Valued at $131 million by market cap, True North Commercial REIT (TSX: TNT.UN) stock has fallen close to 80% in the last decade. Even if we adjust for dividend reinvestments, cumulative losses stand at 45%. The massive decline in share prices has raised True North’s dividend yield to 19.5%, given it pays shareholders an annual dividend of $1.71 per share. Let’s see why I remain bearish on this high dividend TSX stock in August 2024.
True North Commercial REIT is feeling the heat
Similar to other real estate investment trusts (REITs), True North Commercial has been wrestling with interest rate hikes and macroeconomic headwinds since the start of 2022. Moreover, the transition toward work-from-home and hybrid work has impacted pure-play commercial REITs in a post-pandemic world.
The company ended 2023 with an occupancy rate of 89%, down from 93% in 2022. In April 2023, True North reduced its dividend payout and has paused its monthly dividend since last November. True North’s dividend yield of 19.5% is calculated by accounting for its distributions between April to November 2023. So, if the distribution pause continues for three more months, the yield will fall to zero.
Additionally, True North sold three properties last year to reduce balance sheet debt, and its property count stood at 44 in 2023. The REIT has continued to sell its properties and liquidated four more properties in the second quarter (Q2) of 2024.
True North reported a net operating income of $17.5 million in Q2, compared to $18.48 million last year. Alternatively, its same property net operating income has risen from $19.26 million to $20.41 million in the last 12 months.
True North contractually leased and renewed around 293,200 square feet with a weighted average lease term of five years in Q2. However, the leases were 2.6% lower than the expiring base rents.
True North reported an adjusted funds flow from operations of $0.66 per share, which is higher than $0.64 per share last year. Even if the company restarts its dividend program it would be lower than the annual payout of $1.71 per share.
Invest in Slate Grocery REIT stock
Instead of investing in commercial real estate, it makes sense to gain exposure to companies in recession-resistant sectors, such as Slate Grocery REIT (TSX: SGR.UN). With an annual payout of $1.19 per share, Slate Grocery offers a tasty dividend yield of 10%.
Valued at $704 million by market cap, Slate Grocery owns and operates a portfolio of grocery-anchored real estate in the United States. It also owns and operates $2.4 billion of real estate infrastructure in the U.S., and its resilient grocery-anchored portfolio, as well as strong credit tenants, allows the company to generate durable cash flows across market cycles.
In Q2 of 2024, Slate Grocery completed 700,000 square feet of total leasing at attractive rental rate hikes that drive net operating income growth higher. More than 80,000 square feet of new deals were completed at 28% above comparable average in-place rent, while non-options renewals were completed at 12.8% above expiring rents.
Its strong leasing spreads allowed Slate Grocery to increase its net operating income by 3.5% year over year in Q2. Analysts remain bullish and expect the TSX dividend stock to gain 12.5% in the next 12 months.
