RioCan Real Estate Investment Trust
TSX : REI.UN

RioCan Real Estate Investment Trust

February 13, 2009 14:09 ET

RioCan Real Estate Investment Trust Announces Results for Fourth Quarter and Year Ended December 31, 2008

HIGHLIGHTS FOR 2008: - Portfolio occupancy at 96.9% - Renewed approximately 2.9 million square feet during 2008 at an average rent increase of $1.56 per square foot, representing an increase of 11.7% - Total acquisitions of $167.8 million comprised of 857,000 square feet - Obtained approximately $737.2 million in new financing in 2008, of which approximately $488.4 million represented RioCan's share - Completed public offering of 7.13 million units at $21.05 per unit for gross proceeds of $150 million - Completed 462,000 square feet of redevelopment and development activities

TORONTO, ONTARIO--(Marketwire - Feb. 13, 2009) - RioCan Real Estate Investment Trust ("RioCan") (TSX:REI.UN) today announced its financial results for the fourth quarter and year ended December 31, 2008.

Financial Highlights

RioCan reported net earnings for the quarter ended December 31, 2008 of $30.1 million ($0.13 per unit), compared to $65.1 million ($0.32 per unit) for the same period of 2007. Net earnings for the year ended December 31, 2008 of $146.9 million ($0.67 per unit) compared to $32.4 million ($0.16 per unit) for the same period in 2007. Net earnings for the quarter and year ended December 31, 2008 were impacted by a non-cash impairment provision on real estate investments of $24.3 million.

Funds from operations ("FFO") for the quarter ended December 31, 2008 is $87.3 million ($0.39 per unit), compared to $87.5 million ($0.42 per unit) for the same period of 2007. For the year ended December 31, 2008, FFO is $322.6 million ($1.48 per unit) compared to $314.6 million ($1.51 per unit) for the same period of 2007. The $8.0 million increase in FFO is primarily due to an increase in net operating income from rental properties of $26.1 million, offset by reduced performance-based fees (including a year-over-year reduction in lease cancellation fees of $7.9 million and gains on properties for resale of $6.8 million), as well as increased interest and general and administrative expenses of $10.8 million and $4.3 million, respectively. The increase in general and administrative expense arose from costs associated with RioCan's head office relocation to Yonge Eglinton Centre, a mixed use property acquired in 2007. FFO was not impacted by the impairment provision noted above.

"We are pleased to report that RioCan had a solid year, despite the unprecedented economic crisis that rocked the global economy and which intensified in the latter half of the year," said Ed Sonshine, Q.C., President & CEO. "During 2008, RioCan raised $150 million in new equity, made a number of property acquisitions, and completed several joint venture agreements, including three with the Canada Pension Plan Investment Board."

Liquidity and Capital

RioCan's capital management framework limits maximum indebtedness to less than 60% of its Aggregate Assets on a book value basis. At December 31, 2008, RioCan's leverage (based on historical cost) was 54.9%. RioCan believes that based on the fair market value of its portfolio, its leverage is substantially lower than the specified limit. As a result, RioCan would be able to incur additional indebtedness of approximately $760 million and still not exceed the 60% leverage limit. As a matter of policy, RioCan would not likely incur indebtedness significantly beyond 58% of Aggregate Assets, which would permit the Trust to incur additional indebtedness of approximately $441 million.

At the end of the fourth quarter, RioCan's interest coverage ratio remained consistently strong at 2.6 times. Further, its leverage level provides it with the ability to access debt markets even when these markets are tight and difficult, as they have been for the past year. For 2008, RioCan had approximately $330 million of debt maturities at an average contractual rate of 5.3%. At December 31, 2008, RioCan has two revolving lines of credit in place with Canadian chartered banks, having an aggregate capacity of $203.5 million.

Having relatively low debt leverage exposure has become very important in current economic conditions, as has the quality of RioCan's rental revenue available to service its debt and pay distributions to unitholders. At December 31, 2008, 83.4% of annualized rental revenue is derived from national and anchor tenants, with RioCan's largest exposure to any single tenant comprising only 5.4% of annualized rental revenue. RioCan reduces exposure to rental revenue risk in its shopping centre portfolio through geographical diversification, staggered lease maturities, diversification of revenue sources resulting from a large tenant base, avoiding reliance on any single tenant by ensuring no individual tenant contributes to a significant percentage of gross revenue, and ensuring a considerable portion of its rental revenue is earned from national and anchor tenants.

Subsequent to year end, in February 2009, RioCan entered into mortgage agreements to borrow $102 million from a Schedule A Chartered Canadian Bank on a floating rate basis, secured by seven properties. The floating rate has been exchanged for a fixed term rate of 4.87% for the five year term of the loans. The mortgage agreements were funded on February 12, 2009. Only one of seven properties being financed is currently subject to debt. As such, this financing will generate net cash proceeds to RioCan of approximately $95 million.

RioCan is currently negotiating an additional $90 million secured facility with a Canadian chartered bank, which has been approved by the bank and the documentation is in the process of being finalized.

RioCan's Audited Consolidated Financial Statements, Management's Discussion and Analysis and a Supplemental Information Package as at and for the fourth quarter and year ended December 31, 2008 are available on RioCan's website at www.riocan.com.

Portfolio Stability

As at December 31, 2008:

- Portfolio occupancy was 96.9%;

- Renewed approximately 2.9 million square feet during 2008 at an average rent increase of $1.56 per square foot, representing an increase of 11.7%, compared to approximately 2.45 million square feet at $1.49 per square foot in 2007, representing an increase of 9.5%. For the fourth quarter, RioCan retained approximately 92.5% of the expiring leases at an average net rent increase of $1.75 per square foot, representing an increase of 11.6%;

- RioCan retained approximately 85.8% of expiring leases, as compared to 2007, which had a retention rate of 86.1%;

- Net operating income on a same property basis increased 2.6% for the year compared with the same period in the prior year; and increased 3.6% in the fourth quarter compared with the same quarter in the prior year;

- 66% of rental revenue was derived from properties located in Canada's six high growth markets (including and surrounding Calgary, Edmonton, Montreal, Ottawa, Toronto and Vancouver);

- 83.4% of annualized rental revenue was derived from, and 82.5% of space was leased to, national and anchor tenants; and

- No individual tenant comprised more than 5.4% of annualized rental revenue.

Portfolio Activity

RioCan closed a number of acquisitions during the year ended December 31, 2008, including the following:

- A property at 1650-1660 Carling Avenue, in Ottawa, Ontario for a purchase price of $40 million. 1650-1660 Carling Avenue features a newly constructed 142,200 square foot two-storey urban retail concept. The property is anchored by a Canadian Tire located on the second level, a Mark's Work Wearhouse located on the first level, and two additional tenancies.

- A 10-property portfolio located in central and eastern Canada, totalling approximately 1.1 million square feet of new format and strip retail centres on a 50/50 basis with Kimco Realty Corporation. The aggregate purchase price of the portfolio was approximately $156 million.

- A portfolio of twelve properties located primarily in central and eastern Canada and one in western Canada aggregating approximately 67,000 square feet for a purchase price of $21 million.

Subsequent to the year end, in January 2009, RioCan announced an agreement to acquire a portfolio of six retail properties located in the greater Montreal area totalling approximately 454,000 square feet from ING Real Estate Canada LP. The portfolio features six grocery-anchored shopping centres with a total occupancy of 99%. Approximately 82.8% of the portfolio is comprised of national and regional tenants, such as IGA/Sobeys, Uniprix, TD Bank, Tim Hortons and Jean Coutu. The purchase price for the portfolio is $67.5 million, with closing expected to occur in the first quarter of 2009. RioCan has entered into an agreement to sell a 50% interest in four of the six properties, to a private investor, concurrent with the closing of the acquisition. As a result, the net purchase price of RioCan's interest in the portfolio will be approximately $47.5 million.

Development Activity

RioCan's development program continued to move forward throughout the fourth quarter. Approximately 9.6 million square feet was under development, of which RioCan's interest upon completion will be approximately 3.4 million square feet. In addition, these developments generate strong returns and improve the overall quality of the portfolio. RioCan has interests in 2.6 million square feet of conditional greenfield development projects in the development pipeline.

Highlights of some of these projects include:

- CPPIB Joint Venture - In the fourth quarter, RioCan and Trinity Development Group Inc. ("Trinity") announced a the sale of a 37.5% non-managing ownership interest in East Hills, phases I and III, a development featuring approximately 115 acres in Calgary, Alberta, to CPPIB. The sale price was $28.5 million subject to holdback conditions.

In addition, In June 2008, RioCan announced an agreement to sell two developments to CPPIB, Jacksonport located in Calgary, Alberta and St. Clair Avenue and Weston Road located in Toronto, Ontario. Jacksonport is a 105 acre development that will consist predominately of new format retail. The St. Clair and Weston development features over 19 acres and will ultimately feature approximately 570,000 square feet of retail space. Under the agreement, RioCan and Trinity each retain a 25% ownership for total interest of 50% in these two developments.

- Lowe's - RioCan entered into agreements for land leases with Lowe's Companies Canada, ULC, a subsidiary of Lowe's Companies, Inc., to open three new home improvement stores at Essa Road and Bryne Drive in Barrie, Taunton Road and Garrard Road in Whitby, and RioCan Warden Centre in Toronto. Construction was completed on the Essa Road and Bryne Drive, Taunton Road and Garrard Road locations, which commenced operations in January 2009. The RioCan Warden Centre location is currently under construction and expected to be substantially complete by the summer of 2009.

- Corbett Centre - Corbett Centre is a 26 acre site located in Fredericton, New Brunswick, acquired by way of a long-term land lease. It is currently being developed into a 471,000 square foot new format retail centre, anchored by Home Depot, which owns its own store and operates as part of the overall site. Other retailers include Michaels, Winners, Dollarama and Petcetera. A Costco, which will also own its own store, is expected to be developed in 2009. RioCan's ownership interest in the property is 62.5%. The site is being developed in conjunction with a partner, Trinity, and is expected to be substantially complete by the end of the third quarter of 2009.

- Queen and Portland - In January 2009, RioCan announced an agreement with The Home Depot Canada to receive a payment, as cash consideration, to terminate its lease in connection with the proposed store at the Queen and Portland site, on which construction has not yet commenced. RioCan intends to continue with the Queen and Portland development project and is currently reviewing the possibility of repositioning the retail portion of the development to reflect a new retail footprint. The residential portion of the development will not be affected by this change. Original plans for the Queen and Portland development project called for a total of approximately 91,000 square feet of retail space.

- Avenue Road - Construction has commenced on a development located at the northeast corner of Avenue Road and Fairlawn Avenue in one of the busiest nodes in the City of Toronto. The Avenue Road development comprises over 1.5 acres. The existing retail facility will be redeveloped to accommodate a mixed-use building featuring a 5.5 storey residential component, along with 21,000 square feet of single storey retail street-front space. The residential component, which is owned, developed and marketed by Tribute Communities, has a total of 80 units, of which, 65 (81%) are sold as at February 9, 2009. RioCan will own and manage all aspects of the retail component of the development. The retail component of the project is expected to be completed by the fourth quarter of 2010. To date, leases have been signed with BMO Bank of Montreal and Rexall™ Pharma Plus.

Other Activities

Impairment Provision on Real Estate Investments

During 2008, RioCan recorded an impairment provision on its real estate investments of $24.3 million, including a demolition accrual of $4.0 million. The provision relates primarily to two enclosed shopping centres located in tertiary markets. Substantially all of the leasable units are vacant at these two sites. It is the Trust's intention to demolish these centres and redevelop them into unenclosed shopping centres at a later date.

Equity Issue

In April 2008, RioCan completed a $130.5 million public offering of 6.2 million trust units at $21.05 per unit. In addition, the underwriters purchased an additional 930,000 units at $21.05 per unit pursuant to their over-allotment option. The gross proceeds of the over-allotment exercise were $19.6 million.

Distribution Increase

RioCan announced that its Board of Trustees approved an increase to monthly distribution to unitholders from $0.1125 to $0.1150 per unit commencing with the September 2008 distribution, payable in October 2008. This increase of $0.03 per unit on an annualized basis will increase RioCan's annualized distribution to $1.38 per unit.

Repurchase of Debentures

At December 31, 2008, RioCan had seven series of debentures outstanding totaling $849.3 million, compared to eight series of debentures outstanding, totaling $990 million, at December 31, 2007. RioCan repaid $110 million Series E debentures at maturity in January 2008. It also repurchased approximately $26 million of its $110 million Series D debentures maturing September 21, 2009 and $5 million of its $100 million Series J debentures maturing March 24, 2010 for a total purchase price of $31 million in October 2008.

Conference Call and Webcast

Interested parties are invited to participate in a conference call with management on Tuesday, February 17, 2009 at 10:30 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 416-641-6120 or 1-866-303-7746. If you cannot participate in the live mode, a replay will be available until March 3, 2009. To access the replay, please dial 416-695-5800 or 1-800-408-3053 and enter passcode 3279188#.

Scheduled speakers include Edward Sonshine, Q.C., President and Chief Executive 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 $6.3 billion, as at December 31, 2008. It owns and manages Canada's largest portfolio of shopping centres with ownership interests in a portfolio of 241 retail properties, including 16 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 concerning our objectives, our 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", "expect", "intend", "estimate", "anticipate", "believe", "should", "plan" or "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.

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 (available on www.sedar.com), which could cause actual events or results to differ materially from the forward-looking statements contained in the MD&A. 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. 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 and accelerating 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. Although the forward-looking information contained in the MD&A 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 the MD&A may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than the MD&A. Except as required by applicable law, RioCan undertakes 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
    Website: www.riocan.com