A smart investor wouldn’t pass up on the opportunity to invest in a stock that’s offering a high dividend and moderate long-term capital appreciation. True North (TSX: TNT.UN), a diversified real estate investment trust (REIT), is a screaming buy right now. For less than $7, you gain the best of both worlds.
REIT stocks are rising in popularity because this asset class is consistently producing much higher returns than other stocks. True North is a small cap REIT stock that pays an 8.99% dividend and is starting to outperform.
Investment thesis
True North is the owner and operator of prime commercial properties in urban cities across Canada. As this REIT focuses on long-term leases (average lease term is 8.1 years) with government and credit-rated tenants, income is sustainable. The federal government of Canada is a tenant in one of the properties in Ontario.
The real takeaway is that True North has the most active tenant profiles compared with other commercial REITs. Currently, it has a portfolio of 46 commercial properties located in the provinces of Alberta, British Columbia, New Brunswick, Nova Scotia, and Ontario. The occupancy rate is a high of 95.5%.
True North has grown from 39 properties to 46 properties in the last 18 months, thereby increasing the total leasable area to 3.7 million square feet. In Q2 2019, the REIT’s revenue saw an increase of 28% to $25.5 million with net operating income (NOI) increasing by 27% to $15.2 million versus Q2 2018.
On a year-to-date basis, revenue increased by 29% to $51.3 million, while NOI increased by 27% to $30 million in comparison to the same period of 2018. True North is implementing three initiatives to ensure NOI growth in the coming years.
The goal of True North is to achieve favourable leasing spreads on renewal by including contractual rent step-ups throughout the term. Also, it’s implementing competitive tendering of all expenses and improving building efficiencies through energy-saving initiatives.
As of the quarter ended June 30, 2019, True North has $1.7 million in cash and $37.2 million and stand-by credit facilities. Likewise, its debt to gross book value (GBV) ratio is 57.7%. This level is within the 75% limit set out in True North’s amended and restated declaration of trust.
No disruption of dividend payments
True North is one of the highest dividend-paying REIT stocks. As an investor, you have the opportunity to create a budget that would include the monthly dividend from the REIT stock. Furthermore, True North can shorten the period you can double your investment.
With its high yield, it would take only eight years. There will be no disruption of dividend payments either. Unlike regular corporate entities, REITs do not pay corporate income tax. However, the law requires a REIT to distribute 90% of its taxable income to shareholders in the form of dividends.
It makes perfect sense to invest in True North. You’re not buying a property to own, but assuming the role of a landlord who is after superior long-term results. You should be taking advantage now that this REIT is a screaming buy.
