Wednesday, March 19, 2014

RioCan Real Estate

On my other blog I am today writing about International Exposure continue...

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.

What you want from a REIT is a good dividend yield with long term dividend increases at least at the rate of inflation. This stock has a good dividend yield which is currently at 5.4% and it has a 5 year median dividend yield of 5.6%.

The dividends have increased by 0.7% and 2.1% per year over the past 5 and 10 years. According to the Bank of Canada, Canada's core inflation rate over the last 5 years is at 1.2% per year and over the past 10 years is 1.5% per year. It would be nice that the increases over the past 5 years were better than inflation, but it is the long term increase that is important. The dividends have increased at 2.1% per year compared to inflation at 1.5% per year. So the dividend increases not ideal, but they are fine.

Because this is a REIT most analysts look at the Distribution Payout Ratios for Funds from Operations (FFO) and from Adjusted Funds from Operations (AFFO). The DPR for FFO is at 90.2% for 2013 and for AFFO is at 95.1. What is desirable is a Payout Ratio of 90% or less. For AFFO, the payout ratios are high with a 5 year median at 106%. However, the company is making moves to lower this ratio to 90%.

For my stock purchased 16 years ago in 1998, I am making a yield 12.88% on my original purchase amount. For the stock I bought 14 years ago in 2000, I am making a yield of 16.89% on my original purchase amount. For the stock I bought 8 years ago in 2006, I am making a yield of 6.58% on my original purchase amount.

Investors have done well over the past 5 and 10 years. The total return to date over the past 5 and 10 years is at 12.08% and 10.40% per year, respective. The capital gain portion of this stock is 5.76% and 3.90% per year over the past 5 and 10 years. The distribution portion of this return is 6.32% and 6.49% per year over the past 5 and 10 years. My total return is 14.93% per year with 6.06% from capital gains and 8.87% from distributions.

The outstanding shares have increased by 6.5% and 5.5% per year over the past 5 and 10 years. Because of the increase in outstanding shares, this makes the per share values more important. Both Revenue and Cash Flow have increased nicely, but the increase in Revenue per Share and Cash Flow per Share is rather low or non-existent. The AFFO and FFO have also not increased much.

Revenues are up by 8% and 7.7% per year over the past 5 and 10 years. Revenues per Share are only up by 1.4% and 2.1% per year over the past 5 and 10 years. Cash Flow is up by 5.8% and 8.3% per year over the past 5 and 10 years. Cash Flow per Share is down by 0.6% and up by 2.7% per year over the past 5 and 10 years.

The FFO has only increased by 1.06% and 2.1% per year over the past 5 and 10 years. I only have AFFO figures for the past 8 years, so I cannot give a 10 year figures. However, AFFO has increase by 2.5% and 2% per year over the past 5 and 8 years.

The change to the new accounting rules of IFRS seems to have affected both the earnings and book values greatly so the increase in these values over the past 5 and 10 years are perhaps meaningless.

The Return on Equity is fairly good with the 5 year median at 13.8% and the 2013 ROE at 9.8%. The ROE on the comprehensive income is close with the 5 year median ROE at 13.3% and the 2013 ROE at 10.8%.

The Liquidity Ratio has been low for this company for last two years with the 2013 ratio at 0.79. This means that the current assets cannot cover the current liabilities. However, if you add in cash flow after distributions, the 2013 Liquidity Ratio goes to 1.47. This means that they depend on current cash flow to pay current liabilities.

The Debt Ratio is very good and has always been very good. The 2013 Debt Ratio is 2.16. The Leverage and Debt/Equity Ratios are good at 1.86 and 0.86, respectively.

I bought this stock for diversification into REITs and I am by and large pleased with the investment. These are not the best of economic times. We seem to be in a long slow economic recovery and some sectors and companies are struggling. However, I still feel that this is a good long term investment for my portfolio. See my spreadsheet at rei.htm.

This is the first of two parts. The second part will be posted on Wednesday, March 20, 2014 and will be 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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1 comment:

  1. I've been very happy with REI.UN in my portfolio. Buy and hold and hold this one....