Riocan Real Estate Investment Trust $25 - Toronto symbol REI.UN

RIOCAN REAL ESTATE INVESTMENT TRUST $25 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 208.0 million; Market cap: $5.4 billion; SI Rating: Average) manages over 200 retail properties in Canada. It specializes in big-box style outdoor malls with plenty of parking space. RioCan is slowly cutting its exposure to pure retail properties. For example, it recently formed a joint venture with two seniors housing REITs to build a new mixed-use complex in Mississauga, Ontario. It’s also building a retail/residential development in Toronto. The trust recently completed the largest acquisition in its history. In February 2007, it paid $223 million for a major office/retail complex in midtown Toronto. Thanks to strong growth in the surrounding neighbourhoods, RioCan feels that the retail component of this complex (25% of total area) will become a major contributor to its future cash flow. To put the purchase price in context, RioCan earned $0.18 a unit (total $37.4 million) in the first quarter of 2007, down 10.0% from $0.20 a unit ($39.0 million) a year earlier. Revenue rose 9.6%, to $174.5 million from $159.2 million. RioCan is focusing its future development on six high-growth markets — Toronto, Ottawa, Montreal, Calgary, Edmonton and Vancouver. These six cities account for roughly two-thirds of RioCan’s revenue. Although land costs more in these markets than other areas, RioCan feels their strong growth prospects offset the higher building costs. RioCan’s $1.32 distribution yields 5.3%, and the units trade at 17.0 times its forecast 2007 profit of $1.47 a unit. RioCan is a buy.

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