RioCan Real Estate Investment Trust Announces 2% Growth in Operating Funds From Operations in First Three Months of 2014

Marketwired

TORONTO, ONTARIO--(Marketwired - May 13, 2014) - RioCan's (TSX:REI.UN) HIGHLIGHTS for the three months ended March 31, 2014 were:

  • RioCan's Operating FFO increased by 2% to $127 million for the three months ending March 31, 2014 ("first quarter") compared to $124 million in the first quarter of 2013. On a per unit basis, Operating FFO increased 2% to $0.42 per unit from $0.41 per unit in the same period of 2013;
  • RioCan's concentration in Canada's six major markets has increased to 72.2% from 71.7% at December 31, 2013;
  • On January 29, 2014, RioCan and its partners, Allied Properties REIT and Diamond Corporation, announced The Well. This mixed use development project is located at the corner of Front Street and Spadina Avenue in close proximity to downtown Toronto on a 7.7 acre site, and the partners have filed a rezoning application for up to 3.7 million square feet of retail, office and residential properties;
  • Overall occupancy was in line at 96.8% as of March 31, 2014, compared to 96.9% at December 31, 2013;
  • RioCan renewed 1,282,000 square feet in the Canadian portfolio during the first quarter at an average rent increase of $1.02 per square foot, representing an increase of 7.0%;
  • During the first quarter, RioCan's same store growth was 3.1% in Canada and 3.0% in the US;
  • As at March 31, 2014, RioCan had ownership interests in 16 properties under development that will, upon completion, comprise approximately 10.8 million square feet at RioCan's interest, all located in major markets in Canada`;
  • During the first quarter, RioCan acquired interests in two income properties in Canada and the US at an aggregate purchase price of approximately $21 million at RioCan's interest at a weighted average capitalization rate of 6.7%;
  • During the first quarter, RioCan sold three properties located in secondary markets aggregating 472,000 square feet at a total sale price of $51 million; and
  • During the quarter, RioCan completed the offering of $150 million Series U debentures, which carry a coupon of 3.62% and maturity date of June 1, 2020.

RioCan Real Estate Investment Trust ("RioCan") today announced its financial results for the three months ended March 31, 2014.

"We are quite satisfied with RioCan's first quarter results. RioCan's portfolio continued to generate positive Operating FFO per unit growth in the first quarter in spite of a smaller portfolio on a comparative basis, and notwithstanding significant investment in our development program and management information technology, both of which are part of our focus on the future," said Edward Sonshine, Chief Executive Officer of RioCan. "The portfolio of development, redevelopment and intensification assets that RioCan has assembled will be an impressive engine for RioCan's continued growth. This portfolio that will generate long term returns that will be completed in a staggered manner. When considering the potential opportunities within this portfolio, we expect to be able to add new projects as others are completed to maintain this growth profile and to reposition certain assets in our core markets, while at all times managing risk and exposure in a responsible manner."

Financial Highlights

All figures in Canadian dollars unless otherwise noted. RioCan's results are prepared in accordance with International Financial Reporting Standards ("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. For a full definition of these measures, please refer to the "Use of Non-GAAP Measures" in RioCan's first quarter 2014 Management Discussion and Analysis.

In millions except percentages and per unit values Three months ended March 31,
2014 2013 % change
Operating FFO $127 $124 2%
Operating FFO per Unit $0.42 $0.41 2%
In $millions Three months ended March 31,
2014 2013
Net earnings attributable to common and preferred unitholders $171 $163
Net earnings before taxes and fair value adjustment $105 $114
In $millions. As at March 31, 2014 March 31, 2013
Total enterprise value (1) 14,549 14,411
Total assets - at RioCan's interest(1) 13,820 12,993
Debt(1) (mortgages and debentures payable - at RioCan's interest) 6,124 5,748
(1) Based on RioCan's proportionate share including joint ventures accounted for under the equity method of accounting

Operating FFO for the first quarter was $127 million ($0.42 per unit) compared to $124 million ($0.41 per unit) in the first quarter of 2013. The primary reasons for this increase were an increase in NOI from rental properties of $6 million, which includes the impact of the following items: higher rental income as a result of acquisitions, net of dispositions, same store growth of 3.1% for Canada and 3.0% for the US portfolio and the benefit of $3.2 million in favourable foreign currency gains from US operations offset by lower lease cancellation fees and straight line rent of $2.4 million, and a decrease in interest expense of $3 million (including $1 million unfavourable impact of foreign exchange). These increases to Operating FFO were partially offset by a decrease in other revenue of $5 million due to lower development fees generated on joint venture projects. Operating FFO was also impacted by an increase in general and administrative costs of $2 million due primarily to increased information technology costs associated with the Trust's implementation of a new ERP and financial reporting system during the quarter as well as certain related one-time costs.

Same Store and Same Property NOI
Canada Three months ended
March 31, 2014
year over year
Same Store Growth 3.1%
Same Property Growth 2.6%
United States
Same Store & Property Growth 3.0%
Leasing and Operational Highlights:
2014 2013 2012
(thousands of square feet, millions of dollars) First
quarter
Fourth
quarter
Third
quarter
Second
quarter
First
quarter
Fourth
quarter
Third
quarter
Second
quarter
Committed occupancy 96.8% 96.9% 97.0% 96.7% 97.0% 97.4% 97.3% 97.4%
Economic occupancy 95.7% 95.8% 95.5% 95.4% 95.8% 95.9% 95.5% 95.5%
NLA leased but not paying rent 519 542 716 642 615 711 855 871
Annualized rental impact $13.0 $14.0 $17.0 $15.0 $15.0 $15.0 $18.0 $ 18.0
Retention rate - Canada (i) 91.2% 97.0% 91.1% 95.9% 68.3% 94.3% 84.8% 89.9%
% increase in average net rent per sq ft - Canada 7.0% 8.8% 11.2% 12.0% 13.4% 18.4% 12.9% 13.4%
Retention rate - US 86.4% 98.2% 98.4% 92.0% 98.8% 87.6% 96.3% 84.2%
% increase in average net rent per sq ft - US 8.3% 4.8% 3.8% 4.3% 2.3% 5.1% 6% 7.3%
Average in place rent $16.01 $16.08 $16.07 $15.77 $15.77 $15.70 $15.85 $15.33
Same store growth (ii) - Canada 3.1% 2.7% 2.2% 0.6% 0.1% 0.2% 0.0% 1.5%
Same store growth (ii) - US 3.0% 1.7% 0.9% 1.4% 1.4% 1.9% (0.3)% 1.3%
(i) - 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. Retention excluding Zellers is 81.1%.
(ii) - Refers to the growth in same store on a year over year basis

Highlights:

  • During the quarter, RioCan renewed 1.3 million square feet (2013 - 808,000 square feet) in the Canadian portfolio at an average rent increase of $1.02 per square foot (2013 - $1.93 per square foot), representing an increase of 7.0% and a renewal retention rate of 91.2%. The proportion of tenant expiries at fixed versus market rental rate options increased substantially from the first quarter of 2013. This has resulted in a lower increase in average net rent per square foot in Canada this quarter, as has been experienced in prior quarters;
  • 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 (71.7% at December 31, 2013). The increase in the past quarter was accomplished through the sale of certain assets in secondary markets;
  • National and anchor tenants represented about 86.4% of RioCan's total annualized rental revenue at March 31, 2014, a slight increase compared to 86.0% at March 31, 2013; and
  • No individual tenant comprised more than 4.4% of annualized rental revenue. At March 31, 2014, Loblaws/No Frills/Fortinos/Zehrs/Maxi/Shoppers Drug Mart was RioCan's largest revenue source.

Portfolio Activity and Acquisition Pipeline

During the first quarter, RioCan completed two acquisitions of interests in income producing properties for a total purchase price of $21 million in Canada and the US with a weighted average capitalization rate of 6.7%.

Acquisitions Completed in the First Quarter

Canada

  • RioCan acquired the remaining 40% interest in Whiteshield Plaza, bringing RioCan's interest in the property to 100%. White Shield Plaza is a 156,000 square foot grocery anchored shopping centre located in Toronto, Ontario. The additional 40% interest was acquired at a purchase price of $11 million, representing a capitalization rate of 5.5%. In connection with the acquisition, RioCan assumed outstanding mortgage financing of $8 million, which was subsequently repaid.

United States

  • The acquisition of a 100% interest in a 64,329 square foot single-tenant building at Riverpark Shopping Center in SugarLand (Houston), Texas. The purchase price for the building, which is tenanted by Gander Mountain, was $10 million, which equates to a capitalization rate of 8.0%. The building was acquired free and clear of financing. RioCan owns a 100% interest in the Riverpark Shopping Center a 375,599 square foot new format retail centre.

Acquisitions Under Contract (Firm)

RioCan has one income property under firm contract in Canada that would represent an acquisition of $22 million, at a capitalization rate of 6.8%.

Canada

  • RioCan has the acquisition of University Plaza under firm contract at a purchase price of $22 million at a capitalization rate of 6.8%. University Plaza is an open format retail centre anchored by Shoppers Drug Mart located in Hamilton, Ontario with NLA of 113,000 square feet. The property will be acquired free and clear of financing and the acquisition is expected to close in the second quarter of 2014. This purchase will integrate well with RioCan's existing shopping centre, Miracle Plaza, a 84,000 square foot centre anchored by a Metro grocery store, and will enable RioCan to create management and operating efficiencies on both of these assets.

Acquisitions Under Contract (Conditional)

RioCan has income property acquisitions under contract in Canada where conditions have not yet been waived that, if completed, will represent acquisitions of $31 million, at RioCan's interest. These transactions are undergoing due diligence procedures and while efforts will be made to complete the transactions, no assurance can be given.

Acquisition Pipeline

RioCan is currently in negotiations regarding property acquisitions in Canada that, if completed, represent approximately $100 million of additional acquisitions at RioCan's interest. These transactions are in various stages of negotiations and while efforts will be made to complete these negotiations, no assurance can be given.

Disposition Pipeline

During the first quarter, RioCan had dispositions of $51 million during the three months ended March 31, 2014, as follows:

  • On January 28, 2014, RioCan sold its 100% interest in Madawaska Centre, located in Edmundston, New Brunswick for $1 million.
  • On January 31, 2014, RioCan sold its 100% interest in Mega Centre Beauport located in Quebec City for $47 million, which equates to a capitalization rate of 6.0%. Mega Centre Beauport is a 183,000 square foot new format retail centre and tenanted by Cineplex, Sports Experts and Future Shop.
  • On February 27, 2014, RioCan sold its 26,000 square foot interest (52,000 square feet at 100%) in the Canadian Tire unit at Millcroft Shopping Centre in Millcroft, Ontario for $3 million at RioCan's interest. The sale of this unit took place as another tenant at the centre exercised an option on its lease to acquire the unit.

Development Portfolio

As at March 31, 2014, RioCan had ownership interests in 16 greenfield development projects that will, upon completion, comprise about 11 million square feet (6 million square feet at RioCan's interest). In addition to its development projects, RioCan continued its urban intensification activities, primarily in the Toronto, Ontario market.

Development acquisitions completed during the First Quarter

During the three months ended March 31, 2014, RioCan acquired interests in six development properties at an aggregate purchase price of $138 million, at RioCan's interest.

Details of the current quarter development site acquisitions are as follows.

  • The January 10, 2014 acquisition by the joint venture between RioCan and Kimco of a portion of the retail portion of the condo development at Brentwood Village. The retail development was acquired at a purchase price of $7 million ($3.5 million at RioCan's equity) and was acquired free and clear of financing. The acquisition price was based on a pre-existing agreement with the developer, rather than based on a fair value determined via capitalized NOI. The joint venture acquired the portion of the property where development has been completed (approximately 24,000 square feet out of an total of 38,000 square feet of retail space to be provided by the developer). Tenants will begin operating in the new retail area in August 2014. Brentwood Village is an unenclosed community shopping centre with anchor tenants including Sears Whole Home, Safeway, and London Drugs, and national tenants including Pier 1 Imports, Sleep Country, Penningtons, TD Canada Trust, Bank of Montreal and Harvey's.
  • The January 24, 2014 acquisition of a 100% interest in 1860 Bayview Avenue in Toronto, Ontario. 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 has acquired the site on a forward purchase basis at an expected purchase price on completion of $58 million, at a capitalization rate of 5.4%. Equity acquired in the quarter was $26 million. Once completed, the centre will consist of approximately 83,084 square feet of retail space and will be anchored by a 52,420 square foot Whole Foods grocery store.
  • The March 5, 2014 acquisition of a 50% interest in 31 Roehampton Avenue, a 30-unit apartment building located at the corner of Yonge Street and Roehampton Avenue in Toronto, Ontario, at a purchase price of $8 million ($4 million at RioCan's interest). The acquisition forms part of the existing Northeast Yonge Eglinton land assembly, acquired initially in 2011 with Metropia and Bazis for the purpose of redeveloping into a mixed-use retail and residential property. RioCan and its partners have obtained zoning approval and the redevelopment commenced in April 2014.
  • The March 31, 2014 acquisitions of Trinity's interests in three development projects: RioCan acquired Trinity's 25% interest in each of The Stockyards, Toronto, Ontario and McCall Landing, Calgary, Alberta and 10% interest in East Hills, Calgary, Alberta at an aggregate purchase price of $105 million. In connection with the acquisition of the additional interest in The Stockyards, RioCan assumed mortgage financing of $24 million. RioCan will take over as development manager for each of the development sites. RioCan will also assume responsibility for all leasing activities with respect to the properties. Upon completion, RioCan will provide asset and property management functions on behalf of its partners as previously agreed upon.

Development Property Acquisitions Subsequent to Quarter End

  • Subsequent to March 31, 2014, RioCan acquired the remaining 40% interest in the Kromer parcel of the College & Bathurst land assembly from Trinity at a purchase price of $11 million. The consideration received by Trinity was used to repay, in full, the outstanding mezzanine financing principal and accrued interest in the amount of $7 million on the project, in conjunction with the transaction closing.
  • On May 9, 2014, RioCan acquired its partner's interests in another development property (100% of the industrial component and 50% of the retail component) at a purchase price of $11 million. As a result of this transaction, RioCan now has a 100% ownership interest in the industrial component and an 81% ownership interest in the retail component. The consideration received by the partner was used to repay, in full, the outstanding mezzanine financing principal and accrued interest in the amount of $11 million on the project, in conjunction with the transaction closing.

Development Property Acquisitions under Contract

RioCan currently has 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 kilometres 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 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 North East corner of Yonge and Eglinton in Toronto, Ontario, at a purchase price of $12 million ($6 million at RioCan's interest). The acquisition is expected to close in the third quarter of 2014 and will form part of the existing northeast Yonge Eglinton land assembly, acquired in 2011 with Metropia and Bazis for the purpose of redeveloping into a mixed-use retail and residential property. RioCan and its partners obtained zoning approval and the redevelopment is slated to commence in 2014.

Additionally, RioCan has $4 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.

Liquidity and Capital

Quarter
Ended (i)
Rolling 12
months ended (ii)
March 31,
2014
March 31,
2014
December 31,
2013
Interest coverage ratio - RioCan's interest 3.20x 2.85x 2.83x
Debt service coverage ratio - RioCan's interest 2.34x 2.12x 2.10x
Fixed charge coverage ratio - RioCan's interest 1.12x 1.06x 1.06x
Net debt to Adjusted EBITDA ratio - RioCan's interest 7.91x 7.86x 7.56x
Net Operating debt to Operating EBITDA - RioCan's interest 7.53x 7.49x 7.24x
Unencumbered assets (millions) $2,278 $2,068
Unencumbered assets to unsecured debt 141% 142%
(i) Excludes capitalized interest
(ii) Includes capitalized interest

Financing Highlights for the First Quarter

Unencumbered Assets

As at March 31, 2014, RioCan's unencumbered asset pool was comprised of 108 assets with an aggregate fair value of $2.3 billion.

Credit Facilities

At March 31, 2014, RioCan has four revolving lines of credit in place with three Canadian chartered banks, having an aggregate capacity of $640 million.

Subsequent to the quarter, RioCan added a fifth operating line by converting an existing non-revolving term loan (that matured in 2014) into a revolving facility. The new facility has a capacity of $67.5 million with pricing similar to RioCan's other operating lines and a maturity date of December 2015. This facility brings RioCan's aggregate limit to $707.5 million.

Term Financing

Canada

  • RioCan obtained approximately $10 million of fixed-rate mortgage financing at a weighted average interest rate of 3.42% with a weighted average term to maturity of 4.9 years.
  • During the first quarter RioCan issued $150 million Series U ten year senior unsecured debentures at an interest rate of 3.62% maturing June 1, 2020.

US

  • RioCan obtained approximately $6 million of fixed-rate mortgage financing at a weighted average interest rate of 4.42% with a weighted average term to maturity of 9.7 years.

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. During the first quarter RioCan did not make any purchases of Trust Units.

RioCan's Consolidated Financial Statements, Management's Discussion and Analysis for the three months ended March 31, 2014 is 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, May 13, 2014 at 11:00 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 June 10, 2014. To access the replay, please dial 905-694-9451 or 1-800-408-3053 and enter passcode 4629601#.

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 $14.5 billion as at March 31, 2014. It owns and manages Canada's largest portfolio of shopping centres with ownership interests in a portfolio of 340 retail properties containing approximately 82 million square feet, including 47 grocery anchored and new format retail centres containing 13 million square feet in the United States as at March 31, 2014. RioCan's portfolio also includes 16 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"), Adjusted Net Operating Income, 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 first quarter 2014 Management Discussion and Analysis.

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 ended March 31, 2014", "Financial Highlights", "Leasing and Operational Highlights", "Portfolio Activity and Acquisition Pipeline", "Liquidity and Capital", and "Development Portfolio"), 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 March 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 in the global marketplace associated with 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 investment in the United States of America ("US"), fluctuations in the currency exchange rate between the Canadian and US dollar 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; and 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:
RioCan Real Estate Investment Trust
Rags Davloor
Executive Vice President & CFO
(416) 642-3554

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