SRU-UN.TO - SmartCentres Real Estate Investment Trust

[ourkid8]

This looks to be an interesting REIT. 

 

Company owns 166 properties with 3,500 acres.  Walmart accounts for 25% of all their revenues and has 41.3% of their leaseable area so very stable tenants but very high concentration.  The company has 2,275 unbuilt acres with 77 percent of redevelopment projects with re-occurring income initiatives (196 projects) and the remaining development income initiatives on completion of 23% (60). 

 

The company has a strong Executive chairman who brought Walmart to Canada and has a 21 percent ownership in the REIT.  The company has a 97% occupancy and a 88.8% payout ratio with a distribution yield of 7.13%.  They have not overextended themselves with a relatively low debt to gross book value of 44.3% with a strong cash position.  Recently raised $650M in debt @ 2% which is amazing.

 

Risks

 

1. A lot of the retailers leases are expiring in the next 5 years which is concerning in the current environment

2. Walmart is a high concentration of their properties

3. related party transactions between penguin and SmartCentres 

 

I am not sure how to properly value a REIT so any suggestions would be appreciated.

[Gregmal]

Thanks for mentioning this. I found, maybe 3-4 months ago that the Canadian real estate co's/REITs were by and large, stupid cheap. This is one of the higher quality for sure.

 

Dont really have a whole lot else to add other than the observation that the market is unnecessarily pessimistic, and in many instances overly simple in its application of a "dont touch retail" narrative. Spreads are still way too wide and discounts to private market remain enormous in some places.

 

In terms of valuing it, that IMO depends on what your investment is predicated on. Are you investing based on a catalyst? Or is this just a perpetual buy and hold?

 

Myself, I own a bunch of Canadian REITs/RE companies. 25-30% of book works for me when there's safely covered dividends and buybacks taking place.

[ourkid8]

This is more of a buy and hold position at least for the next 5-7 years due to the significant redevelopment activities on their properties.  They are currently are undergoing a 12.1B intensification program ($5.5B of their share) on their land to add rental apartments, condos, seniors residence, hotels, retail, office and storage facilities.  (77% will include reoccurring revenue)

 

I assume you mean you are ok holding high quality REIT's for a premium of 25-30% above book?  Since book is roughly $30 that means you would feel comfortable holding it till $37.5-39/unit? 

 

In terms of valuing it, that IMO depends on what your investment is predicated on. Are you investing based on a catalyst? Or is this just a perpetual buy and hold?

 

Myself, I own a bunch of Canadian REITs/RE companies. 25-30% of book works for me when there's safely covered dividends and buybacks taking place.

[Gregmal]

I like the name and agree its a solid longer term hold.

 

What I meant for 25-30% of book was simply at the time I was going through these(several months ago) there were a number of Canadian REITS and RE companies dirt cheap. Trading between 25-50% of book or NAV. Which usually signals big issues but I couldn't really find any that warranted such pessimism and in addition many of these have on going buybacks and pay dividends so I'm all good with that. Cheers

[ourkid8]

Ah, thanks for the clarification. 

 

I like the name and agree its a solid longer term hold.

 

What I meant for 25-30% of book was simply at the time I was going through these(several months ago) there were a number of Canadian REITS and RE companies dirt cheap. Trading between 25-50% of book or NAV. Which usually signals big issues but I couldn't really find any that warranted such pessimism and in addition many of these have on going buybacks and pay dividends so I'm all good with that. Cheers

[hasilp89]

Ourkid8 - not sure if this a nnn lease reit but if you are interested in learning more about the economics and valuation of those business I’d highly recommend reading the shareholder letters of Store capital (STOR). Ceo is a legend, brk owns 10%, he explains the valuation in a manner that morons like me can understand. What’s your cap rate. What’s your cost of capital. Credit profile and economics of tenants. How can you grow number of leases. How are rents growing.