TFSA Investors: 1 Small-Cap REIT to Buy for 2020

If you are looking to invest in a Canadian REIT, look no further than Summit Industrial Income REIT.

| More on:
edit Real Estate Investment Trust REIT on double exsposure business background.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

In September 2019, the Toronto Stock Exchange launched the TSX 30 and stated it is “A recognition program featuring some of the most compelling success stories among our listed issuers, including companies operating in traditional areas of strength.”

The TSX 30 comprises of the 30 top-performing TSX stocks over a three-year period based on dividend-adjusted share price appreciation. Summit Industrial Income REIT  (TSX:SMU.UN) is part of the index and has seen its revenues go from $38.4 million in 2015 to $95.8 million in 2018.

Based out of Brampton, Ontario, Summit is an open-ended mutual fund real estate investment trust (REIT) focused on growing and managing a portfolio of light industrial properties across Canada.

Summit focusses on light industrial clients in the renting space. Light industrial properties are primarily used for warehousing and logistics and are easy to maintain. As e-commerce keeps growing in Canada, demand for these properties will only increase. An added advantage of these properties is that they can be used by pretty much any firm, which gives Summit a wider client base to work with.

Take a look at the acquisition Summit made in October 2019. The company purchased 37 light industrial properties in Alberta, totaling 3.3 million square feet of gross leasable area at the end of October. It also acquired a 53-acre fully leased parcel of land in Edmonton and paid a total of $588 million for the portfolio.

Occupancy on this portfolio stood at 91.7% at the end of the most recent quarter. The tenant base is made up of primarily transportation, warehouse, and light manufacturing firms. Only 17% of the space is occupied by companies that are in the oil and gas business, and many of those are on long-term leases. Industrial occupancy is at 99.5% with an average lease term of 5.8 years.

The REIT completed 1.39 million square feet of its 2019 renewals with a very strong retention rate of 99.2%.

Strong revenue growth

It’s moves like this that has resulted in robust sales growth for Summit. The company managed to grow sales by 43.4% to $33.1 million in the September quarter. In the first nine months of 2019, sales were up an impressive 54.5% to $101 million.

Net rental income for the three- and nine-month periods ended September 30, 2019, increased 46.2% and 59% to $24.7 million and $73.4 million, respectively, compared to the same periods in 2018.

The company has been working on reducing its debt balance. On September 30, 2019, the REIT’s debt leverage ratio was 37.8% compared to 47% at the end of 2018.

Summit’s stock price has risen from $6 in December 2014 to $12.36 currently. Analysts tracking the stock have given it an average target price of $13.61 over the next 12 months, which might not seem a lot. But the numbers add up when you take into account Summit’s 4.25% forward annual dividend yield.

The stock has gained 34% in the last year. Its growth metrics look solid. The REIT is forecast to improve sales by 55% to $143 million in 2019, 44.8% to $207 million in 2020, and by 11.6% to $231 million in 2021. Its EBITDA is expected to rise from $59.5 million in 2018 to $153 million in 2019.

With all the economic uncertainty, Summit is a good stock to have in your portfolio as you close out the year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends SUMMIT INDUSTRIAL INCOME REIT. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

More on Dividend Stocks

money cash dividends
Dividend Stocks

2 Passive-Income ETFs to Buy in 2022

Unlike stocks, distribution-focused ETFs may not offer an equally healthy capital-appreciation potential, but they might still be worth buying.

Read more »

Businessperson's Hand Putting Coin In Piggybank
Dividend Stocks

RRSP Investors: 2 Top Total-Return Stocks to Build Retirement Wealth

These top TSX dividend stocks offer high yields and currently trade at discounted prices.

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

The 3 Best TSX Dividend Stocks That Pay Cash Monthly

Looking to earn monthly passive income from top dividend stocks? Here are three fresh ideas for July 2022.

Read more »

Cogs turning against each other
Dividend Stocks

2 Resilient Value Stocks That Could Weather the Storm

The resilient businesses of two value stocks can help you endure recessionary pressures and deliver superior returns in 2022.

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

Retirees: Fortify Your Portfolio by Building a 2nd Pension

One of the best ways to utilize your retirement savings without depleting them is to invest them in dividend stocks.…

Read more »

Value for money
Dividend Stocks

Value Investors: These 3 TSX Stocks Are a Steal in July 2022

Shopping for undervalued stocks in July? Start your research with Canadian Tire (TSX:CTC.A) and two others.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Market Correction: 1 Future Dividend King to Buy Today

Restaurant Brands International (TSX:QSR)(NYSE:QSR) stock seems way too cheap to ignore, as the defensive dividend play sags alongside the TSX.

Read more »

money cash dividends
Dividend Stocks

Got $500? Create Passive Income of $5,000 Today!

Even if you can only afford $500, you can use it to create $5,000 in passive income by remaining consistent…

Read more »