What to Buy: RioCan REIT (TSX: REI-U, OTC: RIOCF)

Why to Buy Now: With crude prices taking a major hit over the past month, we need a breather from the energy sector. Beyond that, as evidenced by the market’s recent selloff, which was just shy of formal correction territory, there’s considerable uncertainty hanging over the global economy.

So we decided to go lower on the yield spectrum than we normally do in a bid for higher quality. With a market capitalization of just over CAD8 billion, RioCan is Canada’s largest real estate investment trust (REIT).

The retail-oriented REIT manages a portfolio of 340 properties in the US and Canada, most of which are shopping centers, with tenants that are among the top retailers in each country.

RioCan typically has a high occupancy rate, which most recently stood at 96.9 percent at the end of the second quarter. In fact, even at the height of the Global Financial Crisis, the firm’s occupancy rate remained near 97 percent.

The REIT trades about 10.3 percent below its all-time high, which it hit in late April of last year. At current levels, RioCan trades at a price to funds from operations per unit (P/FFO) ratio of 16.4, a moderate discount relative to an average of 18.2 among its peers.

RioCan pays a monthly distribution of CAD0.1175, or CAD1.41 annualized, for a current yield of 5.3 percent. For the second quarter, the REIT’s FFO payout ratio came in at 86 percent, down from 94 percent a year ago.

RioCan REIT is a buy below USD27.