Printed on October tenth, 2024 by Aristofanis Papadatos
Agency Capital Property Belief (FRMUF) has three interesting funding traits:
#1: It’s a REIT so it has a positive tax construction and pays out nearly all of its earnings as dividends.Associated: Record of publicly traded REITs
#2: It’s a high-yield inventory based mostly on its 8.9% dividend yield.Associated: Record of 5%+ yielding shares
#3: It pays dividends month-to-month as a substitute of quarterly.Associated: Record of month-to-month dividend shares
You’ll be able to obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter like dividend yield and payout ratio) by clicking on the hyperlink under:
Agency Capital Property Belief’s trifecta of favorable tax standing as a REIT, a excessive dividend yield, and a month-to-month dividend make it interesting to particular person traders.
However there’s extra to the corporate than simply these components. Preserve studying this text to study extra about Agency Capital Property Belief.
Enterprise Overview
Agency Capital Property Belief is concentrated on creating long-term shareholder worth by means of capital preservation and disciplined investing.
In partnership with administration and trade leaders, the REIT co-owns a diversified property portfolio that features multi-residential, industrial, internet lease comfort retail and core service supplier skilled house.
Agency Capital Property Belief has a historical past of 36 years, with presence in the true property markets of Canada and the U.S. As its administration immediately invests in some property of the REIT, its pursuits are aligned with these of the shareholders.
Supply: Investor Presentation
Agency Capital Property Belief at present has 64 business properties with a gross leasable space of 4.4 million sq. toes, pursuits in 5 condominium complexes, and 4 manufactured housing communities.
Due to its stable investing technique, Agency Capital Property Belief proved resilient all through the coronavirus disaster. In sharp distinction to many different REITs, which minimize their dividends, Agency Capital Property Belief stored rising its dividend in its native foreign money (CAD).
Agency Capital Property Belief at present enjoys respectable enterprise momentum however it’s going through a headwind from almost 23-year excessive rates of interest, which have drastically elevated the curiosity expense of the REIT. In 2023, Agency Capital Property Belief noticed its funds from operations (FFO) per unit lower 43% vs. 2021, partly on account of a 50% enhance in curiosity expense.
Fortuitously for the REIT, the Fed simply started decreasing rates of interest and expects to cut back them additional, from 4.75%-5.0% to about 2.75%-3.0% after 2026. If the central financial institution executes as per its steering, it’ll present a powerful tailwind to the outcomes of Agency Capital Property Belief.
Development Prospects
Agency Capital Property Belief goals to develop by way of strategic accretive acquisitions. It companions with robust trade leaders, who retain property administration, and in addition executes partial acquisitions.
Agency Capital Property Belief can boast of getting a defensive enterprise mannequin because of the excessive credit score profile of its tenants. However, traders must be conscious that it is a slow-growth REIT.
Supply: Investor Presentation
Since its inception, in 1988, Agency Capital Property Belief has grown its internet asset worth per unit by solely 57%. In different phrases, the REIT has grown its internet asset worth per unit by 1.3% per yr on common since its inception.
You will need to observe that the lackluster efficiency file has resulted partly from the strengthening of the USD vs. CAD. Because the Canadian greenback has depreciated by about 18% during the last decade, it’s evident that Agency Capital Property Belief has confronted a powerful foreign money headwind in its outcomes during the last decade.
Furthermore, central banks raised rates of interest aggressively within the final two years as a way to cool the economic system and restore inflation to their goal vary. Larger rates of interest have elevated the curiosity expense of Agency Capital Property Belief by 50% within the final two years.
As inflation appears to have lastly moderated, central banks are more likely to cut back rates of interest within the upcoming years.
Given the stable enterprise mannequin of Agency Capital Property Belief but in addition its lackluster efficiency file and its foreign money danger, we anticipate the REIT to develop its FFO per unit by about 2.0% per yr on common over the subsequent 5 years.
Dividend & Valuation Evaluation
Agency Capital Property Belief is at present providing an above common dividend yield of 8.9%. It’s an fascinating candidate for income-oriented traders, however the latter must be conscious that the dividend might fluctuate considerably over time because of the fluctuation of the trade price between the Canadian greenback and the USD.
Furthermore, the REIT has an elevated payout ratio of 83%, which drastically reduces the margin of security of the dividend. Moreover, the REIT has an curiosity protection ratio of solely 2.3. This protection ratio is low, significantly given the headwind from excessive rates of interest.
Consequently, traders shouldn’t anticipate significant dividend development going ahead. It’s also essential to notice that the dividend has been frozen during the last three years. General, the dividend could also be minimize within the occasion of an unexpected downturn, akin to a deep recession.
We additionally observe that Agency Capital Property Belief has a fabric debt load in its steadiness sheet. Its internet debt is at present standing at $247 million, which is 160% of the market capitalization of the inventory. The excessive dividend payout ratio, the low curiosity protection ratio, and the fabric debt load of the REIT considerably cut back its resilience to a possible future recession.
In reference to the valuation, Agency Capital Property Belief is at present buying and selling for 9.2 occasions its FFO per unit within the final 12 months. Given the excessive debt load of the REIT, we assume a good price-to-FFO ratio of 10.0 for the inventory.
The present FFO a number of is barely decrease than our assumed truthful price-to-FFO ratio. If the inventory trades at its truthful valuation stage in 5 years, it’ll get pleasure from a 1.6% annualized achieve in its returns.
Considering the two% annual FFO-per-unit development, the 8.9% dividend and a 1.6% annualized enlargement of valuation stage, Agency Capital Property Belief may provide a ten.4% common annual complete return over the subsequent 5 years.
That is a gorgeous anticipated return, although we advocate ready for a greater entry level as a way to improve the margin of security in addition to the anticipated return.
Furthermore, the inventory is appropriate just for the traders who’re comfy with the danger that comes from the excessive payout ratio and the fabric debt load of the belief.
Closing Ideas
Agency Capital Property Belief has a stable enterprise mannequin because of the competence of its administration and the alignment of pursuits between its administration and its shareholders, as administration invests within the properties of the REIT. It is a vital benefit for the shareholders.
Regardless of its excessive payout ratio of 83%, the inventory is providing an exceptionally excessive dividend yield of 8.9% and therefore it’s a gorgeous candidate for the portfolios of income-oriented traders.
However, traders ought to concentrate on the dangers associated to the excessive payout ratio and the leveraged steadiness sheet of the belief. If inflation surges once more, then excessive rates of interest will drastically burden the REIT by means of excessive curiosity expense.
Subsequently, solely the traders who’re assured that inflation won’t recuperate ought to think about buying this inventory.
Furthermore, Agency Capital Property Belief is characterised by extraordinarily low buying and selling quantity. Because of this it’s onerous to determine or promote a big place on this inventory.
Extra Studying
Don’t miss the sources under for extra month-to-month dividend inventory investing analysis.
And see the sources under for extra compelling funding concepts for dividend development shares and/or high-yield funding securities.
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