The past two months have been hectic for many real estate investment trusts (REIT). With fears of the Federal Reserve increasing interest rates, REITs left and right have been losing value. In many cases, the stocks have dropped by more than 10-20%. If you’re an investor that has considerable money in your war chest, this is the perfect opportunity to start positions in some really great companies that, long term, will do quite nicely.
One of those companies is RioCan Real Estate Investment Trust (TSX:REI.UN). It is down nearly 10% since April. Had investors acted in the beginning of July, the price would have been even lower. Fortunately, with the price still depressed, investors have a chance to acquire shares in a yield-generating monster.
If you ask me, though, I would tell you that you could’ve bought in April and it would have still been a great investment. RioCan is, in my opinion, the best REIT that you can have in your portfolio. And with it down 10%, it’d be a mistake to miss it. There are a few reasons why I say that.
High-quality assets
The first reason is because of its assets. It boasts a large portfolio of 340 different shopping centres. That gives it nearly 80 million square foot of leasable property, of which, no one tenant accounts for 5%.
To build a portfolio this large would require an investor to have billions of dollars of cash available. Therefore, these high-quality assets put it in a lucrative position to be secure no matter what the economy throws its way.
Condo growth
RioCan is looking to continue its growth and diversify into some residential properties. But it’s not going out and buying new properties and then building from there. Instead, it is using its large portfolio and going the cheaper route: building up.
RioCan intends to build high-rise condominiums on top of its shopping centres. The idea here is that it already owns the buildings, so the company doesn’t need to go out and buy more land. And because the condos will be near shopping centres, the company believes it will be able to sell them at a premium. Should this work, it would mean a considerable increase in the number of assets generating income for the company.
Yield
RioCan is a yield-generating machine. More importantly, it is a consistently paying company. Every quarter since 1994 the company has paid its dividend to investors. If you ask me, any company that pays that long without any delays is a company that is worth trusting.
Based on the current price RioCan is yielding at 5.17%. This comes out to a yearly dividend of $1.41 per year, broken up into four quarters. Its payout ratio is 85%, which for REITs is a really attractive place to be. And if the condominium project works, there should be even more money in the dividend department for investors.
When there is blood in the water, investors should act. There is short-term fear that RioCan (and others) will be hurt significantly by the increase in interest rates. But if you’re looking long term, this company will be a great pick up for your portfolio, and the dividends will allow you to continue growing it for years to come.
