than 50% of the SmartCentres rent comes from strong, creditworthy and essential service providers. Walmart itself accounts for more than 25% of SmartCentres’ sales.

SmartCentres continues to enter into new partnerships and joint ventures for future development opportunities. SmartCentres REIT is best positioned for intensification with strong tenant relationships, flexible structures and easy access.

The current COVID-19 pandemic has resulted in fewer tenants being closed. However, given the focus on value-oriented as well as large, well-capitalized national retailers and strong distributors, the utilization of SmartCentres remained practically unaffected. Walmart remains one of the best-performing stocks among defensive consumers during the pandemic. The REIT’s 284 development projects are intended to support value creation and finance recurring income initiatives in the future. SmartCentres predicts potential added value of $ 3.2 billion to $ 3.6 billion from these intensification projects.

Distributions

SmartCentres REIT has a strong track record in increasing annual shareholder returns. The REIT has returned more than 12% to its shareholders since going public. Monthly payments and an average dividend yield of 6.8% make SmartCentres one of the most attractive dividend stocks out there.

The REIT has successfully increased its payouts by 3% CAGR over the past three years, while at the same time its FFO has grown by over 7% CAGR. SmartCentres is a Canadian Dividend Aristocrat and its current payout is $ 1.85 per share on an annual basis. It is also entitled to repurchase more than 12 million of its units through March 2022.

SmartCentres has a conservative capital structure and stable cash flows. Annual dividend increases were announced in each of the years beginning in 2014. The payout ratio is 87% and all dividends are fully funded from operating cash flow. Over the years, SmartCentres has seen successful growth in both rental income and FFO per unit. A large asset base, strategic relationships with reliable tenants and long-term rental agreements ensure sufficient transparency of the cash flow.

The REIT is smartly diversifying into city centers and multi-purpose properties as the retail segment continues to face the dangers of digital shopping. SmartCentres is developing mixed-use communities on its existing retail properties and has identified 284 mixed-use development initiatives for 95 of its existing properties in this regard.

This initiative is expected to add approximately 32.5 million square feet of mixed-use rental, condominium and townhouse developments to the existing portfolio of retail space. In addition, Walmart is expected to continue to be the dominant anchor tenant in SmartCentres’ retail portfolio and generate high levels of traffic over the long term.

An income generating portfolio with industry-leading occupancy and an exceptional pipeline of mixed-use growth initiatives should support growth and support future dividend increases.

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Note that REITs pay a distribution, not a dividend. Be aware of the tax differences.

competition

Canada is an attractive and highly competitive real estate market for developers given its booming economic and retail environment. SmartCentres REIT competes with other investors, managers and property owners. RioCan, Plaza Retail REIT, CT REIT, Slate Retail REIT, and Choice Properties REIT are just a few of the leading REITs in retail in Canada. Given SmartCentres’ intense development projects, it is well positioned to take advantage of the opportunities offered by mixed urban development and apartment rental.

Bottom line

SmartCentres has good prospects of capitalizing on the growing opportunities to increase rental income and annual income from condominiums and townhouses through the intensification of its own real estate, a robust development pipeline and Walmart-anchored properties across Canada.

A strong customer orientation also contributes to the sustained traffic flows, the high occupancy rate and the growth of SmartCentres. A compelling dividend yield, monthly payouts, and a long track record of dividend payments make it an attractive choice for investors.

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