SmartREIT Stock Analysis: Owning it could be a smart move

Summary

SmartREIT:

  • is a well-managed Real Estate Investment Trust with great growth potential.
  • boasts Walmart as one of its major tenants which anchors 107 (or 72%) of SmartREIT’s shopping centres.
  • is developing the massive 400-acre Vaughan Metropolitan Centre 400 with key anchor tenants such as KPMG and PWC.
  • has several other projects of significance in some stage of development.

What is SmartREIT?

SmartREIT (TSX: SRU.UN) (www.smartreit.com), formerly known as Calloway Real Estate Investment Trust (Calloway REIT), is an open-ended mutual fund trust. In 2015, Calloway REIT acquired Smart Centres, an entity with which it had maintained a long-standing and highly successful alliance. The combined entity thus became one of Canada’s premier real estate providers with expertise in acquisition, asset management planning, development, leasing, operations, property management and construction.

SmartREIT focuses on two distinct asset classes, retail and mixed-use. The retail group is branded as SmartCentres, and the mixed-use group, which includes office and residential developments, is SmartUrban.

SmartREIT Gross Revenue by Tenant
SmartREIT Gross Revenue by Tenant

SmartREIT:

  • directly manages in-house all operations of its 100% 141 owned shopping centres and 1 office tower
  • has a real estate portfolio in excess of CDN $8.6 billion
  • boasts Walmart as one of its major tenants which anchors 107 (or 72%) of SmartREIT’s shopping centres
  • 3 million square feet of owned grossed leased area
  • in excess of 98% occupancy

SmartREIT partnered with Simon Property Group, the largest real estate company in the world, to open Canada’s first Premium Outlets Centre in Halton Hills, near the Greater Toronto Area (GTA) in August 2013. This 400,000 square foot complex features more than 100 top retailers including Ralph Lauren, J. Crew, Brooks Brothers, Calvin Klein, Coach and many more. With six million people living within a one-hour drive of the complex, it experienced record-breaking traffic within the first few months of opening.

I live within a 10 minute drive from this Premium Outlet and can attest to the fact that retailers in this complex experience extremely heavy volume. There are times where traffic leading to the outlet’s parking is so heavy that cars are backed up on HWY 401 and law enforcement resources are required to manage the traffic flow.

The success of this outlet since inception has resulted in the decision to expand this location. Work is underway with approximately 140,000 square feet of new retail space planned to open in the fall of 2018. The initial phase is the construction of a new parking deck and completion is expected mid-to-late 2017. Construction of the new shopping area will commence as soon as the new parking facility is finished.

With the immediate success of the Premium Outlets Centre in Halton Hills, the SmartREIT-Simon alliance opened Premium Outlets Montréal in October 2014. This 366,405 square foot retail complex is composed of 80 stores and services over four million people in the area.

The Vaughan Metropolitan Centre (VMC) Development

SmartREIT is currently developing The Vaughan Metropolitan Centre (VMC) and development is expected to continue for the next 9 – 14 years. This massive 400-acre planned downtown for the City of Vaughan with a potential density of 8 – 10 million square feet of residential, office, and retail space is located 25km north of downtown Toronto at the intersection of Highways 400 and 407 and is bisected by Highway 7. It will provide all the amenities of a vibrant city centre including direct access to multi-modal public transit with a direct connection to downtown Toronto and Union Station, while maintaining excellent access to the 400 series highway network within the GTA.

Of the 400 acres making up the VMC, SmartREIT has a partnership with Penguin Investments to develop 100 acres immediately adjacent to the new subway station and a new York Region bus terminal. The recently opened 365,000 square foot Class-A office building in the VMC has been branded for lead tenant KPMG.

A second 220,000 square foot office tower with PWC as lead tenant, YMCA, library and community space is currently under construction. In addition, there are plans to construct two large residential towers on the VMC.

SmartREIT Financial snapshot

The following ScotiaBank Global Banking and Markets Company Edge Report dated January 5, 2016 provides a very high level snapshot of the company’s actual results for the fiscal years ending December 31, 2012 – 2015 and forecast for fiscal 2016 – 2018.

smartreit-company-snapshot-jan-5-2017

SmartREIT Historical Stock Chart

SRU.UN has come off its recent highs thereby improving an investor’s potential entry point.

Smart REIT stock chart
Smart REIT stock chart

Looking for Monthly Income?

Canadian residents seeking an investment in a reliable stream of investment income would do well by looking into SRU.UN; a monthly distribution of $0.14167/unit is currently paid.

If you are like me and do not require this income for living expenses, you may wish to automatically reinvest your distributions into additional units at a price equal to 97% of the average TSX market price over the 10 business days preceding the monthly distribution date.

If you are curious as to SRU.UN’s monthly distribution track record, you can find same at:

http://www.smartreit.com/investing/distributions/selected/2016/

In August 2007, the monthly distribution was increased to $0.129/unit from $0.125/unit. This monthly distribution remained constant until the October 2014 distribution when it was increased to $0.1334/unit. The distribution was increased to $0.1375/unit in October 2015 and then again to $0.14167/unit in October 2016.

The distribution from a tax perspective (other income, capital gains, return of capital) can be found at:

http://www.smartreit.com/investing/taxation/

SmartREIT Stock Analysis – Final Thoughts

SmartREIT is well-managed and has strong growth potential. Canadian residents looking to diversify their investment portfolio with a security which will generate a monthly income stream may wish to add it to their portfolio as a long-term investment.

Disclaimer: I have no knowledge of your circumstances and am not providing individualized advice or recommendations. I encourage you to conduct your own research and due diligence and to consult your financial advisor about your situation.

Disclosure: I am long SRU.un.

I wrote this article myself and it expresses my opinions. I am not receiving compensation for it and have no business relationship with any company mentioned.