The coronavirus pandemic pulled the rug out from under airline companies. Air Canada (TSX:AC) was one of the TSX’s stellar performers in 2019 and the past decade. This year, however, Canada’s flag carrier is operating on less than 10% capacity and doing cargo flights only. Pretty soon, the stock price could drop to below $10.
If you have the appetite to invest, cast out airline stocks and consider Summit Industrial (TSX:SMU.UN) instead. This real estate investment trust (REIT) will deliver high, not zero, returns.
Air Canada’s first-quarter 2020 earnings results were understandable. Business screeched to a halt when the government announced border closures and travel restrictions. COVID-19 paralyzed domestic and international air travel.
Air Canada was down on its knees. The impact of the health crisis is so devastating. After 27 consecutive quarters of year-over-year operating revenue growth, the company is suddenly looking bankruptcy in the eye. Its operating loss ballooned to $433 million versus $127 operating income in the same quarter in 2019.
Apart from the significant financial damage to the company, 16,500 employees lost their jobs. Fortunately, the displaced workers will remain on the payroll from March 15 to June 6, 2020. Air Canada availed of the Canada Emergency Wage Subsidy (CEWS) to make rehiring possible.
The latest from Air Canada is the launching of a public offering for about $500 million worth of Class A and Class B voting shares. The company hopes to raise $1 billion to bolster its cash position and provide more flexibility to manage the health crisis.
In contrast to Air Canada, Summit Industrial reported solid operating and financial performance for the first quarter (ended March 31, 2020). This $1.3 billion REIT had sterling results in crucial metrics compared with the same period in the prior year.
Revenue increased by 37.7%, while the occupancy rate was 98.4%. Summit’s average lease term is 5.3 years, with 1.6% annual contractual rent escalations. Because of the increase in revenue, operating growth, and robust operating performance, net rental income grew by 39.6%.
The focus of Summit is light industrial and other properties. It has nine newly-acquired light industrial properties with a total leasable space of 746,903 square feet.
Summit paid $43.6 million in maturing mortgage debt and secured a new $300 million unsecured revolving credit facility to be more financially flexible. The available cash-on-hand is $200 million, while its pool of unencumbered assets is worth $635.3 million.
Unlike Air Canada, Summit is generating revenue despite the pandemic. The REIT was able to collect about 96% of rent due in April, and around 87% of May rents to-date. Some tenants signed rent deferral agreements.
The record results tell you that Summit Industrial is a screaming buy. You can be a quasi-landlord by purchasing this REIT at $10.31 per share. But the real takeaway is the 5.45% dividend yield.
Air Canada will be away from the limelight in 2020. A near-term comeback is close to impossible. Summit Industrial would see growth with the rising demand for industrial properties. Logistics companies and e-commerce retailers will need more delivery take-off points.
Speaking of Air Canada's future...
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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.
Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends SUMMIT INDUSTRIAL INCOME REIT.