Canada’s real estate sector is slowly rising from its slump due to the ongoing rate-cutting cycle. Industry experts believe the Bank of Canada has rescued the housing market, particularly by its rate actions. Buyers have returned after four rate reductions; more will come out if there’s another cut in December.
According to the Canadian Real Estate Association (CREA), the October 2024 home sales are back to historical levels. On the investment front, market analysts say real estate investment trusts (REITs) are big winners and good investment options.
Many income-focused investors will invest in REITs again for two reasons: high dividend yields and monthly cash payouts. The payout frequency of most dividend payers outside the real estate sector is quarterly.
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Logical pick
At $13.97 per share, Choice Properties (TSX: CHP.UN) is a logical pick. The $10.2 billion REIT, one of Canada’s established and largest institutional landlords, deserves serious attention. Besides its scale and size, the dividend yield is a hefty 5.44%. If you can accumulate 2,370 shares ($33,108.90), your investment transforms to $150 in monthly passive income.
Choice Properties belongs to the strip center in the property sector. The REIT owns 705 high-quality properties, 82% of which are necessity-based retail properties (572). A unique competitive advantage is its long-standing strategic relationship with Loblaw. The tenancy of the iconic Canadian retailer versus the total portfolio is 57%.
Other prominent anchor tenants outside Loblaw banners contributing to stable and growing cash flows are Canadian Tire and Dollarama. The 122 industrial properties are well-located, while the 11 mixed-use and residential properties are transit-oriented.
There are approximately 47 properties under development. Choice Properties enjoys a high 97.7% occupancy rate as of September 30, 2024. The weighted average lease term (WALT) is 5.9 years (6.2 years for Loblaw).
Management said the pipeline, including retail intensifications and near-term industrial development, is positioned for growth and should drive medium and long-term value.
Financial performance and commitment
In the three months ending September 30, 2024, Choice Properties incurred a net loss of $662.9 million compared to a $435.9 million net income in the third quarter (Q3) of 2023. Still, its chief executive officer (CEO), Rael Diamond, said it was another quarter of strong operational and financial performance. Rental revenue increased 4.6% year over year to $339.9 million.
Diamond also notes the increasing demand from retail tenants for the REIT’s necessity-based neighbourhood centers and strong leasing spreads in the industrial portfolio.
One of the key objectives of Choice Properties is to provide unitholders with stable, predictable and reliable long-term growth. A review of the REIT’s dividend history shows that monthly cash dividends have been consistent since January 2017.
Canadian REIT outlook
Easing interest rates, population growth and favourable economic trends are tailwinds for Canada’s real estate landscape. The bounce back of the housing market augurs well and will positively impact REITs.
Established REITs like Choice Properties are ideal for portfolio diversification, not to mention monthly cash flow streams. You get a good deal at less than $15.
