TORONTO, July 29, 2020 (GLOBE NEWSWIRE) — RioCan Real Estate Investment Trust (âRioCan” or the “Trustâ)(TSX: REI.UN) announced today its financial results for the three and six months ended June 30, 2020 (“Second Quarter”).
“This second quarter was undoubtedly the most challenging quarter ever for many of our tenants as non-essential businesses were mandated to close in mid-March. After several months of shutdown, businesses have started to re-open under various restrictions with some tenants in the GTA just getting to reopen. Against this unprecedented reality, RioCan showed its resiliency and remained committed to supporting our tenants with a view to the long-term. We exercised patience, approved deferrals where appropriate, participated in CECRA for all eligible tenants, and where necessary, managed a stern recovery process,” said Edward Sonshine, CEO of RioCan. “This has enabled us to collect 86.8% of our quarterly rents including expected government funding and short term deferrals with credit worthy tenants. The collections will continue to improve as evidenced in July. Meanwhile, we have maintained good relationships with our tenants, with special focus on those with continuing expansion programs. With our major market presence, strong liquidity and our remarkable experienced people, we are well positioned to take advantage of any opportunities that arise from the economic setbacks caused by this pandemic.”
|Three months ended
|Six months ended
|(in millions except percentages, square feet and per unit values)||2020||2019||2020||2019|
|Net income (loss)||$||(350.8||)||$||253.0||$||(247.9||)||$||447.5|
|Weighted average Units outstanding – diluted (in thousands)||317,721||304,636||317,717||304,829|
|FFO per unit â diluted (i)||$||0.35||$||0.48||$||0.80||$||0.94|
|Same property NOI (decline) growth – overall portfolio (i)||(10.8||)%||2.2||%||(4.3||)%||1.9||%|
|Six major markets – % of total annualized revenue (ii)||90.1||%||87.8||%||90.1||%||87.8||%|
|Greater Toronto Area – % of total annualized revenue (ii)||52.1||%||48.6||%||52.1||%||48.6||%|
|Occupancy – committed six major markets (ii)||96.8||%||97.8||%||96.8||%||97.8||%|
|Occupancy – committed (ii)||96.4||%||97.1||%||96.4||%||97.1||%|
|Blended leasing spread||5.8||%||11.3||%||5.7||%||11.0||%|
|Renewal leasing spread||4.6||%||10.9||%||5.0||%||9.4||%|
|Development completions – sq ft in thousands||4.0||269.0||137.0||361.0|
|Development expenditures (iii)||$||114.6||$||102.5||$||217.5||$||195.0|
|Properties under development and residential inventory as a percentage of consolidated gross book value of assets (maximum permitted: 15%) (ii) (iii)||10.7||%||8.0||%||10.7||%||8.0||%|
|Balance Sheet Strength Highlights|
|Debt to Adjusted EBITDA (i) (iv)||8.80x||7.92x||8.80x||7.92x|
|Ratio of total debt to total assets (i) (ii) (iv)||44.4||%||42.9||%||44.4||%||42.9||%|
|Unencumbered assets (i) (ii) (iv)||$||8,697||$||8,104||$||8,697||$||8,104|
|Unencumbered assets to unsecured debt (i) (ii) (iv)||221||%||225||%||221||%||225||%|
|i.||A Non-GAAP measurement. For definitions and the 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 three and six months ended June 30, 2020.|
|ii.||Information presented as at June 30 for the years then ended.|
|iii.||Includes costs incurred for various properties under development and for residential inventory in respective reporting periods.|
|iv.||At RioCan’s proportionate share.|
COVID-19 Pandemic and Its Impacts on RioCan Property Operations
- Throughout the COVID-19 pandemic, RioCan has prioritized the health and safety of its tenants, their customers and its employees. The Trust has supported communities and small businesses through various initiatives while many businesses had to shut down or reduce hours of operations during the Second Quarter. One such initiative is the Trust’s participation in the Canada Emergency Commercial Rent Assistance (âCECRAâ) program, providing eligible tenants a 75% gross rent reduction whereby the government funds 50% and landlords effectively incur a 25% rent abatement.
- For the quarter, approximately 19.4% of the Trust’s portfolio, as measured based on billed gross rents for the quarter, was estimated to be potentially eligible for the CECRA program. According to tenant attestations for their revenues, the Trust determined approximately 14.4% of its portfolio qualified for the CECRA program. This resulted in total CECRA rent abatements of $9.9 million for the quarter. In addition, the Trust accrued an additional $9.2 million provision for rent abatements for other tenants and bad debts. In total, a $19.1 million provision for rent abatements and bad debts was accrued in the Second Quarter, representing approximately 6.8% of the billed gross rents for the quarter.
- As of July 28, 2020, the Trust’s collections of billed gross rents for the Second Quarter are as follows:
|Cash collection (i)||73.3||%|
|CECRA government funding (ii)||5.8||%|
|Deferred rents with definitive payment schedule||7.7||%|
|Provision for rent abatements and bad debts||6.8||%|
|Remaining to be collected||6.4||%|
|i. April, May and June cash collections were 73%, 71% and 76%, respectively.|
|ii. Net of $4.2 million CECRA tenant over-payments for the quarter.|
- RioCan is confident in the collectability of the 7.7% deferred rents and the 6.4% of remaining rents to be collected. Furthermore, RioCan holds $29.0 million in security deposits and $5.3 million in letters of credit from tenants which can serve to offset rents owed on a tenant-by-tenant basis in the unfortunate event of unresolved tenant defaults.
- As of July 28, 2020, the Trust has collected to date 85.0% of the billed July gross rents in cash. Rent collections are expected to further improve as more businesses resume operations and the economy gradually recovers. Approximately 85% of the Trust’s tenants are currently open, based on occupied net leaseable area.
- For the quarter, in addition to various expense management and operations efficiency improvements identified and implemented, the Trust deferred $43.0 million in municipal realty taxes payments based on available government programs. The Trust achieved $17.3 million recoverable operating costs savings from the previous quarter. Such payment deferrals and costs savings, together with lower maintenance capital expenditures, offset a significant portion of the Q2 2020 gross rents outstanding in the quarter from a cash flow perspective.
FFO and Net Income
- FFO per unit for the Second Quarter was $0.35, a decrease of $0.11 or 24.0% from Q1 2020. This was mainly due to the aforementioned $19.1 million pandemic related provision, no gains on sale of marketable securities (Q1 2020 – $11.1 million), and no material negative mark to market adjustment for trustee costs (Q1 2020 – $4.3 million).
- The Trust reported fair value losses of $451.7 million for the Second Quarter, representing a 3.1% write-down to the total IFRS value of investment properties as of the beginning of the quarter, including assets held for sale.
- The fair value write-down this quarter reflected the estimated effect of the pandemic on property cash flows and capitalization rates, as well as the estimated effect of the depressed oil and gas market in Alberta. Specifically, the Trust wrote down the IFRS value of its enclosed centers by 10.6% and those of its Alberta assets by 4.8% during the quarter.
- As a result of the fair value write-downs and the FFO variances noted above, the Trust reported a net loss of $350.8 million and $247.9 million for the three and six months ended June 30, 2020, respectively.
- The economic recovery from the pandemic is going to take time and it is difficult to predict the length and severity of such impact in the short and long term. The Trust expects 2020 to be impacted negatively by the pandemic and estimates FFO per unit to be in the $1.60 range for the year. Based on the current situation and recent trends in Canada, the Trust is hopeful to achieve significant growth in 2021 from this FFO base of 2020.
Same Property NOI – Commercial
- As a result of the aforementioned pandemic related provision for rent abatements and bad debts, same property NOI for the Second Quarter decreased by 10.8% or $16.9 million for the overall commercial portfolio.
- Similarly, same property NOI for the six months ended June 30, 2020 decreased by 4.3%, partially offset by the strong 3.0% same property NOI growth in Q1 2020.
- The Trust expects same property NOI to be negative for 2020 as a result of the pandemic. However, the Trust expects same property NOI to resume growth in 2021 and will provide further guidance in future quarters.
Operations – Commercial
- As a result of the ongoing pandemic, committed and in-place occupancy for the overall portfolio decreased by 40 and 30 basis points from Q1 2020, ending the Second Quarter at 96.4% and 96.0%, respectively.
- Despite the pandemic, the Trust achieved approximately 109,000 square feet of new leases during the quarter at average net rent per square foot of $25.83, well above its portfolio average net rent of $19.75 per square foot. The new leases are with a variety of tenants ranging from grocers and specialty retailers to essential and regular personal services.
- Similarly, the retention ratio increased to 89.4%, 630 basis points higher from Q1 2020 despite the pandemic. Blended leasing spreads for major markets trended higher at 7.3% for the Second Quarter, improving 80 basis points from Q1 2020.
- Average net commercial rent at the Trust’s active urban intensification projects is $34.56 per square foot based on 642,000 square feet of committed or in-place leases as of July 28, 2020. 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.
Operations – Residential
- NOI from residential rental operations was $2.0 million for the Second Quarter from eCentralâ¢, Frontierâ¢ and Brioâ¢, which are all part of the Trust’s growing purpose-built RioCan Livingâ¢ residential rental portfolio. As of July 28, 2020, 98.7% (224 units) at Frontier were leased at an average monthly rent of $2.50 per square foot while eCentral was 94.2% (439 units) leased at $3.92 per square foot for market rent units.
- Despite being launched in the midst of the COVID-19 pandemic in late March, and in Calgary which has also been hit by the prolonged oil crisis, Brio has leased 31.5% or 51 units out of its 163 units, at an average monthly rent of $2.51 per square foot as of July 28, 2020. This highlights the resilience of well-located and well-designed buildings, as well as the management expertise of RioCan and its partner Boardwalk REIT.
- The Trust collected 99.3% of the Second Quarter residential rents as of July 28, 2020.
Dispositions and Acquisitions
- During the Second Quarter, the Trust disposed of an interest in one income producing property for sales proceeds of $33.0 million. There were no acquisitions during the quarter.
- As of July 28, 2020, the Trust has entered into a number of firm or conditional agreements to dispose 100% or partial interests in a number of properties, most of which are located in the major markets, for aggregate sales proceeds of $302.2 million. These dispositions consist of $220.2 million income producing properties and $82.0 million development properties. The income producing properties have a weighted average in-place capitalization rate of 4.2% based on firm or conditional deal prices and the development properties do not have material in-place NOI.
- Virtually all of the Trust’s development projects are located in the six major markets with 73.0% located in the GTA. Residential components represent 35.6 million square feet or 83.4% of the Trust’s current estimated development pipeline of 42.7 million square feet.
- Construction at The Wellâ¢ continues to progress well. The office component has now reached 23 of 36 storeys, is approximately 84% pre-leased and on track for initial office tenants to take possession in 2021. A portion of the air rights sales at The Well are expected to close in 2020 with the remainder in 2021. Furthermore, the Trust is in advanced discussions with a number of retail tenants that would add to the overall character of The Well as envisioned.
- 11YV, the 586-unit (at 100%) prestigious Yorkville condominium project in Toronto, Ontario was 98.0% (574 units) pre-sold as of July 28, 2020, at average prices of over $1,700 per square foot. Demolition has commenced at the site with project completion expected in the fall of 2024. Inventory gains are estimated in the $65.0 million to $71.0 million range at RioCan’s share.
- Sales of the 503 condominium units (at 100%) at U.C. Towerâ¢ and the 153 townhouses (at 100%) at U.C. Uptownsâ¢ at our Windfields Farm development in Oshawa, Ontario also continued to progress well. The Trust and its partner Tribute Communities have entered into agreements to sell 87.1% (438 units) and 81.7% (125 units), respectively, of all units as of July 28, 2020. Sales of U.C. Uptowns only commenced in late Q1 2020 and increased by 28.1% (43 units) over the last three months amid the pandemic.
- U.C. Tower construction commenced during the quarter and is expected to be completed by Q1 2023 with estimated inventory gains in the $14.0 million to $16.0 million range at RioCan’s interest. U.C. Uptowns is expected to start construction in September 2020 and be completed in Q2 2022 with estimated inventory gains of $5.0 million to $5.5 million at RioCan’s interest.
- Purpose-built RioCan Living residential rental properties, as well as condominium and townhouse projects, remain a cornerstone of RioCan’s development program and growth strategy. RioCan is confident in the asset diversification and unitholder net asset value growth prospects of such developments. The Trust will continue to self fund development through continuous asset pruning, quicker capital recycling through condominium or townhouse projects, air rights sales, strategic partnerships and retained earnings.
- As of June 30, 2020, properties under development and residential inventory accounted for 10.7% 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. The increase in this metric from the previous quarter was driven by development progress and completion timing, as well as the fair value losses this quarter as a result of the pandemic. RioCanâs development spend for 2020 is estimated to be in the $400 million range, net of expected cost recoveries and air rights sales.
Balance Sheet Strength
- RioCan continued to exercise sound capital management during the quarter. As of June 30, 2020, the Trust had $1.0 billion of liquidity in the form of cash and cash equivalents and undrawn lines of credit on a proportionate share basis. RioCan had a large unencumbered asset pool of $8.7 billion as of June 30, 2020 on a proportionate share basis, which generated 62.0% of RioCan’s annualized NOI and provided 221% coverage over its unsecured debt.
- As of July 28, 2020, only $81.8 million of RioCan’s mortgage maturities for the remainder of 2020 have yet to be refinanced or have refinancing commitments in place. They are all due in the last quarter and are expected to be refinanced in due course.
- As at June 30, 2020, the Trust further reduced its floating interest rate debt exposure to 2.8% (December 31, 2019 – 6.4%) and lowered its weighted average effective interest rates to 3.29% (December 31, 2019 – 3.44%).
- Debt to Adjusted EBITDA was at 8.80x and debt to total assets was at 44.4% as of June 30, 2020, both on a proportionate share basis. The increases in the two metrics from the previous quarter were because of the impacts of the pandemic on the Trust’s property operations and valuations.
Conference Call and Webcast
Interested parties are invited to participate in a conference call with management on Wednesday, July 29, 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 5081147#.
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. 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 June 30, 2020, our portfolio is comprised of 221 properties with an aggregate net leasable area of approximately 38.6 million square feet (at RioCan’s interest) including office, residential rental and 15 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 unaudited interim condensed consolidated financial statements (“Condensed 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 Condensed Consolidated Financial Statements and MD&A for the three and six months ended June 30, 2020, 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 three and six months ended June 30, 2020.
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 three and six months ended June 30, 2020 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 gradual recovery and growth of the retail environment and the general economy over the remainder of 2020 and 2021; relatively historically low interest costs; a continuing trend toward land use intensification at reasonable costs and development yields, 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.
Given the current level of uncertainties arising from the COVID-19 pandemic, there can be no assurance regarding the impact of COVID-19 on the business, operations, and financial performance of RioCan and its tenants, as well as on consumer behaviors and the economy in general. General risks and uncertainties related to the COVID-19 pandemic also include, but are not limited to, the length, spread and severity of the pandemic; the nature and length of the restrictive measures, implemented or to be implemented by various levels of government in Canada; RioCan’s tenants’ ability to pay rents as required under their leases; the availability of various support programs that are or may be offered by the various levels of government in Canada; domestic and global supply chains; timelines and costs related to the Trustâs development projects; the pace of property lease-up and rents and yields achieved upon development completion; potential changes in leasing activities, market rents and property valuations; the capitalization rates that arm’s length buyers and sellers are willing to transact on properties; the availability and extent of rent deferrals offered or to be offered by the Trust; domestic and global credit and capital markets, and the Trust’s ability to access capital on favourable terms or at all and its ability to maintain its credit ratings; the total return and dividend yield of RioCan’s Units; and the health and safety of our employees, tenants and people in the communities that our properties serve.
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