RioCan's HIGHLIGHTS for the three and nine months ended September 30, 2017:
- For the quarter ended September 30, 2017 ("Third Quarter"), IFRS Operating income increased 4.1% to $186 million from $178 million for the third quarter of 2016;
- Revenue increased 1.6% for the Third Quarter to $287 million as compared to $282 million for the third quarter of 2016;
- Funds From Operations ("FFO") increased 7.9% to $151 million as compared to $140 million during the third quarter of 2016. FFO per unit in the Third Quarter increased 7.5% to $0.46 compared to $0.43 in the third quarter of 2016;
- Same property NOI grew by 2.4%, or $4.0 million in the Third Quarter as compared to the same quarter in 2016;
- Committed occupancy continued to improve, increasing 150 basis points to 96.8% at September 30, 2017 as compared to 95.3% at September 30, 2016. In-place occupancy increased 240 basis points from 93.6% at September 30, 2016 to 96.0% at September 30, 2017;
- Retention rate remained high at 93.6% in the Third Quarter, significantly improved from a retention rate of 83.1% in the same period in 2016;
- As announced subsequent to the quarter end, RioCan is taking steps to accelerate its focus in Canada’s six major markets through the sale of approximately 100 of its properties with a current value in excess of $2.0 billion;
- As at September 30, 2017, 75.2% of RioCan's annual rental revenue is from the six Canadian major markets while on a Net Leasable Area ("NLA") basis these markets account for 68.7% of RioCan's income producing property NLA. The Greater Toronto Area ("GTA") represents only 34.2% of RioCan's total NLA yet generates 40.0% of RioCan's annual rental revenue. Our target is to generate well over 90% of our annual rental revenue from Canada's six major markets, with over 50% from the GTA after completion of the targeted property sales as recently announced;
- After the quarter end, RioCan renewed its Normal Course Issuer Bid ("NCIB"), and as previously announced, effective November 1, 2017 RioCan suspended its Distribution Reinvestment Plan ("DRIP") until further notice in order to maximize the effectiveness of its renewed NCIB program;
- During the quarter, RioCan and its partner Metropia acquired adjacent sites in Toronto's prestigious Yorkville district with plans to develop the site into a mixed-use condominium project with an estimated half a million square feet of potential density;
- During the quarter, RioCan and its partner Allied Properties REIT announced a change from rental units at the King Portland Centre to condominium units. Subsequent to the quarter end, the partners announced that they successfully sold the majority of the 133 condominium units and that they expect the profitability of these units to exceed initial expectations; and
- Subsequent to quarter end, RioCan and its co-owner Allied entered into a binding agreement to acquire Diamond Corp's Whitecastle New Urban Fund 2 ("WNUF") undivided 20% interest in the commercial component of The Well. As a result of this transaction, each of Allied and RioCan will own an undivided 50% interest in the commercial component and will pursue the construction and ultimate operation of the commercial component as equal partners.
TORONTO, Ontario, Nov. 03, 2017 (GLOBE NEWSWIRE) -- RioCan Real Estate Investment Trust (“RioCan”) (TSX:REI.UN) today announced its financial results for the three and nine months ended September 30, 2017.
“We are pleased to have delivered a solid quarter for our unitholders in all respects. Our same property NOI growth at 2.4% is the highest since the first quarter of 2014. When taken together with the fact that our occupancy came in at 96.8%, it is clear that RioCan has put not only the Target bankruptcy in the rear view mirror, but also successfully managed the many other retailer stumbles that have occurred over the last three years,” said Edward Sonshine, Chief Executive Officer of RioCan. “The recent announcement of the acceleration of our strategy to focus our portfolio much more into Canada’s six major markets will lead to even better NOI and FFO growth. When put together with our extremely strong financial position and the ongoing creation of value in our existing portfolio, this is an exciting time for RioCan.”
Financial Highlights
All figures are expressed in Canadian dollars unless otherwise noted. For further information about RioCan's results for the three and nine months ended September 30, 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 ("MD&A") for the three and nine months ended September 30, 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 “Non-GAAP Measures” in RioCan’s September 30, 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.
Net income from continuing operations attributable to unitholders
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| (in millions except percentages and per unit values) | 2017 | 2016 | % Change | 2017 | 2016 | % Change | ||||||||||
| Net income from continuing operations | $ | 180.3 | $ | 253.7 | (28.9 | )% | $ | 498.5 | $ | 504.7 | (1.2 | )% | ||||
| Net income per unit from continuing operations attributable to unitholders – diluted | $ | 0.55 | $ | 0.77 | (28.6 | )% | $ | 1.51 | $ | 1.52 | (0.7 | )% | ||||
Continuing Operations
Net income from continuing operations attributable to unitholders for the third quarter of 2017 is $180.3 million compared to $253.7 million during the same period in 2016. Excluding $77.2 million lower fair value gains over the comparable period, net income from continuing operations attributable to unitholders for the third quarter of 2017 is $145.3 million compared to $141.5 million in 2016, representing an increase of $3.9 million or 2.7%.
The increase of $3.9 million is largely the net effect of the following:
- $8.3 million of income primarily due to strong same property performance, property acquisitions (net of dispositions), completed developments, and higher straight line rent revenue;
- $3.3 million increase in gains related to the sale of available-for-sale marketable securities; and
- $1.2 million in higher income from our equity accounted investments; partly offset by
- $6.1 million in lower transaction gains due to a higher gain on the sale of an investment property during the third quarter of 2016;
- $1.3 million less dividend income from available-for-sale marketable securities; and
- $1.1 million in higher general and administrative expenses due to the impact of a reversal of a cost accrual during Q3 2016.
YTD 2017
Net income from continuing operations attributable to unitholders for the nine months ended September 30, 2017 is $498.5 million compared to $504.6 million during the same period in 2016. Excluding $72.6 million lower fair value gains over the comparable period, net income from continuing operations attributable to unitholders for the nine months ended September 30, 2017 is $432.6 million compared to $366.1 million in 2016, representing an increase of $66.5 million or 18.2%.
The increase of $66.5 million is largely the net effect of the following:
- $31.4 million of income primarily due to property acquisitions (net of dispositions), strong same property performance, completed developments, and higher straight line rent revenue;
- $25.1 million increase in gains related to available-for-sale marketable securities;
- $7.0 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;
- $6.5 million in higher income from our equity accounted investments, primarily as a result of fair value gains in our RioCan-HBC joint venture; and
- $4.4 million in lower internal leasing costs and general and administrative expenses primarily due to mark to market adjustments of cash-settled unit based compensation costs and other prior period office rent adjustment;
- $1.5 million increase in interest income; partly offset by
- $6.1 million in lower transaction gains due to a higher gain on the sale of an investment property during the third quarter of 2016; and
- $3.1 million less dividend income from available-for-sale marketable securities.
Funds From Operations ("FFO")
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| (in millions except percentages and per unit values) | 2017 | 2016 | % Change | 2017 | 2016 | % Change | ||||||||||
| FFO from continuing operations | $ | 149.8 | $ | 140.0 | 7.1 | % | $ | 438.5 | $ | 364.8 | 20.2 | % | ||||
| FFO from discontinued operations | $ | 1.1 | $ | — | N/A | $ | 1.9 | $ | 50.9 | N/A | ||||||
| FFO (i) | $ | 151.0 | $ | 140.0 | 7.9 | % | $ | 440.4 | $ | 415.7 | 5.9 | % | ||||
| FFO per Unit - basic | $ | 0.46 | $ | 0.43 | 7.5 | % | $ | 1.35 | $ | 1.28 | 5.3 | % | ||||
(i) A non-GAAP measurement. A reconciliation to net income can be found under “Results of Operations” in RioCan's Management's Discussion and Analysis for the period ending September 30, 2017.
Q3 2017
FFO for the third quarter of 2017 is $151.0 million compared to $140.0 million in the third quarter of 2016 representing an increase of approximately $11.0 million or 7.9%. On a basic per unit basis, FFO is $0.46 compared to $0.43, representing an increase of 7.5%.
Continuing Operations
FFO from continuing operations increased from $140.0 million in the third quarter of 2016 to $149.8 million in the comparable period in 2017, an increase of $9.9 million or 7.1%. The $9.9 million increase in FFO from continuing operations for the quarter was primarily due to the net effect of the following:
- $8.4 million higher NOI (at RioCan’s proportionate share) mainly as a result of strong growth in same property NOI and acquisitions net of dispositions;
- $3.3 million increase in gains related to the sale of available-for-sale marketable securities;
- $1.8 million less Series C preferred unit distributions; and
- $1.1 million in higher gains from inventory sales within our equity accounted investments; partially offset by
- $1.3 million in other costs associated with transactions the Trust decided not to pursue further;
- $1.3 million in lower dividend income on available-for-sale marketable securities;
- $1.1 million in higher general and administrative expenses due to the impact of a reversal of a cost accrual during Q3 2016; and
- $1.0 million in lower fee income and residential inventory sales, net of cost of sales.
YTD 2017
FFO for the first nine months of 2017 is $440.4 million compared to $415.7 million in the comparable period of 2016 representing an increase of approximately $24.7 million or 5.9%. On a basic per unit basis, FFO is $1.35 compared to $1.28, representing an increase of 5.3%, despite the sale of the U.S. portfolio in May 2016.
Continuing Operations
FFO from continuing operations increased from $364.8 million in the first nine months of 2016 to $438.5 million in the comparable period in 2017, an increase of $73.7 million or 20.2%. The $73.7 million increase in FFO from continuing operations for the period was primarily due to the following:
- $31.4 million higher NOI (at RioCan’s proportionate share) mainly as a result of acquisitions net of dispositions and growth in same property NOI,
- $25.1 million increase in gains related to the sale of available-for-sale marketable securities;
- $6.9 million lower interest costs (at RioCan's proportionate share);
- $4.3 million Series A preferred unit redemption costs in Q1 2016;
- $3.8 million lower general and administrative expenses due to mark to market adjustments of cash-settled unit based compensation costs and a prior period office rent adjustment;
- $3.4 million less Series A and C preferred unit distributions;
- $2.1 million in higher gains from inventory sales within our equity accounted investments; and
- $1.5 million higher interest income; partially offset by
- $3.1 million lower dividend income from the sale of available-for-sale marketable securities; and
- $2.5 million in other costs associated with transactions the Trust decided not to pursue further.
Acceleration of Major Market Focus
On October 2, 2017, RioCan announced its plan to accelerate its portfolio focus in Canada’s six major markets through the sale of approximately 100 properties located primarily in secondary markets across Canada over the next two to three years. On completion, RioCan expects to generate in excess of 90% of its annualized rental revenue from Canada’s six major markets (currently 75.2%). This strategy will further enhance the quality, growth profile and resilience of the Trust’s portfolio of retail focused, increasingly mixed-use properties located in prime, high density, transit oriented areas where Canadians want to shop, live and work.
The key elements of RioCan’s strategy include:
- The sale of over $2.0 billion of income properties primarily located in Canada’s secondary markets, including certain non-core assets in major markets, representing approximately 100 of RioCan’s properties to be sold in phases over the next two to three years. The sales are expected to generate total net proceeds of approximately $1.5 billion;
- Repurchase and cancellation of the Trust’s units through the Trust’s Normal Course Issuer Bid (“NCIB”) program while maintaining its strong credit fundamentals. It is estimated that approximately half of the net proceeds will be used for its NCIB program;
- Continued investment of approximately $300 million to $400 million per year into RioCan’s robust development pipeline, which is focused exclusively in Canada’s six major markets; and
- Suspension of its Distribution Reinvestment Plan (“DRIP”) effective November 1, 2017, in order to maximize the effectiveness of the NCIB.
Operational Performance
Same Property NOI Growth
| Three months ended September 30, 2017 | Nine months ended September 30, 2017 | |||||
| Same Property Growth | 2.4% | 1.9% |
Refers to same property NOI growth on a year over year basis.
Same property NOI increased 2.4% or $4.0 million in the Third Quarter compared to the same period in 2016. Approximately $2.5 million of the increase related to higher occupancy, renewal rate growth and contractual rent increases and $1.5 million is due to an increase in NOI from Target backfills and other expansion and 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:
| 2017 | 2016 | 2015 | ||||||||||||||
| Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | |||||||||
| Committed occupancy | 96.8 | % | 96.7 | % | 96.2 | % | 95.6 | % | 95.3 | % | 95.1 | % | 94.8 | % | 94.0 | % |
| In-place occupancy | 96.0 | % | 95.2 | % | 94.4 | % | 93.6 | % | 93.6 | % | 92.9 | % | 92.8 | % | 93.3 | % |
| Retention rate | 93.6 | % | 93.9 | % | 88.6 | % | 84.0 | % | 83.1 | % | 91.6 | % | 84.4 | % | 81.4 | % |
| % increase in average net rent per sq ft | 5.2 | % | 4.7 | % | 8.2 | % | 8.1 | % | 6.6 | % | 3.3 | % | 6.2 | % | 4.0 | % |
Other Operating Statistics
- Renewal rents increased on average 5.2% and RioCan's retention rate increased from 83.1% in Q3 2016 to 93.6% this quarter. The slightly lower renewal average net rent increase in Q3 2017 in comparison to the average rate achieved over the past eight quarters is primarily due to a higher than average proportion of renewals with fixed rates that were completed during the third quarter. In Q3 2017, approximately 46% of the square footage renewed were fixed rate renewals compared to an average of approximately 38% in the last eight quarters.
- We expect to generate $7.2 million of annualized net incremental IFRS rent once all tenants that have signed leases as of September 30, 2017 take possession of their space.
Acquisitions and Dispositions
Income Producing Property Acquisitions and Dispositions
During the three months ended September 30, 2017, there were no acquisitions of income producing properties.
On August 3, 2017, we disposed of a portfolio of six chartered bank branches located in British Columbia at a sale price of $30.3 million, and a capitalization rate of 3.72%. During the nine months ended September 30, 2017, we disposed of seven properties (including the six chartered bank branches) and a partnership interest, for sales proceeds aggregating $149.6 million. There was no debt associated with these dispositions.
Development Property Acquisitions and Dispositions
Yorkville Project
- During the Third Quarter, RioCan and its partner Metropia entered into a 75/25 joint venture and acquired adjacent sites in Toronto's prestigious Yorkville district with plans to develop the site into a mixed-use condominium project with an estimated half a million square feet of potential density. RioCan's purchase price including transaction costs for its 75% interest was $67.5 million. The partners have also entered into a firm purchase agreement, and continue to conduct negotiations, to acquire other adjacent properties for the project, which are expected to close in the first quarter of 2018. Subsequent to the quarter end, RioCan sold a 25% interest in the property to Capital Developments at a sale price of $21.7 million including certain cost recoveries;
ePlace (Yonge Eglinton Northeast Corner)
- During the Third Quarter, RioCan entered into an agreement with its partners Metropia and Bazis to acquire their 50% interest in the rental residential portion of the development at the northeast corner of Yonge Street and Eglinton Avenue East in Toronto, Ontario (also known as ePlace). The purchase price for the remaining interest in the rental residential tower is expected to be in the range of $95 to $105 million upon closing estimated to be in the first quarter of 2019, subject to final costs;
King Portland Centre
- Subsequent to the quarter end, RioCan and Allied announced that the residential condominium units at King Portland Centre are substantially sold out, subject to customary closing conditions and rights of rescission. RioCan and Allied expect the profitability of these units to exceed initial expectations.
The Well
- Subsequent to the quarter end, RioCan and its co-owner Allied entered into a binding agreement to acquire Diamond Corp's WNUF2 undivided 20% interest in the commercial components of The Well for a purchase price of up to $42 million. As a result of the transaction, each of Allied and RioCan owns an undivided 50% interest in the commercial component and will pursue the construction and ultimate operation of the commercial component as equal partners.
Development Pipeline
RioCan’s development program is an important component of its long-term growth strategy and is focused on well-located properties in the six major markets in Canada. Often these are properties that RioCan already owns and are located directly on, or in proximity, to major transit lines. RioCan's development program continues to be a significant value creation driver and will secure diversification and growth for our future cash flows and net asset value ("NAV") growth for our unitholders.
Pipeline Summary
RioCan's overall estimated development pipeline as at September 30, 2017, represents approximately 23.8 million square feet of density (at RioCan’s interest). These projects include commercial space (office and retail), residential rental held for long-term rental income, condominiums and townhouses for sale, and density associated with air rights sales. Approximately 3.2 million square feet of NLA in the estimated development pipeline is existing NLA which is currently income producing, therefore the net incremental density included in the total development pipeline is estimated at 20.6 million square feet (at RioCan's interest) as of September 30, 2017. This pipeline, as currently disclosed is expected to grow as we identify new intensification opportunities and as Canada's six major markets continue to grow in population and expand their transit and infrastructure networks.
Approximately 96.1% or 22.9 million square feet of our overall estimated development pipeline is mixed-use projects. Residential rental units and air rights sales account for approximately 68.3% of our development pipeline as of September 30, 2017.
Of the Trust's estimated 23.8 million square feet of development pipeline (at RioCan's interest) 41 projects or 10.8 million square feet of our development pipeline have zoning approvals, representing approximately 45.4% of total estimated NLA in the Trust's current development pipeline. In addition, the Trust has 7 projects or 6.5 million square feet with zoning applications submitted, representing an additional 27.3% of the Trust's current development pipeline as of September 30, 2017.
RioCan has categorized its development pipeline into three primary components: active projects with detailed cost estimates, active projects with cost estimates in progress, and future estimated density. As of September 30, 2017, RioCan has active projects with estimated costs for the 32 active Properties Under Development ("PUD") projects, plus the current carrying costs of the development lands and other, net of projected proceeds from dispositions. The 32 active PUD projects with detailed costs estimates represent 3.8 million square feet including residential inventory with total estimated PUD project costs of $1.9 billion. After projected proceeds from land and air rights dispositions the estimated costs to complete for PUD are $1.0 billion as of September 30, 2017.
The Trust will continue to fund its development pipeline through property sales, including proceeds from its projected asset sales over the next two to three years, as recently announced, and strategic development partnerships.
Completed Developments in 2017
During the three and nine months ended September 30, 2017, RioCan transferred $70.5 million and $170.6 million, respectively, in costs to income producing properties pertaining to 253,000 and 732,000, respectively, square feet of completed greenfield development and expansion and redevelopment projects.
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 nine months ended September 30, 2017.
| Rolling 12 months ended | ||
| September 30, 2017 | December 31, 2016 | |
| Interest coverage – RioCan’s proportionate share (i) | 3.78x | 3.36x |
| Debt service coverage – RioCan’s proportionate share (i) | 2.98x | 2.61x |
| Fixed charge coverage – RioCan’s proportionate share (i) | 1.14x | 1.10x |
| Debt to Adjusted EBITDA – RioCan’s proportionate share (i) | 7.63x | 8.10x |
| Ratio of total debt to total assets (RioCan's proportionate share, net of cash and cash equivalents) | 41.5% | 40.0% |
| Unencumbered assets (millions) | $7,274 | $6,625 |
| % of NOI generated from unencumbered assets (ii) | 53.4% | 49.5% |
| Unencumbered assets to unsecured debt | 229% | 240% |
(i) Refer to section Non-GAAP Measures in RioCan's MD&A for further details and the calculation of Adjusted EBITDA for the respective periods.
(ii) Ratio is calculated on a continuing operations basis.
The interest and debt service coverage ratios calculated at RioCan's proportionate share for the twelve months ended September 30, 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 refinancing, 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 share for the twelve months ended September 30, 2017 improved compared to December 31, 2016, mainly due to lower total fixed charges (interest cost plus unitholder distributions) partially offset by the same changes in Adjusted EBITDA as described above.
Debt to Adjusted EBITDA at RioCan's proportionate share has improved to 7.63 for the twelve months ended September 30, 2017 mainly as a result of lower average debt balances outstanding, partially offset by a decrease in Adjusted EBITDA mainly in connection with our U.S. property portfolio disposition in the second quarter of 2016.
The percentage NOI generated from unencumbered assets has improved from 49.5% to 53.4% as we continued to unencumber assets during the first nine months of 2017. The unencumbered assets to unsecured debt ratio, however, decreased from 240% to 229% over the comparable periods as the increase in our unsecured debt of $416 million, partially driven by tax payments relating to the U.S. portfolio sale and redemption of the Trust's Series C preferred units, outpaced the $649 million increase in unencumbered assets on a relative basis. Overall, we are still well over our 200% target.
As at September 30, 2017, we achieved or exceeded all of our debt metrics targets.
NCIB
Pursuant to RioCan's NCIB, it is authorized to acquire up to a maximum of 32,520,207 of its Units, or approximately 10% of the public float of 325,202,070 as of October 6, 2017, for cancellation over the next 12 months ending October 19, 2018. The number of Units that can be purchased pursuant to the bid is subject to a daily maximum of 127,617 Units (which is equal to 25% of 510,471, being the average daily trading volume during the six months ending September 30, 2017), subject to RioCan’s ability to make one block purchase of Units per calendar week that exceeds such limits. Any Units purchased under the NCIB will be cancelled upon their purchase, or a small number may be used to satisfy RioCan’s obligation to deliver Units under RioCan’s Restricted Equity Unit Plan and/or Performance Equity Unit Plan. RioCan intends to fund the purchases out of its available cash, including net cash proceeds from its projected property sales as recently announced, and undrawn credit facilities.
Selected Financial Information
The following includes financial information prepared by management in accordance with IFRS and based on the Trust's Consolidated Financial Statements for the period ended September 30, 2017. This financial information does not contain all disclosures required by IFRS, and accordingly should be read in conjunction with the Trust's Consolidated Financial Statements and MD&A for the period ended September 30, 2017, which is available on RioCan's website and on SEDAR.
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars, except per unit amounts)
(unaudited)
| As at | September 30, 2017 | December 31, 2016 | ||
| Assets | ||||
| Investment properties | $ | 13,496,396 | $ | 13,287,038 |
| Deferred tax assets | 10,609 | 11,609 | ||
| Equity accounted investments | 205,411 | 185,278 | ||
| Mortgages and loans receivable | 102,842 | 118,017 | ||
| Residential inventory | 113,681 | 48,414 | ||
| Assets held for sale | 64,920 | 60,530 | ||
| Receivables and other assets | 323,948 | 408,508 | ||
| Cash and cash equivalents | 58,118 | 54,366 | ||
| Total assets | $ | 14,375,925 | $ | 14,173,760 |
| Liabilities | ||||
| Debentures payable | $ | 2,694,703 | $ | 2,248,024 |
| Mortgages payable | 2,582,645 | 2,699,935 | ||
| Lines of credit and other bank loans | 672,266 | 705,633 | ||
| Accounts payable and other liabilities | 390,055 | 510,280 | ||
| Total liabilities | $ | 6,339,669 | $ | 6,163,872 |
| Equity | ||||
| Unitholders' equity: | ||||
| Preferred | $ | — | $ | 144,755 |
| Common | 8,036,256 | 7,865,133 | ||
| Total equity | 8,036,256 | 8,009,888 | ||
| Total liabilities and equity | $ | 14,375,925 | $ | 14,173,760 |
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of Canadian dollars, except per unit amounts)
(unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||
| Revenue | ||||||||||||
| Rental revenue | $ | 283,713 | $ | 274,810 | $ | 851,262 | $ | 818,627 | ||||
| Property and asset management fees | 2,977 | 3,470 | 10,729 | 10,218 | ||||||||
| Residential inventory sales | — | 3,898 | — | 12,910 | ||||||||
| 286,690 | 282,178 | 861,991 | 841,755 | |||||||||
| Operating costs | ||||||||||||
| Rental operating costs | ||||||||||||
| Recoverable under tenant leases | 96,762 | 95,777 | 299,470 | 296,718 | ||||||||
| Non-recoverable costs | 4,280 | 4,694 | 12,917 | 14,451 | ||||||||
| Residential inventory cost of sales | — | 3,349 | — | 11,639 | ||||||||
| 101,042 | 103,820 | 312,387 | 322,808 | |||||||||
| Operating income | 185,648 | 178,358 | 549,604 | 518,947 | ||||||||
| Other income | ||||||||||||
| Interest income | 1,632 | 1,419 | 5,636 | 4,087 | ||||||||
| Income from equity accounted investments | 3,328 | 2,141 | 11,937 | 5,451 | ||||||||
| Fair value gains on investment properties, net | 34,991 | 112,174 | 65,929 | 138,517 | ||||||||
| Investment and other income | 15,952 | 19,648 | 45,037 | 26,506 | ||||||||
| 55,903 | 135,382 | 128,539 | 174,561 | |||||||||
| Other expenses | ||||||||||||
| Interest costs | 43,444 | 43,360 | 129,029 | 136,063 | ||||||||
| General and administrative | 12,212 | 11,147 | 34,437 | 38,219 | ||||||||
| Internal leasing costs | 2,806 | 3,038 | 7,617 | 8,268 | ||||||||
| Transaction and other costs | 2,750 | 2,531 | 7,531 | 7,128 | ||||||||
| 61,212 | 60,076 | 178,614 | 189,678 | |||||||||
| Income before income taxes | 180,339 | 253,664 | 499,529 | 503,830 | ||||||||
| Deferred income tax expense (recovery) | — | — | 1,000 | (850 | ) | |||||||
| Net income from continuing operations | $ | 180,339 | $ | 253,664 | $ | 498,529 | $ | 504,680 | ||||
| Net income (loss) from discontinued operations | 4,231 | (5,444 | ) | 7,084 | 161,699 | |||||||
| Net income | $ | 184,570 | $ | 248,220 | $ | 505,613 | $ | 666,379 | ||||
| Net income attributable to | ||||||||||||
| Unitholders | $ | 184,570 | $ | 248,220 | $ | 505,613 | $ | 666,288 | ||||
| Non-controlling interests | — | — | — | 91 | ||||||||
| $ | 184,570 | $ | 248,220 | $ | 505,613 | $ | 666,379 | |||||
| Net income per unit - basic: | ||||||||||||
| From continuing operations | $ | 0.55 | $ | 0.77 | $ | 1.52 | $ | 1.52 | ||||
| From discontinued operations | 0.01 | (0.02 | ) | 0.02 | 0.50 | |||||||
| Net income per unit - basic | $ | 0.56 | $ | 0.76 | $ | 1.54 | $ | 2.02 | ||||
| Net income per unit - diluted: | ||||||||||||
| From continuing operations | $ | 0.55 | $ | 0.77 | $ | 1.51 | $ | 1.52 | ||||
| From discontinued operations | 0.01 | (0.02 | ) | 0.02 | 0.50 | |||||||
| Net income per unit - diluted | $ | 0.56 | $ | 0.75 | $ | 1.53 | $ | 2.01 | ||||
| Weighted average number of units (in thousands): | ||||||||||||
| Basic | 327,342 | 326,140 | 327,063 | 325,023 | ||||||||
| Diluted | 327,438 | 326,658 | 327,190 | 325,344 | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
(unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||
| Operating activities | ||||||||||||
| Net income (loss) from: | ||||||||||||
| Continuing operations | $ | 180,339 | $ | 253,664 | $ | 498,529 | $ | 504,680 | ||||
| Discontinued operations | 4,231 | (5,444 | ) | 7,084 | 161,699 | |||||||
| Net income | 184,570 | 248,220 | 505,613 | 666,379 | ||||||||
| Items not affecting cash: | ||||||||||||
| Depreciation and amortization | 1,310 | 1,096 | 4,155 | 3,320 | ||||||||
| Amortization of straight-line rent | (2,707 | ) | (1,593 | ) | (7,069 | ) | (4,311 | ) | ||||
| Unit-based compensation expense | 1,313 | 558 | 3,392 | 1,206 | ||||||||
| Income from equity accounted investments | (3,328 | ) | (2,141 | ) | (11,937 | ) | (5,451 | ) | ||||
| Fair value gains on investment properties, net | (34,991 | ) | (112,174 | ) | (65,929 | ) | (155,416 | ) | ||||
| Deferred income taxes (recovery) | — | — | 1,000 | (231,525 | ) | |||||||
| Transaction gains, net on disposition of: | ||||||||||||
| Available-for-sale securities | (13,655 | ) | (10,359 | ) | (35,477 | ) | (10,359 | ) | ||||
| Canadian investment properties | — | (6,075 | ) | (971 | ) | (6,075 | ) | |||||
| U.S. investment properties | — | — | — | (65,116 | ) | |||||||
| Adjustments for other changes in working capital items | (21,727 | ) | 6,436 | (197,904 | ) | 90,167 | ||||||
| Cash provided by operating activities | 110,785 | 123,968 | 194,873 | 282,819 | ||||||||
| Investing activities | ||||||||||||
| Acquisitions of investment property | (18,974 | ) | (431,923 | ) | (31,902 | ) | (555,141 | ) | ||||
| Construction expenditures on properties under development | (64,689 | ) | (74,283 | ) | (220,361 | ) | (179,974 | ) | ||||
| Capital expenditures on income properties: | ||||||||||||
| Recoverable and non-recoverable costs | (7,018 | ) | (13,592 | ) | (19,345 | ) | (34,473 | ) | ||||
| Tenant improvements and external leasing commissions | (9,087 | ) | (9,901 | ) | (29,952 | ) | (32,943 | ) | ||||
| Proceeds from sale of investment properties | 27,690 | 7,457 | 187,320 | 2,044,262 | ||||||||
| Earn-outs on investment properties | (258 | ) | (4,093 | ) | (1,567 | ) | (4,093 | ) | ||||
| Contributions to equity accounted investments | (2,665 | ) | — | (16,466 | ) | (24,147 | ) | |||||
| Distributions received from equity accounted investments | 2,307 | 2,405 | 9,532 | 8,905 | ||||||||
| Advances of mortgages and loans receivable | (12,642 | ) | (2,120 | ) | (17,204 | ) | (3,100 | ) | ||||
| Repayments of mortgages and loans receivable | 9,092 | 3,841 | 14,221 | 24,813 | ||||||||
| Proceeds from sale of available-for-sale securities, net of selling costs | 46,331 | 35,794 | 122,299 | 35,794 | ||||||||
| Cash provided by (used in) investing activities | (29,913 | ) | (486,415 | ) | (3,425 | ) | 1,279,903 | |||||
| Financing activities | ||||||||||||
| Proceeds from mortgage financing, net of issue costs | 94,035 | 84,780 | 276,564 | 194,694 | ||||||||
| Repayments of mortgage principal | (108,296 | ) | (188,297 | ) | (361,511 | ) | (1,422,114 | ) | ||||
| Advances from bank credit lines, net of issue costs | 92,681 | 416,481 | 192,152 | 924,451 | ||||||||
| Repayment of bank credit lines | (34,692 | ) | (94,517 | ) | (264,720 | ) | (1,144,814 | ) | ||||
| Proceeds from issuance of debentures, net of issue costs | — | 248,737 | 596,948 | 248,737 | ||||||||
| Repayment of unsecured debentures | — | — | (150,000 | ) | — | |||||||
| Distributions to common trust unitholders, net of distributions reinvested | (108,360 | ) | (106,894 | ) | (325,071 | ) | (289,216 | ) | ||||
| Distributions to preferred trust unitholders | — | (1,757 | ) | (3,514 | ) | (6,911 | ) | |||||
| Distributions paid to non-controlling interests | — | — | — | (91 | ) | |||||||
| Return of capital to non-controlling interests | — | — | — | (782 | ) | |||||||
| Proceeds received from issuance of common units, net | 236 | 4,274 | 956 | 37,692 | ||||||||
| Redemption of preferred units | — | — | (149,500 | ) | (125,000 | ) | ||||||
| Cash provided by (used in) financing activities | (64,396 | ) | 362,807 | (187,696 | ) | (1,583,354 | ) | |||||
| Net change in cash and cash equivalents | 16,476 | 360 | 3,752 | (20,632 | ) | |||||||
| Cash and cash equivalents, beginning of period | 41,642 | 62,326 | 54,366 | 83,318 | ||||||||
| Cash and cash equivalents, end of period | $ | 58,118 | $ | 62,686 | $ | 58,118 | $ | 62,686 | ||||
Conference Call and Webcast
Interested parties are invited to participate in a conference call with management on Friday, November 3, 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 647-427-3230 or 1-877-486-4304. If you cannot participate in the live mode, a replay will be available. To access the replay, please dial 1-855-859-2056 and enter passcode 89573059#.
A copy of the slides to be used for the conference call or, to access the simultaneous webcast, can be found on RioCan’s website at http://investor.riocan.com/investor-relations/events-and-presentations/ 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 $13.9 billion at September 30, 2017. 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. Our portfolio is comprised of 294 properties, including 16 development properties, with an aggregate net leasable area of approximately 45 million square feet. To learn more about how we deliver real vision on solid ground, 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, Net Operating Income ("NOI"), Same Property NOI, Fixed Charge Coverage, Percentage of NOI Generated from Unencumbered Assets, Unencumbered Assets to Unsecured Debt, and Total Enterprise Value, as well as other measures that may be 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 “Non-GAAP Measures” in RioCan’s Management Discussion and Analysis for the period ending September 30, 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”, "Acceleration of Major Market Focus", “Operational Performance", "Other Operating Statistics" “Acquisitions and Dispositions”, "Development Pipeline", 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 September 30, 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; 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, the timing and the ability of RioCan to sell certain properties; the valuations to be realized on property sales relative to current IFRS values; the Trust's ability to utilize the capital gain refund mechanism available to mutual fund trusts without incurring any income taxes; 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.
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 did not distribute any withholding taxes paid or payable to our unitholders related to the disposition. Should RioCan’s U.S. subsidiary no longer qualify as a U.S. REIT for U.S. tax purposes prior to May 25th, 2016, certain statements contained in this MD&A may need to be modified.
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; the availability of investment opportunities for growth in Canada; the timing and the 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 available to mutual fund trusts without incurring any income taxes. 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 September 30, 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.
Contact Information:
RioCan Real Estate Investment Trust
Qi Tang
Senior Vice President and Chief Financial Officer
416-866-3033