Of all of the industries that have been upended during the COVID-19 pandemic, few have been harder hit than retail.
The coronavirus may have prematurely ended the run of many retailers that were on shaky financial footing prior to the pandemic. However, one REIT that specializes in value-oriented merchants should emerge successfully.
SmartCentres REIT
One thing that sets SmartCentres REIT (TSX:SRU.UN) apart from other REITS is that its tenants are considered value oriented. As we’ve seen during this pandemic, this is a good thing for the centres.
Approximately 25% of SmartCentres’s rent comes from Walmart (NYSE:WMT). Of the REIT’s approximately 160 properties, over 100 have Walmart as a tenant or in close proximity to the shopping centre. Grocery stores and other large retailers, like Canadian Tire, also anchor SmartCentres’s properties.
Shares of Walmart have performed well in the pandemic, relative to other retailers and the Dow Jones Industrial Average (DJIA) in general. While the DJIA is down approximately 10% for 2020, Walmart is up slightly from the start of year.
Walmart was recently upgraded by UBS, as analysts expect the retail giant to continue its revenue gains from new customers it acquired during the coronavirus pandemic. UBS raised its price target to US$135. As of this writing, shares in Walmart are trading at US$119.12.
According to UBS, Walmart is seen as a primary shopping destination, and this should continue in the coming years. The analyst believes that “Walmart is entering an era of amplified earnings growth driven by an enhanced productivity loop, increased e-commerce scale, and accelerated technology deployment.” UBS forecasts sustained 25% e-commerce growth for Walmart U.S. and 3% same-store sales growth.
This bodes well for SmartCentres REIT.
Properties of SmartCentres REIT
SmartCentres REIT is one of Canada’s largest fully integrated REITs, with 157 properties in communities across Canada. The company maintains $9.9 billion in assets and owns 34.1 million square feet of income-producing retail space. The REIT boasts over 98% occupancy on its 3,500 acres of land it owns across the country.
For several years, the company has been preparing its balance sheet for an ambitious project in Vaughan, Ontario. The finished space will consist of retail space, office towers, and condos. Due to the planning of the space, SmartCentres REIT entered the pandemic with lower debt levels than most of its peers. This leverage can provide an extra buffer during downturns, like the one we have experienced.
Executive Chair of the Board Mitchell Goldhar has been in the real estate development business for over 30 years and opened the first Canadian Walmart store in Barrie, Ontario in the mid-1990s. With over 30 years in the real estate development business, Goldhar knows a few things about real estate. It should boost investor confidence that Goldhar aggressively added to his position in SmartCentres REIT, as the price tumbled during the early days of the pandemic.
Now that stay-at-home restrictions are loosening and retailers are beginning to reopen, traffic in shopping centres across Canada should dramatically improve.
The bottom line
As of this writing, shares of SmartCentres REIT are trading at $21.90, paying a dividend yield of 9.07%. At this price, investors should welcome the opportunity to pick up shares of this winning REIT.
