Real estate has always been one of the most reliable ways to build wealth. However, most Canadians can’t afford to buy an apartment building or a shopping centre outright. That’s where real estate investment trusts, or REITs, come in.
REITs let you own a piece of commercial real estate without the hassle of being a landlord. You don’t have to look after maintenance, tenants, taxes, or disputes.
The appeal goes beyond convenience. REITs are required by law to distribute at least 90% of their taxable income to shareholders as dividends. Many REITs pay monthly, which means you’re getting cash every 30 days instead of waiting for quarterly payments.
Diversification is another major advantage. When you buy shares in a REIT, you’re not betting on a single property. You’re spreading your investment across dozens or even hundreds of locations.
REITs also offer liquidity that direct real estate ownership simply can’t match. For instance, you can easily buy or sell a REIT unit by clicking a few buttons.
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Why this TSX dividend stock stands out for income investors
RioCan Real Estate Investment Trust (TSX: REI.UN) currently yields 5.9% and pays distributions monthly.
The company owns 173 retail properties across Canada’s major markets, with 94% of revenue generated in Toronto, Vancouver, Montreal, Calgary, Edmonton, and Ottawa. RioCan’s properties are located in areas with an average of 277,000 people within a five-kilometre radius, and average household incomes of $155,000.
The management team is targeting long-term core funds from operations (FFO) growth of 5% annually, with at least 3.5% growth expected from 2026 through 2028.
The supply of quality retail space in Canada is severely constrained, and building permits are difficult to obtain. Construction costs are high, while finding suitable land is difficult, even as tenant demand remains strong.
RioCan achieved an average renewal spread of 15% over the past 18 months. When tenants renew their leases, they pay 15% more than before.
Approximately 65% of RioCan’s same-property net operating income (NOI) growth target is already locked in through contractual rent increases. The remaining 35% comes from renewing 10.7 million square feet of expiring leases over the next three years at those double-digit spreads.
The dividend-paying REIT is also converting properties to grocery-anchored centres. Over the past two years, RioCan completed 10 grocery deals totalling 230,000 square feet at centres that previously lacked grocery components.
These deals achieved an average rent premium of 24% over prior tenants. Adding grocery anchors reduces implied cap rates by 25 to 50 basis points, directly boosting net asset value.
The valuation opportunity
Chief Financial Officer Dennis Blasutti presented RioCan’s net asset value at $24 per unit. The stock currently trades around $19.6, representing a 20% discount. If we include the 6% dividend, potential returns could be closer to 26%.
This disconnect exists despite the portfolio quality that Blasutti argued is “significantly higher quality on every metric” than in historical periods when the stock traded at similar multiples.
RioCan is selling its residential rental portfolio (RioCan Living) and collecting condo proceeds, bringing in $1.3-$1.4 billion by the end of 2026. About $1 billion naturally reduces debt, while $400 million gets redeployed into growth opportunities at hurdle rates of at least 9% unlevered internal rate of return.
Between retained cash flows of $130 million to $150 million annually and strategic capital allocation, RioCan expects to invest $200 million to $250 million annually in growth initiatives. These include retail infill projects on land the company already owns, unit buybacks at current discounted prices, and strategic acquisitions.
The company maintains a net debt to earnings before interest, taxes, depreciation, and amortization target of eight to nine times, with a 70% FFO payout ratio that should decline as FFO grows. For income investors, this means the 5.9% monthly distribution sits on a solid financial footing.
RioCan operates in a supply-constrained market with strong tenant demand, contractual rent growth, and disciplined capital allocation. At 20% below NAV while paying monthly income, the opportunity for long-term wealth creation looks compelling.
