RioCan REIT (TSX:REI.UN) and Choice Properties REIT (TSX:CHP.UN) are two of the most prominent real estate investment trusts (REIT) on the TSX, making them popular choices for Canadian investors looking to build long-term passive income. Both offer solid dividend yields, diverse property portfolios, and strong management. But which one stands out as the better buy today? Let’s take a closer look at their recent earnings, financial health, and future outlook.
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The basics
RioCan recently announced its fourth-quarter and year-end results for 2024, showing an uptick in earnings and an impressive 4.3% increase in its monthly distribution. This bumped its payout from $0.0925 to $0.0965 per unit, translating to an annual yield of 5.92% at writing. This move reflects the REIT’s confidence in its ongoing operations and its commitment to rewarding unitholders. Choice Properties, meanwhile, declared a monthly distribution of $0.063333 per unit, or $0.76 annually, providing a slightly lower forward yield of 5.57%.
In terms of performance, RioCan’s stock is currently trading at $19.77 at writing, giving it a market capitalization of $5.81 billion. Its trailing price-to-earnings (P/E) ratio sits at 12.38, while its price-to-book ratio is an attractive 0.77, suggesting the stock might be undervalued. Choice Properties trades at $13.73, with a larger market cap of $9.87 billion. However, its trailing P/E ratio is slightly higher at 12.58, and its price-to-book ratio stands at 2.01, reflecting a higher premium for its assets.
The books
Financially, both REITs are on solid ground, but their debt levels tell different stories. RioCan holds $7.35 billion in total debt, with a debt-to-equity ratio of 97.27%. While that’s significant, it’s relatively manageable given the REIT’s strong cash flow. Choice Properties, on the other hand, carries $11.97 billion in debt, pushing its debt-to-equity ratio to a much higher 244.33%. This elevated leverage reflects the scale of Choice’s portfolio but could become a concern if interest rates remain high.
Looking ahead, RioCan is aiming for funds from operations (FFO) per unit of $1.89 to $1.92 in 2025, supported by expected same-property net operating income (NOI) growth of 3.5%. The REIT also expects to book $70 million to $80 million in gains from condo sales, particularly from its UC Towers 2 and 3 projects. This forward-looking guidance suggests strong earnings momentum and potential further dividend increases. Choice Properties remains focused on high-quality retail and residential developments. Particularly properties anchored by Loblaw, its largest tenant. While its strategy is conservative, it ensures consistent rental income and long-term stability.
Bottom line
In terms of profitability, Choice Properties holds an edge with a profit margin of 53.36% compared to RioCan’s 35.38%. However, RioCan’s operating margin of 52.17% is close to Choice’s 69.48%, showing both REITs run efficient operations. When it comes to dividends, RioCan’s recent hike gives it an advantage, offering a higher yield while maintaining a healthy payout ratio of 70.09%. Choice Properties’s payout ratio is nearly identical at 69.96%, indicating both REITs are balancing returns with sustainability.
Ultimately, the decision comes down to what type of investor you are. If you prefer a higher yield with more growth potential, RioCan seems like the better bet. Its lower valuation, rising distributions, and ambitious development plans make it appealing to those seeking both income and capital appreciation. However, if stability and conservative growth are your priorities, Choice Properties’s strong tenant base and consistent payouts might make it the safer choice.
