Tuesday, February 16, 2010

RioCan Real Estate

I am today reviewing RioCan REIT (TSX-REI.UN), because I own it, the annual statement for 2009 has just been published and the stock has had a big drop in price. When this sort of thing happens, you have to ask yourself, is the drop in price a true reflection of what is going on in the company currently and will happen to the company in the future? If you are invested in this company, ask yourself, “Is this company is going bankrupt”? If not, then has it been so badly damaged that it will not recover or take many years to recover?

If you are a long term investor, short term problems in a company you have invested in should not be a problem. It should not be a problem even if they decrease their distributions or dividends. If you can make good future returns on your investment, then it is worthwhile keeping your shares. To sell shares in a company as it is tanking in the stock market can sometimes be the worse possible move to make.

First, let’s talk about what is good on this stock. The dividends have increased over the last 5 and 10 years at 2.4% per year and 2.8% per year. This is higher than the rate of inflation, as current inflation is very low. The bad thing about dividends is that they were last increased in 2008 and no one seems to feel that they will be increased anytime soon again.

A good thing is total return. The return as a stockholder is the combination of stock price increased and dividends received. The total return growth for the last 5 and 10 years is 9% per year and 19% per year. The thing to remark on is that all the 10 year returns on this stock is much better than for the last 5 years. This stock has had trouble since 2008. The other thing to remark on in connection with Total Return is that the Book Value of this stock has been declining and it has declined by less than 1% over the last 10 years, but by 2.4% over the last 5 years.

As with a lot of income trusts, REITs often have negative growth in book value. Personally, I feel you should take seriously the income that is considered to be capital gain. It probably is, especially if book value is going nowhere and in a lot of cases, it is going down. When you look at growth in Revenues, Distributable Income, Earnings and Cash Flow over the last 5 years they all are in negative territory. Over the last 10 years, these figures are better and most avoid negative values, but all are low. However, analysts seem to feel that all these figures will be better starting in 2010 and continuing into 2011 and beyond.

To end on a better note, the Asset/Liability Ratio is decent. The current ratio is 1.47. I like to see this ratio at 1.50 and the 5 year average is 1.53. Nevertheless, it has been just below 1.50 for the last 3 years. With this ratio at 1.47, it means that the Assets can cover the Liabilities.

I first bought this stock in 1998, with more in 2000 and 2006. I have made a return on stock of 15.8% per year. For the stock I bought in 1998, I have made a return of 13.6% per year. For the stock I bought in 2000, I have made a return of 18% per year. For the stock I bought in 2006, I have made on 3.4% return per year. Because of the recent drop in stock price, people who have not had the stock for a long period will not have made much, but people who had it for the long term will still have done fine. Since this stock is expected to start to recover this year, long term damage to the company does not appear to have happened.

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 www.riocan.com. See my spreadsheet at www.spbrunner.com/stocks/rei.htm .

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

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