RioCan Real Estate Investment Trust
TSX : REI.UN

RioCan Real Estate Investment Trust

February 09, 2010 01:29 ET

RioCan Real Estate Investment Trust Announces Results for Fourth Quarter and Year Ended December 31, 2009

TORONTO, ONTARIO--(Marketwire - Feb. 9, 2010) - 

HIGHLIGHTS FOR 2009:

  • Acquired 20 properties in Canada and the US aggregating approximately 1.8 million square feet at a purchase price of over $348 million at a weighted average cap rate of approximately 7.7%;
  • RioCan completed the acquisition of four properties in the US, three of which were part of RioCan's previously announced formation of a joint venture platform with Cedar Shopping Centers, Inc. ("Cedar"), a self managed U.S. based REIT, to purchase seven grocery anchored shopping centres in the Northeastern US;
  • RioCan has acquired a 14% equity investment in Cedar.
  • Obtained approximately $871 million in new financings, which generated net proceeds to RioCan of approximately $409 million;
  • Completed two debenture offerings that totaled approximately $330 million;
  • Completed two public offerings of a total of approximately 16.4 million units for total gross proceeds of approximately $261 million;
  • Maintained strong occupancy at 97.4%; and
  • RioCan had cash on hand of approximately $147 million at year end, with a year end debt to gross book value ratio of 55.6%.

RioCan Real Estate Investment Trust ("RioCan") (TSX:REI.UN) today announced its financial results for the fourth quarter and year ended December 31, 2009.

"We are pleased to report that RioCan has been able to set in place a strong platform for future growth in order to take advantage of opportunities as the economy continues to recover," said Edward Sonshine, Q.C., President & CEO. "RioCan persevered during a very difficult year, which brought challenges to the economy and to the capital markets. During this time, RioCan maintained a steadfast guardianship of our balance sheet by raising capital as the markets became less hostile. Our conservative approach in 2009 resulted in a short-term drag on our profitability, but has enabled RioCan to take advantage of acquisition opportunities in the fourth quarter and set the stage for material growth in FFO going forward."

Financial Highlights

RioCan reported net earnings for the three months ended December 31, 2009 of approximately $28 million ($0.11 per unit) compared to approximately $29 million ($0.14 per unit) for the same period in 2008. Net earnings for the year ended December 31, 2009 were approximately $114 million ($0.49 per unit) compared to approximately $145 million ($0.67 per unit) for 2008. The primary factors attributing to this decline were approximately a $35 million decline in gains from properties held for resale, a $25 million increase in interest expense and a $10 million increase in amortization expense, which were partially offset by the absence of impairment charges in 2009, which totaled $24 million in 2008.

Funds from operations ("FFO") for the quarter ended December 31, 2009 was approximately $66 million ($0.28 per unit) compared to approximately $87 million ($0.39 per unit) in the fourth quarter of 2008. The primary differences between net earnings and FFO are amortization, future income taxes, and impairment of real estate investments. The primary factors attributing to this decline were an approximate $7 million increase in interest expense in the fourth quarter of 2009 and lower gains on properties held for resale during the quarter, which declined approximately $15 million in the fourth quarter of 2009. These factors, which negatively impacted FFO in the quarter, were partially offset by increased fee and other income of approximately $1 million in the fourth quarter of 2009. The costs of holding a large cash balance negatively impacted RioCan's results again in the fourth quarter. These results only partially reflect the $257 million of fourth quarter acquisitions which were acquired at a weighted average cap rate of 7.5%, and do not reflect the subsequent $184 million of acquisitions that were completed after year end, which were acquired at a weighted average cap rate of 8.0%.

FFO for the year ended December 31, 2009 was approximately $276 million ($1.20 per unit) compared to approximately $324 million ($1.48 per unit) for 2008. For the year ended December 31, 2009, gains on properties held for resale decreased approximately $36 million versus 2008. Interest expense increased approximately $25 million in 2009, but was partially offset by increased interest income of approximately $1.7 million in 2009. Acquisitions, completion of Greenfield Developments, and intensification of existing properties contributed to an increase of approximately $13 million in net operating income in 2009 which helped offset the declines in FFO. Interest expense in 2009 negatively impacted FFO due to the negative carry on the large cash balances RioCan had on its balance sheet for much of the year. These results only partially reflect the $257 million of fourth quarter acquisitions which were acquired at a weighted average cap rate of 7.5%, and do not reflect the subsequent $184 million of acquisitions that were completed after year end, which were acquired at a weighted average cap rate of 8.0%.

Rental revenues increased approximately $30 million to approximately $726 million in 2009 versus 2008. Same property net operating income ("NOI") for the year ended December 31, 2009 decreased by 0.3%, and decreased 2.2% for the fourth quarter versus the fourth quarter of 2008. Same property NOI decreased 0.7% quarter over quarter. Same store NOI decreased 1.2% year over year and decreased 3.4% for the fourth quarter of 2009 versus the fourth quarter of 2008. Same property and same store NOI declines were caused largely by an increase in bad debt expenses and vacancies. Same store income was negatively impacted by increased bad debt expenses of $3.0 million and vacancies which impacted same store NOI by $3.6 million. Partially offsetting these largely one time occurrences was additional NOI of $3.7 million generated by new and renewal leasing activities, as well as contractual rent steps.

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 $147 million at year end. During 2009 RioCan raised approximately $1.1 billion of capital through a combination of equity, mortgage financing, and debenture offerings.

As at December 31, 2009, RioCan's indebtedness was 55.6% of Aggregate Assets, such that it could incur additional indebtedness of approximately $728 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, which would permit it to incur additional indebtedness of approximately $379 million.

Unit Offerings
During 2009, RioCan completed two public offerings of approximately 16.4 million units, in total, for total gross proceeds of approximately $261 million. In the first unit offering, completed on June 10, 2009, RioCan issued 10,345,000 units for $14.50 per unit for total gross proceeds of approximately $150 million. In the second unit offering, completed on December 1, 2009, RioCan issued 6,050,000 units for $18.35 per unit for total gross proceeds of approximately $111 million.

Mortgage Financing
During the fourth quarter of 2009, RioCan obtained approximately $150 million of mortgage financing at an average interest rate of approximately 5.6% and approximately $541 million of mortgage financing for the year at a weighted average interest rate of 5.3%. Through financing of certain assets currently unencumbered by debt and financing maturing loan balances, RioCan has the continued flexibility to generate additional funds in 2010.

Debentures
In April 2009, RioCan raised $180 million with the issuance of Series L debentures and in November 2009, RioCan raised $150 million with the issuance of Series M debentures. RioCan redeemed Series D debentures of approximately $84.3 million, which matured on September 21, 2009 and has redeemed the outstanding approximately $44.6 million under the Series J debentures which were scheduled to mature on March 24, 2010. As part of the early extinguishment of the Series J debentures, RioCan paid a redemption premium of $578,000, which is reflected in interest expense.

Lines of Credit
RioCan has three revolving lines of credit in place with two Canadian chartered banks, having an aggregate capacity of $293.5 million (December 31, 2008 – two revolving lines of credit totaling $203.5 million with one Canadian chartered bank) against which approximately $55 million has been drawn as letters of credit. Subsequent to year end, the aggregate capacity of these three facilities has been reduced by RioCan to $223.5 million leaving $168 million available for cash draws under the lines of credit.

Portfolio Stability

As at December 31, 2009:

  • The portfolio economic occupancy rate represents space that has been leased to tenants that are open for business and paying rent. The portfolio economic occupancy rate was approximately 96.4%. There is approximately 323,000 square feet of space that has been leased to tenants that have not yet occupied their space and are not yet paying rent. The annualized rental impact once these tenants take occupancy and commence paying rent is approximately $7.8 million.
  • The portfolio committed occupancy rate was approximately 97.4% compared to 96.9% as at December 31, 2008. Unanticipated vacancies of approximately 945,000 square feet have occurred year-to-date of which RioCan's interest is 692,000 square feet; however RioCan has been successful in leasing approximately 72% of the vacated space. Historically, the lag time for income replacement of space after it has been unexpectedly vacated is approximately 6 months;
  • In the fourth quarter, RioCan retained approximately 90% of the expiring leases compared to the fourth quarter of 2008, which had a renewal retention rate of 93%. For the year ended, RioCan retained approximately 92% of the expiring leases compared to 2008, which had a retention rate of 86%;
  • Approximately 672,000 square feet were renewed during the fourth quarter of 2009 at an average rent increase of approximately 9% or $1.23 per square foot (including anchor tenants) and approximately 11% or $1.79 per square foot (excluding fixed rent options). For the year ended 2009, approximately 2.7 million square feet were renewed at an average rent increase of approximately 7% or $1.04 per square foot (including anchor tenants);
  • RioCan recorded approximately $1.0 million in provisions for bad debts in the fourth quarter and approximately $3.0 million for 2009;
  • RioCan's Canadian portfolio is concentrated in Canada's six high growth markets (including and surrounding Calgary, Edmonton, Montreal, Ottawa, Toronto and Vancouver), which accounts for approximately 66.3% of annualized rental revenue;
  • National and anchors tenants represented approximately 85% of annualized rental revenue at December 31, 2009, compared to approximately 83% at December 31, 2008;
  • 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 Activity and Acquisition Pipeline

For much of 2009, the acquisitions market was difficult with few opportunities. The market for acquisitions remains limited and there have not been many distressed sellers in the market. Despite this difficult environment RioCan completed 10 acquisitions during the fourth quarter and 18 acquisitions in 2009 in Canada. During 2009, RioCan has completed acquisitions totaling approximately $348 million of properties which represent an additional 1.8 million square feet.

Acquisitions completed in Canada during 2009 included the following:

  • a portfolio of six grocery anchored properties located in the greater Montreal area totaling approximately 333,000 square feet (at RioCan's interest) from ING Real Estate Canada LP, which was completed in March 2009;
  • the acquisition of the interests of its partners Strathallen Capital Corp. and Trinity Development Group in the first phase of RioCan Centre Vaughan. In addition, RioCan has purchased Trinity's interest at RioCan Beacon Hill in Calgary, Alberta, which was completed in September 2009;
  • in November 2009, RioCan completed the acquisition of an additional 15% interest in Frontenac Mall, located in Kingston ON from RioCan Retail Value Limited Partnership;
  •  in December 2009, RioCan acquired a 30% interest in Garden City Shopping Centre, located in Winnipeg, MB. Garden City Shopping Centre is a 302,400 square foot enclosed shopping centre that is anchored by a 94,267 square foot Canadian Tire and 26,838 square foot Winners; and
  • in December 2009, the acquisition of a portfolio four retail properties totaling approximately 1.2 million square feet, approximately 735,000 square feet at RioCan's interest. Three of the four properties are anchored by Walmart, which represents 54% of the occupied space by gross leasable area and generates 34% of the gross rental revenue. The fourth property will be anchored by Lowe's.

Subsequent to year end RioCan has completed four acquisitions in Canada with a total purchase price of approximately $122 million comprised of approximately 281,000 square feet. RioCan has no other potential acquisitions under contract, as it has decided not to pursue two of the assets previously under contract, which were included in the Acquisition Pipeline in the announcement issued on November 18, 2009.

US Investment & Acquisition Pipeline

During the fourth quarter 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. In addition, RioCan acquired 6.7 million common shares and 1.4 million warrants (approximately 14% of Cedar on a fully diluted basis). In February 2010, RioCan purchased an additional 1.25 million shares in conjunction with an equity offering of common shares issued by Cedar.

RioCan completed the acquisition of the first two grocery anchored shopping centers in December 2009, and in February 2010 completed the acquisition of the third of seven properties. The remaining four properties are expected to close in the first quarter of 2010, subject to receiving lender approvals. The portfolio of seven grocery anchored centers comprise approximately 1.1 million square feet (at 100%) and will be acquired for a total purchase price of approximately US$141 million (US$176 million at 100%). In conjunction with the purchase, RioCan will assume approximately US$75 million of property level debt (US$94 million at 100%).

Since the initial acquisition announcement RioCan has also completed its first purchase of an asset from a third party on a joint venture basis with Cedar. The property, Town Square Plaza, was purchased for approximately $20 million, $16 million at RioCan's interest. Town Square Plaza is a 127,636 square foot grocery anchored shopping centre anchored by a 73,327 square foot Giant Foods supermarket (lease expiry 2028) and is shadow anchored by a Target.

Development Activity

During the three months ended December 31, 2009, RioCan completed 39,000 square feet (three months ended December 31, 2008 63,000 square feet) of redevelopment and development activities of which approximately 13,000 square feet pertains to additional net leasable area added at existing properties.

For the year ended December 31, 2009, RioCan completed 929,000 square feet (2008 462,000 square feet) of redevelopment and development activities of which approximately 233,000 square feet pertains to additional net leasable area added at existing properties.

As at December 31, 2009, 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. 

RioCan's Audited Consolidated Financial Statements, Management's Discussion and Analysis and a Supplemental Information Package for the year ended December 31, 2009 and 2008 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 Tuesday, February 9, 2010 at 4:00 p.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 416-340-8018 or 1-866-223-7781. If you cannot participate in the live mode, a replay will be available until February 23, 2010. To access the replay, please dial 416-695-5800 or 1-800-408-3053 and enter passcode 8101643#.

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 $8.5 billion as at December 31, 2009. It owns and manages Canada's largest portfolio of shopping centres with ownership interests in a portfolio of 258 retail properties, including 12 under development, containing an aggregate of over 60 million square feet. RioCan has also agreed to acquire an 80% interest in seven grocery anchored shopping centres in the United States and owns approximately 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.

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, 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, 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. 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