RIOCAN REAL ESTATE INVESTMENT TRUST $24 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 320.4 million; Market cap: $7.7 billion; Price-to-sales ratio: 6.1; Dividend yield: 5.9%; TSINetwork Rating: Average; www.riocan.com) owns all or part of 305 shopping centres in Canada, including 16 under development. It also owns 49 malls in the U.S.
RioCan has settled its dispute with U.S.-based retailer Target (New York symbol TGT).
In April 2015, Target closed all 133 of its Canadian stores, including 26 in RioCan’s malls. So far, the trust has found new tenants for seven of these stores. It will have to remodel the other 19, but it expects to have them rented by the end of 2017.
Target paid $132 million in compensation. Of that total, $92 million went to RioCan and $40 million went to the trust’s partners in some of these malls.
Meanwhile, in the three months ended September 30, 2015, RioCan’s cash flow rose 5.0%, to $140.2 million from $133.6 million a year earlier. Per-unit cash flow gained 2.3%, to $0.44 from $0.43, on more units outstanding.
Revenue rose 4.5%, to $320.6 million from $306.9 million. The trust is doing a good job of hanging onto tenants and renewing leases at higher rates: rents on renewals rose 8.6% in Canada and 9.8% in the U.S.
Due to the closure of the Target stores, RioCan ended the quarter with a 94.0% occupancy rate, down from 97.0% a year earlier.
The trust recently agreed to unwind its 50/50 joint venture with U.S.-based Kimco Realty Corp. (New York symbol KIM). Formed in 2000, this business jointly owns and manages 35 malls in six provinces.
Under the deal, RioCan will acquire Kimco’s 50% stake in 22 of these properties for $715 million. The partners plan to sell 10 of the joint venture’s other properties over the next few months. They have not yet made a decision about the remaining three, which consist of stores recently vacated by Target.
The deal should add $45 million to RioCan’s annual operating income.
The units trade at 13.7 times RioCan’s likely 2015 cash flow of $1.75 a unit. The $1.41 distribution yields 5.9%.
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