RioCan Real Estate 2

I own this stock of RioCan Real Estate (TSX-REI.UN), OTC-RIOCF). In 1998, I bought this stock because I wanted to diversify my portfolio into REITs. It was a stock covered and recommended by MPL Communications in their Income Trust coverage. I bought more of this stock in 2000, 2002, 2006, 2010, 2011, 2013 and 2014. I have some of this stock in my Trading, Pension and RRSP accounts.

When I look at insider trading, I find some 12.3M of insider selling and $12M of net insider selling. There is some $0.3M of insider buying. There are options for insiders and options and Restricted Equity Units for Directors. There is some insider ownership with the CEO having trust units worth around $9.9M and the Chairman having trust units worth around $4.2M.

In 2013, outstanding shares were increased by 0.476M shares with a book value of $8M. This number of shares would be worth $11.9M at the end of 2013. In 2012 outstanding shares were increased by 1.319M shares with a book value of $24M. This number of shares would be worth $32.7M by the end of 2012.

The 5 year low, median and high median Price/Earnings per Share Ratios are 10.28, 11.59 and 12.89. The current P/E Ratio is 13.13 based on a stock price of $26.26 and 2014 EPS of $2.00. The 5 year low, median and high median Price/AFFO Ratios are 15.91, 17.93 and 19.94. The current P/AFFO Ratio is 17.74 based on a stock price of $26.26 and 2014 AFFO of $1.48.

The current P/E Ratio says that the stock price is high. The current P/AFFO Ratio of 17.74 says that the current stock price is around the median level and therefore reasonable. AFFO (Adjusted Funds from Operations) is a metric that is currently being used by a lot of analyst to value REITs.

If I used AFFO in the calculation for the Graham Price, I get a Graham Price of $27.68. The 8 year low, median and high median Price/GP Ratios are 0.98, 1.14 and 1.45. The current P/BP Ratio is 0.95 based on a stock price of $26.26. This stock price test says that the stock is on the cheap side. If I used EPS and FFO in the Graham Price calculation, the conclusion is pretty much the same.

The 5 year median Dividend Yield is 5.61%. The current Dividend Yield is 5.37% a value some 4% lower. On this test it is desirable that the current Dividend Yield is higher than the 5 year median Dividend Yield. However, since it is just 4% lower, the test says that the stock price is reasonable, but a little on the high side.

Dividend Yields on this stock was much higher in the past. However I calculate a median or average historical Dividend Yield I get ones that are 28% to 37% higher than the current Dividend Yield. On an historical basis, it would appear that the current stock price is high. On the other hand we are now in an era of very low interest rates.

When I look at analysts' recommendations, I find Buy and Hold recommendations. The consensus recommendation would be a Buy. The 12 month consensus stock price is $28.30. This implies total returns of $13.14% with 5.37% from distributions and 7.77% from capital gains.

There is an interesting article in Toronto Life about the CEO of this, company Edward Sonshine saying he wants to get into rental housing, especially in Toronto. Part of the reason I bought RioCan was because they did not have any rental housing. Another interesting article on RioCan says that the company is proceeding with a development in Kensington Market in Toronto without Walmart. The neighbor did not want Walmart, so development will be retail and offices. For my last reference, I have a recent article from Motley Fool on why they like this stock.

I would be cautious about buying this stock currently as the historical Dividend Yields show that the current yield is very low. However, I also have no intention of selling the shares I have in this company. I think that the reason I bought this company, that is for diversification into REITs, is still valid. See my spreadsheet at rei.htm.

This is the second of two parts. The first part was posted on Wednesday, March 19, 2014 and is available here. The first part talks about the stock and the second part talks about the stock price.

RioCan is Canada's largest real estate investment trust exclusively focused on retail real estate. Their core strategy is to own and manage community-oriented neighbourhood shopping centers anchored by supermarkets, together with a rapidly expanding mix of new format retail centers. RioCan owns interests in 51 centers in the United States located in the Northeastern United States and Texas, managed through its offices in New Jersey and Dallas. Its web site is here RioCan.

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 do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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