RioCan Real Estate Investment Trust (TSX:REI.UN) has pulled back from its July high, and investors are wondering if this is a good time to buy the REIT.

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

Earnings

RioCan reported Q3 2016 operating income of $178 million, which is a 9.2% increase compared with the same period last year. Funds from operations (FFO) rose 16.1% on a continuing operations basis.

Same store net operating income rose 1.1%, and the company’s committed occupancy rate rose to 95.3% compared to 93.2% in Q3 2015.

Overall, the business had a solid quarter.

Lower leverage

REITs tend to carry significant debt, and that can scare the market when interest rates begin to rise.

RioCan sold its 49 U.S. properties earlier this year for net proceeds of about $1.2 billion. The deal has strengthened the balance sheet to the point where RioCan’s leverage ratio at the end of September was 39.6% compared to 46.1% at the end of last year.

That makes it one of the lowest-leveraged REITs in Canada.

Growth

Management has been fine tuning the Canadian portfolio and used some of the funds from the U.S. sale to invest in new opportunities. The company has purchased interests in 17 properties in 2016 and sold interests in nine others.

On the development side, RioCan has interests in 15 development projects representing 5.9 million square feet, of which 3.3 million is attributed to RioCan.

The company is also pursuing an interesting residential development. The program is in its early stages, but RioCan has identified about 50 properties where it could build up to 10,000 residential units over the next 10 years. As of November 3, RioCan had received planning approvals for nine mixed-use projects.

If the concept takes off, investors could see a nice boost to cash flow in the coming years.

Target replacement

RioCan took a hit last year when Target Canada closed its doors. Since then, RioCan has lined up new customers that will pay $13.9 million in base revenue compared to the $11.9 million lost through Target’s departure.

This suggests demand remains strong for the company’s space.

Distributions

RioCan pays a monthly distribution of 11.75 cents. That’s good for a yield of 5.5% at the current unit price.

The 12-month rolling payout ratio at the end of September was down to 90% from 91.6% at the same time last year, so the metric is moving in the right direction.

Should you buy?

RioCan’s distribution looks safe, and the company’s balance sheet is in solid shape. The majority of RioCan’s properties are high-value locations with anchor tenants that operate in recession-resistant segments such as grocery, pharmacy, and discount goods.

If you are looking for quality, above-average yield, RioCan is worth considering for your portfolio today.

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