RioCan Real Estate

I first bought this stock (TSX-REI.UN) for my RRSP account in January 1998 then I bought some for my Trading account in April 2000 and some more in January 2002. In June 2006, and in December 2010, I bought this stock for the Locked-in Pension account. I have made a total return on this stock of 17.1% per year. Probably 7 to 8% of my total return is in distributions.

A potential problem with this stock in my Trading Account is that part of the yearly distributions is considered return of capital. This return of capital is subtracted from your Adjusted Cost Basis (ACB) each year. Once your ACB is at zero, you have to include any further return of capital in your capital gain calculations. The result is that you would have to pay capital gain tax on return of capital distributions when your ACB gets to zero. Currently, on any return of capital distribution, I pay no tax at all. I do not really feel this is a problem, so I will continue to hold some of this stock in my Trading Account.

RioCan says its purpose is to deliver to its unitholders stable and reliable cash distributions that will increase over the long term. They had been criticized for keeping their payout ratios high. Their 5 year average payout ratio against Funds from Operations (FFO) is 96% compared to CDN REIT’s (REF.UN) 61%. However, this payout ratio has been declining, as they have not raised their distributions since the last part of 2008. The FFO Payout Ratio is expected to be 91% in 2011 and 87% in 2012 if there is no change in distributions.

The 5 year growth in distributions is at 1.6% compared to 5 year growth in inflation of 1.8%. The 10 year growth in distributions is better at 2.6% compared to 10 year growth in inflation of 2%. Their last increase in distributions in 2008 was at 2.2%. Most of their increases just prior to 2008 were around this value. Total Return is better for the last 10 years than for the last 5.

Total Return has grown, over the past 5 and 10 years at the rate of 6% and 18.5% per year, respectively. The problem is that the stock price has really not changed over the past 5 years and the total return is all distributions.

For this company, 10 year growth is generally better than the 5 year growth. There is one exception and that is for earnings. The 5 and 10 year earnings growth for this company is at 12.4% per year and 2.8% per year, respectively. The book value has not grown at all over the past 5 and 10 years.

Revenue per share and cash flow per share have not grown much. Revenue per share has grown over the past 5 and 10 years at the rate of 1.9% and 4.9% per year, respectively. Cash Flow from Operations per share has grown at the 1.2% and 4.1% per year, respectively.

Debt Ratios are ok on this stock. The Liquidity Ratio is at 1.65 with a 5 year average of 2.30. The Asset/Liability Ratio is 1.47, with a 5 year average of 1.49. For both this ratios, you would want them at 1.50 or better. The Leverage Ratio is 3.19 (which is a little high), with a better 10 year average of 2.72. The problem is that this ratio has been increasing lately. The Debt/Equity Ratio is better at 2.17, with a 10 year average of 1.72. It has also been increasing. The problem is the lack of growth in book value.

The financial year ending in December 2010 was a good one for this stock. Return on Equity was good for 2010 at 14.1%. This is better than the 5 year average of 9.9%. Revenue per share grew at the rate of 9%; earnings grew 149%; and cash flow by 26%. Book Value in 2010 grew at the rate of 8% after a number of years of negative growth.

I plan to hold onto the shares I own in this company. I will probably not buy anymore as I have enough.

RioCan is Canada's largest real estate investment trust. It owns and manages Canada's largest portfolio of shopping centers. RioCan owns an 80% interest in 31 grocery anchored and new format retail centers in the United States through various joint venture arrangements. In addition, RioCan owns 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. This stock is rated STA-2M by DBRS. Its web site is here RioCan. See my spreadsheet at 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 for stocks followed and investment notes. Follow me on twitter.