December 10, 2018

The Retrocom Mid-Market Real Estate Investment Trust (RMM)

The Retrocom Mid-Market Real Estate Investment Trust (RMM) is a medium-sized REIT with some great growth prospects.  The company is focused almost exclusively in the retail sector in terms of gross revenue (their top 20 tenants – mostly “big box” retailers – represented over 40% of revenues in 2010).  One of their key goals is to become geographically diversified across Canada.  As of right now, the Trust owns 34 retail properties that are spread out amongst eight provinces and the Yukon Territory.  The Trust puts major emphasis on the point that Canada is so large, that if economic troubles hit one region, there are always other regions to take up the slack.  Retrocom has almost 5.5 million square feet of leasable area, and an 85.2% occupancy rate.  Along with their retail holdings, they do have 836 individual tenancies, but their recent acquisitions don’t suggest they are looking to get further exposure to the residential sector.  Retrocom Reit (RMM) was created in December of 2003.  The Trust’s initial purchases (after a $110 million IPO) were 26 retail, 1 office, 2 light-industrial properties.

 

Retrocom (RMM) did not always perform up to their current standards.  After going public, the Trust had to cut it’s distributions by 20%.  This was not popular with investors, especially considering the preferential tax treatment that real estate investment trusts receive within Canada and the solid overall economy performance at the time.  This turmoil led the Trust to conduct a strategic review that led to several executives being let go and a complete focus on profit-intensive retail properties.  In 2006 Retrocom (RMM) sold 38% of its shares to a developer named SmartCentres that specializes in landlord deals with notable retailers such as Zellers and Wal-Mart. “[SmartCentres partnership] represents the beginning of a long-term strategic relationship, which as only more recently served as the catalyst for Retrocom REIT’s transformation,” stated Neil Downey, an analyst for RBC.  He went on to add, “Interestingly, the ties between the two firms were strengthened further in August 2010, as Retrocom moved its head office to SmartCentres’ building in Vaughn, Ontario.”

 

In a recent Globe and Mail report, it was speculated that the Trust is in a great position to capitalize on several big box retailers moving to cities across Canada.  Retrocom’s (RMM) units are up 15% in 2011, and are 60% higher than they were in 2010.  The Fund hopes to see an immediate boost as eight of their properties are anchored by Zellers stores that will soon be converted into the iconic American giant – Target.  Mr. Downey’s analysis of this change was, “Should Target choose to assume a large percentage of these leases, the prospects for increase/higher quality cash flow would be a potential catalyst behind a higher unit price.”  Clearly the new partnership with SmartCentres has paid off for the formerly troubled REIT.  The future now looks bright for Retrocom REIT (RMM) both in terms of its substantial yield of 9.2%, and its growth prospects going forward.  The company is trading at about $4.75 per-unit on the TSX right now, with a market capitalization of $162 million.