RIOCAN REAL ESTATE INVESTMENT TRUST $25 (Toronto symbol REI.UN; www.riocan.com) owns all or part of 233 shopping centres and other rental properties in Canada. That includes 16 projects in development. The overall occupancy rate is a high 97.1%.
The REIT recently announced a new plan to focus on six major urban markets: Toronto, Montreal, Ottawa, Calgary, Edmonton and Vancouver.
As part of that strategy, the company plans to sell 100 properties for a total of $1.5 billion (net of transaction costs). So far, the trust has sold (or has firm deals to sell) $1.3 billion worth of those properties. When it completes the plan in 2020, its six target cities will account for 90% of its rental revenue compared to 85.4% in 2018.
RioCan’s revenue rose 12.7%, from $1.03 billion in 2014 to $1.16 billion in 2017. Due to its recent property sales, revenue fell 0.6% to $1.15 billion in 2018.
The trust’s overall cash flow rose 22.9%, from $506.8 million in 2014 to $622.4 million in 2015. Due to more units outstanding, cash flow per unit rose at a slower rate of 18.2%, from $1.65 to $1.95. Cash flow then declined to $1.68 a unit (or a total of $547.9 million) in 2016, but recovered to $1.79 a unit (or $584.6 million) in 2017. Overall cash flow slipped 0.7% to $580.2 million in 2018, but cash flow per unit gained 3.6% to $1.85 on fewer units outstanding.
RioCan continues to add more residential and office space to its properties. It typically builds those mixed-use developments in partnership with other firms. That cuts its building costs and leaves it to focus on the retail portion.
In March 2018, the REIT launched its RioCan Living division to benefit from the demand for new apartment buildings in large cities. At the end of 2018, residential units accounted for 71.4% of its proposed development projects.
The trust also continues to make progress on its new 50%-owned development in downtown Toronto (called The Well). Allied Properties REIT (Toronto symbol AP.UN) holds 50% of the retail/office portion, while Woodbourne Canada Partners owns 50% of the residential portion.
RioCan and Allied have now leased 71% of The Well’s office space. The retail/office portion should open in 2021, while the residential portion (condos) will be ready in 2023.
Total debt for RioCan was $5.9 billion as of December 31, 2018. That’s a high 78% of its market cap. However, the trust staggers the maturities of these mortgages and debentures so that it only has to pay back a manageable portion each year. It also held cash of $74.5 million.
The REIT currently pays monthly distributions of $0.12 a unit. The new annual rate of $1.44 yields a high 5.8%. In 2018, RioCan paid out 77.9% of its cash flow. That’s below its target payout ratio of 80.0%.
The units trade at a reasonable 13.7 times the likely 2019 cash flow of $1.82 a unit.
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