Few REITs have what it takes to stand the test of time and handle whatever the market throws at them. Technically, not a single REIT can survive every extreme market condition. Still, if you make an investment in SmartCentres REIT (TSX:SRU.UN), you can be reasonably sure of surviving most conditions.
The REIT
SmartCentres REIT used to have dominance in one area — retail. While it’s still its forte, the REIT has repositioned itself as a re-shaper of Canadian urban spaces and is now focusing on integrated smart communities.
The portfolio, which is still predominantly retail, is quite impressive in its current form — 174 properties, 34.1 million square feet of retail space, and roughly $11.3 billion in assets. Another core strength of the REIT is the tenant portfolio. 114 of the shopping centres in the REIT’s current portfolio are anchored by Walmart, and this one tenant makes up about a quarter of the REIT’s revenue.
The occupancy rate is still quite solid at 97.6%, and long-term leases make its revenues and, in turn, the dividend secure.
However, the REIT’s repositioning and future investments give the investors hope that this REIT has stood the test of time and has sustained and even grown its payouts in the last decade. It might be capable of continuing on this stable path in the future as well.
A $15.2 billion intensification project named Project 512 (the REIT controls roughly 64%) includes multiple commercial and residential segments. The REIT focuses on its development on both fronts, with SmartLiving as the residential wing.
Return potential
The REIT gets few if any points when it comes to capital-appreciation potential. If we disregard the post-pandemic growth of the REIT, the best growth phase since 2015 pushed the value of the REIT up only by about 30%. However, it also doesn’t sink as most other REIT stocks do, so you can be reasonably sure of capital preservation, especially if you buy a dip.
That would be smart from both a dividend yield perspective and capital-preservation perspective, because you will have more leeway to recapture your investment or even make a little profit by selling your stake in the REIT when you decide to sell.
The dividends are the primary reason most investors are interested in this REIT. It’s trading at an 11% discount, which might not seem like much, but it’s quite significant if you observe the dynamics of this REIT stock.
It has also contributed to boosting the yield, which currently sits at 6.2%, the highest for an aristocrat REIT. The payout ratio is quite steady at 38%, and the discounted valuation makes it an even better bargain.
Foolish takeaway
One of the prominent reasons for investing in REITs instead of hard assets directly, if you are interested in real estate investing, is that you get exposure to properties and asset classes that might be far from the scope of a typical retail investor. This benefit is even more pronounced with this REIT, as it offers a comprehensively diverse portfolio with both residential and commercial assets.
