Taking a Fresh Look at RioCan REIT (TSX:REI.UN)

office buildings

On the surface, I can understand why some investors might be a little apprehensive about investing in RioCan REIT (TSX:REI.UN). It’s one of the largest REITs in Canada with a sprawling portfolio of retail properties that are primarily situated in…shopping malls.

Few people can deny that shopping malls are a remnant of a time long gone, with shoppers now preferring to browse on their smartphones rather than walking through massive malls and opting to order products on their devices rather than deal with limited availability and pushy salespeople.

So why should investors consider RioCan? Here are several compelling reasons to consider.

RioCan is diversified

While RioCan is predominately a retail REIT, that’s not the only segment that the company caters to (more on that in a moment). Additionally, RioCan’s tenant base is extremely secure, with many of those tenants constituting some of the largest retail players in Canada.

Adding to that diversified mix is the fact that no single tenant of RioCan provides more than 5% of the company’s revenue, appealing to investors that are looking for a more stable array of investments in their portfolio.

RioCan is changing

Recall the multiple-segment point I made above? RioCan is gradually adjusting its investment mix to include mixed-use residential towers sitting on top of several floors of retail.

The properties, known as RioCan living, are an interesting play on the lack of available (and affordable) housing in Canada’s major metro areas.

The long-term brilliance in this model cannot be understated. On the one hand, younger professionals, who have a desire to live closer to major metro areas where jobs and entertainment are in abundance cannot. On the other, we have the rapidly changing face of the large traditional retail store model that is in decline, leading to the need for additional revenue streams.

The developments are being funded through the sales of non-core assets of nearly $2 billion, and the first properties are set to begin receiving tenants this year. To date, the company has sold 75 secondary-market assets valued at $1.5 billion.

RioCan is the complete package

Perhaps one of the most compelling reasons to consider investing in a REIT has to do with the dividend, and in the case of RioCan, the company once again never fails to impress.

RioCan currently offers investors a monthly dividend that pays out a yield of 5.59%, handily making the company one of the better-paying investments on the market.

Turning to results, Riocan announced results for the first quarter earlier this month. Specifically, revenue came in at $324.1 million, surpassing the $290.1 million reported in the same period last year, while earnings came in at $194.5 million, or $0.64 per diluted unit in the quarter, compared with $137.2 million, or $0.43 per diluted unit reported in the same period last year.

Funds from operations for the quarter amounted to $142.2 million, or $0.47 per diluted unit, representing a drop from the $149.2 million, or $0.46 per diluted unit last year, a clear sign of the ongoing shift that the company is undergoing while building out its RioCan Living projects.

In my opinion, RioCan remains an excellent long-term opportunity for investors looking to diversify their portfolio with an income-producing stock with growth potential.

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Fool contributor Demetris Afxentiou has no position in any of the stocks mentioned.

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