RIOCAN REAL ESTATE INVESTMENT TRUST $28 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 317.9 million; Market cap: $8.9 billion; Price-to-sales ratio: 6.9; Dividend yield: 5.0%; TSINetwork Rating: Average; www.riocan.com) owns all or part of 290 shopping centres in Canada, including 15 under development. These holdings account for 84% of the trust’s rental revenue. The remaining 16% comes from 48 malls in the U.S.
Former tenant Target Canada recently abandoned 26 stores in RioCan’s malls, representing 1.9% of the trust’s annual rental revenue.
So far, RioCan has found new tenants for eight former Target outlets. It hopes to fill the other 18 in the next few months, but it will probably have to remodel them to handle two or more tenants.
Meanwhile, the trust continues to add to its office and residential holdings. RioCan recently received approval to redevelop its 50%- owned Yonge-Sheppard Centre in northern Toronto. This project will include both an expansion of the shopping mall and the addition of 400 residential units. The total cost will be $300 million ($150 million to RioCan).
To put that figure in context, RioCan’s cash flow rose 8.8% in the three months ended March 31, 2015, to $138.0 million from $126.9 million a year earlier. Per-unit cash flow gained 4.8%, to $0.44 from $0.42, on more units outstanding.
The trust pays a monthly distribution of $0.1175 a unit, for a 5.0% annualized yield. In the latest quarter, distributions accounted for 80.1% of its cash flow.
However, 30.6% of RioCan’s investors opt to receive their distributions in units rather than cash. To entice investors to sign up for this plan, the trust raises the number of units participants get by 3.1%. When you account for all of this, the cash payout rate was a more reasonable 56.2% of cash flow.
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