RioCan Real Estate Investment Trust $23 – Toronto symbol REI.UN

RIOCAN REAL ESTATE INVESTMENT TRUST $23 (Toronto symbol REI.UN; SI Rating: Average) owns or invests in over 200 retail properties in Canada, mainly large, outdoor suburban malls. Ontario and Quebec account for roughly 80% of its revenue.

In the three months ended September 30, 2005, RioCan earned $0.22 a unit (total $41.8 million) from continuing operations, up 4.8% from $0.21 a unit ($39.1 million) a year earlier. Cash flow rose 2.6%, to $56.1 million from $54.7 million. But cash flow per unit fell to $0.29 from $0.30 due to more units outstanding. Revenue grew 8.6%, to $149.8 million from $138.0 million.

In the past few years, RioCan has steadily sold older or smaller properties so it can focus on properties with greater earning potential, such as “Big Box”-style stores. Thanks to this strategy, the trust has leased nearly 97% of its available space. National chains like Loblaw, Wal-Mart and Canadian Tire accounted for 81.5% of RioCan’s rental revenue at September 30, 2005, up from 80.7% at the end of 2004.

These moves have cut RioCan’s risk, and let it increase its cash distributions every year since 1994. The current rate of $1.29, payable monthly, yields 5.6%. The units trade at 15.9 times the trust’s likely 2006 earnings of $1.45 a unit.

RioCan is a buy for aggressive investors.

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