There are still hefty yields out there for those Canadian investors who are willing to look into some of the areas of the market that aren’t quite so hot. Undoubtedly, the REIT (real estate investment trust) space is having its moment in the sun with some very respectable year-to-date gains already in the books.
SmartCentres REIT (TSX: SRU.UN), which yields 6.7% at the time of this writing, is already up close to 9% year to date. Undoubtedly, that’s a very strong return by REIT standards for an entire year, let alone a timespan that’s less than two months. Of course, the recent pace of gains may not sustain through the end of the year. But, regardless, I think the standout yields across the scene are due for some compression.
It was not too long ago when shares of SmartCentres REIT boasted a yield well north of 7.5%. And while recent appreciation has knocked several basis points off the yield, I still think the name remains in a great spot, especially given the current climate for rates and the potential for SmartCentres’s growth projects to grow funds from operations. Perhaps the biggest reason shares of SRU.UN are back on the ascent because of that strong quarterly showing.
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The Walmart anchor makes SmartCentres’s distribution incredibly safe
Occupancy rates are well north of 98%, thanks in part to its Walmart (NASDAQ: WMT) anchor (note that Walmart moved to the Nasdaq!). Undoubtedly, Walmart isn’t just a steady retail presence at most SmartCentre locations; it’s a retail juggernaut that’s been thriving amid higher food inflation.
Walmart is a share-taker, and I don’t see that changing anytime soon, especially as more Canadian consumers look to make the further drive out to the local Walmart supercentre, rather than settling for the close-by premium organic food mart. In such an environment, where food inflation is above 7%, I see SmartCentres as a rock-solid REIT with one of the steadiest distributions well north of 6%.
As I’ve mentioned in prior pieces, strength in Walmart translates into strength in other retailers housed at the local SmartCentre. Indeed, people go for that main attraction (Walmart) to save money during their weekly hauls, only to use some of the difference to shop at the conveniently-located neighbours of Walmart.
Either way, things are working out for more than just Walmart, and that’s why I think SmartCentres is one of the smartest bets in all of retail real estate. In five years or so, SmartCentres will probably be less of a retail REIT and more of a mixed-use REIT. Residential is a huge opportunity to diversify the property portfolio, and it’s one that could help the REIT be the best that it can be.
Bottom line
Shares of SRU.UN are on quite a winning streak right now, but I don’t think it’s too late to scoop up shares at more than $28 per share. Safe yields of over 6% are becoming harder to come by, and that alone makes SmartCentres REIT more than deserving of a scarcity premium. So, whether you want value, yield, or REIT appreciation, the 6.7%-yielder remains one of my top ideas for income lovers.
