There are a number of reasons why many investors are bullish on Smart REIT (T.SRU.UN).
The biggest reason is the company’s exposure to Wal-Mart (NYSE: WMT). Smart has been Wal-Mart’s developer of choice for years, with Wal-Mart stores anchoring a large percentage of Smart’s portfolio of approximately 140 properties. Rent from Wal-Mart accounts for about 25% of Smart’s net operating income.
Some investors are nervous about such a big commitment to one retailer, but most don’t mind. In fact, it’s a huge positive. Wal-Mart stores bring large amounts of foot traffic to a location. This foot traffic attracts other retailers even if they compete with the behemoth from Arkansas. It’s hard to find that kind of activity anywhere else.
Smart also has a portfolio that is much newer than its peers. It has an average age of less than 10 years for its developments, mostly because Wal-Mart is still relatively new in Canada.
This combination of new real estate and foot traffic shows in Smart’s occupancy. Its occupancy ratio is flirting with 99%, which is between 5% and 10% better than most of its competitors. This difference reflects in Smart’s valuation, which is higher than most other retail REITs.
Smart has done a nice job recently growing its dividend. It has hiked its dividend twice in the past two years, increasing the payout from 12.9 cents per share each month in 2014 to 13.75 cents per month currently. With a payout ratio of under 80% of funds from operations, look for Smart to continue hiking its dividend.
