RioCan Real Estate Investment Trust (TSX:REI.UN) has rallied more than 20% this year, and income investors are wondering if the name is still a good pick.

Let’s take a look at the current situation to see if this REIT deserves to be in your portfolio.

Steady results

RioCan operates more than 300 shopping centres across Canada. The facilities are primarily anchored with big-name grocery stores, but core tenants also include some of the country’s top pharmacy and discount retailers as well as providers of everyday household goods.

Demand remains robust for RioCan’s properties. The company renewed one million square feet of space in Q1 2016 at an average rent increase of 6.2%, and funds from operations jumped 7% in the quarter compared with the same period last year.

The stock took a hit last year when Target Canada decided to shut its doors. Investors thought RioCan might have trouble filling the space, but that hasn’t been the case.

As of May 4 this year, RioCan had already found new tenants for most of the Target facilities and managed to replace 114% of the former Target rental revenue.

U.S. properties

RioCan recently completed the sale of its 49 retail properties located in the northeastern U.S. and Texas. The company plans to use the net proceeds of about $1.2 billion to reduce debt and invest in new growth opportunities.

Residential developments

One interesting project is the company’s plan to build condos at some of its prime urban retail sites. RioCan has identified 46 properties that it is considering for the program. All are located in the six major markets and are close to core transit infrastructure.

As of May, the company has obtained planning approvals for seven mixed-use projects and has filed rezoning applications for a total of 20 sites.

The residential initiative is still in its early stages, but investors could see a nice revenue boost in the coming years if the projects prove to be successful.


RioCan pays a monthly distribution of 11.75 cents per unit. The payout ratio for the 12 months ended March 31 was 89.2% compared to 94.5% for the same period the previous year. Assuming the situation remains the same or continues to improve, the distribution should be safe.

RioCan currently offers a yield of 4.8%.

Should you buy?

Upside potential is probably limited at this point, but income investors should feel comfortable holding RioCan. The company continues to perform well, and there is an opportunity for revenue growth through the mixed-use development projects.

The major risk would be a significant rise in interest rates, but that isn’t likely to happen in the medium term.

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Fool contributor Andrew Walker has no position in any stocks mentioned.