3 Canadian REITs To Diversify Your Dividend Income Portfolio

by: Mark Kowalski

Canada has some marvelous REITs available to investors that are currently offering strong yields and promising performance. A selection of Canadian REITs is presented below, along with their current issues and valuations.

  1. Riocan REIT (OTCPK:RIOCF)

Riocan is run by a strong management team that has been using the low interest rates and poorer economic conditions in the past few years to develop and acquire additional properties. This expansion also included the U.S., where depressed prices allowed for an entry and expansion through the use of joint ventures.

The joint venture made with Cedar (NYSE:CDR) in the U.S. has unexpectedly been dissolved during the course of 2012, and the assets are in the process of being distributed between the parties. This is a disappointing end for a promising joint venture, and Riocan has announced it will begin offloading the shares in Cedar (9.4M shares -- $51M at January 2, 2013). Riocan's total joint ventures in the U.S. own 49 income producing properties for a total of 7.3 M square feet of leasable area.

On a positive note, 189 locations of the ailing Canadian Retailer Zellers are in the process of closing or being converted to Target (NYSE:TGT) stores as part of its expansion into Canada. Currently Riocan owns 34 stores leased to Zellers. In 2013, 23 of these will be converted to Target stores, and the remaining locations will partially be re-leased to stores, including Canadian Tire (OTC:CDNTF) and Wal-Mart (NYSE:WMT), while the rest will continue operations as Zellers until the end of the lease term.

This is positive news for Riocan, as the replacement of the ailing Zellers retailer in Canada by Target will increase traffic to shopping centers anchored by such a retailer, and will likely encourage a higher occupancy rate and lease rate for those areas.

Quick Facts:

  1. 51M square feet of leasable area
  2. 97.3 % occupancy rate
  3. Market Cap of $8.31B
  4. Unit Price $27.80 - dividend yield of 5.04%
  5. $15.85 Rental Rate per occupied Sq Ft

Riocan's share in the new Target stores in Canada positions it well to increase rents and occupancies from current malls, and gives it the potential to form a parternship such as the one Calloway has with Wal-Mart. Investors should look to this stock to generate a stable dividend coupled with a strong potential for growth.

2) Calloway REIT (OTC:CWYUF)

Famous for its venture with SmartCentres in Canada and its strong bond with Wal-Mart, Calloway REIT is the one of the largest REITs in Canada. Its exceptional ability to maintain an incredibly high 99% occupancy rate stems from selecting attractive and convenient locations and leasing to strong anchor tenants, chief of which is Wal-Mart.

Calloway is partnered with SmartCentres through a license to use the brand and SmartCentres' 25% ownership in Calloway. This partnership gives Calloway access to purchase shopping centers under the SmartCentre brand, which in turn has proven to attract better and longer term-tenants.

Quick Facts:

  1. 26M square feet of leasable area
  2. 99% occupancy rate
  3. Market Cap of $3.61B
  4. Unit Price $28.72 - dividend yield of 5.39%
  5. $14.36 Rental Rate per occupied Sq Ft

Calloway's strong occupancy rates demonstrate the attractiveness of the SmartCentres to tenants. With SmartCentres present in most Canadian cities, this stock provides a well positioned access to an interest in a strong and successful operation.

3) Dundee REIT (OTC:DRETF)

Of the REITs listed here, Dundee is the only one with a primary focus on office buildings. Dundee's office properties are located in the urban areas of major Canadian cities, including Toronto, Calgary, Edmonton, Montreal, Kitchener-Waterloo, Ottawa and Vancouver.

2012 marked a significant year of acquisitions for Dundee, with the completion of a unique purchasing opportunity of Toronto's Scotia Plaza Complex put up for sale by Scotiabank this past summer. Dundee's share of two-thirds of this acquisition contributed 1.3M square feet of leasable area to the portfolio at a cost of $875M, or $673 per sq ft. Dundee also made an outright acquisition of the entire portfolio of the former Whiterock REIT for $1.4 B, adding 7.4 M sq ft of leasable area for $189 per sq ft.

Needless to say, Dundee is very active in an acquiring and selling properties, much more so than its peers. This could signal a bright future for the company, however, inevitably leads to more risk for this REIT compared to the peer group.

Quick Facts:

  1. 22M square feet of leasable area
  2. 96.4% occupancy rate
  3. Market Cap of $3.66B
  4. Share Price $37.69 - dividend yield of 5.83%
  5. $17.18 Rental Rate per occupied Sq Ft

With its acquisition spree, Dundee provides investors a strong level of potential for growth. Dundee trades at a discount to its peers, which results in a very attractive yield.

Closing Notes

All share prices and market cap figures taken as of close on January 2, 2013. Information on leasable area, rent per square foot and rental rate taken from Q3 annual reports.

Disclosure: I am long OTCPK:RIOCF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.