RIOCAN REAL ESTATE INVESTMENT TRUST (Toronto symbol REI.UN; www.riocan.com) is Canada largest real estate investment trust (REIT), with 294 retail properties, including 11 under development. It also owns 52 malls in the U.S. RioCan continues to expand beyond suburban big-box-style malls. It recently formed a joint venture with Allied Properties Real Estate Investment Trust (Toronto symbol AP.UN) to redevelop certain properties in Toronto as mixed-use office, retail and residential complexes. The REIT has also agreed to pay $362 million for an enclosed shopping centre and 50% of another mall, both in southern Ontario. Enclosed malls now supply 16.1% of its Canadian rental revenue. RioCan is also increasing its focus on major cities. As part of this strategy, it aims to sell 14 of its less-important malls for $645 million. [ofie_ad]
REITs: RioCan raises monthly distribution rate for the first time in five years
RioCan’s new properties helped push up its revenue by 14.2% in 2012, to $1.1 billion from $988 million in 2011. Earnings jumped 54.0%, to $1.3 billion from $873 million. RioCan often sells new units to finance its acquisitions. Due to more units outstanding, earnings per unit rose at a slower pace of 40.6%, to $4.57 from $3.25. REIT investors often prefer to focus on cash flow, which excludes non-cash items like accounting gains on property sales. RioCan’s cash flow per unit rose 6.3% in 2012, to $1.52 from $1.43. RioCan recently raised its monthly distribution for the first time since 2008. The new annual rate of $1.41 a unit, up 2.2% from $1.38, yields 5.2%. Distributions accounted for 90.8% of the REIT’s cash flow in 2012. However, 26.9% of its unitholders choose to receive additional units instead of cash. On a cash basis, distributions represented 66.4% of its cash flow. RioCan expects to benefit from U.S.-based retailer Target’s plan to open 124 stores in Canada this year; 24 of these stores will be in RioCan’s shopping centres. In the latest edition of The Successful Investor, we look at the risk RioCan takes on in expanding by acquisition, including moving into a new area with mixed-use properties. We also look at the effect Target will have on this year’s cash flow. We conclude with our clear buy-sell-hold advice on this real estate investment trust. (Note: If you are a current subscriber to The Successful Investor, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members The media has once again been speculating about a real estate “bubble” in Canada. Does this make REITs a less attractive investment in your opinion? If you invest in REITs, do you have a preference between commercial and residential properties? Let us know what you think.
