RioCan Real Estate Investment Trust Provides Update on Target Store Closures

TORONTO, ONTARIO–(Marketwired – June 3, 2015) – RioCan Real Estate Investment Trust (“RioCan”) (TSX:REI.UN) today, provides an update on the recent developments related to Target Canada Corporation’s (“Target”) filing and related court proceedings under Companies’ Creditors Arrangement Act (“CCAA”).

As part of the Target CCAA real estate sale process, Canadian Tire and Lowe’s have agreed to acquire up to eight Target store locations within RioCan’s portfolio. Canadian Tire has agreed to acquire the lease in RioCan’s Sudbury Place in Sudbury, Ontario. Lowe’s has entered into a conditional agreement to acquire seven former Target locations in properties owned by RioCan. While the transactions in each of these cases have received court approval, whether those transactions are successfully completed in the case of the RioCan locations may depend on certain additional approvals being obtained.

In the remaining eighteen sites in which the Target leases have been disclaimed, RioCan has commenced discussions with prospective tenants to lease the space formerly occupied by Target. A number of national tenants including grocers, fitness operators, discount retailers, sporting goods suppliers, and others have expressed interest in many of these locations.

Some of RioCan’s urban locations have attracted considerable interest. At Lawrence Square in Toronto, Ontario, RioCan has lease agreements in place with Marshalls and HomeSense, and RioCan has a conditional lease agreement with a national tenant for the remainder of the space previously leased to Target. In some of RioCan’s suburban locations, such as Gates of Fergus, in Fergus, Ontario, the Trust has received multiple expressions of interest from national tenants to lease the vacated Target store. Given the size of the spaces in question, in many cases the stores will need to be re-demised and leased to two or more new tenants. In some cases RioCan may be able to re-lease the vacated space to a single tenant.

“We are, of course, disappointed with the departure of Target from the Canadian market. With greater clarity on the situation, we are ready to close this chapter and exercise control over the eighteen disclaimed locations to minimize the disruption that this has caused and protect the shopping centres in which the Target stores were located,” said Edward Sonshine, Chief Executive Officer of RioCan. “Our leasing team is in active negotiations with a number of replacement tenants, and we are gratified at the number of expressions of serious interest we have received. We will seek whatever remedies are available to RioCan to recover damages incurred due to the default by Target Canada Corporation, including as a result of the indemnity given by Target Corporation, its U.S. parent.”

These eight locations represent approximately 0.6 million square feet at an average lease rate of $6.28 per square foot at RioCan’s interest. Target Corporation has provided RioCan with indemnities with respect to these leases/properties, which remain in force.

RioCan has been advised that as a result of the CCAA proceedings 18 of the 26 Target leases with RioCan have been disclaimed. The disclaimed locations are:

These eighteen stores, at RioCan’s interest, represent approximately 1.6 million square feet at an average lease rate of $6.78 per square foot, aggregating to $18.4 million of gross annualized rental revenue. All but one of these leases are guaranteed through indemnity arrangements with Target Corporation, for the remaining term of each lease. The one lease that is not covered by the Target Corporation indemnity is guaranteed by Walmart Canada.

Forward Looking Advisory

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 section entitled “Former Target locations to be assigned (Conditional)” and “Former Target locations that have been disclaimed“), 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.

Forward-looking information is not a guarantee of future events or performance and, by its nature, is based on RioCan’s current estimates and assumptions, which are subject to numerous risks and uncertainties, including those described under “Risks and Uncertainties” in RioCan’s Management’s Discussion and Analysis for the period ended March 31, 2015, which could cause actual events or results to differ materially from the forward-looking statements contained in this News Release. Those risks and uncertainties include, but are not limited to, those related to: liquidity and general market conditions; tenant concentrations and related risk of bankruptcy, occupancy levels and defaults; lease renewals and rental increases; retailer competition; access to debt and equity capital; interest rate and financing risk; joint ventures and partnerships; the relative illiquidity of real property; unexpected costs or liabilities related to acquisitions and dispositions; development risk associated with construction commitments, project costs and related approvals; environmental matters; litigation; reliance on key personnel; management information systems; unitholder liability; income and indirect taxes; U.S. investments, property management and foreign currency risk; and credit ratings.

RioCan currently qualifies as a real estate investment trust for tax purposes and intends to continue to qualify for future years. The Income Tax Act (Canada) contains provisions which potentially impose tax on publicly traded trusts which qualify as specified investment flow-through entities (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). Should RioCan no longer qualify as a REIT under the SIFT Provisions, certain statements contained in this MD&A may need to be modified.

The Trust’s US subsidiary qualifies as a REIT for US income tax purposes. The subsidiary expects to distribute all of its US taxable income (if any) to Canada and is entitled to deduct such distributions for US income tax purposes. The subsidiary’s qualification as a REIT depends on the REIT’s satisfaction of certain asset, income, organizational, distribution, unitholder ownership and other requirements on a continuing basis. The Trust anticipates that the subsidiary will continue to qualify as a US REIT in the future.

Other factors, such as general economic conditions, including interest rate and foreign exchange rate fluctuations, may also have an effect on RioCan’s 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 low and stable interest costs; a continuing trend toward land use intensification, including residential development in high growth markets; access to equity and debt capital markets to fund, at acceptable costs, the future growth program to enable the Trust to refinance debts as they mature; and the availability of purchase opportunities for growth in Canada and the U.S.

For a description of additional risks that could cause actual results to materially differ from management’s current expectations, see “Risks and Uncertainties” in RioCan’s Management’s Discussion and Analysis in its 2014 Annual Report, and for the period ended March 31, 2015, and in “Risks and Uncertainties” in RioCan’s AIF. 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. Certain statements included in this News Release may be considered “financial outlook” for purposes of applicable Canadian securities laws, and as such the financial outlook may not be appropriate for purposes other than this News Release. The forward-looking information contained in this News Release is made as of the date of this News Release, and should not be relied upon as representing RioCan’s views as of any date subsequent to the date of this News Release.

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.

About RioCan

RioCan is Canada’s largest real estate investment trust with a total capitalization of approximately $16.2 billion as at March 31, 2015. It owns and manages Canada’s largest portfolio of shopping centres with ownership interests in a portfolio of 353 retail properties containing more than 79 million square feet, including 48 grocery anchored and new format retail centres containing 13 million square feet in the United States as at March 31, 2015. RioCan’s portfolio also includes 15 properties under development in Canada. For further information, please refer to RioCan’s website at www.riocan.com.