Monday, March 11, 2013

RioCan Real Estate

On my other blog I am today writing about boards having women directors...continue...

I own this stock of RioCan Real Estate (TSX-REI.UN, OTC- RIOCF). I first bought this stock in 2000 and I have periodically bought more. I have made a return of 16.66% per year on this stock with 8.15% per year from capital gains and 5.81% per year from distributions.

Over the past 5 and 10 years, investors in this stock have made returns of 10.58% per year and 15.98% per year. Over these periods the capital gain portion was 4.78% per year and 8.25% per year, respectively. Also over these periods the distribution portion was 5.80% per year and 7.73% per year, respectively.

The dividend growth for this stock used to keep up with inflation. However, lately this has not been true. Inflation over the past 5 and 10 years has been running around 1.8% per year. However, the 5 year growth in distributions is just 1.2% per year. The 10 year growth in dividends is better at 2.5%. For inflation information, see Bank of Canada's website.

The reason for the low growth in dividends is that the company only increased dividends by 1.5% in 2009 and then did no increases in 2010 and 2011. In 2012 they again raised the dividend and this raise was better at 2.2%. It has been a tough economy and lots of companies have had problems. There was good reason to not increase dividends in 2010 and 2011 because the company could not cover the dividends with cash flow. I personally rather a company does this than pay dividends it cannot afford to pay.

The 5 year median Dividend Payout Ratio for cash flow was 102%. The one for 2012 was better at 93% and the DPR for cash flow is expected to be in the high 80%'s in 2013. The 5 year median DPR for Funds from Operations is 95% and from Adjusted Funds from Operations is 106%. Having the distributions higher than AFFO is not good and it is expect that the DPR from AFFO for 2013 will be around 100%.

Over the past 5 and 10 years, outstanding units have increased by 7.3% and 6.6% per year. The increase is due to Stock Options, DRIP and New Share Issued.

Revenue is up by 8.7% per year and 9.6% per year over the past 5 and 10 years. However, the Revenue per Share figures is not good because there is a big difference in the number of units outstanding over these periods. The Revenue per Share is only up 1.3% and 2.8% per year over the past 5 and 10 years. Both these growth rates are significant, but being a unitholder, the per unit values are very important.

The Earnings per Share is up a lot and it seems to be due to the change in accounting rules to IFRS. So the EPS growth is not a guide for us. The FFO and AFFO have not increased much with the FFO up by 1% per year over the past 5 years and the AFFO up 0% and 1.5% per year over the past 5 and 10 years.

The growth in Cash Flow per share has not been stellar either, with growth at just 3.4 and 2.9% per year over the past 5 and 10 years. Book Value was affected by the change in accounting rules and its growth does not tell us much.

The company had a good year in 2012, income wise. The Return on Equity for 2012 is 20.6% and the 5 year median ROE is also good at 14%. The ROE on comprehensive income was very similar with the ROE in 2012 at 20.8% and the 5 year median at 13.3%.

It is not good that the EPS/CF Ratio for 2011 and 2012 are above 1.00 at 2.64 and 3.02. Generally speaking, when the CFPS is lower than EPS is it not good for companies over the longer term. However, the EPS were significantly increased due to IFRS accounting rules, so it hard to say how this will all play out. It its unknown what the long term effects of the new IFRS rules will be.

As far a debt ratios goes, the current Liquidity Ratio is fine, especially since the company has a strong cash flow. The current Debt Ratio is very good at 2.13. Both the current Leverage and Debt/Equity Ratios are good at 1.97 and 0.92.

I would certainly like to see better growth for this stock, but we are in rather tough economic times and it is hard to say when we will hit better times. The current cyclical bull market perhaps says better times are coming, but we will not be home free until the Western world does something about the huge debts that our governments have run up. It will take some time to work off these debts.

The Canadian Federal government under Chretien handled the debt well where they backed off spending, but did it slowly so as not to overwhelm the economy. With some countries, like Greece, the sooner they default on debt they really cannot pay back, the better it will be for everyone. It is not as if this is a new concept. In fact, there are few countries that have never defaulted on their debt. Most have defaulted at some time and a lot of countries have defaulted a number of times in the past.

This is a good stock to buy for diversification. I like that it is in the retail properties. When I look at REITs, I prefer ones in retail and commercial properties. The characteristics of a REIT are a good dividend yield with slightly higher dividend growth than inflation. I would be satisfied with a REIT with 4% dividend yield and 4% capital gain per year over the long term. This one has done better than that for me and I have been pleased with it.

And, by the way, two of the eight directors of this company are women to give a 25% women board member representation.

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. 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 or StockTwits.


  1. Thanks for this review! I own this stock in my TFSA. Great to know you hold it too.

  2. Dennis Mitchell talked about this today and it was one of his top picks.

  3. Yes, I think that this is a good long term stock buy. I can understand why Dennis Mitchell said it was one of his top picks.

  4. I like it too & bought it recently. Other REITs I bought recently are H&R, Artis & Boston Properties.

    Looking at American Tower & decided to wait for a pullback on that one.

  5. Can you please explain the difference between REI.UN and RIO.CF

    thanks, Michele

  6. What site are you on that gives you an RIO.CF sysbol?