riocan real estate investment trust

RIOCAN REAL ESTATE INVESTMENT TRUST $19.32 (Toronto symbol REI.UN; Units outstanding: 242.9 million; Market cap: $4.7 billion; SI Rating: Average; Dividend yield: 7.1%) is Canada’s largest REIT. RioCan has interests in 265 shopping malls across Canada, including 12 under development. In all, these properties contain over 60 million square feet of leasable area. The trust has a 97.0% occupancy rate. In the three months ended March 31, 2010, RioCan’s revenue was $214.6 million. That’s up 12.3% from $191.1 million a year earlier. Cash flow per unit rose 12.5%, to $0.36 from $0.32. The trust paid higher interest costs during the quarter, but contributions from newly acquired shopping centres and gains on property sales helped offset these expenses. The trust’s units yield 7.1%. In 2009, RioCan formed a joint venture withCedar Shopping Centers, Inc. (New York symbol CDR). Cedar owns shopping centres in the northeastern and mid-Atlantic regions of the U.S. RioCan owns 80% of this joint venture. As part of the original deal, it received common shares and warrants in Cedar. RioCan recently exercised these warrants. That gave it a 14% stake in Cedar....

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 attract more investor interest in the second half of 2010, as the tax prompts more trusts to convert to corporations and cut their distributions. RIOCAN REAL ESTATE INVESTMENT TRUST $19.32 (Toronto symbol REI.UN; Units outstanding: 242.9 million; Market cap: $4.7 billion; SI Rating: Average; Dividend yield: 7.1%) is Canada’s largest REIT. RioCan has interests in 265 shopping malls across Canada, including 12 under development. In all, these properties contain over 60 million square feet of leasable area. The trust has a 97.0% occupancy rate. In the three months ended March 31, 2010, RioCan’s revenue was $214.6 million. That’s up 12.3% from $191.1 million a year earlier. Cash flow per unit rose 12.5%, to $0.36 from $0.32. The trust paid higher interest costs during the quarter, but contributions from newly acquired shopping centres and gains on property sales helped offset these expenses. The trust’s units yield 7.1%....

RIOCAN REAL ESTATE INVESTMENT TRUST $18 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 243.2 million; Market cap: $4.4 billion; Price-to-sales ratio: 5.7; Dividend yield: 7.7%; SI Rating: Average) continues to expand in the U.S. The trust recently formed a joint venture with Inland Western Retail Real Estate Trust, Inc. RioCan will own 80% of the new company, which will own eight malls in the Texas cities of Dallas, Houston and Austin. This investment will cost RioCan $138 million U.S., including $85.6 million U.S. of existing mortgages, which RioCan will assume. To put the price in context, RioCan earned $113.9 million (Canadian), or $0.49 a unit, in 2009. Like RioCan’s recent purchase of seven shopping centres in the northeastern U.S., grocery stores and pharmacies are the anchor tenants of these malls. That cuts the risk of this investment....

RIOCAN REAL ESTATE INVESTMENT TRUST $20 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 243.2 million; Market cap: $4.9 billion; Price-to-sales ratio: 6.2; Dividend yield: 6.9%; SI Rating: Average) is Canada’s largest real estate investment trust (REIT). RioCan has properties in all 10 provinces. The trust specializes in large outdoor malls, and owns 261 retail properties, 12 of which are under development. Most are in suburban areas, where land is generally cheaper than in towns and cities. Since it became a REIT in the early 1990s, RioCan has focused on developing and leasing retail space in Canada. However, it recently expanded to the U.S. through a new joint venture with Cedar Shopping Centers, Inc. (New York symbol CDR). RioCan paid $181 million U.S. for 80% of this joint venture, which will own seven shopping centres in the northeastern U.S. RioCan also received 14.3% of Cedar as part of the deal.

More U.S. purchases seem likely

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CGI GROUP INC., $15.04, Toronto symbol GIB.A, is Canada’s largest provider of computer-outsourcing services. These 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. The company continues to renew existing contracts and win new ones. CGI added $1.1 billion of new orders in its second quarter, which ended March 31, 2010. Its backlog is now $11.4 billion, or 3.1 times its annual revenue. Even with the jump in new orders, CGI’s revenue fell 4.0% in the latest quarter, to $910.4 million from $948.3 million a year earlier. CGI gets roughly 40% of its revenue from outside of Canada, mainly the U.S., so the higher Canadian dollar hurt its revenue. Without the negative impact of exchange rates, revenue would have risen 3.5%....

Calloway Real Estate Investment Trust, $21.56, symbol CWT.UN on Toronto (Units outstanding: 85.2 million; Market cap: $1.8 billion), owns, develops and operates big-box outdoor malls across Canada. These malls feature large stores that are usually part of a chain. In all, Calloway owns 125 shopping centres and two office buildings, with 22.8 million square feet of leasable area. Its malls are located in the suburbs of larger cities, and have lots of room for parking and additional building. The trust gets 58% of its revenue from Ontario, 14% from Quebec, 10% from B.C., 5% from Manitoba, 4% from Saskatchewan, 3% from Newfoundland, 3% from Alberta, 1% from Nova Scotia, 1% from New Brunswick and 1% from Prince Edward Island....

Even though today’s house prices are high, mortgage interest costs are near historic lows. And owning your own home has a number of advantages. For example, owning your house is a great tax shelter. That’s because gains on your principal residence are exempt from capital-gains taxes. However, this tax benefit only applies to your principal residence. You must still pay tax on gains on the sale of a recreational property, such as a cottage or a ski chalet. But these properties generally appreciate at a much slower rate than, say, a home in a major urban centre.

Many investors underestimate the risk and cost of owning rental property

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Most real estate investment trusts (REITs), including our recommendations, are exempt from Ottawa’s income-trust tax, which comes into effect on January 1, 2011. As a result, these REITs should attract investor interest this year, as many income trusts convert to corporations and cut their distributions. Even so, we advise against overindulging in REITs. But if you stick with REITs that have steady cash flows and sound balance sheets, like the two we recommend on this page, you should earn attractive long-term returns at relatively low risk. RIOCAN REAL ESTATE INVESTMENT TRUST $18.73 (Toronto symbol REI.UN; Units outstanding: 241.8 million; Market cap: $4.5 billion; SI Rating: Average; Dividend yield: 7.4%) is Canada’s largest REIT. RioCan has interests in 258 shopping malls across Canada, including 12 under development. In all, these properties contain over 60 million square feet of leasable area. The trust has a 97.4% occupancy rate....

Many Canadian firms have tried to expand into the U.S. over the years. Some, like Tim Hortons (symbol THI on Toronto), have had difficulty in the United States. Other companies’ expansion efforts have failed miserably. Canadian Tire (symbol CTC.A on Toronto) provides a memorable example of a failed U.S. expansion. In 1982, the retailer bought a chain of Whites automotive-retail stores in Texas. By 1985, Canadian Tire had lost $300 million on this purchase. That’s when the company decided to sell the division and retreat to Canada. Its stock price has since gone up more than 600%.

This real estate investment trust’s U.S. expansion adds risk — and potential rewards

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CANADIAN TIRE CORP., $52.29, Toronto symbol CTC.A, fell 3% this week after the company reported lower-than-expected 2009 earnings. During the year, Canadian Tire earned $348.0 million, or $4.26 a share. That’s down 12.2% from $396.4 million, or $4.86 a share, in the prior year. These figures exclude several one-time items, including gains and losses on sales of securities by Canadian Tire’s finance division. The company also paid a penalty for redeeming debentures before their expiry date. That will let it take advantage of the improvement in the credit markets to issue new bonds at lower interest rates. Without these one-time items, analysts were expecting Canadian Tire to earn $4.34 a share. Revenue fell 4.8%, to $8.7 billion from $9.1 billion. Overall sales at the company’s main retail division, which consists of its Canadian Tire stores and the PartSource auto-parts chain, fell 2.8%, while same-store sales were 4.2% lower. Weak sales of electronics offset stronger sales of household-cleaning, kitchen and pet-care goods. As well, a lack of snow in Ontario and Quebec hurt sales of winter merchandise, such as snow shovels....