RioCan Real Estate Investment Trust
TSX : REI.UN

RioCan Real Estate Investment Trust

April 29, 2010 08:01 ET

RioCan Real Estate Investment Trust Announces Results for the First Quarter Ended March 31, 2010

TORONTO, ONTARIO--(Marketwire - April 29, 2010) - RioCan Real Estate Investment Trust ("RioCan" or the "Trust") (TSX:REI.UN) today announced its financial results for the first quarter ended March 31, 2010.

HIGHLIGHTS FOR THE FIRST QUARTER:

  • Net earnings and funds from operations ("FFO") each increased by 22% in the first quarter of 2010 compared to the first quarter of 2009;
  • First quarter net operating income ("NOI") increased 17% or $19.0 million versus the first quarter of 2009 and increased 11% or $13.4 million from the fourth quarter of 2009;
  • Completed the acquisition of seven properties in Canada and the US aggregating 755,000 square feet at a purchase price of $204 million at a weighted average cap rate of 8.1%;
  • RioCan purchased an additional 1.35 million common shares in Cedar Shopping Centers, Inc. ("Cedar") at US$6.60 per share;
  • Maintained strong occupancy rate of 97.0%; and
  • RioCan had cash on hand of $106 million at quarter end, with a debt to gross book value ratio of 56.8%.

"We are satisfied with the results in the first quarter and are looking forward to continued improvement throughout the year," said Edward Sonshine, Q.C., President & CEO. "We are making good progress towards our income targets and are looking forward to generating meaningful growth through acquisitions, the completion of some of our greenfield developments, and organic growth within the portfolio in the coming quarters."

Financial Highlights

RioCan reported net earnings for the three months ended March 31, 2010 ("First Quarter") of $37.5 million ($0.15 per unit) compared to $30.7 million ($0.14 per unit) for the same period in 2009. The increase in net earnings was the result of a $7.0 million increase in gains, and improved property operating income, which increased $19.0 million, partially offset by an $8.6 million increase to interest expense, a $6.0 million increase in amortization expense, and a $3.0 million increase in future income taxes.

Funds from operations for the First Quarter was $86.4 million ($0.36 per unit) compared to $70.6 million ($0.32 per unit) in the first quarter of 2009 and $65.7 million ($0.28 per unit) in the fourth quarter of 2009. The primary differences between net earnings and FFO are amortization and future income taxes. The primary reasons for this increase were a $19.0 million increase in net operating income to $131.6 million and increased gains of $7 million. These increases to NOI were partially offset by an $8.6 million increase in interest expense and a decrease of $1.9 million in fee and other income in the First Quarter. The NOI has begun to reflect the acquisitions that were completed in the fourth quarter of 2009 and in the first quarter of 2010. RioCan completed acquisitions totalling approximately $204 million which were acquired at a weighted average cap rate of 8.1% in the First Quarter.

First Quarter rental revenues increased $18 million over the same quarter in 2009 to $200.8 million. Same property NOI for the First Quarter increased by 4.2% year over year and increased 1.8% quarter over quarter. Same store NOI for the First Quarter increased 3.1% year over year and increased 1.8% quarter over quarter. Same property and same store NOI gains were due largely to fixed rent steps, new and renewal leasing, lower bad debt expenses and a reduction in the number of unanticipated vacancies. Same store income was positively impacted by higher rental revenues of $1.2 million and lower bad debt expenses and vacancies of $0.8 million.

Development Activity

Development highlights for the first quarter of 2010 include:

  • RioCan is currently developing its 39 acre site at Lowe's Centre Orleans at Innes Road and Belcourt Boulevard in Ottawa, Ontario into a 417,000 square foot new format retail centre. This joint venture development with our partner, Trinity, is anchored by Lowe's Home Improvement Warehouse which owns its own location and has commenced operations. Other major tenants at the property include Allstate Insurance, CIBC, and Empire Theatres, which have all commenced operations. Construction is expected to commence in 2011 on an additional phase, which will feature a national supermarket tenant of approximately 35,000 square feet.

  • Construction has commenced at RioCan's joint venture development on Hazeldean Road, in Ottawa. This 33 acre site is currently being developed into a 393,000 square foot new format retail centre. The site will be anchored by Lowe's Home Improvement Warehouse, which will own its own store. Lowe's is expected to open in late 2010. RioCan has also commenced construction of the first phase of this property which will include Michael's, Winners, HomeSense, and Bouclair.

  • RioCan has commenced construction at its Okotoks site in Okotoks, Alberta, located approximately 40 kilometres south of Calgary. This 31 acre property is a joint venture development with Trinity and is currently being developed into a 434,000 square foot new format retail centre. The site is anchored by a 93,000 square foot Home Depot, which owns its own store. Costco, which will also own its own location, has begun construction and expects to open in the third quarter of 2010.

  • RioCan has completed the rezoning for its St. Clair and Weston Road development with Trinity and Canada Pension Plan Investment Board ("CPPIB") in Toronto. Construction is anticipated to commence in the fourth quarter of 2010. The 19 acre site is ultimately expected to feature a 570,000 square foot property situated within a unique two storey retail format. The successful rezoning resulted in a gain to RioCan of $3.3 million.

  • RioCan has successfully completed the rezoning requirements for its East Hills development with Trinity, CPPIB and the original vendor in Calgary, Alberta. The East Hills development consists of three phases. Phase I and III comprise approximately 111 acres and Phase II comprises approximately 37 acres. The successful rezoning resulted in a gain to RioCan of $4.0 million.

  • RioCan has entered into a land lease agreement with Mountain Equipment Co-op ("MEC") to open a new store at RioCan Centre Barrie in Barrie, Ontario. MEC will construct a 25,000 square foot store that will serve as the final component of the development at RioCan's Essa Road property. The property is co-anchored by a 71,800 square foot Zehr's grocery store (Loblaw's), a 142,000 square foot Lowe's Home Improvement Warehouse and 5,750 square feet which is leased to Royal Bank of Canada ("RBC") and RBC Insurance.

  • RioCan's land use intensification projects in Toronto at RioCan's Avenue Road and Queen and Portland are progressing well and are expected to be completed by early 2011. The residential units are 89% and 81% sold, and the retail space in these projects is 90% and 93% leased respectively as at March 31, 2010.

  • In April 2010, RioCan received Toronto City Council approval for its development plans at RioCan Yonge Eglinton Centre. RioCan is currently submitting plans for site plan approval, and subject to receipt of all approvals, it is expected that construction can begin in 2011.

As at March 31, 2010, RioCan had ownership interests in 12 Greenfield Development projects that will, upon completion, comprise approximately 8.5 million square feet, of which RioCan's ownership interest will be approximately 3.0 million square feet. 

In addition to RioCan's Greenfield Development program, the Trust has continued to update and modernize its centres to maintain the desirability and competitiveness of its properties. One example involves RioCan's relationship with Walmart, RioCan's third largest tenant by revenue contributing approximately 4.3% of RioCan's annualized rental revenue from its 24 locations owned by RioCan.

RioCan has worked with Walmart to expand some of its stores. Walmart expansions have been completed at four RioCan shopping centres: RioCan St. Foy, Kanata Centrum, New Liskeard Walmart Centre, and Belleville Walmart Centre. Expansion at RioCan Centre Thunder Bay began in April 2010. The expanded Walmart stores will be, on average, approximately 150,000 square feet in size. RioCan and Walmart are working on an additional four locations to remodel or expand them into Walmart Supercentres. As part of the program upon completion of expansion or modernization of each centre, Walmart will typically extend its remaining lease term by at least 5 years.

Portfolio Stability

As at March 31, 2010:

  • The portfolio committed occupancy rate was approximately 97.0% compared to 97.4% at December 31, 2009 and 97.5% as at March 31, 2009;

  • The portfolio economic occupancy rate represents space that has been leased to tenants that are paying rent. The portfolio economic occupancy rate was approximately 95.8%. There is approximately 407,000 square feet of space that has been leased to tenants that are not yet paying rent. The annualized rental impact once these tenants commence paying rent is approximately $10 million;

  • In the first quarter, RioCan retained approximately 86% of expiring leases compared to the first quarter of 2009, which had a renewal retention rate of approximately 92%;

  • Approximately 950,000 square feet were renewed during the first quarter of 2010 at an average rent increase of 9.6% or $1.45 per square foot (including anchor tenants) and 10.5% or $2.02 per square foot (excluding fixed rent options);

  • Vacancies in the First Quarter as a result of unanticipated tenant bankruptcies or store closures were 93,000 square feet, 82,000 square feet at RioCan's interest, a significant improvement from the 440,000 square feet, 280,000 square feet at RioCan's interest incurred in the same period in 2009. Total vacancies were also down significantly from 552,000 square feet, 387,000 square feet at RioCan's interest of vacancies incurred in the first quarter of 2009 to 312,000, square feet, 267,000 square feet at RioCan's interest of vacancies in 2010;

  • RioCan's Canadian portfolio is concentrated in Canada's six high growth markets (including Calgary, Edmonton, Montreal, Ottawa, Toronto and Vancouver). Assets in these markets account for approximately 66% of annualized rental revenue;

  • National and anchor tenants represented approximately 85% of annualized rental revenue at March 31, 2010, compared to 84% at March 31, 2009;

  • Approximately 61% of annualized rental revenue was derived from its 50 largest tenants; and

  • No individual tenant comprised more than 5.0% of annualized rental revenue.

Portfolio Acquisition Activity

RioCan completed four acquisitions in Canada and three acquisitions in the US during the first quarter of 2010.

Acquisitions completed in Canada during the first quarter of 2010 included the following:

  • The Market at Citadel Village: The Market at Citadel Village is a 51,029 square foot recently developed retail property located in St. Albert, Alberta, a suburb northwest of Edmonton. The property, which is anchored by Shoppers Drug Mart, was acquired for $17.4 million at a cap rate of 7.5%.

  • Summerwood Centre: Summerwood Centre is an 83,911 square foot grocery and drugstore anchored retail property located in Sherwood Park, Alberta, a suburb east of Edmonton that was newly developed in 2009. The property which is anchored by Save-On-Foods and Shoppers Drug Mart was acquired for $29.5 million at a cap rate of 7.5%.

  • Timberlea Landing: Timberlea Landing is a 105,467 square foot mixed use property containing office and retail uses as well as 34 residential units located in Fort McMurray, Alberta. The retail and office components of the property are 100% leased and include tenants such as The Regional Municipality of Wood Buffalo, TD Bank and Bank of Nova Scotia. The property was acquired for $63.1 million at a cap rate of 8.2%.

  • Chapman Mills Marketplace: RioCan purchased an additional 12.5% interest in Chapman Mills Marketplace. The property is a 432,000 square foot shopping centre located in Ottawa, Ontario. The property is anchored by a 130,000 square foot Walmart, a 26,905 square foot Galaxy Cinemas, a 26,240 square foot Winners, and a 25,890 square foot Staples. The centre is shadow anchored by Loblaws and includes other national tenants such as Chapters, Sport Chek, and the Liquor Control Board of Ontario. RioCan's additional 12.5% interest was acquired for $11.9 million at a cap rate of 6.8%.

US Investment

During the fourth quarter of 2009 RioCan formed a joint venture with Cedar for the acquisition of seven grocery anchored shopping centres in the United States (specifically Massachusetts, Pennsylvania, and Connecticut) to be owned 80% by RioCan and 20% by Cedar. RioCan has completed the acquisition of six of the seven properties.

In February 2010, RioCan acquired an additional 1.35 million common shares as part of a public offering by Cedar at US$6.60 per common share. RioCan's participation in the offering maintained RioCan's ownership in Cedar at approximately 14% of Cedar on a fully diluted basis. On April 27, 2010, RioCan through RioCan Holdings USA, Inc. exercised all 1.4 million warrants to purchase Cedar common shares at US$7.00 per share. In total, RioCan owns 9.4 million shares at an average purchase price of US$6.24 per share. As at April 28, 2010 Cedar's common shares closed at US$7.88 per share.

During the first quarter of 2010 RioCan purchased an 80% interest in the following properties:

  • Franklin Village Plaza: Franklin Village Plaza is a 306,211 square foot grocery-anchored shopping centre located in Franklin, MA, anchored by a 75,000 square foot Stop & Shop (lease expiry 2026). Other major tenants include, Marshalls, Bath & Body Works and Bank of America. The property was acquired at a purchase price of $46 million at a cap rate of 8.5%.

  • Town Square Plaza: Town Square Plaza is a 127,636 square foot recently developed grocery-anchored shopping centre in Reading, PA anchored by a 73,327 square foot Giant Foods Supermarket (lease expiry 2028) and is shadow anchored by a Target. The property was acquired at a purchase price of $16.1 million at a cap rate of 8.3%.

  • Columbus Crossing Shopping Center: Columbus Crossing Shopping Center is a 142,167 square foot grocery-anchored shopping centre located in Philadelphia, PA, anchored by a 61,506 square foot Super Fresh (lease expiry 2020). The property was acquired at a purchase price of $20.6 million at a cap rate of 8.5%.

Subsequent to quarter end RioCan completed the acquisition of an 80 % interest in two of the remaining three properties which were part of the Initial Portfolio.

  • Stop & Shop Plaza: Stop & Shop Plaza is a free standing 54,511 square foot single tenant Stop & Shop supermarket (lease expiry 2026) located in Bridgeport, CT. The property was acquired at a purchase price of $7.2 million at a cap rate of 8.5%.

  • Shaw's Plaza: Shaw's Plaza is a 176,610 square foot grocery-anchored shopping centre located in Raynham, MA, and is anchored by a 60,748 square foot Shaw's Supermarkets (lease expiry 2023). Other major tenants include Marshalls (NYSE:TJX), and CVS. The property was acquired at a purchase price of $16.3 million at a cap rate of 8.5%.

The remaining property, Loyal Plaza is expected to be acquired later in the second quarter. Loyal Plaza is a 293,825 square foot grocery-anchored shopping centre located in Williamsport, PA, anchored by 66,935 square foot Giant Foods (lease expiry 2019). Other major tenants include K-Mart, Staples, and Eckerd's Drugs. The property will be acquired at a purchase price of $21.7 million at a cap rate of 8.5%.

Liquidity and Capital

In selecting appropriate funding choices, RioCan's objective is to manage its capital structure in such a way as to diversify its funding sources while minimizing its funding costs and risks. RioCan had cash on hand of approximately $106 million at March 31, 2010.

As at March 31, 2010, RioCan's indebtedness was 56.8% of Aggregate Assets (56.2% net of cash), such that it could incur additional indebtedness of approximately $542 million and still not exceed the 60% leverage limit set out in RioCan's Declaration of Trust. As a matter of policy, RioCan would not likely incur indebtedness significantly beyond 58% of Aggregate Assets.

Lines of Credit

Subsequent to the quarter end RioCan has renegotiated its lines of credit with two banks increasing the maximum that can be borrowed to $303 million. These lines have fixed terms of 3 years and are non callable. The renegotiated facilities give RioCan added flexibility in managing its cash balances. Going forward, RioCan intends to reduce the dilution on the income statement of holding large amounts of cash by using its lines to access cash needed on a short term basis. Currently, RioCan has $257 million available to be drawn on its facilities.

Mortgage Financing

During the first quarter of 2010, RioCan obtained approximately $250 million of mortgage financing at an average interest rate of approximately 5.0% and an average term of 4.9 years. With the financings completed in the first quarter and cash on hand, RioCan has sufficient capital to retire all remaining mortgages that mature in the balance of 2010. RioCan has the continued flexibility to generate additional funds in 2010 through financing of certain assets currently unencumbered by debt and by financing maturing loan balances. As at March 31, 2010 RioCan had 62 properties that are unencumbered with a book value of $605 million.

RioCan's Consolidated Financial Statements, Management's Discussion and Analysis and a Supplemental Information Package for the quarter ended March 31, 2010 are available on RioCan's website at www.riocan.com.

Conference Call and Webcast

Interested parties are invited to participate in a conference call with management on Friday, April 30, 2010 at 10:00 a.m. eastern time. You will be required to identify yourself and the organization on whose behalf you are participating.

In order to participate, please dial 416-695-6622 or 1-800-769-8320. If you cannot participate in the live mode, a replay will be available until May 14, 2010. To access the replay, please dial 416-695-5800 or 1-800-408-3053 and enter passcode 7145427#.

Scheduled speakers include Edward Sonshine, Q.C., President and Chief Executive Officer, Fred Waks, Executive Vice President and Chief Operating Officer and Rags Davloor, Senior Vice President and Chief Financial Officer. Management's presentation will be followed by a question and answer period. To ask a question, press "star 1" on a touch-tone phone. The conference call operator will be notified of all requests in the order in which they are made and will introduce each questioner.

Alternatively, to access the simultaneous webcast, go to the following link on RioCan's website https://riocan.com/_bin/presentations/webcast.cfm and click on the link for the webcast. The webcast will be archived 24 hours after the end of the conference call and can be accessed for 120 days.

About RioCan

RioCan is Canada's largest real estate investment trust with a total capitalization of approximately $8.4 billion as at March 31, 2010. It owns and manages Canada's largest portfolio of shopping centres with ownership interests in a portfolio of 261 retail properties, including 12 under development, containing an aggregate of over 60 million square feet. RioCan owns an 80% interest in seven grocery anchored shopping centres in the United States and owns a 14% equity interest in Cedar Shopping Centers, Inc., a real estate investment trust focused on supermarket-anchored shopping centres and drug store-anchored convenience centres located predominantly in the Northeastern United States. For further information, please refer to RioCan's website at www.riocan.com.

Non-GAAP Measures

As noted in RioCan's MD&A under "Use of Non-GAAP Measures" RioCan's financial statements are prepared in accordance with GAAP however certain measures, including FFO discussed in this News Release, do not have a standardized definition prescribed by GAAP and are, therefore, unlikely to be comparable to similar measures presented by other reporting issuers. RioCan uses these measures to better assess the Trust's underlying performance and provides these additional measures so that investors may do the same.

Forward-Looking Information

This news release contains forward-looking statements within the meaning of applicable securities laws. These statements include, but are not limited to, statements made in this News Release (including the sections entitled "Development Activity", "US Investment & Acquisition Pipeline" and "Liquidity and Capital"), and other statements concerning RioCan's objectives, its strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "would", "expect", "intend", "estimate", "anticipate", "believe", "should", "plan", "continue", or similar expressions suggesting future outcomes or events. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management. All forward-looking statements in this News Release are qualified by these cautionary statements.

These statements are not guarantees of future events or performance and, by their nature, are based on RioCan's estimates and assumptions, which are subject to risks and uncertainties, including those described under "Risks and Uncertainties" in the MD&A complemented by those contained in RioCan's current Annual Information Form, which could cause actual events or results to differ materially from the forward-looking statements contained in this News Release. Those risks and uncertainties include, but are not limited to, those related to: liquidity in the global marketplace associated with current economic conditions, tenant concentrations, occupancy levels, access to debt and equity capital, interest rates, joint ventures/partnerships, the relative illiquidity of real property, unexpected costs or liabilities related to acquisitions, construction, environmental matters, legal matters, reliance on key personnel, unitholder liability, and income taxes, the conditions to the transactions not being satisfied resulting in the failure to complete some or all of the proposed transactions described herein, the trading price of the securities of Cedar, lack of availability of acquisition opportunities for the joint venture and exposure to economic, real estate and capital market conditions in the United States and US currency. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information may include: a less robust retail environment than has been seen for the last several years; relatively stable interest costs; an increase in acquisition capitalization rates; a decrease in land costs for Greenfield Development; a continuing trend towards land use intensification in high growth markets; and more limited but available access to equity and debt capital markets to fund, at acceptable costs, the future growth program and to enable the Trust to refinance debts as they mature and the availability of purchase opportunities for the joint venture with Cedar. Although the forward-looking information contained in this News Release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Certain statements included in this News Release may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this News Release.

Contact Information

  • RioCan Real Estate Investment Trust
    Rags Davloor
    Senior Vice President & CFO
    (416) 642-3554
    www.riocan.com