Recent Purchase: RioCan (REI.UN.TO)

RioCan Highlights
  • RioCan is Canada’s biggest REIT with enterprise value of $13.9 billion
  • They own 294 properties, including 16 under development
  • They lease to reliable tenants such as Walmart, Canadian Tire, Cineplex and Metro

Stock Purchase
My recent and the last purchase of the year is RioCan. I decided to double my position in RioCan by purchasing another block of 45 shares. I paid $24.95 per share. This purchase will add $5.29 to my monthly dividend income.

Potential Risks
You may have mixed feelings about my purchase, since it’s a retail focused REIT and is sensitive to interest rates. So why invest in this name if retail space is challenging and interest rates are slowly going up?

Time Change
A few years ago I had a different opinion about RioCan. I did not want to buy it because it was losing big tenants including Future Shop and Target. But that is in the past. They were able to lease most of those locations with other retailers.


Property Consolidation
A few months ago they announced that they want to sell 100 properties in smaller Canadian cities. After the sale, they plan to focus mainly in Toronto, Ottawa, Vancouver, Calgary, Edmonton and Montreal. I like their plan because it will help them cut operating cost by focusing on fewer locations. They will capitalize on areas that are heavily populated. They also plan to buy back shares and develop mix-used properties for residential, shopping and offices.


My biggest reason to be bullish on the stock
The main reason why I decided to invest more money in this company is because they want to develop residential units around their properties. So it’s a win-win situation. RioCan will be able to benefit from residential towers and increase traffic to retail outlets. If more people live around those outlets, there’s more chance that those residents will shop locally. RioCan can use some parts of the empty parking lots to build residential buildings. They don’t need to buy land. It can take 3 to 5 years to realize their plans, but with their 5.6% dividend yield, I’m willing to wait.

11 comments:

  1. Contrarian buying is good. Riocan has not had the share price appreciation over last some years but they did sell the US assets at a good time.

    If you want to diversify in the same space, You can look at Plaza REIT (small cap) and FCR (First Capital Realty) who are doing the Yorkville redevelopment in Toronto.

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    1. Thank you for your opinion. I do own Plaza and FCR. Both are great names and doing a great job redeveloping their properties. Last year I posted about FCR redeveloping their property in Montreal:
      http://dividendincomestocks.blogspot.ca/2016/08/new-shopping-centre-by-fcrto.html

      You can see before and after! Big improvement!

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  2. I have lost enough gains to fear of interest rate hikes. It is true it will have a negative impact on bonds, value stocks and REITs. But not happening anytime soon and I somehow believe that it will be factored in. Long term investors need not worry about interest rates hikes :-)

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    1. It's just a perception. Studies have shown that REITS do pretty well in times of rising interest rates. Most REITS have taken advantage of the low interest rates to lock in at fixed rates and staggered maturities.

      Apartment REITS adjust the best to rising interest as they are able to adjust the rents each year (unlike an industrial REIT with long term leases)

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    2. That's a great point about residential REIT. They do have a luxury to raise rents every year.

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  3. Nice buy. Im a big fan of riocan. Its my biggest reit holding. Congrats on doubling your position.
    Cheers

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    1. I big fan of it too! It may become my biggest REIT holding if they start to realize their plan. For the time being my biggest REITs are apartments. Everybody needs a place to live :)

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  4. I have Riocan in my portfolio. But the prices went down after my purchase. It is agood news that they are building residential towers too.

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    1. Riocan is bound in a tight range for the past two years. I don't there's much risk to hold the stock. So even if you're under, you still collect a nice dividend while you wait. Good luck and all the best!

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  5. Very nice purchase Riocan is very popular with investors. I might take a look at the stock to see if I want to invest in it as well. Can't wait to see what you buy next :)

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    1. Their are the biggest REIT in Canada. I might add more to it.

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