In a world buffeted by economic and geopolitical turmoil, investors are craving stability and predictability.
With that in mind, today we’ll look at two real estate investment trusts that are largely insulated from the chaos. Both are based in Canada, have little to no direct exposure to the United States and pay steady cash flow – so you can exercise your patriotic duty while generating some extra income.
As always, do your own due diligence before investing in any security and be sure to maintain a diversified portfolio to control your risk.
Plaza Retail REIT (PLZ.UN)
Price: $3.58
Yield: 7.8%
Plaza Retail REIT flies under the radar because its properties are located primarily in secondary and tertiary markets in Ontario, Quebec and the Atlantic provinces. Despite Plaza’s relatively small size – its market cap is about $400-million – more than 90 per cent of its rents come from high-quality national tenants that provide everyday essential products. We’re talking about chains such as Loblaws, Shoppers Drug Mart, Canadian Tire, Dollarama and Tim Hortons.
No matter how bad the trade war gets, people are still going to buy groceries, take their prescription medications and order their morning double-double.
Plaza’s fundamentals are strong. With demand for retail space continuing to increase in Canada, the REIT’s occupancy rate is currently about 97 per cent. Last year, Plaza’s net operating income – defined as property revenue minus operating expenses – rose 6.6 per cent to about $75-million.
Despite the current turmoil emanating from the Oval Office, the future looks bright.
“We anticipate that the growing demand for retail space, coupled with a limited supply, including minimal new development, should position the REIT well to generate above-average top-line growth over our forecast period,” Lorne Kalmar, an analyst with Desjardins Capital Markets, said in a January note. He initiated coverage of Plaza with a buy rating and a $4.25 price target.
Alexandra Ricci, an analyst with Paradigm Capital, also recently initiated coverage of Plaza with a buy rating. She calls the units “undervalued,” noting that they trade at a multiple of about 10.2 times estimated adjusted funds from operations (AFFO) – a cash flow measure – and a 22-per-cent discount to the net asset value (NAV) of Plaza’s property portfolio. That compares with a P/AFFO multiple of 12.7 and a NAV discount of 16 per cent for the broader REIT sector.
“In our view, the stability of [Plaza’s] portfolio and steady growth should warrant a higher multiple,” Ms. Ricci said.
Keep in mind that Plaza hasn’t raised its distribution since 2018, so this probably isn’t the place to look for growing income. But its yield is higher than average for the REIT sector, and the distribution is “well covered,” she said.
Chartwell Retirement Residences REIT (CSH.UN)
Price: $16.72
Yield: 3.6%
I don’t know about you, but I feel like I’ve aged about 10 years in the past few weeks. That may be why I started thinking about Chartwell Retirement Residences REIT, one of Canada’s largest operators of retirement, assisted-living and long-term care facilities.
Even as the broader market has been whipsawed by every tariff headline, Chartwell’s unit price has been climbing steadily. Thanks to improving occupancy levels and profit margins, Chartwell has generated a cumulative total return – including distributions – of about 105 per cent over the past two years. And there’s likely more to come, analysts say.
“We believe the share price has additional runway for growth as occupancy continues to recover to, and eventually exceed, pre-pandemic levels,” Dean Wilkinson, an analyst with CIBC World Markets, said in a note after the release of Chartwell’s fourth-quarter results in February. In light of the results, he reiterated an “outperformer” rating and raised his price target to $20 from $19.
In the fourth quarter, Chartwell’s same-property occupancy increased by 5 percentage points year-over-year to 90.9 per cent. Falling interest rates provide another tailwind for Chartwell, whose properties in Ontario, Quebec, British Columbia and Alberta serve about 25,000 residents.
With the population of seniors increasing and development of new retirement facilities slowed by high construction costs, the supply and demand fundamentals point to continued growth in occupancy, rental rates and profitability, Vlad Volodarski, Chartwell’s chief executive officer, said on the fourth-quarter conference call.
“Today, maybe more than ever, there is a lot of uncertainty in the world and particularly in our country’s relationship with the United States. The threat of trade disputes and their potential to create an economic downturn is real,” Mr. Volodarski said.
“We cannot reliably assess or predict the potential impact of the situation in our country or on Chartwell at this time. Having said that, our business is predominantly needs-driven and historically has been less susceptible to economic downturns. For example, during the financial crisis of 2008 and 2009, our same-property portfolio remained stable in the 90-per-cent occupancy range.”
Mr. Volodarski indicated that Chartwell intends to resume regular distribution increases but did not provide a timeline. Mr. Kalmar, the Desjardins analyst, said annual distribution increases could begin as early as the third quarter of 2025.
Disclosure: The author personally owns units of PLZ.UN
E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.