riocan real estate investment trust

CGI GROUP INC. $18.09, Toronto symbol GIB.A, is our Stock of the Year for 2011. Next week, Stock Pickers Digest, our newsletter for aggressive investors, will reveal its #1 pick for 2011. If you’re not already a Stock Pickers Digest subscriber, click here to learn how you can get one month—including the Stock Pickers Digest Stock of the Year—FREE. CGI is Canada’s largest provider of computer-outsourcing services. The company’s services help its customers automate certain routine functions, such as accounting and buying supplies. That lets CGI’s clients focus on their main businesses, and improve their efficiency. CGI is more speculative than most of our other recommendations. It does not pay a dividend, and its major shareholders control the company through multiple-voting shares. Its aggressive growth-by-acquisition strategy also adds risk....

RIOCAN REAL ESTATE INVESTMENT TRUST $22.22 (Toronto symbol REI.UN; Units outstanding: 250.9 million; Market cap: $5.6 billion; TSINetwork Rating: Average; Dividend yield: 6.2%; www.riocan.com) has raised $150.7 million by selling 6.4 million new trust units at $21.75 a unit. RioCan will probably use the proceeds to pay down loans related to its recent purchase of shopping malls in the U.S. Most of these properties have grocery stores as anchor tenants. That helps cut the risk of these purchases, because these retailers stay busy no matter what the economy is doing. RioCan is a buy.

BANK OF MONTREAL, $61.74, Toronto symbol BMO, rose 4% this week after it reported earnings that matched the consensus estimate. In its 2010 fiscal year, which ended October 31, 2010, the bank earned $2.8 billion. That’s up 57.2% from $1.8 billion a year earlier. Earnings per share rose 54.2%, to $4.75 from $3.08, on more shares outstanding. Unusual items, such as severance costs and writedowns of securities the bank holds, depressed its fiscal 2009 earnings. If you exclude these items, earnings per share would have risen 19.9%. Earnings at Bank of Montreal’s main retail-banking division rose 7%, while its wealth-management business’s earnings gained 31%. However, earnings at its capital-markets division fell 6%. That’s because volatile stock markets and concerns over European sovereign debt hurt trading volumes. Revenue rose 10.4%, to $12.2 billion from $11.1 billion....

RIOCAN REAL ESTATE INVESTMENT TRUST $22 (Toronto symbol REI.UN; Units outstanding: 252.3 million; Market cap: $5.6 billion; Price-to-sales ratio: 6.3; Dividend yield: 6.3%; TSINetwork Rating: Average; www.riocan.com) operates 289 retail properties in Canada, mainly outdoor shopping malls. It also owns 28 malls in the U.S. through a joint venture it formed in 2009 with Cedar Shopping Centers Inc. (New York symbol CDR). RioCan owns 80% of this joint venture, and 14% of Cedar. The contribution from the new U.S. malls was the main reason why RioCan’s earnings rose 37.7%, to $39.2 million, in the three months ended September 30, 2010. A year earlier, the trust earned $28.4 million. Earnings per unit rose 33.3%, to $0.16 from $0.12, on more units outstanding. Cash flow per unit rose 20.0%, to $0.36 from $0.30. Revenue rose 14.6%, to $216.6 million from $189.0 million. RioCan pays monthly distributions of $0.115 a unit. The annual rate of $1.38 yields 6.3%. The trust paid out 95.4% of its cash flow in the past quarter. However, 16.0% of its investors prefer to receive new units instead of cash. On this basis, RioCan’s actual cash payout was a more reasonable 80.1% of its cash flow....

Real estate investment trusts (REITs) resemble income trusts, but with a key difference: REITs invest in income-producing real estate, such as office buildings and hotels. The best REITs have good management and balance sheets strong enough to weather an economic downturn. They also have high-quality tenants, and they carefully match their debt obligations with income from their leases. The best ones are still doing well, despite the weak economy, and are taking advantage of low interest rates to refinance long-term mortgages. We advise against overindulging in REITs. But high quality REITs can make attractive, low-risk additions to your portfolio....

RIOCAN REAL ESTATE INVESTMENT TRUST $23.15 (Toronto symbol REI.UN; Units outstanding: 250.9 million; Market cap: $5.8 billion; SI Rating: Average; Dividend yield: 6.0%; www.riocan.com) is Canada’s largest REIT. RioCan has interests in 289 shopping malls across Canada, including 11 under development. In all, these properties contain over 66 million square feet of leasable area. The trust has a 97.1% occupancy rate. RioCan is Canada’s largest owner of neighbourhood shopping centres, which are enclosed malls in smaller cities. But the trust’s strongest growth is in its “New Format” malls, in the suburbs of larger cities. RioCan is Canada’s largest owner of these malls, which have lots of parking and room for new building, and mainly consist of big-box stores, or large stores that are usually part of a chain. RioCan also owns an 80% interest in 28 malls in the U.S. through joint ventures. As well, it owns 14% of Cedar Shopping Centers, a U.S. REIT that owns malls anchored by supermarkets and drug stores, mainly in the northeastern U.S....

Most real estate investment trusts (REITs), including our recommendations, are exempt from Ottawa’s new tax on income-trust distributions, which comes into effect on January 1, 2011. As a result, these REITs should continue to attract investor interest as the tax prompts more trusts to convert to corporations and cut their distributions. RIOCAN REAL ESTATE INVESTMENT TRUST $23.15 (Toronto symbol REI.UN; Units outstanding: 250.9 million; Market cap: $5.8 billion; SI Rating: Average; Dividend yield: 6.0%; www.riocan.com) is Canada’s largest REIT. RioCan has interests in 289 shopping malls across Canada, including 11 under development. In all, these properties contain over 66 million square feet of leasable area. The trust has a 97.1% occupancy rate. RioCan is Canada’s largest owner of neighbourhood shopping centres, which are enclosed malls in smaller cities. But the trust’s strongest growth is in its “New Format” malls, in the suburbs of larger cities. RioCan is Canada’s largest owner of these malls, which have lots of parking and room for new building, and mainly consist of big-box stores, or large stores that are usually part of a chain....

RIOCAN REAL ESTATE INVESTMENT TRUST $22.80 (Toronto symbol REI.UN; Units outstanding: 250.9 million; Market cap: $5.7 billion; SI Rating: Average; Dividend yield: 6.1%) continues to expand in the U.S. RioCan already owns nine malls in the U.S. through a joint venture with Cedar Shopping Centers. RioCan owns 80% of this joint venture. The trust also owns 14% of Cedar. The joint venture recently agreed to buy a mall in New Jersey (RioCan’s share of the cost is $21.8 million). This mall’s five anchor tenants have long-term leases that expire between 2018 and 2023. That cuts the risk of this purchase....

POTASH CORP. OF SASKATCHEWAN, $151.59, Toronto symbol POT, continues to trade above the $130.00 U.S.-a-share hostile takeover offer from BHP Billiton Ltd. (New York symbol BHP). That’s partly due to rumours that Potash Corp.’s management is planning to buy a majority interest in the company using borrowed funds. Some of these funds would probably come from several Chinese firms, as well as some sovereign wealth funds from China and other countries. (Sovereign wealth funds are state-owned investment funds that are usually financed by an economic surplus.) However, sovereign wealth funds would only hold a minority stake in Potash Corp. That would help the buyers win regulatory approval for a takeover....

RIOCAN REAL ESTATE INVESTMENT TRUST $21.02 (Toronto symbol REI.UN; Units outstanding: 243.4 million; Market cap: $5.1 billion; SI Rating: Average; Dividend yield: 6.6%) operates 267 retail properties in Canada, mainly outdoor shopping malls. It also owns nine malls in the U.S. through a joint venture with Cedar Shopping Centers Inc. (New York symbol CDR). RioCan owns 80% of this joint venture. The joint venture recently agreed to buy six malls in Pennsylvania, Virginia and New Jersey. RioCan and Cedar also agreed to buy a seventh property on a 50/50 basis. In all, RioCan will pay $150 million for these malls. Four of the seven malls have grocery stores as anchor tenants. That helps cut the risk of these purchases, because these retailers stay busy no matter what the economy is doing. As well, tenants of these malls have an average of 9.2 years remaining on their leases....