Retirees often rely on their investment portfolios to supplement their income and cover living expenses while preserving their capital. With a shorter investment horizon and less time to recover from major market downturns, they may benefit from prioritizing established businesses that generate predictable cash flows and have a proven track record of paying dividends. Such investments can help provide a steady income stream while adding stability to their portfolios.
Against this backdrop, CT Real Estate Investment Trust (TSX: CRT.UN), which currently offers a forward dividend yield of 5.7%, could be an attractive option for income-seeking retirees. Let’s examine its business model, recent financial performance, growth prospects, and valuation to assess its investment potential.
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CT REIT’s business outlook
CT REIT owns approximately 380 properties across Canada, encompassing 32 million square feet of gross leasable area. Canadian Tire is its anchor tenant, occupying approximately 92% of its portfolio and providing a dependable source of rental income. The REIT’s long-term lease agreements and high-quality tenant base support strong occupancy and rent collection. At the end of the second quarter, its weighted average lease term stood at 6.9 years, while its occupancy rate remained robust at 99.5%.
CT REIT also benefits from an efficient cost structure, with general and administrative expenses accounting for just 3% of second-quarter revenue. Its internalized property management platform, cost-recovery agreements, and strategic insourcing initiatives further enhance operating efficiency and support profitability.
These strengths drove solid second-quarter performance, with net operating income (NOI) up 4.8% year over year to $124.7 million. Contractual rent escalations, acquisitions, and development activity over the preceding four quarters supported this growth. Meanwhile, adjusted funds from operations (AFFO) rose 3.3% to $78 million, while AFFO per unit increased 2.5% to $0.33.
CT REIT also maintains a solid liquidity position, with $311 million in cash and an undrawn committed bank credit facility, supplemented by a $187 million uncommitted revolving credit facility from Canadian Tire. Its interest coverage ratio stood at a healthy 3.5 times at the end of the second quarter, reflecting its capacity to service debt obligations.
With strong operating performance, an efficient cost structure, and a solid financial position, CT REIT’s growth prospects are promising.
CT REIT’s growth prospects
Demand for Canadian retail space remains strong, supported by rising economic activity and limited new supply amid escalating construction costs. Against this backdrop, CT REIT continues to expand its portfolio, with development projects valued at $354 million and covering approximately 518,000 square feet. The REIT also holds preferential rights to participate in developing Canadian Tire-owned properties, giving it access to additional growth opportunities. Since going public, it has acquired and leased back approximately 2 million square feet of properties to Canadian Tire, with another 10 to 15 properties in its acquisition pipeline.
Beyond development and sale-leaseback transactions, CT REIT is pursuing opportunities to consolidate properties leased by Canadian Tire that third parties currently own. Approximately 25% of Canadian Tire-leased properties remain under third-party ownership, creating scope for the REIT to acquire additional retail stores and supply chain assets. These expansion opportunities, combined with its lean operating structure and efficient cost management, could support sustained revenue and earnings growth in the coming quarters.
Investors’ takeaway
Supported by resilient financial performance and healthy growth prospects, CT REIT has increased its annual distribution since 2017. It currently pays a monthly distribution of $0.08 per unit, for a forward yield of 5.7%. Given its established business model, predictable rental income, consistent distributions, and visible growth opportunities, CT REIT could be a compelling option for retirees seeking a dependable stream of monthly income.
