Today, we look at two Canadian Real Estate Investment Trusts (REITs) with growing property portfolios in key markets in Canada—RioCan and Allied Properties. RioCan is expanding its holdings with a deal to buy out its joint-venture partner’s 50% stake in 22 mall properties in Canada’s biggest cities. At the same time, it may sell its U.S. operations for $1 billion U.S. or more, giving it cash to fuel its growth. Allied Properties owns 146 office buildings with attractive retail space in Canadian cities. After adding to its holdings over the past three years, Allied’s revenue and cash flows have increased. We view these two REITs as sound dividend stocks for conservative investors.

RIOCAN REAL ESTATE INVESTMENT TRUST (Toronto symbol REI.UN; www.riocan.com) is Canada’s largest real estate investment trust.

In the three months ended June 30, 2015, RioCan’s revenue rose 6.3%, to $322.3 million from $303.2 million a year earlier. Cash flow per unit gained 2.4%, to $0.42 from $0.41.

The trust has now agreed to unwind its 50/50 joint venture with U.S.-based Kimco Realty. This business manages 35 malls across Canada.

Under the deal, RioCan will acquire Kimco’s 50% stake in 22 of these properties for $715 million. The partners then plan to sell 10 other properties. They haven’t yet made a decision about the last three, which consist of stores recently vacated by Target.

The 22 properties RioCan is taking full control of fit well with its plan to increase its exposure to Canada’s six largest markets: Toronto, Montreal, Ottawa, Calgary, Edmonton and Vancouver.

The trust is also considering selling its U.S. operations, whose property values have gained with the U.S. dollar and the country’s recovering economy. A sale could bring in over $1 billion U.S., which RioCan could use to pay for the Kimco deal or to buy out some of its other joint venture partners. RioCan trades at 14.6 times its forecast 2015 cash flow of $1.77 a unit. That’s reasonable in light of the trust’s highly profitable properties and 93.9% occupancy rate. The units yield 5.5%.

Recommendation in Canadian Wealth Advisor: BUY 

Dividend Stocks: Allied adds sought-after retail space to its holdings

ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST (Toronto symbol AP.UN; www.alliedreit.com) owns 146 office buildings, mostly in major Canadian cities. These mainly Class I properties contain over 10.5 million square feet of leasable area.

Class I refers to 19th- and early-20th-century industrial buildings that have been converted to retail space. They usually feature exposed beams, interior brick and hardwood floors.

Allied spent $400 million acquiring properties in 2012, $182.4 million in 2013 and $234.9 million in 2014. In the first half of 2015, it added three more for $136.1 million.

The new buildings helped raise the trust’s revenue by 13.0% in the quarter ended June 30, 2015, to $91.1 million from $80.6 million a year earlier. Cash flow rose 19.0%, to $42.0 million from $35.3 million. Cash flow per unit gained 5.9%, to $0.54 from $0.51, on more units outstanding.

The units trade at 15.3 times Allied’s forecast 2015 cash flow of $2.24 a unit. They yield 4.3%.

Recommendation in Canadian Wealth Advisor: BUY 

For our report on a Canadian REIT that focuses exclusively on the U.S., read Canada’s Milestone Apartment REIT finds fertile ground for growth in U.S. Sunbelt.

For a look at another aspect of real estate investing we’re often asked about, read What is a time-share investment?