TORONTO, Feb. 20, 2020 (GLOBE NEWSWIRE) — RioCan Real Estate Investment Trust (âRioCan” or the “Trustâ) today announced its financial results for the three months (“Fourth Quarter”) and year ended December 31, 2019.
“We are pleased to announce that our major market portfolio, as of December 31, 2019, provides us with 90.1% of our annualized revenue, with the largest part of that represented by the Greater Toronto Area (GTA),â said Edward Sonshine, Chief Executive Officer of RioCan. “In fact, the GTA represents 52.4% of our annualized revenue. Notwithstanding that we shrank our retail footprint by nearly 10.0 million square feet of secondary market retail space, our FFO per unit in 2019 exceeded that of the prior year. With the retail properties remaining and our ongoing mixed-use development program proceeding so successfully, I am extremely pleased with our progress and confident about 2020.â
|Three months ended
|(in millions except percentages, square feet and per unit values)||2019||2018||2019||2018|
|Weighted average units outstanding – diluted (in thousands)||315,080||306,295||307,779||314,024|
|FFO per unit â diluted (i)||$||0.46||$||0.45||$||1.87||$||1.85|
|Same property NOI growth – six major markets (i)||2.8||%||2.2||%||2.5||%||2.6||%|
|Same property NOI growth – overall portfolio (i)||2.3||%||2.1||%||2.1||%||2.2||%|
|Six major markets – % of total annualized revenue (ii)||90.1||%||85.4||%||90.1||%||85.4||%|
|Greater Toronto Area – % of total annualized revenue (ii)||52.4||%||46.8||%||52.4||%||46.8||%|
|Occupancy – committed six major markets (ii)||97.7||%||97.7||%||97.7||%||97.7||%|
|Occupancy – committed (ii)||97.2||%||97.1||%||97.2||%||97.1||%|
|Blended leasing spread||8.2||%||10.7||%||9.4||%||5.0||%|
|Renewal leasing spread||10.2||%||5.0||%||9.2||%||2.6||%|
|Development completions – sq ft in thousands||118.0||298.0||530.0||799.0|
|Development expenditures (iii)||$||143.5||$||151.3||$||473.7||$||473.4|
|Properties under development and residential inventory as a percentage of consolidated gross book value of assets (maximum permitted: 15%) (ii) (iii)||9.0||%||8.5||%||9.0||%||8.5||%|
|Balance Sheet Strength Highlights|
|Debt to Adjusted EBITDA (i) (iv)||8.06||x||7.88x||8.06||x||7.88x|
|Ratio of total debt to total assets (i) (ii) (iv)||42.1||%||42.1||%||42.1||%||42.1||%|
|Unencumbered assets (i) (ii) (iv)||$||8,937||$||7,970||$||8,937||$||7,970|
|Unencumbered assets to unsecured debt (i) (ii) (iv)||227||%||231||%||227||%||231||%|
|(i)||A Non-GAAP measurement. For definitions and basis of presentation of RioCan’s Non-GAAP measures, refer to the Non-GAAP Measures section in RioCan’s Management’s Discussion and Analysis (MD&A) for the year ended December 31, 2019.|
|(ii)||Information presented as at December 31.|
|(iii)||Includes costs incurred for various properties under development and for residential inventory in respective reporting periods.|
|(iv)||At RioCan’s proportionate share.|
FFO Per Unit Growth
- FFO per unit increased by $0.02 over the last year to $1.87, despite $35.6 million in lower realized marketable securities gains, $5.0 million in lower capitalized interest resulting from substantial development completions and $2.2 million in higher condominium and townhouse marketing costs, as well as $0.5 billion of dispositions completed in 2019 and the full year effect of nearly $1.0 billion of dispositions completed in 2018. These dilutive factors were offset by strong same property NOI growth, higher residential inventory gains, strong residential rental leasing velocity, transaction gains from equity accounted investments, and lower G&A costs.
- For the Fourth Quarter, FFO per unit increased by $0.01 to $0.46 when compared to the same period last year.
- Net income increased by 46.9% for the year ended December 31, 2019 over the comparable period primarily due to higher fair value gains on investment properties as the Trust continues to drive operational growth, improve its portfolio quality and tenant base, and unlock the intrinsic values of its portfolio.
Major Market Focus and Strong Property / Tenant Mix
- The Trust’s achievement of 90.1% and 52.4% of its total annualized rental revenue from the six major markets and GTA was a culmination of relentless efforts to drive same property NOI growth, successful execution of $1.6 billion of secondary market asset dispositions since October 2017 with 81 properties or 9.9 million square feet sold at cap rates materially in line with IFRS valuations, $1.2 billion of major market focused strategic acquisitions, and over 1.3 million square feet of major market development completions over the past two years.
- Mixed-Use / Urban and Grocery Anchored centres combined accounted for 60.6% and 62.9% of the Trust’s portfolio based on net leasable area (NLA) and annualized rental revenue as of December 31, 2019, respectively. This further highlights the quality of our portfolio and underlying income, as well as the growth prospects.
- Enclosed centres accounted for less than 10% of the Trust’s portfolio, whether measured on a NLA or annualized rental revenue basis.
- As of the year end, 74.5% of the Trust’s total annualized rental revenue is derived from necessity-based and service-oriented tenants, the sectors that have demonstrated persistent growth and resilience. This proportion of our tenant base grew by 40 basis points over the prior quarter and 170 basis points over the 2018 year end.
Same Property NOI Growth – Commercial
- The major market portfolio generated strong same property NOI growth of 2.5% for the year and 2.8% for the Fourth Quarter. When completed properties under development are included in same property NOI, same property NOI for the major market portfolio grew by 3.7% for the year and 4.1% for the Fourth Quarter.
- The overall portfolio achieved same property NOI growth of 2.1% for the year and 2.3% for the Fourth Quarter, impacted by the negative same property NOI of its secondary market properties (declined 1.2% and 2.3% for the year and Fourth Quarter, respectively). When completed properties under development are included in same property NOI, same property NOI for the Trust’s overall portfolio grew by 3.3% for the year and 3.5% for the Fourth Quarter.
- For 2020, we expect to achieve same property NOI growth in excess of 3.0%, although quarter to quarter results may vary.
Operation Highlights – Commercial
- Renewal and blended leasing spreads increased to 9.2% and 9.4% for the year ended December 31, 2019, significantly improved over 2.6% and 5.0%, respectively from the prior year.
- Committed and in-place occupancy increased by 10 and 20 basis points when compared to December 31, 2018, achieving 97.2% and 96.3%, respectively as of December 31, 2019. The committed occupancy improvement was driven primarily by a 260 basis point increase in office occupancy, while the in-place occupancy improvement was driven by a 330 basis point increase in office occupancy and a 10 basis point increase in retail occupancy.
- Committed and in-place occupancy for retail remained strong at 97.2% and 96.3%, respectively. Major market retail committed and in-place occupancy was even stronger at 97.8% and 96.9%, respectively, while retail committed and in-place occupancy in the GTA increased by 10 basis points each from the previous quarter to 98.4% and 97.4%.
- Average net rent per occupied square foot grew by 3.6% to $19.75 as of the year end when compared to the prior year, driven by strong new and renewal leasing and the Trust’s increasing presence in the six major markets including the GTA.
- Average net rent at the Trust’s active urban intensification projects is $34.79 per square foot based on 788,000 square feet of committed or in-place leases as of February 19, 2020, a 7.8% increase from $32.26 per square foot as of the prior year MD&A date. This reflects the quality of the Trust’s developments which are almost all major market focused and transit-oriented, and are expected to further drive increases in average net rent per square foot and further improve the quality of the Trust’s portfolio.
Operation Highlights – Residential
- Residential rental leasing which commenced in late 2018, continued to make significant progress with strong velocity at the Trust’s first two purpose-built RioCan LivingTM residential rental towers. As of February 19, 2020, 401 units (86.1% of all units) have been leased at the 466-unit eCentralTM property in Toronto, Ontario, at an average monthly rent of $3.90 per square foot for market rent units, and 220 units (96.9% of all units) have been leased at the 228-unit FrontierTM property in Ottawa, Ontario at an average monthly rent of $2.49 per square foot. Frontier has achieved stabilization while eCentral is expected to achieve stabilization by the spring of 2020.
- In its first year during lease up, the two residential rental towers generated rental net operating income of $2.4 million.
- Residential inventory gains of $11.0 million and $36.3 million were recognized for the Fourth Quarter and year ended December 31, 2019, respectively, from condominium units at eCondosTM and KinglyTM, both in Toronto, Ontario and from UC Towns at Windfield Farms in Oshawa, Ontario as purchasers gradually took possession of their units. Nearly all purchasers across the three projects are now in possession of their units. King Portland Centre (including the condominium component, Kingly) was recently ranked 7th of the 15 most influential and architecturally significant buildings of the past decade in Toronto, Ontario by UrbanToronto for effectively combining brick and beam style with modern design.
- Condominium sales at 11 YV (located in the prestigious Yorkville area of Toronto, Ontario) continue to progress well with 83.0% of the 593 units (at 100%) pre-sold as of February 19, 2020. Average prices are expected to be above $1,700 per square foot, exceeding initial expectations. Construction is expected to commence in Q2 2020 with an anticipated first possession date of Q3 2024. This project is expected to generate a value creation percentage in the range of 15%-17% (at RioCan’s interest) based on estimated IFRS project costs including, but not limited to, land and capitalized interest during the development phase. The project recently won several awards from the National Association of Home Builders including the National Sales and Marketing Council’s Award of Excellence for Multi-Family Community of the Year.
- Condominium sales at the first phase of the high rise condominium project at Windfield Farms in Oshawa, Ontario are also progressing well with 73.6% of the 503 units (at 100%) pre-sold as of February 19, 2020. This project is expected to generate a value creation percentage in the range of 17%-20% (at RioCan’s interest) based on estimated IFRS project costs including, but not limited to, land and capitalized interest during the development phase. Construction is expected to commence in Q2 2020 with an anticipated first possession date of Q2 2022. Sales of an additional 153-unit three storey condominium townhouse development (UC Uptown) at Windfield Farms are expected to commence in the first quarter of 2020.
Strategic Acquisitions and Partnerships
- During the year ended December 31, 2019, the Trust acquired interests in 15 investment properties for an aggregate purchase price of $915.6 million, including $801.2 million or 1.8 million square feet of income producing properties and $114.4 million of properties under development or 1.4 million square feet of future density (excluding transaction costs of $25.6 million in aggregate). Most of the transactions involved acquisitions of the remaining non-managing interests from existing partners.
- Included in these acquisitions are the strategic acquisitions of the remaining 50% interest in Yonge Sheppard Centre, the remaining 50% interest in eCentral and the 22,000 square foot retail component of ePlace, and a 50% co-ownership interest in 2323 Yonge Street for an aggregate purchase price of $498.9 million, net of certain working capital adjustments and before transaction costs. These three acquisitions further strengthen the Trust’s dominant presence in the urban Yonge Street corridor, expand our RioCan Living residential portfolio and accelerate RioCanâs major market and GTA presence.
- During 2019, RioCan continued to leverage strategic partnerships to drive growth. It expanded its relationship with two existing well-respected residential partners – Boardwalk Real Estate Investment Trust (Boardwalk) and Killam Apartment Real Estate Investment Trust (Killam) by selling, in two separate transactions, 50% interests in discrete portions of existing shopping centers in Mississauga and Ottawa for mixed-use development at $80.00 and $45.00 per buildable square foot, respectively. Combined, these two projects will transform approximately 3.5 acres of vacant land into 638 residential rental units and approximately 23,000 square feet of retail (at 100%), demonstrating the Trust’s ability to unlock the inherent value in its existing asset base while better serving the communities in which it operates. The Boardwalk deal was closed by year end and the Killam transaction is expected to close in mid-2020.
- As of December 31, 2019, the Trust has identified an estimated 29.0 million square feet of development pipeline (at RioCan’s interest), of which 14.6 million square feet or 50.3% have zoning approval, and 6.5 million square feet or 22.5% have zoning applications submitted. This pipeline increased by 2.8 million square feet from the prior year end, resulting from new value creation opportunities identified within its existing portfolio and acquisitions of partners’ non-managing interests, net of 0.5 million square feet of development completions and the sale of one large development project in a secondary market in British Columbia.
- Almost all of the development pipeline is located in the six major markets with 67% located in the GTA. Residential components represent 21.2 million square feet or 72.8% of the Trust’s current estimated development pipeline.
- As of December 31, 2019, the Trust has recognized $266.0 million of cumulative fair value gains for its 4.2 million square feet of active projects with detailed cost estimates. The Trust anticipates realizing substantial net value creation from its remaining 24.6 million square feet of excess density, 67.9% of which are either zoned or with zoning application submitted as noted earlier. As of December 31, 2019, nominal fair value gains or inventory gains have been recognized relating to these additional densities.
- Purpose-built RioCan Living properties are key components of our mixed-use developments. Approximately 2,700 units, including the 694 units at eCentral and Frontier, are completed or are under construction with an additional 2,100 units expected to be underway by 2021. Furthermore, the Trust has completed and sold over 900 condominium and townhouse units at eCondos, Kingly and UC Towns and currently has another 2,100 condominium and townhouse units under development.
- Two properties, Dufferin Plaza and a vacant land parcel at Shoppers World Brampton, were transferred from income producing property to residential inventory in the Fourth Quarter. Both projects are located in the GTA and are transit oriented. Dufferin Plaza will be a mixed-use density development with planning entitlements of 417,000 square feet of residential space and 32,000 square feet of commercial space. Phase One of Shoppers World Brampton consists of 450 units across two 25-story permitted towers (one residential rental and one condominium) and a 20,000 square foot retail podium. It is part of a larger project that allows for approximately 4.5 million square feet of total mixed-use density. The City of Brampton has identified the Shoppers World Brampton site as the city’s uptown western anchor suitable for large scale mixed-used development.
- Construction at The Well continues to progress. The office component has now reached 14 of 36 storeys and 84% of the space is now pre-leased, an increase of 12% from the previous quarter. Office tenants are expected to commence taking possession in Q1 2021. Construction of the underground structure for the residential component, for which RioCan has sold the air rights to Tridel and Woodbourne, is also steadily advancing. The air rights sales are expected to close in 2020/2021. Construction of The Well Building 6, a 593-unit residential rental building, which is owned 50 /50 with Woodbourne is scheduled to commence in Q3 2020.
- RioCan continues to embed sustainability in its development and operations to mitigate its impact on the environment and climate change. Together with our partner Allied Properties REIT and service provider Enwave, the Trust has integrated a low-carbon, resilient deep lake water cooling and heating system at The Well. It decentralizes energy supply and reduces load on the electricity grid not just for this flagship development but for surrounding neighbourhoods. At Frontier, a high efficiency geothermal HVAC system is now operational which is expected to result in reduced carbon emissions and savings on water and electricity consumption for tenants.
- As of December 31, 2019, properties under development and residential inventory accounted for 9.0% of the Trust’s consolidated gross book value of assets, well under the 15% limit permitted under the Trust’s revolving line of credit agreement.
Balance Sheet Strength
RioCan continues to exercise sound capital management and remains committed to a strong balance sheet. As of December 31, 2019, on a proportionate share basis, RioCan had 60.4% of its total debt as unsecured debt and an unencumbered asset pool of $8.9 billion, which generates 58.5% of RioCan’s annualized NOI and provides 227% coverage over its unsecured debt, well above its 200% target. The Trust also had $864.9 million of liquidity in the form of cash and cash equivalents and undrawn lines of credit on a proportionate share basis. As of December 31, 2019, the Trust reduced its floating interest rate debt exposure to 6.4% from 16.4% as of December 31, 2018.
Debt to Adjusted EBITDA at RioCan’s proportionate share was at 8.06x as of December 31, 2019. As of December 31, 2019, RioCan’s debt to total assets was at 42.1% on a proportionate share basis, unchanged from December 31, 2018.
On October 28, 2019, the Trust completed the issuance of 8.9 million common trust units (inclusive of 1.2 million units issued pursuant to the exercise in full of the underwriters’ over-allotment option) for net proceeds of $220.2 million, after deducting $9.9 million in underwriter fees and other issue expenses. The Trust applied the $220.2 million of net proceeds from the equity raise to repay indebtedness incurred to fund the aforementioned strategic acquisitions.
Subsequent to the year end, the Trust closed its first Canada Mortgage and Housing Corporation (“CMHC”) insured mortgage, a $28.6 million loan (at RioCan’s interest) for Frontier in Ottawa, which bears interest at an annual rate of 2.63% with a 10-year term. The Trust also anticipates that its existing 11-year term, 2.58% interest, $150.0 million mortgage at eCentral in Toronto will become CMHC insured upon stabilization in the spring of 2020, which will then reduce the contractual interest rate to 2.33%. Maximizing CMHC insured mortgages is a key component of the Trustâs debt strategy as it provides access to a new source of financing and lowers overall cost of debt.
Conference Call and Webcast
Interested parties are invited to participate in a conference call with management on Thursday, February 20, 2020 at 10:00 a.m. (ET). Participants will be required to identify themselves and the organization on whose behalf they are participating.
In order to participate, please dial 647-427-3230 or 1-877-486-4304. For those unable to participate in the live mode, a replay will be available at 1-855-859-2056, passcode 7578658#.
For a copy of the slides to be used for the conference call or, to access the simultaneous webcast, visit RioCanâs website at http://investor.riocan.com/investor-relations/events-and-presentations/ and click on the link for the webcast.
RioCan is one of Canadaâs largest real estate investment trusts, with a total enterprise value of approximately $15.0 billion as at December 31, 2019. RioCan owns, manages and develops retail-focused, increasingly mixed-use properties located in prime, high-density transit-oriented areas where Canadians want to shop, live and work. As at December 31, 2019, our portfolio is comprised of 220 properties with an aggregate net leasable area of approximately 38.4 million square feet (at RioCan’s interest) including residential rental and 14 development properties. To learn more about us, please visit www.riocan.com.
Basis of Presentation and Non-GAAP Measures
All figures included in this News Release are expressed in Canadian dollars unless otherwise noted. RioCanâs consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). Financial information included within this News Release does not contain all disclosures required by IFRS, and accordingly should be read in conjunction with the Trust’s annual audited consolidated financial statements (“2019 Annual Consolidated Financial Statements”) and MD&A for the three months and year ended December 31, 2019, which is available on RioCan’s website at www.riocan.com and on SEDAR at www.sedar.com.
Consistent with RioCanâs management framework, management uses certain financial measures to assess RioCanâs financial performance, which are not in accordance with generally accepted accounting principles (GAAP) under IFRS. Funds From Operations (âFFOâ), Same Property NOI, Debt to Adjusted EBITDA, RioCan’s Proportionate Share, Unencumbered Assets to Unsecured Debt and Total Enterprise Value, as well as other measures that may be discussed elsewhere in this News 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 supplements its IFRS measures with these Non-GAAP measures to aid in assessing the Trustâs underlying performance and reports 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 RioCanâs performance, liquidity, cash flow, and profitability. For full definitions of these measures, please refer to the “Non-GAAP Measuresâ section in RioCanâs MD&A for the year ended December 31, 2019.
This News Release contains forward-looking information within the meaning of applicable Canadian securities laws. This information reflects RioCanâs objectives, our strategies to achieve those objectives, as well as statements with respect to managementâs beliefs, estimates and intentions concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking information generally can be identified by the use of forward-looking terminology such as âoutlookâ, âobjectiveâ, âmayâ, âwillâ, âwouldâ, âexpectâ, âintendâ, âestimateâ, âanticipateâ, âbelieveâ, âshouldâ, âplanâ, âcontinueâ, or similar expressions suggesting future outcomes or events. Such forward-looking information reflects managementâs current beliefs and is based on information currently available to management. All forward-looking information in this News Release is qualified by these cautionary statements.
Forward-looking information is not a guarantee of future events or performance and, by its nature, is based on RioCanâs current estimates and assumptions, which are subject to numerous risks and uncertainties, including those described in the âRisks and Uncertaintiesâ section in RioCan’s MD&A for the year ended December 31, 2019 and in our most recent Annual Information Form, which could cause actual events or results to differ materially from the forward-looking information contained in this News Release. General economic conditions, including interest rate fluctuations, may also have an effect on RioCanâs results of operations. 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 historically low interest costs; a continuing trend toward land use intensification, including residential development in urban markets; access to equity and debt capital markets to fund, at acceptable costs, future capital requirements and to enable our refinancing of debts as they mature; the availability of investment opportunities for growth in Canada; the timing and ability for RioCan to sell certain properties; the valuations to be realized on property sales relative to current IFRS values; and the Trust’s ability to utilize the capital gain refund mechanism. 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 this forward-looking information.
RioCan’s U.S. subsidiary qualified as a REIT for U.S. income tax purposes up to May 25, 2016, subsequent to the closing date of the sale of its U.S. property portfolio. For U.S. income tax purposes, the subsidiary distributed all of its U.S. taxable income and is entitled to deduct such distributions against its taxable income. The subsidiaryâs qualification as a REIT depends on the REITâs satisfaction of certain asset, income, organizational, distribution, unitholder ownership and other requirements up until May 25, 2016. RioCan’s U.S. subsidiary was subject to a 30% or 35% withholding tax on distributions of its U.S. taxable income to Canada. The Trust did not distribute any withholding taxes paid or payable to its unitholders related to the disposition. Should RioCanâs U.S. subsidiary no longer qualify as a U.S. REIT for U.S. tax purposes prior to May 25, 2016, certain statements contained in this News Release or the MD&A for the year ended December 31, 2019 may need to be modified.
The forward-looking statements contained in this News Release are made as of the date hereof, and should not be relied upon as representing RioCanâs views as of any date subsequent to the date of this News Release. Management undertakes no obligation, except as required by applicable law, to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise.
RioCan Real Estate Investment Trust
Senior Vice President and Chief Financial Officer
416-866-3033 | www.riocan.com