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What are we looking for?

Canadian real estate investment trusts with sustainable distributions shored up by a diversity of top-quality tenants.

The screen

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Loblaw Cos. Ltd.’s move to spin off its stake in Choice Properties REIT is more than just a shuffling of assets from the retailer to its parent company, George Weston Ltd. Once cut free from Loblaw’s direct ownership (Loblaw plans to transfer its entire 61.6-per-cent stake in Choice to Weston), the REIT can continue its tenant diversification beyond supermarkets.

The spinoff points to the strong outlook and appeal of high-quality REITs with a broad range of top-quality tenants across Canada.

Our search started with Canadian REITs offering both tenant and geographic diversity. We then applied our TSI dividend-sustainability rating system. It awards points to a stock based on key factors:

  • One point for five years of continuous dividend payments – two points for more than five;
  • Two points if it has raised the payment in the past five years;
  • One point for management’s commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to foreign currency rates and freedom from political interference;
  • Two points for a strong balance sheet, including manageable debt and adequate cash;
  • Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
  • One point if the company is a leader in its industry.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; four to six points indicates average sustainability. Below average sustainability is one to three points.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

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Our TSI dividend-sustainability rating system generated seven REITs. Choice’s acquisition of Canadian REIT earlier this year cut its dependence on Loblaw as a tenant, and it aims to keep diversifying. RioCan REIT’s widening mix of retail and residential properties puts it among Canada’s largest real estate investment trusts. Office-focused Allied Properties REIT and Dream Office REIT both concentrate on the country’s largest downtown markets. Crombie REIT, like RioCan, holds mostly shopping centres, but is expanding into apartments. H&R REIT owns a broad range of properties in Canada and the United States. Dream Industrial REIT’s portfolio is located in key Canadian markets and it’s expanding south of the border.

Select TSX-listed real estate investment trusts

Ranking * Company Ticker Dividend Sustainability Rating Dist. Yield % Points Mkt.cap. ($ Mil.) Recent price ($) 1Y Total Rtn. (%)
1 H&R REIT HR-UN-T Above Average 6.7 7 5,879.0 20.58 -4.7
2 Choice Properties REIT CHP-UN-T Above Average 5.9 7 8,380.9 12.56 -3.5
3 RioCan REIT REI-UN-T Above Average 5.7 7 7,959.3 25.45 6.4
4 Allied Properties REIT AP-UN-T Above Average 3.5 7 4,496.2 44.84 16.5
5 Dream Industrial REIT DIR-UN-T Average 6.8 6 936.4 10.31 14.8
6 Crombie REIT CRR-UN-T Average 6.7 6 2,027.0 13.38 0.2
7 Dream Office REIT D-UN-T Average 4.0 6 1,500.4 24.92 20.6

Source: Dividend Advisor

*Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements.

We advise investors to do additional research on investments we identify here.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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