Updated on October 1st, 2024 by Felix Martinez
Primaris Real Estate Investment Trust (PMREF) has three appealing investment characteristics:
#1: It is a REIT so it has a favorable tax structure and pays out the majority of its earnings as dividends.
Related: List of publicly traded REITs
#2: It is a high-yield stock based on its 5.1% dividend yield.
Related: List of 5%+ yielding stocks
#3: It pays dividends monthly instead of quarterly.
Related: List of monthly dividend stocks
You can download our full list of monthly dividend stocks (along with relevant financial metrics like dividend yields and payout ratios), which you can access below:
Primaris Real Estate Investment Trust’s trifecta of favorable tax status as a REIT, a high dividend yield, and a monthly dividend make it appealing to individual investors.
But there’s more to the company than just these factors. Keep reading this article to learn more about Primaris Real Estate Investment Trust.
Business Overview
Primaris Real Estate Investment Trust is the only enclosed shopping center-focused REIT in Canada, with ownership interests primarily in dominant enclosed shopping centers in growing markets. Its asset portfolio totals 12.4 million square feet, with a value of approximately C$3.8 billion.
Like most mall REITs, Primaris REIT is facing a strong secular headwind, namely the shift of consumers from traditional shopping to online purchases. This trend has driven numerous brick-and-mortar stores out of business in recent years and has markedly accelerated since the onset of the coronavirus crisis.
Primaris REIT is doing its best to adjust to the changing business landscape. To this end, the company tries to achieve economies of scale while also enabling and supporting omnichannel integration.
Source: Investor Presentation
Moreover, Primaris REIT owns and operates shopping centers that constitute the primary retail mode in their markets. The REIT also targets shopping centers with annual sales of at least C$80 million in order to have the critical mass to achieve significant economies of scale.
Source: Investor Presentation
Furthermore, Primaris REIT tries to build multi-location tenant relationships in order to create deeper relationships with its tenants and benefit from such relationships in the long run.
The company reported strong financial and operational results for the second quarter of 2024, driven by growth in rental income and occupancy rates. The trust’s total rental revenue reached $120 million, with a 1.3% increase in Same Properties Cash Net Operating Income (NOI) and a 5.9% growth in shopping center Cash NOI. Committed occupancy stood at 94.4%, with in-place occupancy at 93%. Primaris also saw a 6.8% increase in funds from operations (FFO) per average diluted unit, reaching $0.422, and maintained a solid financial position with $690.8 million in liquidity and $3.3 billion in unencumbered assets.
Growth Prospects
Primaris REIT has some significant growth drivers thanks to the characteristics of its core markets. In its markets, the population and the average household income are expected to grow by 5.5% and 3.0% per year, respectively, between 2020 and 2025. This means higher revenues for the shopping centers and hence higher revenues for Primaris REIT.
Moreover, as occupancy is currently standing below historical average levels, there is ample room for future growth for this REIT. Management is confident in sustained growth in the upcoming years.
On the other hand, investors should never forget the strong secular headwind from the shift of consumers toward online shopping. While Primaris REIT is doing its best to adjust to the new business environment, the secular shift of consumers will almost certainly continue exerting a strong drag on the business of the REIT. Overall, we find it prudent to assume just a 2.0% average annual growth of FFO per unit over the next five years in order to be on the safe side.
Dividend & Valuation Analysis
Primaris REIT is currently offering a 5.1% dividend yield. It is thus an interesting candidate for income-oriented investors but the latter should be aware that the dividend may fluctuate significantly over time due to the gyrations of the exchange rate between the Canadian dollar and the USD. Thanks to its decent business model, solid payout ratio of 55%, and strong interest coverage of 5.5, the trust is not likely to cut its dividend in the absence of a severe recession.
Notably, Primaris REIT has maintained a stronger balance sheet than most REITs in order to have the sufficient financial strength to endure the secular decline of malls and the effect of a potential recession on its business. We praise management for maintaining a decent balance sheet, with a leverage ratio (Net Debt to EBITDA) of 5.0.
On the other hand, due to the aggressive interest rate hikes implemented by the Fed in response to high inflation, interest expense is likely to rise significantly in the upcoming years. This is a headwind for the vast majority of REITs, including Primaris REIT. If high inflation persists for much longer than currently anticipated, high-interest rates will probably take their toll on the bottom line of Primaris REIT.
In reference to the valuation, Primaris REIT is currently trading for only 14 times its FFO per unit in the last 12 months.
Given the headwind from online shopping, we assume a fair price-to-FFO ratio of 11.0 for the stock. Therefore, the current FFO multiple is higher than our assumed fair price-to-FFO ratio. If the stock trades at its fair valuation level in five years, it will have a -(4.8)% annualized headwind in its returns.
Taking into account the 2% annual FFO-per-share growth, the 5.1% dividend, and a (4.8)% annualized compression of valuation level, Primaris REIT could offer a 2.3% average annual total return over the next five years. This is not an attrative expected return, especially for investors who expect inflation to subside swiftly to its normal levels. Nevertheless, the stock is suitable only for investors who are comfortable with the risk that comes from the secular decline of malls.
Final Thoughts
Primaris REIT is the only REIT in Canada focused on enclosed shopping centers. With a 5.1% dividend yield and a solid payout ratio of 55.%, it is an attractive candidate for income-oriented investors’ portfolios, particularly given its expected return of 2.3% per year over the next five years.
On the other hand, investors should be aware of the risks of this REIT. Due to its focus on malls, Primaris REIT is vulnerable to recessions, while it also faces a strong headwind due to the shift of consumers from brick-and-mortar shops to online purchases. Only the investors who are comfortable with these risks should consider purchasing this stock.
Moreover, Primaris REIT is characterized by exceptionally low trading volume. This means that it is hard to establish or sell a large position in this stock.
Don’t miss the resources below for more monthly dividend stock investing research.
- The Monthly Dividend Stocks List
- 20 Highest Yielding Monthly Dividend Stocks
- 10 Cheapest Monthly Dividend Stocks
- 10 Safest Monthly Dividend Stocks
- 3 Top ‘Hold Forever’ Monthly Dividend Stocks
And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.
- Dividend Kings: 50+ years of rising dividends
- Dividend Champions: 25+ years of rising dividends
- Dividend Aristocrats: 25+ years of rising dividends and in the S&P 500
- Dividend Achievers: 10+ years of rising dividends and in the NASDAQ
- High Dividend Stocks: 4%+ dividend yields
- Blue Chip Stock: Kings, Aristocrats, and Achievers
- MLPs: List of MLPs and more
- REITs: List of REITs and more
- BDCs: List of BDCs and more