RioCan Real Estate Investment Trust
TSX : REI.UN

RioCan Real Estate Investment Trust

November 07, 2013 07:00 ET

RioCan Real Estate Investment Trust Announces 8% Growth in Operating Funds From Operations in the Third Quarter 2013 and Provides Update on Development Pipeline

TORONTO, ONTARIO--(Marketwired - Nov. 7, 2013) - RioCan Real Estate Investment Trust (TSX:REI.UN) -

HIGHLIGHTS for the three and nine months ended September 30, 2013:

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

  • RioCan's Operating FFO increased by 8% to $124 million for the three months ended September 30, 2013 ("Third Quarter") compared to $115 million in the third quarter of 2012. On a per unit basis, Operating FFO increased 3% to $0.41 per unit from $0.40 per unit in the same period of 2012;
  • RioCan's Operating FFO increased by 13% to $368 million for the nine months ended September 30, 2013 compared to $325 million for the same period in 2012. On a per unit basis, Operating FFO increased 8% to $1.22 per unit from $1.13 per unit for the same period in 2012;
  • RioCan's concentration in Canada's six major markets has increased to 72.2% at September 30, 2013 from 67.5% at December 31, 2012;
  • During the quarter, RioCan and its partners obtained zoning approval on its one million square foot development at the northeast corner of Yonge and Eglinton in Toronto, Ontario. The condominium portion of the property has proven extremely successful with approximately 90% of the 623 condominium units by dollar value having been pre-sold. Development is expected to commence in 2014.
  • RioCan has begun construction at its Calgary, Alberta development, Sage Hill. This 386,000 square foot new format retail centre is approximately 72% leased and is expected to be completed in 2016;
  • RioCan has filed an application for zoning and site plan for Yonge Sheppard Centre to add 110,000 square feet of retail space and 290,000 square feet of residential density;
  • Overall occupancy was 97.0% at September 30, 2013, compared to 96.7% at June 30, 2013;
  • RioCan renewed 708,000 square feet in the Canadian portfolio during the Third Quarter at an average rent increase of $2.08 per square foot, representing an increase of 11.2%, compared to 12.9% for the same period in 2012. The renewal retention rate in Canada for the quarter was 91.1%;
  • RioCan renewed 2.5 million square feet in the Canadian portfolio during the nine months ended September 30, 2013 at an average rent increase of $2.05 per square foot, representing an increase of 12.1%, compared to 12.0% for the same period in 2012;
  • During the Third Quarter, RioCan acquired interests in seven income properties in Canada and the US aggregating to 409,000 square feet at an aggregate purchase price of approximately $97 million at RioCan's interest at a weighted average capitalization rate of 5.9%. Year to date, RioCan has acquired interests in 29 income properties in Canada and the US aggregating to 2.8 million square feet at a total purchase price of approximately $783 million at a weighted average capitalization rate of 5.6%;
  • During the three months ended September 30, 2013, RioCan completed dispositions of three income properties aggregating $16 million that comprised of approximately 311,000 square feet. Year to date, RioCan has completed dispositions of ten income properties aggregating $401 million, comprised of approximately 2.1 million square feet;
  • Subsequent to the quarter end, RioCan effectively dissolved its joint venture arrangements with Retail Properties of America, Inc. ("RPAI") and Dunhill Partners ("Dunhill"). RioCan currently has entered into an agreement with Sterling Corporation ("Sterling") to acquire their interest in two Texas properties and dissolve the joint venture arrangement; and
  • RioCan's operating platform in the United States is now fully staffed and operational. RioCan has consolidated its ownership of virtually all of the US properties that were previously owned through joint venture arrangements. Working from two regional offices located in Mount Laurel, New Jersey and Dallas, Texas and supported by RioCan's headquarters in Toronto, Ontario, Canada, RioCan's 26 full time employees in the United States will manage RioCan's US portfolio.

RioCan Real Estate Investment Trust ("RioCan") today announced its financial results for the three and nine months ended September 30, 2013.

"I am pleased with our results in the third quarter. RioCan has been able to generate positive FFO growth versus last year without the benefit of a large lease termination fee that we received in the same quarter last year. We expect to see continued results from all of our growth drivers and particularly from RioCan's development portfolio. Our soon to commence development projects at the northeast corner of Yonge and Eglinton and Yonge and Sheppard in Toronto, Ontario as well as our Sage Hill development in Calgary, Alberta are all progressing as expected. We will start seeing completions of our development properties in 2014 with the opening of Stockyards in Toronto and then we expect to see a steady stream of finished developments over the next few years," said Edward Sonshine, Chief Executive Officer of RioCan. "We have recently assumed property management functions in Texas and now fully control virtually all of our US property portfolio. Our now established US platform will be a key component to RioCan's organic growth. We expect to see continued growth in our Operating Funds From Operations from higher same store income in RioCan's Canadian and US portfolio, an expanding development portfolio, which will contribute to RioCan's medium and long term growth, along with growth from opportunistic acquisitions."

Financial Highlights

In millions except percentages and per unit values

Three months ended September 30, Nine months ended September 30,
2013 2012 % change 2013 2012 % change
Operating FFO $ 124 $ 115 8 % $ 368 $ 325 13 %
Operating FFO per Unit $ 0.41 $ 0.40 3 % $ 1.22 $ 1.13 8 %
In $millions Three months ended September 30, Nine months ended September 30,
2013 2012 2013 2012
Net earnings attributable to common and preferred unit holders $ 129 $ 125 $ 445 $ 876
Net earnings before taxes and fair value adjustment $ 125 $ 121 $ 364 $ 344
In $millions. As at September 30,
2013
September 30,
2012
Total enterprise value (1) 13,624 13,823
Total assets - at RioCan's interest (1) 13,353 12,073
Debt (mortgages and debentures payable - at RioCan's interest) (1) 5,991 5,277
(1) Based on RioCan's proportionate share including joint ventures accounted for under the equity method of accounting.

Operating FFO for the Third Quarter was $124 million ($0.41 per unit) compared to $115 million ($0.40 per unit) in the Third Quarter of 2012. The primary reasons for this increase were: a $9 million increase in net operating income ("NOI"), which was due to acquisitions net of dispositions, same property growth of 1.9% in Canada and 0.9% in the US, the completion of greenfield developments, partly offset by lower lease cancellation fees. Interest expense, general and administrative costs and other expenses remained relatively flat on a year over year basis for the third quarter.

Operating FFO for the nine months ended September 30, 2013 was $368 million ($1.22 per unit) compared to $325 million ($1.13 per unit) in 2012. The primary reasons for this increase were: a $45 million increase in net operating income ("NOI"), which was due to acquisitions net of dispositions same property growth of 0.8% in Canada and 0.9% in the US, and the completion of greenfield developments, partly offset by lower lease cancellation fees. Operating FFO also benefited from higher fees and other income of $3 million during the first nine months of 2013. These increases to Operating FFO were partially offset by increased interest expense of $1 million and higher general and administrative expenses of $4 million due to higher unit-based compensation, an increased investment in the Trust's operational infrastructure and a favourable sales tax recovery in 2012.

Same Store and Same Property NOI

Canada Three months ended
September 30, 2013
Year over Year
Nine ended
September 30, 2013
Year over Year
Sequential
Quarter over
Quarter
Same Store Growth 2.2 % 1.0 % 1.1 %
Same Property Growth 1.9 % 0.8 % 1.1 %
United States
Same Store & Property Growth 0.9 % 0.9 % 0.4 %

Overview of Development Activities

As at September 30, 2013, RioCan had ownership interests in 15 properties under development that will, upon completion, comprise about 10.4 million square feet (4.8 million square feet at RioCan's interest). In addition to its development projects, RioCan continues its urban intensification activities, primarily in the Toronto, Ontario market. RioCan's Development and intensification pipeline is expected to be a significant contributor to RioCan's continued medium and long term growth. At September 30, 2013, RioCan's total forecasted development spend, before any construction financing, for greenfield development, urban developments, and its expansion and redevelopment pipeline is $0.8 to $1 billion over the next five to seven years.

Three high profile developments in particular are expected to provide material growth as well as the potential to add an additional property type by way of a rental multi-family component in two of the assets. The three highlighted projects below showcase the wide range of RioCan's development and redevelopment expertise. The northeast corner of Yonge and Eglinton is a prime example of RioCan's ability to successfully develop large scale urban and mixed use properties. Yonge Sheppard Centre is an excellent example of RioCan's urban redevelopment capability. Finally, Sage Hill in Calgary, Alberta is a prime example of RioCan's ability to develop traditional new format retail centres in a core market for RioCan.

Yonge & Eglinton Northeast Corner

Situated on the northeast corner at the intersection of Yonge Street and Eglinton Avenue in Toronto, Ontario, directly across the street from RioCan's headquarters at RioCan Yonge Eglinton Centre, this 1.1 acre site has been approved for redevelopment by the city of Toronto with a 58 storey tower at the corner and a 36 storey tower fronting Roehampton Avenue, which is the first street north of Eglinton Avenue. RioCan expects to begin demolition and construction on this project in 2014. When complete, this development will include 54,000 square feet of retail and office space on the first three floors. RioCan has agreed to purchase its partners' interests in the retail and office component of the property. The development is being undertaken by RioCan with its partners, Metropia and Bazis Inc. The condominium portion of the property has proven extremely successful with approximately 90% of the 623 condominium units having been pre-sold (as measured by dollar value).

As part of the project RioCan and its partners have decided to develop the north tower of this centre as multi-family residential. Based on preliminary designs, when complete, the north tower will consist of a 208 unit rental residential apartment building, which will provide a stable and growing source of cashflow for RioCan.

The retail component of the centre will primarily consist of a landmark branch of the Toronto-Dominion Bank.

When complete, this development in the heart of uptown Toronto will provide direct access to the Yonge Street subway and Eglinton transit lines, will have underground access to the RioCan Yonge Eglinton Centre, and will include 332 parking spaces. RioCan will control two of the corners in this very high traffic and densely developed neighbourhood within the city, with a combined two million square feet of retail, residential and office space.

Yonge Sheppard Centre

Located approximately six kilometres north of RioCan Yonge Eglinton Centre at the northeast corner of one of Toronto's busiest intersections and situated on both the Yonge and Sheppard subway lines, this 6.2 acre site is currently comprised of a 680,000 square foot mixed use property containing 262,000 square feet of retail, 416,000 square feet of office space and 25 rental townhomes. RioCan and its partner KingSett Capital have recently submitted an application in order to add an additional 110,000 square feet of retail space and 290,000 square feet of multi-family residential density to the site. The completed expansion and renovation of the existing space will involve three significant elements and will greatly increase the profile of this mixed use urban property.

The existing retail mall at Yonge Sheppard Centre will be substantially renovated, upgraded and expanded. An addition to and renovation of the former cinema fronting Yonge Street will be completed and a new four-storey retail building fronting Sheppard Avenue will be connected to the existing mall along with the addition of new retail space in the below-grade pedestrian walkways. When complete, these renovations and additions to the retail space will add approximately 110,000 square feet of new retail space. RioCan currently has conditional agreements in place with Longo's Supermarket and LA Fitness to lease all of the space in the former cinema. Due to the substantial interest from many retailers, RioCan expects the retail space to be fully leased prior to completion.

The proposed plans also contemplate the addition of a new rental residential tower on Greenfield Avenue. When complete the additional residential tower would include a 39 storey tower containing 290,000 square feet of residential space. These units will benefit from the convenience of direct access to the retail portion of the property as well as both the Yonge and Sheppard subway lines.

Redevelopment on the retail portion of the property is expected to commence in late 2014. When complete in or about 2016, this high profile mixed use property will be a fixture in one of the most densely populated neighbourhoods in Toronto.

Sage Hill

This 34-acre site is currently being developed into a 386,000 square foot new format retail centre as a joint venture with KingSett Capital. The property was acquired in the first quarter of 2013, site servicing work will commence in fall 2013, and building construction is expected to commence in spring 2014 with completion expected in 2016. The site will be anchored by a Walmart Superstore and a Loblaws Foodstore. Walmart is anticipating opening in the early part of 2015 with Loblaws scheduled to open later that same year. Other major tenants at the property will include Royal Bank of Canada, Scotiabank, McDonalds, Liquor Depot and London Drugs. As at September 30, 2013 the property was 72% preleased, and with many tenancies currently under negotiation, RioCan expects the centre will be substantially fully leased prior to completion.

The site is the only designated major retail development site remaining in Northwest Calgary and as such, provides significant opportunity for retailers to locate at the core of what will be a thriving residential community. The surrounding North Sector area has an existing population of almost 30,000 persons and 10,600 housing units. The North Sector is expected to have a population in excess of 85,000 persons and 29,000 housing units within several years. This anticipated residential growth rate is consistent with the overall population growth forecasted for the Calgary Economic Region where it is expected to increase by an additional 135,000 people (10.1%) to 1.5 million persons by 2016.

The three development projects described above are just a few examples of RioCan's growing development portfolio. Currently, RioCan's other development projects are progressing as planned. RioCan expects The Stockyards development in Toronto will be completed, as scheduled, in spring 2014.

RioCan is in the process of discussions with community and other stakeholders as it completes plans for the 7.7 acre parcel that it has assembled at the corner of Front Street and Spadina Avenue in Toronto, Ontario with its partners Allied Properties and Diamond Corporation. RioCan expects that the master plan application for rezoning for the site with the city of Toronto will be submitted in early 2014.

RioCan's development projects with Tanger are also progressing as expected at Kanata and Cookstown, with both properties expected to be completed in late 2014 and to open substantially fully leased prior to completion.

Development acquisitions completed during the Third Quarter

RioCan did not acquire any development properties during the Third Quarter.

Development Property Acquisitions under Contract

RioCan currently has the following two development sites in Canada under firm contract where conditions have been waived that, if completed, represent acquisitions of $20 million at RioCan's interest.

  • The acquisition of lands adjacent to Calaway Park, a 35 acre parcel of land located approximately 25 kilometers west of Calgary, Alberta. The site is to be acquired on a 50/50 joint venture basis between RioCan and Tanger at a purchase price of $28 million ($14 million at RioCan's interest). The site would be acquired free and clear of financing and RioCan would acquire a managing interest in the development property. The site represents an opportunity for the RioCan/Tanger joint venture to enter the Calgary market with the intention to develop the land into an outlet centre of approximately 350,000 square feet. The acquisition of the land, which is subject to certain conditions, is expected to close in the second quarter of 2014.
  • The acquisition of a 50% interest in the site where TD Bank is currently located at the northeast corner of Yonge Street and Eglinton Avenue in Toronto, Ontario, at a purchase price of $12 million ($6 million at RioCan's interest). The acquisition is expected to close in the second quarter of 2014 and will form part of the existing North East Yonge Eglinton land assembly, acquired in 2011 with Metropia and Bazis Inc. During the quarter, RioCan and its partners obtained zoning approval and the redevelopment is slated to commence in 2014 to convert the site into a mixed-use retail and residential property.

Additionally, RioCan has $6 million of development sites in Canada (at RioCan's interest) under contract where conditions have not yet been waived. These transactions are in various stages of due diligence and while efforts will be made to complete these transactions, no assurance can be given.

Leasing and Operational Highlights:

Various operating and leasing metrics over the last eight quarters are as follows:

2013 2012 2011
(thousands of square feet, millions of dollars) Third
quarter
Second
quarter
First
quarter
Fourth
quarter
Third
quarter
Second
quarter
First
quarter
Fourth
quarter
Committed occupancy 97.0 % 96.7 % 97.0 % 97.4 % 97.3 % 97.4 % 96.9 % 97.6 %
Economic occupancy 95.5 % 95.4 % 95.8 % 95.9 % 95.5 % 95.5 % 95.7 % 96.6 %
NLA leased but not paying rent 716 642 615 711 855 871 542 466
Annualized rental impact $17.00 $15.00 $15.00 $15.00 $18.00 $18.00 $12.00 $11.00
Retention rate - Canada (i) 91.1 % 95.9 % 68.3 % 94.3 % 84.8 % 89.9 % 91.2 % 90.5 %
% increase in average net rent per sq ft - Canada 11.2 % 12.0 % 13.4 % 18.4 % 12.9 % 13.4 % 10.0 % 14.5 %
Retention rate - US 98.4 % 92.0 % 98.8 % 87.6 % 96.3 % 84.2 % 83.1 % 95.7 %
% increase in average net rent per sq ft - US 3.8 % 4.3 % 2.3 % 5.1 % 6.0 % 7.3 % 7.2 % 8.9 %
Average in place rent $16.07 $15.77 $15.77 $15.70 $15.85 $15.33 $15.37 $15.14
Same store growth (ii) - Canada 2.2 % 0.6 % 0.1 % 0.2 % 0.0 % 1.5 % 1.5 % 1.9 %
Same store growth (ii) - US 0.9 % 1.4 % 1.4 % 1.9 % (0.3 %) 1.3 % (0.6 %) 1.3 %
(i) - The first quarter of 2013 includes impact of the vacancy of Zellers totalling 188,000 sq ft at 100% (100,500 sq ft at RioCan's interest) during the quarter. The first quarter of 2013 retention rate excluding Zellers was 81.1%.
(ii) - Refers to the growth in same store on a year over year basis

Highlights:

  • RioCan's Canadian portfolio is concentrated in Canada's six high growth markets (consisting of Calgary, Edmonton, Montreal, Ottawa, Toronto and Vancouver). Assets in these markets contribute about 72.2% of RioCan's Canadian annualized rental revenue (67.5% at December 31, 2012). The increase during the year was accomplished through a combination of the sale of certain assets in secondary markets and the acquisition of two large enclosed shopping centres in the Greater Toronto Area;
  • National and anchor tenants represented about 86.2% of RioCan's total annualized rental revenue at September 30, 2013, a slight increase compared to 85.9% at September 30, 2012; and
  • No individual tenant comprised more than 3.8% of annualized rental revenue. At September 30, 2013, Walmart was RioCan's largest revenue source. Loblaws announced it had entered into an agreement to purchase Shoppers Drug Mart earlier this year, and upon closing of this transaction which is scheduled for the first quarter of 2014, Loblaws would become RioCan's largest tenant as measured by gross revenue.

Portfolio Activity and Acquisition Pipeline

During the Third Quarter, RioCan completed seven acquisitions of interests in income producing properties in Canada and the United States totalling $97 million with a weighted average capitalization rate of 5.9%. Included in the seven acquisitions are three properties in Texas (Timber Creek in Dallas, Arbor Park in San Antonio, and Las Colinas in Dallas), which were part of the Dunhill dissolution as described below in Joint Venture Activities.

RioCan has five income properties under firm contract that, if completed, will represent acquisitions of $130 million at RioCan's interest with a weighted average capitalization rate of 5.9%. Conditions have been waived and it is expected that these transactions will close over the next two quarters.

Acquisitions Completed in the Third Quarter

Canada

  • On August 1, 2013, RioCan acquired an additional 20% interest from partner Trinity in Colossus Centre in Vaughan, Ontario, bringing RioCan's ownership interest in the property to 100%. The additional 20% interest was acquired for a purchase price of $40 million, at a capitalization rate of 5.5%. Located northwest of the Highway 400 and Highway 407 interchange in Vaughan, Ontario, RioCan Colossus Centre is an unenclosed new format retail centre with approximately 713,000 square feet of leasable area. The site is anchored by a 101,000 square foot Famous Players (Cineplex) theatre and a 130,000 square foot Costco, which owns its own premises. The remainder of the centre is occupied by national tenants that include Marshalls (Winners), HomeSense (Winners), Roots, Golf Town, PetSmart, Bank of Montreal, La Vie En Rose, Alice Fazooli's and Jack Astor's. In connection with the acquisition, RioCan assumed Trinity's share of the existing mortgages totaling $20 million, which carries an interest rate of 5.3%.

United States

  • On July 15, 2013 First Colony Shopping Center a 98,186 square foot grocery anchored shopping centre located in California, Maryland. It is anchored by a Giant Supermarket and also includes tenants such as Michael's and Pier One and is shadow anchored by Target and Lowe's. The property was acquired at a purchase price of US$20 million which equates to a capitalization rate of 6.3%. The property was acquired free and clear of financing.
  • On August 13, 2013, RioCan acquired a 100% interest in a 2,675 square foot pad at Alamo Ranch in San Antonio, Texas. The purchase price for the pad, which is tenanted by Del Taco, was US$2 million, equating to a capitalization rate of 6.0%. The pad was acquired free and clear of financing. In 2011, RioCan acquired an 80% interest in Alamo Ranch, which was later increased to a 100% interest as part of the RPAI dissolution on October 1, 2013. Alamo Ranch is a 789,896 super-regional shopping centre anchored by SuperTarget (shadow), Lowe's (shadow), JCPenney (shadow), Ross Dress for Less, Marshalls, PetSmart, Best Buy, Dick's Sporting Goods, Office Max, Michaels, Ulta, and Books-A-Million. Alamo Ranch is the dominant shopping centre in west San Antonio due to its strong location, tenant line up, retailer synergy and a convenient shopping experience for the rapidly expanding, affluent residential area.
  • On August 27, 2013, RioCan acquired a 100% interest in a 60,835 square foot single-tenant building at Great Southwest Crossing in Grand Prairie, Texas. The purchase price for the building, which is tenanted by Kroger Supermarket, was US$6 million, equating to a capitalization rate of 6.8%. The building was acquired free and clear of financing. In 2010, RioCan acquired an 80% interest in Great Southwest Crossing, which was later increased to a 100% interest as part of the RPAI dissolution on October 1, 2013. Great Southwest Crossing is a 283,173 square foot shopping centre anchored by Office Depot and PetSmart and shadow-anchored by Sam's Club.

Acquisitions Under Contract (Firm)

RioCan currently has two income properties in Canada and three in the United States where conditions have been waived as follows:

Canada

  • 1860 Bayview Avenue is a development site located at the northwest corner of Bayview Avenue and Broadway Avenue in the Leaside area of Toronto. KingSett and Trinity Development Group are currently developing a grocery-anchored centre on the site, and RioCan will acquire the site on a forward purchase basis at an approximate purchase price of $58 million, at a capitalization rate of 5.4%. Once completed, the centre will consist of approximately 83,084 square feet of retail space and will be anchored by a second floor 52,420 square foot Whole Foods with primarily national tenants on the ground floor, the majority of which is pre-leased. The initial acquisition of the land is expected to close during the fourth quarter of 2013, with the remaining portions related to the building to be paid on an earn-out basis upon completion of the project, which is expected to take place in 2015.
  • The acquisition of a 100% interest in Eagles Landing, located in Vaughan, Ontario, for a purchase price of $56 million, which equates to a capitalization rate of 6.2%. Eagles Landing is a 177,031 square foot grocery anchored shopping centre anchored by Yummy Market, with other tenants such as The Beer Store, TD Bank and Starbucks. The property will be acquired free and clear of financing and the acquisition is expected to close in the fourth quarter of 2013.

United States

  • The acquisition of an additional 10% interest in Ingram Hills Shopping Centre from partner Sterling, bringing RioCan's ownership interest in the property to 100%. The purchase price for the additional 10% interest is US$1 million, at a capitalization rate of 7.8%. Ingram Hills Shopping Centre is an 80,397 square foot infill grocery anchored neighborhood retail centre located in San Antonio, Texas. The property is anchored by a 43,279 square foot La Fiesta which is a high volume Hispanic grocer. Other notable tenants include Dollar General, Little Caesars and Chase Bank. In connection with the acquisition, RioCan will assume Sterling's share of the mortgage financing in the amount of US$0.4 million, bearing interest at 6.1% and maturing in August 2017. The acquisition is expected to close in the fourth quarter of 2013.
  • The acquisition of an additional 20% interest in Cinco Ranch from partner Sterling, bringing RioCan's ownership interest in the property to 100%. The purchase price for the additional 20% interest is US$5 million, at a capitalization rate of 6.0%. Cinco Ranch is a 271,761 square foot retail power centre. In addition to the strong junior anchor tenant presence provided by HomeGoods, Michaels and OfficeMax, the property sits on both sides of an approximately 174,000 square foot Super Target which owns its own parcel. Other tenants include national and regional retailers such as Mattress Giant, RadioShack and Supercuts. In connection with the acquisition, RioCan will assume Sterling's share of the mortgage financing in the amount of US$2 million, bearing interest at 7.3% and maturing in May 2019. The acquisition is expected to close in the fourth quarter of 2013.
  • The acquisition of a 100% interest in a 64,329 square foot single-tenant building at Riverpark Shopping Centre in Sugar Land (Houston), Texas. The purchase price for the building, which is tenanted by Gander Mountain, is US$9 million, equating to a capitalization rate of 8.0%. The building will be acquired free and clear of financing. The acquisition is expected to close in the first half of 2014. In 2010, RioCan acquired an 80% interest in Riverpark Shopping Centre, which was later increased to a 100% interest as part of the RPAI dissolution on October 1, 2013. Riverpark Shopping Centre is a 375,599 square foot new format retail centre divided into two phases. Phase I is anchored by an 80,400 square foot HEB Grocery while Phase II is anchored by a 38,000 square foot LA Fitness and a 15,000 square foot Dollar Tree. There is also a healthy mix of national tenants to complement the anchors including Walgreens, Bank of America and Starbucks.

Joint Venture Activities

As previously announced on October 10, 2013, RioCan has successfully completed the dissolution of its joint venture arrangements with its Texas partners, RPAI and Dunhill. In total, RioCan acquired its partners' interests in 14 properties from RPAI and Dunhill at a purchase price of US$180 million at a weighted average capitalization rate of 6.7%. Separately, RioCan acquired the remaining interest in Las Palmas Marketplace in October 2013 from Kimco at a purchase price of US$32 million, which was owned jointly by Kimco, Dunhill and RioCan. Including the acquisition from Kimco, the total paid to acquire full ownership of the 14 properties was US$212 million at a weighted average capitalization rate of 6.6%. RioCan also entered into an agreement to dissolve its joint venture arrangement with Sterling by agreeing to purchase their managing interest in two properties in Texas, for a total purchase price of US$6.2 million.

RioCan has completed two additional acquisitions, the Kroger grocery store parcel at Great Southwest Crossing at a purchase price of US$6.3 million at a capitalization rate of 6.8% and Beekman Stop & Shop, Hopewell Junction, New York at a purchase price of US$15 million at a capitalization rate of 6.2%.

In addition, RioCan has entered into a firm contract to purchase the Gander Mountain parcel which is part of Riverpark Shopping Center in Houston, Texas at a purchase price of US$9 million.

Disposition Pipeline

As a further means of raising and re-cycling capital, the Trust intends to selectively sell assets as part of a process of actively managing the portfolio and a means of increasing the portfolio weighting to the urban markets in Canada. RioCan had dispositions of $16 million during the quarter and dispositions of $390 million during the nine months ended September 30, 2013. Subsequent to the quarter end, RioCan completed the disposition of two properties at a total sale price of $11 million. RioCan has one property disposition in Canada under firm contract where conditions have been waived pursuant to purchase and sale agreements at a sales price of $21 million. Additionally, RioCan has two property dispositions under conditional contract where conditions have not yet been waived pursuant to purchase and sale agreements at an aggregate sales price of $194 million. There is $92 million of mortgage financing associated with the properties, which have a gross leasable area of approximately 630,000 square feet. These transactions are in various stages of due diligence and while efforts will be made to complete these transactions, no assurance can be given. Included in conditional dispositions is the disposition of RioCan's 50% managing interest in a property located in Québec at a sales price of $193 million. The purchasing parties are comprised of the existing owners of the remaining 50% interest. Should the purchasers fail to waive due diligence conditions, or fail to close the transaction, RioCan shall have the right to acquire the purchasers' 50% interest on the same terms and conditions. As the transaction is conditional with respect to either the prospective disposition or acquisition, there are no assurances that it will be completed. RioCan is also in the process of marketing for sale two other Canadian properties with a gross leaseable area of 329,000 square feet. The fair value of the properties as at September 30, 2013 calculated in accordance with IFRS is approximately $64 million and there is $7 million of mortgage financing associated with the properties.

Liquidity and Capital

In millions except percentages and per unit values
Quarter ended Rolling 12 months ended
September 30,
2013
September 30,
2013
December 31,
2012
Interest Coverage - RioCan's interest 3.13x 2.83x 2.69x
Debt Service Coverage - RioCan's interest 2.27x 2.09x 1.98x
Fixed Charge Coverage - RioCan's interest 1.10x 1.07x 1.04x
Net debt to adjusted EBITDA - RioCan's interest 7.87x 7.58x 7.29x
Net operating debt to adjusted operating EBITDA - RioCan's interest 7.51x 7.32x 7.09x
Unencumbered assets $ 2,018 $ 1,353
Unencumbered assets to unsecured debt 139 % 104 %

Financing Highlights for the Third Quarter

Canada

  • RioCan has four revolving lines of credit in place with three Canadian chartered banks, having an aggregate capacity of $429 million. At September 30, 2013, $180 million has been drawn against these facilities and $27 million has been drawn as letters of credit, leaving $222 million available for cash draws under the lines of credit.
  • Subsequent to the quarter end, RioCan increased one of its credit facilities by $60 million and is currently in negotiations to increase another existing operating facility to provide additional flexibility. The additional facilities are expected to be available to RioCan in the fourth quarter of 2013.
  • As at September 30, 2013, RioCan's unencumbered asset pool was comprised of 106 assets with an aggregate fair value of $2 billion.

Trust Units

On July 25, 2013, RioCan announced the TSX approval of its notice of intention to make a normal course issuer bid ("NCIB") for a portion of its Units as appropriate opportunities arise from time to time. RioCan's NCIB will be made in accordance with the requirements of the TSX. Under the NCIB, RioCan may acquire up to a maximum of 15,039,156 of its Units, or approximately 5% of its issued and outstanding Units as of July 9, 2013, for cancellation over the next 12 months commencing on or about August 3, 2013 until August 4, 2014 (as such other time as RioCan completes its purchases or provides notice of termination of such bid). RioCan intends to fund the purchases out of its available cash and undrawn credit facilities.

During the quarter RioCan acquired and cancelled 917,700 units at an average price per unit of $24.04 through the NCIB program.

RioCan's Consolidated Financial Statements, Management's Discussion and Analysis and a Supplemental Information Package for the three months ended September 30, 2013 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, November 7, 2013 at 9:00 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 416-340-2218 or 1-866-226-1793. If you cannot participate in the live mode, a replay will be available until December 5, 2013. To access the replay, please dial 905-694-9451 or 1-800-408-3053 and enter passcode 7545823#.

Scheduled speakers include Edward Sonshine, O.Ont. Q.C., Chief Executive Officer, Fred Waks, President and Chief Operating Officer and Rags Davloor, Executive 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 $13.6 billion as at September 30, 2013. It owns and manages Canada's largest portfolio of shopping centres with ownership interests in a portfolio of 346 retail properties containing more than 83 million square feet, including 51 grocery anchored and new format retail centres containing 14 million square feet in the United States as at September 30, 2013. RioCan's portfolio also includes 15 properties under development in Canada. For further information, please refer to RioCan's website at www.riocan.com.

Non-GAAP measures

RioCan's consolidated financial statements are prepared in accordance with IFRS. Consistent with RioCan's management framework, management uses certain financial measures to assess RioCan's financial performance, which are not generally accepted accounting principles (GAAP) under IFRS. The following measures, Funds From Operations ("FFO"), Operating Funds From Operations ("Operating FFO"), and Adjusted Earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") as well as other measures discussed elsewhere in this release, do not have a standardized definition prescribed by IFRS 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. Non GAAP measures should not be considered as alternatives to net earnings or comparable metrics determined in accordance with IFRS as indicators of RioCan's performance, liquidity, cash flow, and profitability. For a full definition of these measures, please refer to the "Use of Non-GAAP Measures" in RioCan's Management's Discussion and Analysis for the period ended September 30, 2013.

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 "Highlights for the three and nine months ended September 30, 2013", "Financial Highlights","Overview of Development Activities" "Leasing and Operational Highlights", "Portfolio Activity and 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 RioCan's Management's Discussion and Analysis for the period ended September 30, 2013 and in RioCan's annual information form dated March 28, 2013, 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 and general market conditions, tenant concentrations, occupancy levels and defaults, 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, United States of America ("US") investment and currency risk, 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 stable retail environment; relatively low and 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. 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) contains provisions which potentially impose tax on publicly traded trusts (the "SIFT Provisions"). However, the SIFT Provisions do not impose tax on a publicly traded trust which qualifies as a real estate investment trust ("REIT"). RioCan currently qualifies as a REIT 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
    Executive Vice President & CFO
    (416) 642-3554
    www.riocan.com