Love or hate RioCan REIT (TSX:REI.UN)? The retail REIT shall be reporting its 2023 fourth-quarter earnings on Valentine’s Day. So, that’s one thing buyers can look out for.

I do know some buyers should not feeling constructive in direction of RioCan as a result of it minimize its money distribution by a 3rd in 2021. Certainly, that was horrible information for buyers who purchased the inventory primarily for revenue. Nevertheless, I do assume RioCan is popping a brand new leaf. Listed here are just a few key issues I’d like to spotlight.

RioCan has a resilient actual property portfolio

It’s true that RioCan’s portfolio is primarily populated with retail property. Though at present about 89% of its growth alternatives are in residential properties (rental and rental or townhouse), it doesn’t change the truth that nearly 86% of its portfolio, primarily based on the share of annualized contractual gross lease, is in retail properties.

Regardless of having a excessive share of retail properties, its dedicated occupancy price stays excessive at 97.5%. The truth is, its dedicated retail occupancy price is even increased at 98.3%. This implies its retail portfolio is decently defensive as its properties are predominantly positioned within the six main markets of Canada and are anchored by resilient, necessity-based tenants.

The main markets being the Better Toronto Space (GTA), Ottawa, Montreal, Calgary, Edmonton, and Vancouver. Particularly, over half of its portfolio is within the GTA, primarily based on the share of whole honest worth of income-producing properties at RioCan’s curiosity.

Comparatively low debt ranges

RioCan REIT additionally has comparatively low debt ranges versus its friends. Particularly, its current long-term debt-to-capital ratio is just below 39% in comparison with the common of 47% for its 5 friends, Crombie REIT, CT REIT, First Capital REIT, SmartCentres REIT, and Selection Properties REIT.

Particularly, RioCan’s weighted common rate of interest is 3.8%, which doesn’t appear too unhealthy within the present increased rate of interest setting. It’s additionally executing its growth pipeline responsibly, primarily funding it with funds from operations, supported by debt accordingly. Certain sufficient, it earns an investment-grade S&P credit standing of BBB.

RioCan affords secure revenue

Aside from its capital investments and growth pipeline, administration additionally considers its money distributions as certainly one of its core priorities. RioCan pays a month-to-month money distribution that equates to a yield of 5.9%, which is barely beneath its peer-average’s 6.2%. Nevertheless, its payout ratio can also be decrease. For instance, RioCan’s 2023 payout ratio was about 61%, whereas the peer-average’s was roughly 76%.

In fact, we will argue that RioCan’s payout ratio is decrease as a result of it minimize its money distribution in 2021. Exactly due to this minimize, its money distribution is safer as we speak (and the inventory might be buying and selling at a decrease valuation consequently.). The truth is, since February 2022, has begun rising its money distribution once more.

A minimum of for the following couple of years, RioCan REIT appears to have the capability to extend its money distribution by about 2 to five% per 12 months.

The retail REIT trades at valuation

The inventory trades at valuation. At $18.31 per unit, RioCan REIT trades at about 10.3 instances funds from operations, which is a reduction of roughly 27% from its long-term regular valuation, which locations a good value of north of $25 on the inventory. In fact, it’s unlikely for it to commerce at this stage until, say, we see rates of interest coming down. Presently, analysts give it a median 12-month value goal of $21.51, in keeping with TMX Group, which represents near-term upside potential of 17.5%.