RioCan Real Estate

Sound bite for Twitter and StockTwits is: Reasonable and below median. Maybe I am too slow in selling stocks that are not doing well, but I noticed that not changing my portfolio much has done wonders to my overall performance. Besides, I believe that this company is or will be recovering and be a great investment. See my spreadsheet on RioCan Real Estate.

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.

I must admit it has been a bit of a disappointment that this REIT has not been able to grow much in the way of distributions since 2010. However, I have done well with stock. I start to purchase shares in 1998 and have earned a total return of 12.98% per year. However, when you invest for the long term, a company will have its ups and downs. Unfortunately, most analysts do not see any increase in distributions over the next couple of years.

Investing in this stock has been quite a different experience that mine with Metro. Here some 67% of my total return was in distributions and only 33% in capital gain. However, on this stock most of the distributions has been in Other Income.

It was not a good year as far as earnings go because of losses due to discontinued business. However, Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) are more important for REITs than EPS. Growth in FFO and AFFO has been low but has picked up in the few years. FFO growth is 6.1% and 3.2% per year over the past 5 and 10 years. AFFO growth is 3.9% and 2.2% per year over the past 5 and 10 years.

They did not cover their distributions with EPS for 2015 but the Dividend Payout Ratios for FFO and AFFO are better. The DPR for FFO in 2015 was 85.5% and for AFFO in 2015 was 72.3%. Their problem was that between 2006 and 2011 they paid out more than 100% of the AFFO in distributions. For 2016 DPR for AFFO is expected to be around 95%. This is the top end of the good range for DPR for AFFO.

Distribution growth was at 0.43% and 1.03% for the past 5 and 10 years. Since 2010 there was only one distribution increase in 2013 of 2.2%. This is the reason for the low growth in distributions.

The growth in distribution is lower than the rate of inflation which the Bank of Canada says is at 1.37% and 1.07% for core and total inflation over the past 5 years and at 1.56% and 1.49% per year for core and total inflation over the past 10 years.

Because this is a REIT, I will be looking at Price/FFO Ratios and Price/AFFO Ratios when evaluating the stock price. The 5 year low, median and high median P/FFO Ratios are 15.10, 17.01 and 18.81. The 10 year corresponding ratios are lower at 13.77, 15.87 and 17.55. The current P/FFO Ratios is 15.91 based on a stock price of $26.25 and 2016 FFO estimate of $1.65. This stock price testing suggests that the stock price is reasonable and below the median.

The 5 year low, median and high median P/AFFO Ratios are 16.23, 17.93 and 19.94. The 10 year corresponding ratios are lower at 15.59, 17.66 and 19.55. The current P/AFFO Ratios is 17.62 based on a stock price of $26.25 and 2016 FFO estimate of $1.49. This stock price testing suggests that the stock price is reasonable and below the median.

Because the dividend yields on this stock got very high in 2000 (just over 13%), the historical average and historical median dividend yields are quite high at 8.95% and 7.65%, respectively. On this basis the current dividend yield at 5.37% shows this stock as expensive. The dividend yield of 5.37% is based on distributions of $1.41 and a stock price of $26.25.

However, the 5 year median dividend yield is lower at 5.31% and with the current dividend yield at 5.37% it suggests that the stock price is reasonable and below the median.

When I look at analysts' recommendations I find Strong Buy, Buy and Holder Recommendations. Most of the recommendations are a Buy and the consensus recommendation is a Buy. The 12 month stock price target is $27.50. This implies a total return of 10.13% with 5.37% from dividends and 4.76% from capital gains.

Nelson Smith of Motley Fool expects this company to do well now that its problems with Target is past. In this article in the Financial Post, Barry Critchley explains why this company is redeeming its rate reset preferreds. This post by Seth Hatwan on Hill Top News talks about this company having a consensus analysts' recommendation of Buy. According to Marina Strauss in the Globe and Mail RioCan's troubles over Target may not be over as other tenants are seeking relief or the right to vacant malls because of Target's collapse. Edward Sonshine the CEO of RioCan thinks the problems about Target will all be over by 2017. See what analysts are saying at Stock Chase.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see those reports here and here.

On my other blog I wrote today about inflation learn more . The next stock I will write about will be H & R Real Estate Trust (TSX-HR.UN, OTC-HRUFF)... learn more on Friday, March 11, 2016 around 5 pm.

Also, on my book blog I have put a review of the book Flash Points by George Friedman learn more...

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 Real Estate.

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.