Friday, July 4, 2008

RioCan Real Estate

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional.

I bought this stock (REI.UN-TSX) in January 1998 and according to Quicken, I have made a 14.5% average annual return since that time on this stock. According to Quicken, I have made a 16.5 average annual return on this stock over the last 5 years. So I have done very well.

The following figures are based on 5 year averages to December 2007, the last Annual Report date. The Revenue is increasing nicely for a REIT at 10.5% average per year. For REITs and Unit Trust, you want to look at Distributable Income for Funds from Operations (FFO) not Earnings per Share (EPS). The Distributable Income is what money is available for dividends. For this stock, the average FFO increase per year is 4%. The dividends are increasing at an average of 3.7% (this is above inflation) and is good. The 5 years average increase in the Closing Price is 20%. Return on equity for 2007 is good at 10.5%.

The negatives that I see are that the debt level is increasing with an Asset/Liability ratio of 1.47 in 2007. This is below the 5 year average of 1.61 and also you would want to see this ratio at, at least 1.5. This ratio has been decreasing over the last 5 years. The Book Value is not increasing, the 5 year average is -2%. You do not expect to see increases as REITs distribute most of their cash, but it has been decreasing over the last 5 years. The accrual ratio is 7%, which is higher than I would like to see.

The dividends distributed have been divided basically 50/50 between Income and Return of Capital. (When you receive Return of Capital, this lowers your Adjusted Cost Basis for income tax purposes.)

I will put up my spreadsheet tomorrow.

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