December 10, 2018

RioCan Real Estate Investment Trust (REI)

RioCan Real Estate Investment Trust (REI) is the largest real estate investment trust (REIT) in Canada.  It has a total capitalization of over $11 billion and owns 305 retail properties that add up to a massive 73 million square feet of leasable space.  The REIT is primarily focused on acquiring and maximizing the value of large retail shopping centres that have well-known anchor tenants.  They are the largest owner of retail properties in Canada.  RioCan REIT (REI) is also a great way for Canadian investors to get exposure to the US real estate market.  This is due to the fact that RioCan has invested in several shopping centres (35 at last count) within the dense American Northeast.  In addition to their directly purchased properties in the USA, RioCan REIT (REI) also has bought a 14% interest in Cedar Shopping Centers, Inc., which is an American REIT that is focuses on the sector of supermarket-anchored retail centres, and drugstores on the Northeastern seaboard.  These American holdings are fairly unique amongst Canadian REITs.  RioCan is proud to boast great tenancy rates across its many properties, and its average rate is 97.5%.

 

RioCan REIT (REI) works with nearly all the major brands and retailers in North America.  Its biggest tenants in terms of revenues are Famous Players/Cineplex/Galaxy Cinemas, Wal-Mart, Metro, Canadian Tire/Mark’s Work Warehouse, Winners/Marshalls, Loblaws, Staples/Business Depot, Target Corporation (with several new Canadian locations, Harvey’s/Swiss Chalet/Kelsey’s/Montana’s, and Reitmans/Penningtons/Addition-Ellie/Thyme Maternity.  With great companies like these anchoring their retail properties, RioCan has a proven ability to create solid business partnerships.  These connections ultimately mean improving value for unitholders, and more attractive climates for potential tenants across Canada.

 

The most recent news out of RioCan REIT’s (REI) headquarters is the fact that the trust has become Target Corporations largest Canadian partner since the conglomerate announced last week it will be expanding into 105 Canadian locations over the next two years.  TD analyst Sam Dimiani stated he believed the transaction was a positive one when he wrote, “All in all, we believe RioCan negotiated a reasonable and attractive deal with Target.”  The Minnesota-based retailer will be taking over 21 of RioCan’s 34 Zellers locations over this initial expansion period.  More extensive expansion maybe forthcoming and RioCan (REI) has already begun talks concerning another five possible locations.  The deal is a major sign of strength to unitholders, and guarantees an enviable business partner for the next 10 years.  Target has already expressed interests in improving many of the properties are their own cost, which is a great bonus for the REIT.

 

RioCan (REI) has such an attractive portfolio of properties it is tough to find fault with the trust.  It’s current price of $25-per share is a little high, and its average (relative to its competition in the Canadian Real Estate Investment Trust Sector) dividend yield of 5.5% leaves much to be desired.  That being said, an investment opportunity that is this stable, diversified, and has this strong management track record, is never a bad purchase.