Passive income provides financial stability and also acts as a hedge against inflation. Moreover, investors can enhance their overall returns by reinvesting these consistent payouts to benefit from compounding. One of the most convenient and cost-effective ways to earn passive income is to invest in high-quality monthly dividend stocks. Further, investors can make these investments through their Tax-Free Savings Account (TFSA) to avoid paying taxes.
Against this backdrop, let’s assess SmartCentres Real Estate Investment Trust’s (TSX: SRU.UN) business outlook, financial performance, growth prospects, dividend yield, and valuation to identify buying opportunities.
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SmartCentres’s business outlook
SmartCentres owns and operates 200 strategically located properties across Canada, with nearly 90% of Canadians living within 10 kilometres of one of its locations. The REIT also benefits from a resilient tenant base, with 95% of tenants having a regional or national presence and approximately 60% operating essential-service businesses. Supported by its high-quality properties and stable tenant mix, SmartCentres continues to maintain strong occupancy levels regardless of broader economic conditions.
During the first quarter, the REIT leased 56,000 square feet of vacant space and executed agreements for 52,000 square feet of new retail space amid healthy demand. It also renewed or extended 80% of leases maturing this year while achieving strong rental growth of 11.5% on those renewals. Supported by these leasing activities, occupancy stood at 97.6% at the end of the first quarter and improved further to 98% as of May 6. In addition, same-property net operating income (NOI) increased 1.4%, driven by resilient consumer traffic and a strong tenant base.
SmartCentres’s total net operating income rose 0.7% year over year to $137.7 million, supported by higher base rent from lease-up and renewal activity. However, a higher provision for expected credit losses partially offset the gains. Meanwhile, adjusted funds from operations (FFO) per unit declined 3.7% to $0.54, driven by higher interest and general and administrative expenses. Let’s now examine the REIT’s long-term growth prospects.
SmartCentres’s growth prospects
Amid economic growth and supply constraints driven by rising construction costs, demand for retail space has remained solid, thereby creating a favourable backdrop for SmartCentres. Meanwhile, the company continues to expand its asset base, with the construction of a 200,000-square-foot retail building, which has been presold to Canadian Tire, on schedule. The company expects to transfer possession in the third quarter of this year.
Further, it acquired an 18.8-acre parcel of land in Kingston, Ontario, for around $7.1 million as part of its retail development growth program. The REIT is also expanding its self-storage business, with management expecting facilities in Montreal and Laval to open this quarter. Additionally, the two facilities in British Columbia could become operational next year. Overall, the company has around 0.8 million square feet of projects under construction.
Besides, SmartCentres long-term growth prospects look healthy, with another 87 million square feet of mixed-use properties under various stages of development. Therefore, SmartCentres’s growth prospects look healthy.
Investors’ takeaway
Supported by healthy occupancy levels, consistent lease renewals, ongoing lease-up activity, rising rental rates, and expansion initiatives, SmartCentres appears well-positioned to continue generating stable financial performance and cash flows in the coming years. As a result, I believe the REIT remains well equipped to reward investors with attractive monthly distributions. It currently pays $0.15417 per unit each month, translating into a forward yield of 6.55%. In addition, the stock has gained 9.7% year to date, outperforming the broader equity markets.
Valuation also appears reasonable, with SmartCentres currently trading at 14.3 times analysts’ projected earnings over the next 12 months. Given its resilient business model, stable cash flows, and attractive yield, the stock appears compelling for income-focused investors.
