RioCan Real Estate Investment Trust
TSX : REI.UN

RioCan Real Estate Investment Trust

October 26, 2009 18:25 ET

RioCan Real Estate Investment Trust Announces Results for Third Quarter Ended September 30, 2009

TORONTO, ONTARIO--(Marketwire - Oct. 26, 2009) - RioCan Real Estate Investment Trust ("RioCan")(TSX:REI.UN) today announced its financial results for the three and nine months ended September 30, 2009.

HIGHLIGHTS FOR Q3 2009:

  • RioCan has announced the execution of definitive agreements with Cedar Shopping Centers, Inc. ("Cedar"), a self managed U.S. based REIT, to purchase an 80% interest in seven grocery anchored shopping centres for a total consideration of $141 million aggregating approximately 1.1 million square feet (at 100%);
  • RioCan will acquire 6.7 million shares of common stock at $6.00 per share representing a 12% equity investment in Cedar.
  • Entered into purchase agreements for eight properties in Canada aggregating approximately 1.4 million square feet at a purchase price of over $400 million;
  • Acquired partners' interests in RioCan Centre Vaughan and RioCan Beacon Hill for a total of $38 million;
  • Arranged secured mortgage financing during the quarter of approximately $92 million generating net proceeds of $48 million;
  • Repaid from cash reserves, $79.7 million Series D unsecured debentures;
  • Same property net operating income ("NOI") growth of 0.2% for the first nine months of 2009 versus 2008;
  • Maintained strong occupancy at 97.3%;
  • Leverage for the Trust decreased to 55.7% of aggregate assets from 55.8% at June 30, 2009; and
  • RioCan had cash on hand of approximately $214 million at quarter end.

"Overall RioCan's performance operationally in the third quarter has been strong. Our portfolio has performed well again in the third quarter with strong occupancy and NOI growth," said Edward Sonshine, Q.C., President and Chief Executive Officer of RioCan. "We are excited by our recently announced US investment and a growing Canadian acquisition pipeline that will begin to eliminate the drag that RioCan's large cash position has had in recent quarters. Looking forward, we are eager to see the positive impact that these acquisitions should have in the coming year, as well as continuing to source accretive acquisition opportunities in Canada and the United States."

Financial Highlights

RioCan reported net earnings for the three months ended September 30, 2009 of $28.4 million ($0.12 per unit) compared to $40.9 million ($0.19 per unit) for the same period in 2008. Net earnings for the nine months ended September 30, 2009 were $86.3 million ($0.38 per unit) compared to $115.9 million ($0.53 per unit) for the same period in 2008.

Funds from operations ("FFO") for the quarter ended September 30, 2009 was $71.6 million ($0.30 per unit) and was $210.1 million ($0.92 per unit) year-to-date compared to $81.2 million ($0.37 per unit) and $236.4 million ($1.09 per unit) for the same periods in 2008 respectively. The primary difference between net earnings and FFO are depreciation and future income taxes. The costs of holding a large cash balance negatively impacted RioCan's results in the third quarter. The $9.6 million decrease in FFO for the third quarter is primarily due to the increased interest expense of $8.3 million ($49.6 million in the third quarter of 2009 versus $41.3 million in 2008), lower gains on properties held for resale in the third quarter of 2009 of $1.3 million ($0.2 million in the third quarter of 2009 versus $1.5 million in 2008), and decreased fee and other income by $3.0 million in the third quarter ($3.9 million in the third quarter of 2009 versus $7.0 million in 2008). The decrease in FFO was partially offset by increased net operating income from rental properties of $2.0 million, which is primarily due to acquisitions completion of Greenfield Developments and intensification of existing properties.

Year-to-date gains on properties held for resale decreased $20.4 million versus the first nine months of 2008. Interest on the cash raised in April continues to negatively impact FFO due to the negative carry on the large cash balances as a result of cash raised in debt refinancing, the debenture offering, and the Unit offering that has not yet been deployed. Interest expense increased $17.5 million for the first nine months and was partially offset by increased net operating income from rental properties of $13.4 million, which is primarily due to acquisitions completion of Greenfield Developments, and intensification of existing properties and slightly increased interest income of $1.0 million in the third quarter and $0.8 million year-to-date.

Net operating income from rental properties increased by $2.0 million versus the same quarter of 2008, which was primarily due to acquisitions, completion of Greenfield Developments, and intensification of existing properties. Rental revenues increased $26.8 million for the first nine months of 2009 versus 2008 and increased $6.8 million in the third quarter versus 2008. Same property NOI decreased by 0.6% on a year over year basis for the third quarter and increased 0.2% for the nine months ended September 30, 2009. Furthermore, same property growth increased 1.0% quarter over quarter. Same store growth in the third quarter decreased 1.5% year over year and decreased 0.5% for the first nine months of 2009 versus 2008. On a quarter over quarter basis same store NOI grew by 0.5%.

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 $214 million at quarter end.

As at September 30, 2009, RioCan's indebtedness was 55.7% of Aggregate Assets, such that it could incur additional indebtedness of approximately $684 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 $349 million.

Mortgage Financing
Year to date RioCan has been successful in refinancing all maturing mortgages. During the third quarter of 2009 RioCan has obtained approximately $91.9 million of mortgage financing at an average interest rate of 5.2% and $390.5 million of mortgage financing for the first nine months at a weighted average interest rate of 5.2%. Through financing of certain assets currently unencumbered by debt and financing maturing loan balances, RioCan expects to generate additional capital in the fourth quarter of 2009.

Debentures
RioCan redeemed $79.7 million of the Series D debentures which matured on September 21, 2009.

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 totalling $203.5 million with one Canadian chartered bank) against which $63.9 million has been drawn as letters of credit. At September 30, 2009 RioCan had $200.6 million available for cash draws under the lines of credit.

Portfolio Stability

As at September 30, 2009:

  • The portfolio economic occupancy rate represents space that has been leased to tenants that are open for business and paying rent. As at September 30, 2009, the portfolio economic occupancy rate was 95.9%. There is approximately 483,000 square feet of space that has been leased to tenants that have not yet occupied their space and are not paying rent. The annualized rental impact once these tenants take occupancy and commence paying rent is approximately $11 million.
  • The portfolio committed occupancy rate as at September 30, 2009 was 97.3% compared to 96.9% as at December 31, 2008 and 97.0% as at September 30, 2008. Unanticipated vacancies of approximately 913,000 square feet have occurred year-to-date of which RioCan's interest is 665,000 square feet; however RioCan has been successful in leasing approximately 62% of the vacated space. RioCan has also been successful in leasing all of the vacated Linens 'N Things locations. Historically, the lag time for income replacement of space after it has been unexpectedly vacated is approximately 6 months;
  • For the three months ended September 30, 2009, RioCan retained approximately 94.1% of the expiring leases compared to the third quarter of 2008, which had a renewal retention rate of 93.9%. For the nine months ended September 30, 2009, RioCan retained approximately 92.9% of the expiring leases compared to the same period in 2008, which had a retention rate of 84.1%;
  • Approximately 523,000 square feet were renewed during the third quarter of 2009 at an average rent increase of approximately 8.8% or $1.43 per square foot (including anchor tenants) and approximately 10.2% or $1.81 per square foot (excluding fixed rent options). For the nine months ended September 30, 2009, approximately 2.0 million square feet were renewed at an average rent increase of approximately 6.6% or $0.98 per square foot (including anchor tenants);
  • Same property NOI decreased by 0.6% on a year over year basis for the third quarter and increased by 0.2% for the nine months ended September 30, 2009. Tenant bankruptcies resulted in RioCan recording approximately $0.6 million in provisions for bad debts in the third quarter and $2.0 million for the nine months ended September 30, 2009;
  • Properties located in Canada's six high growth markets (including and surrounding Calgary, Edmonton, Montreal, Ottawa, Toronto and Vancouver) account for 66.4% of annualized rental revenue;
  • National and anchors tenants represent 84.2% of annualized rental revenue at September 30, 2009, compared to 83.4% at December 31, 2008;
  • Approximately 61.3% of annualized rental revenue was derived from its 50 largest tenants; and
  • No individual tenant comprised more than 5.1% of annualized rental revenue.

Portfolio Activity and Acquisition Pipeline

The acquisitions market remains extremely competitive with few opportunities. There have not been many distressed sellers in the market and as a result there remains a considerable gap between buyer's and seller's expectations. Despite this difficult environment RioCan completed two acquisitions during the third quarter. RioCan purchased its partners' interests in two properties; RioCan Centre Vaughan in the GTA and RioCan Beacon Hill in Calgary, Alberta.

Currently, RioCan has various acquisitions under contract. The aggregate purchase will be more than $400 million, and if acquired would add approximately 1.4 million square feet. Seven of the eight centres are located in Western Canada and include major markets such as Calgary, the Greater Vancouver Area and suburban Edmonton. The eighth property is located in the Greater Toronto Area. The acquisitions under consideration are in various stages of due diligence and while RioCan will aim to complete these transactions and there can be no assurance that these transactions will close.

Subsequent Portfolio Activity

US Investment
Earlier today RioCan announced that it will form a joint venture with Cedar Shopping Centers, Inc. for the acquisition of seven grocery anchored shopping centers in the United States (specifically Massachusetts, Pennsylvania, and Connecticut) to be owned 80% by RioCan and 20% by Cedar. In addition RioCan expects to acquire on a fully diluted basis 15% of Cedar Shopping Centers, with the acquisition of 6.7 million shares and 1.4 million warrants.

RioCan will acquire from Cedar an 80% interest in a portfolio of seven grocery anchored shopping centers ("the Portfolio") that comprises approximately 1.1 million square feet (at 100%) for a total purchase price of US$141 million (US$176 million at 100%) and will assume US$75 million of property level debt (US$94 million at 100%).

In addition, RioCan will purchase 6,666,666 shares of Cedar's common stock at a price of US$6.00 per share and 1,428,570 common stock share purchase warrants that have an exercise price of US$7.00 per share and will be exercisable any time up to 2 years following the closing of the Equity Investment. RioCan expects to close on the equity investment in Cedar as soon as New York Stock Exchange approval of the issuance has been received.

For additional details please see RioCan's Press Release titled, "RIOCAN REAL ESTATE INVESTMENT TRUST ANNOUNCES AGREEMENT WITH CEDAR SHOPPING CENTERS, INC. FOR AN EQUITY INVESTMENT AND REAL ESTATE JOINT VENTURE IN THE NORTHEAST UNITED STATES." The Press Release is available on RioCan's website at www.riocan.com.

Development Activity

During the three months ended September 30, 2009, RioCan completed 231,000 square feet (three months ended September 30, 2008 90,000 square feet) of redevelopment and development activities of which approximately 14,000 square feet pertains to additional net leasable area added at existing properties.

During the nine months ended September 30, 2009, RioCan completed 903,000 square feet (nine months ended September 30, 2008 399,000 square feet) of redevelopment and development activities of which approximately 220,000 square feet pertains to additional net leasable area added at existing properties.

As at September 30, 2009, RioCan had ownership interests in 13 Greenfield Development projects that will, upon completion, comprise approximately 8.6 million square feet, of which RioCan's ownership interest will be approximately 3.0 million square feet. 

RioCan's Unaudited Interim Consolidated Financial Statements, Management's Discussion and Analysis and a Supplemental Information Package as at and for the three and nine months ended September 30, 2009 and 2008 and the Audited Consolidated Financial Statements, Management's Discussion and Analysis and Supplemental Information Package for the year ended December 31, 2008 and 2007 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, October 27, 2009 at 11:00 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 416-340-8018 or 1-866-223-7781. If you cannot participate in the live mode, a replay will be available until November 10, 2009. To access the replay, please dial 416-695-5800 or 1-800-408-3053 and enter passcode 4651756#.

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 $7.8 billion as at September 30, 2009. It owns and manages Canada's largest portfolio of shopping centres with ownership interests in a portfolio of 247 retail properties, including 13 under development, containing an aggregate of over 59 million square feet. 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 "Vision and Business Strategy", "Asset Profile", "Capital Structure", "Outlook", 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 Press 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