TORONTO (TheStreet) -- Real estate investment trusts have been a staple in investors portfolios for many years. Their stability and income make them a natural fit for investors desiring both yield and capital appreciation. Too often, however, investors never look beyond their borders to find the "best of the best" investment.There are multiple reasons why many prefer to stay within the confines of their own borders: differing accounting standards, tax implications, legal/regulatory differences and, at times, the difficulty in monitoring one's positions. What if you were told that there is a best in class REIT located just north of the United States? Sound appealing? Then if you were told that just about any retail REIT that wants to do business in Canada typically goes to this REIT to get it done, would that be interesting? These are not rhetorical questions, these questions are a roadmap to RioCan REIT (RIOCF.PK in the U.S. or REI in Canada). RioCan describes itself as "Canada's largest real estate investment trust with a total capitalization of approximately $13 billion as at March 31, 2012. It owns and manages Canada's largest portfolio of shopping centers with ownership interests in a portfolio of 333 retail properties, including 10 under development, containing an aggregate of 80 million square feet including 46 grocery anchored and new format retail centers containing 12 million square feet in the United States through various joint venture arrangements." The five driving factors of REIT performance and stability (those attributes which draw investors into the REIT sector) are:
- Diversity: In order for a REIT to produce consistent results, they must have a diverse portfolio - both geographically and by tenant.
- Occupancy: Occupancy is the life blood of a REIT as tenants create the net operating income and funds from operations.
- Leverage: While it is best for a REIT (or any company) to utilize leverage to increase returns, too much leverage increases the chance of financial distress. With a REIT, consideration must be paid to the use of mortgage debt relative to total debt as encumbered assets do not necessarily add a "safety cushion" for investors.
- Funds from operations: Ultimately, the product of the REITs operating performance has to show up in the REITs funds from operations.
- Distributions: At the end of the day, many REIT investors are income focused investors and the purpose of number 1 through 4 above is to ensure dividend stability and growth.
DiversityAs some are not as familiar with the Canadian provinces as they are with the states, here are a few facts to help put RioCan's geographic diversity in perspective (from Statistics Canada):
- The population is not distributed uniformly throughout Canada's territory. The vast majority of people who make up the population of Canada live in the southern part of the country, near the American border, leaving the northern areas largely uninhabited.
- The strongest concentrations of population are located, firstly, along the axis extending from Québec city to Windsor, that is, along the St Lawrence River and lakes Ontario and Erie, and secondly, in Western Canada, in Vancouver and Victoria in British Columbia and the area extending from Calgary to Edmonton in Alberta.
- In 2006, Canada's population was very largely concentrated in four provinces: Ontario, Quebec, British Columbia and Alberta. Approximately 86% of Canadians in 2006 were living in one of these four provinces. The 12.7 million Ontarians alone account for nearly 40% of Canadians.
- In 2006, more than four immigrants out of five (85%) choose to settle in Quebec, Ontario or British Columbia. Ontario alone received half of Canada's newcomers in 2006, whereas the demographic weight of that province was less than 40%.