RioCan Real Estate Investment Trust: Time to Buy?

RioCan Real Estate Investment Trust (TSX:REI.UN) is up 20% this year, and investors who missed the rally are wondering if the name is still an attractive pick.

Let’s take a look at the REIT giant to see if it deserves to be in your portfolio.

Financial results

RioCan completed the disposition of its American operations during the second quarter and reported solid results from its Canadian assets.

The company sold its 49 U.S. properties for total net proceeds of about $1.2 billion. The move enables the REIT to pocket a nice gain on the investment and provides ample cash to strengthen the balance sheet and fund new growth projects in Canada.

The company’s leverage is also now at its lowest point in the firm’s history.

The sale of the U.S. unit resulted in a $1 million drop in year-over-year funds from operations (FFO) in Q2 to $135 million. On a continuing operations basis, FFO actually increased $8.8 million, or 8.1%, to $118 million as compared to $109 million in Q2 2015.

Strong demand

Committed occupancy in the company’s buildings rose to 95.1% as of June 30, up from 93.1% at the same time last year.

RioCan took a hit last year when Target Canada closed its doors, but the company has made good progress on finding new tenants and now has committed or conditional lease agreements for the vacated space for a total of $13.1 million. Target Canada’s commitment was for $11.4 million, so things are actually working out quite well.

Development activities

RioCan has ownership interests in 15 development projects that will generate new revenue from 5.9 million square feet of space.

The company is also pursuing its plans to build residential units at some of its prime urban locations. RioCan has identified 46 properties that it believes meet the criteria for residential development. Over the course of the next 10 years the company hopes to get zoning approval to build 10,000 residential units.

The program is in its early stages, so modifications should be expected. At the end of June seven mixed-use properties had already received planning approvals.


RioCan pays a monthly distribution of 11.75 cents per unit. That’s currently good for a yield of 5%.

The payout ratio for the 12 months ended June 30 was 90%, down from 94.5% during the same period the previous year.

Should you buy?

RioCan isn’t as cheap as it was earlier this year but the payout looks secure, and investors could see decent revenue growth in the coming years as new retail space and the residential units are completed.

Interest rates are not likely to move much in the medium term, and RioCan’s balance sheet is in solid shape. As a result, there shouldn’t be much downside risk.

I wouldn’t expect more capital appreciation, but income investors looking for reliable yield should feel comfortable holding RioCan right now.

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

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