riocan real estate investment trust

RIOCAN REAL ESTATE INVESTMENT TRUST $18 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 242.3 million; Market cap: $4.4 billion; Price-to-sales ratio: 5.5; Dividend yield: 7.7%; SI Rating: Average) has mainly focused on outdoor shopping malls in Canada since it became a real estate investment trust in 1993. RioCan recently announced its first investment in the U.S. The trust will form a joint venture with Cedar Shopping Centers, Inc. (New York symbol CDR). RioCan will pay Cedar $181 million U.S. for 80% of this venture, which will hold seven of Cedar’s malls in Massachusetts, Pennsylvania and Connecticut. RioCan will also hold a 15% interest in Cedar. The deal will close in March 2010. This is a big investment for RioCan in relation to its 2009 earnings. To put the purchase price in perspective, the trust earned $113.9 million, or $0.49 a unit, in 2009. Still, this purchase only represents 4% of its market cap....

The best real estate investment trusts (REITs) continue to have high occupancy rates. They are also renewing leases at a steady pace. As well, today’s low interest rates are helping many REITs save money on mortgage refinancing, or fund expansion. Most REITs, including our recommendations, are exempt from Ottawa’s new income-trust tax, which comes into effect on January 1, 2011. We still advise against overindulging in REITs. But if you stick with REITs that have steady cash flows and sound balance sheets, like the three we recommend on this page, you should earn attractive long-term returns at relatively low risk....

TORONTO-DOMINION BANK, $65.33, Toronto symbol TD, had to set aside more funds to cover bad loans in its latest fiscal year. However, the bank still reported higher earnings, as low interest rates spurred strong demand for new loans. TD earned $4.7 billion in the year ended October 31, 2009. That’s up 23.7% from $3.8 billion in the prior year. Earnings per share rose 9.6%, to $5.35 from $4.88, on more shares outstanding. These figures exclude several unusual items, including writedowns of securities the bank holds, and costs to integrate U.S.-based Commerce Bancorp, which TD bought last year. On that basis, the latest earnings beat the $5.07 a share that analysts were expecting. Loan-loss provisions jumped 133.3%, to $2.5 billion from $1.1 billion. Revenue rose 21.8%, to $17.9 billion from $14.7 billion....

RIOCAN REAL ESTATE INVESTMENT TRUST $18.05 (Toronto symbol REI.UN; Units outstanding: 234.4 million; Market cap: $4.2 billion; SI Rating: Average) has announced its first expansion into the U.S. The trust has formed a joint venture with Cedar Shopping Centers (New York symbol CDR), which owns shopping centres in the northeastern and mid-Atlantic U.S. The joint venture will hold seven of Cedar’s malls in Massachusetts, Pennsylvania and Connecticut. RioCan will own 80% of this new company. It will also receive common shares and warrants in Cedar that would give it a 15% stake....

RIOCAN REAL ESTATE INVESTMENT TRUST, $18.34, Toronto symbol REI.UN, announced its first expansion into the U.S. this week. The trust has formed a joint venture with Cedar Shopping Centers, Inc. (New York symbol CDR). Cedar owns shopping centres in northeastern and mid-Atlantic regions of the U.S. The new joint venture will hold seven of Cedar’s malls in Massachusetts, Pennsylvania and Connecticut. RioCan will own 80% of this new company. It will also receive common shares and warrants in Cedar. Exercising these warrants would give RioCan a 15% stake in Cedar....

RIOCAN REAL ESTATE INVESTMENT TRUST $17.18 (Toronto symbol REI.UN; Units outstanding: 234.1 million; Market cap: $4.2 billion; SI Rating: Average) has bought 100% of the first phase of the RioCan Centre in Vaughan, near Toronto. That’s double the 50% interest that the trust previously held. The first phase of this three-phase project consists of a shopping centre, which opened earlier this year. Wal-Mart is the anchor tenant, and has signed a 20-year lease. RioCan continues to hold a 50% interest in each of the remaining two phases. The trust also raised its stake in the RioCan Beacon Hill mall near Calgary. It now owns 50% of this property, up from 40%....

SUNCOR ENERGY INC., $38.59, Toronto symbol SU, announced this week that it is planning to sell some of its natural-gas operations. Most of these properties belonged to Petro-Canada, which Suncor bought on August 1. Natural-gas prices fell to around $2.50 U.S. per thousand cubic feet in early September, but have since rebounded to $3.78 U.S. That’s still well below their peak of $12 U.S., which they hit in July 2008. Suncor hopes to sell all of its natural-gas properties by the end of 2010, but will wait to see if gas prices keep rising before it finalizes any deals. The company is planning to invest the proceeds in its oil-sands operations, which will make up 70% of its business after it sells the natural-gas assets. Suncor’s other oil properties, as well as its refineries and gas stations, will account for the remaining 30%....

Starting in 2011, Ottawa will impose a tax on the distributions of Canadian income trusts. This will put trusts on an equal tax footing with regular corporations. Many trusts are converting to corporations as a result. Some are even cutting their distributions.

Tax exemption sets REITs apart from other Canadian income trusts

Real estate investment trusts, or REITs, will remain exempt from the tax on Canadian income trusts, and will likely remain in their current form. (REITs invest in income-producing real estate, such as office buildings and hotels.)

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RIOCAN REAL ESTATE INVESTMENT TRUST $17 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 234.2 million; Market cap: $4 billion; Price-to-sales ratio: 5.4; SI Rating: Average) is Canada’s largest real-estate income trust, with properties in all 10 provinces. RioCan specializes in big-box outdoor malls, and owns 247 retail properties, 13 of which are under development. Most are in suburban areas, where land is generally cheaper than in towns and cities. The trust also owns office buildings and residential complexes. These represent 4% of its net leasable area of 36.2 million square feet. RioCan’s revenue rose 31.3%, from $581.7 million in 2004 to $763.8 million in 2008, mainly due to strong interest from retailers for big-box-style malls. These malls now account for 45% of RioCan’s holdings....

Real estate investment trusts (REITs) may get more attractive in the next year or so as income trusts start to disappear. Ottawa will start taxing income-trust distributions in 2011. As a result of this change, many trusts will convert to regular corporations and pay corporate taxes. That will give them less cash to distribute to shareholders. REITs will remain exempt from the income-trust tax, as long as they get most of their cash flow from properties in Canada. It’s likely that income-seekers will look to REITs to replace income trusts and provide a hedge against inflation. Real estate is a cyclical business, and rental income from the underlying properties can suddenly dry up during economic slowdowns. To cut your risk, you should focus on well-established REITs with long histories of maintaining their distributions during cyclical downturns....