RioCan Real Estate Investment Trust
TSX : REI.UN

RioCan Real Estate Investment Trust

July 27, 2009 15:24 ET

RioCan Real Estate Investment Trust Announces Results for Second Quarter Ended June 30, 2009

HIGHLIGHTS FOR Q2 2009: - Arranged secured mortgage financing of approximately $180 million; - Issued $180 million Series L senior unsecured debentures at a coupon rate of 8.33%; - Completed the issuance of 10,345,000 Trust Units for gross proceeds of $150 million; - Maintained strong occupancy at 97.1%; - Leverage for the Trust decreased to 55.8% of aggregate assets; and - RioCan had cash on hand of approximately $300 million at quarter end.

TORONTO, ONTARIO--(Marketwire - July 27, 2009) - RioCan Real Estate Investment Trust ("RioCan")(TSX:REI.UN) today announced its financial results for the three and six months ended June 30, 2009.

Financial Highlights

RioCan reported net earnings for the three months ended June 30, 2009 of $27.2 million ($0.12 per unit) compared to $44.8 million ($0.21 per unit) for the same period in 2008. Net earnings for the six months ended June 30, 2009 were $57.9 million compared to $75.0 million for the same period in 2008.

Funds from operations ("FFO") for the quarter ended June 30, 2009 was $67.9 million ($0.30 per unit) and was $138.5 million ($0.62 per unit) year-to-date compared to $86.9 million ($0.40 per unit) and $155.2 million ($0.72 per unit) for the same periods in 2008 respectively. The primary difference between net earnings and FFO are depreciation and future income taxes. The $19.0 million decrease in FFO for the second quarter is primarily due to the absence of gains on properties held for resale in the second quarter of 2009 versus $16.8 million of gains recorded in the same period in 2008. Excluding gains from properties held for resale, the decrease in FFO would be $1.6 million, which resulted from increased interest expense of $7.0 million due to increased average debt levels and one-time restructuring costs of $1.3 million as staff count was reduced by 32 people. On-going annualized savings as a result of the restructuring are expected to be approximately $2 to $2.5 million per year. FFO was also impacted by the negative carry on the large cash balances due to cash raised in debt refinancing, the debenture offering, and the Unit offering that has not yet been deployed. These decreases in FFO were offset by net operating income from rental properties increasing by $7.1 million versus the same period of 2008, which was primarily due to acquisitions, completion of Greenfield Developments, and intensification of existing properties. Same property net operating income (NOI) increased by 1.5% on a year over year basis for the second quarter and 0.7% for the six months ended June 30, 2009.

"RioCan's portfolio has held up very well during what continues to be a difficult recession," said Edward Sonshine, Q.C., President and Chief Executive Officer of RioCan. "While there have been a few unexpected bankruptcies from tenants such as Petcetera and Linens 'N Things, there remains strong demand by tenants for our space and we have already released a majority of these vacancies. Our strategic initiatives over the course of the last seven years to focus our portfolio on the high growth markets of Canada with a preponderance of national tenancies is proving to be a strong defensive approach in a recessionary period. During the quarter we chose to be conservative and add to our already substantial liquidity position. The short term dilutive costs will be more than offset by the added value in the future as RioCan is now one of the few REITs in Canada with the capacity to take advantage of sizable acquisition opportunities as they may arise."

Liquidity and Capital

In selecting appropriate funding choices, RioCan's objective is to manage its capital structure in such a way so as to diversify its funding sources while minimizing its funding costs and risks. RioCan had cash on hand of approximately $300 million at quarter end that can be used defensively to repay maturing debt, offensively to make strategic acquisitions, or a combination of both. Additionally, through financing of certain assets currently unencumbered by debt and refinancing maturing loan balances, RioCan expects to generate additional capital in the second half 2009.

As at June 30, 2009, RioCan's indebtedness was 55.8% of Aggregate Assets, such that it could incur additional indebtedness of approximately $664 million and still not exceed the 60% leverage limit set out in RioCan's Declaration of Trust. As a matter of policy, RioCan would not likely incur indebtedness significantly beyond 58% of Aggregate Assets, which would permit it to incur additional indebtedness of approximately $328 million. Using cash on hand to repay the remaining $79.7 million of debentures set to mature in September 2009, RioCan's proforma leverage ratio is 55.3%.

The decrease in the Debt to Aggregate Assets ratio for the quarter ended June 30, 2009 relative to December 31, 2008 was as a result of RioCan's Trust Unit offering completed in June.

Debentures

On April 3, 2009, RioCan completed the issue of $180 million principal amount of Series L senior unsecured debentures. Maturing on April 3, 2014, these debentures carry a coupon rate of 8.33%.

Also, on April 3, 2009, RioCan repurchased $4.6 million of the Series D debentures, which mature September 21, 2009, and $50.4 million of the Series J debentures, which mature March 24, 2010. As a result, $79.7 million of the Series D debentures and $44.6 million of the Series J debentures remain outstanding.

After repayment of the Series D and J debentures, the debenture issue resulted in net proceeds of approximately $124 million which is available for general Trust purposes, including opportunistic acquisitions.

Lines of Credit

RioCan has three revolving lines of credit in place with two Canadian chartered banks, having an aggregate capacity of $293.5 million (December 31, 2008 - two revolving lines of credit totalling $203.5 million with one Canadian chartered bank).

Unit Offering

On June 10, 2009 RioCan completed its issuance of 10,345,000 Trust Units for $14.50 per unit for gross proceeds of $150 million. The units were sold on an underwritten basis led by a syndicate co-led by RBC Capital Markets, BMO Capital Markets, and TD Securities Inc. Net proceeds to the Trust after issuance costs were $144 million.

Portfolio Stability

As at June 30, 2009:

- The portfolio occupancy rate as at June 30, 2009 was 97.1% compared to 96.9% as at December 31, 2008 and 97.0% as at June 30, 2008. Unanticipated vacancies of approximately 654,000 square feet have occurred year-to-date of which RioCan's interest is 454,000 square feet, however RioCan has been successful in leasing approximately 45% of the vacated space. RioCan has also been successful in leasing eight of the vacated Linens 'N Things locations and has conditional deals negotiated on the remaining two locations. Historically, the lag time for income replacement of space after it has been unexpectedly vacated is approximately 6 months;

- Approximately 714,000 square feet were renewed during the second quarter of 2009 at an average rent increase of approximately 7% or $1.06 per square foot (including anchor tenants) and approximately 9% or $1.51 per square foot (excluding fixed rent options), compared to an average rent increase of approximately 4% or $0.58 per square foot (including anchor tenants) and approximately 5% or $0.85 per square foot (excluding fixed rent options) in the first quarter of 2009. In the second quarter of 2008, 535,000 square feet were renewed at an average rent increase of approximately 12% or $1.78 per square foot (including anchor tenants) and approximately 13% or $2.09 per square foot (excluding fixed rent options);

- Same property net operating income (NOI) increased by 1.5% on a year over year basis for the second quarter and 0.7% for the six months ended June 30, 2009. Tenant bankruptcies resulted in RioCan recording approximately $0.5 million in provisions for bad debts in the second quarter and $2.1 million for the six months ended June 30, 2009. Net of unanticipated vacancies, this was offset by $1.2 million in increased rents from new and renewal leasing, fixed rent steps, and land use intensification in the second quarter and $2.8 million for the six months ended;

- For the three months ended June 30, 2009, RioCan retained approximately 93.2% of the expiring leases compared to the second quarter of 2008, which had a renewal retention rate of 90%;

- Properties located in Canada's six high growth markets (including and surrounding Calgary, Edmonton, Montreal, Ottawa, Toronto and Vancouver) accounts for 66.2% of annualized rental revenue;

- National and anchors tenants represent 84.6% of annualized rental revenue at June 30, 2009, compared to 83.4% at December 31, 2008;

- Approximately 62.0% of annualized rental revenue was derived from its 50 largest tenants; and

- No individual tenant comprised more than 5.3% of annualized rental revenue.

Portfolio Activity

The acquisitions market remains extremely competitive with little product being offered on any scale. There have not been many distressed sellers in the market and as a result there remains a wide gap between buyer's and seller's expectations. During the second quarter of 2009, RioCan did not complete any acquisitions.

Development Activity

During the three months ended June 30, 2009, RioCan completed 173,000 square feet (three months ended June 30, 2008 - 129,000 square feet) of redevelopment and development activities of which approximately 141,000 square feet pertains to additional net leasable area added at existing properties compared to 9,000 during the same period in 2008, and 32,000 square feet pertains to the completion of greenfield development projects compared to 120,000 during the same period in 2008.

As at June 30, 2009, RioCan had ownership interests in 13 greenfield development projects that will, upon completion, comprise approximately 9.4 million square feet, of which RioCan's ownership interest will be approximately 3.3 million square feet.

RioCan's Unaudited Interim Consolidated Financial Statements, Management's Discussion and Analysis and a Supplemental Information Package as at and for the three and six months ended June 30, 2009 and 2008 and the Audited Consolidated Financial Statements, Management's Discussion and Analysis and Supplemental Information Package for the year ended December 31, 2008 and 2007 are available on RioCan's website at www.riocan.com.

Conference Call and Webcast

Interested parties are invited to participate in a conference call with management on Tuesday, July 28, 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 416-695-6622 or 1-800-952-6845. If you cannot participate in the live mode, a replay will be available until August 12, 2009. To access the replay, please dial 416-695-5800 or 1-800-408-3053 and enter passcode 6008725#.

Scheduled speakers include Edward Sonshine, Q.C., President and Chief Executive Officer, Fred Waks, Executive Vice President and Chief Operating Officer and Rags Davloor, Senior Vice President and Chief Financial Officer. Management's presentation will be followed by a question and answer period. To ask a question, press "star 1" on a touch-tone phone. The conference call operator will be notified of all requests in the order in which they are made, and will introduce each questioner.

Alternatively, to access the simultaneous webcast, go to the following link on RioCan's website https://riocan.com/_bin/presentations/webcast.cfm and click on the link for the webcast. The webcast will be archived 24 hours after the end of the conference call and can be accessed for 120 days.

About RioCan

RioCan is Canada's largest real estate investment Trust with a total capitalization of approximately $7.1 billion as at June 30, 2009. It owns and manages Canada's largest portfolio of shopping centres with ownership interests in a portfolio of 247 retail properties, including 13 under development, containing an aggregate of over 59 million square feet. For further information, please refer to RioCan's website at www.riocan.com.

Forward-Looking Information

This news release contains forward-looking statements within the meaning of applicable securities laws. These statements include, but are not limited to, statements made in "Vision and Business Strategy", "Asset Profile", "Capital Structure", "Outlook", and other statements concerning RioCan's objectives, its strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "would", "expect", "intend", "estimate", "anticipate", "believe", "should", "plan", "continue", or similar expressions suggesting future outcomes or events. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management. All forward-looking statements in this Press Release are qualified by these cautionary statements.

These statements are not guarantees of future events or performance and, by their nature, are based on RioCan's estimates and assumptions, which are subject to risks and uncertainties, including those described under "Risks and Uncertainties" in the MD&A, which could cause actual events or results to differ materially from the forward-looking statements contained in this News Release. Those risks and uncertainties include, but are not limited to, those related to: liquidity in the global marketplace associated with current economic conditions, tenant concentrations, occupancy levels, access to debt and equity capital, interest rates, joint ventures/partnerships, the relative illiquidity of real property, unexpected costs or liabilities related to acquisitions, construction, environmental matters, legal matters, reliance on key personnel, unitholder liability, and income taxes. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information may include: a less robust retail environment than has been seen for the last several years; relatively stable interest costs; an increase in acquisition capitalization rates; a decrease in land costs for greenfield development; a continuing trend towards land use intensification in high growth markets; and more limited but available access to equity and debt capital markets to fund, at acceptable costs, the future growth program and to enable the Trust to refinance debts as they mature. Although the forward-looking information contained in this News release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Certain statements included in this News Release may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this News Release.

Contact Information

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