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Target's store picks a bullseye for RioCan REIT: TD

RioCan Real Estate Investment Trust has become Target's largest Canadian landlord - at least for now - after the U.S. retailer last week named the first 105 Zellers sites it plans to convert to its own banner in the next two years.

But is the privilege good news for RioCan investors?

TD Newcrest analyst Sam Damiani took a close look at the terms of the deal and is giving it the thumbs up.

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"All in all, we believe RioCan negotiated a reasonable and attractive deal with Target," Mr. Damiani wrote in a research note today.

Target selected 62 per cent, or 21, of the REIT's 34 existing Zellers locations in the first tranche of stores to be converted to the new banner. RioCan is also in discussions to develop a further five locations for the U.S. retailer over the next couple of years.

RioCan not only secures guaranteed rent from Target Corp. for 10 years for the stores, it also will benefit from Target's plans to spend about $10-million on upgrades on each one. Those property enhancements will mean RioCan can keep its costs to a minimum, Nr. Damiani noted.

Over time, RioCan should be able to achieve higher occupancies and rents from the rest of the spaces in the shopping centres, given that Target has demonstrated that it usually attracts both a greater number of shoppers and those with high incomes, he said.

Target is expected to choose up to 115 additional leases in a second and final tranche in September.

Upside: While the transaction is favourable, Mr. Damiani believes the REIT is already fairly valued. He has a "hold" rating on RioCan with a price target $26.

D-Box Technologies Inc.'s namesake product "has the potential to be the next major premium product available in commercial theatres," declared Canaccord Genuity analyst Aravinda Galappatthige. D-Box is making rapid progress in securing high-quality films from studios while building its distribution by contracting with exhibitors, he said, noting a steady stream of theatre signing in the past three months.

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Upside: Canaccord, which has a 95 cent price target on the stock, upgraded it to a "buy" from a "speculative buy."

Fortis Inc. has acquired Central Vermont Public Service for $700-million (U.S.), including the assumption of debt. Canaccord Genuity analyst Juan Plessis sees a positive impact from the deal, expecting it to contribute up to 5 cents to Fortis's full-year per-share earnings.

Upside: Mr. Plessis maintained a "hold" rating but raised his price target by $1 to $33.

Paladin Labs Inc. met expectations in reporting first-quarter results, as management expressed confidence in dealing with the impact of new competing generic medicines. The company expects to steadily grow revenues through product launches and organic growth, and with a solid cash position of $10 per share it also has the ability to acquire additional assets, said RBC Dominion Securities Inc. analyst Douglas Miehm.

Upside: Mr. Miehm raised his price target by $3 to $43 and maintained an "outperform" rating.

Semafo Inc. raised its cash cost guidance by 10 per cent for this year amid higher oil prices, prompting UBS analyst Dan Rollins to cut his near-term earnings estimates for the gold company. He also is concerned with ongoing social unrest in Burkina Faso, where the company operates a mine.

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Downside: Mr. Rollins cut his price target by $1 to $12.50 but reiterated his "buy" rating.

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About the Author
Investment Editor

Darcy Keith is The Globe and Mail's Investment Editor. He has been a business journalist since 1992 and joined the Report on Business in 2010 from Yahoo! Canada, where he was the senior editor of finance. More

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