Updated on October 1st, 2024 by Aristofanis Papadatos
CT Real Estate Investment Trust (CTRRF) has three appealing investment characteristics:
#1: It is a REIT so it has a favorable tax structure and pays out the majority of its earnings as dividends.Related: List of publicly traded REITs
#2: It is a high yield stock based on its 5.7% dividend yield.Related: List of 5%+ yielding stocks
#3: It pays dividends monthly instead of quarterly.Related: List of monthly dividend stocks
You can download our full list of monthly dividend stocks (along with relevant financial metrics like dividend yields and payout ratios), which you can access below:
CT Real Estate Investment Trust’s trifecta of favorable tax status as a REIT, a high yield, and a monthly dividend make it appealing to individual investors.
But there’s more to the company than just these factors. Keep reading this article to learn more about CT Real Estate Investment Trust.
Business Overview
CT Real Estate Investment Trust (CT REIT) is a closed-end real estate investment trust that owns commercial properties primarily located in Canada.
Its portfolio is comprised of over 370 properties totaling approximately 31 million square feet of gross leasable area, consisting primarily of net lease retail properties located across Canada.
CT REIT is a leading net lease REIT in Canada that greatly benefits from its relationship with Canadian Tire Corporation, its most significant tenant and controlling unitholder.
This close association and alignment is a key competitive advantage, which provides important insight into real estate acquisitions and development opportunities. Such opportunities, combined with predictable rent hikes, are the primary growth drivers of CT REIT.
CT REIT exhibits strong performance metrics. Its asset portfolio currently has an exceptionally high occupancy rate of 99.4%.
Source: Investor Presentation
In addition, the REIT receives 96.3% of its annualized base rent from investment-grade tenants while it has an 8-year average duration of remaining leases, one of the longest periods in the REIT universe.
Canadian Tire Corporation, which is the major tenant of CT REIT, has a history of 102 years, a strong market position in Canada and ample room for future growth.
Source: Investor Presentation
It also has annual revenues of $16.4 billion and a BBB credit rating. The merits of having a major tenant with strong business performance and a solid financial position are obvious.
Growth Prospects
CT REIT is ideally positioned to leverage its relationship with Canadian Tire Corporation and pursue third-party net lease opportunities to complement organic growth. It also benefits from average annual rent hikes of about 1.5%.
Since its IPO, CT REIT has acquired and leased more than 2 million square feet of industrial properties to Canadian Tire Corporation. In addition, there are another 15-20 properties of Canadian Tire Corporation, which are likely to meet the investment criteria of CT REIT.
In 2023, CT REIT invested over $170 million in growth projects and thus enhanced its gross leasable area by 839,000 square feet. Moreover, the REIT has a solid growth pipeline. It currently has an investment program of $258 million, which covers 571,000 square feet of development.
Despite its growth drivers and its consistent business performance, CT REIT is a relatively slow-growth REIT. To be sure, the trust has grown its adjusted FFO per share by 4.7% per year on average over the last eight years.
As there are no signs of accelerating business performance and given that investment amounts are lower than those in previous years, it is prudent for investors to expect slower growth going forward. We expect 3.0% average annual growth of FFO per share over the next five years.
Dividend & Valuation Analysis
In contrast to many REITs, which cut their dividends in 2020-2021 due to the coronavirus crisis, CT REIT proved resilient to that downturn thanks to its robust business model. The REIT grew its FFO per share by 4% in 2020 and by 7% in 2021, and thus it raised its dividend (in USD) by 5% in 2020 and by another 5% in 2021.
Moreover, CT REIT is currently offering a 5.7% dividend yield. Thanks to its defensive business model, its reasonable (for a REIT) payout ratio of 67%, and its interest coverage of 3.6, the trust is not likely to cut its dividend in the absence of a severe recession.
Furthermore, CT REIT has 99.7% of its debt unsecured and 100% of its debt at fixed rates. As a result, the REIT is somewhat protected from the adverse environment of high interest rates. It also has a weighted average interest rate of 4.13%, which is manageable under normal business conditions.
It is also important to note that the Fed has provided guidance for a reduction of interest rates, from $4.75%-5.0% now to 2.75%-3.0% after 2026. If the central bank reduces interest rates, CT REIT is likely to see its interest expense decrease in the upcoming years.
On the other hand, it is important to note that CT REIT has a weak balance sheet, with a leverage ratio (Net Debt to EBITDA) of 6.6. It also has an average annual dividend growth rate of just 3.4% over the last five years. Additional dividend growth would only enhance investors’ yield on cost. However, investors should not expect meaningful dividend growth going forward.
In reference to the valuation, CT REIT is currently trading for 12.4 times its adjusted FFO per share in the last 12 months. Given the modest growth rate of the trust, we assume a fair price-to-FFO ratio of 12.0 for the stock.
Therefore, the current FFO multiple is slightly higher than our assumed fair price-to-FFO ratio. If the stock trades at its fair valuation level in five years, it will incur a -0.6% annualized drag in its returns.
Taking into account the 3% annual FFO-per-share growth, the 5.7% dividend, and a -0.6% annualized contraction of valuation level, CT REIT could offer a 7.5% average annual total return over the next five years.
This is a decent expected return, but investors should probably wait for a more opportune entry point in order to enhance their future return and increase their margin of safety.
Final Thoughts
CT REIT has exhibited consistent and reliable business performance over the last decade. It also proved markedly resilient throughout the coronavirus crisis, defending its dividend in sharp contrast to many other REITs.
As the stock is also offering a 5.7% dividend yield with a decent payout ratio of 67%, it is an attractive candidate for the portfolios of income investors.
On the other hand, investors should be aware that CT REIT is a slow-growth REIT, and hence it is prudent to try to have a wide margin of safety in reference to the valuation of the stock.
CT REIT appears almost fairly valued right now. Therefore, investors should wait for a meaningful correction of the stock, towards $10, before purchasing the stock.
Moreover, CT REIT is characterized by exceptionally low trading volume. This means that it is hard to establish or sell a large position in this stock.
Additional Reading
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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