riocan

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. 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....

ISHARES CDN REIT SECTOR INDEX FUND $10.16 (Toronto symbol XRE; buy or sell through a broker) holds the 11 Canadian real estate investment trusts (REITs) in the S&P/TSX Capped REIT Index. The weight of any one REIT is limited to 25% of this index’s value. RioCan REIT makes up 24.9% of the index’s total value; H&R REIT, 14.7%; Canadian REIT, 11.5%; Boardwalk REIT, 10.3%; Calloway REIT, 8.5%; Canadian Apartment Properties REIT, 6.6%; Primaris Retail REIT, 6.1%; Cominar REIT, 5.3%; Chartwell Seniors Housing REIT, 4.6%; Extendicare REIT, 3.8%; and InnVest REIT, 2.0%. iShares CDN REIT yields 8.3%. Its expenses are 0.55% of its assets....

CRESCENT POINT ENERGY CORP. $35.67 (Toronto symbol CPG; Shares outstanding: 159.3 million; Market cap: $5.7 billion; SI Rating: Extra Risk) has made a couple of big acquisitions in Saskatchewan. The company has bought privately held Wave Energy for about $665.3 million in stock. It has also purchased producing assets from Provident Energy Trust for $258.5 million in cash. Crescent Point plans to issue new shares, and put the $230-million proceeds toward paying for the Provident assets. In total, these acquisitions add about 16% to Crescent Point’s production. They should also raise its cash flow per share....

Real estate can provide a hedge against inflation — and it’s our view that low interest rates and government-stimulus spending will spur inflation in the next few years. Many investors have all the real estate exposure they need through owning their own homes and other properties. But real-estate income trusts (REITs) — in reasonable quantities as part of the Manufacturing & Industry component of a well-balanced portfolio — would be worthwhile additions to almost any investor’s holdings. Many REITs have taken advantage of today’s low interest rates to refinance their mortgage debt, and many have been able to renew leases at high rates. These trusts will gain from an economic recovery, and provide a hedge against inflation....

CANADIAN PACIFIC RAILWAY LTD., $47.90, Toronto symbol CP, reported higher profits for its latest quarter, as a gain on the sale of an investment helped it overcome a 24% drop in freight volumes caused by the recession. In the three months ended June 30, 2009, CP’s earnings rose 1.7%, to $157.3 million from $154.7 million a year earlier. Earnings per share fell 7.0%, to $0.93 from $1.00, on more outstanding shares. (In February, CP sold 13.9 million shares at $36.75 each. That increased the total outstanding by about 9%). The latest earnings included a $68.7-million gain on CP’s sale of part of its stake in the Detroit River Tunnel Partnership, which operates a rail tunnel between Detroit and Windsor, Ontario. CP now owns 16.5% of this business, down from 50%. The sale freed up cash that CP used to pay down debt, while preserving its right to keep operating the tunnel. CP’s $4-billion long-term debt is now a manageable 49% of its $8.2 billion market cap....

RIOCAN REAL ESTATE INVESTMENT TRUST $15.28 (Toronto symbol REI.UN; Units outstanding: 233.1 million; Market cap: $3.6 billion; SI Rating: Average) is Canada’s largest REIT. It has interests in a portfolio of 247 shopping malls across Canada, including 13 under development. In all, these contain over 59 million square feet of leasable area. RioCan’s occupancy rate stands at 97.5%. In the three months ended March 31, 2009, RioCan posted revenue of $191.1 million, up 4.2% from $183.4 million a year earlier. Cash flow per unit was unchanged, at $0.32. RioCan’s annual distribution of $1.38 gives the units a 9.0% yield. RioCan recently raised $150 million by issuing new units at $14.50 each. The trust didn’t need to raise capital, but will now have the funds to buy other companies, likely at low prices, as opportunities arise....