The Bank of Canada has slashed its benchmark interest rate to 2.25%, the lowest since early 2022. In this low-interest-rate environment, investors can look to acquire quality stocks that offer monthly dividends at higher yields to boost their passive income. In this backdrop, let’s assess SmartCentres Real Estate Investment Trust (TSX: SRU.UN), which offers a forward dividend yield of 7.2%, to determine whether investors should consider buying the stock for its high yield.
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SmartCentres’s third-quarter performance
SmartCentres operates 197 strategically located properties encompassing 35.6 million square feet of income-producing space. Notably, nearly 90% of Canada’s population lives within 10 kilometres of at least one of the company’s shopping centres. The REIT also benefits from a strong and diversified tenant base, with approximately 95% of tenants having regional or national footprints and about 60% providing essential services.
In its recently reported third-quarter results, the Toronto-based REIT leased 68,000 square feet of vacant space, bringing total leasing activity for the year to roughly 394,000 square feet. Supported by healthy customer traffic and a resilient tenant mix, same-property net operating income (NOI) increased by 4.6% during the quarter. In addition, SmartCentres renewed 85% of leases maturing this year, achieving solid rental growth of 8.4%. As a result of these strong operating fundamentals, occupancy remained robust at 98.6%.
Financially, SmartCentres reported net rental income of $141.3 million, reflecting a modest 0.5% year-over-year decline. Lower residential sales, driven by fewer townhome closings, more than offset higher base rents from its retail portfolio. Meanwhile, net income and comprehensive income surged to $81 million, up 90.8% from the prior year, primarily due to favourable fair-value adjustments on financial instruments. Adjusted funds from operations (AFFO) per unit came in at $0.56, up 5.7% year over year.
With these solid operating results in place, let’s now turn to SmartCentres’ growth prospects.
SmartCentres’s growth prospects
SmartCentres has expanded its self-storage platform by opening three new facilities this year, bringing the total portfolio to 14 properties. In addition, the REIT expects to open two new facilities in Quebec next year and another two in British Columbia in 2027. It is also in the process of securing municipal approvals for a newly acquired self-storage site in Edmonton, Alberta.
Along with these expansions, SmartCentres maintains a robust and diversified development pipeline totalling 86.2 million square feet, spanning residential, retail, seniors housing, self-storage, and office projects. Of this pipeline, 58.1 million square feet has already received zoning approval, while 0.8 million square feet is currently under construction. Given the scale and diversity of this pipeline, the company’s long-term growth prospects appear healthy and well-supported.
Investors’ takeaway
Supported by its strategically located properties and resilient tenant base, SmartCentres maintains a healthy occupancy rate, translating into strong, consistent cash flow. These stable, predictable cash flows have enabled the REIT to pay an attractive dividend. Currently, the company pays a monthly distribution of $0.1542 per unit, yielding 7.2% at the current price.
Despite these strengths, the REIT has underperformed the broader equity markets this year, delivering returns of 11.9%. Meanwhile, SmartCentres trades at a reasonable next-12-month (NTM) price-to-earnings multiple of 18.5. Given its solid growth prospects and dependable cash flow profile, I expect SmartCentres to sustain its dividend at a healthy level, making it an appealing choice for income-focused investors.
