Choice Properties REIT Raises Distribution on Stable Earnings

Choice Properties is a blue-chip stock for income in the retail real estate space, but don’t expect too much growth.

| More on:
data analytics, chart and graph icons with female hands typing on laptop in background

Image source: Getty Images

You might recall Choice Properties REIT (TSX:CHP.UN) acquiring the quality assets of Canadian REIT back in 2018. The company remains resilient in a higher interest rate environment. Let’s investigate its recent earnings results and explore the Canadian real estate investment trust (REIT) as a potential income idea.

Choice Properties REIT: The business

Choice Properties is Canada’s largest REIT, with over 700 properties in its portfolio. It is categorized as a retail REIT because it makes about 79% of its net operating income (NOI) from retail properties. However, it also earns 17% of its NOI from industrial properties and 4% from mixed-use and residential properties.

It has 573 retail properties across 44.7 million square feet of gross leasable area (GLA), 122 industrial properties across 19.7 million square feet of GLA, and 10 mixed-use and residential properties across 1.7 million square feet of GLA.

Its retail portfolio is the most defensive in the space, with a high percentage (83%) of its retail business segment gross rental revenue from necessity-based retail. One of its competitive advantages comes from its strategic relationship with Canada’s leading grocery store company, Loblaw, which makes up approximately 57% of its tenancy based on gross rental revenue.

Choice Properties’s earnings results by the numbers

Choice Properties maintains an investment-grade S&P credit rating of BBB. It reported its fourth-quarter (Q4) and full-year 2023 on Valentine’s Day. To observe a REIT’s earnings power, investors can zoom in on the funds from operations (FFO) metrics, which adjust for non-cash expenses like depreciation.

For the quarter, year over year, the FFO rose 6.0% to $184.6 million, with the FFO per unit climbing 5.8% to $0.26. It was good to see that it experienced same-asset NOI growth of 4.2%. Choice Properties ended Q4 with a reasonable leverage ratio of 40.4%. Its weighted average interest rate of 4.03% was also manageable.

For 2023, the Canadian REIT increased its FFO by 4.1% to $726.1 million and FFO per unit by 4.0% to $1.00 versus 2022. The per-unit metric was weighed a tad by a tiny increase in the weighted average outstanding unit count. The REIT improved its occupancy to 98.0% versus a year ago’s 97.9%. Notably, in its development pipeline, it has over 16 million square feet of projects to provide additional growth in the future.

Get good income from Choice Properties

Choice Properties raised its monthly cash distribution by 1.3%, equating to an annual payout of $0.76 per unit. At the recent quotation of $13.71 per unit, it is good for a cash distribution yield of 5.5%. Its payout ratio is estimated to be approximately 75% of FFO this year, which is a sustainable payout ratio.

Outlook and stock valuation

Choice Properties REIT provided an initial guidance for 2024, including the following:

  • FFO per unit of $1.02 to $1.03 (i.e., a growth rate of 2-3%)
  • Same-asset NOI growth of 2.5% to 3%

So, management expects stable results for this year. At the recent quotation, the value stock trades at about 13.6 times FFO, which is essentially fairly valued.

Overall, Choice Properties is a blue-chip stock to own for income if you’re looking for an income stock in the retail real estate space, but don’t expect too much growth.

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 Kay Ng has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Dividend Stocks

The Top Canadian REITs to Buy in April 2024

REITs with modest amounts of debt, like Killam Apartment REIT (TSX:KMP.UN), can be good investments.

Read more »

Technology
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

Some of the smartest buys investors can make with $500 today are stocks that have upside potential and pay you…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

2 Dividend Stocks to Buy in April for Safe Passive Income

These TSX Dividend stocks offer more than 5% yield and are reliable bets to generate worry-free passive income.

Read more »

protect, safe, trust
Dividend Stocks

How to Build a Bulletproof Monthly Passive-Income Portfolio With Just $1,000

If you've only got $1,000 on hand, that's fine! Here is how to make a top-notch, passive-income portfolio that could…

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

CPP Insights: The Average Benefit at Age 60 in 2024

The average CPP benefit at age 60 in average is low, but claiming early has many advantages with the right…

Read more »

thinking
Dividend Stocks

Why Did goeasy Stock Jump 6% This Week?

The spring budget came in from our federal government, and goeasy stock (TSX:GSY) investors were incredibly pleased by the results.

Read more »

woman analyze data
Dividend Stocks

My Top 5 Dividend Stocks for Passive-Income Investors to Buy in April 2024

These five TSX dividend stocks can help you create a passive stream of dividend income for life. Let's see why.

Read more »

investment research
Dividend Stocks

5 Easy Ways to Make Extra Money in Canada

These easy methods can help Canadians make money in 2024, and keep it growing throughout the years to come.

Read more »