RioCan REIT Announces Financial Results for the First Quarter 2017 and Returns Occupancy to Above 96%

TORONTO, ONTARIO–(Marketwired – May 12, 2017) – RioCan’s HIGHLIGHTS for the three months ended March 31, 2017:

• For the quarter ended March 31, 2017 (“First Quarter”), IFRS Operating income increased to $179 million from $170 million or 5.3% in the quarter from the prior year;
• Revenue increased 2.1% for the First Quarter to $290 million as compared to $284 million for the first quarter of 2016;
• Funds From Operations (“FFO”) in the First Quarter was stable at $143 million as compared to $143 million during the first quarter of 2016, which had the benefit of FFO from our discontinued U.S. operations. On a continuing operations basis, Funds From Operations (“FFO”) increased 31% to $143 million for the First Quarter, as compared to $109 million in the first quarter of 2016;
• Same property NOI grew by 1.5%, or $2.5 million in the First Quarter as compared to the same period in 2016;
• Committed occupancy improved 140 basis points to 96.2% at March 31, 2017 as compared to 94.8% at March 31, 2016;
• Achieved renewal rent increases of 8.2% with a retention rate of 88.6% in the First Quarter as compared to a renewal rent increase of 6.2% with a retention rate of 84.4% in the same period in 2016;
• RioCan’s Total Debt to Total Assets ratio was 40.5% (40.8% at RioCan’s proportionate share) as at March 31, 2017 as compared to 45.4% (45.6% ar RioCan’s proportionate share) at March 31, 2016, providing sufficient financial capacity for RioCan to pursue its development and intensification program;
• As part of RioCan’s ongoing capital recycling program, RioCan sold a portion of its marketable securities and recognized a gain of $11.5 million related to the sale in the First Quarter of 2017;
• RioCan completed the offering of $300 million Series Y senior unsecured debentures that mature in October 2022 with a 2.83% coupon rate. Subsequent to the quarter end, RioCan completed the offering of $300 million Series Z debentures that mature in April 2021 with a 2.194% coupon rate. RioCan also repaid on maturity $150 million Series P debentures, and has announced the redemption of $149.5 million of the Trust’s cumulative rate reset preferred trust units Series C on June 30, 2017; and
• Subsequent to March 31, 2017, the Trust exercised its option to extend the maturity date on its operating line of credit to May 31, 2022.

RioCan Real Estate Investment Trust (“RioCan”) (TSX:REI.UN) today announced its financial results for the three months ended March 31, 2017.

“In the first quarter of 2017, the Trust again delivered solid results for our unitholders. Operationally, our portfolio is performing very well with increases in occupancy, improved rents, and with the backfilled Target leases beginning to take occupancy we are starting to close the gap between committed and in-place occupancy,” said Edward Sonshine, Chief Executive Officer of RioCan. “We continue to make great progress on our active developments in our pipeline. With our partner, Allied Properties REIT, we made significant leasing progress at our King and Portland development this past quarter, and in Ottawa we are very pleased to have partnered with Killam Apartment REIT in our first rental residential development project in Ottawa, Ontario. The recent announcement from the Government of Ontario to expand the rent control regime in Ontario to new rental projects is not expected to affect our rental development projects that are currently under construction, however it is possible that future projects may be completed with a greater proportion of condominium units than we had initially envisioned.”

Financial Highlights

All figures are expressed in Canadian dollars unless otherwise noted. For further information about RioCan’s results for the three months ended March 31, 2017, this earnings release should be read in conjunction with our unaudited interim consolidated financial statements (“Consolidated Financial Statements”), as well as Management’s Discussion and Analysis for the three months ended March 31, 2017.

RioCan’s Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards (“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. For full definitions of these measures, please refer to the “Use of Non-GAAP Measures” in RioCan’s March 31, 2017 Management’s Discussion and Analysis. As a result of the sale of the U.S. operations, we have reported our former U.S. geographic segment performance as “discontinued operations” with comparative income statement amounts adjusted to reflect this change, unless otherwise noted.

Continuing Operations

Q1 2017

Net income from continuing operations attributable to unitholders for the first quarter of 2017 is $163.1 million compared to $108.2 million during the same period in 2016, representing an increase of $54.9 million or 50.7%. Excluding a $21.1 million increase in fair value, net income from continuing operations attributable to unitholders for the three months ended March 31, 2017 is $145.0 million compared to $111.2 million in 2016, representing an increase of $33.9 million or 30.5%.

The increase of $33.9 million is largely the net effect of the following:

• $9.3 million of income primarily due to property acquisitions (net of dispositions) and higher same property performance, offset by lower lease cancellation fees;
• $11.5 million in gains related to available-for-sale marketable securities;
• $5.5 million in higher earnings from our equity accounted investments, primarily as a result of fair value increases;
• $4.1 million in lower leasing, general and administrative costs, transaction and other costs;
• $3.6 million in interest savings due mainly to lower average debt balances outstanding as a result of debt repayments using proceeds from the sale of the U.S. portfolio in 2016, and the refinancing of debt at lower interest rates;

Q1 2017

FFO for Q1 2017 is $142.8 million, relatively flat compared to $142.6 million in the same period of 2016. On a basic per unit basis, FFO also remained flat compared to the prior period, despite the sale of the U.S. portfolio during 2016.

Continuing Operations

FFO from continuing operations increased from $108.8 million in Q1 2016 to $142.9 million in Q1 2017, an increase of $34.2 million or 31.4%.The $34.2 million increase in FFO from continuing operations for the quarter was primarily due to $11.5 million in gains related to the sale of marketable securities, higher NOI of $9.4 million (at RioCan’s proportionate share) mainly as a result of acquisition activity net of dispositions and higher same property performance, $5.9 million in eliminated Series A preferred unit redemption costs and distributions, $3.6 million in lower interest costs (at RioCan’s proportionate share), $2.2 million in lower general and administrative expenses and higher interest income of $1.0 million.

Operational Performance

Same property NOI increased 1.5% or $2.5 million compared to the same period in 2016. Approximately $2.0 million of the increase related to higher occupancy, renewal rate growth and contractual rent increases and $0.5 million is due to an increase in NOI from re-development projects completed.

The key performance indicators related to operating and leasing for the Canadian portfolio over the last eight quarters are as follows:

Other Operating Statistics

• Average net rent per square foot increased 23.9% on new leasing $19.88 in the First Quarter as compared to $16.05 on new leases completed in the first quarter of 2016;
• Renewal rents increased on average 8.2% and RioCan’s retention rate increased from 84.4% in first quarter 2016 to 88.6% this quarter.
• We expect to generate $16.2 million of annualized net incremental IFRS rent once all tenants that have signed leases as of March 31, 2017 take possession of their space. Approximately 43.7% of the incremental IFRS rent relates to the leasing of former Target space and leasing of other tenant space in development projects expected to be completed in 2017; and
• Consistent with RioCan’s stated strategy, its portfolio is concentrated in Canada’s six major markets (consisting of Toronto, Ottawa, Calgary, Edmonton, Montreal and Vancouver). Assets in these markets contribute approximately 75.4% of RioCan’s annualized rental revenue as at March 31, 2017 (75.5% at December 31, 2016). The slight decrease is due to timing of tenant vacancies in major markets at each reporting period end as the percentage is calculated on an annualized basis.

Portfolio Activity

Acquisitions / Dispositions

During the quarter, there were no completed acquisitions of investment properties. As part of the Trust’s ongoing capital recycling program we disposed of a partnership interest in one income property for sale proceeds of $25.1 million in the First Quarter.

Development Activities

As at March 31, 2017, RioCan had ownership interests in greenfield and urban intensification development projects that represent approximately 5.2 million square feet upon completion (2.8 million square feet at RioCan’s interest) located primarily in Toronto and Ottawa, Ontario and Calgary, Alberta. In the First Quarter, RioCan transferred properties under development with a carrying value of $49.1 million to income producing properties pertaining to 247,000 square feet at RioCan’s interest of completed greenfield development or expansion and redevelopment projects.

Residential Development

RioCan has currently identified nearly 50 properties that it considers to be strong possible intensification opportunities, all of which are in Canada’s six major markets and are typically located in the vicinity of substantive transit infrastructure. RioCan’s objective is to develop approximately 10,000 rental residential units over the next decade. Recently, the Ontario Government announced proposed changes to the province’s rent control legislation. In the near term, we do not believe that the announced changes impact the Trust’s current development opportunities that are in progress. Over the longer term, these changes, if enacted, may alter the proportion of residential units for rental purposes versus condominiums for sale in RioCan’s development pipeline. Given the early stage of the evolution of this strategy, there can be no assurance that all of these developments will be undertaken, and if they are, on what terms.

As at the date of this report, RioCan has obtained planning approvals for 13 mixed use projects. If all planning permission requests – including those where approvals have been received and those where applications have been filed – are granted as applied for, a total of 12,099,000 square feet of potential development is expected, which will include residential rental units held for long-term rental income; condominiums for sale that will, in most cases, be developed by third party partners through the sale of air rights; and commercial gross leasable area. The mix between condominiums and rental residential may change over time depending on market conditions.

Liquidity and Capital

RioCan’s debt and leverage metrics are disclosed below to help facilitate an understanding of RioCan’s leverage and its ability to service such leverage. The definitions that management uses, as well as the calculation methodology for the ratios included in the table below are described in RioCan’s Management’s Discussion and Analysis for the three months ended March 31, 2017.

The interest and debt service coverage ratios calculated at RioCan’s proportionate interest for the twelve months ended March 31, 2017 improved compared to December 31, 2016 mainly due to lower interest and debt service costs as a result of the repayment of debt using the net proceeds from the U.S. sale and interest savings from mortgage refinancings, partially offset by a decrease in adjusted EBITDA mainly in connection with our U.S. property portfolio disposition.

The fixed charge coverage ratio calculated at RioCan’s proportionate interest was flat for the twelve months ended March 31, 2017 compared to December 31, 2016. The lower total fixed charges (interest costs plus unitholder distributions) was offset by the same changes in adjusted EBITDA as described above.

Debt to adjusted EBITDA at RioCan’s proportionate interest has decreased to 7.90 for the twelve months ended March 31, 2017 mainly as a result of lower average debt balances outstanding and higher marketable securities gains in Q1 2017, partially offset by a decline in adjusted EBITDA in connection with the U.S. portfolio sale.

The percentage NOI generated from unencumbered assets has improved from 49.5% to 52.9% as we continued to unencumber assets this quarter.

Selected Financial Information

The following includes financial information prepared by management in accordance with IFRS and based on the Trust’s Unaudited Interim Consolidated Financial Statements for the period ended March 31, 2017. This financial information does not contain all disclosures required by IFRS, and accordingly should be read in conjunction with the Trust’s Unaudited Interim Consolidated Financial Statements and Management’s Discussion and Analysis for the period ended March 31, 2017, which is available on RioCan’s website and on SEDAR.

Conference Call and Webcast

Interested parties are invited to participate in a conference call with management on Friday, May 12, 2017 at 10:00 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 416-340-2216 or 1-866-223-7781. If you cannot participate in the live mode, a replay will be available until June 9, 2017. To access the replay, please dial 905-694-9451 or 1-800-408-3053 and enter passcode 2412803#.

Alternatively, to access the simultaneous webcast, go to the following link on RioCan’s website http:// 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 enterprise value of approximately $14.6 billion as at March 31, 2017. RioCan owns and manages Canada’s largest portfolio of shopping centres with ownership interests in a portfolio of 300 Canadian retail and mixed use properties, including 15 properties under development, containing an aggregate net leasable area of 46 million square feet. For the past 25 years, we have shaped the future, sensibly cultivated growth, and taken our stakeholders and partners wherever they needed to go. Currently, we have approximately 6,250 retail tenants and 700 employees with a presence from coast to coast. We know that there is a home for every retailer. Whether we find it today or build it for tomorrow, we deliver real vision, solid ground. For more information, visit www.riocan.com.

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, RioCan’s Interest, RioCan’s Proportionate Share, Funds From Operations (“FFO”), Adjusted Earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), Interest Coverage Ratio, Debt Service Coverage Ratio, Debt to Adjusted EBITDA, Operating Income (“NOI”), Same Property NOI, Percentage of NOI generated from unencumbered assets, Unencumbered assets to unsecured debt, and Total Enterprise Value, 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 supplements its IFRS measures with these non-GAAP measures to aid in assessing the Trust’s 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 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 Management Discussion and Analysis for the period ending March 31, 2017.

Forward-Looking Information

This news release contains forward-looking information within the meaning of applicable Canadian securities laws. This information includes, but is not limited to, statements made in “Financial Highlights”, “Corporate Developments”, “Portfolio Activity”, “Operational Highlights”, “Development Activities”, Liquidity and Capital” 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 information 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 information reflects management’s 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 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, 2017 (“MD&A”), which could cause actual events or results to differ materially from the forward-looking information 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 or restructuring (and the terms of any bankruptcy or restructuring proceeding), occupancy levels and defaults, including the failure to fulfill contractual obligations by the tenant or a related party thereof; lease renewals and rental increases; the ability to re-lease and find new tenants for vacant space; retailer competition; potential changes in Ontario’s rent control legislation; 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; unitholder liability; income, sales and land transfer taxes; and credit ratings.

RioCan currently qualifies as a real estate investment trust for Canadian tax purposes and intends to qualify for future years. The Income Tax Act (Canada) contains provisions which potentially impose tax on publicly traded trusts that 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 REIT. Should RioCan no longer qualify as a Canadian REIT under the SIFT Provisions, certain statements contained in this News Release may need to be modified. RioCan is still subject to Canadian tax in its incorporated Canadian subsidiaries.

Our 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 our 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 subsidiary’s qualification as a REIT depends on the REIT’s satisfaction of certain asset, income, organizational, distribution, unitholder ownership and other requirements up until May 25, 2016. Our U.S. subsidiary was subject to a 30% or 35% withholding tax on distributions of its U.S. taxable income to Canada. We do not intend to distribute any withholding taxes paid or payable to our unitholders related to the disposition.

Other factors, such as general economic conditions, including interest 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 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; and the availability of investment opportunities for growth. 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 MD&A for the period ended March 31, 2017, and in “Risks and Uncertainties” in RioCan’s most recent Annual Information Form. 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.

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.