Is RioCan REIT (TSX:REI-UN) Stock on Road to Recovery?

RioCan REIT (TSX:REI-UN) stock surged as its third-quarter earnings showed signs of economic recovery and ensured investors that its current dividends are here to stay. 

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The stock price of RioCan REIT (TSX:REI-UN) surged 2.9% after its third-quarter earnings beat estimate and maintained its monthly dividend at $0.12. The biggest concern of investors was the risk of dividend cuts, which sent the stock down 2% ahead of its earnings. But its 86.2% payout ratio shows that it has sufficient funds from operations (FFO) to continue paying dividends.

RioCan’s earnings show how economic recovery will look. Canada is seeing a resurgence of COVID-19 cases, but this time it won’t lead to a nationwide lockdown like March. The government is well-prepared to handle a pandemic. Amid this uncertainty, the economic recovery will be modest and uneven. Despite this, RioCan expects to maintain its 2020 FFO per unit in the $1.60 range, which will help it pay out an annual dividend of $1.44.

Is this the start of RioCan stocks’ recovery? 

RioCan stock will take some time to recover as its financial figures are still lower than last year. These four key metrics show the earnings are recovering in the third quarter as compared to the previous quarter.

  • RioCan’s gross rent collection improved to 93.4% from 73.3%. The combined rent collection of the two quarters improved to 88.9% as most tenants paid their deferred rent.
  • The REIT set aside $14.4 million in provision for rent abatements and bad debts against $19.9 million in the previous quarter. These provisions are not actual cash losses. The Canada Emergency Commercial Rent Assistance (CECRA) covered around $14.2 million of the combined provision of two quarters ($33.5 million).
  • In the third quarter, the concern was around its committed occupancy rate, which fell to 96% from 96.4% in the previous quarter and 97.2% in the last year quarter. The occupancy rate fell as declining non-essential retailers, like Moores and Globo Shoes, closed some or all of their stores. RioCan earned 0.9% rental income from these stores.
  • The rent lost from closed stores (0.9% of its total rent income) was partially offset by the signing of new leases at 9.2% higher rent, called lease spread. Its renewal leasing spread was 4.6%.

All these four factors helped RioCan report a net profit of $117.6 million and FFO of $128.8 million in the third quarter. This was a recovery from the previous quarter’s net loss of $350.8 million and FFO of $109.9 million.

However, it will take RioCan stock a little longer to recover to the pre-pandemic level of $27. For that, it needs to get back to 100% rent collection and over 97% occupancy rate.

RioCan dividends are here to stay: Here’s more proof 

The improvement in cash flow shows that RioCan will continue to pay the same dividend rate. The REIT maintained its dividend per share even when its FFO fell significantly. Moreover, it has $803 million in liquidity, which is sufficient to help it withstand a crisis in the short term. If needed, the REIT can raise capital against its $8.7 billion worth of unencumbered assets.

RioCan is also monetizing the projects under development. It is disposing of a partial or complete interest in some of the properties. It has so far earned $54.9 million of gross sale proceeds from disposition. RioCan plans to dispose of some more developing and income-producing properties, which will fetch it $276.1 million in aggregate sales proceeds.

All these efforts show that RioCan dividends are here to stay. It has ample cash and several ways of earning more of it.

Should you buy the stock? 

While the pandemic has impacted several financial metrics of RioCan, it has not reduced its dividend per share. Hence, the stock is down 46% to its 2009 level, but its dividend yield is high at 9.97%. This is a good time to lock in a high yield for a lifetime.

In the 2008-2009 financial crisis, RioCan stock fell 43% and recovered in three years, growing 117% above its pre-crisis level. Taking a conservative approach, RioCan stock could recover in three years by 2023 to the pre-pandemic level of $27, which represents an 85% upside from its current price.

If you invest $5,000 in RioCan, you could get $5,745 in investment income over and above your contribution (~$1,450 in dividends and $4,250 in capital appreciation). That’s good returns for your passive income.

Should you invest $1,000 in NorthWest Healthcare Properties right now?

Before you buy stock in NorthWest Healthcare Properties, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and NorthWest Healthcare Properties wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Man in fedora smiles into camera
Dividend Stocks

How I’d Build a $20,000 Retirement Portfolio With These 3 TSX Dividend All-Stars

If you're worried about returns and want to focus on dividends, these dividend stocks are the first to consider.

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

If I Could Only Buy and Hold a Single Canadian Stock, This Would Be It

Here's why this high-quality defensive growth stock is one of the best Canadian companies to buy now and hold for…

Read more »

Concept of multiple streams of income
Dividend Stocks

3 Safe Dividend Stocks for Retirees

These three Canadian stocks are ideal for retirees due to their solid cash flows, consistent dividend growth, and healthy growth…

Read more »

dividends can compound over time
Dividend Stocks

3 Canadian Market Leaders Where I’d Invest $10,000 for Sustained Performance

Market leaders like Alimentation Couche-Tard Inc (TSX:ATD) are worth an investment.

Read more »

Hand Protecting Senior Couple
Dividend Stocks

How I’d Allocate $12,000 Across Canadian Value Stocks for Retirement Planning

Suncor Energy Inc (TSX:SU) is a Canadian energy stock worth investigating.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Stocks You Can Buy Now and Get Monthly Payouts From for Decades

Are you looking for monthly payouts? There are more than a few great investments that can fuel a monthly income…

Read more »

e-commerce shopping getting a package
Dividend Stocks

Where I’d Put $1,000 Right Away in 2 Top Canadian Stocks for Growth

These two Canadian stocks are strong options and have been for decades, and that's not going to change anytime soon.

Read more »

investment research
Dividend Stocks

How I’d Turn the $7,000 TFSA Contribution Into Monthly Passive Income

Here's how this TSX dividend stock can help you earn more than $50 each month in tax-free passive income.

Read more »