riocan

Despite the recession, top-quality real estate investment trusts (REITs) continue to have high occupancy and steady lease rates. As well, today’s low interest rates will help many REITs refinance their mortgages more cheaply, or fund expansion. We still advise against overindulging in REITs. But if you stick with those with strong cash flows and sound balance sheets, like the three we recommend on this page, you should make attractive long-term returns with relatively low risk. 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%....

PETRO-CANADA, $48.43, Toronto symbol PCA, rose 5% on Thursday after its shareholders voted 96% in favour of the proposed takeover offer from SUNCOR ENERGY INC., $38.47, Toronto symbol SU. Suncor shareholders have also approved the merger by 98%. The deal gives Petro-Canada shareholders 1.28 common shares of the new company for each share they own, while Suncor investors will get one share of the merged company for each of their Suncor shares. Suncor shareholders will own 60% of the combined company, while Petro-Canada shareholders will own the remaining 40%. (The new company will operate under the Suncor name.) Competition regulators still have to approve the merger. However, the deal should close by the end of the third quarter....

Starting in 2011, Ottawa will impose a tax on income trust distributions that will put income trusts on an equal tax footing with conventional taxable corporations. Trusts will pay a 26.5% tax on distributions to unitholders, so your cash flow from those trusts will fall by the same amount. The exceptions are our real estate investment trust (REIT) recommendations. That’s because qualified REITs are exempt from the new tax on distributions. To qualify, REITs must meet the following requirements:...

RIOCAN REAL ESTATE INVESTMENT TRUST $13.51 (Toronto symbol REI.UN; Units outstanding: 222.1 million; Market cap: $3.0 billion; SI Rating: Average) is Canada’s largest real estate investment trust (REIT). RioCan has issued $180 million worth of new bonds. The trust will use the proceeds to retire $55 million of bonds that are due this year. That will leave it with $125 million, which it may use to buy properties or further develop its real estate holdings. For example, it recently bought six shopping centres in Montreal for $67.5 million. These malls have grocery stores as anchor tenants, which cuts their risk during a recession. In 2008, RioCan earned $146.9 million, or $0.67 a unit....

When we judge the investment quality of an individual company, we take nine key factors into account. These are: a record of profit; a record of dividends; an influential industry position; balance-sheet strength; geographical diversification; freedom from business cycles; freedom from excess regulation or insider abuse; ability to profit from lasting secular trends (such as global economic liberalization); and the ability to cash in on habitual customer behaviour. Mutual-fund ratings are more complex, since they are a step removed from these factors. Before we award our CWA Fund Ratings (Aggressive, Conservative or Income), we assess a fund’s strengths and weaknesses in several key areas. We start by looking at the quality of the fund’s holdings, based on our nine key factors. Then we look at the degree to which its holdings are spread out across the five main economic sectors: Manufacturing, Resources, Consumer, Finance and Utilities. Funds that focus on narrow segments are more risky or aggressive than those that diversify, even if they focus on a conservative area, such as Utilities....

GUARDIAN MONTHLY HIGH INCOME II FUND $9.16 (CWA Rating: Income) (BMO Guardian Group of Funds, Commerce Court West, Suite 4100, P.O. Box 201, Toronto, Ontario M5L 1E8. 1-800-668-5613; Web site: www.bmoguardianfunds.com. Available from brokers) is a fund we rate as Income. It invests in royalty and income trusts and real estate investment trusts (REITs). With assets of $479.5 million, this fund is large enough to diversify widely. It also focuses on stable REITs and high-quality, long-lived resource trusts. The fund’s top holdings are: Crescent Point Energy Trust, Canadian Oil Sands, RioCan REIT, ARC Energy, Boardwalk REIT, Keyera Facilities Income Fund, BFI Canada, Vermilion Energy Trust, CML Healthcare Income and Enerplus Resources. Guardian Monthly High Income II pays a $0.06 monthly distribution, for an 7.9% yield....

BOMBARDIER INC., Toronto symbols BBD.A, $3.39, and BBD.B, $3.32, has received a firm order for 20 of its new CSeries regional jets from Lease Corporation International Aviation (New Buildings) Limited. Lease Corporation is an Irish company that leases aircraft to Singapore Airlines, British Airways and other major airlines. The deal is worth $1.4 billion, and Bombardier will probably begin delivering the planes in 2014. (All amounts except share price in U.S. dollars) Moreover, Lease Corporation has an option to buy 20 more jets, though it will probably wait until it has received most of the initial order before it exercises the option. To put this contract in perspective, Bombardier earned $1 billion, or $0.56 a share, in the fiscal year ended January 31, 2009. That’s more than twice the $479 million, or $0.26 a share, it earned the previous year. The year-earlier figures exclude the writedown of an investment....

GUARDIAN MONTHLY HIGH INCOME II FUND $8.21 (CWA Rating: Income) (GGOF Guardian Group of Funds, Commerce Court West, Suite 4100, P.O. Box 201, Toronto, Ontario M5L 1E8. 1-800-668-5613; Web site: www.ggof.com. Available from brokers) continues to emphasize more stable real estate investment trusts (REITs), and high-quality, long-lived resource trusts. We like the fact that this fund emphasizes trusts with stable cash flows, low capital expenditures and mature businesses. The $478.4-million fund’s top holdings are: Crescent Point Energy Trust, Canadian Oil Sands, RioCan REIT, ARC Energy, Boardwalk REIT, Keyera Facilities Income Fund, BFI Canada, Vermilion Energy Trust, CML Healthcare Income and Enerplus Resources Fund....

Brompton VIP Income Fund, $6.28, symbol VIP.UN on Toronto (Units outstanding: 47.2 million; Market cap: $296.4 million), holds a portfolio of mostly income trusts, along with some common stocks and bonds. The fund focuses on business trusts, with smaller weightings in real estate investment trusts (REITs), oil and gas trusts, power and pipeline trusts. The fund may also invest a portion (less than 10% of its value) in common shares. The Brompton VIP Fund first sold units to the public at $10, and began trading on Toronto in February 2002....

RIOCAN REAL ESTATE INVESTMENT TRUST $12 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 222 million; Market cap: $2.7 billion; Price-to-sales ratio: 3.7; SI Rating: Average) is Canada’s largest real estate investment trust (REIT). It owns 241 retail properties, including 16 under development. RioCan specializes in “Big Box” outdoor malls. Most are in suburban areas where land costs are generally lower than in more developed towns and cities. RioCan’s exposure to the retail industry increases its risk, particularly during a recession. However, its anchor tenants, like Wal-Mart, Cineplex and Metro, tend to do well when the economy is slow. In 2008, RioCan’s revenue rose 6.1%, to $763.8 million from $719.9 million in 2007. Earnings soared 354%, to $146.9 million from $32.4 million. However, this was mainly because RioCan’s 2007 earnings included a $144-million, non-cash charge related to a change in the way Ottawa taxes REITs. In April 2008, RioCan also issued $144 million of new units to pay down debt. As a result, earnings per unit rose 318.8%, to $0.67 from $0.16. Cash flow per unit fell 2%, to $1.48 from $1.51....