On March 1, 2017, RioCan ended the day’s market session at C$26.37—exactly the same price at which it closed on March 1, 2007. This may just be a remarkable coincidence, but it certainly raises the question as to why the unit price has gone nowhere for 10 years.

Of course, a lot has happened during that time, and there are a number of factors that, when considered together, can account for RioCan’s uninspiring performance.

At the macro level, first there was the Global Financial Crisis, then more recently the energy crash.

There’s also the secular trend toward growth in e-commerce, which is forcing mall owners like RioCan to adapt to a rapidly changing operating environment.

At the company level, RioCan suffered when Target abruptly exited Canada, leaving significant vacancies for the real estate investment trust (REIT) to fill.

Like many other REITs, RioCan has made a number of secondary equity issuances to help finance various transactions, and that has curtailed growth in profits per unit while limiting distribution growth.

Now, the question is whether this will change. We see several signs that give us reason to stay the course.

Target Pain on the Wane

RioCan REIT’s (TSX: REI-U, OTC: RIOCF) excellent record of high occupancy rates (typically over 97%) was ruined in 2015 when Target abandoned its Canadian blunder.

Thankfully, the resulting vacancies have almost been fully re-leased. And the rent-free periods RioCan offered as an incentive to attract new tenants will largely run out over the next 12 months. This will add an estimated $14.2 million in annualized base rent, or about 2% of total rental income.

The departure of a major anchor tenant such as Target not only left a gaping hole in overall occupancy rates, but also reduced foot traffic at the affected shopping centers, causing smaller tenants to vacate as well. However, as the Target spaces fill up, many smaller tenants are returning, and that’s helped boost the committed occupancy rate to 95.6%.

Rental Growth Accelerating

One of the key metrics for retail-oriented REITs such as RioCan is growth in same-property rental income. While rental growth has been slow for a number of years, it declined sharply in 2015 when Target left.

However, the good news is that same-property rental growth started improving on a quarterly basis last year. And by the end of 2016, this metric had reached its highest level in more than two years.

Additionally, RioCan has successfully negotiated higher rents from tenants seeking to renew their leases, with rates up 8.1% by the end of 2016—the best increase for some time.

Quality Tenants in Prime Locations

RioCan owns 300 mostly retail properties across Canada, with 47 million square feet of net leasable area. Two-thirds of rental income is derived from properties located in Ontario, and the balance is spread about equally between Alberta, British Columbia, and Quebec.

Given faster population growth in core metropolitan areas, RioCan has focused on acquisitions and new developments in urban centers. Consequently, 76% of gross revenue is now derived from Canada’s six major markets.

The REIT’s top tenants include well-known grocery, pharmaceutical, hardware, and entertainment names such as Loblaw, Walmart, Canadian Tire, and Cineplex.

RioCan has long-term lease contracts in place for the majority of its major tenants. The REIT’s weighted average remaining lease term is seven years.

The trust has diligently staggered contract expirations, so that an average of just 11% of leasable area is up for renewal each year from 2017 through 2021.

Property Redevelopment

The prime locations of RioCan’s properties, which are mostly situated in and around Canada’s major cities, also afford it the ability to alter or intensify these properties as local markets change.

To this end, RioCan has identified 50 properties that are strong candidates for intensification. All of these properties are in Canada’s six major markets and are typically located in the vicinity of key transit hubs.

The REIT is working toward obtaining the appropriate zoning and approvals to add about 10,000 residential units over the next 10 years.

Given the scarcity of rental properties in Canada’s big cities—vacancy rates are below 1.5% in Toronto and Vancouver—this could prove to be a very profitable strategy.

Dividend Growth?

RioCan hasn’t increased its distribution since 2013 because it’s been working to lower its payout ratio.

Last year, RioCan sold the U.S. portion of its portfolio and used the net proceeds of US$1 billion for acquisitions, development projects, and debt reduction. However, this timely divestiture left a profit gap, which reduced profits in 2016 and will also depress profits in the first half of 2017.

Lower profits pushed the payout ratio back to 95% in the fourth quarter, which means there won’t be enough room to raise the distribution until the second half of 2017, at the earliest.

Even without distribution growth, RioCan’s units still have an attractive yield, recently at 5.2%. We estimate RioCan’s fair value at C$28, or US$21, and we plan to hold this quality REIT for the long term.