Dividend Stock: RioCan REIT protects its high yield with sale of U.S. malls

RioCan REIT is ready for future growth with the upcoming sale of its U.S. malls. The trust will not only pay down debt, but half of the proceeds will go to buy out its joint-venture partner in 35 Canadian malls. The U.S. sales will also protect monthly distributions for investors. RioCan REIT remains a buy.

RIOCAN REAL ESTATE INVESTMENT TRUST (Toronto symbol REI.UN; www.riocan.com) owns all or part of 305 shopping centres in Canada, including 16 under development.

The trust recently agreed to sell its 49 U.S. malls for $1.2 billion (Canadian). It expects to complete the sale in April 2016.

RioCan will put $510 million of the proceeds toward its recent deal to buy out its joint venture with U.S.-based Kimco Realty (New York symbol KIM). Formed in 2000, this business jointly owns and manages 35 malls in six provinces.

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Dividend stocks: RioCan REIT using proceeds to buy out joint venture partner

In December 2015, RioCan acquired Kimco’s 50% stake in 22 of these properties for $715 million. The partners aim to sell 10 of the joint venture’s other malls over the next few months. They haven’t yet made a decision about the remaining three.

RioCan will use the $725 million remaining from the sale of the 49 U.S. malls to pay down its debt of $6.7 billion, which is a high 91% of its market cap. That should cut its yearly interest costs by $18 million.

These savings will help protect monthly distributions of $0.1175 a unit, for a 6.1% annualized yield. RioCan trades at 13.8 times its likely 2016 earnings of $1.67 a unit.

RioCan is a buy.

For our advice on finding the right dividend stocks for your portfolio, read How to spot the best Canadian dividend stocks.

For our view on two other leading Canadian REITs, read Canadian REIT and H&R REIT follow different paths to growth and income.

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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