RioCan Real Estate Investment Trust
TSX : REI.UN

RioCan Real Estate Investment Trust

May 19, 2011 07:16 ET

RioCan Real Estate Investment Trust Announces 15% Increase in Operating FFO for First Quarter Ended March 31, 2011

TORONTO, ONTARIO--(Marketwire - May 19, 2011) -

HIGHLIGHTS for Q1 2011:

All figures in Canadian dollars unless otherwise noted. RioCan's results are in accordance with International Financial Reporting Standards ("IFRS").

  • RioCan's Operating FFO increased by 15% for the quarter ended March 31, 2011 to $90 million compared to $78 million for the same period in 2010. On a per unit basis, Operating FFO increased 9% to $0.35 per unit from $0.32 per unit for the same period in 2010;

  • Standard & Poor's Ratings Service confirmed RioCan's corporate credit rating of BBB and revised its Outlook to Stable from Negative;

  • Steady occupancy at March 31, 2011 of 97.4% compared to year-end 2010 and up from 97.0% March 31, 2010;

  • Acquired interests in 9 properties in Canada at an aggregate purchase price of approximately $87 million at a weighted average cap rate of 6.6% during the quarter and subsequent to the quarter end purchased 3 properties (2 Canada, one US) at an aggregate purchase price of approximately $64 million at a weighted average cap rate of 7.0%, with an additional $153 million of assets under contract;

  • Completed a $225 million debenture offering at 4.5% and redeemed all $200 million of the outstanding Series F debentures (bearing interest at 4.9%) due March 8, 2011, on January 20, 2011. As well, RioCan redeemed all $180 million of the outstanding Series L debentures (bearing interest at 8.3%) due April 3, 2014 on February 24, 2011;

  • RioCan issued equity in the form of 5 million Cumulative Rate Reset Preferred Trust Units for gross proceeds of $125 million at a distribution yield of 5.25%. RioCan was the first REIT in Canada to issue preferred units; and

  • RioCan announced that it has signed a letter of intent to form an exclusive joint venture agreement with Tanger Outlet Centers, Inc. ("Tanger") to develop U.S. style outlet centres in Canada and announced the location for its first development project with Tanger.

RioCan Real Estate Investment Trust (TSX:REI.UN) ("RioCan" or the "Trust") today announced its financial results in accordance with IFRS for the first quarter ended March 31, 2011.

"RioCan's operational strength continues to be exhibited by the performance of our portfolio," said Edward Sonshine, President & CEO. "The transformational changes that RioCan undertook last year, including changes to the legal framework, accounting standards, and the size of our portfolio have set in place the basis for sustained growth over the next several years."

Financial Highlights

RioCan's Operating FFO represents the recurring cash flow generated through the ownership and management of income properties. This will be the basis for determining RioCan's AFFO. Operating FFO excludes transactional gains as well as the expenditures related to development activities that are no longer capitalized under IFRS. The primary difference between net earnings and FFO is the fair value gain on investment properties.

In the First Quarter, Operating FFO increased to $0.35 per unit in the First Quarter from $0.32 per unit for the same period in 2010. The primary reasons for this increase were: a $17 million increase in net operating income ("NOI"), which was due to acquisitions, same store growth of 0.6%, the completion of developments, partially offset by lower lease cancellation fees of $1.5 million. These increases were also partially offset by a $4 million increase in interest expense during the First Quarter. During the quarter, RioCan incurred $27 million in prepayment penalties related to the early extinguishment of the Series L debentures and the Series F debentures that carried an interest rate of 8.3% and 4.9%, respectively. As a result of this early extinguishment RioCan expects to recognize substantial interest savings going forward.

RioCan reported net earnings for the First Quarter of $347 million ($1.33 per unit) compared to $60 million ($0.25 per unit) for the same period in 2010, representing an increase of 478% (432% on a per unit basis). The positive growth in Net Earnings is largely attributable to a fair value gain on real estate assets of $283 million as a result of IFRS valuation changes.

Same store and same property NOI during the First Quarter increased by 0.6% when compared to the same period in 2010. Same property and same store NOI gains were due largely to new and renewal leasing and fixed rent steps that positively impacted NOI by $2.6 million. Lower bad debt expenses positively impacted NOI by $0.6 million but was offset by reduced NOI due to vacancies of $3 million.

Sequentially, same store and same property NOI decreased 1.8% compared to the fourth quarter of 2010 for the Canadian portfolio primarily due to a decrease in seasonal income of $1.1 million and reduced NOI from vacancies of $1 million.

On a US dollar basis, same store and same property NOI during the First Quarter in the US increased by 6% when compared to the same period in 2010. Sequentially on a US dollar basis, same store and same property NOI increased 4% compared to the fourth quarter of 2010.

Portfolio Stability

As at March 31, 2011:

  • The Canadian occupancy rate was approximately 97.4%, up slightly from 97.3% at December 31, 2010 (97.0% as at March 31, 2010), and RioCan's US occupancy rate was about 98.0% compared to 98.2% at December 31, 2010 resulting in an overall occupancy rate of 97.4% compared to 97.4% at December 31, 2010 (97.0% as at March 31, 2010);
  • The portfolio economic occupancy rate represents the occupied net leaseable area for which tenants are paying rent. The portfolio economic occupancy rate was approximately 96.3%. The annualized rental impact once these tenants commence paying rent is $11.7 million;
  • In the First Quarter, RioCan retained approximately 87.1% of expiring leases compared to a renewal retention rate of approximately 85.6% in the First Quarter of 2010;
  • Approximately 1.3 million square feet were renewed during the First Quarter at an average rent increase of 8.7% or $1.17 per square foot (including anchor tenants);
  • During the First Quarter, vacancies were 269,000 square feet and RioCan leased 382,000 square feet of vacant space during the quarter;
  • RioCan's Canadian portfolio is concentrated in Canada's six high growth markets (Calgary, Edmonton, Montreal, Ottawa, Toronto and Vancouver). Assets in these markets account for about 65.4% of RioCan's Canadian annualized rental revenue;
  • National and anchor tenants represented about 86.8% of annualized rental revenue at March 31, 2011, compared to 85.4% at March 31, 2010;
  • Approximately 60% of annualized rental revenue was derived from RioCan's 50 largest tenants; and
  • No individual tenant comprised more than 4.6% of annualized rental revenue.

Portfolio Activity and Acquisition Pipeline

During the First Quarter RioCan completed the purchase of interests in 9 properties aggregating $87 million.

Acquisitions From Partners

In March 2011, RioCan acquired an additional interest in six properties from its partners in Ontario. In connection with the purchase from its partners, RioCan has assumed its proportionate share of the existing mortgage debt that is in place for these properties:

Silver City Gloucester

RioCan acquired an additional 10% interest from Trinity Development Group ("Trinity"), in Silver City Gloucester, which brings RioCan's ownership for this property to 70%. Trinity will retain a 30% interest. RioCan will continue to manage the property. Silver City Gloucester is a 227,000 square foot new format retail centre located in Ottawa, Ontario and is tenanted by national tenants such as Famous Players Silver City, Chapters, and Future Shop. The purchase price for RioCan's additional interest was $7.4 million which equates to a cap rate of 6.3%.

RioCan Colossus Centre

RioCan acquired an additional 10% interest from Trinity in RioCan Colossus Centre, which brings RioCan's ownership for this property to 70%. Trinity will retain a 30% interest. RioCan will continue to manage the property. Located northwest of the Highway 400 and Highway 407 interchange in Vaughan, Ontario, RioCan Colossus Centre is a new format retail centre with approximately 713,000 square feet of leasable area. The site is anchored by a 121,000 square foot Rona, a 101,000 square foot Famous Players (Cineplex) theatre and a 130,000 square foot Costco (shadow anchor). The purchase price for RioCan's additional interest was $17.1 million which equates to a cap rate of 6.3%.

Trinity Common Brampton

RioCan acquired an additional 10% interest from Trinity in Trinity Common Brampton, which brings RioCan's ownership for this property to 70%. Trinity will retain a 30% interest. RioCan will continue to manage the property. Located at the intersection of Highway 410 and Bovaird Drive, this 75-acre site has been developed into an 877,550 square foot new format retail centre. This property is anchored by Famous Players (Cineplex) Theatre, Zellers and Metro, as well as by Canadian Tire and Home Depot, which both own their own premises. The purchase price for RioCan's additional interest was $18.1 million which equates to a cap rate of 6.3%.

RioCan Centre Belcourt

RioCan acquired an additional 13.3% interest from each of its existing partners in RioCan Centre Belcourt. The ownership structure for this property is now 60% RioCan and 20% each for Trinity and Shenkman Corp. ("Shenkman"). RioCan Centre Belcourt, located at the intersection of Innes and Belcourt in Orleans, Ontario a suburb of Ottawa, is a 39 acre site that is currently being developed into a 397,000 square foot new format retail centre. The site is shadow anchored by a 142,000 square foot Lowe's. The purchase price for RioCan's additional interest was $6.0 million which equates to a cap rate of 6.8%. An additional $800,000 is expected to be paid later in 2011 for earnouts, and a further amount of approximately $10.7 million is expected to be paid for additional phases as they are completed.

Grant Crossing

RioCan also acquired an additional 13.3% interest from each of its existing partners in Grant Crossing. The ownership structure for this property is now 60% RioCan and 20% each for Trinity and Shenkman. Grant Crossing, is a 33 acre site being developed into a 401,000 square foot new format retail centre. The site is shadow anchored by a 128,000 square foot Lowe's. Other major tenants include Winners, HomeSense and Michaels. The purchase price for RioCan's additional interest was $6.2 million which equates to a cap rate of 6.8%. An additional $800,000 is expected to be paid later in 2011 for earnouts, and a further amount of approximately $13.8 million is expected to be paid for additional phases as they are completed.

Additional Canadian Acquisitions

In addition, RioCan has also completed the following acquisitions during the First Quarter:

Shoppers Drug Mart Pembroke

RioCan acquired Shoppers Drug Mart Pembroke, located in Pembroke, Ontario. The property is a 17,035 square foot stand alone Shoppers Drug Mart (lease expiry 2021). The property was acquired at a purchase price of $5.1 million which equates to a cap rate of 7.3%.

Rexall Pharma Plus - Ottawa

RioCan acquired Rexall Pharma Plus – Ottawa, located in the high traffic area of Carling Avenue in Ottawa, Ontario. The property is a 10,442 square foot stand alone Rexall Pharma Plus (lease expiry 2023). The property was acquired at a purchase price of $4.1 million which equates to a cap rate of 6.85%.

White Shield Plaza

White Shield Plaza is located in the high traffic area of Kennedy Road and Lawrence Avenue East in Toronto, Ontario. The property is a 155,910 square foot grocery anchored centre. Major tenants include Lone Tai a specialty food retailer (subleased from Metro Inc.), CIBC, Dollarama, and Harvey's. The property was acquired at a purchase price of $18.0 million which equates to a cap rate of 6.5%.

Subsequent to quarter end RioCan has completed the acquisition of:

RioCan Elgin Mills

RioCan acquired an additional 12.5% interest from its partner Tamuz Investments Limited at RioCan Elgin Mills Crossing. The ownership structure for this property is now 75% RioCan and 25% Trinity. RioCan will continue to manage the property. This site has been developed into a 441,000 square foot new format retail centre. The site is anchored by Costco (land lease) and is shadow anchored by Home Depot. The centre has a strong mix of national tenants that include PetSmart, Staples, Michaels, Marks Work Wearhouse (Canadian Tire), Scotia Bank, and TD Canada Trust. The purchase price for RioCan's additional interest was $9.9 million which equates to a cap rate of 6.25%.

Flamborough Power Centre

Flamborough Power Centre is located at the corner of Highways 5 and 6 directly across from RioCan's Flamborough Walmart Centre in Flamborough, Ontario about 25 kilometres northwest of Hamilton. The 186,688 square foot property is currently anchored by Zellers. Other tenants include Dollarama and Value Village. Flamborough Power Centre was purchased for $35.5 million which equates to a cap rate of 6.85%. RioCan assumed in place financing of $9.8 million upon closing.

US Acquisitions

Subsequent to the end of the First Quarter RioCan through its joint venture arrangement with Cedar Shopping Centers, Inc. completed the purchase of:

Northwoods Crossing, a 160,000 sq. ft. shopping center on approximately 42 acres off Route 495, about 65 kms outside of Boston and across from the largest office park in New England. It is anchored by a 115,000 sq. ft. BJ's Wholesale Club with a lease extending to 2023. The property is 100% leased. Other tenants include Dollar Tree, Ruby Tuesday's and Wendy's. The property was acquired at a purchase price of US$23.5 million (US$18.8 million at RioCan's 80% interest) which equates to a cap rate of 7.6%. In connection with the purchase RioCan through its joint venture arrangement will assume its 80% interest of the US$7.2 million of existing mortgage financing.

Canadian and US Acquisition Pipeline

Canadian Acquisitions Under Contract

RioCan has entered into an agreement of Purchase and Sale with respect to two Canadian properties, located in Quebec and Ontario, for an aggregate purchase price of approximately $18 million at RioCan's interest. Due diligence conditions have been waived and it is expected that this transaction will be completed in the second quarter of 2011.

US Acquisitions Under Contract

RioCan has entered into an agreement of Purchase and Sale with respect to four US properties in Texas that represent in aggregate approximately US$135 million of additional acquisitions at RioCan's interest. If completed, these properties would add approximately 734,000 square feet to the Trust's portfolio. These properties are in various stages of due diligence and it is expected that these transactions will be completed in the second quarter of 2011.

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 $91 million at year end. During the First Quarter RioCan issued its first series of Preferred Units with the issuance of 5 million Cumulative Rate Reset Preferred Units for gross proceeds of $125 million.

As at March 31, 2011, adjusted EBITDA interest coverage for RioCan was 2.46x. RioCan's indebtedness was 47.1% of aggregate assets. As part of RioCan's capital management strategy, it is RioCan's objective to further strengthen its balance sheet as well as improve its coverage ratios over time. RioCan's Net Debt to adjusted EBITDA in the First Quarter of 2011 was 6.95x.

Subsequent to the quarter end, Standard & Poor's Ratings Service confirmed RioCan's corporate credit rating of BBB and revised its Outlook to Stable from Negative.

Mortgage Financing

Canada

During the First Quarter, RioCan obtained approximately $150 million of mortgage financing at an average interest rate of 5.4% with a weighted average term to maturity of about 9.5 years.

US

During the First Quarter, RioCan received advances of approximately $17 million of mortgage financing at an average interest rate of 5.2% with a weighted average term to maturity of about 7.4 years.

Unsecured Debentures

The $200 million outstanding Series F debentures, which were due on March 8, 2011, were redeemed on January 20, 2011.

RioCan raised $225 million in gross proceeds through the issuance of its Series O 5-year, senior unsecured debenture offering (bearing interest at 4.5%) in January 2011. The proceeds were partially used to redeem the $180 million principal amount of Series L senior unsecured debentures. The Series L Debentures, which were due on April 3, 2014, were redeemed on February 24, 2011. As a result of this redemption of the Series L debentures that carried an interest rate of 8.3%, RioCan will realize substantial interest savings going forward. The redemption of these debentures has satisfied all of RioCan's redemption responsibilities of its debentures for 2011.

Lines of Credit

RioCan has five revolving lines of credit in place with three Canadian chartered banks, having an aggregate capacity of $421.5 million (March 31,2010 – three revolving lines of credit aggregating $223.5 million) against which approximately $36 million has been drawn as letters of credit leaving $384 million available for cash draws under the lines of credit.

Development Activity

Development activities increased during the First Quarter at certain projects, including Cimarron Shopping Centre, Okotoks, Alberta, as well as RioCan Centre Belcourt and Grant Crossing, in Ottawa, Ontario. Additionally, RioCan expects to be able to launch the development of its St. Clair and Weston Rd., Toronto, Ontario, property during the current year.

During the First Quarter, RioCan completed 44,000 square feet (three months ended March 31, 2010 5,000 square feet) of redevelopment and development activities all of which applies to the completion of greenfield development projects in the First Quarter.

During the First Quarter, RioCan announced that it signed a letter of intent to form an exclusive joint venture with Tanger for the acquisition, development and leasing of sites across Canada that are suitable for development or redevelopment as outlet shopping centres similar to those within the existing Tanger U.S. portfolio. Any projects developed will be co-owned on a 50/50 basis and will be branded as Tanger Outlet Centers. Tanger has agreed to provide leasing and marketing services to the venture and RioCan will provide development and property management services. It is the intention of the joint venture to develop as many as 15 outlet centres in larger urban markets and tourist areas across Canada, over a five to seven year period. The typical size of a Tanger Outlet Center is approximately 350,000 square feet, but is dependent on tenant demand. Assuming these parameters are suitable and materialize in Canada, on a fully built out basis, the overall investment of the joint venture is anticipated to be as high as $1 billion.

Since the announcement to form a joint venture with Tanger, RioCan and Tanger have announced that they have entered into a purchase and sale agreement to acquire a 35 acre parcel of land to build the first Tanger Outlet Center in the Greater Toronto Area ("GTA"). The site for its first factory outlet will be Halton Hills, on Highway 401 at the James Snow Parkway interchange in Milton, Ontario. The project is scheduled to start in mid 2012 and be ready for a Spring 2013 opening.

As at March 31, 2011, RioCan's pipeline of development projects that will, upon completion, comprise about 8.2 million square feet, of which RioCan's ownership interest will be 3.3 million square feet. Included in this are interests in 8 greenfield developments.

RioCan's Consolidated Financial Statements, Management's Discussion and Analysis and a Supplemental Information Package for the three months ended March 31, 2011 and 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 Thursday, May 19, 2011 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 416-340-2216 or 1-866-226-1792. If you cannot participate in the live mode, a replay will be available until June 17, 2011. To access the replay, please dial 905-694-9451 or 1-800-408-3053 and enter passcode 5821880#.

Scheduled speakers include Edward Sonshine, 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 http://investor.riocan.com/Investor-Relations/Events-Webcasts/default.aspx 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 $11.2 billion as at March 31, 2011. It owns and manages Canada's largest portfolio of shopping centres with ownership interests in a portfolio of 300 retail properties, including 8 under development, containing an aggregate of over 70 million square feet. RioCan owns an 80% interest in 31 grocery anchored and new format retail centres in the United States through various joint venture arrangements. In addition, RioCan 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.

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 "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 forward-looking statements are not guarantees of future events or performance and, by their nature, are based on RioCan's current estimates and assumptions, which are subject to risks and uncertainties, including those described under "Risks and Uncertainties" in this News Release, 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, income taxes, the investment in the United States of America ("US"), US currency and RioCan's qualification as a real estate investment trust for tax purposes. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information may include, but are not limited to: a more robust retail environment compared to recent years; relatively stable interest costs; a continuing trend toward land use intensification in high growth markets; access to equity and debt capital markets to fund, at acceptable costs, the future growth program to enable the Trust to refinance debts as they mature; the availability of purchase opportunities for growth in Canada and the US; and the impact of accounting principles adopted by the Trust effective January 1, 2011 under International Financial Reporting Standards ("IFRS") which includes application to the Trust's 2010 comparative financial results. 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.

The Income Tax Act (Canada) (the "Act") contains legislation affecting the tax treatment of publicly traded trusts (the "SIFT Legislation"). The SIFT Legislation will not impose tax on a trust which qualifies under such legislation as a real estate investment trust (the "REIT Exception"). RioCan currently qualifies for the REIT Exception and intends to continue to qualify for future years. Should this not occur, certain statements contained in this News Release may need to be modified.

Except as required by applicable law, RioCan under takes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Contact Information

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