Today, we look at two of Canada’s leading Real Estate Investment Trusts (REITs). While RioCan REIT and Allied REIT are strong separately, they are involved in a joint venture aimed at increasing revenue and cash flow in urban properties. We like both of these REITs for their strong growth prospects and dividend yields.
RIOCAN REAL ESTATE INVESTMENT TRUST (Toronto symbol REI.UN; www.riocan.com) is Canada’s largest real estate investment trust (REIT), with interests in 338 shopping malls containing over 92 million square feet of leasable area. That total includes 48 U.S. malls with over 13 million square feet.
In the three months ended March 31, 2015, RioCan’s revenue rose 7.7%, to $331.0 million from $307.4 million a year earlier. Cash flow per unit gained 4.8%, to $0.44 from $0.42.
The trust’s latest acquisitions increased its rental space by 1.7%. It’s also doing a good job of renewing current tenants at higher rates: rents on renewals rose 9.8% in Canada and 8.3% in the U.S.
Former tenant Target Canada recently abandoned 26 stores in RioCan’s malls. So far, RioCan has found new tenants for eight of Target’s former stores. It hopes to fill the remaining 18 over the next few months, but it will probably have to remodel them to handle two or more tenants.
The units trade at 16.2 times RioCan REIT’s forecast 2015 cash flow of $1.68 a unit. That’s reasonable in light of the trust’s highly profitable properties and 96.7% occupancy rate. The units yield 5.2%.
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RioCan and Allied have completed three Toronto developments with two more under way
ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST (Toronto symbol AP.UN; www.alliedreit.com) owns 142 office buildings, mostly in major Canadian cities. These mainly Class I properties contain over 9.5 million square feet of leasable area.
Class I refers to 19th- and early-20th-century light industrial buildings that have been converted to retail space. They usually feature exposed beams, interior brick and hardwood floors.
Allied spent $400 million on properties in 2012, $182.4 million in 2013 and $234.9 million in 2014. In the first quarter of 2015, it added two more for $31.8 million.
The trust’s new buildings helped raise its revenue by 11.5% in the three months ended March 31, 2015, to $85.8 million from $77.0 million a year earlier. Cash flow rose 12.6%, to $39.4 million from $35.0 million. Cash flow per unit was unchanged at $0.51 on more units outstanding.
In July 2012, Allied entered into a joint venture with RioCan REIT to buy buildings in urban areas that the partners can “intensify” to increase revenue and cash flow, mainly by adding tenants. So far, they have completed three developments and have two more underway, all in Toronto.
The units trade at 16.9 times Allied REIT’s forecast 2015 cash flow of $2.19 a unit. They yield 4.0%.
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