Morguard Real Estate Inv. (TSX: MRT.UN) is an owner and operator of approximately 50 commercial properties with about nine million square feet of gross leasable space across six provinces. The trust owns retail, office, and industrial properties, all of which have occupancy rates of 95% or more.
The trust’s goal is to provide a stable distribution that income investors can rely on. If you’re a retiree, then your primary objective is to obtain a high yield that will be stable through volatile times.
Morguard is a smaller trust that has gone out of favour with the general public. The trust is down over 23% from its 2014 high, and the current distribution yield is at an attractive 6.5%, which is also considerably higher than the trust’s five-year historical average yield of about 6%.
Although artificially large, the distribution appears incredibly safe, and distribution payments would probably not be interrupted if the markets decided to crash tomorrow. Morguard is a shareholder-friendly trust which has kept its distribution intact over the last decade, even during the harsh environment of the Financial Crisis. I believe the management team would only decide to slash the distribution as a last resort. The stock price has dipped and may continue to decline, but a distribution cut is unlikely, even if the negative momentum continues and the yield rises above the 7% mark.
Sure, Morguard has a safe distribution, but distribution increases have been few and far between over the last decade. So, the best way to lock in a high yield to give yourself a raise is to buy the trust on the way down as the yield continues to climb.
Approximately 31% of Morguard’s net operating income comes from the struggling province of Alberta, which I believe will continue to struggle over the medium to long term. It’s possible that things could get uglier in Alberta; however, any weaknesses from assets in this geographic location will partially be offset by the trust’s large exposure to Ontario, which accounts for nearly 40% of the trust’s net operating income.
The Albertan exposure may continue to be a drag in the years going forward, but Morguard’s Albertan exposure is already baked in to the depressed stock price.
There has also been a considerable amount of insider buying going on lately, which is definitely a sign that the trust has been oversold. Value conscious income investors with a long-term horizon should probably consider adding Morguard to their portfolios today.
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