riocan

ISHARES CDN REIT SECTOR INDEX FUND $7.22 (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 23.3% of the index’s total value; Canadian REIT, 14.1%; Boardwalk REIT, 11.3%; H&R REIT, 10.9%; Canadian Apartment Properties REIT, 9.6%; Calloway REIT, 7.2%; Primaris Retail REIT, 6.1%; Cominar REIT, 5.2%; Chartwell Seniors Housing REIT, 4.9%; Extendicare REIT, 3.2%; and InnVest REIT, 2.2%. We’re glad to see that the top holding is RioCan, one of our favourite REITs. In fact, the top three holdings are among our recommendations. Note that iShares CDN REIT holds a couple of REITs we don’t recommend....

RIOCAN REAL ESTATE INVESTMENT TRUST $14 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 221 million; Market cap: $3.1 billion; Price-to-sales ratio: 4.4; SI Rating: Average) is building a new, mixed-use residential/commercial complex in downtown Toronto. Home Depot had agreed to be the anchor tenant, but has decided to break its lease. This could force RioCan to slow work on this property, but the trust should have little trouble finding a replacement tenant. Home Deport also probably paid a termination fee of $11.5 million, which is equal to 28% of the $41.6 million, or $0.19 a unit, that RioCan earned in the three months ended September 30, 2008. RioCan is a buy.

RIOCAN REAL ESTATE INVESTMENT TRUST $14.30 (Toronto symbol REI.UN; Units outstanding: 221.2 million; Market cap: $3.2 billion; SI Rating: Average) is Canada’s largest REIT. RioCan has ownership interests in a portfolio of 238 retail malls across Canada, including 14 under development. These contain over 58 million square feet of leasable area. Portfolio occupancy stands at 97.0%. RioCan’s revenue in the three months ended September 30, 2008, was $185.5 million, up 7.6% from $172.5 million a year earlier. Cash flow per unit rose 2.8%, to $0.37 from $0.36. RioCan’s annual distribution of $1.38 gives the units a yield of 9.7%. RioCan recently agreed to buy six shopping centres in Montreal for $67.5 million. The properties are over 99% occupied, and have an average lease term of 14.5 years....

Top-quality REITs continue to have high occupancy rates and steady lease rates despite the economic slowdown. As well, lower interest rates will help REITs refinance mortgages at lower cost, or fund their expansion plans. We still advise against overindulging in REITs. But if you stick with REITs with strong cash flow and sound balance sheets, like the ones we recommend on this page, you should make attractive long-term returns with relatively low risk. RIOCAN REAL ESTATE INVESTMENT TRUST $14.30 (Toronto symbol REI.UN; Units outstanding: 221.2 million; Market cap: $3.2 billion; SI Rating: Average) is Canada’s largest REIT. RioCan has ownership interests in a portfolio of 238 retail malls across Canada, including 14 under development. These contain over 58 million square feet of leasable area. Portfolio occupancy stands at 97.0%....

TRANSCANADA CORP. $34 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 615.1 million; Market cap: $20.9 billion; Price-to-sales ratio: 3.0; SI Rating: Above average) plans to build a new pipeline called Pathfinder that would transport natural gas from Colorado to North Dakota. The company planned to offset the $2 billion cost of building the new line by selling a minority stake in it to two local gas producers. However, these producers had to withdraw from the project as the credit crisis has hurt their borrowing ability. TransCanada now hopes to find new partners. But even if it has to cancel the Pathfinder project, it’s only a small part of its overall operations. TransCanada is a buy....

CANADIAN PACIFIC RAILWAY LTD., $37.22, Toronto symbol CP, earned $631.5 million in 2008, down 6.1% from $672.8 million in 2007. Per-share earnings fell 6.0%, to $4.06 from $4.32. These figures exclude foreign-exchange losses and other one-time items. The drop was largely caused by higher fuel and labour costs. Revenue, however, rose 4.8%, to $4.9 billion from $4.7 billion as higher rates offset lower freight volumes. CP’s operating ratio rose to 78.6% from 75.3% a year earlier. (Operating ratio is calculated by dividing a company’s regular operating costs by its revenue. The lower the ratio, the better.) Falling oil prices and temporary layoffs should help lower CP’s costs in 2009. The company plans to issue up to 13.9 million new common shares at $36.75 each. The gross proceeds of $510.8 million will help CP cover its pension costs, which will rise from $95 million in 2008 to between $150 million and $195 million in 2009. In 2010, CP estimates its pension obligations will continue to climb, to between $295 million and $345 million. To conserve cash, the company plans to cut capital spending by $200 million in 2009....

RIOCAN REAL ESTATE INVESTMENT TRUST $12.83 (Toronto symbol REI.UN; Shares outstanding: 220.4 million; Market cap: $2.8 billion; SI Rating: Average) is Canada’s largest REIT. RioCan has ownership interests in 238 retail properties across Canada, including 14 under development. These contain over 58 million square feet of leasable area. Occupancy stands at 97.0%. RioCan is Canada’s largest owner of neighbourhood shopping centres. These are enclosed malls in smaller urban centres. But where it’s showing the strongest growth is as the largest owner of ‘New Format’ malls. These are in the suburbs of larger cities, and are made up of ‘Big Box’ stores with lots of parking and room for new building. RioCan’s revenue in the three months ended September 30, 2008 was $185.5 million, up 7.6% from $172.5 million a year earlier. Cash flow per unit rose 2.8%, to $0.37 from $0.36. RioCan recently increased its monthly distribution by 2.2%, to $0.115 a unit from $0.1125. The new annual rate of $1.38 yields 10.8%....

RioCan is down from last year’s highs, as are most other REITs. That’s mainly due to fears that slowing consumer spending will hurt cash flows. However, it still has high occupancy rates and rising lease rates. As well, lower interest rates will let RioCan continue to fund its expansion plans. RIOCAN REAL ESTATE INVESTMENT TRUST $12.83 (Toronto symbol REI.UN; Shares outstanding: 220.4 million; Market cap: $2.8 billion; SI Rating: Average) is Canada’s largest REIT. RioCan has ownership interests in 238 retail properties across Canada, including 14 under development. These contain over 58 million square feet of leasable area. Occupancy stands at 97.0%. RioCan is Canada’s largest owner of neighbourhood shopping centres. These are enclosed malls in smaller urban centres. But where it’s showing the strongest growth is as the largest owner of ‘New Format’ malls. These are in the suburbs of larger cities, and are made up of ‘Big Box’ stores with lots of parking and room for new building....

RIOCAN REAL ESTATE INVESTMENT TRUST $15 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 221.0 million; Market cap: $3.3 billion; SI Rating: Average) is Canada’s largest real estate investment trust. It owns 238 retail properties, including 14 under development, comprising an aggregate of over 58 million square feet. Ottawa has exempted real estate trusts from its new taxation rules, as long they meet certain technical requirements. RioCan plans to ensure that it continues to qualify as a REIT. RioCan’s focus on suburban retail malls could hurt its earnings if consumer confidence continues to weaken. However, RioCan gets 83.6% of its revenue from national and anchor tenants such as Wal-Mart and Loblaw. Dominant retailers like these have the financial strength to weather the current downturn. As well, no individual tenant accounts for more than 6% of RioCan’s revenue....

We recommend few income trusts. That’s because most trusts involve substantial risk, such as focusing on a single commodity or geographic area. Here are four trusts we do see as buys. Despite Ottawa’s plan to start taxing trust distributions in 2011, they should continue to pay above-average yields for years to come. These four trusts should also appeal to BCE investors seeking new sources of income, assuming that the BCE privatization goes through as planned (see box this page). However, you should continue to limit income trusts to no more than, say, 15% of your total portfolio....