RioCan's HIGHLIGHTS for the three months ended September 30, 2018 ("Third Quarter"):
- Net income from continuing operations attributable to unitholders for the three and nine months ended September 30, 2018, is $128.9 million and $377.4 million, respectively;
- RioCan reported its highest quarterly FFO per unit of $0.47 in the Third Quarter, excluding Q4 2015 when the Trust received one-time Target settlement income, which represents a 2.5% increase from Q3 2017. For the nine months ended September 30, 2018, FFO per unit increased 3.7% as compared to the same period in 2017, despite the substantial dispositions completed and $4.8 million severance costs;
- Same property NOI increased 1.6% in the Third Quarter when compared to Q3 2017. Same property NOI for the Trust's six major market assets increased 2.1% over the same comparable period while same property NOI decreased 0.7% for its secondary market assets;
- Same property NOI increased 2.3% for the nine months ended September 30, 2018 as compared to the same period in 2017. Same property NOI for the Trust's six major market assets increased 2.8% over the same comparable periods while same property NOI decreased 0.3% for its secondary market assets;
- As at September 30, 2018, committed occupancy for RioCan's retail portfolio increased 20 basis points to 97.2% and committed occupancy for office increased 30 bps to 93.8%, compared to the previous quarter. The committed occupancy for RioCan's retail assets in the six major markets is 98.2%;
- In-place occupancy increased 60 basis points to 96.2% and committed occupancy for the overall portfolio increased 20 basis points to 97.0% as at September 30, 2018, compared to the previous quarter;
- As at September 30, 2018, committed occupancy for RioCan's major market assets remained high at 98.0% while in-place occupancy for these major market assets increased 50 bps to 97.5%, compared to the previous quarter;
- The percentage of annualized rental revenue generated from RioCan's properties in Canada's six major markets increased 2.7% from the previous quarter to 84.1% as at September 30, 2018, with the similar measure from the Greater Toronto Area (GTA) increasing 2.0% to 45.5%;
- RioCan is making great progress on its urban mixed-use developments. The office space at the flagship development The Well is 71% leased. The commercial space at its King Portland Centre is fully leased and substantially complete, and condo purchasers will take possession of their units in Q2 2019. The ePlace condo and rental towers are both near completion with some condo purchasers expected to take possession of their units in Q4 2018 and marketing for the rental units will commence soon. The Bathurst College Centre is substantially complete and fully leased. The Frontier project in Ottawa is expected to be completed in the first half of 2019 and the marketing of rental units will also commence soon;
- One year after the Trust's announcement in October 2017 to accelerate its portfolio focus in Canada’s six major markets, the Trust has closed or entered into firm and conditional agreements or letters of intent for 65 properties for gross sales proceeds of $1.3 billion at a weighted average capitalization rate of 6.49% based on in-place NOI, representing approximately 63% of the announced disposition target;
- For the nine months ended September 30, 2018, the Trust's maintenance capital expenditures were $28.5 million, $5.3 million lower than our normalized capital expenditures of $33.8 million for the period.
TORONTO, Oct. 31, 2018 (GLOBE NEWSWIRE) -- RioCan Real Estate Investment Trust (“RioCan”) today announced its financial results for the three and nine months ended September 30, 2018.
“RioCan's solid results in the third quarter of 2018 reflect not only our outstanding leasing and operations teams, but also the superb locations that remain in our portfolio," said Edward Sonshine, Chief Executive Officer of RioCan. "As we proceed to complete our secondary market disposition program, with over $900 million of dispositions already completed, the RioCan portfolio will consist of transit oriented, mixed-use properties with a large element of purpose built rental residential, together with shopping centres that are not only highly desirable to retailers, but the vast majority of which will have redevelopment potential."
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, 2018, 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, 2018.
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, 2018 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) | 2018 | 2017 | % Change | 2018 | 2017 | % Change | ||||||
| Net income from continuing operations | $ | 128.9 | $ | 180.3 | (28.5 | )% | $ | 377.4 | $ | 498.5 | (24.3 | )% |
| Net income per unit from continuing operations attributable to unitholders – diluted | $ | 0.41 | $ | 0.55 | (25.5 | )% | $ | 1.19 | $ | 1.51 | (21.2 | )% |
Q3 2018
Net income from continuing operations attributable to unitholders for the three months ended September 30, 2018 is $128.9 million compared to $180.3 million during the same period in 2017, representing a decrease of $51.5 million. Excluding $35.9 million lower fair value gains over the comparable period and a $7.0 million change in unrealized fair value included in net income related to marketable securities, net income from continuing operations attributable to unitholders for the third quarter of 2018 is $136.7 million compared to $145.3 million in 2017, representing a decrease of $8.6 million or 5.9%.
The decrease of $8.6 million is largely the net effect of the following:
- $4.4 million in lower operating income primarily due to property dispositions (net of acquisitions) as part of the Trust's strategic disposition program, net of same property NOI growth and higher fee income;
- $3.9 million in higher transaction costs on dispositions and acquisitions given the Trust's strategic disposition program;
- $1.4 million in lower income earned on marketable securities;
- $1.4 million in lower income from our equity accounted investments, partially offset by,
- $1.8 million in higher realized gains on marketable securities sold; and
- $1.0 million in higher interest revenue due to new advances on mortgages and loans receivable at higher interest rates.
YTD 2018
Net income from continuing operations attributable to unitholders for the nine months ended September 30, 2018 is $377.4 million compared to $498.5 million during the same period in 2017, representing a decrease of $121.1 million. Excluding $76.9 million lower net fair value gains on investment properties over the comparable period and a $28.8 million change in unrealized fair value included in net income related to marketable securities, net income from continuing operations attributable to unitholders for the nine months ended September 30, 2018 is $417.1 million compared to $432.6 million in 2017, representing a decrease of $15.5 million or 3.6%.
The decrease of $15.5 million is largely the net effect of the following:
- $9.0 million in lower operating income primarily due to property dispositions (net of acquisitions) as part of the Trust's strategic disposition program, net of same property NOI growth and higher fee income;
- $6.9 million in higher general and administrative expenses primarily due to higher severance costs and mark to market adjustment for cash settled unit-based compensation;
- $7.3 million in higher transaction costs on dispositions and acquisitions given the Trust's strategic disposition program;
- $6.6 million in lower income from our equity accounted investments primarily due to higher fair value gains in 2017;
- $4.4 million in lower income earned on marketable securities;
- $2.5 million in lower transaction gains due to higher gains during the comparable period of 2017; partially offset by,
- $14.6 million in higher realized gains on marketable securities sold;
- $3.2 million decrease in interest expense due to higher capitalized interest given development activities; and
- $3.0 million in higher interest revenue due to new advances on mortgages and loans receivable at higher interest rates and fair value gains on mortgages and loans receivable.
Funds From Operations ("FFO")
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| (in millions except percentages and per unit values) | 2018 | 2017 | % Change | 2018 | 2017 | % Change | ||||||
| FFO from continuing operations | $ | 146.0 | $ | 149.8 | (2.6 | %) | $ | 439.7 | $ | 438.5 | 0.3 | % |
| FFO from discontinued operations | $ | 1.3 | $ | 1.1 | N/A | $ | 2.1 | $ | 1.9 | N/A | ||
| FFO (i) | $ | 147.3 | $ | 151.0 | (2.4 | %) | $ | 441.8 | $ | 440.4 | 0.3 | % |
| FFO per Unit - diluted | $ | 0.47 | $ | 0.46 | 2.5 | % | $ | 1.40 | $ | 1.35 | 3.7 | % |
(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, 2018.
Q3 2018
Despite substantial dispositions completed, FFO for the third quarter of 2018 on a diluted per unit basis is $0.47 compared to $0.46, representing an increase of 2.5%.
Continuing Operations
FFO from continuing operations decreased from $149.8 million in the third quarter of 2017 to $146.0 million in the third quarter of 2018, representing a decrease of $3.9 million or 2.6%. The $3.9 million decrease in FFO from continuing operations for the quarter was primarily due to the net effect of the following:
- $4.4 million in lower operating income mainly as a result of dispositions (net of acquisitions), net of good same property NOI growth and higher fee income;
- $1.4 million in lower dividend income on marketable securities;
- $1.4 million in lower income from equity-accounted investments, excluding fair value gains (losses);
- $0.4 million in higher general and administrative expenses primarily due to higher mark to market adjustments associated with cash-settled unit-based compensation; largely offset by,
- $1.8 million increase in realized gains on marketable securities sold;
- $1.0 million in higher interest revenue; and
- $0.9 million decrease in interest expense due to higher capitalized interest given development activities.
YTD 2018
Despite substantial dispositions and severance costs, FFO for the nine months ended September 30, 2018 is $441.8 million compared to $440.4 million representing an increase of approximately $1.4 million or 0.3%. On a diluted per unit basis, FFO is $1.40 compared to $1.35, representing an increase of 3.7%.
Continuing Operations
FFO from continuing operations increased from $438.5 million during 2017 to $439.7 million in 2018, representing an increase of $1.2 million or 0.3%, despite substantial dispositions and $4.8 million severance costs. The $1.2 million increase in FFO from continuing operations for the period was primarily due to the following:
- $14.6 million increase in realized gains on marketable securities sold;
- $3.5 million less Series C preferred unit distributions;
- $3.2 million decrease in interest expense; and
- $3.0 million increase in interest revenue; partially offset by
- $9.0 million lower operating income mainly as a result of property dispositions (net of acquisitions), partly offset by good same property NOI growth and higher fee income;
- $6.9 million in higher general and administrative expenses primarily due to severance costs and mark to market adjustments associated with cash-settled unit-based compensation;
- $4.4 million lower dividend income from marketable securities; and
- $2.5 million lower income from equity-accounted investments, excluding fair value gains (losses).
Operational Performance
Same Property NOI Growth
| Three months ended September 30, | Nine months ended September 30, | |||
| Same Property NOI Growth - overall portfolio | 1.6% | 2.3% | ||
| Same Property NOI Growth - major markets | 2.1% | 2.8% | ||
| Refers to same property NOI growth on a year over year basis. | ||||
Q3 2018
Same property NOI for the three months ended September 30, 2018 increased 1.6% or $2.6 million compared to the same period in 2017. Approximately $1.1 million of the increase related to higher occupancy, renewal rate growth and contractual rent increases and $2.2 million is due to an increase in NOI from Target backfills and other expansion and re-development projects completed, which is offset by $0.7 million negative effect of the Sears closures.
Same property NOI from RioCan's properties in Canada's six major markets increased 2.1% and same property NOI from its secondary markets properties decreased 0.7% compared to the same period in 2017 for the three months ended September 30, 2018.
YTD 2018
Same property NOI for the nine months ended September 30, 2018 increased 2.3% or $10.5 million compared to the same period in 2017. Approximately $6.3 million of the increase is related to higher occupancy, renewal rate growth and contractual rent increases and $6.4 million is due to Target backfills and other expansion and redevelopment projects completed in 2018 and 2017, which is offset by $2.2 million negative effect of the Sears closures.
Same property NOI from RioCan's properties in Canada's six major markets increased 2.8% and same property NOI from its secondary markets properties decreased 0.3% for the nine months ended September 30, 2018 when compared to the same period in 2017.
Acceleration of Major Market Focus
On October 2, 2017, the Trust 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 two to three years. Refer to the Strategy section of RioCan's MD&A for further details.
As of October 30, 2018, the Trust has either completed or entered into firm agreements to sell $1.1 billion of properties in secondary markets at a weighted average capitalization rate of 6.47% based on in-place net operating income (NOI), representing approximately 54% of the announced disposition target. The deals, which span a broad geographical range of secondary markets, consist of the following:
- Closed or firm deals for 45 properties as of August 8, 2018 as disclosed in the Trust's Q2 2018 MD&A have all been closed as of September 30, 2018 for aggregate sales proceeds of $860.2 million at a weighted average capitalization rate of 6.32%. Approximately $58.9 million of mortgages were assumed by purchasers on closing.
- The sale of a property in London, Ontario as of September 30, 2018 for sales proceeds of $42.0 million at a capitalization rate of 6.36%.
- The sale of two properties located in Sault Ste. Marie and Oshawa, Ontario to two separate buyers for aggregate sales proceeds of $29.6 million at a weighted average capitalization rate of 6.58%.
- A firm agreement to sell a portfolio of six properties located in New Liskeard, Belleville, Trenton and Leamington, Ontario and Ste. Hyacinthe and La Chute, Quebec for aggregate sales proceeds of $107.6 million at a weighted average capitalization rate of 7.37%.
- A firm agreement to sell four properties located in Hawkesbury, Belleville, Ottawa and London, Ontario to four separate buyers for aggregate sales proceeds of $33.9 million at a weighted average capitalization rate of 7.38%.
In addition to the above $1.1 billion closed and firm deals, as of October 30, 2018 the Trust has also entered into six conditional agreements and one letter of intent (LOI) to sell seven properties located in Ontario, New Brunswick, Newfoundland and British Columbia for aggregate sale proceeds of $178.2 million. Should these firm, conditional and LOI transactions close, the Trust would have completed the sale of 65 properties for aggregate sales proceeds of $1.3 billion or approximately 63% of our disposition target by sales proceeds, at a weighted average capitalization rate of 6.49%. The aggregate sales prices of these properties are materially in line with the Trust's IFRS valuations.
The capitalization rate of a strategic disposition referred to in this earnings release is calculated based on in-place twelve-month-trailing NOI of a property or a portfolio of properties when the related sale agreement becomes firm.
The net proceeds from the dispositions have been, and are expected to be, used to pay down debt, fund unit repurchases through RioCan’s Normal Course Issuer Bid (NCIB) program and fund the Trust’s development activities.
Operating Statistics
The key performance indicators related to operating and leasing for the Canadian portfolio over the last eight quarters are as follows:
| 2018 | 2017 | 2016 | |||||||||||||||
| Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | ||||||||||
| Committed occupancy | 97.0 | % | 96.8 | % | 96.6 | % | 96.6 | % | 96.8 | % | 96.7 | % | 96.2 | % | 95.6 | % | |
| In-place occupancy | 96.2 | % | 95.6 | % | 95.7 | % | 95.6 | % | 96.0 | % | 95.2 | % | 94.4 | % | 93.6 | % | |
| Retention rate | 93.8 | % | 91.8 | % | 87.0 | % | 87.5 | % | 93.6 | % | 93.9 | % | 88.6 | % | 84.0 | % | |
| % increase in average net rent per sq ft for tenant renewals | (1.4 | )% | 4.2 | % | 4.3 | % | 4.5 | % | 5.2 | % | 4.7 | % | 8.2 | % | 8.1 | % | |
- Committed occupancy increased 20 basis points to 97.0% when compared to June 30, 2018 and In-place occupancy increased 60 basis points to 96.2%;
- The Trust expects to generate $7.3 million of annualized net incremental IFRS rent once all tenants that have committed leases as of September 30, 2018 take possession of their space;
- Committed occupancy for retail increased 20 basis points from the previous quarter to 97.2% and office occupancy increased 30 basis points to 93.8%;
- As at September 30, 2018, the committed occupancy for our six major markets is 98.0%, stable from June 30, 2018; in-place occupancy for these major market assets increased 50 basis points to 97.5% from the previous quarter;
- The average rent per square foot on tenant renewals decreased by $0.29 or 1.4% in the quarter while the retention rate for Q3 2018 further improved to 93.8%. The decrease in percentage of average net rent per square foot renewed in the quarter was primarily due to ten lease renewals with an anchor tenant. Excluding these ten lease renewals, the average net rent per square foot growth upon renewals would have been 4.1% for the quarter. Most of the ten lease renewals occurred at properties located in secondary markets.
Property Acquisitions and Additional Capital Recycling
Income Producing Property Acquisitions
During the quarter, RioCan acquired the remaining 20% interest in the Silver City property located in Gloucester, Ontario, for $9.6 million, including transaction costs, at a capitalization rate of 6.67% and assumed $6.9 million of associated debt. RioCan also acquired the remaining 40% interest in the RioCan Centre Belcourt property located in Ottawa, Ontario, for $26.6 million, including transaction costs, at a capitalization rate of 6.42% and assumed $16.8 million of associated debt.
Overall, during the nine months ended September 30, 2018, RioCan completed acquisitions of interests in a total of six income producing properties aggregating $105.2 million, comprised of approximately 273,000 square feet at RioCan's interests. In connection with these acquisitions, RioCan assumed mortgages with fair value of $38.6 million, which included a mark-to-market adjustment of $2.5 million.
Additional Capital Recycling
RioCan sold a portion of its marketable securities and realized a cash gain on units sold of $15.4 million and $50.1 million for the three and nine months ended September 30, 2018, respectively.
Development Program
RioCan's development program is a significant component of its growth strategy to unlock the intrinsic value of its existing properties through redevelopment and intensification and deliver strong net asset value ("NAV" ) growth to its unitholders. During the Third Quarter of 2018, RioCan continued to make significant progress in advancing its development program, notably:
| • | The Well - As of October 30, 2018, The Well, our flagship mixed-use development has lease commitments representing 71% of the total office space. These lease commitments include up to 433,752 square feet of GLA for Shopify in addition to the lease commitments for up to 325,000 square feet of GLA from other high caliber office users including Index Exchange and Spaces, which is a wholly owned subsidiary of Regis. Retail leasing is scheduled to start in 2019 once office leasing is substantially progressed as the office tenants will impact the types of retail tenants that are best suited for the development. Excavation at the site is ongoing and foundation work for the office tower is in progress. | ||||
| • | Development completions and progress - During the quarter, the Trust completed 264,000 square feet of development, bringing total development completions for 2018 to 501,000 square feet as at September 30, 2018. | ||||
| º | King Portland Centre - Construction of the commercial space at King Portland Centre in Toronto, which is fully leased, was substantially completed during the quarter. The condominium component (Kingly) of the project is expected to be substantially complete in Q2 2019. | ||||
| º | Bathurst College Centre - This project, which is substantially completed, is fully leased during the quarter with a lease signed with a leading international technology company, which will occupy approximately 28,000 square feet starting in Spring 2019. University Health Network will occupy an additional 40,000 square feet at the centre starting in Summer 2019. This mixed-use development has also attracted high-profile retail tenants led by FreshCo (Sobeys), Winners and Scotiabank, which are expected to be open and operating in Spring of 2019. | ||||
| º | Yonge Eglinton Northeast Corner (ePlace) - The condominium tower (eCondo) and residential rental tower (eCentral) are both approaching substantial completion. We anticipate to begin marketing the residential rental units of eCentral during the fourth quarter. | ||||
| º | Gloucester (Frontier) - The first phase of this project in Ottawa, which includes 228 residential rental units, is also proceeding on schedule toward a 2019 completion. The marketing of the rental units will also commence in Q4 2018. | ||||
| • | Zoning approvals - The Trust continues to maintain its competitive advantage and leading position in the extent of zoning approvals it has obtained for its development pipeline. As at September 30, 2018, the Trust has a total of 26.5 million square feet in its development pipeline, of which 45.1% or 11.9 million square feet is zoned and another 20.3% or 5.4 million square feet has zoning applications submitted. The zoned density is particularly valuable in markets such as Ontario, where changes to the zoning approval process are leading to a longer approval process and more uncertainties. The residential components of these developments, include 17.6 million square feet (at RioCan's interest) of residential rental and air rights sales and 1.0 million square feet of condominium or townhouse projects and represent 70.2% of the Trust's total development pipeline of 26.5 million square feet as of September 30, 2018. | ||||
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 and nine months ended September 30, 2018.
| Rolling 12 months ended | ||||
| September 30, 2018 | December 31, 2017 | |||
| Interest coverage – RioCan’s proportionate share (i) | 3.72x | 3.84x | ||
| Debt service coverage – RioCan’s proportionate share (i) | 3.09x | 3.06x | ||
| Fixed charge coverage – RioCan’s proportionate share (i) | 1.17x | 1.17x | ||
| Debt to Adjusted EBITDA – RioCan’s proportionate share (i) | 7.79x | 7.57x | ||
| Ratio of total debt to total assets | ||||
| (RioCan's proportionate share, net of cash and cash equivalents) | 42.4% | 41.4% | ||
| Unencumbered assets (millions) | $7,882 | $7,663 | ||
| % of NOI generated from unencumbered assets (ii) | 56.6% | 56.7% | ||
| Unsecured debt as a % of Total Debt – RioCan’s proportionate share (i) | 59.1% | 56.1% | ||
| Unencumbered assets to unsecured debt | 217% | 226% | ||
(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.
As part of our capital management strategy, it is our objective to reduce leverage and further improve our unencumbered asset and coverage ratios.
Despite substantial property dispositions over the nine months ended September 30, 2018, Debt to Adjusted EBITDA at RioCan's proportionate share remained below 8.0x at 7.79x on a rolling twelve months basis, albeit increased from 7.57x as at December 31, 2017. This was due to higher average debt balances combined with largely stable Adjusted EBITDA as a result of property dispositions largely offset by same property NOI growth, development completions and higher gains from the sale of marketable securities.
The percentage of NOI generated from unencumbered assets is relatively stable from 56.7% as of December 31, 2017 to 56.6% as of September 30, 2018. Approximately 59.1% of the Trust's debt is unsecured as of the quarter end.
Normal Course Issuer Bid (NCIB)
Since October 2017, RioCan has purchased and cancelled 20,485,770 units at an average purchase price of $24.49 per unit at a total cost of $502.0 million.
On October 16, 2018, RioCan received TSX approval of its notice of intention to renew its NCIB, to acquire up to a maximum of 30,579,868 of its units, or approximately 10% of its outstanding units as at September 30, 2018, for cancellation over the next 12 months, effective October 22, 2018.
The number of units that can be purchased pursuant to the renewed NCIB is subject to a current daily maximum of 178,116 units (which is equal to 25% of 712,465, being the average daily trading volume from April 1, 2018 to September 30, 2018, excluding RioCan's purchases on the TSX under its former NCIB), subject to RioCan’s ability to make one block purchase of units per calendar week that exceeds such limits. RioCan intends to fund the purchases primarily out of net proceeds from dispositions.
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 three and nine months ended September 30, 2018. 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 three and nine months ended September 30, 2018, 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, 2018 | December 31, 2017 | ||
| Assets | ||||
| Investment properties | $ | 13,050,288 | $ | 13,160,244 |
| Deferred tax assets | 13,029 | 11,929 | ||
| Equity-accounted investments | 184,214 | 176,256 | ||
| Mortgages and loans receivable | 155,187 | 145,873 | ||
| Residential inventory | 205,675 | 132,003 | ||
| Assets held for sale | 192,875 | 410,178 | ||
| Receivables and other assets | 210,904 | 269,870 | ||
| Cash and cash equivalents | 133,991 | 70,225 | ||
| Total assets | $ | 14,146,163 | $ | 14,376,578 |
| Liabilities | ||||
| Debentures payable | $ | 2,742,711 | $ | 2,694,619 |
| Mortgages payable | 2,191,714 | 2,300,247 | ||
| Lines of credit and other bank loans | 1,084,159 | 904,429 | ||
| Liabilities associated with assets held for sale | — | 32,670 | ||
| Accounts payable and other liabilities | 434,171 | 399,927 | ||
| Total liabilities | $ | 6,452,755 | $ | 6,331,892 |
| Equity | ||||
| Unitholders' equity: | ||||
| Common | 7,693,408 | 8,044,686 | ||
| Total equity | 7,693,408 | 8,044,686 | ||
| Total liabilities and equity | $ | 14,146,163 | $ | 14,376,578 |
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of Canadian dollars, except per unit amounts)
(unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||
| Revenue | ||||||||||
| Rental revenue | $ | 274,488 | $ | 283,713 | $ | 835,385 | $ | 851,262 | ||
| Property and asset management fees | 4,420 | 2,977 | 11,451 | 10,729 | ||||||
| 278,908 | 286,690 | 846,836 | 861,991 | |||||||
| Operating costs | ||||||||||
| Rental operating costs | ||||||||||
| Recoverable under tenant leases | 93,530 | 96,762 | 293,315 | 299,470 | ||||||
| Non-recoverable costs | 4,128 | 4,280 | 12,924 | 12,917 | ||||||
| 97,658 | 101,042 | 306,239 | 312,387 | |||||||
| Operating income | 181,250 | 185,648 | 540,597 | 549,604 | ||||||
| Other income (loss) | ||||||||||
| Interest income | 2,600 | 1,632 | 8,591 | 5,636 | ||||||
| Income from equity-accounted investments | 1,967 | 3,328 | 5,326 | 11,937 | ||||||
| Fair value gains (losses) on investment properties, net | (870 | ) | 34,991 | (10,926 | ) | 65,929 | ||||
| Investment and other income | 8,509 | 15,952 | 23,336 | 45,037 | ||||||
| 12,206 | 55,903 | 26,327 | 128,539 | |||||||
| Other expenses | ||||||||||
| Interest costs | 42,572 | 43,444 | 125,858 | 129,029 | ||||||
| General and administrative | 12,566 | 12,212 | 41,316 | 34,437 | ||||||
| Internal leasing costs | 2,888 | 2,806 | 8,432 | 7,617 | ||||||
| Transaction and other costs | 6,661 | 2,750 | 14,815 | 7,531 | ||||||
| 64,687 | 61,212 | 190,421 | 178,614 | |||||||
| Income before income taxes | 128,769 | 180,339 | 376,503 | 499,529 | ||||||
| Deferred income tax expense (recovery) | (100 | ) | — | (900 | ) | 1,000 | ||||
| Net income from continuing operations | $ | 128,869 | $ | 180,339 | $ | 377,403 | $ | 498,529 | ||
| Net income from discontinued operations | 1,449 | 4,231 | 1,535 | 7,084 | ||||||
| Net income | $ | 130,318 | $ | 184,570 | $ | 378,938 | $ | 505,613 | ||
| Net income attributable to: | ||||||||||
| Unitholders | $ | 130,318 | $ | 184,570 | $ | 378,938 | $ | 505,613 | ||
| $ | 130,318 | $ | 184,570 | $ | 378,938 | $ | 505,613 | |||
| Net income per unit - basic: | ||||||||||
| From continuing operations | $ | 0.41 | $ | 0.55 | $ | 1.19 | $ | 1.52 | ||
| From discontinued operations | — | 0.01 | — | 0.02 | ||||||
| Net income per unit - basic | $ | 0.41 | $ | 0.56 | $ | 1.19 | $ | 1.54 | ||
| Net income per unit - diluted: | ||||||||||
| From continuing operations | $ | 0.41 | $ | 0.55 | $ | 1.19 | $ | 1.51 | ||
| From discontinued operations | — | 0.01 | — | 0.02 | ||||||
| Net income per unit - diluted | $ | 0.41 | $ | 0.56 | $ | 1.19 | $ | 1.53 | ||
| Weighted average number of units (in thousands): | ||||||||||
| Basic | 311,575 | 327,342 | 316,534 | 327,063 | ||||||
| Diluted | 311,687 | 327,438 | 316,629 | 327,190 | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
(unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||
| Operating activities | ||||||||||||
| Net income from: | ||||||||||||
| Continuing operations | $ | 128,869 | $ | 180,339 | $ | 377,403 | $ | 498,529 | ||||
| Discontinued operations | 1,449 | 4,231 | 1,535 | 7,084 | ||||||||
| Net income | 130,318 | 184,570 | 378,938 | 505,613 | ||||||||
| Items not affecting cash: | ||||||||||||
| Depreciation and amortization | 1,150 | 1,310 | 3,431 | 4,155 | ||||||||
| Amortization of straight-line rent | (2,630 | ) | (2,707 | ) | (5,224 | ) | (7,069 | ) | ||||
| Unit-based compensation expense | 1,793 | 1,313 | 5,366 | 3,392 | ||||||||
| Income from equity-accounted investments | (1,967 | ) | (3,328 | ) | (5,326 | ) | (11,937 | ) | ||||
| Fair value losses (gains) on investment properties, net | 870 | (34,991 | ) | 10,926 | (65,929 | ) | ||||||
| Deferred income tax expense (recovery) | (100 | ) | — | (900 | ) | 1,000 | ||||||
| Fair value gains on marketable securities | (8,413 | ) | — | (21,276 | ) | — | ||||||
| Transaction (gains) losses, net on disposition of: | ||||||||||||
| Realized gain on marketable securities | — | (13,655 | ) | — | (35,477 | ) | ||||||
| Canadian investment properties | (232 | ) | — | (132 | ) | (971 | ) | |||||
| Adjustments for other changes in working capital items | (19,423 | ) | (21,727 | ) | (90,123 | ) | (197,904 | ) | ||||
| Cash provided by operating activities | 101,366 | 110,785 | 275,680 | 194,873 | ||||||||
| Investing activities | ||||||||||||
| Acquisitions of investment properties | (12,297 | ) | (18,974 | ) | (63,181 | ) | (31,902 | ) | ||||
| Construction expenditures on properties under development | (82,960 | ) | (64,689 | ) | (267,580 | ) | (220,361 | ) | ||||
| Capital expenditures on income properties: | ||||||||||||
| Recoverable and non-recoverable costs | (5,731 | ) | (7,018 | ) | (12,281 | ) | (19,345 | ) | ||||
| Tenant improvements and external leasing commissions | (9,455 | ) | (9,087 | ) | (24,503 | ) | (29,952 | ) | ||||
| Proceeds from sale of investment properties | 286,006 | 27,690 | 690,768 | 187,320 | ||||||||
| Earn-outs on investment properties | — | (258 | ) | (930 | ) | (1,567 | ) | |||||
| Contributions to equity-accounted investments | (6,579 | ) | (2,665 | ) | (9,950 | ) | (16,466 | ) | ||||
| Distributions received from equity-accounted investments | 1,928 | 2,307 | 7,334 | 9,532 | ||||||||
| Advances of mortgages and loans receivable | (1,573 | ) | (12,642 | ) | (40,922 | ) | (17,204 | ) | ||||
| Repayments of mortgages and loans receivable | 20,091 | 9,092 | 20,091 | 14,221 | ||||||||
| Investment in bonds, net of maturities | (2,987 | ) | — | (2,987 | ) | — | ||||||
| Proceeds from sale of marketable securities, net of selling costs | 33,461 | 46,331 | 124,400 | 122,299 | ||||||||
| Cash provided by (used in) investing activities | 219,904 | (29,913 | ) | 420,259 | (3,425 | ) | ||||||
| Financing activities | ||||||||||||
| Proceeds from mortgage financing, net of issue costs | 136,500 | 94,035 | 255,860 | 276,564 | ||||||||
| Repayments of mortgage principal | (151,033 | ) | (108,296 | ) | (373,301 | ) | (361,511 | ) | ||||
| Advances from bank credit lines, net of issue costs | 45,099 | 92,681 | 334,440 | 192,152 | ||||||||
| Repayment of bank credit lines | (28,000 | ) | (34,692 | ) | (154,697 | ) | (264,720 | ) | ||||
| Proceeds from issuance of debentures, net of issue costs | — | — | 298,323 | 596,948 | ||||||||
| Repayment of unsecured debentures | — | — | (250,000 | ) | (150,000 | ) | ||||||
| Distributions to common trust unitholders, net of distributions reinvested | (112,370 | ) | (108,360 | ) | (341,804 | ) | (325,071 | ) | ||||
| Distributions to preferred trust unitholders | — | — | — | (3,514 | ) | |||||||
| Units repurchased under normal course issuer bid | (135,888 | ) | — | (402,518 | ) | — | ||||||
| Proceeds received from issuance of common units, net | 5 | 236 | 1,524 | 956 | ||||||||
| Redemption of preferred units | — | — | — | (149,500 | ) | |||||||
| Cash used in financing activities | (245,687 | ) | (64,396 | ) | (632,173 | ) | (187,696 | ) | ||||
| Net change in cash and cash equivalents | 75,583 | 16,476 | 63,766 | 3,752 | ||||||||
| Cash and cash equivalents, beginning of period | 58,408 | 41,642 | 70,225 | 54,366 | ||||||||
| Cash and cash equivalents, end of period | $ | 133,991 | $ | 58,118 | $ | 133,991 | $ | 58,118 | ||||
Conference Call and Webcast
Interested parties are invited to participate in a conference call with management on Wednesday, October 31, 2018 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 5394498#.
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.
About RioCan
RioCan is one of Canada’s largest real estate investment trust with a total enterprise value of approximately $13.7 billion at September 30, 2018. 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 250 properties, including 17 development properties, with an aggregate net leasable area of approximately 40 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, 2018.
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", "Operating Statistics", “Property Acquisitions and Dispositions”, "Development Program", "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, 2018 ("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; access to debt and equity capital; interest rate and financing risk; joint ventures and partnerships; the relative illiquidity of real property, the timing and ability of 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; unexpected costs or liabilities related to acquisitions and dispositions; development risk associated with construction commitments, project costs, related zoning and other permit approvals, and changes in Ontario rent control legislation; 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 25, 2016, certain statements contained in the MD&A may need to be modified.
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 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; and 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. For a description of additional risks that could cause actual results to materially differ from management’s current expectations, refer to the Risks and Uncertainties section in RioCan's MD&A for the period ended September 30, 2018 and the Risks and Uncertainties section in RioCan’s AIF. Although the forward-looking information contained in RioCan's MD&A for the period ended September 30, 2018 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
www.riocan.com