Riocan (Symbol-REI.UN)

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Mike Schimek
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Post by Mike Schimek » 31 Mar 2009 16:23

Any comments?
Run for cover and hide under a rock.

IMO there's a high probability that one of two things is going to happen, either interest rates are going to rocket (making those debentures worth much less), or the U.S. (and Canadian) government in their goal to stimulate the economy by keeping interest rates low are going to have to print continual mountain loads of money, which is already irritating the chinese, increasing the probability that at some point the chinese are going to increasingly decouple from the U.S. dollar, at which point the U.S. dollar will drop like a rock (taking the Can$ with it for a while) compared asian currencies, commodity prices will soar, inflation will go through the roof, and the end result will be the same as the first scenario described, only much worse, with hyper inflation and interest rates that are very high, making those unsecured debentures useful about as valuable as toylet paper.

That's just my opinion.

:wink:
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Post by Arby » 31 Mar 2009 19:03

Nemo2 wrote:
Details
RioCan has announced that it has agreed to issue $180mm principal amount
of Series L senior unsecured debentures carrying an 8.33% coupon rate and
maturing on April 3, 2014. Closing is expected on April 3, 2009.
Any comments?
The analyst from TDWH viewed it as positive. TDWH indicated that Riocan currently has ample liquidity and didn't really need extra capital. However TDWH felt it was a good idea for Riocan to raise additional cash in order to mitigate any possible unforseen risks in this uncertain econonic environment. TDWH also mentioned that Riocan may be building their war chest for possible future acquisitions. This latest debenture will increase Riocan's liquidity to about $350 million.

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Post by Nemo2 » 01 Apr 2009 05:14

Arby wrote: The analyst from TDWH viewed it as positive. TDWH indicated that Riocan currently has ample liquidity and didn't really need extra capital. However TDWH felt it was a good idea for Riocan to raise additional cash in order to mitigate any possible unforseen risks in this uncertain econonic environment. TDWH also mentioned that Riocan may be building their war chest for possible future acquisitions. This latest debenture will increase Riocan's liquidity to about $350 million.
Yes, TDWH was where I originally linked to the 'quote', but I find that sometimes their analysis doesn't appear to jibe with the market's reaction.
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Post by Studebaker Hawk » 01 Apr 2009 06:34

Mike Schimek wrote:
Any comments?
That's just my opinion. :wink:
Aside from the political commentary, any comments about the company or how the issue is going to be used? It is a short 5 year bond with an attractive coupon. I'm not all that crazy though about the company vagueness on how it's going to be used.
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Post by Shakespeare » 01 Apr 2009 08:13

RioCan builds a war chest
Part of the cash - $55-million - is earmarked for paying down debts that are coming due in the next year. The company said the remainder of the money will pay for development of existing properties and acquisitions.
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Post by Norbert Schlenker » 19 Apr 2009 10:16

Friday's mail brought the Riocan proxy circular and I'm none too pleased with its contents.

First of all, there's the same old "vote for all the trustees" baloney that they pull every year - no real choices in this trust (or most others) - so I withheld all of those. Pointless, I know.

Second, there's the reappointment of the auditor and the refinement of the option plan, both of which seem reasonable.

Last, there's an amendment to the trust indenture. They want to end the trust's obligation to pay out all net income, on the grounds that coming accounting standards would require estimating and reclassifying the capitalized value of the income stream as a liability instead of equity, thus skewing their debt to equity ratio. Furthermore, the trustees want the future authority to change the indenture without unitholder approval if the underlying reason is some accounting standard change.

I don't think so. I understand that the accounting will change the way the financials look but there's an underlying truth there. The Income Tax Act imposes an obligation on the trust to pay out its income, or face the consequences of top marginal rates on all of it.

IMO they're taking things a little far. They're asking for essentially the authority that a corporation's board has over payments out of income and unilateral authority over accounting decisions, without any quid pro quo. Certainly it seems I won't be getting the opportunity to express my displeasure about particular directors' diligence or behaviour as a fillip.

I've held a modest amount of this a long time in my portfolio, for the diversification benefits. It's hard to be happy with the returns the last year but that's true for a lot of other things too. But the governance problems have always made me squirm and this year's proposals - which I presume will pass - have put me over the edge.

:(
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Post by active » 19 Apr 2009 21:35

The Income Tax Act imposes an obligation on the trust to pay out its income, or face the consequences of top marginal rates on all of it.
This cannot be news to them. I would expect they have cleared with CRA how 'all' income is defined with the pending accounting changes.

I agree with Norbert on the other issues but none of them seem to be unique Riocan issue.

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REI.UN ISSUEING AGAIN

Post by mylund » 04 Jun 2009 13:00

I've been hanging on to this REIT for a couple of years now.Last April they advised that they were going to issue dept to fortify their war chest and now I see that they are again going to the markets for more cash.I presume that this will dilute the reit once more and they are now paying out more than 100%.
IS IT TIME TO MOVE ON.
AN OPPINION WOULD BE APPRECIATED.
Regards

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Post by Mike Schimek » 04 Jun 2009 16:55

I've been hanging on to this REIT for a couple of years now.Last April they advised that they were going to issue dept to fortify their war chest and now I see that they are again going to the markets for more cash.I presume that this will dilute the reit once more and they are now paying out more than 100%.
I positively hate it when companies issue more equity and dilute existing shareholders, especially when the additional equity is issued at a discount.

It seems there is no end to companies raising equity nowadays. My take on it is tighter borrowing standards accompanied by the fear of much higher future interest rates.

Let me spin the question and toss it back, if they issued additional equity by offering existing shareholders to buy a bit more shares at a discount (as opposed to offering to just anyone), would that take the sting out a bit?

This is the part that irritates me to no end; a loyal shareholder holds a company's stock, then they march off to the investment bank and sell equity at a 10% discount to any tom dick and harry that will come along and buy it. To me it feels like the shareholder got screwed.
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Post by scampbell » 09 Jun 2009 07:10

From this morning's G&M

RioCan bucks the recession

...Meanwhile, chief executive officer Edward Sonshine promised investors in late May that he wouldn't cut the fund's distribution, currently set at $1.38 a unit per year. With the units trading at $15.05 yesterday, they yielded 9.2 per cent - a historic high that allows investors to gather income from a profitable company while waiting for an anticipated economic recovery in 2010.

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Post by 2 yen » 27 Jul 2009 17:46

The second quarter results are less than stellar. How much longer can this keep up before Mr. Sonshine has to go back on his promise not to cut?
The net earnings of 12 cents in the quarter made me sit up and take notice. The 97% occupancy rate is very good, however.

http://finance.yahoo.com/news/RioCan-Re ... l?x=0&.v=1

Any thoughts?

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Post by Mike Schimek » 27 Jul 2009 20:10

The second quarter results are less than stellar. How much longer can this keep up before Mr. Sonshine has to go back on his promise not to cut?
The net earnings of 12 cents in the quarter made me sit up and take notice. The 97% occupancy rate is very good, however.

http://finance.yahoo.com/news/RioCan-Re ... l?x=0&.v=1

Any thoughts?
This is my knee jerk 15 minute analysis oO

* March 31 post way above was "run for cover and hide under a rock".

* It doesn't look like they can sustain current distributions long term (unless the economy turns around dramatically and quickly) because the distribution takes up all the profit as well as the amortization, so they would have to use up cash or borrow to pay for any capital expenditures.

* YOY it looks like their income went down while their expenses went up. That doesn't sound like a winning combination, particularly if occupancy levels hasn't changed.

* 97% is indeed very good. Sounds like they have no free space to rent and that they cannot therefore increase their revenues, unless rental rates rise. Which seems unlikely in the midst of a global economic crisis and soaring vacant office and commercial real estate space.

* I'd ask myself what happens if the occupancy drops from 97%... It can't go up much, but it can go down...

* What happens if interest rates rise sometime down the road. I think many of their leases are matched to their mortgage rates (or mortgage durations) or something like that, but it is interesting that their YOY interest expense went up while their revenue went down...

* What happens if we enter a period of hyper inflation (10% + inflation) and interest rates go through the roof; will their tenants (the ones that don't close or go bankrupt or leave) pay increased rental rates at a speed of increase equal to the increasing interest rates...

That being said, if the economy "recovers", which seems probable for Canada, they might be ok, and the 9% dividend might be safe.

Too many bombs for me, and based off a 15 minute check of the wires leading into those bombs, it doesn't look like any of them will go off, but I don't think I'll stick around to find out. I'll stay somewhere safer for my part.

If things go boom I might come out from under the rock, sift through the rubble and do some REIT bargain hunting.

:P

P.S.; I don't know much about REITs. Arby seems to follow them closely.
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Post by Arby » 27 Jul 2009 20:29

2 yen wrote:The second quarter results are less than stellar. How much longer can this keep up before Mr. Sonshine has to go back on his promise not to cut?
The net earnings of 12 cents in the quarter made me sit up and take notice. The 97% occupancy rate is very good, however.

http://finance.yahoo.com/news/RioCan-Re ... l?x=0&.v=1

Any thoughts?
A big reason for the drop in year-over-year net earnings is because of lower gains on properties held for resale, as compared to gains recorded in the same period in 2008. Also, Riocan is sitting on a large wad of cash ($300M) which is drag on earnings. FFO is a better indicator for the sustainability of the distribution. FFO was down, but the decrease in FFO was not as large as the drop in earnings.

Riocan's core business continues to perform much better than I had expected. As you indicated, their overall occupancy rate continues to be very high. Their same property net operating income has continued to increase on a year-over-year basis during 1Q and 2Q 2009. At this point I'm not worried about the distribution, but I'll be listening closely to the conference call tomorrow.

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Post by arthur » 28 Jul 2009 11:04

recommended on BNN today.
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Post by Norbert Schlenker » 28 Jul 2009 11:38

BNN

Does that make a it a buy or a sell?
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Post by active » 28 Jul 2009 12:39

their overall occupancy rate continues to be very high
while all major tenants are trying to re-negotiate the existing deal on the leases and any percentage rent is on the way down.

Maintaining a distribution at a level not covered by earnings does not improve my respect for the management.

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Post by Mike Schimek » 28 Jul 2009 15:05

Does that make a it a buy or a sell?
:lol:
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Post by 2 yen » 28 Jul 2009 20:14

Well, I've decided what I'm going to do. Keep Riocan, but expect a cut in the 30 - 40% range at some point. I can live with that. I like the company too much to abandon it completely. It is funny (odd) how the so-called high fliers do come back to earth. Think Yellow Pages and such.
One could argue that COS with a 91% drop in profit and raising its distribution is an act of suicide. We shall see. I'm out of Yellow and COS.

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Post by Nemo2 » 29 Jul 2009 04:46

Have owned RioCan for a number of years, and, 'at the present time' have every intention of holding on to it............however, we've noticed 'what appear to be' increasing vacancies in their, (and other), malls. (Duh.)

(I say 'what appear to be' because it's possible/likely that 'variations on a theme' have been fluctuating 'forever', but, during good times, it hasn't previously registered..........nowadays we find ourselves almost subconsciously glancing at signage to determine whose mall we might be entering.)

Anyway.....the magnitude of any dividend decrease, if/when it occurs, will probably generate some kind of knee jerk reaction causing us to re-evaluate............
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Post by DavidR » 29 Jul 2009 10:47

2 yen wrote:...One could argue that COS with a 91% drop in profit and raising its distribution is an act of suicide. We shall see.
WADR, profits and cash flows are not the same thing....

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Post by Arby » 29 Jul 2009 18:37

active wrote:while all major tenants are trying to re-negotiate the existing deal on the leases and any percentage rent is on the way down.
I don't know how you came to that conclusion, but it is exactly the opposite of what is stated in Riocan's latest quarterly report. From Riocan's report:
Approximately 714,000 square feet were renewed during the three months ended June 30, 2009 at an average rent increase of $1.06 per square foot ...Approximately 1,460,000 square feet were renewed during the first six months of 2009 at an average rent increase of $0.82 per square foot...

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Post by biker » 23 Nov 2009 17:47

New Issue of RIOCAN

Short Description: Treasury Offering Of Trust Units via Bought Deal
Size of Issue: Approximately $100-million
Category: Income Trusts
Prospectus: prospectus.20091123160022011B.EN.pdf
Product Information: Not yet available
Price: $18.35 CDN per unit
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Post by FinEcon » 23 Nov 2009 19:11

Arby wrote:
active wrote:while all major tenants are trying to re-negotiate the existing deal on the leases and any percentage rent is on the way down.
I don't know how you came to that conclusion, but it is exactly the opposite of what is stated in Riocan's latest quarterly report. From Riocan's report:
Approximately 714,000 square feet were renewed during the three months ended June 30, 2009 at an average rent increase of $1.06 per square foot ...Approximately 1,460,000 square feet were renewed during the first six months of 2009 at an average rent increase of $0.82 per square foot...
Unfortunately, that is meaningless w/o the time frame component. If you renogotiated an x% increase but you had locked into an n year lease at a fixed (or low riser) rate a decade ago, rents can still be declining precipitously. What were (rolling) comparable per sq ft increases over the last 5 years? I ain't gonna look at 10K's or 10Q's because IMO commercial RE is sitting on a bomb at the moment but turning it into a single period and in dollars/sq ft. reeks of skirting the issue. I would want to see rolling intervals with %'s and weights for weighted comparisons over time.
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Re: Riocan (Symbol-REI.UN)

Post by kenwood » 09 Feb 2010 12:46

RioCan FFO slips in fourth quarter, units fall

http://www.reuters.com/article/idUSN0910338220100209

Down over 4% today

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Re: Riocan (Symbol-REI.UN)

Post by mw » 09 Feb 2010 17:58


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