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Riocan CEO Edward Sonshine speaks to shareholders during the RioCan annual general meeting held in Toronto, Ont.

Kevin Van Paassen/The Globe and Mail

Canada's real estate investment trusts were the only category of trusts exempted from the federal government's income trust tax. This has helped them remain popular with investors seeking both income and capital gains. Today we examine the expansion plans of the largest of those trusts, a specialist in shopping malls.

RioCan Real Estate Investment Trust is the largest of Canada's REITs. It specializes in big-box-style outdoor malls, and owns 314 retail properties, ten of which are under development. Most are in suburban areas, where land is generally cheaper than in towns and cities.

RioCan also owns 38 malls in the US through a joint venture with Cedar Shopping Centers . The trust owns 80 per cent of this joint venture, as well as 14.3 per cent of Cedar.

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RioCan often leaves room at its malls for expanding existing stores, and building new ones. This makes it easy to add more tenants.

The trust is also expanding into other types of developments. For example, it recently teamed up with KingSett Capital to buy the Sheppard Centre in northern Toronto. This property includes offices, retail stores, and residential units.

The trust pays monthly distributions of 11.5 cents a unit, for a 5.5 per cent annual yield. These payouts accounted for 106 per cent of RioCan's 2010 cash flow. However, 17.2 per cent of RioCan's investors take part in its distribution reinvestment plan, so it pays them in units, rather than cash. On this basis, cash payouts were a somewhat more reasonable 88 per cent of its cash flow.

This REIT's units trade at 16.3 times the $1.53 a unit that RioCan will likely earn in 2011, and 14.7 times its forecast cash flow of $1.70 a unit. These multiples are high, but so far they have been justified by RioCan's high-quality properties and 97.5 per cent occupancy rate. As well, national and multinational chains, like Walmart , account for 86 per cent of its rental revenue.

Pat McKeough is a professional investment analyst and author of Riding the Bull.

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