TORONTO, May 05, 2020 (GLOBE NEWSWIRE) — RioCan Real Estate Investment Trust (âRioCanâ or the âTrustâ) (TSX: REI.UN) announced today its financial results for the three months ended March 31, 2020 (âFirst Quarterâ).
âFor the first quarter of 2020, RioCan delivered not only strong 3.0% same property NOI growth for our commercial portfolio but also strong residential rental leasing and condominium pre-sales for our residential portfolio,â said Edward Sonshine, Chief Executive Officer of RioCan. âAt the outbreak of the COVID-19 pandemic, with pre-planning and forethought, we were able to rapidly mobilize our pre-established crisis management team, execute on our business continuity plan and seamlessly adapt to working and staying connected remotely while maintaining our commitment to providing access to essential services in a safe and responsible way. I am very proud of the RioCan team and confident in our ability to continue to execute and adapt our strategies for long-term growth and value creation for our unitholders given our portfolio strength, tenant composition, ample liquidity and experienced management team. The strength of our results this quarter is an indication of this portfolio’s growth prospect in the normal course.â
|Three months ended March 31|
|(in millions except percentages, square feet and per unit values)||2020||2019|
|Weighted average Units outstanding – diluted (in thousands)||317,725||305,046|
|FFO per unit â diluted (i)||$||0.46||$||0.47|
|Same property NOI growth – six major markets (i)||3.1||%||1.7||%|
|Same property NOI growth – overall portfolio (i)||3.0||%||1.4||%|
|Six major markets – % of total annualized revenue (ii)||90.2||%||87.5||%|
|Greater Toronto Area – % of total annualized revenue (ii)||51.0||%||47.6||%|
|Occupancy – committed six major markets (ii)||97.3||%||97.5||%|
|Occupancy – committed (ii)||96.8||%||96.9||%|
|Blended leasing spread||5.6||%||10.7||%|
|Renewal leasing spread||5.3||%||8.2||%|
|Development completions – sq ft in thousands||133.0||92.0|
|Development expenditures (iii)||$||103.0||$||92.5|
|Properties under development and residential inventory as a percentage of consolidated gross book value of assets (maximum permitted: 15%) (ii) (iii)||9.4||%||8.4||%|
|Balance Sheet Strength Highlights|
|Debt to Adjusted EBITDA (i) (iv)||8.22||x||7.94x|
|Ratio of total debt to total assets (i) (ii) (iv)||43.0||%||42.2||%|
|Unencumbered assets (i) (ii) (iv)||$||9,156||$||8,000|
|Unencumbered assets to unsecured debt (i) (ii) (iv)||222||%||229||%|
|(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 months ended March 31, 2020.|
|(ii)||Information presented as at March 31 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.|
- FFO increased by $2.4 million in the First Quarter compared to the same quarter last year despite having sold $306.0 million of secondary market assets since Q1 2019, $7.7 million lower transaction gains from equity-accounted investments, $4.8 million lower residential inventory gains and $3.9 million lower lease termination and other fee income. These factors were more than offset by strong same property NOI growth, NOI from acquisitions and completed developments, higher residential rental NOI, higher other income, and lower G&A costs. FFO per unit was $0.46 for the First Quarter.
- Net income decreased by 47.1% for the three months ended March 31, 2020 over the comparable period primarily due to higher fair value gains on investment properties in Q1 2019.
Same Property NOI Growth – Commercial
- Same property NOI for the First Quarter increased by 3.1% for RioCan’s six major market commercial properties and by 3.0% for the overall commercial portfolio when compared to 2019. When completed properties under development are included, same property NOI grew by 3.8% for the major market portfolio and 3.7% for the overall portfolio.
Major Market Focus and Resilient Property / Tenant Mix
- Total annualized rental revenue generated from the six major markets and the Greater Toronto Area (GTA) was 90.2% and 51.0% as of March 31, 2020, respectively. The Trust has achieved its strategic milestones for these two metrics since Q4 2019. The 140 basis point decrease in the GTA presence from the prior quarter was primarily due to the timing of certain revenue charges as of each quarter end and their impacts on annualized revenues.
- Mixed-Use / Urban, Grocery Anchored and Open Air centres accounted for more than 90% of the Trust’s net leasable area (NLA) and annualized rental revenue as of March 31, 2020, with Grocery Anchored centres alone accounting for 41.7% of annualized rental revenue and Enclosed centres representing less than 10% of its total portfolio. As a result, RioCan’s portfolio is attractive from a tenanting perspective, more resilient to changes in economic cycles and evolving retail trends, and forms a solid foundation for organic growth.
- RioCan’s well diversified tenant base provides stability with no single tenant accounting for more than 5% of the Trustâs annualized rental revenue. Necessity-based and service-oriented tenants accounted for 75.0% of the Trust’s total annualized net rental revenue as of March 31, 2020, an increase of 50 basis points over the 2019 year end.
Operation Highlights – Commercial
- In-place occupancy for the overall portfolio increased by 60 basis points when compared to March 31, 2019, achieving 96.3% as of March 31, 2020 driven by a 50 and 200 basis point improvement in retail and office in-place occupancy, respectively. Committed occupancy of 96.8% was relatively stable over the comparable periods with the gap between committed and in-place occupancy narrowing to 50 basis points for the overall commercial portfolio.
- Committed and in-place occupancy for major market retail remained high at 97.3% and 97.0%, while retail committed and in-place occupancy in the GTA were even stronger at 97.8% and 97.3%, respectively, as of March 31, 2020.
- Average net rent per square foot for new leases was $31.09, increased by $9.11 for the First Quarter primarily due to new leases achieved on development projects and is indicative of the rates that can be anticipated for our urban portfolio.
- Renewal and blended leasing spreads for major markets were 5.9% and 6.5% for the First Quarter.
- Average net commercial rent at the Trust’s active urban intensification projects is $34.17 per square foot based on 777,000 square feet of committed or in-place leases as of May 4, 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 Highlights – Residential
- NOI from residential rental operations was $1.9 million for the First Quarter, an increase of $2.4 million due to a $0.5 million lease-up NOI loss in Q1 2019. As of May 4, 2020, Frontierâ¢ achieved stabilization with 98.7% of all units leased at an average monthly rent of $2.49 per square foot while eCentralâ¢ was 89.5% leased at $3.94 per square foot for market rent units. At eCentral, market rent units achieved a renewal spread of 6.6% during the quarter.
Acquisitions and Dispositions
- During the First Quarter, the Trust acquired interests in six investment properties for an aggregate purchase price of $98.0 million, including $65.3 million of income producing properties and $32.7 million of properties under development (excluding transaction costs of $4.7 million in aggregate). All properties acquired during the quarter are prime urban locations in the GTA, further strengthening the Trust’s presence in this high demand market.
- There were no income producing property dispositions during the quarter. The Trust disposed of interests in two properties under development for gross proceeds of $21.7 million. One was the pre-agreed sale of the first strata parcel of the air rights at the 5th & THIRDâ¢ project in Calgary, Alberta and the other was the sale of one small development property in Laval, Quebec. The firm deal for the sale of the remaining strata parcel of the air rights at 5th & THIRD is expected to close by the end of the year.
- The Trust also entered into a number of firm or conditional agreements to dispose 100% or a partial interest in a few small major market or secondary market properties, including income producing and development assets, for gross aggregate proceeds of approximately $128.2 million at average in-place capitalization rate of 3.7%.
- The Trust expanded its development pipeline by 12.9 million square feet to 42.0 million square feet (at RioCan’s interest), of which 21.2 million square feet or 50.4% have zoning approvals or zoning applications submitted. The increase in the pipeline was primarily from the addition of future phases of developments already in the pipeline such as RioCan Colossus Centre in Vaughan, Ontario and Millcroft Shopping Centre in Burlington, Ontario, as well as acquisitions of properties with development potential in urban GTA.
- Other than one small redevelopment project, all of the development projects are located in the six major markets with 72.5% located in the GTA. Residential components represent 34.1 million square feet or 81.2% of the Trust’s current estimated development pipeline.
- During the quarter, 133,000 square feet of developments were completed including the 163-unit Brioâ¢ residential rental tower and a portion of the 5th & THIRD project.
- Construction at The Wellâ¢ continues to progress well. The office component has now reached 19 of 36 storeys and approximately 84% of the office space is pre-leased. A portion of the air rights sales at The Well are expected to close in 2020 with the remainder in 2021.
- Sales of condominiums at 11 YV, the 586-unit (at 100%) prestigious Yorkville project in Toronto, Ontario progressed well with 98.0% pre-sold as of May 4, 2020. Average prices at over $1,700 per square foot are above initial expectations.
- Sales of the 503 condominium units (at 100%) at U.C. Towerâ¢ and the 153 townhouses (at 100%) at U.C. Uptownsâ¢ at our Windfield Farm development in Oshawa, Ontario also progressed well with 80.9% and 53.6%, respectively, pre-sold as of May 4, 2020, with sales of U.C. Uptowns having only commenced in the First Quarter. U.C. Tower construction started in Q2 2020 and is currently active under the provincial essential project mandates under the COVID-19 circumstances.
- Purpose-built RioCan Livingâ¢ properties are key components of our mixed-use developments with approximately 2,700 units, including the 857 units at eCentral, Frontier and Brio, completed or under construction. In addition, the Trust has closed sales for over 900 condominium and townhouse units at eCondosâ¢, Kinglyâ¢ and U.C. Townsâ¢ in the prior year and currently has another 2,100 condominium and townhouse units at various stages of development such as the 11 YV and U.C. Tower projects.
- As of March 31, 2020, properties under development and residential inventory accounted for 9.4% 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 March 31, 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 $9.2 billion as of March 31, 2020 on a proportionate share basis, which generated 60.9% of RioCan’s annualized NOI and provided 222% coverage over its unsecured debt.
- During the First Quarter, the Trust published the first Green Bond Framework and issued the first Green Bond by a REIT in Canada which is currently included in the Bloomberg Barclays MSCI Green Bond Index. The $350.0 million, 7-year inaugural Green Bond by RioCan was closed on March 10, 2020 at an annual coupon rate of 2.361%. It effectively refinanced the Trust’s $400 million debentures due in June and August this year.
- As at March 31, 2020, the Trust further reduced its floating interest rate debt exposure to 3.5% (December 31, 2019 – 6.4%) and lowered its weighted average effective interest rates to 3.35% (December 31, 2019 -3.44%).
- Debt to Adjusted EBITDA was at 8.22x and debt to total assets was at 43.0% as of March 31, 2020, both on a proportionate share basis.
COVID-19 Related Business Update
Since the COVID-19 pandemic outbreak, the Trust’s top priority has been the health and safety of its employees, tenants, and the communities that its properties serve, while remaining committed to a high level of responsibility, access and support for its various stakeholders. On April 21, 2020, RioCan provided a business update related to the COVID-19 pandemic. As discussed in that press release, although the ultimate impact of the health crisis is difficult to predict, RioCan is well positioned to withstand challenges and adversity with a solid foundation based on its major markets focused portfolio and defensive property and tenant make-up. The Trust is in good financial health with a strong balance sheet, ample liquidity, staggered debt maturities and multiple sources of financing combined with a large unencumbered asset pool. However, given the risks and uncertainties arising from the COVID-19 health crisis, the Trust has withdrawn its same property NOI growth guidance for 2020.
With respect to development, most of RioCan’s construction activities continue under the provincial regulations, albeit at a slower pace. Given the flexibility offered by its staggered development program, the Trust has put a temporary hold on new or early stage projects, resulting in an estimated $100 million to $150 million reduction in development spend for 2020. In addition, RioCan continues identifying areas to manage expenses and drive further operational efficiencies.
Management will proactively adapt its strategy to address the economic, social and health care impact of this pandemic, which could be material and adverse including its impact on RioCan. The Trust is already in the process of developing post-pandemic best practice protocols for our operations and development once businesses and peopleâs daily lives start to go back to normal over time. It is confident in the long term growth of its portfolio once businesses and the economy absorb the effects of the pandemic and its strong Q1 2020 results are indicative of that growth prospect.
Conference Call and Webcast
Interested parties are invited to participate in a conference call with management on Tuesday, May 5, 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 9538679#.
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 March 31, 2020, our portfolio is comprised of 222 properties with an aggregate net leasable area of approximately 38.6 million square feet (at RioCan’s interest) including office, residential rental and 16 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 unaudited interim condensed consolidated financial statements (“Consolidated Financial Statements”) and MD&A for the three months ended March 31, 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 months ended March 31, 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 months ended March 31, 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 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.
Given the current level of uncertainty due to the COVID-19 pandemic, there can be no assurance regarding the impact of COVID-19 on the businesses, operations, liquidity positions 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 governments 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 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 market 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.
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 three months ended March 31, 2020 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.
Contact InformationRioCan Real Estate Investment TrustQi TangSenior Vice President and Chief Financial Officer416-866-3033 | www.riocan.com