Actual Property Funding Trusts – or REITs, for brief – is usually a improbable supply of yield, security, and progress for dividend traders. For instance, Alternative Properties Actual Property Funding Belief (PPRQF) has a 5% dividend yield.
Alternative Properties additionally pays its dividends on a month-to-month foundation, which is uncommon in a world the place the overwhelming majority of dividend shares make quarterly payouts.
There are solely 53 month-to-month dividend shares that we at present cowl. You possibly can see our full checklist of month-to-month dividend shares (together with price-to-earnings ratios, dividend yields, and payout ratios) by clicking on the hyperlink under:
Alternative Properties’ excessive dividend yield and month-to-month dividend funds make it an intriguing inventory for dividend traders, though its dividend cost has been stagnant in recent times.
This text will analyze the funding prospects of Alternative Properties.
Enterprise Overview
Alternative Properties is a Canadian REIT with concentrated operations in a lot of Canada’s largest markets. It’s one in every of Canada’s premier REITs given its dimension and scale, and the truth that its operations are solely centered in Canada. The belief has wager massive on Canada’s actual property market, and so far, the technique has labored.
The corporate has a excessive–high quality actual estate portfolio of over 700 properties which make up over 60 million sq. ft of gross leasable space (GLA).
Supply: Investor Presentation
Properties embrace retail, industrial, office, multi–household, and improvement property. Over 500 of Alternative Properties’ investments are to their largest tenant, Canada’s largest retailer, Loblaw.
From an funding perspective, Alternative Properties has some attention-grabbing traits, not the least of which is its yield. Nevertheless, it additionally has an uncommon dependency on one tenant, an absence of diversification that we discover considerably troubling.
Whereas grocery shops are typically fairly secure, this degree of focus on what quantities to at least one tenant could be very uncommon. This lack of diversification is a major consideration for traders which can be Alternative Properties.
Whereas it will be preferable for the corporate to diversify to repair its focus, that may be a sluggish course of. As well as, because the tenant it’s so dependent upon is usually secure, we don’t essentially see an enormous danger because of the business struggling. Nevertheless, this kind of focus on one tenant is extraordinarily uncommon for a REIT, and it’s price noting.
Progress Prospects
Alternative Properties has struggled with progress because it got here public in 2013. Because the finish of 2014, the belief’s first full yr of operations as a public firm, it has compounded adjusted funds-from-operations per share at a price of simply ~1% per yr.
The belief has grown steadily when it comes to portfolio dimension and income, however comparatively excessive working prices and dilution from share issuances have saved a lid on returns for shareholders. Historical past has proven Alternative Properties can exhibit sturdy progress traits on a greenback foundation, however as soon as translated to a per-share foundation, traders have been left wanting.
Its struggles have continued in 2021. On April twenty ninth, Alternative Properties launched Q1 outcomes. Funds from Operations got here in at $0.236 per diluted unit, down from $0.244 per diluted unit year-over-year. This was primarily attributable to a disadvantageous change of $603.7 million in adjustment to the honest worth on the Exchangeable Models, the belief had a web lack of $62.2 million.
The belief collected 98% of rents in Q1. In the meantime, the corporate accomplished over $163.4 million of acquisitions and $88.9 million of inclinations on a proportionate share foundation in Q1.
We see Alternative Properties as persevering with to develop very barely at a price of three% per yr over the subsequent 5 years. The focus of the belief’s portfolio and fixed dilution make Alternative Properties unattractive from a progress perspective. When fixed share issuances are factored in, the outlook turns into even much less engaging.
Dividend Evaluation
For all of its progress woes, Alternative Properties’ dividend seems to be safe in the intervening time. The anticipated dividend payout ratio for 2021 is 78%. Whereas that’s excessive, additionally it is true that REITs typically distribute near all of their earnings, so it’s hardly uncommon that Alternative’s payout ratio is nearing 80%.
Alternative Properties’ present distribution offers the inventory a 5% yield, which is a lovely dividend yield.
Notice: As a Canadian inventory, a 15% dividend tax will likely be imposed on US traders investing within the firm outdoors of a retirement account. See our information on Canadian taxes for US traders right here.
Traders mustn’t count on Alternative Properties to be a dividend progress inventory, because the distribution has remained flat since Could 2017. With the payout ratio has excessive as it’s, and FFO-per-share progress muted, traders mustn’t count on the payout to be raised anytime quickly.
Alternative Properties hasn’t lower the distribution, and we don’t see imminent menace of that proper now. However it’s price mentioning that if FFO-per-share deteriorates considerably going ahead, the belief will doubtless have to chop the distribution attributable to its excessive payout ratio.
That is significantly true as a result of we see Alternative Properties’ borrowing capability as restricted, given its already-high leverage. Alternative Properties has debt to EBITDA of seven.6X, which in accordance with the corporate is under the business friends, however remains to be alarmingly excessive.
As well as, it has massive quantities of debt coming due in levels within the coming years, so we see the belief’s debt financing as close to capability right this moment. Alternative has regular debt maturities within the coming years, and whereas they’re unfold out, the quantities are vital. Alternative has no means to pay these off as they mature, so refinancing seems to be the one viable choice.
Ought to it expertise a downturn in earnings, Alternative Properties must flip to extra dilution for added capital. Whereas we don’t see a dividend lower within the close to future, the mixture of an absence of adjusted FFO-per-share progress, the excessive payout ratio, and a excessive degree of debt seems dangerous.
Last Ideas
Alternative Properties is a excessive dividend inventory and its month-to-month dividend funds make it stand out to earnings traders. Nevertheless, various components make us cautious on Alternative Properties right this moment, akin to its lack of diversification inside its property portfolio, and its alarmingly excessive degree of debt.
With a considerably dangerous dividend, we view the inventory as unattractive for risk-averse earnings traders. Traders on the lookout for a REIT that pays month-to-month dividends have higher selections with extra favorable progress prospects, increased yields, and safer dividends.
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