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; SI Rating: Average) owns all or part of 203 large, outdoor suburban malls across Canada.

In the three months ended September 30, 2006, RioCan earned $0.21 a unit from continuing operations, down slightly from $0.22 a year earlier, mainly due to higher interest and amortization expenses. However, cash flow per share rose 29.0%, to $0.40 from $0.31, while revenue grew 7.3%, to $160.7 million from $149.8 million.

Demand by retailers for space in RioCan’s malls remains strong. In fact, the occupancy rate rose to 97.5% in the most recent quarter — a new record. National chains such as Wal-Mart and Loblaw account for 83% of RioCan’s rental revenue, which cuts RioCan’s risk.

While the bulk of RioCan’s properties are in suburban areas, it is also pursuing projects in built-up areas. For example, it aims to redevelop a Toronto commercial site into a new retail/ condominium complex.

RioCan feels that the high potential returns of non-traditional projects like this offset their added risk.

RioCan should earn $1.40 a unit in 2006, which gives it a p/e of 17.9. The $1.32 annual distribution rate yields 5.3%.

RioCan is a buy.

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