TORONTO, ONTARIO — (Marketwired) — 07/31/13 — RioCan Real Estate Investment Trust (TSX: REI.UN) –
HIGHLIGHTS for the three and six months ended June 30, 2013:
All figures in Canadian dollars unless otherwise noted. RioCan-s results are prepared in accordance with International Financial Reporting Standards (“IFRS”).
RioCan Real Estate Investment Trust (“RioCan”) today announced its financial results for the three and six months ended June 30, 2013.
“I am very pleased with the strength of our results this past quarter. We have been able to generate significant growth in our funds from operations despite the drag on the portfolio from nine vacated Zellers locations, which became vacant over the first half of the year. This space is already 62% leased with 102% of the former rental income in place to come back on stream over the next year. We expect to see continued improvement in RioCan-s cash flow into 2014 from our multiple growth drivers that include growth from development completions, organic growth from within the portfolio and intensification of our existing properties,” said Edward Sonshine, Chief Executive Officer of RioCan. “With a series of purchases in the Toronto area, and sales in secondary markets such as Thunder Bay and Moncton, we increased the percentage of RioCan-s Canadian assets situated in the six major markets of this country to over 72%. With virtually all of our development projects being in Toronto and Calgary, this percentage will continue to increase.”
Financial Highlights
In millions except percentages and per unit values
Operating FFO for the Second Quarter was $121 million ($0.40 per unit) compared to $106 million ($0.37 per unit) in the Second Quarter of 2012. The primary reasons for this increase were: a $17 million increase in net operating income (“NOI”), which was due to acquisitions, same property growth of 0.4% in Canada and 1.4% in the US, and the completion of greenfield developments. Operating FFO also benefited from lower interest expense of $1 million in the Second Quarter. These increases to Operating FFO were partially offset by increased higher general and administrative expenses of $3 million and lower fees and other income of $1 million during the Second Quarter.
Operating FFO for the six months ended June 30, 2013 was $245 million ($0.81 per unit) compared to $209 million ($0.74 per unit) in 2012. The primary reasons for this increase were: a $35 million increase in net operating income (“NOI”), as a result of acquisitions, higher lease cancelation fees, same property growth of 0.3% in Canada and the completion of greenfield developments, net of dispositions. Operating FFO was also positively impacted by higher fees and other income of $4 million. These increases to Operating FFO were partially offset by increased general and administrative expenses of $4 million.
Same Store and Same Property NOI
Leasing and Operational Highlights:
Highlights:
Portfolio Activity and Acquisition Pipeline
During the Second Quarter, RioCan completed seven acquisitions of interests in income producing properties in Canada with a weighted average capitalization rate of 5.2%.
In addition to the interests in fourteen properties to be acquired in the US as part of the effective dissolution of the joint venture arrangements with RPAI and Dunhill, RioCan has one income property under firm contract that, if completed, will represent an acquisition of $58 million at RioCan-s interest. Conditions have been waived and it is expected that this transaction will close during the third quarter of 2013. Additionally, RioCan has five income property acquisitions in Canada and the Unites States under conditional contract for a purchase price of $108 million (at RioCan-s interest) where conditions have not yet been waived.
Acquisitions Completed in the Second Quarter
Canada
The acquisition of Oakville Place, Burlington Mall and South Cambridge Centre were part of the successful completion of the amended arrangement between H&R REIT and Primaris.
United States
Acquisitions Completed subsequent to the Second Quarter
Subsequent to the quarter end RioCan completed the acquisition of one property in the US.
Acquisitions Under Contract (Firm)
In addition to RioCan-s agreements with RPAI and Dunhill, RioCan currently has one income property in Canada where conditions have been waived as follows:
Joint Venture Activities
Retail Properties of America, Inc. (RPAI)
During the quarter announced that it has entered into an agreement to effectively dissolve its joint venture arrangement with RPAI. Since 2010, RioCan and RPAI have amassed a high quality portfolio of 13 properties in Dallas, Houston, Austin, San Antonio and Temple, Texas that are owned on an 80/20 basis (80% owned by RioCan and 20% owned by RPAI). Under the terms of the dissolution, RPAI will convey its 20% managing interest in eight properties to RioCan. RioCan will, in turn, convey its 80% interest in the remaining five properties to RPAI. The transaction is expected to close on October 1 2013.
The gross purchase price for the 20% interest in the eight properties to be acquired by RioCan is $96.6 million, representing a capitalization rate of 6.9%. Under the terms of the transaction, RioCan will assume RPAI-s share of the existing in place mortgage financing on five of the properties aggregating $41.8 million, which carries an average interest rate of 3.7% and has an average term to maturity of 2.9 years. Three of the properties will be acquired free and clear of financing. The properties to be acquired have an average occupancy of 94.4%.
The gross sale price for the 80% interest in the five properties owned by RioCan is $102.8 million, representing a capitalization rate of 6.8% and represents a total of approximately 600,000 square feet (at a 100% interest). RPAI will assume RioCan-s portion of the in place mortgage financing of $54.3 million that carries a weighted average interest rate of 4.8%.
Dunhill Partners Inc. (Dunhill)
RioCan has entered into an agreement to effectively dissolve its joint venture agreement with Dunhill. Under the terms of the dissolution, RioCan will acquire its partner-s interests in six properties for a total purchase price of US$83.5 million, which equates to a capitalization rate of 6.4%. The six properties are; Arbor Park, Las Colinas Village, Las Palmas Marketplace, Lincoln Square, Louetta Central and Timber Creek Crossing.
Under the terms of the transaction, RioCan will assume Dunhill-s share of the existing in place mortgage financing on the six properties aggregating to approximately US$42 million, which carries an average interest rate of 4.97% and has an average term to maturity of 8.2 years. The properties to be acquired have an average occupancy of 97.1%. The transaction is expected to close on a property by property basis over the third and fourth quarters of 2013.
Acquisitions Under Contract (Conditional)
RioCan has $108 million of income property acquisitions (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.
Acquisition Pipeline
RioCan is currently in negotiations regarding property acquisitions in Canada and the US that, if completed, represent approximately $145 million of additional acquisitions at RioCan-s interest (calculated taking into account the US dollar transactions at an exchange rate of par). 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
As a further means of raising and re-cycling capital, the Trust intends to selectively sell assets as part of a process of actively managing the portfolio and a means of increasing the portfolio weighting to the urban markets in Canada. RioCan had dispositions of $364 million during the quarter and dispositions of $374 million during the six months ended June 30, 2013. Subsequent to the quarter end, RioCan sold one property in Canada at a sale price of $4 million. RioCan has two property dispositions in Canada under firm contract where conditions have been waived pursuant to a purchase and sale agreement at a sale price of $13 million. Additionally, RioCan has two property dispositions under conditional contract where conditions have not yet been waived pursuant to purchase and sale agreements at an aggregate sale price of $9 million. RioCan is also in the process of marketing for sale two other properties in Canada.
Development Portfolio
As at June 30, 2013, RioCan had ownership interests in 15 greenfield development projects that will, upon completion, comprise about 11 million square feet (5.0 million square feet at RioCan-s interest). In addition to its development projects, RioCan continues its urban intensification activities, primarily in the Toronto, Ontario market.
Development acquisitions completed during the Second Quarter
During the three months ended June 30, 2013, RioCan acquired interests in three development properties at an aggregate purchase price of $40 million, at RioCan-s interest.
Details of the current quarter development site acquisitions are as follows.
Development Property Acquisitions under Contract
RioCan currently has one development site in Canada under firm contract where conditions have been waived that, if completed, represents an acquisition of $14 million at RioCan-s interest.
Additionally, RioCan has $6 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
Financing Highlights for the Second Quarter
Canada
US
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. RioCan-s NCIB will be made in accordance with the requirements of the TSX. Under the NCIB, RioCan may acquire up to a maximum of 15,039,156 of its Units, or approximately 5% of its issued and outstanding Units as of July 9, 2013, for cancellation over the next 12 months commencing on or about August 3, 2013 until August 4, 2014 (as such other time as RioCan completes its purchases or provides notice of termination of such bid). The number of Units that can be purchased pursuant to the bid is subject to a current daily maximum of 149,016 Units (equal to 25% of the average daily trading volume from January 1, 2013 through to June 30, 2013), subject to RioCan-s ability to make one block purchase of Units per calendar week in excess of such limits. RioCan intends to fund the purchases out of its available cash and undrawn credit facilities.
RioCan-s Consolidated Financial Statements, Management-s Discussion and Analysis and a Supplemental Information Package for the three months ended June 30, 2013 are available on RioCan-s website at .
Conference Call and Webcast
Interested parties are invited to participate in a conference call with management on Wednesday July 31, 2013 at 9:00 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 August 28, 2013. To access the replay, please dial 905-694-9451 or 1-800-408-3053 and enter passcode 8849707#.
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 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 $13.7 billion as at June 30, 2013. It owns and manages Canada-s largest portfolio of shopping centres with ownership interests in a portfolio of 348 retail properties containing more than 83 million square feet, including 50 grocery anchored and new format retail centres containing 13.7 million square feet in the United States through various joint venture arrangements as at June 30, 2013. RioCan-s portfolio also includes 15 properties under development in Canada. For further information, please refer to RioCan-s website at .
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”), 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 second quarter 2013 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 and six months ended June 30, 2013”, “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 June 30, 2013, 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.
Contacts:
RioCan Real Estate Investment Trust
Rags Davloor
Executive Vice President & CFO
(416) 642-3554