Choice Properties REIT focuses on adding residential properties

Revenue for this real estate investment trust rose 52.8% in the most-recent quarter, along with cash flow up 27.7%.

Canada’s largest REIT holds retail, industrial, office and multi-family residential properties across the country, with several others in development as it continues to expand beyond its core tenants.

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CHOICE PROPERTIES REIT $14 (Toronto symbol CHP.UN; acquired Canadian REIT (old symbol REF.UN) on May 7, 2018. The merger created Canada’s biggest real estate investment trust: 753 properties, including several under development, for a total of 66.8 million square feet of retail, industrial and office space.

Choice Properties’ portfolio includes 599 retail properties, 113 industrial properties, 16 office complexes, 3 multi-family residential buildings and 22 development properties.

The REIT’s retail properties comprise the following: 306 properties with a standalone Loblaw-bannered retail store; 230 properties anchored by a Loblaw-bannered retail store, but also containing one or more third-party tenants; and 63 properties that contain only third-party tenants and no Loblaw-bannered store.

The REIT now aims to expand its residential properties to further diversify its portfolio. Many of these opportunities will come from adding residential buildings to existing retail sites.

Dividend Stocks: Shares yield 5.3% as revenue jumps 52.8%

Right now, Choice has seven residential projects under development representing 791,000 square feet. It has invested a total of $78 million in these projects to date, and the REIT expects to invest an additional $308 million to complete the developments.

Supermarket operator Loblaw (Toronto symbol L) formed Choice Properties in 2013 to hold its real estate properties.

On November 1, 2018, Loblaw transferred its 61.6% stake in Choice Properties to its parent company George Weston Ltd. (Toronto symbol WN). Under the terms of the deal, Loblaw shareholders received 0.135 of a Weston common share for each L share they held. As a result, Weston now owns 65.4% of the REIT. As well, Loblaw shareholders hold 16.8% of Weston’s shares.

Choice Properties pays monthly distributions of $0.061667 a unit. The annual rate of $0.74 yields a high 5.3%.

In the quarter ended December 31, 2018, the REIT’s revenue jumped 52.8%, to $322.8 million from $211.2 million a year earlier. Overall cash flow rose 27.7%, to $110.3 million from $86.4 million. Due to the extra units outstanding as a result of the merger with Canadian REIT, cash flow per unit declined by 21.1%, to $0.165 from $0.209.

The units now trade at a reasonable 16.9 times Choice Properties projected 2019 cash flow of $0.83 a unit.

Recommendation in Dividend Advisor: Choice Properties REIT is a buy.


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