RIOCAN REAL ESTATE INVESTMENT TRUST $29.27 (Toronto symbol REI.UN; Units outstanding: 323.8 million; Market cap: $9.5 billion; TSINetwork Rating: Average; Dividend yield: 4.8%; www.riocan.com) has formed a new 50/50 joint venture with Plaza Retail REIT (Toronto symbol PLZ.UN). This new business will redevelop three of RioCan’s shopping malls: two in eastern Ontario and one in New Brunswick.

Under the terms of the agreement, RioCan sold 50% of these properties to Plaza for $11.5 million. That’s equal to 11% of its first quarter cash flow of $108.2 million, or $0.31 a unit.

Plaza will also assume responsibility for the redevelopment, and manage these malls.

The sale frees up cash that RioCan can direct to more-important projects in Canada’s six largest cities—Toronto, Montreal, Ottawa, Edmonton, Calgary and Vancouver. They account for 75.0% of its rental revenue.

RioCan is a buy.

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RIOCAN REAL ESTATE INVESTMENT TRUST $29.27 (Toronto symbol REI.UN; Units outstanding: 323.8 million; Market cap: $9.5 billion; TSINetwork Rating: Average; Dividend yield: 4.8%; www.riocan.com) has formed a new 50/50 joint venture with Plaza Retail REIT (Toronto symbol PLZ.UN). This new business will redevelop three of RioCan’s shopping malls: two in eastern Ontario and one in New Brunswick.

Under the terms of the agreement, RioCan sold 50% of these properties to Plaza for $11.5 million. That’s equal to 11% of its first quarter cash flow of $108.2 million, or $0.31 a unit.

Plaza will also assume responsibility for the redevelopment, and manage these malls.

The sale frees up cash that RioCan can direct to more-important projects in Canada’s six largest cities—Toronto, Montreal, Ottawa, Edmonton, Calgary and Vancouver. They account for 75.0% of its rental revenue.

RioCan is a buy.

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BLACKBERRY LTD., $10.46, Toronto symbol BB, will quit the development and manufacturing of smartphones. It will now license its brand name—and its smartphone technology—to other firms in exchange for royalties.

The company’s smartphone business continues to lose money. So, the shift will let BlackBerry focus on its more promising software operations; it works to secure the wireless communication networks of businesses and government agencies.

In its fiscal 2017 second quarter, ended August 31, 2016, the company’s revenue fell 31.8%, to $334 million from $490 million a year earlier (all amounts except share price in U.S. dollars). That missed the consensus forecast of $394 million.

Revenue from BlackBerry’s software business (44% of the total), in fact, jumped 89.0%. However, revenue from the sale of its phones and other mobile solutions (30%) fell 49.0%. Revenue from the fees it charges wireless carriers to access its networks (26%) also dropped, 56.9%.

Without unusual items, the company lost $1 million, or nil per share. That beat the consensus forecast of a $0.05-a-share loss. A year earlier, it lost $66 million, or $0.13.

BlackBerry ended the quarter with cash and investments of $2.5 billion, or $4.73 a share. Its long-term debt of $1.3 billion is a manageable 33% of its market cap (the value of all its outstanding shares).

OUR RECOMMENDATION: BlackBerry is still a hold.

BlackBerry recent coverage

• October 2016 issue
• August 2016 issue

TRANSCANADA CORP., $62.31, Toronto symbol TRP, recently completed its acquisition of Texas-based Columbia Pipeline Group for $13 billion U.S. The figure includes $2.8 billion U.S. of Columbia’s debt. To put these figures in context, TransCanada’s market cap is $50.0 billion (Canadian).

Columbia operates underground gas storage terminals, but most of its earnings come from its natural gas pipelines in the U.S. Northeast, Midwest, Mid-Atlantic and Gulf Coast regions. The company is working on $5.6 billion U.S. worth of new pipelines and has already secured contracts from gas shippers. Those deals cut the risk for these projects.

Columbia also owns 46.5% of Columbia Pipeline Partners LP (New York symbol CPPL). That firm operates three regulated natural gas pipelines, as well as gas-storage and related facilities.

This week, TransCanada offered to buy the remaining 53.5% of Columbia Pipeline Partners for a total of $848 million U.S. If the remaining investors accept, and regulators approve, the company will probably complete this purchase in early 2017.

TransCanada already operates a U.S. pipeline partnership through its 27.4% stake in TC PipeLines LP (New York symbol TCP). Gaining full control of Columbia Pipeline Partners will make it easier for the company to manage its U.S. gas pipelines.

OUR RECOMMENDATION: TransCanada is a buy.

TransCanada recent coverage

• Hotline for September 23, 2016
• Hotline for September 2, 2016

FORTIS INC., $42.19, Toronto symbol FTS, owns electrical utilities across Canada, the U.S. and the Caribbean. It also distributes natural gas in British Columbia.

In February 2016, the company agreed to buy ITC Holdings Corp. (New York symbol ITC). That business operates 25,100 kilometres of high-voltage power lines in Michigan, Iowa, Minnesota, Illinois, Missouri, Kansas and Oklahoma.

Fortis will pay $6.9 billion U.S. in cash and shares for ITC. If you include ITC’s $4.4 billion U.S. debt, the total purchase price is about $14.9 billion Canadian. That’s roughly 1.2 times Fortis’s current market cap of $12.1 billion.

The company expects to receive full regulatory approval by the end of 2016. Following the purchase, ITC shareholders will own 27% of the combined company. Fortis will then list its shares on the New York Stock Exchange; they will also continue to trade in Toronto.

Thanks to extra cash flow from ITC, the company will raise its quarterly dividend with the December 2016 payment by 6.7%, to $0.40 a share from $0.375. The new annual rate of $1.60 yields 3.8%. Fortis has now increased its dividend each year for the past 43 years.

In addition, the ITC acquisition should let the company raise that annual payment by about 6% each year through 2021.

OUR RECOMMENDATION: Fortis is a buy.

Fortis recent coverage

• Hotline for September 16, 2016
• September 2016 issue

SNC-LAVALIN GROUP INC., $51.53, Toronto symbol SNC, is a leading Canadian engineering and construction company that specializes in large-scale public works projects such as roads, bridges, transit systems and water-treatment plants.

The stock fell 6% this week after the company cut its full-year earnings forecast. Due to higher-than-expected costs at two oil and gas projects in the Middle East, SNC now expects its main engineering and construction operations will earn $1.30 to $1.60 a share for all of 2016. That’s down from its earlier forecast of $1.50 to $1.70 a share.

Engineering and construction supply two-thirds of SNC’s overall earnings. The remaining third comes from its concession operations. They’re government-granted rights to run public facilities. The biggest of the company’s concessions is its 16.77% stake in Ontario’s Highway 407 toll road.

OUR RECOMMENDATION: SNC-Lavalin is still a hold.

SNC-Lavalin recent coverage

• Hotline for September 9, 2016
• September 2016 issue

RIOCAN REAL ESTATE INVESTMENT TRUST, $27.22, Toronto symbol REI.UN, owns all or part of 302 shopping centres in Canada. That includes 15 under development.

Online shopping continues to hurt demand for retail space in RioCan’s malls. In response, the trust is transforming more of its properties to include office and residential units, particularly in urban markets.

RioCan now expects to spend $250 million each year for the next five years on these projects. That’s up from $100 million to $150 million in recent years.

The trust can comfortably afford these investments: it generated cash flow of $254.8 million in the first half of 2016. That leaves it with enough cash to cover its monthly distributions of $0.1175 a unit; the annualized yield is 5.2%.

OUR RECOMMENDATION: RioCan is a buy.

RioCan recent coverage

• Hotline for July 29, 2016
• Hotline for June 17, 2016

Our next Hotline will go out on Friday, October 7, 2016.

The post The Successful Investor Hotline – Friday, September 30, 2016 appeared first on TSI Wealth Network.

Investing in REITs is a great way to save yourself the trouble of owning real estate

A REIT is also known as real estate investment trust. Investing in REITs lets you hold income-producing real estate such as office buildings, shopping malls and hotels.

REITs can save you the cost, work and risk of owning investment property yourself.

Investing in REITs can kick start your real estate investing in Canada

We continue to believe that ownership of a primary residence is all the real estate exposure most investors need. However, if you want to add to your real estate holdings, one good way to do it is through REITs.

The best real estate investment trusts have good management and balance sheets strong enough to weather an economic downturn. They also have high-quality tenants, and they carefully match their debt obligations with income from their leases. The best ones are still doing well, despite the slow economy, and are taking advantage of low interest rates to refinance long-term mortgages.

If you’re investing in real estate yourself, you should look at multiple-unit rental housing or commercial properties, especially those with big parking lots or extra land. Investments like these can give you current income, plus long-term development possibilities. That’s a potent combination for patient investors. And of course, location is the most crucial part when it comes to real estate investing in Canada and in any country.

If you’re interested in real estate investing in Canada through a REIT, you should look into the RioCan Real Estate Investment Trust (symbol REI.UN on Toronto). RioCan is Canada’s largest real estate investment trust and owns hundreds of shopping centres located across Canada. It specializes in big-box outdoor malls (these malls feature large stores that are usually part of a chain).

Beware of private REITs

Conventional REITs are publicly traded on a stock exchange. Private REITs calculate the value of their own units (often just once a year), and don’t need to reveal all the information that’s available to the public from publicly traded investments. Private REITs portray this feature as a benefit—since it avoids the volatility and speculation of public markets!

However, staying private also cuts the likelihood that nosy outsiders and analysts will find out about and draw attention to hidden risks and problems that the REIT happens to suffer from.

Even at the best of times, private REITs holding small-town real estate is harder and more expensive to finance than city properties. Because of the higher risk of cut-offs in rental income, lenders demand bigger down payments and higher mortgage rates. This makes small-town property harder and more expensive to sell.

Small-town real estate has to provide high returns in good times to offset the higher risk of loss when the market turns downward.

The combination of these two “benefits”—a small-town focus plus a once-a-year valuation by the REIT’s insiders—would be enough to make us advise against small-town, private REIT investing.

Tax exemption sets real estate investment trusts apart from other income trusts

REITs resemble income trusts, but with a key difference: REITs invest in income-producing real estate, such as office buildings and hotels.

REITs were common in Canada long before income trusts became popular enough to become a significant drain on Canadian tax collections. Ottawa felt the income-trust business structure was appropriate for REITs, so it exempted REITs from the new income-trust tax.

Real estate investment trusts can maintain their exemption as long as they meet the following requirements:

• REITs must not hold any property other than “qualified REIT properties” at any time during a tax year.

• At least 75% of the trust’s revenue for a tax year must come from rent or mortgage interest from real or immovable properties in Canada, and capital gains from the sale of such properties.

• At least 75% of the total fair market value of all trust properties that the REIT holds must be in Canada.

Income trust tax exemption just one advantage of investing in REITs

REITs can add to your portfolio in a number of other ways. They can provide a hedge against inflation, for example. And we continue to believe that low interest rates and government-stimulus spending will spur inflation over the next few years.

Many REITs have taken advantage of today’s low interest rates to refinance their mortgage debt. Many have been able to renew leases at high rates. That’s how REITs stand to gain from an ongoing economic recovery, while providing a hedge against inflation.

Is investing in REITs already part of your investment strategy? If so, how has it performed for you? Share your story with us in the comments.

The post Investing in REITs can give you a hedge against inflation—as well as let you defer taxation appeared first on TSI Wealth Network.

RIOCAN REAL ESTATE INVESTMENT TRUST $28.19 (Toronto symbol REI.UN; Units outstanding: 324.5 million; Market cap: $9.3 billion; TSINetwork Rating: Average; Dividend yield: 5.0%; www.riocan.com) owns all or part of 302 shopping centres in Canada, including 15 under development.

In 2012, the trust formed a joint venture with ALLIED PROPERTIES REIT $39.33 (Toronto symbol AP.UN; Units o/s: 78.6 million; Market cap: $3.1 billion; TSINetwork Rating: Extra Risk; Dividend yield: 3.8%; www.alliedreit.com) and Diamond Corp. to re-develop a large block in downtown Toronto. RioCan and Allied each own 40% of the project, called The Well, and Diamond owns 20%. It includes retail, office and residential buildings.

The partners have now agreed to sell most of the residential component of The Well for $180 million.

The partners plan to begin work on the project in early 2017, and finish in 2020. At that time, they will complete the sale of the residential portion. However, RioCan will continue to own 50% of one apartment building on the site.

RioCan REIT is a buy. Allied REIT is also a buy.

The post RioCan REIT $28.19 – Toronto symbol REI.UN appeared first on TSI Wealth Network.

RIOCAN REAL ESTATE INVESTMENT TRUST $28.19 (Toronto symbol REI.UN; Units outstanding: 324.5 million; Market cap: $9.3 billion; TSINetwork Rating: Average; Dividend yield: 5.0%; www.riocan.com) owns all or part of 302 shopping centres in Canada, including 15 under development.

In 2012, the trust formed a joint venture with ALLIED PROPERTIES REIT $39.33 (Toronto symbol AP.UN; Units o/s: 78.6 million; Market cap: $3.1 billion; TSINetwork Rating: Extra Risk; Dividend yield: 3.8%; www.alliedreit.com) and Diamond Corp. to re-develop a large block in downtown Toronto. RioCan and Allied each own 40% of the project, called The Well, and Diamond owns 20%. It includes retail, office and residential buildings.

The partners have now agreed to sell most of the residential component of The Well for $180 million.

The partners plan to begin work on the project in early 2017, and finish in 2020. At that time, they will complete the sale of the residential portion. However, RioCan will continue to own 50% of one apartment building on the site.

RioCan REIT is a buy. Allied REIT is also a buy.

TD BANK $56.17 (Toronto symbol TD; Shares outstanding: 1.9 billion; Market cap: $104.2 billion; TSINetwork Rating: Above Average; Dividend yield: 3.9%; www.td.com) owns 42.15% of TD Ameritrade Holding Corp. (Nasdaq symbol AMTD), one of the largest online brokerage firms in the U.S.

TD now expects Ameritrade to contribute $124 million (Cdn.) to its earnings for the 2016 third quarter, ended July 31, 2016. That’s a gain of 34.8% from $92 million a year earlier. To put those figures in perspective, TD earned $2.3 billion, or $1.20 a share, in the quarter ended April 30, 2016.

Ameritrade’s average daily trading volumes rose 6.5% in the second quarter. As well, revenue from commissions and transaction fees increased 5.8%.

TD Bank is a buy.

IBM $160.67 (New York symbol IBM; Shares outstanding: 960.0 million; Market cap: $153.5 billion; TSINetwork Rating: Above Average; Dividend yield: 3.5%; www.ibm.com) continues to expand in faster growing fields such cloud computing and analytics software.

Sales from these operations—called “Strategic Imperatives”—rose 12% in the latest quarter. They now represent 38% of IBM’s total revenue.

These are key areas for the company. That’s because of slowing industry demand for mainframe computers and consulting services.

IBM is a buy.

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LOBLAW COMPANIES LTD., $68.48, Toronto symbol L, operates over 1,090 supermarkets across Canada. It also owns the Shoppers Drug Mart chain of 1,325 drugstores.

In response to strong competition, Loblaw has cut its selling prices to attract more shoppers.

As a result, its overall sales in the three months ended October 8, 2016, rose 1.4%, to $14.14 billion from $13.95 billion a year earlier. That beat the consensus estimate of $14.12 billion.

Excluding gasoline purchases, same-store sales at Loblaw’s supermarkets rose 0.8%. Same-store sales for Shoppers Drug Mart gained 2.8%. That reflects a 1.6% rise in prescription drug sales and a 3.9% increase in the sale of other merchandise.

If you disregard unusual items—including costs related to rebuilding fire-damaged stores in Fort McMurray, Alberta—Loblaw’s earnings in the quarter rose 25.5%, to $512 million from $408 million a year earlier. Earnings per share gained 28.6%, to $1.26 from $0.98, on fewer shares outstanding. That beat the consensus forecast of $1.12.

Loblaw will probably earn $3.97 a share for all of 2016. The stock trades at a reasonable 17.2 times that forecast. The $1.04 dividend yields 1.5%.

OUR RECOMMENDATION: Loblaw is a buy.

Loblaw recent coverage

• December 2016 issue
• November 2016 issue

METRO INC., $41.11, Toronto symbol MRU, operates 600 grocery stores and 250 drugstores in Quebec and Ontario.

In its fiscal 2016 fourth quarter, ended September 24, 2016, Metro earned $145.0 million. That’s a 10.1% increase from $131.7 million a year earlier. Due to fewer shares outstanding, earnings per share gained 15.4%, to $0.60 from $0.52. That beat the consensus estimate of $0.56 a share.

Overall sales for the quarter rose 3.4%, to $2.9 billion from $2.8 billion. Same-store sales improved 2.8% from a year earlier. Metro’s recent investments in its stores continue to attract shoppers and offset lower food prices.

The company also continues to benefit from its 5.7% stake in Alimentation Couche-Tard (Toronto symbol ATD.B). In the latest quarter, earnings from this investment gained 11.2%, to $23.8 million from $21.4 million a year ago. (Couche-Tard, which operates convenience stores in North America and Europe, is a recommendation of Stock Pickers Digest, our newsletter that focuses on aggressive investing.)

The company will probably earn $2.54 a share in fiscal 2017, and the stock trades at 16.2 times that forecast. The $0.56 dividend yields 1.4%.

OUR RECOMMENDATION: Metro is a buy.

Metro recent coverage

• Hotline for October 28, 2016
• October 2016 issue

SUNCOR ENERGY INC., $41.81, Toronto symbol SU, is Canada’s largest integrated oil company.

For 2017, the company expects to produce between 680,000 and 720,000 barrels of oil equivalent per day. That’s a 13% jump over its forecast 2016 output.

The increase is mainly due to improving efficiency at Suncor’s oil sands operations. That includes its 53.74%-owned Syncrude project.

Better efficiency will also let the company cut its capital expenditures to between $4.8 billion and $5.2 billion for 2017. That would be $1 billion lower than its 2016 spending. To put those figures in context, Suncor’s cash flow in the three months ended September 30, 2016, totalled $2.0 billion, or $1.22 a share.

OUR RECOMMENDATION: Suncor is a buy.

Suncor recent coverage

• December 2016 issue
• Hotline for October 28, 2016

GREAT-WEST LIFECO INC., $35.00, Toronto symbol GWO, is Canada’s second-largest insurance company, after Manulife Financial (Toronto symbol MFC). It also offers mutual funds, retirement planning and wealth management services.

In August 2007, Great-West acquired U.S.-based mutual fund manager Putnam Investments. That business has suffered lately as investors opt for cheaper exchange-traded funds over traditional mutual funds.

In response, Great-West announced this week that it will cut 8% of Putnam’s workforce. The move should reduce the company’s overall yearly costs by $65 million U.S. To put that figure in context, Great-West earned $674 million (Canadian), or $0.68 a share, in the third quarter of 2016.

OUR RECOMMENDATION: Great-West Lifeco is a buy.

Great-West recent coverage

• December 2016 issue
• October 2016 issue

RIOCAN REAL ESTATE INVESTMENT TRUST, $26.17, Toronto symbol REI.UN, owns all or part of 301 shopping centres in Canada. That includes 15 properties now under development.

The trust is teaming up with Boardwalk Real Estate Investment Trust (Toronto symbol BEI.UN) to build and operate an 11-storey residential/retail tower in Calgary. Boardwalk will operate the residential units, while RioCan will manage the retail portion.

This new building will sit on land that is part of a Calgary shopping centre owned by RioCan. Under the terms of the deal, Boardwalk will pay $2.9 million to RioCan for a 50% stake in this parcel of land. The partners will spend $60 million to $70 million ($30 million to $35 million each) to construct the tower. To put these figures in perspective, RioCan’s cash flow in the third quarter of 2016 was $140 million, or $0.43 a unit.

The Boardwalk deal is part of RioCan’s strategy to add more residential and office units to its malls. That’s partly because the growing popularity of online shopping has hurt demand for retail space.

OUR RECOMMENDATION: RioCan is a buy.

RioCan recent coverage

• Hotline for September 30, 2016
• Hotline for July 29, 2016

The post The Successful Investor Hotline – Friday, November 18, 2016 appeared first on TSI Wealth Network.

RIOCAN REAL ESTATE INVESTMENT TRUST $27.54 (Toronto symbol REI.UN; Units outstanding: 324.7 million; Market cap: $9.0 billion; TSINetwork Rating: Average; Dividend yield: 5.1%; www.riocan.com) is Canada’s largest real estate investment trust.

For the three months ended June 30, 2016, cash flow per share was $118.0 million, or $0.37 a share. That’s up 8.1% from $109.2, or $0.34 a share, a year earlier.

The trust continues to acquire high-quality properties across Canada—since September 2015 it has spent $1.1 billion. This includes taking 100% ownership of four properties in B.C., Alberta and Ontario by buying out its joint venture partner, the Canadian Pension Plan Investment Board.

RioCan can well afford these purchases. In May 2016 it completed the sale of its U.S. properties for $1.2 billion. Their value has risen with the U.S. dollar and the country’s recovering economy.

Those recent sales and purchases are part of the trust’s plan to focus on Canada’s six largest markets: Toronto, Montreal, Ottawa, Calgary, Edmonton and Vancouver. These markets now account for 75.7% of its rental revenue.

RioCan trades at 18.2 times its forecast 2016 cash flow of $1.51 a unit. That’s reasonable in light of the REIT’s highly profitable properties and its 95.1% occupancy rate. The units yield 5.1%.

RioCan is a buy.

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RIOCAN REAL ESTATE INVESTMENT TRUST $27.54 (Toronto symbol REI.UN; Units outstanding: 324.7 million; Market cap: $9.0 billion; TSINetwork Rating: Average; Dividend yield: 5.1%; www.riocan.com) is Canada’s largest real estate investment trust.

For the three months ended June 30, 2016, cash flow per share was $118.0 million, or $0.37 a share. That’s up 8.1% from $109.2, or $0.34 a share, a year earlier.

The trust continues to acquire high-quality properties across Canada—since September 2015 it has spent $1.1 billion. This includes taking 100% ownership of four properties in B.C., Alberta and Ontario by buying out its joint venture partner, the Canadian Pension Plan Investment Board.

RioCan can well afford these purchases. In May 2016 it completed the sale of its U.S. properties for $1.2 billion. Their value has risen with the U.S. dollar and the country’s recovering economy.

Those recent sales and purchases are part of the trust’s plan to focus on Canada’s six largest markets: Toronto, Montreal, Ottawa, Calgary, Edmonton and Vancouver. These markets now account for 75.7% of its rental revenue.

RioCan trades at 18.2 times its forecast 2016 cash flow of $1.51 a unit. That’s reasonable in light of the REIT’s highly profitable properties and its 95.1% occupancy rate. The units yield 5.1%.

RioCan is a buy.

ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST $36.83 (Toronto symbol AP.UN; Units outstanding: 78.6 million; Market cap: $3.1 billion; TSINetwork Rating: Extra Risk; Dividend yield: 4.1%; www.alliedreit.com) owns 150 office buildings, mostly in major Canadian cities. These properties—mainly Class I—contain over 11.6 million square feet of leasable area.

Class I refers to 19th- and early-20th-century industrial buildings that have been converted to retail space. They usually feature exposed beams, interior brick and hardwood floors.

Allied has increased its acquisition activity this year; so far, it has spent $347.1 million buying seven properties in major Canadian cities, including Calgary, Toronto and Montreal. That’s a big jump from the $164.8 million it spent for a total of five properties in 2015.

The new buildings helped raise the trust’s revenue by 3.5% in the three months ended June 30, 2016, to $94.2 million from $91.0 million a year earlier. Cash flow rose 1.2%, to $42.5 million from $42.0 million. Cash flow per unit was unchanged at $0.54, due to the issue of more shares as part of those recent acquisitions.

The units trade at 16.7 times Allied’s forecast 2016 cash flow of $2.21 a unit. They yield 4.1%.

Allied Properties REIT is a buy.

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Canadian REITs are a good option for those wanting real estate representation in their portfolio

If you want to add to your real estate holdings, one good way to do it is through REITs.

Investing in Canadian REITs lets you hold income-producing real estate such as office buildings, shopping malls and hotels. They can save you the cost, work and risk of owning investment property yourself.

More about Canadian REITs, and special tax treatments

The best real estate investment trusts have good management and balance sheets strong enough to weather an economic downturn. They also have high-quality tenants, and they carefully match their debt obligations with income from their leases. The best ones are still doing well, despite slow economic growth, and have taken advantage of low interest rates to refinance long-term mortgages.

Canada offers special tax treatment for Canadian income trusts. When they flow their income through to their unitholders, they don’t pay much if any corporate tax. Investors pay tax on most of the distributions as ordinary income (although some distributions qualify as a tax-deferred return of capital).

Ottawa feels the income-trust business structure is appropriate for real estate investment trusts, or REITs, so it exempted REITs from the 2011 income-trust tax.

Real estate investment trusts resemble Canadian income trusts, but with a key difference: REITs invest in income-producing real estate, such as office buildings, shopping centres and hotels.

Real estate investment trusts can maintain their exemption as long as they meet the following requirements:

• REITs must not hold any property other than “qualified REIT properties” at any time during a tax year.
• At least 75% of the trust’s revenue for a tax year must come from rent or mortgage interest from real or immovable properties in Canada, and capital gains from the sale of such properties.
• At least 75% of the total fair market value of all trust properties that the REIT holds must be in Canada.

A few Canadian REITs:

• Canadian REIT (Toronto symbol REF.UN) owns properties, including retail, industrial and office buildings, across Canada and in Chicago. The trust aims to grow mostly by developing its own properties rather than through large acquisitions. To cut its risk, Canadian REIT takes on partners to help carry out big projects.

• H&R REIT (Toronto symbol HR.UN) owns or has stakes in office buildings, industrial properties and shopping malls in Canada and the U.S. The trust uses proceeds from industrial properties to buy more malls and office buildings in Canada.

• iShares CDN REIT Sector Index Fund (Toronto symbol XRE) holds the 15 Canadian real estate investment trusts in the S&P/TSX Capped REIT Index.

• RioCan Real Estate Investment Trust (Toronto symbol REI.UN) owns all or part of many shopping centres in Canada.

• Allied Properties Real Estate Investment Trust (Toronto symbol AP.UN) owns office buildings, mostly in major Canadian cities. These mainly Class I properties contain over 10 million square feet of leasable area.

Canadian REITs—much better than speculative stocks

One of the more reassuring aspects of the long-term rise now underway in the stock market is that the strength is concentrated in well-established companies. Investors are bidding up the prices of stocks with a history of sales and earnings, if not dividends. Speculative areas like penny stocks, new issues, junior techs and so on appear to be out of investor fashion.

This contrasts sharply with, say, the income-trust boom of the mid-2000s. Back then, investors were plunging into new issue income trusts, many of which were of low investment quality. Today’s situation contrasts even more with the Internet stock mania of the late 1990s. Many of the new issue Internet stocks back then were little more than stock promotions.

Chasing after low-quality investments like these becomes common when inexperienced investors enter the market. These newcomers lack the healthy sense of skepticism that you need to succeed as an investor. So they naturally zero in on the least desirable stocks on the market. Almost by definition, these are extremely risky and/or overpriced stocks that seem to offer high rewards with little risk. They generally deliver precisely the opposite.

Do you hold any Canadian REITs in your portfolio? Share your experience with them in our comments section.

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RIOCAN REAL ESTATE INVESTMENT TRUST $25.96 (Toronto symbol REI.UN; Units outstanding: 324.9 million; Market cap: $8.5 billion; TSINetwork Rating: Average; Dividend yield: 5.4%; www.riocan.com) owns all or part of 302 shopping centres in Canada. That includes 15 under development.

The trust’s biggest tenants include Loblaw, Canadian Tire, Wal-Mart and Cineplex.

Online shopping continues to hurt demand for retail space in RioCan’s malls. In response, the trust is transforming more of its properties to include office and residential units, particularly in urban markets.

RioCan now expects to spend $250 million each year for the next five years on these projects. That’s up from $100 million to $150 million in recent years.

The trust can comfortably afford these investments: it generated cash flow of $254.8 million in the first half of 2016. That leaves it with enough cash to cover its monthly distributions of $0.1175 a unit; the annualized yield is 5.2%.

RioCan is a buy.

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The REIT has both expanded its holdings in Canada and diversified its mall tenants to better compete with online shopping.

RIOCAN REAL ESTATE INVESTMENT TRUST (Toronto symbol REI.UN; www.riocan.com) owns all or part of 301 shopping centres in Canada, including 15 under development.

The REIT cuts the risk associated with the cyclical and fickle retail industry in several ways. For instance, it focuses on properties that attract a wide variety of tenants. As of September 30, 2016, Riocan’s occupancy rate was a high 95.3%.

In addition, well-established chains such as Wal-Mart, Canadian Tire and Cineplex theatres account for 85.5% of the trust’s rental revenue. It also spreads out the terms of its leases so that only a few expire in any given year.

In the past few years, RioCan has also narrowed its focus to Canada’s six largest cities—Toronto, Montreal, Ottawa, Edmonton, Calgary and Vancouver. They now account for 75.6% of its rental revenue.

The trust’s revenue rose from $988.0 million in 2011 to $1.2 billion in 2014. That’s because it took advantage of low interest rates to buy new properties.

In 2015, Riocan agreed to sell its 49 U.S. malls for $1.9 billion U.S. It completed those sales in May 2016. If you exclude its U.S. properties, revenue from ongoing operations rose 6.1% in 2015, to $1.1 billion.

Gains and losses on property sales make the trust’s earnings more erratic than its revenue. Its earnings rose from $3.25 a unit (or a total of $873 million) in 2011 to $4.57 a unit (or $1.3 billion) in 2012. Earnings then declined to $2.29 a unit (or $709.5 million) in 2013, and fell to $0.40 a unit (or $141.7 million) in 2015.

Most REIT investors prefer to focus on cash flow instead of earnings, as this measure disregards non-cash items such as depreciation. RioCan’s cash flow per unit rose 21.7%, from $1.29 in 2011 to $1.57 in 2015.

Dividend Stocks: Spends $451 million on new properties

In the third quarter, ended September 30, 2016, the trust spent $451 million acquiring new properties. That’s mainly why its revenue rose 6.9%, to $282.2 million from $263.9 million a year earlier. In addition, the REIT is doing a good job of hanging onto its current renters. Its retention rate in the quarter was 83.1%. RioCan also renewed these leases with an average increase in rental rate per square foot of 6.6%.

Due to gains on the sale of properties, RioCan’s earnings per unit in the quarter jumped 126.5%, to $0.77 from $0.34 a year earlier. However, cash flow per unit, which excludes these gains, was unchanged at $0.39.

In Canada, e-commerce sales accounted for 6% of overall retail sales in 2015 (excluding cars and fuel). That will likely rise to 9% by 2019.

In response, RioCan has begun to reduce its exposure to retail by redeveloping some of its malls to include office and residential space. It typically forms joint ventures with other property developers, who manage the non-retail portions of these mixed-use projects.

RioCan is also re-focusing its retail operations on businesses that sell experiences instead of goods. These include cinemas and fitness clubs. As well, the trust will add more food stores, which help encourage repeat visits to its malls.

The REIT continues to find new tenants for the 26 stores previously occupied by Target Corp. The American chain closed its Canadian operations in May 2015.

When it’s finished, RioCan expects to have spent $134 million to renovate those former Target stores. However, it received $88 million from the retailer as compensation for the closures. Moreover, the REIT expects annual rental revenue from its new tenants to total $13.9 million. That’s up 16.8% from the $11.9 million a year it received from Target.

RioCan’s total debt of $6.1 billion (as of September 30, 2016) is a high 69% of its market cap. However, it staggers the maturities of these mortgages and debentures so that it only has to pay back a manageable portion each year. It also held cash of $62.7 million.

The trust pays monthly distributions of $0.1175 a unit; the annual rate of $1.41 yields 5.2%. In the past 12 months, distributions accounted for 90.0% of its cash flow.

In March 2016, RioCan eliminated the 3.1% discount it gave to shareholders who participated in its Distribution Reinventment Plan (DRIP). As a result, in the latest quarter, just 7.0% of investors participated in the plan compared to 35.1% a year earlier.

If you exclude units issued under the reinvestment plan, RioCan paid out 84.1% of its cash flow as distributions in the third quarter.

The units trade at 17.8 times RioCan’s likely 2016 cash flow of $1.52 a unit. That’s a reasonable multiple in light of the trust’s high-quality properties and tenants.

Recommendation in The Successful Investor: BUY

For our recent report on another Canadian dividend stock we rate as a buy, read Rising revenue supports strong cash flow for Extendicare.

For our views on how to get the maximum benefit from dividends, read How to find (the safest) stocks paying the highest dividends.

The post Dividend Stocks: RioCan adapts to an online world appeared first on TSI Wealth Network.

TRANSCANADA CORP., $62.71, Toronto symbol TRP, operates a 90,300-kilometre pipeline network that pumps natural gas from Alberta to eastern Canada and the U.S. Other operations include 4,250 kilometers of crude oil pipelines and 17 power plants.

This week, U.S. President Donald Trump signed an executive order giving conditional approval to the company’s proposed Keystone XL pipeline. This project would pump crude from Alberta’s oil sands to refineries on the U.S. Gulf Coast.

TransCanada spent $4.3 billion on Keystone XL, but had to write off $2.9 billion of those costs after the Obama administration blocked the plan. To put these figures in context, TransCanada’s market cap (or the value of all outstanding shares) is $53.4 billion.

The company has now re-applied for a permit. However, it’s uncertain when it could resume work. Trump has said he wants to renegotiate the North American Free Trade Agreement. Part of that is re-examining the dispute-settlement rules between Canada, Mexico and the U.S.

As well, TransCanada still needs Nebraska to approve the Keystone pipeline.

Even so, it appears the company will now recoup most of its losses on that project. That will give it more room to increase its $2.26 a share dividend. It yields 3.6%. TransCanada plans to increase the annual rate by 8% to 10% each year through 2020.

OUR RECOMMENDATION: TransCanada is our #1 Income buy for 2017.

TransCanada recent coverage

• Febraury 2017 issue
• Hotline for January 13, 2017

CANADIAN NATIONAL RAILWAY CO., $92.37, Toronto symbol CNR, operates Canada’s largest railway. Its 32,200-kilometre network stretches across the country and passes through the U.S. Midwest to the Gulf of Mexico.

In the three months ended December 31, 2016, CN’s overall freight volumes rose 3.3% from a year earlier. Higher shipments of metal and minerals, grain and fertilizers, and automotive products offset declines in coal, crude oil, forest products and manufactured goods.

As a result, CN’s revenue in the quarter improved 1.6%, to $3.22 billion from $3.17 billion. That missed the consensus forecast of $3.24 billion.

The company’s earnings for the three months rose 1.2%, to $952 million from $941 million a year earlier. It spent $446 million on share buybacks during the quarter. Due to fewer shares outstanding, earnings per share gained 4.2%, to $1.23 from $1.18. That beat the consensus estimate of $1.21 a share.

CN continues to benefit from lower fuel costs and pension expenses: its operating ratio in the quarter improved to a record 56.6% from 57.2% a year earlier. (Operating ratio is calculated by dividing regular operating costs by revenue. The lower the ratio, the better.)

The company now expects to earn $4.82 a share in 2017, up about 5% from 2016. The stock trades at a still reasonable 19.2 times that forecast.

CN will also raise its quarterly dividend with the March 2017 payment by 10.0%, to $0.4125 a share from $0.375. The new annual rate of $1.65 yields 1.8%.

OUR RECOMMENDATION: CN Rail is a buy.

CN Rail recent coverage

• December 2016 issue
• November 2016 issue

METRO INC., $39.87, Toronto symbol MRU, operates 600 grocery stores and 250 drugstores in Quebec and Ontario.

In its fiscal 2017 first quarter, ended December 17, 2016, Metro earned $131.8 million. That’s down 1.2% from $139.8 million a year earlier. However, due to fewer shares outstanding, earnings per share gained 3.6%, to $0.58 from $0.56. That matched the consensus estimate of $0.56 a share.

Overall sales for the quarter rose 0.3%, to $2.97 billion from $2.96 billion. Same-store sales improved 0.7% from a year earlier. Metro’s recent investments in its stores continue to attract shoppers and offset a 1.0% decline in average food prices. The company also closed some stores in the quarter as its converts them to discount outlets.

Metro also owns 5.7% stake of Alimentation Couche-Tard (Toronto symbol ATD.B). In the latest quarter, earnings from this investment declined 21.9%, to $23.9 million from $30.6 million a year ago. (Couche-Tard, which operates convenience stores in North America and Europe, is a recommendation of Stock Pickers Digest, our newsletter that focuses on aggressive investing.)

Starting with the March 2017 payment, Metro will increase its quarterly dividend by 16.1%, to $0.1625 a share from $0.14. The new annual rate of $0.65 yields 1.6%.

OUR RECOMMENDATION: Metro is a buy.

Metro recent coverage

• Hotline for November 18, 2016
• Hotline for October 28, 2016

TECK RESOURCES LTD., $33.12, Toronto symbol TECK.B, is a leading producer of metallurgical coal, a key ingredient in steelmaking. It also produces copper and zinc.

In addition, the company owns 49% of the Wintering Hills wind power project near Drumheller, Alberta. TransAlta Corp. (Toronto symbol TA) owns the remaining 51%.

This week, the two companies agreed to sell Wintering Hills to furniture retailer IKEA Canada.

Teck will receive $58.6 million for its stake when the partners complete the sale in February 2017. To put that amount in context, the company earned $152.0 million, or $0.26 a share, in the three months ended September 30, 2016. Teck has yet to reveal what it plans to do with the cash.

OUR RECOMMENDATION: Teck is a buy.

Teck recent coverage

• February 2017 issue
• Hotline for December 16, 2016

RIOCAN REAL ESTATE INVESTMENT TRUST, $25.79, Toronto symbol REI.UN, owns all or part of 301 shopping centres in Canada. That includes 15 properties now under development.

The REIT continues to find new tenants for the 26 stores vacated by Target Canada in 2015.

Since then, RioCan has redeveloped many of these large-format stores into multiple outlets. The trust announced this week that it had signed new deals, or is in advanced discussions, on 47 leases for those spaces. By the end of 2017, the trust expects these deals will replace 122% of the annual rental revenue from the former Target stores.

OUR RECOMMENDATION: RioCan is a buy.

RioCan recent coverage

• January 2017 issue
• Hotline for November 18, 2016

Our next Hotline will go out on Friday, February 3, 2017.

The post The Successful Investor Hotline – Friday, January 27, 2017 appeared first on TSI Wealth Network.

A: Summit Industrial Income REIT, $6.21, symbol SMU.UN on Toronto (Units outstanding: 42.4 million; Market cap: $263.3 million; www.summitiireit.com), is an open-ended trust (see below) that owns light industrial properties across Canada.

As of September 30, 2016, the trust owned 53 buildings making up 5.2 million square feet of leasable area. Summit has 60% of its leasable area in the Greater Toronto Area, 13% in the rest of Ontario, 15% in the Greater Montreal Area, 10% in Alberta, and 2% in the rest of Canada.

The trust’s largest tenants by square footage include Ford, Magna International, Giant Tiger Stores (its distribution centres) and McCormick Canada.

In the three months ended September 30, 2016, Summit’s revenue rose 16.3%, to $11.5 million from $9.9 million a year earlier, mostly due to acquisitions. Cash flow gained 23.3%, to $5.3 million from $4.3 million. Cash flow per unit increased 1.3%, to $0.153 from $0.151 a year earlier as the trust increased the number of outstanding shares by 9.5% to pay for acquisitions.

Summit’s occupancy rate is a high 99.2%. It pays a monthly distribution of $0.0420 a unit, for an 8.1% annual yield.

In the first nine months of 2016, the trust company acquired seven properties totalling 763,898 square feet for $80.9 million.

Two parts of Summit’s business add risk: its growth by acquisition, and its dependence on industrial tenants with significant exposure to the cyclical economy.

However, the trust is focused on the Toronto market, which is the fastest growing in Canada, and its largest tenants are big, well-established companies. Its risks are also tempered by the shortage of light industrial space in Toronto. Demand for those properties is growing as retailers invest in fulfillment centres to service their online sales to customers in big cities.

Summit Industrial Income REIT is okay to hold, but only for aggressive investors.

Summit Industrial Income REIT is an “open ended” REIT. Most REITs, such as RioCan, $25.98, symbol REI.UN on Toronto, are “closed end” REITs.

Closed-end REITs start off by issuing units to the public with an Initial Public Offering (IPO). Investors then buy and sell the units on the stock exchange. After that, closed-end REITs can issue new units to the public at any time.

Open-ended REITs also start off by issuing units to the public through an IPO. Investors can then buy and sell the units on the stock exchange. Open-ended REITs can also issue new units to the public at any time.

The main difference is that unitholders of open-ended REITs have the right to force the REIT to directly redeem, or buy back, their units at any time.

However, this distinction really only has practical meaning if an open-ended REIT does not trade on a stock exchange. If real-estate prices were to plunge precipitously, then a non-publicly traded, open-ended REIT could be forced to sell its holdings at distressed prices in order to cover redemption requests. That could quickly lead to a major liquidity crisis.

In Summit’s case, if real-estate prices did collapse, then unitholders would simply sell their units on the Toronto exchange, rather than request a redemption.

As well, the terms associated with the redemption option actually encourage investors to sell their units on the exchange rather than seek a redemption from Summit. That’s because if they choose to redeem those units, they may get less than the market value of those units. Summit is only required to give them the lesser of these two amounts: 90% of the “market price” of the units during a 10 trading-day period (starting when they surrender their units) or 100% of the “closing market price” of their units on the day they requested the redemption.

Summit also has another safeguard in place: for any given month, a unitholder can redeem for cash a maximum of $25,000 in units. Summit can then give them a promissory note for any amount they request above that $25,000.

All in all, for practical purposes, investors can evaluate the investment potential of Summit Industrial Income REIT in the same way they evaluate a closed-end REIT.

The post Hi: Could I have your opinion on Summit Industrial Income REIT (SMU.UN), listed on the TSX? Thanks. appeared first on TSI Wealth Network.

A REIT is also known as real estate investment trust. Investing in REITs lets you hold income-producing real estate such as office buildings, shopping malls and hotels.

REITs can save you the cost, work and risk of owning investment property yourself.

Owning rental properties can be profitable—but it’s far from a sure thing

Many investors underestimate the risk and cost of owning rental property

Capital-gains taxes are applicable to gains on homes you buy for investment purposes, such as rental properties. Moreover, this type of real estate investing in Canada involves a number of other commitments that can make it feel more like running a small business than, say, investing in stocks. With stocks, you only have to tell your broker to buy—everything else is done for you.

In contrast, when you own rental property, you have to spend time finding and dealing with tenants, arranging for maintenance, doing the accounting and so on. You can hire others to do these tasks for you, but that can get very expensive.

Moreover, real estate investing in Canada can entail higher levels of risk than stocks. That’s because real estate is less liquid, more expensive to manage and to buy or sell, and highly geographically concentrated. Rising crime, unpleasant neighbours and other changes on the street or in your property’s neighbourhood can make it hard to find tenants or buyers. So can physical problems, like adverse traffic patterns, backed-up sewers and zoning changes that allow undesirable development, or limit what you can do with your property.

REITs can kick start your real estate investing in Canada

We continue to believe that ownership of a primary residence is all the real estate exposure most investors need. However, if you want to add to your real estate holdings, one good way to do it is through real estate investment trusts, or REITs.

Real estate investment trusts invest in income-producing real estate, such as office buildings, shopping centres and hotels. That’s a segment of the market that is difficult for most investors to access through direct ownership of property. Moreover, real estate investment trusts save you the cost, work and risk of owning investment property yourself.

Tax exemption sets REITs apart

REITs resemble income trusts, but with a key difference: REITs invest in income-producing real estate, such as office buildings and hotels.

REITs were common in Canada long before income trusts became popular enough to become a significant drain on Canadian tax collections. Ottawa felt the income-trust business structure was appropriate for REITs, so it exempted REITs from the new income-trust tax.

Real estate investment trusts can maintain their exemption as long as they meet the following requirements:

• REITs must not hold any property other than “qualified REIT properties” at any time during a tax year.

• At least 75% of the trust’s revenue for a tax year must come from rent or mortgage interest from real or immovable properties in Canada, and capital gains from the sale of such properties.

• At least 75% of the total fair market value of all trust properties that the REIT holds must be in Canada.

REITs can add to your portfolio in a number of other ways. They can provide a hedge against inflation, for example. And we continue to believe that low interest rates and government-stimulus spending will spur inflation over the next few years.

Many REITs have taken advantage of today’s low interest rates to refinance their mortgage debt. Many have been able to renew leases at high rates. That’s how REITs stand to gain from an ongoing economic recovery, while providing a hedge against inflation.

9 keys to picking the best Canadian REITs

Keep “investment inputs” in mind when judging a Canadian REIT—or any investment.

In evaluating investments, many investors focus on what we’d call “investment outputs,” such as earnings, dividends, cash flow, return on equity, sales growth and so on. These are all important, of course, but you shouldn’t focus on them to the exclusion of what you might call “investment inputs.”

Investment inputs are harder to work with than investment outputs, since it takes a judgment call to determine their risk or value. To give you a better idea of what we mean, here’s a list of ten investment inputs that we look at before recommending a REIT:

1. Do you have any doubts about the integrity of the insiders? If so, stay out.
2. Did the Canadian REIT buy its assets in the midst of a recent boom, or has it owned them for some time? Bidding for assets in the midst of a boom tends to be risky, since it can lead to unpleasant investment surprises.
3. How much debt is the Canadian REIT carrying? You need to gauge the debt in relation to all assets, including hidden assets and those that appear on the balance sheet. Too much debt in relation to assets can lead to a steeper downturn in distributions when the business hits a snag.
4. Is the REIT dominant or at least prominent in its industry? If the answer is no, risk is higher.
5. How much of its cash flow is it paying out? Paying too much leaves it vulnerable to a cut in distributions. This can have a devastating effect on the unit price.
6. Has its cash flow and profitability shown acceptable performance in relation to the rest of its industry? If it can’t make money when business is good, when can it make money?
7. Are there any special factors worth considering? With REITs, you need to look at the quality of tenants, length of leases and the possibility of improving the use or expanding the occupancy of existing properties.
8. Is the Canadian REIT the subject of a lot of favourable broker and media attention? If so, investor expectations may be excessively high, and that leaves the trust vulnerable to a steep downturn on any hint of bad news.
9. Is the current and prospective yield high enough to justify the risk?

Canadian REITs—much better than speculative stocks

One of the more reassuring aspects of the long-term rise now underway in the stock market is that the strength is concentrated in well-established companies. Investors are bidding up the prices of stocks with a history of sales and earnings, if not dividends. Speculative areas like penny stocks, new issues, junior techs and so on appear to be out of investor fashion.

This contrasts sharply with, say, the income-trust boom of the mid-2000s. Back then, investors were plunging into new issue income trusts, many of which were of low investment quality. Today’s situation contrasts even more with the Internet stock mania of the late 1990s. Many of the new issue Internet stocks back then were little more than stock promotions.

Chasing after low-quality investments like these becomes common when inexperienced investors enter the market. These newcomers lack the healthy sense of skepticism that you need to succeed as an investor. So they naturally zero in on the least desirable stocks on the market. Almost by definition, these are extremely risky and/or overpriced stocks that seem to offer high rewards with little risk. They generally deliver precisely the opposite.

A couple of top Canadian REITs

• Canadian REIT (Toronto symbol REF.UN) owns properties, including retail, industrial and office buildings, across Canada and in Chicago. The trust aims to grow mostly by developing its own properties rather than through large acquisitions. To cut its risk, Canadian REIT takes on partners to help carry out big projects.

• RioCan Real Estate Investment Trust (Toronto symbol REI.UN) owns all or part of many shopping centres in Canada.

Follow our three-part Successful Investor strategy

• Invest mainly in well-established companies;
• Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
• Downplay or avoid stocks in the broker/media limelight.

Have you invested in Canadian income trusts, or real estate investment trusts? Share your opinions in the comments.

The post Investing in REITs appeared first on TSI Wealth Network.

H&R REAL ESTATE INVESTMENT TRUST $21 (Toronto symbol HR.UN; Cyclical-Growth Dividend Payer Portfolio, Manufacturing & Industry sector; Units o/S: 283.9 million; Market cap: $6.0 billion; Price-to-sales ratio: 5.4; Dividend Sustainability Rating: Above Average; Dividend yield: 6.6%; www.hr-reit.com) owns or has a stake in 515 office buildings, industrial properties and shopping malls across Canada and the U.S. In all, these holdings include 46.6 million square feet of leasable space. The trust has a 95.9% occupancy rate.

With the December 2016 payment, H&R REIT raises its monthly distribution by 2.2%. The new annualized distribution of $1.38 per unit gives it a yield of 6.6%. The trust pays out about 70% of its cash flow as distributions.

H&R REIT offers a distribution reinvestment plan. Unitholders get a 3% bonus if they participate in the DRIP. Those investors can also make periodic cash purchases of units—from a minimum purchase of $250 a year to a maximum total purchase of $13,500 annually. There is no discount for cash purchases.

Meantime, the trust’s revenue rose slightly in the three months ended September 30, 2016, to $297.3 million from $297.1 million a year earlier. Cash flow per unit was unchanged at $0.45.

H&R REIT trades at 11.0 times its forecast 2017 cash flow of $1.91 a unit.

H&R REIT is a buy.

RIOCAN REAL ESTATE INVESTMENT TRUST $26 (Toronto symbol REI.UN; Cyclical-Growth Dividend Payer Portfolio, Manufacturing & Industry sector; Units outstanding: 325.1 million; Market cap: $8.5 billion; Priceto- sales ratio: 7.4; Dividend yield: 5.4%; Dividend Sustainability Rating: Above Average; www.riocan.com) is Canada’s largest real estate investment trust (REIT).

RioCan REIT pays monthly distributions of $0.1175 a unit, for a 5.4% annual yield. These payouts claim about 90% of the trust’s cash flow. However, 7% of its unitholders take part in its distribution reinvestment plan (DRIP), so they get units rather than cash. On that basis, about 84% of RioCan’s cash flow goes toward those cash payouts. (Note that if you opt for units instead of cash, you still have to pay income taxes on your distributions for the year in which you receive them.)

The trust has now eliminated the 3.1% discount it offered those investors enrolled in its DRIP.

For the three months ended September 30, 2016, Rio- Can’s cash flow per share was unchanged at $0.39 from a year earlier.

In May 2016, RioCan completed the sale of its U.S. properties for $1.2 billion. That was part of its plan to focus on Canada’s six largest markets: Toronto, Montreal, Ottawa, Calgary, Edmonton and Vancouver. Those cities now account for 75.6% of the trust’s revenue.

RioCan trades at 17.4 times its forecast 2017 cash flow of $1.49 a unit. That’s reasonable in light of the REIT’s highly profitable properties and its 95.1% occupancy rate.

RioCan is a buy.

The post These REITs offer stable high payouts appeared first on TSI Wealth Network.

RIOCAN REAL ESTATE INVESTMENT TRUST $26.78 (Toronto symbol REI.UN; Units outstanding: 325.1 million; Market cap: $8.8 billion; TSINetwork Rating: Average; Dividend yield: 5.3%; www.riocan.com) owns all or part of 301 shopping centres in Canada.

The trust is teaming up with Boardwalk Real Estate Investment Trust (Toronto symbol BEI.UN) to build and operate an 11-storey residential/retail tower in Calgary. Boardwalk will operate the residential units, while RioCan will manage the retail portion.

This new building will sit on land that is part of a Calgary shopping centre owned by RioCan. Under the terms of the deal, Boardwalk will pay $2.9 million to RioCan for a 50% stake in this parcel of land. The partners will spend $60 million to $70 million ($30 million to $35 million each) to construct the tower.

The Boardwalk deal is part of RioCan’s strategy to add more residential and office units to its malls. That’s partly because the growing popularity of online shopping has hurt demand for retail space.

RioCan is a buy.

TRANSCANADA CORP. $60.33 (Toronto symbol TRP; Shares outstanding: 800.0 million; Market cap: $48.4 billion; TSINetwork Rating: Above Average; Dividend yield: 3.8%; www.transcanada.com) hopes that incoming U.S. president Donald Trump will approve the company’s proposed Keystone XL pipeline. This line would pump crude from Alberta’s oil sands to refineries on the U.S. Gulf Coast.

The company spent $4.3 billion on Keystone XL, but had to write off $2.9 billion of those costs after the Obama administration blocked the plan in November 2015.

TransCanada would have to re-apply for a permit before it could resume work on Keystone XL. As well, the new Trump administration could demand new concessions from the company. However, it seems likely that TransCanada will recoup most of its losses on that project.

TransCanada is a buy.

MANITOBA TEL $37.28 (Toronto symbol MBT; Shares outstanding: 74.3 million; Market cap: $2.8 billion; TSINetwork Rating: Average; Dividend yield: 3.5%; www.mts. ca) has accepted the $40-a-share takeover offer from BCE.

BCE has capped the amount of cash it will pay. So Manitoba Tel shareholders who choose the all-cash option will likely get only 45% in cash, and 55% in BCE shares. All investors can defer capital gain taxes on shares they receive.

We recommend investors select the all-stock option. However, if BCE already accounts for a large portion of your portfolio, you should opt for the cash.

Manitoba Tel investors should tender to BCE.

The post Updates on RioCan Real Estate Investment Trust, TransCanada Corp. and Manitoba Tel appeared first on TSI Wealth Network.

Dear client:

Owning a home is all the real estate exposure most Canadians need. However, real estate investment trusts (REITs) let investors profit from a wider variety of properties without the risk of finding tenants and collecting rent.

Our top pick among REITs is RioCan. It began operating in November 1993 and is now the country’s largest REIT.

RioCan did well in the 1990s and the early part of this century as more people moved to the suburbs and shopped at its big-box malls. While these properties are still profitable, they now face increased competition as more people buy goods online.

In response, the trust continues to add office and residential spaces to its properties. It has also begun to shift its focus to urban areas. We feel these moves will set it up for many more years of growth.

RIOCAN REAL ESTATE INVESTMENT TRUST $27 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 326.3 million; Market cap: $8.8 billion; Price-to-sales ratio: 7.4; Dividend yield: 5.2%; TSINetwork Rating: Average; www.riocan.com) owns all or part of 301 shopping centres in Canada, including 15 under development.

The REIT cuts the risk associated with the cyclical and fickle retail industry in several ways. For instance, it focuses on properties that attract a wide variety of tenants. As of September 30, 2016, Riocan’s occupancy rate was a high 95.3%.

In addition, well-established chains such as Wal-Mart, Canadian Tire and Cineplex theatres account for 85.5% of the trust’s rental revenue. It also spreads out the terms of its leases so that only a few expire in any given year.

In the past few years, RioCan has also narrowed its focus to Canada’s six largest cities—Toronto, Montreal, Ottawa, Edmonton, Calgary and Vancouver. They now account for 75.6% of its rental revenue.

The trust’s revenue rose from $988.0 million in 2011 to $1.2 billion in 2014. That’s because it took advantage of low interest rates to buy new properties.

In 2015, Riocan agreed to sell its 49 U.S. malls for $1.9 billion U.S. It completed those sales in May 2016. If you exclude its U.S. properties, revenue from ongoing operations rose 6.1% in 2015, to $1.1 billion.

Gains and losses on property sales make the trust’s earnings more erratic than its revenue. Its earnings rose from $3.25 a unit (or a total of $873 million) in 2011 to $4.57 a unit (or $1.3 billion) in 2012. Earnings then declined to $2.29 a unit (or $709.5 million) in 2013, and fell to $0.40 a unit (or $141.7 million) in 2015.

Better to focus on cash flow, not earnings

Most REIT investors prefer to focus on cash flow instead of earnings, as this measure disregards non-cash items such as depreciation. RioCan’s cash flow per unit rose 21.7%, from $1.29 in 2011 to $1.57 in 2015.

In the third quarter, ended September 30, 2016, the trust spent $451 million acquiring new properties. That’s mainly why its revenue rose 6.9%, to $282.2 million from $263.9 million a year earlier. In addition, the REIT is doing a good job of hanging onto its current renters. Its retention rate in the quarter was 83.1%. RioCan also renewed these leases with an average increase in rental rate per square foot of 6.6%.

Due to gains on the sale of properties, RioCan’s earnings per unit in the quarter jumped 126.5%, to $0.77 from $0.34 a year earlier. However, cash flow per unit, which excludes these gains, was unchanged at $0.39.

In Canada, e-commerce sales accounted for 6% of overall retail sales in 2015 (excluding cars and fuel). That will likely rise to 9% by 2019.

In response, RioCan has begun to reduce its exposure to retail by redeveloping some of its malls to include office and residential space. It typically forms joint ventures with other property developers, who manage the non-retail portions of these mixed-use projects.

Finding new ways to spur customer traffic

RioCan is also re-focusing its retail operations on businesses that sell experiences instead of goods. These include cinemas and fitness clubs. As well, the trust will add more food stores, which help encourage repeat visits to its malls.

The REIT continues to find new tenants for the 26 stores previously occupied by Target Corp. The American chain closed its Canadian operations in May 2015.

When it’s finished, RioCan expects to have spent $134 million to renovate those former Target stores. However, it received $88 million from the retailer as compensation for the closures. Moreover, the REIT expects annual rental revenue from its new tenants to total $13.9 million. That’s up 16.8% from the $11.9 million a year it received from Target.

RioCan’s total debt of $6.1 billion (as of September 30, 2016) is a high 69% of its market cap. However, it staggers the maturities of these mortgages and debentures so that it only has to pay back a manageable portion each year. It also held cash of $62.7 million.

The trust pays monthly distributions of $0.1175 a unit; the annual rate of $1.41 yields 5.2%. In the past 12 months, distributions accounted for 90.0% of its cash flow.

End of discount kills DRIP use

In March 2016, RioCan eliminated the 3.1% discount it gave to shareholders who participated in its Distribution Reinventment Plan (DRIP). As a result, in the latest quarter, just 7.0% of investors participated in the plan compared to 35.1% a year earlier.

If you exclude units issued under the reinvestment plan, RioCan paid out 84.1% of its cash flow as distributions in the third quarter.

The units trade at 17.8 times RioCan’s likely 2016 cash flow of $1.52 a unit. That’s a reasonable multiple in light of the trust’s high-quality properties and tenants.

RioCan is a buy.

The post RioCan adapts to an online world appeared first on TSI Wealth Network.

RIOCAN REAL ESTATE INVESTMENT TRUST $26.84 (Toronto symbol REI.UN; Units outstanding: 325.2 million; Market cap: $8.7 billion; TSINetwork Rating: Average; Dividend yield: 5.3%; ww.riocan.com) is Canada’s largest real estate investment trust.

For the three months ended September 30, 2016, the REIT spent $451 million to acquire new properties. That’s mainly why its revenue rose 6.9% in the quarter, to $282.2 million from $263.9 million a year earlier.

Cash flow increased 1.0%, to $127.2 million from $126.0 million a year earlier. Due to more units outstanding, cash flow per unit was unchanged at $0.39.

To counter the negative impact online shopping has had on mall traffic, RioCan continues to redevelop some of its retail properties to include office and residential space. The trust has also begun to seek out mall tenants that sell experiences instead of goods. That includes cinemas and fitness clubs. As well, it will add more food stores, which should increase repeat visits to its shopping centres.

RioCan trades at 18.0 times its forecast 2017 cash flow of $1.49 a unit. That’s reasonable in light of the REIT’s highly profitable properties. The units yield 5.3%.

RioCan is a buy.

ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST $35.65 (Toronto symbol AP.UN; Units outstanding: 84.7 million; Market cap: $3.0 billion; TSINetwork Rating: Extra Risk; Dividend yield: 4.3%; www. alliedreit.com) owns 155 office buildings, mainly in major Canadian cities. Most of those properties are classified as Class I buildings, and together they comprise over 11.8 million square feet of leasable area.

Class I refers to 19thand early-20th-century industrial buildings that are now used as office space. They often have exposed beams and brick walls, and hardwood floors.

Allied increased its acquisition activity in 2016: for the first nine months of the year, it spent $376.7 million on seven properties in major Canadian cities, including Calgary, Toronto and Montreal. In 2015, it spend $164.8 million. Those new buildings helped to raise the trust’s revenue by 6.0% in the quarter ended September 30, 2016, to $96.3 million from $90.9 million a year earlier. Cash flow rose slightly, to $35.9 million. Cash flow per unit fell 4.3%, to $0.44 from $0.46. That was because Allied issued more shares as part of its recent acquisitions.

With the January 2017 payment, the REIT raised its monthly distribution by 2.0%, to $0.1275 from $0.125. The annualized distribution of $1.53 per unit yields 4.3%. Allied trades at 17.3 times the REIT’s forecast 2017 cash flow of $2.06 a unit.

Allied Properties REIT is a buy.

The post Buy these REITs for income and growth appeared first on TSI Wealth Network.

Dear safe-money investor:

We’ve selected our top picks for 2017—one stock, one real estate investment trust and one ETF. Each offers a particularly attractive combination of long-term growth prospects and a reasonable price.

We feel that investors will profit the most by holding a well-balanced portfolio of high-quality stocks and REITs—like our first two recommendations below.

If you want to supplement your individual stock holdings, then ETFs, like our third recommendation, provide a sound alternative.

BANK OF NOVA SCOTIA $77.89 (Toronto symbol BNS; Shares outstanding: 1.2 billion; Market cap: $94.0 billion; TSINetwork Rating: Above Average; Dividend yield: 3.8%, www.scotiabank.com) is the third largest of Canada’s five biggest banks.

In the three months ended October 31, 2016, the bank earned $1.9 billion, or $1.58 a share. That’s a 8.4% jump from the $1.8 billion, or $1.46 a share, a year earlier. The recent results beat the consensus estimate of $1.51.

The stronger earnings were thanks to higher demand for new loans as interest rates remained low. The bank’s restructuring plan—including job cuts and expansion of online banking— added to the higher earnings.

In the quarter, earnings from banking operations in Canada (50% of the total) rose 14.0%. In addition to savings from restructuring, the gain reflects the bank’s purchase of the Canadian credit card operations of J.P. Morgan Chase. That deal includes MasterCard and Sears Canada credit card accounts.

Similarly, the strong growth of loans, deposits and fees in Latin America boosted earnings for the bank’s international operations (29%) by 8.5%. Profits from securities trading (24%) rose 41.8% on stronger stock, bond and precious metals markets.

Bank of Nova Scotia trades at 12.1 times this year’s forecast earnings of $6.46 a share. The shares yield 3.8%.

Bank of Nova Scotia is a top pick for 2017.

RIOCAN REAL ESTATE INVESTMENT TRUST $25.75 (Toronto symbol REI.UN; Units outstanding: 325.3 million; Market cap: $8.5 billion; TSINetwork Rating: Average; Dividend yield: 5.5%; www.riocan.com) is Canada’s largest real estate investment trust.

For the three months ended September 30, 2016, the REIT spent $451 million to acquire new properties. That’s mainly why its revenue rose 6.9% in the quarter, to $282.2 million from $263.9 million a year earlier.

Cash flow increased 1.0%, to $127.2 million from $126.0 million a year earlier. Due to more units outstanding, cash flow per unit was unchanged at $0.39.

To counter the negative impact that online shopping has had on mall traffic, RioCan continues to redevelop some of its retail properties to include office and residential space. The trust has also begun to seek out mall tenants that sell experiences instead of goods. That includes cinemas and fitness clubs. As well, it will add more food stores, which should increase repeat visits to its shopping centres.

RioCan trades at 17.3 times its forecast 2017 cash flow of $1.49 a unit. That’s reasonable in light of the REIT’s highly profitable properties. The units yield 5.5%.

RioCan is a top pick for 2017.

ISHARES CANADIAN SELECT DIVIDEND INDEX ETF $25.04 (Toronto symbol XDV; buy or sell through brokers; ca.ishares.com) holds 30 of the highest-yield Canadian stocks. They’re selected by dividend growth, yield and payout. No single stock represents more than 10% of assets.

The ETF began trading on September 28, 1999. Its dividend yields 3.6%, and its MER is 0.56%. That expense ratio is higher than the MER for, say, the iShares S&P/TSX 60 Index ETF (at 0.18%). That’s because the iShares Canadian Select Dividend Index ETF is more actively managed.

Most market indexes are set up so their stocks are simply those that are most widely traded and have the highest market capitalization. However, this ETF focuses on the 30 stocks that it sees as having the highest dividend yields, but also the best propects for dividend growth.

The fund’s top holdings are CIBC, 8.4%; Agrium, 8.3%; Bank of Montreal, 6.5%; Royal Bank, 6.3%; Bank of Nova Scotia, 5.3%; National Bank, 4.5%; Laurentian Bank of Canada, 4.4%; TransCanada Corp., 4.3%; and BCE, 4.1%.

Shares Cdn. Select Dividend is a top pick for 2017.

The post Our top three picks for 2017 appeared first on TSI Wealth Network.