Wednesday, February 17, 2010

RioCan Real Estate 2

I am today reviewing RioCan REIT (TSX-REI.UN), because I own it, the annual statement (unaudited) for 2009 has just been published and the stock has had a big drop in price. The interesting thing about the drop in price on this stock is that I cannot find any analysts that are recommending a sell. I see analysts’ recommendations from Strong Buy to Buy to Hold. The consensus recommendation is a Hold. (See my site for information on analyst ratings.)

The first thing I like to look at is the Insider Buying and the Insider Selling action. There is insider selling to the tune of around $3M, but it seems to be all by one officer of the company. As I have mentioned before, people can sell for lots of reasons. We are in a recession, and maybe this officer of the company needs money. It would be more of a concern if there were lots of people selling, but this is not the case. The other thing is that there is almost no insider buying.

When I look at P/E ratio, I find that it is at 32. This is high. I get a 5 year average low of 23 and a 5 year average high of 34. Looking at these ratios, I think that absolute ratios do count. However, you do also want to look at ratios on a relative basis. This ratio is high no matter how you look at it. I know that people often give a P/FFO ratio (or on distributable income.) I get one at 12.8. This is not low either, but it is only slightly above the 5 year average low of 12.

The next thing I like to look is the Price/Book Value. Since the book value is going down rather than up, it is not surprising that the current price gives a P/BV that is some 15% above the long term average P/BV. This is not dramatically higher, but it is higher, which maybe gives this stock a reasonable type price, but not a good price. I also like to look at the Graham Price. Since the Graham Price is based on a formula that takes earnings and book value into account, it is not surprising that the Graham Price is way below the current price. I get a Graham Price of $9.83. This is over 80% below the current stock price.

The only ratio that says this stock might be at a good or reasonable price is the dividend yield. The current dividend yield is 7.7% and the 5 year average is 6.8%. So the dividend yield is high than average and this is a good sign. After having said all this, I am not selling my stock. I would go with the analysts that say it is a Hold. No one seems to expect this stock will do great over the next couple of years. Analysts seem to be thinking that the distributions will hold. It is also expected that the distributions will not grow until at least 2012.

As I have said, I will hold my stock. I do not think that price has been hammered enough to make it a really good buy. However, as I said at the beginning, some analysts disagree with this and think it is now an exceptional buy. I guess that only the future will tell who is right.

RioCan is an equity real estate trust, which owns a portfolio of retail properties across Canada and north Eastern USA. It owns and manages Canada's largest portfolio of shopping centers and owns approximately a 14% equity interest in Cedar Shopping Centers, Inc., a real estate investment trust focused on supermarket-anchored shopping centers and drug store-anchored convenience centers located predominantly in the Northeastern United States. RioCan has also agreed to acquire an 80% interest in seven grocery anchored shopping centers in the United States. Its web site is See my spreadsheet at .

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. See my website at for a list of the stocks for which I have put up spreadsheets. Also, look at other investing notes on my website at Follow me on twitter.

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