With a high 7.1% yield, sustainable payout ratio, and growth prospects from its development pipeline, RioCan REIT is a great bet for income-oriented investors also seeking growth over the long run.
Here’s why: this retail-oriented Canadian REIT generates income from its high-quality portfolio and strong tenant base while also holding growth opportunities in mixed-use development. While challenges exist in the retail sector, including the Hudson’s Bay liquidation, the trust’s urban-focused strategy and proven ability to replace departing tenants position it well for continued success.
Meanwhile, cash flow should rise another 6% this year to add security to the recently raised payout.
RIOCAN REAL ESTATE INVESTMENT TRUST (Toronto symbol REI.UN; www.riocan.com) is a REIT which owns all or part of 186 shopping centres and other properties across Canada, including eight under development. Its occupancy rate is a high 97.8%.
RioCan continues to benefit from its October 2017 strategy to focus on six major urban markets: Toronto, Montreal, Ottawa, Calgary, Edmonton and Vancouver. Those cities now supply 94% of its rental revenue, up from 74% in 2017.
As well, the trust’s focus on grocery stores, restaurants and theatres as tenants—businesses that encourage repeat customer visits—cuts your risk. It also has expanded into mixed-use (retail, office and residential) projects, which now supply 15% of its rental revenue.
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The Hudson’s Bay Company, which operates 96 department stores in seven provinces, has filed for creditor protection as it restructures its debt. As a result, it will probably close or sell some of its stores and attempt to re-negotiate many of its leases.
Through a joint venture, RioCan co-owns seven Hudson’s Bay stores. Even if these stores close, that will have little impact on the REIT’s revenue and cash flow. Moreover, RioCan has a strong history of finding replacement tenants for bankrupt stores, usually at higher rental rates.
RioCan REIT: Cash flow and distributions continue to rise
In the three months ended December 31, 2024, revenue rose 20.4%, to $357.6 million from $296.9 million a year earlier. That’s mainly because it sold residential condominiums for $59.7 million in the latest quarter, up from $13.8 million in the year-earlier quarter.
As well, RioCan’s cash flow in the quarter gained 6.8%, to $0.47 a share (or a total of $142.5 million) from $0.44 a share (or $132.9 million).
The trust expects its cash flow per unit will rise about 6% in 2025 to between $1.89 and $1.92 per unit. The units trade at an attractive 8.6 times the midpoint of that range.
Moreover, with the March 2025, payment, RioCan increased your monthly distribution by 4.3%, to $0.0965 a unit from $0.0925. The new annual rate of $1.158 yields a high but sustainable 7.1%.
Recommendation in The Successful Investor: RioCan REIT is a buy.
