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Income Investors: Should You Own RioCan Real Estate Investment Trust?

Canadian investors are searching for ways to boost their income without taking on too much risk.

Let’s take a look at RioCan Real Estate Investment Trust (TSX:REI.UN) to see if it deserves to be in your portfolio.

Top-quality assets

RioCan has interests in more than 300 retail properties in Canada.

The company’s core tenants tend to be large, national brands with businesses that serve recession-resistant sectors of the retail market, including grocery, pharmaceutical, discount, and household goods.

The segment certainly isn’t bulletproof, as RioCan found out when Target Canada shut down, but the quality of the retail space is top notch.

How do we know?

RioCan has entered agreements or is in advanced discussions on 47 leases that will replace 122% of the revenue lost when Target left. The majority of the replacement rental revenue will be active by the end of 2017, at which time the space will shift out of the development group and back into the income-producing portfolio.

RioCan’s occupancy rate continues to improve, hitting 95.3% in Q3 2016 compared to 93.2% in the same period the previous year.

Strong financials

RioCan sold its U.S. assets last year for net proceeds of $1.2 billion. As a result, the company reduced debt to the point where the leverage ratio is just below 40%. That makes RioCan one of the lowest-levered REITs in Canada.

RioCan’s Q3 2016 operating income increased 9.2% year over year, and funds from operations jumped 16.1%.

So, the numbers are all moving in the right direction.

Growth

RioCan has interests in 15 new retail developments that will add 3.3 million square feet to the company’s portfolio.

In addition, RioCan is moving ahead with its plans to build residential units at as many as 50 of its existing urban sites. The project is still in its early stages with nine mixed-use approvals already granted.

Over the course of the next decade, the company could build up to 10,000 new residential units at these locations.

Distributions

RioCan pays a monthly distribution of 11.75 cents per share, which yields 5.4%.

Risks

REITs have been under some pressure as concerns mount about rising interest rates. If rates move sharply higher in a short period of time, this sector will come under pressure, but the probable course of action by the U.S. over medium term is a slow drift upward. In Canada, we could see a rate cut as the next move.

Should you buy?

RioCan’s debt level is manageable, and the company has a strong portfolio of development projects that should provide adequate revenue growth to support rising distributions in the coming years.

If you want a reliable monthly income pick with an above-average yield, RioCan deserves to be on your radar.

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

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