Monday, March 16, 2015

RioCan Real Estate 2

On my other blog I am today writing about REITs and Interest Rates continue...

Sound bite for Twitter and StockTwits is: Stock price maybe reasonable. The problem with all REITs is that they have had a great run up in stock price as the dividend yield has dropped. This whole sector maybe overpriced because current dividend yields are close to all-time lows. See my spreadsheet at rei.htm.

I own this stock of RioCan Real Estate (TSX-REI.UN, OTC-RIOCF). I first bought this stock 1998 because I wanted to diversify my portfolio into REITs. It was a stock covered and recommended by MPL Communications in their Income Trust coverage. Over the years I have made several more purchases of this REIT.

In 2014 outstanding shares were increased by 2.331M shares for Stock Options. This number of shares is 0.74% of outstanding shares. They have a book value of $49M and the value of this number of shares was worth $61.6M at the end of 2014. In 2013 shares were only increased by 476,000 or 0.16% of the outstanding shares and in 2012 they were increased by 1.319M shares or 0.43% of the outstanding shares for Stock Options. Over all the increase for Stock Options seem reasonable.

For insider ownership, the CEO has shares worth around $10.6M, the CFO has shares worth around $2.1M and the Chairman has shares worth around $4.5M. However all these shares in total is way under 1% of the outstanding shares.

The 5 year median Price/Funds from Operations Ratio is 17.01 and the current P/FFO Ratio at 16.06 is some 5.5% lower. The 10 year median P/FFO Ratio is 15.87 and the current P/FFO Ratio at 16.06 is some 1.2% higher. The current P/FFO is based on a stock price of $27.63 and FFO 2015 estimate of $1.72. This testing suggests that the stock price is reasonable.

The 5 year median Price/Adjusted Funds from Operations Ratio is 17.93 and the current P/AFFO Ratio at 17.94 is almost the same. The 10 year median P/AFFO Ratio is 17.93 is the same as the 5 year median ratio. The current P/AFFO Ratio is based on a stock price of $27.63 and AFFO 2015 estimate of $1.54. This testing suggests that the stock price is reasonable.

The 5 year median Dividend Yield is 5.37% and the current Dividend Yield at 5.10% is some 4.9% lower. The current dividend yield is based on a stock price of $27.63 and dividends of $1.41 per share. With regards to the last 5 years, the current stock price would seem to be reasonable.

However, Dividend Yields used to be a lot higher. The historical high yield is around 12.91%. The historical low yield is around 4.92%. The current dividend yield of 5.1% is rather close to the historical low and is only 3.7% off. The historical median Dividend Yield is at 7.81% and the current Dividend Yield of 5.1% is some 35% lower. It would seem on an historical basis this testing would say that the stock price is high.

The Dividend Yield and Stock Price go in opposite directions. The higher the Stock Price the lower the relative Dividend Yield. Also note that I use a formula to get Dividend Yields highs and lows that exclude outlier data points.

If you look at P/S Ratios, the 10 year median P/S Ratio is 6.95 and the current P/S Ratio is just off 1.6% from this. The current P/S Ratio is 7.06 based on 2015 estimate for Revenue of $1237M, Revenue per Share of $3.91 and stock price of 27.63. This suggests that the stock price is reasonable. However, a P/S Ratio of 7.06 is a bit high for a P/S Ratio.

The 10 year median Price/Cash Flow per Share Ratio is 16.23 and the current P/CF Ratio is17.29. The current P/CF Ratio is based on a stock price of $27.63 and CFPS based on the latest $505.00 Cash Flow divided by current shares of 315.986M. The current P/CF Ratio is just 6.5% higher than the 10 year median P/CF Ratio and so that makes the current stock price reasonable. However, a P/CF ratio of 17.70 is also a bit high.

When I look at analysts' recommendations, I find Buy and Hold recommendations. The consensus recommendations would be a Buy. The 12 month stock price consensus is $31.20. This implies a total return of 18.02% with 12.92% from capital gains and 5.10% from dividends.

This article is about the Hudson's Bay Company joint venture with RioCan to monetize a portion of its real estate holdings. This article talks about some recent insider buying at RioCan. This article by Robert Baillieul at Motley Fool compared Dream and RioCan REITs. Dream REIT used to be Dundee REIT.

This is the second of two parts. The first part was posted on Friday, March 13, 2015 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.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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