RioCan Real Estate Investment Trust
TSX : REI.UN

RioCan Real Estate Investment Trust

February 25, 2015 07:05 ET

RioCan Real Estate Investment Trust Announces Strategic Venture With Hudson's Bay Company to Unlock Long-Term Value From Canadian Real Estate and Capitalize on Future Growth Opportunities

TORONTO, ONTARIO--(Marketwired - Feb. 25, 2015) - Earlier this morning RioCan Real Estate Investment Trust ("RioCan") (TSX:REI.UN) announced that it has agreed to form a joint venture with Hudson's Bay Company ("HBC") focused on real estate growth opportunities in Canada. The joint venture will enable RioCan and HBC to build on the strength of existing real estate assets through potential future redevelopment, as well as identify new real estate acquisition and redevelopment opportunities.

"As part of this transaction we have been able to secure one of Canada's leading retailers in two key properties, being Georgian Mall and Oakville Place, for an additional twenty years, solidifying the strength of these shopping centres for years to come," said Edward Sonshine, Chief Executive Officer of RioCan. "This joint venture represents an exciting opportunity for RioCan and HBC to combine our collective retail real estate acumen, and a strong collection of banners which serve as highly desirable anchor tenants in order to create a one-of-a-kind real estate portfolio with excellent potential for future urban mixed use redevelopment."

Canadian Joint Venture Agreement

RioCan has committed to contribute $325 million to the newly established joint venture entity ("JV Entity") for an eventual pro forma equity stake of 20.2%. RioCan's equity contribution will be comprised of three components. The first component is a $144.3 million equity contribution by way of the sale of a 50% interest in two enclosed mall properties as described below. The second component is by way of a $52.5 million capital commitment for tenant and capital improvements to certain properties in the JV Entity. The final component is a capital commitment by RioCan by way of an equity contribution of $128.1 million to be funded over the next three years for future acquisitions by the JV Entity.

The transaction values RioCan's contribution of a 50% interest in two enclosed mall properties in Ontario (Oakville Place and Georgian Mall described below) at $296.6 million based on a capitalization rate of 5.15%. RioCan's initial equity contribution to the JV Entity will be $144.3 million in the form of a 50% interest in the two mall properties, net of the existing debt of $142.2 million (at 50%), which carries a weighted average interest rate of 3.7% and maturing in 2018 and 2021, and net of a capital lease obligation related to a ground lease of $10.1 million at RioCan Georgian Mall for an initial equity stake in the JV Entity of 10.1%. RioCan will continue to act as manager for the enclosed malls that it will contribute to the JV Entity's portfolio. RioCan will also contribute an additional $52.5M to the JV Entity, part of which is to be utilized for improvements to certain properties contributed to the JV Entity.

RioCan has also committed to an additional equity contribution to the JV Entity of approximately $128.1 million over the next three years to fund future property acquisitions to increase the value and diversify the tenant base of the JV Entity. RioCan's contributions will be made by the third anniversary of the closing date. The joint venture will be entitled to exclusivity on select enclosed regional mall acquisition opportunities in Canada identified by RioCan, and all retail property acquisition opportunities identified by HBC.

RioCan's Property Contributions to the JV Entity

Georgian Mall

With more than 150 stores and the potential to add further retail and residential spaces on the adjacent 6.6 acres of land, this property is the dominant regional mall servicing the areas north of the GTA. Georgian Mall is located near Highway 400 along Bayfield Street, a major commercial corridor through Barrie, and is the largest shopping centre in the Barrie-Huronia area. Barrie is located along the shores of Lake Simcoe, approximately 90 kms north of Toronto. It is one of Canada's fastest growing metropolitan areas. The mall is anchored by The Bay and shadow anchored by Sears department stores. Major fashion tenants at Georgian Mall include H&M, American Eagle, Michael Hill, The Garage Clothing Co., Melanie Lyne and Town Shoes. Other national tenants include Disney Store, SportChek, HomeSense and Shoppers Drug Mart. The site encompasses 61.9 acres (including 6.57 acres of excess lands), and has parking for 3,105 vehicles.

Oakville Place

Oakville Place is located directly off of the Queen Elizabeth Way ("QEW"), the major highway running through Ontario's "Golden Horseshoe", in Oakville, Ontario. Oakville Place also has the potential for additional mixed use opportunities on the 21.9 acre site. Oakville is a fast growing community with a strong, diversified economic base, and possesses one of Canada's highest income demographics with an average household income statistic that is well above the national average. Oakville Place is a fashion focused, two level regional mall containing approximately 455,000 square feet of gross leasable area. The property was built in 1981 and has undergone significant renovations in 2004 and 2008. Oakville Place is is anchored by The Bay and Sears. Other major retail tenants at Oakville Place include American Eagle, H&M, Jacob, Birks, Roots, Laura, Mexx and Shoppers Drug Mart. Pusateri's, a local high end grocery and food retailer is scheduled to open an 18,000 square foot location at Oakville Place in late 2015.

In connection with the overall transaction, HBC has agreed to renegotiate the terms of the leases at Georgian Mall and Oakville Place. The revisions include the entering into a new twenty year lease from the closing date of the transaction, with six, five year renewal options, revisions to the rent and a commitment by the JV Entity to improve the stores.

HBC's Property Contributions to the JV Entity

Under the agreement with RioCan, HBC will contribute ten owned or ground-leased properties to the JV Entity with an estimated 3.3 million square feet. The transaction values the HBC real estate contribution at approximately C$1.7 billion based on a capitalization rate of 5.08%. In addition to an eventual pro forma 79.8% equity stake in the JV, HBC is expected to receive approximately C$352 million in cash proceeds from third-party debt to be arranged in advance by HBC and assumed by the JV Entity, and the JV Entity is expected to assume approximately $48 million of existing debt secured against one of the properties contributed by HBC. As a result, HBC will have an initial equity stake in the JV Entity of C$1.3 billion, representing an initial 89.9% interest in the JV Entity. The JV Entity will enter into a new lease with HBC for each of the ten store locations with a lease term of twenty years that provides for moderate annual rental increases during the term of the lease and any extensions.

HBC Properties to be contributed to the JV Entity

Top 10 Property
Name
Street
Address
City, Province GLA
(Sq. Ft.)
Leasehold/
Freehold
1 Downtown Vancouver 674 Granville Street Vancouver, BC 636,828 Freehold
2 Downtown Montreal 585 Ste-Catherine St. W. Montreal, QC 655,396 Freehold
3 Downtown Calgary 200-8th Avenue S.W. Calgary, AB 488,834 Freehold
4 Downtown Ottawa 73 Rideau Street Ottawa, ON 335,305 Freehold
5 Yorkdale Shopping Centre 3401 Dufferin St. Toronto, ON 303,438 Leasehold
6 Scarborough Town Centre 300 Borough Drive Toronto, ON 231,759 Leasehold
7 Carrefour Laval 3045 Boulevard Le Carrefour Laval (Montreal), QC 177,022 Leasehold
8 Promenades St. Bruno Boulevard des Promenades St. Bruno (Montreal), QC 131,808 Leasehold
9 Square One Shopping Centre 100 City Centre Drive Mississsauga, ON 200,729 Leasehold
10 Devonshire Mall 3030 Howard Avenue Windsor, ON 165,584 Freehold
Total 3,286,703

Closing

The transaction is currently expected to close by June 30, 2015, subject to securing acceptable debt financing for the JV Entity and other customary closing conditions and consents.

About RioCan

RioCan is Canada's largest real estate investment trust with a total capitalization of approximately $15.1 billion as at December 31, 2014. It owns and manages Canada's largest portfolio of shopping centres with ownership interests in a portfolio of 340 retail properties containing more than 79 million square feet, including 48 grocery anchored and new format retail centres containing 13 million square feet in the United States as at December 31, 2014. RioCan's portfolio also includes 15 properties under development in Canada. For further information, please refer to RioCan's website at www.riocan.com.

About Hudson's Bay Company

Hudson's Bay Company, founded in 1670, is North America's longest continually operated company. Today, HBC offers customers a range of retailing categories and shopping experiences primarily in the United States and Canada. Our leading banners - Hudson's Bay, Lord & Taylor, Saks Fifth Avenue and Saks Fifth Avenue OFF 5TH - offer a compelling assortment of apparel, accessories, shoes, beauty and home merchandise. Hudson's Bay is Canada's most prominent department store with 90 full-line locations, two outlet stores and www.thebay.com. Lord & Taylor operates 50 full-line locations primarily in the northeastern and mid-Atlantic U.S., four Lord & Taylor outlet locations and www.lordandtaylor.com. Saks Fifth Avenue, one of the world's pre-eminent luxury specialty retailers, comprises 38 U.S. stores, five international licensed stores and www.saks.com. OFF 5TH offers value-oriented merchandise through 79 U.S. stores and www.saksoff5th.com. Home Outfitters is Canada's largest kitchen, bed and bath specialty superstore with 67 locations. Hudson's Bay Company trades on the Toronto Stock Exchange under the symbol "HBC".

Forward-Looking Statements

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 "Canadian Joint Venture Agreement", "RioCan's Property Contributions", "HBC's Property Contributions", and "Closing"), 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 year ended December 31, 2014, 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 and related risk of bankruptcy, occupancy levels and defaults; lease renewals and rental increases; retailer competition; access to debt and equity capital; interest rate and financing risk; joint ventures and partnerships; the relative illiquidity of real property; unexpected costs or liabilities related to acquisitions and dispositions; development risk associated with construction commitments, project costs and related approvals; environmental matters; litigation; reliance on key personnel; management information systems; unitholder liability; income and indirect taxes; U.S. investments, property management and foreign currency risk; and credit ratings. 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; and the availability of purchase opportunities for growth in Canada and the U.S.. 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
    Edward Sonshine, O. Ont., Q.C.
    Chief Executive Officer
    (416) 866-3018

    RioCan Real Estate Investment Trust
    Rags Davloor
    President, Chief Operating Officer
    and Interim Chief Financial Officer
    (416) 642-3554
    www.riocan.com