RioCan is a leading retail REIT in Canada. It is an unincorporated closed-end trust. As one of Canada’s largest real estate investment trusts, RioCan owns, manages and develops retail-focused, mixed-use properties located in prime, high populated areas in leading cities like Vancouver, Calgary, Edmonton, Toronto, Ottawa, and Montreal.
Each of RioCan’s sites is strategically selected to meet the demographic and geographic needs of its retailers. Its vast portfolio comprises of 230 properties, including 13 development properties spanning 39 million square feet of leasable property. The REIT derives 88% of its revenues (1Q19) from six of Canada’s major markets and 48% from the GTA.
RioCan has a well-balanced yet diversified and a trusted tenant base comprising of the largest retail players in Canada. Its portfolio is comprised of over 200 properties spanning across Canada, with some of the leading national retail businesses such as Walmart, Canadian Tire, Cineplex, Loblaws and Metro, being its leading tenants.Investment Data
- Opportunity Score: 50
- Ticker: TSE:REI.UN
- Sector: Real Estate
- Industry: REIT - Retail
- Market Cap: 4.79B
- P/E: 54.29
- Dividend Yield: 9.55%
- Payout Ratio (Earnings): 514.29%
- Canadian Dividend Aristocrat: NO
- Chowder Score: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 1/10
- Dividend Income Fit: 10/10
Revenue Growth & Market Exposure
Over the years, RioCan has been strengthening its tenant mix. It has increased its focus on expanding rent from necessity-based tenants. RioCan, today derives 74% of its total rent from necessity-based and service-oriented tenants. More than 97% of its properties have retail occupancy. By business type, grocery (27% of rent) and personal services (21%) are the largest; followed by value retailers (14%), specialty retailers (11%), furniture (10%), department stores (9%), movie theatres (5%), and entertainment (3%). Exposure to grocery, pharmacy, liquor, restaurants and personal services markets has increased by 9% since 2007. In the last 25 years of its existence, RioCan has developed strong relationships with its tenants and suppliers.
RioCan is focusing strongly on major markets in Canada. The REIT has disposed of assets worth $4 billion in the last two years to focus on its core markets. It is targeting to derive 90% of its revenue from Canada’s six major markets by the end of 2019, and 50% from the Greater Toronto Area, the fastest growing region in Canada. RioCan’s focus on fast-growing and high-income areas will strengthen its leading major market portfolio.
The REIT is now focusing on increasing its focus on condos and mixed-use properties given the uncertainty around retail businesses. RioCan currently has 2,100 residential units under construction in Toronto, Ottawa, and Calgary, and an additional 2,200 residential units will be underway by 2021. The REIT has 27.2 million square feet in the development pipeline. The trust’s location in prime Canadian markets with rising incomes and growing population will further attract major retailers.
Rich experience, strong major market portfolio, and a solid balance sheet has enabled RioCan to drive its organic growth in the future.
An average of 5.5% dividend yield makes RioCan an attractive dividend income stocks. The REIT has successfully grown its payouts at 0.7% CAGR in the last three years, while its FFO growth has registered 8.5% CAGR during the same time. It has a manageable payout ratio of 60%. RioCan increased its last distribution by more than 2%.
Diversification and an experienced management team have helped the REIT to manage the business’s risk more effectively. A best-in-class balance sheet enables RioCan to access a lower cost of debt compared to peers. Given its low leverage position, RioCan is well-positioned to withstand an increasing interest rate environment. The sizeable base of assets, strategic relationship with dependable tenants and long-term leases grants enough cash flow visibility. Nearly 90% of the revenues come from properties in major Canadian cities. A good mix of retail and mixed-use properties in Canada’s major markets add a good diversification to RioCan’s portfolio.
RioCan’s free funds from operation grew by 3.6% CAGR over the last two decades. The REIT expects to achieve same property NOI growth in the 2%-3% target range for 2019. Leading major market portfolio, robust development pipeline and a strong balance sheet are RioCan’s strong competitive advantages. It is now in a better position to grow its portfolio and cash flow by leveraging its competitive advantages.
Canada’s sound retail tenant base with solid financial strength will benefit the nation’s retail real estate market over the long run. As such, it offers an attractive as well as highly competitive real estate market for developers. The success of a REIT to a great extent depends on the location of its properties, and RioCan’s national footprint concentrated in Canada’s largest markets grants it a strong competitive edge over peers. RioCan competes with other investors, managers, and owners of properties. CT REIT, SmartCentres REIT, Choice Properties, Plaza Retail REIT are few of the other leading retail REITs in Canada.
RioCan’s large size and dominant position in Canada’s six major markets positions it well to benefit from the booming economic and retail environment. Organic growth should continue on the back of RioCan’s diversified and high-quality portfolio driven by its major market acceleration strategy and timely project deliveries.
As you can see, this REIT is not a holding to grow your wealth. It is stable and properly manages its business while providing income for investors. I do not hold REITs and do not plan to hold any until I need the income to live from. The big question you want to ask is if your REIT investment for income is keeping up with inflation. RioCan has a poor distribution growth of 0.70%, 0.42%, and 0.57% for its 3, 5, and 10 year distribution growth.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.