Intro
Sounds like real estate, doesn’t it? Yes, it actually does. You believe real estate is a sound investment in this interest rate environment? It depends.
Before we get into Canadian Net Real Estate, a big disclaimer: this is once again a tiny cap with very low liquidity. So, if you need or want a lot of trading liquidity, this is certainly not something for you.
Canadian Net acquires and retains commercial real estate leases in around 100 properties in Eastern Canada (focus on Quebec and Ontario) with a 100% occupancy rate as of Q3 2023. Some of the largest single tenant include Loblaws, Walmart or Sobeys. The contracts are on a triple net basis, meaning that the tenant pays all the expenses of the property, including real estate taxes, building insurance and maintenance. These expenses are in addition of the costs of rent and utilities. This is the major difference of triple net leases vs. normal commercial contracts where more costs are typically the landlord’s responsibility. Triple net leases ensure stable recurring cash flows.
Due to a solid real estate market in Canada, NET has been able to increase its funds from operations and dividend in the last ten years significantly.
Insiders of the company own ~15% and hence have skin in the game.
Valuation
NET shows a market cap of around C$100 million at a price of C$4.85 per share. Due to the rental contract structure, there is low CAPEX need. The average lease term remaining is more than 6 years and as indicated above consists mainly of AAA tenants.
Slightly more than half of the funds from operations generated are distributed in form of a dividend. The dividend is paid monthly and amounts to roughly 7% p.a. at the moment.
What’s next?
Canadian Net has a very simple strategy and finds itself in an attractive market niche which should allow for further growth. Interest rates have already normalized to a certain degree which should be positive for NET. The low-risk business model coupled with additions to its portfolio as demonstrated in the past should result in a good operational performance also going forward. Boring, but steady – exactly as I like it.
Current Price
C$4.85 per share
Disclosure
As with most shares discussed on here, the author is long NET.
