Scott’s Real Estate Investment Trust (OTC:SOREF) owns a geographically diversified portfolio of retail properties across Canada with just over 300 million in total gross assets. As of September 30, 2009, Scott's REIT indirectly owned 229 properties in eight provinces across Canada. Scott's REIT's properties are well-located and geographically situated across Canada, which reduces its exposure to regional economic conditions that may affect a particular province or area. Properties are occupied by national brands including KFC, Taco Bell, Shoppers Drug Mart, Rexall Pharma Plus, Laurentian Bank, Tim Hortons, Staples and Subway.
Scott's REIT provides exposure to the Canadian real estate market and the Canadian dollar. It has paid a monthly dividend of 0.0708 for 72 consecutive quarters, which represents a yield of approximately 15% net of applicable foreign taxes. The total payout over this six-year period was 5.10 CAD, which is not too much lower than the current stock price 5.67. According to the latest earnings report, 96% of the company’s properties are leased. To put this number in perspective, Realty Income (NYSE:O) - considered by many to be a best of breed REIT - features a comparable percentage of 96%, W. P. Carey (NYSE:WPC) features a rate of 91%, and National Retail Properties has a rate of 97% (NYSE:NNN).
Scott’s REIT has hit a recent bump in the road with one of its tenants – Priszm, which recently filed for bankruptcy protection. Scott’s REIT is the landlord of 20 of the locations operated by Priszm. From the company’s latest earnings report, it was stated that:
We are also making strong progress re-leasing the disclaimed sites previously tenanted by Priszm's KFC restaurants and are confident we will be able to successfully address any potential challenges that may surface over the next few quarters. Until such time, as we re-lease the balance of the remaining Priszm KFC sites, our payout ratio will temporarily exceed our preferred ratio level. However, Scotts REIT is taking a long-term view with respect to our distributions, assets and portfolio management.
It appears that the payout ratio will briefly exceed 100% as Scott’s REIT deals with the Priszm issue. Given the 6+ year record of consistent payouts, I am confident that management will execute on this. The current stock price of 5.67 (USD) represents an opportune time to establish a position. I believe that Scott’s REIT would be a nice addition to a portfolio given its relatively low correlation to the US REIT-space, consistent monthly dividend, and exposure to the stable Canadian commercial real estate market.
Disclosure: I am long OTC:SOREF.