RioCan Real Estate Investment Trust

RioCan Real Estate Investment Trust
Cedar Shopping Centers, Inc.

October 26, 2009 16:12 ET

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

TORONTO, ONTARIO--(Marketwire - Oct. 26, 2009) - RioCan Real Estate Investment Trust ("RioCan") (TSX:REI.UN) today announced the execution of definitive agreements with Cedar Shopping Centers, Inc. ("Cedar") (NYSE:CDR), a self-managed U.S. based real estate investment trust focused on supermarket-anchored shopping centres and drugstore anchored convenience centres located predominantly in the Northeastern and Mid-Atlantic states of the United States. Cedar presently has interests in and operates approximately 13.2 million square feet of gross leasable area at 124 shopping centre properties.

Under the terms of the agreements, RioCan will:

- Form a joint venture for the acquisition of retail real estate in the
United States to be owned 80% by RioCan and 20% by Cedar, with the first
properties in the joint venture being seven grocery-anchored shopping
centres in Massachusetts (MA), Pennsylvania (PA), and Connecticut (CT)
currently owned by Cedar (the "Initial Portfolio"); and

- Acquire on a fully diluted basis 15% of Cedar, with the acquisition of
6.7 million shares and 1.4 million warrants (the "Equity Investment").

The total consideration to be paid by RioCan is approximately US$181 million resulting in a net equity investment of US$106 million after the assumption of US$75 million of property level mortgage debt (RioCan's share) on the Initial Portfolio. RioCan's equity investment will be funded from existing cash resources.

"RioCan's objective is to take a measured and defensive approach to investment in the U.S. market." said Edward Sonshine Q.C. President and CEO of RioCan. "We believe that this joint venture with Cedar permits RioCan to team up with a very strong, experienced and well established management platform, for our first acquisition in the US."

Initial Portfolio Acquisition

RioCan will acquire from Cedar an 80% interest in seven grocery-anchored shopping centres that comprises approximately 1.1 million square feet 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%). The existing non-recourse first mortgage financing bears interest at a weighted average rate of 5.7% and has a weighted average term to maturity of approximately 3 years. Two of the assets will be unencumbered at closing and it is the intention of the joint venture to seek term financing on these assets.

Grocery-anchored centres have traditionally been viewed as the most defensive category of retail properties due to the non-discretionary nature of their merchandise. Approximately 40% of the gross rents from the Initial Portfolio is generated by grocery tenants and 75% of the gross rents are generated by national or regional tenants. The weighted average remaining lease term of the grocery anchors in the Initial Portfolio is approximately 10 years.

The properties are well located within established communities in Massachusetts, Pennsylvania and Connecticut and include grocery anchor tenants such as Giant Foods and Stop & Shop, two grocery retailers owned by Royal Ahold, and Super Fresh, which is owned by Great Atlantic and Pacific Tea Company, Inc. ("A&P"). Royal Ahold has a strong market share in Pennsylvania and Massachusetts and is one of the world's largest grocery retailers with global sales of over US$35 billion for the fiscal year ended December 31, 2008. A&P operates 435 stores in eight states and had sales of over US$9.5 billion for the fiscal year ended February 28, 2009.

The Initial Portfolio will continue to be managed by Cedar, a seasoned property manager pursuant to a standard property management agreement. Cedar will also receive customary fees for property level accounting, disposition and financing activities. A management committee will be established with two members from RioCan and one member from Cedar to decide upon any material decisions regarding the properties in the joint venture.

Properties in the Initial Portfolio (at 100%)

- Loyal Plaza is a 293,825 square foot grocery-anchored shopping centre
located in Williamsport PA, anchored by 66,935 square foot Giant Foods
(lease expiry 2019). Other major tenants include, K-Mart, Staples, and
Eckerd's Drugs. The property is currently encumbered by first mortgage
financing of US$12.6 million bearing 7.2% interest maturing in June

- Blue Mountain Commons is a recently completed 123,354 square foot
grocery-anchored shopping centre located in Harrisburg PA, anchored by a
97,707 square foot Giant Foods (lease expiry 2029). Other tenants
include PNC Bank. The property will be unencumbered at closing.

- Sunset Crossing Shopping Center is a 74,142 square foot grocery-anchored
shopping centre located in Scranton PA, and is anchored by 54,332 square
foot Giant Foods (lease expiry 2022). The property will be
unencumbered at closing.

- Columbus Crossing Shopping Center is a 142,167 square foot
grocery-anchored shopping centre located in Philadelphia PA, anchored by
a 61,506 square foot Super Fresh (lease expiry 2020). Other major
tenants include Old Navy and AC Moore. The property is currently
encumbered by first mortgage financing of US$16.8 million bearing 6.8%
interest maturing in June 2014.

- Stop & Shop Plaza is a free-standing 54,511 square foot Stop & Shop
supermarket (lease expiry 2026) located in Bridgeport CT. The property
is currently encumbered by first mortgage financing of US$7.0 million
bearing 6.2% interest maturing in April 2017.

- Shaw's Plaza is a 176,610 square foot grocery-anchored shopping centre
located in Raynham MA, and is anchored by a 60,748 square foot Shaw's
Supermarkets (lease expiry 2023). Other major tenants include, Marshalls
(Marshalls is owned by TJX), and CVS. The property is currently
encumbered by first mortgage financing of US$14.2 million bearing 5.6%
interest maturing in March 2014.

- Franklin Village Plaza is a 306,213 square foot grocery-anchored
shopping centre located in Franklin MA, anchored by a 75,000 square foot
Stop & Shop (lease expiry 2026). Other major tenants include, Marshalls
and Bath & Body Works and Bank of America. The property is currently
encumbered by first mortgage financing of US$43.5 million bearing 4.8%
interest maturing in 2011.

The Initial Portfolio currently has approximately 50,000 square feet of vacant space, or approximately 5%, which provides an opportunity for growth and enhanced returns. Additional growth is expected to be achieved through contractual rental increases.

The timing of each property closing is predicated on the fulfillment of conventional closing conditions including, where applicable, the successful procurement of third party lender consents.

It is anticipated that RioCan will close on the two properties that are currently unencumbered by mid-November 2009 with the remaining five properties closing in stages during the first quarter of 2010. RioCan has completed and waived its conditions respecting conventional property level due diligence matters on six of the seven properties and anticipates waiving its conditions regarding the seventh property in the coming weeks.

Ongoing Joint Venture Acquisitions

A further component of the transaction is the agreement between RioCan and Cedar to acquire supermarket-anchored retail properties, on the same basis as the Initial Portfolio (i.e. RioCan 80%, Cedar 20%), over a two year period that will commence upon the closing of the Equity Investment. During this period, RioCan will benefit from a first right of refusal on certain Cedar acquisitions in New York, New Jersey, Pennsylvania, Massachusetts, Connecticut, Maryland and Virginia (subject to certain exceptions). Cedar in return will have a first right of refusal on RioCan's opportunities to acquire income producing properties that are located in the same states as above (subject to certain exceptions).

Equity Investment in Cedar

RioCan will purchase 6.7 million shares of Cedar common stock at a price of US$6.00 per share and receive 1.4 million 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 as soon as New York Stock Exchange approval of the issuance has been received.

The Equity Investment will result in gross proceeds of US$40 million to Cedar, with an additional US$10 million of gross proceeds to Cedar upon exercise of the share purchase warrants. Following the share purchase RioCan's ownership in Cedar will be approximately 12% on a basic basis and approximately 15% on a fully diluted basis. RioCan will have the right to appoint one member to Cedar's Board of Directors so long as RioCan owns more than 9.9% of Cedar's common stock. RioCan has agreed that it will hold the shares for a minimum period of one year. Subject to certain pre-emptive rights, Cedar and RioCan have also entered into a "standstill" agreement for three years during which RioCan will not be able to acquire additional shares of Cedar.

Purpose of the transaction

"We believe that this transaction with Cedar presents an excellent opportunity for RioCan to make a cautious introduction into the United States and to build a defensive portfolio which includes the potential to achieve greater returns not only from organic rent growth but through the leasing of vacant space over the next 12-24 months. The combination of assets in Canada's fastest growing markets with a stabilized portfolio of high quality retail assets in the U.S. will give RioCan a greater presence as one of North America's leading retail landlords as well as providing another avenue for growth," said Mr. Sonshine.

"We believe that the U.S. market will yield a greater number of attractive opportunities than what we expect will be available in Canada in the near term. This venture creates a vehicle that will allow RioCan to tap into the U.S. market and ensures that the properties within the joint venture will be well managed. Cedar has developed a strong portfolio of retail properties focused in the Northeastern United States, which offers a complementary mix of tenants to our Canadian portfolio of largely nationally branded tenants. We look forward to expanding our relationship with Cedar, as well as considering other opportunities in the US."

Financial and Legal Advisors

RBC Capital Markets is acting as financial advisor to RioCan. Goodmans LLP and Sidley Austin LLP are acting as legal advisors to RioCan. Davies Ward Phillips & Vineberg LLP and Deloitte LLP are acting as tax advisors to RioCan.

Goldman, Sachs & Co. is acting as exclusive financial advisor to Cedar; Stroock & Stroock & Lavan LLP is acting as corporate, real estate and tax counsel to Cedar.

About Cedar

Cedar is a self-managed real estate investment trust focused on grocery-anchored shopping centres and drug store-anchored convenience centres located predominantly in the North-eastern and Mid-Atlantic states of the United States. Since the company's public offering in October 2003, Cedar has realized significant growth in assets and shareholder value primarily through selective acquisitions. Cedar presently owns and operates approximately 13.2 million square feet of gross leasable area at 124 shopping centre properties, of which more than 75% are anchored by supermarkets and/or drugstores with average remaining lease terms of approximately 11 years. Cedar had a total capitalization of US$1.5 billion as of September 30, 2009.

About RioCan

RioCan is Canada's largest real estate investment Trust with a total capitalization of approximately CDN$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

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 "Initial Property Acquisition", "Ongoing Joint Venture Acquisitions" and "Equity Investment in Cedar" "", 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 its management discussion and analysis dated June 30, 2009 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 conditions to the transactions not being satisfied resulting in the failure to complete some or all of the proposed transactions, 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; 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. 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
    Edward Sonshine, Q.C.
    President & CEO
    (416) 866-3018