Choice Properties is a Real Estate Investment Trust (REIT for short) that owns, manages and develops retail and commercial real estate across Canada. Choice Properties was spun out by Loblaw TSE:L in 2013 and the grocery chain is its biggest tenant today.
The REIT’s properties are well located across Canada majorly in the largest markets. Approximately 57% of the portfolio’s base rent is generated from large urban markets, mainly in Toronto, Calgary, Vancouver and Montreal. Small and medium urban markets drive 28% and 15% of the portfolio’s base rent, respectively.
Choice Properties manages operations in three reportable segments – retail (81% of net operating income), industrial (12%) and office (7%).
As one of Canada’s largest REIT, Choice Properties owns and manages over 750 properties spanning approximately 66.8 million square feet of GLA across Canada. Choice Properties’ portfolio includes 599 retail properties, 113 industrial properties, 16 office complexes, 3 multi-family residential buildings and 22 development properties.
- Opportunity Score: 45
- Ticker: TSE:CHP.UN
- Sector: Real Estate
- Industry: REIT - Retail
- Market Cap: 4.78B
- P/E: 44.00
- Dividend Yield: 5.07%
- Payout Ratio (TTM): 102.50%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 1/10
- Dividend Income Fit: 5/10
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Revenue Growth & Market Exposure
The majority of Choice Properties’ portfolio comprises of supermarket anchored retail real estate located in both major and secondary markets. The REIT is known for its high quality portfolio and good locations.
Its portfolio also has a good diversification of retail, commercial, industrial as well as residential properties. Rental residential real estate provides a good diversification to income and generates additional investment opportunities for asset base growth. Choice Properties has an overall occupancy of 97.7%, which is consistent with earlier periods.
Large and diversified commercial property portfolio is the key to REIT business. Choice Properties’ portfolio of high-quality properties is diversified geographically and by product type. The REIT’s huge exposure to retail properties ensures reliable cash flow. Choice Properties focuses on necessity-based tenants for its retail portfolio.
In addition, its strategic relationship and long term leases with Loblaw Companies provides access to future tenancy and opportunities with members of the Loblaw group of companies. Canada’s largest retailer, Loblaw Companies is Choice Properties’ principal tenant which is a major advantage for the company.
The REIT is looking at enhancing its portfolio with accretive acquisitions, strategic development and active property management. After the acquisition of Canadian REIT (CREIT) in May last year Choice Properties further expanded and diversified its retail portfolio to include industrial, office, and residential space.
Choice Properties is well positioned for future growth and value creation, given its long-term pipeline of development projects and significant amount of redevelopment opportunities.
With over 5% in distribution yield, this Canadian Dividend Aristocrat REIT is one of the most attractive income stocks on the market. The trust has successfully grown its payouts at 3.9% CAGR in the last three years, while its FFO has registered a 24% CAGR during the same time.
In 2017, the REIT increased annual distributions by 4.2%, from $0.71 per unit to $0.74 per unit. It has a manageable payout ratio of 72% of funds from operations.
Sizable base of assets, relationship with Loblaw and solid capital structure are Choice Properties’ competitive advantages. Strategic acquisition of CREIT and alliance with Loblaw have contributed to greater diversification and stable revenues, respectively.
This has opened new avenues for property acquisitions, in addition to Choice Properties’ own development and intensification projects. It is now in a better position to grow its portfolio and cash flow by leveraging its competitive advantages.
Strategic relationship with Loblaw and long-term leases (66% expiring by 2024 and beyond) also grants enough cash flow visibility. Nearly 50% of the base rent is derived from properties in major Canadian cities like Vancouver, Edmonton, Montreal etc. A high quality tenant base consisting of Canadian Tire Corporation, TJX Companies, Suncor, TD Bank also supports stable cash flow.
A strong balance sheet, financial flexibility, and prudent management supports its financial goals.
The success of a REIT to a great extent depends on the location of its properties, and Choice Properties’ national footprint concentrated in Canada’s largest markets grants it a competitive edge over peers.
Choice Properties competes with other investors, managers and owners of properties. CT REIT, SmartCentres REIT, RioCan, Plaza Retail REIT are few of the other leading retail REITs in Canada.
Over the years, Choice Properties has developed a stable portfolio base diversified by asset class and geography, and secured by long term leases with Canada’s largest retailer.
The REIT is favourably placed to capitalize on urban mixed-use development and multi-residential rental opportunities. Choice Properties is one of the most stable and well-diversified REITs with compelling yield and a long dividend growth track record.