Riocan (Symbol-REI.UN)

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Re: Riocan (Symbol-REI.UN)

Post by slim »

I don't think the malls that anchored sellers or target are the type I would shop at.
Or probably most people that are the type of consumers that create good profits.
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Re: Riocan (Symbol-REI.UN)

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I don't think either sellers or target are very exciting tenants
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Re: Riocan (Symbol-REI.UN)

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Arby wrote:From Riocan's press release this afternoon:
RioCan has twenty-six locations that are currently leased by Target representing 1.9% of total annualized rental revenue at an average lease rate of $6.62 per square foot with an average remaining lease term of approximately 12.7 years. These leases are guaranteed by Target Canada Corporation's US parent, generally for the remaining terms of the leases.
Maybe it won't be as bad as I thought.
Or maybe not. Much speculation about how Target's filing for creditor protection will affect their existing leases. From an RBC report today:
We believe that CCAA protection would mean that leases for the company's 133 locations can be canceled with as little as three months' notice.
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Re: Riocan (Symbol-REI.UN)

Post by Bylo Selhi »

"These leases are guaranteed by Target Canada Corporation's US parent, generally for the remaining terms of the leases." The parent didn't go into CCAA; their Canuck kid did. And now mommy and daddy should be on the hook for the lease payments.

But maybe RBC knows something that mommy and daddy haven't told us yet.
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Re: Riocan (Symbol-REI.UN)

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Driving down through the south, we can't visualize any store we see wanting to go into the Target spaces. That said, I'm not worried about Riocan.

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Re: Riocan (Symbol-REI.UN)

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bought back all the shares i sold yesterday in TFSA, made a profit of a whole 20 cents, & CIBC IE made their profit of $13.90 on the two trades, :oops:

But hey, 20 cents is 20 cents, good enough :)
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Re: Riocan (Symbol-REI.UN)

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2 yen wrote:Driving down through the south, we can't visualize any store we see wanting to go into the Target spaces. That said, I'm not worried about Riocan.

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Some analysts have mentioned Dick's (sports stores), Macys, and Kohls (department stores) as potential US companies that are looking to expand into Canada, and could take up some of the Target stores.
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Re: Riocan (Symbol-REI.UN)

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Arby wrote:
2 yen wrote:Driving down through the south, we can't visualize any store we see wanting to go into the Target spaces. That said, I'm not worried about Riocan.

2 yen
Some analysts have mentioned Dick's (sports stores), Macys, and Kohls (department stores) as potential US companies that are looking to expand into Canada, and could take up some of the Target stores.
May-be one of the big discount stores like Ross or TJ Max. I think retail department stores are hurting and it won't get better with the internet stores. I wouldn't be shocked if Sears went under. A problem for Riocan is stores like Target were supposed to be their anchor stores. A lot of the small retailers in these malls will feeling a domino effect.
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Re: Riocan (Symbol-REI.UN)

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Less than 2% of revenue in 26 locations for a total of 2.2 million sq ft leasable area comes from Target. Given the US parent guarantee and the fact the lease rates are low, the overall impact to RioCan may ultimately be small. That said, RicCan does not comment on the associated tenants of these locations.
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Re: Riocan (Symbol-REI.UN)

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RioCan Real Estate Investment Trust Announces Plan to Accelerate Its Major Market Strategy
Through the realignment of the portfolio, RioCan is targeting to achieve an annual same property net operating income growth rate of 3% or better, which would result in annual funds from operations per unit growth of 5% or more before gains from marketable securities, gains from residential inventory and fee income in years subsequent to the completion of our disposition program. The enhanced business profile will facilitate growth in RioCan’s distributions and net asset value creation for our unitholders.
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Re: Riocan (Symbol-REI.UN)

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Shakespeare wrote: 02 Oct 2017 09:04 RioCan Real Estate Investment Trust Announces Plan to Accelerate Its Major Market Strategy
Through the realignment of the portfolio, RioCan is targeting to achieve an annual same property net operating income growth rate of 3% or better, which would result in annual funds from operations per unit growth of 5% or more before gains from marketable securities, gains from residential inventory and fee income in years subsequent to the completion of our disposition program. The enhanced business profile will facilitate growth in RioCan’s distributions and net asset value creation for our unitholders.
Cannibalize 2 billion of assets to net 1.5 then take half of that to bolster the stock price through buybacks.
Not very visionary. Nothing here to say I should move off the sidelines and become a shareholder again.
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Re: Riocan (Symbol-REI.UN)

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Descartes wrote: 02 Oct 2017 10:28
Shakespeare wrote: 02 Oct 2017 09:04 RioCan Real Estate Investment Trust Announces Plan to Accelerate Its Major Market Strategy
Through the realignment of the portfolio, RioCan is targeting to achieve an annual same property net operating income growth rate of 3% or better, which would result in annual funds from operations per unit growth of 5% or more before gains from marketable securities, gains from residential inventory and fee income in years subsequent to the completion of our disposition program. The enhanced business profile will facilitate growth in RioCan’s distributions and net asset value creation for our unitholders.
Cannibalize 2 billion of assets to net 1.5 then take half of that to bolster the stock price through buybacks.
Not very visionary. Nothing here to say I should move off the sidelines and become a shareholder again.
Concentrating on the major 6 cities and building residences on top of stores is not a bad idea. They seem to be looking at the future and not waiting for demographic shifts to force their hand later.

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Re: Riocan (Symbol-REI.UN)

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The market likes it this morning though.

I think REI had to do something more dramatic to re-develop its key properties than to just incrementalize as cash flow became available. Sitting on a bunch of RE shopping plaza operations in side shows like North Bay and smaller cities doesn't make sense when that capital could be more effectively deployed on multi-purpose redevelopment in places like TO, Calgary et al. Unit buybacks might make sense as well given dicount to NAV but at least they discontinued their DRIP, and especially a discounted DRIP. I've never understood that kind of dilution especially when share prices are at, or below, intrinsic value.

Time will tell whether this strategy will play out positively but as a unitholder, I like that they are 'taking action'.

P.S. Getting $1.5B net proceeds out of $2B NAV of RE is actually pretty darn good given the CCA on these older properties and the CG taxes that will be paid.
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Re: Riocan (Symbol-REI.UN)

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Does the press release really say that any of the proceeds are going directly to their redevelopment master plan?

It says this:
Continued investment of approximately $300 million to $400 million per year into RioCan’s robust development pipeline, which is focused exclusively in Canada’s six major markets
But does that constitute an increase? I think they had ~300 million capex last year. Isn't their statement just "continuing with the same idea as before"?

Furthermore, their payout ratio is around 91-92%, I believe. What is the impact on this from cannibalizing 2 billion in assets over the next few years?

All I can see is something like:
Through the realignment of the portfolio, RioCan is targeting to achieve an annual same property net operating income growth rate of 3% or better, which would result in annual funds from operations per unit growth of 5% or more
If I was still a unitholder then I'd want to know a bit more about the math involved here and what the impact will be to distributions and payout ratio.
I don't doubt the competence of the Riocan management team but I question the transparency of this move.
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Re: Riocan (Symbol-REI.UN)

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Agreed more granularity needed from the numbers, hopefully to come in the next MD&A with quarterly results. My guess is they couldn't have funded their re-development* program from cash flow alone, and given current unit prices, they couldn't go with an equity offering either without dilution either. Buying back units will also lower their payout ratio. IOW, they have to do something to make a material shift. Time will tell.

* Have to dig deeper but the one re-development I am familiar with is Brentwood in Calgary, and it is an excellent way to get a lot more off their land in that location. It is a multi-purpose development in a JV with Boardwalk REIT and will be a winner in that location. Centralized at a LRT station and U of C campus and Research Park next door. One of the hub developments being promoted by the City.
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Re: Riocan (Symbol-REI.UN)

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I am trying to find the negatives in this announcement about the King Portland Center marketing success.

https://ca.finance.yahoo.com/news/rioca ... 00288.html

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Re: Riocan (Symbol-REI.UN)

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Why should there be negatives? This is exactly the type of re-development that RioCan in partnership with others should be doing with focused holdings in their focus areas. Granted it looks like condos rather than rental residential, but that simply means Allied is a residential developer in this instance rather than a landlord.

P.S. It is just going to take awhile for the cash flow to appear (like Brentwood in Calgary) so it will take time for organic growth to hit the bottom line vs acquisitions.
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Re: Riocan (Symbol-REI.UN)

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AltaRed wrote: 18 Oct 2017 09:48 Why should there be negatives? This is exactly the type of re-development that RioCan in partnership with others should be doing with focused holdings in their focus areas. Granted it looks like condos rather than rental residential, but that simply means Allied is a residential developer in this instance rather than a landlord.

P.S. It is just going to take awhile for the cash flow to appear (like Brentwood in Calgary) so it will take time for organic growth to hit the bottom line vs acquisitions.
Yes, the deal seems to mesh very nicely with the prior stated goals announcement.

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Re: Riocan (Symbol-REI.UN)

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The residential portion of the King Portland development was originally proposed by Riocan as rental accommodations. The proposal was shifted from rental to condominiums, in part because of what Riocan said was "“.. the recent regulatory changes to the rental residential market in Ontario". I'm not sure if this will affect Riocan's other proposed rental developments. It is a shift from Riocan's core competencies as a landlord receiving ongoing revenue streams, to the more risky role of a condo developer with irregular and less predictable profits.
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Re: Riocan (Symbol-REI.UN)

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Except RioCan partners with residential REIT companies in these ventures. In Brentwood, it is Boardwalk. In the King Portland development, it is Allied Properties. Each manages its area of expertise.
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Re: Riocan (Symbol-REI.UN)

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https://finance.yahoo.com/news/riocan-r ... 43114.html

More good news. The current site is only 80% occupied.

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Re: Riocan (Symbol-REI.UN)

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Arby wrote: 18 Oct 2017 11:36 The residential portion of the King Portland development was originally proposed by Riocan as rental accommodations. The proposal was shifted from rental to condominiums, in part because of what Riocan said was "“.. the recent regulatory changes to the rental residential market in Ontario". I'm not sure if this will affect Riocan's other proposed rental developments. It is a shift from Riocan's core competencies as a landlord receiving ongoing revenue streams, to the more risky role of a condo developer with irregular and less predictable profits.
Not a RioCan unitholder but I think what they're doing is an excellent strategic choice. In my view, the most intelligent economic move is to use mixed use, high density commercial development in this manner to synthetically create sort of a poor man's Master Planned Community. Density is nowhere near what it can and should be for intelligent land use of large metro areas. The yet to be utilized space (air parcels) in urban cores that large REITs sit on is gold. Over time, they increase dramatically in value and unless one believes the trend of urbanization is going to stall or reverse, this is a gold rush for property owners like RioCan.

Just look at the value creation Brookfield has made with several of its multi use redevelopments.
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Re: Riocan (Symbol-REI.UN)

Post by Arby »

I agree that adding apartment rental units to the REIT properties is a good strategy. Many of the shopping center REITs are pursuing that strategy. I'm not so keen on a REIT becoming condominium developers (as per Riocan's King Portland development). Condo development is a much more risky strategy than apartment rental, and there are no ongoing revenues for the REIT once the condo unit is sold. Investors are typically expecting stable ongoing distributions from a REIT, and that will be difficult to achieve if the REIT becomes a condo developer.

Also, one of the benefits of the REIT trust structure is that it allows building depreciation to be flowed through to the individual investors in the form of tax deferred ROC. I don't think REITs will be able to take advantage of that benefit if they become condo developers.
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Re: Riocan (Symbol-REI.UN)

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Riocan used to be one of my oldest and largest holdings, until I sold it in 2015 after the announcement of the Target bankruptcy. This past week I looked at getting back into Riocan. I always thought Riocan's management was top notch. They were well ahead of the rest of the retail REITs with the strategy of adding residential units to their mall properties, and it looks like that strategy will start to have positive impacts this year. I had hoped the string of retail tenant bankruptcies over the past few years was finally coming to an end, but that doesn't seem to be the case. Payless Shoes announced last week that they will file for bankruptcy in Canada. Riocan's 2017 Annual Report say they have 21 Payless locations occupying 62,000 sq ft, which is probably insignificant to Riocan's bottom line, but these retail tenant bankruptcies seem to be never ending. I think I'll hold off on buying back into Riocan.
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Re: Riocan (Symbol-REI.UN)

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You might try to find more recent data if you can. It was on October 2017 that RioCan announced its new strategy to get out of a bunch of secondary markets to focus on, I think, 6 key growth areas. Hence the 2017 Annual Report wouldn't reflect any of those changes. I haven't dug into any of the detailed financials as I only skim the quarterly announcements such as https://riocan.com/about/news/riocan-an ... -for-2018/

I have been a holder of RioCan for a long time and have no reason not to continue to hold indefinitely. I believe they are on the right track albeit I also agree they will have some ongoing retail setbacks from time to time. Some of that vacant space is being (will be) re-purposed to entertainment and other uses rather than retail.
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