This REIT’s plan to narrow its focus to major urban areas and to diversify into residential properties helped it weather COVID-19 lockdowns. The trust’s recent distribution increase is another sign its strategy is working.
The stock trades at 14.6 times the company’s 2022 cash flow forecast.
RIOCAN REAL ESTATE INVESTMENT TRUST (Toronto symbol REI.UN; www.riocan.com) owns all or part of 207 shopping centres and other properties across Canada, as well as 13 projects under development for a total of 36.4 million square feet. Its overall occupancy rate is a high 96.8%.
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RioCan announced a new strategy in October 2017 to boost investor value. The biggest part of that plan was for it to concentrate on six major urban markets: Toronto, Montreal, Ottawa, Calgary, Edmonton and Vancouver. As a result, the REIT sold most of its suburban malls and other properties in smaller cities.
The trust is also diversifying its holdings with mixed-use properties that contain retail, residential and office portions. It typically makes deals with other developers that let it focus on the retail and residential areas.
RioCan will sell most of its interests in these projects but maintain oversight as the general partner. That move lets it immediately tap the rising value of these properties while expanding its revenue from management fees.
Dividend Stocks: Growth should add significantly to cash flow
Under its new long-term strategy, RioCan plans to add properties totalling roughly 500,000 square feet to its portfolio annually over the next five years.
Despite Omicron-related restrictions on store and mall capacities in December 2021, RioCan collected 98.6% of its rental payments in the three months ended December 31, 2021, compared to 96.2% a year earlier. As a result, its revenue in the quarter rose 18.0%, to $336.4 million from $285.2 million a year earlier.
RioCan’s cash flow per unit also improved 17.9%, to $0.46 from $0.39. If you exclude certain one-time items, cash flow in the latest quarter was $0.48 a unit.
Those new assets should also increase the trust’s cash flow per unit by 5% to 7% annually over those five years. For 2022, it expects cash flow will rise to between $1.68 and $1.71 per unit from $1.60 for 2021. The units trade at a reasonable 14.6 times the midpoint of that 2022 range.
The improving cash flow should also give RioCan more room to raise your distributions. With the March 2022 payment, it increased the monthly distribution by 6.3%, to $0.085 a unit from $0.08. The new annual rate of $1.02 yields a high 4.1%.
The only place to hold Riocan is in a registered account (RRSP, RRIF, TFSA, etc.). Absolutely do not hold Riocan in a registered account. I sold all my Riocan 2 months ago as my registered plans are all maxed out. My tax returns for 2021 showed that the Riocan distributions were entirely classified as “Other” income (T3 – Box 26). “Other” income is taxed to the max i.e. at your highest marginal tax rate. Riocan distributions are not tax-efficient when they must be held in a non-registered account. Investors will do much, much better holding stocks (such as BCE, a bank, a utility) that pay dividends eligible for the Cdn dividend tax credit.
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The only place to hold Riocan is in a registered account (RRSP, RRIF, TFSA, etc.). Absolutely do not hold Riocan in a registered account. I sold all my Riocan 2 months ago as my registered plans are all maxed out. My tax returns for 2021 showed that the Riocan distributions were entirely classified as “Other” income (T3 – Box 26). “Other” income is taxed to the max i.e. at your highest marginal tax rate. Riocan distributions are not tax-efficient when they must be held in a non-registered account. Investors will do much, much better holding stocks (such as BCE, a bank, a utility) that pay dividends eligible for the Cdn dividend tax credit.