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Monthly Dividend Stock In Focus: Choice Properties REIT


Updated on September 28th, 2024 by Felix Martinez

Real Estate Investment Trusts – or REITs, for short – can be a fantastic source of yield, safety, and growth for dividend investors. For example, Choice Properties Real Estate Investment Trust (PPRQF) has a 5.1% dividend yield.

Choice Properties also pays its dividends on a monthly basis, which is rare in a world where the vast majority of dividend stocks make quarterly payouts.

There are only 78 monthly dividend stocks that we currently cover. You can see our full list of monthly dividend stocks (along with price-to-earnings ratios, dividend yields, and payout ratios) by clicking on the link below:

 

Click here to instantly download your free spreadsheet of all 78 monthly dividend stocks now, along with important investing metrics.

Choice Properties’ high dividend yield and monthly dividend payments make it an intriguing stock for dividend investors, even though its dividend payment has been largely stagnant in recent years.

This article will analyze the investment prospects of Choice Properties.

Business Overview

Choice Properties is a Canadian REIT with concentrated operations in many of Canada’s largest markets. Given its size and scale and the fact that its operations are solely focused in Canada, it is one of Canada’s premier REITs. The trust has bet big on Canada’s real estate market, and thus far, the strategy has worked.

The company has a high-quality real estate portfolio of over 702 properties which make up nearly 65.9 million square feet of gross leasable area (GLA).

Source: Investor Presentation

Properties include retail, industrial, office, multi-family, and development assets. Over 500 of Choice Properties’ investments are to their largest tenant, Canada’s largest retailer, Loblaw.

From an investment perspective, Choice Properties has some interesting characteristics, not the least of which is its yield. However, it also has an unusual dependency on one tenant, a lack of diversification that we find somewhat troubling.

While grocery stores are generally quite stable, this level of concentration on what amounts to one tenant is very rare. This lack of diversification is a significant consideration for investors that are looking at Choice Properties.

While it would be preferable for the company to diversify to fix its concentration, that is a slow process. In addition, since the tenant it is so dependent upon is generally stable, we don’t necessarily see a huge risk due to the industry struggling. However, this sort of concentration on one tenant is extremely unusual for a REIT, and it is worth noting.

Growth Prospects

Choice Properties has struggled with growth since it came public in 2013. Since the end of 2014, the trust’s first full year of operations as a public company, it has compounded adjusted funds-from-operations per share at a rate of just ~0% per year.

The trust has grown steadily in terms of portfolio size and revenue, but relatively high operating costs and dilution from share issuances have kept a lid on returns for shareholders. History has shown Choice Properties can exhibit strong growth characteristics on a dollar basis, but investors have been left wanting once translated to a per-share basis.

Choice Properties Real Estate Investment Trust (CHP.UN) released its financial results for Q2 and the first half of 2024. President and CEO Rael Diamond highlighted strong operational performance, high occupancy rates, robust leasing activity, and growth in same-asset NOI (Net Operating Income). The Trust completed $788 million in financings with an average term of 9.6 years and a 5.0% interest rate, and also received a credit rating upgrade due to its strong portfolio of grocery-anchored retail properties and strategic partnership with Loblaw.

For Q2 2024, Choice Properties reported a net income of $513.2 million, down slightly from $535.7 million in the same period last year. Funds from Operations (FFO) per unit diluted grew by 0.4% to $0.255, while adjusted FFO per unit diluted (excluding non-recurring items) rose by 5.7%. Occupancy rates remained high at 98.0%, with retail at 97.7%, industrial at 98.8%, and mixed-use/residential at 94.7%. Same-asset NOI on a cash basis increased by 4.4%, with industrial properties leading the way with an 11.8% rise.

The Trust completed $113.5 million in transactions during the quarter, including the acquisition of retail properties in Alberta and Toronto, and sold interests in four retail properties for $80.4 million. Additionally, it issued $500 million in senior unsecured debentures as part of its debt financing efforts totaling $788.2 million.

Source: Investor Presentation

Dividend Analysis

In addition to its growth woes, Choice Properties’ dividend appears to be shaky for the time being. The expected dividend payout ratio for 2024 is 82%.

While even that payout ratio is high, it is also true that REITs generally distribute close to all of their income, so it is hardly unusual that Choice’s payout ratio over 80%. Choice Properties’ current distribution gives the stock a 5.0% yield, which is an attractive dividend yield.

Note: As a Canadian stock, a 15% dividend tax will be imposed on US investors investing in the company outside of a retirement account. See our guide on Canadian taxes for US investors here.

Investors should not expect Choice Properties to be a dividend growth stock, as the distribution has remained relatively flat since May 2017. The trust did increase its dividend by 1.3% to a total annual distribution of $0.7596 during the most recent quarter. That said, with the payout ratio as high as it is, and FFO-per-share growth muted, investors should not expect the payout to see a massive raise anytime soon.

Choice Properties has also not cut the distribution, and we don’t see an imminent threat of that right now. But it is worth mentioning that if FFO-per-share deteriorates significantly going forward, the trust will likely have to cut the distribution due to its high payout ratio.

This is particularly true because we see Choice Properties’ borrowing capacity as limited, given its already-high leverage. Choice Properties has a debt to equity ratio of almost 1.4, which according to the company is below the industry peers.

In addition, it has large amounts of debt coming due in stages in the coming years, so we see the trust’s debt financing as near capacity today. Choice has steady debt maturities in the coming years, and while they are spread out, the amounts are significant. Choice has no ability to pay these off as they mature, so refinancing appears to be the only viable option.

Should it experience a downturn in earnings, Choice Properties would have to turn to more dilution for additional capital. While we don’t see a dividend cut in the near future, the combination of a lack of adjusted FFO-per-share growth, the high payout ratio, and a high level of debt appears risky.

Final Thoughts

Choice Properties is a high dividend stock and its monthly dividend payments make it stand out to income investors. However, a number of factors make us cautious about Choice Properties today, such as its lack of diversification within its property portfolio, and its alarmingly high level of debt.

With a somewhat risky dividend, we view the stock as unattractive for risk-averse income investors. Investors looking for a REIT that pays monthly dividends have better choices with more favorable growth prospects, higher yields, and safer dividends.

Don’t miss the resources below for more monthly dividend stock investing research.

And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.

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