The Bank of Canada has cut its benchmark interest rates seven times since June last year, lowering it to 2.75% from 5%. Additionally, economists are projecting two more 25-basis-point rate cuts this year. Therefore, in this low-interest-rate environment, investors may consider buying monthly-paying dividend stocks to earn a healthy and stable passive income. REITs (real estate investment trusts) should distribute at least 90% of their taxable income to shareholders, making them an ideal investment for income-seeking investors.
Against this backdrop, let’s examine SmartCentres Real Estate Investment Trust (TSX: SRU.UN), which offers a substantial forward dividend yield of 7.2%.
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SmartCentres’s first-quarter performance
SmartCentres owns and operates 196 mixed-use properties with a gross leasable area of 35.4 million square feet. It also enjoys a solid tenant base, with over 95% of tenants having a regional or national presence, while 60% of its tenants offer essential services. Additionally, the company generates approximately 45% of its total rental income from its top 10 tenants.
Meanwhile, the Toronto-based REIT leased 178,408 square feet of vacant space in the recently reported first-quarter earnings, thereby raising its occupancy rate to 98.4%. Amid rising demand for existing space and healthy tenant retention, the company’s same-property net operating income rose 4.1% year over year. It also renewed 68% of leases maturing this year, with solid rental growth of 8.4%. Supported by these solid operating performances, the company’s net rental income totalled $136.8 million, representing a 4.6% increase from the same quarter in the previous year.
The company’s FFO (funds from operations) per unit increased 16.7% to $0.56, driven by lease-up activities and changes in fair value adjustments. However, removing special items, its adjusted FFO per unit rose 3.85% to $0.54. It also generated $81.4 million of cash from operating activities. Its net loss and comprehensive loss also improved from $0.12 per unit in the previous year’s quarter to $0.05 per unit. Now, let’s look at its growth prospects.
SmartCentres REIT’s growth prospects
SmartCentres REIT has a solid developmental pipeline with municipal permissions for the development of 59.1 million square feet of mixed-use properties. Of these permissions, the company is currently constructing one million square feet of properties. The company was constructing two storage facilities in Toronto and one in Dorval at the time of its first-quarter earnings announcement, with management expecting them to open in the second quarter of this year. Additionally, it has also completed site preparation for three additional facilities, which the management expects to open in 2026. Moreover, the construction, leasing, and sales of its other properties are progressing well.
Given the rising demand for retail space and the company’s solid retention rate, I anticipate the company will continue to experience a healthy occupancy rate and net operating income growth from its existing properties in the coming years, which will drive its financial performance and cash flows. These solid performances could help the company continue to reward its shareholders with healthy monthly dividends.
Investors’ takeaway
Supported by its healthy first-quarter performance, SmartCentres has delivered a total shareholder return of 5.5% this year. Additionally, the company’s valuation appears attractive, with its next-12-month price-to-earnings and price-to-book multiples at 19.7 and 0.9, respectively. Given its solid financial performances, stable cash flows, and healthy growth prospects, I expect SmartCentres to continue paying dividends at a healthier rate, thereby making it an ideal buy for income-seeking investors.
