TORONTO, ONTARIO--(Marketwired - Feb. 18, 2016) -
RioCan's HIGHLIGHTS for the year ended December 31, 2015 were:
- RioCan's Operating Funds From Operations ("Operating FFO") for the three months ended December 31, 2015 ("Fourth Quarter") was $142 million or $0.44 per unit compared to $130 million or $0.42 per unit for the fourth quarter in 2014, representing an increase of $12 million or 9.8%, (6.4% on a per unit basis);
- RioCan's Operating FFO increased 7.6% to $557 million for the year ended December 31, 2015 compared to $517 million for the same period in 2014. On a per unit basis, Operating FFO increased by $0.06 or 3.7% to $1.74 compared to $1.68 for 2014;
- RioCan's AFFO payout ratio for the year ended December 31, 2015 improved to 90.4% as compared to 93.4% for 2014. In the Fourth Quarter, RioCan's AFFO payout ratio was 90.1% as compared to 95.3% for the same period in 2014;
- RioCan's concentration of annualized net rental revenue in Canada's six major markets as at December 31, 2015 increased to 74.8% from 73.3% as at December 31, 2014;
- Committed occupancy improved 90 basis points in Canada, to 94.0% at December 31, 2015 from its lowest point in the year of 93.1% at June 30, 2015;
- During the Fourth Quarter, RioCan announced the completion of its strategic review of its U.S. operations and the agreement with Blackstone Group for the sale of its U.S. portfolio of 49 retail properties located in the Northeastern U.S. and Texas at a total sale price of US$1.9 billion or approximately $2.7 billion, an increase of approximately $930 million over the original cost;
- During the Fourth Quarter, RioCan announced that it had reached a settlement with Target Corporation resulting in a net payment of $132 million ($92 million at RioCan's interest) relating to the 18 leases that were disclaimed by Target Canada Co. As of the date hereof, RioCan has either successfully signed, conditional, or is in advanced discussions on lease deals representing 115% of the former Target rental revenue;
- During the Fourth Quarter, RioCan acquired Kimco Realty Corporation's interest in 23 properties in Canada that were previously jointly owned;
- RioCan and Hudson's Bay Company completed the first and second tranche in their strategic joint venture. The joint venture will enable RioCan and HBC to build on the strength of existing real estate assets through potential future redevelopment, as well as identify retail and enclosed mall acquisition opportunities;
- RioCan's development portfolio marked a number of milestones in 2015, with zoning approvals for projects at Yonge and Sheppard, King Street and Portland Avenue, both in Toronto, Ontario. Official plan approval was received for its joint venture development at The Well, also in Toronto, Ontario. In Calgary, Alberta the Trust received zoning approval for its development proposal at Calgary East Village (formerly CPA Lands) and made significant progress on its greenfield development projects at East Hills and Sage Hill; and
- During the Fourth Quarter, RioCan renewed 1.0 million square feet in Canada at an average rent increase of $0.71 per square foot, representing an increase of 4.0%. In 2015, RioCan renewed 4.6 million square feet in Canada at an average rent increase of $1.37 per square foot representing an increase of 8.1%.
RioCan Real Estate Investment Trust ("RioCan") (TSX:REI.UN) today announced its financial results for the year ended December 31, 2015.
"In 2015, RioCan faced and rose above a number of challenges, including, Target's departure from Canada together with a mixed retail and economic environment. In light of some of the events of the past year, I am pleased that the Trust was able to again generate solid growth in OFFO highlighting the resiliency of RioCan's operations," said Edward Sonshine, Chief Executive Officer of RioCan. "In the fourth quarter of 2015, we announced that RioCan had reached a settlement with Target and the Trust is well along the path of replacing the rental revenue that was lost. The Trust also announced that it completed its strategic review of its U.S. operations and entered into an agreement with Blackstone to sell its U.S. assets. A portion of the funds from the sale will be used to repay the debt that was incurred with the acquisition of Kimco's interest in 23 of our joint venture properties, effectively replacing a portion of the income from the U.S. portfolio. The remaining funds will be used to further strengthen the Trust's balance sheet and to reinvest in the Trust's Canadian operations. The Canadian business has grown substantially over the past five years and generates sufficient capital with a solid outlook for growth to continue to support RioCan's 22 year track record of either maintaining or increasing distributions."
Financial Highlights
All figures in Canadian dollars unless otherwise noted. RioCan's 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 2015 Management Discussion and Analysis. As a result of the previously announced sale of its U.S. operations, RioCan has reclassified the assets and liabilities associated with this U.S. disposal group to "held for sale" at December 31, 2015 and we are reporting our former U.S. geographic segment performance as "discontinued operations" with comparative income statement amounts adjusted to reflect this change, unless otherwise noted.
| Three months ended December 31, |
Year ended December 31, | |||||||||||
| (in millions except percentages and per unit values) | 2015 | 2014 | % Change | 2015 | 2014 | % Change | ||||||
| Operating FFO (i) | $ 142.2 | $ 129.5 | 9.8 | % | $ 556.7 | $ 517.4 | 7.6 | % | ||||
| Operating FFO per Unit | $ 0.44 | $ 0.42 | 6.4 | % | $ 1.74 | $ 1.68 | 3.7 | % | ||||
| (i) | A non-GAAP measurement. A reconciliation to net earnings can be found under "Results of Operations" in RioCan's Management's Discussion and Analysis for the period ending December 31, 2015. |
| Year ended December 31, | ||||||
| (in millions except percentages and per unit values) | 2015 | 2014 | % Change | |||
| Net earnings from continuing operations attributable to unitholders | $ 416.9 | $ 447.0 | (6.7 | )% | ||
| Net earnings from continuing operations before taxes and fair value adjustment | $ 510.4 | $ 413.3 | 23.5 | % | ||
| Net earnings per unit from continuing operations attributable to unitholders - diluted | $ 1.26 | $ 1.41 | (10.2 | )% | ||
| (in millions) | December 31, 2015 | December 31, 2014 | ||
| Total enterprise value (i) | $15,318 | $ 15,116 | ||
| Total assets | $ 15,996 | $ 14,678 | ||
| Debt (ii) | $ 7,413 | $ 6,444 |
| (i) | A non-GAAP measurement. Calculated by the Trust as debt at RioCan's interest plus common Unit market capitalization plus total Preferred Unit market capitalization. |
| (ii) | Debt is defined as the sum of mortgages payable, mortgages held for sale, lines of credit, and debentures payable. |
Summary of RioCan's overall results in 2015
RioCan's financial statements have been separated to show the results of the Trust's operations on a continuing basis, which effectively reflects the results of RioCan's Canadian operations, and on a discontinued basis, essentially the Trust's U.S. operations. When considering RioCan's overall results this past year, excluding tax related items and fair value adjustments, the Trust generated solid growth in 2015. This growth is due to a number of factors including:
- The Trust's settlement with Target which contributed $88 million (net of receivables and legal costs) of other income during the year;
- Increased combined NOI of $32 million, including increased NOI from Canada of $5 million due to lease terminations, new leasing and renewals, and to a larger extent from the US of $27 million in large part due to foreign exchange gains during the year;
- A $6.8 million increase in income earned from RioCan's available for sale investments; and
- A $2.5 million decrease in interest expenses.
These gains were partially offset by;
- A $10 million early repayment charge during the year on the redemption of our Series O and N debentures. The early redemption of these debentures, however, will deliver longer term interest savings as the Trust issued new debentures (Series W and additional Series Q debentures) at lower interest rates;
- Higher total transaction costs of $9 million as a result of land transfer taxes on RioCan's acquisition from Kimco as well as higher legal and professional fees related to our announced U.S. asset sale; and
- Increased General and Administrative costs of $2.5 million from 2014, a 4.8% increase.
Net earnings from continuing operations attributable to unitholders (Canadian Operations)
2015
Net earnings from continuing operations attributable to unitholders for 2015 was $417 million compared to $447 million in 2014, representing a decrease of $30 million or 6.7%. Excluding a $127 million decline in gross fair value adjustments and increase in deferred taxes, net earnings from continuing operations attributable to unitholders for 2015 was $510 million compared to $413 million in 2014, representing an increase of $97 million or 23.5%.
The increase of $97 million is primarily explained by the following:
- $92 million increase in other income primarily due to proceeds received related to our settlement with Target ($88 million net) and, to a lesser extent, higher investment income earned on marketable securities holdings;
- $10 million increase in our share of net earnings from equity accounted investments, comprising a $5 million increase related to the WhiteCastle Funds and $4 million related to our joint venture with HBC. The latter amount was completely offset by the impact of reduced NOI resulting from property interests having been transferred to the joint venture;
- $9 million increase in operating earnings primarily due to net gains on the sale of residential townhomes, increased acquisitions in Canada (net of dispositions), completed greenfield developments and higher lease cancellation fees; and
- $7 million in lower borrowing costs resulting from interest savings on the refinancing of debt at lower interest rates;
partially offset by the following items which negatively impacted net earnings:
- $10 million early repayment charge during the year on the redemption of our Series O and N debentures; and
- $6 million in higher transaction costs mostly relating to land transfer taxes paid in connection with our Kimco portfolio acquisition and selling costs related to the sale of a Quebec property portfolio in early 2015.
During 2015, we recognized a $126 million decline in gross fair value year-over-year, which represents the difference between a gain of $34 million in 2014 and a loss of $92 million this year. The reduction in fair value is primarily due to the impact of the following: Target's exit from Canada in the first half of 2015; increased projected costs to complete at certain development properties due to changes in development plans; interior renovation costs at some of our enclosed malls; partially offset by fair value gains on certain properties that were acquired during the year and slight reductions in capitalization rates on assets located in primary markets.
Fourth Quarter
Net earnings from continuing operations attributable to unitholders for the fourth quarter is $200 million compared to $105 million for the same period in 2014, representing an increase of $96 million or 91.4%. Excluding a $2 million decline in the gross fair adjustments and a $1.6 million increase in deferred taxes, net earnings from continuing operations attributable to unitholders for the fourth quarter of 2015 is $200 million compared to $102 million in 2014, representing an increase of $98 million.
The increase of $98 million is primarily due to the following: a $95 million increase in other income driven largely by the $88 million of net proceeds received related to our settlement with Target and higher investment income earned on marketable security holdings.
Net earnings (loss) from discontinued operations attributable to unitholders (U.S. Operations)
2015
The net loss from discontinued operations attributable to unitholders for 2015 is $275 million compared to earnings of $216 million for 2014, representing a decrease of $491 million. Excluding $499 million of gross fair value adjustments and increases in current and deferred income taxes, net earnings from discontinued operations attributable to unitholders for 2015 is $111 million compared to $103 million in 2014.
During 2015, we recognized a gross decline of $260 million in year-over-year fair value is mostly attributable to an increase in capitalization rates of our Northeast U.S. portfolio as well as other property specific adjustments. Higher transaction costs of $3.4 million also contributed to the overall net loss from discontinued operations. The transaction costs are related to our U.S. asset sale to Blackstone that was entered into in December 2015 and which is anticipated to close by the end of April 2016.
Pursuant to IFRS, the deferred income tax accounting provision of $230 million primarily represents a taxable temporary difference amount calculated on the change between the accounting and tax bases of the Trust's U.S. investment properties. The timing of the tax liability recognition is triggered by having entered into a binding agreement with Blackstone to sell the portfolio because this indicates a change in our intent with respect to how we plan to realize value on the portfolio. RioCan does not intend to fully distribute to unitholders the withholding taxes, if any, arising on the disposition proceeds. Thus, the deferred income tax liability recorded is measured based on the theoretical U.S. tax obligation on the unrealized gain on investment property at December 31, 2015. Since the deferred tax liability does not incorporate future transaction costs, other potential tax basis adjustments, and differences between the U.S. property accounting basis and the transaction proceeds, the amount recorded in the consolidated financial statements may be materially different than the actual withholding taxes.
Fourth Quarter
The net loss from discontinued operations attributable to unitholders for the fourth quarter is $378 million compared to net earnings of $66 million for the same period in 2014, representing a decrease of $444 million. Excluding the impact of the respective periods fair value adjustments and deferred taxes, net earnings from discontinued operations attributable to unitholders for the fourth quarter of 2015 is $36 million, which is unchanged from 2014. Operating performance in 2015 was favourably impacted from a strengthening U.S. dollar, fully offset by higher transaction costs of $4 million related to the sale of our U.S. business.
Operating Funds From Operations
2015
OFFO for 2015 is $557 million compared to $517 million in 2014, representing an increase of $40 million or approximately 7.6%. On a per unit basis, OFFO is $1.74 compared to $1.68, representing an increase of $0.06 or approximately 3.7%.
Continuing operations
In 2015, OFFO from continuing operations increased $22 million compared to 2014, primarily due to the following: higher NOI of $5.0 million mainly driven by the impact of completed property developments, lease cancellation fees and lower interest expense of $7.3 million, higher income earned on marketable securities holdings of $6.8 million, and net earnings from equity accounted investments of $5.3 million, partly offset by lower interest income of $2.5 million and higher general and administrative costs of $2.1 million.
Discontinued operations
In 2015, OFFO from our U.S. discontinued operations increased $17 million compared to 2014, primarily driven by net favourable foreign currency gains of $14 million and higher NOI from acquisitions and same store growth of $3.1 million.
Fourth Quarter
OFFO for the fourth quarter of 2015 is $142 million compared to $130 million in 2014, representing an increase of $12 million or approximately 10%. On a per unit basis, OFFO is $0.44 compared to $0.42, representing an increase of $0.02 or approximately 6%.
Continuing operations
During the fourth quarter of 2015, OFFO from continuing operations increased $7.1 million compared to 2014, primarily due to higher net earnings from equity accounted investments and available for sale investments, as well as lower general and administrative expenses.
Discontinued operations
During the fourth quarter of 2015, OFFO from discontinued operations increased $5.5 million compared to 2014, primarily driven by net foreign exchange gains of $3.6 million.
Residential Development Inventory
Residential development inventory are properties acquired or developed for which RioCan generally intends to sell rather than hold on a long term basis. RioCan's plan is to dispose of all or part of such properties in the ordinary course of business. It is expected that the Trust will earn a return on these assets through a combination of property operating income earned during the relatively short holding period, which will be included in net earnings, and sales proceeds. As at December 31, 2015, the Trust has $45 million of residential development inventory comprising of the following three assets ($80 million as at December 31, 2014 comprising of five assets):
- Stouffville Residential Lands, Stouffville, ON - Residential homes (Minto Group Inc. and Trinity);
- Northeast Yonge Eglinton, Toronto, ON - Condominium units for sale (Metropia and Bazis Inc.); and
- CPA Lands, Calgary, AB - Air rights.
During the Fourth Quarter RioCan recognized gains of $1 million, and for the year ended December 31, 2015, RioCan realized gains of $3 million from the sale of residential inventory.
Corporate Developments
As disclosed in its press release earlier today, the Trust has determined it is in our best interest to have Ed Sonshine remain the Chief Executive Officer until at least December 31, 2018 ("2018 Commitment Date"). As part of this commitment, Mr. Sonshine agrees to use his best efforts to provide the Trust with 12 months notice of his intent to resign or retire.
In connection with the forgoing, Mr. Sonshine will receive an additional 200,000 Unit Options and the Trust has agreed to use its discretion to modify the treatment to provide for a full rather than pro rata payout of the performance equity units held by Mr. Sonshine upon termination of employment (including retirement). In addition, after the 2018 Commitment Date, Mr. Sonshine will receive a cash payment equal to $1,000,000.
Portfolio Activity
Agreement to Sell the Trust's U.S. Operations
On December 18, 2015, RioCan announced that it entered into an agreement with Blackstone Real Estate Partners VIII ("Blackstone") after receiving approval from its Board of Trustees to sell its U.S. portfolio of 49 retail properties located in the Northeastern U.S. and Texas at a total sale price of US$1.9 billion ($2.7 billion, based on the estimated Canadian dollar proceeds). We have effectively hedged approximately 84% of the total sale price of US$1.9 billion, essentially through additional borrowing in U.S. funds.
The sale will enable RioCan to take advantage of an opportunity to repatriate capital estimated to be approximately $1.2 billion, as its investment in the U.S. has increased in value by approximately $930 million over its historical cost, through a favourable currency movement and compression of capitalization rates. The sale will ensure that the Trust has ample capital to repay lines of credit that were used to fund its acquisition from Kimco and to significantly deleverage its balance sheet. The sale enhances corporate liquidity to fund its Canadian growth strategy and development pipeline. Finally, the sale will simplify RioCan's business structure and improve its strategic advantage in Canada by allowing management to focus exclusively on the Trust's Canadian operations.
The sale is expected to be completed by the end of April 2016 subject to certain closing conditions. The U.S. operations contributed approximately $112 million to RioCan's OFFO in 2015, and is expected to generate approximately US$22 million in the first quarter of 2016.
Transaction to Unwind Kimco Joint Venture
Canada
RioCan acquired Kimco's interest in 23 Canadian properties at a total purchase price of $774 million. Under the terms of the transaction, RioCan assumed Kimco's share of the existing in-place debt of $263 million, which carries a weighted average interest rate of 4.0% with a weighted average term to maturity of approximately 3.5 years.
Subsequent to year-end, the partners sold two properties, Nortown Centre, in Chatham, Ontario and Peninsula Village in Surrey B.C. to two separate buyers at a combined sale price of $91 million at 100% ($45.5 million at RioCan's interest), which equates to a capitalization rate of 5.2%. The purchasers assumed in place mortgage financing of $27.4 million at 100% ($13.7 million at RioCan's interest).
Other Acquisition and Disposition Activities
Canada
Subsequent to year-end, RioCan completed the acquisition of 85 Bloor Street West, in Toronto, Ontario. The 14,000 square foot retail property in Toronto's high end shopping area of Bloor Street is currently occupied by COS, a banner of fashion retailer H&M. The property was acquired at a purchase price of $37 million, which equates to a capitalization rate of 3.7% and was acquired free and clear of financing.
Operational Highlights
Same Store and Same Property NOI
| Three months ended December 31, | Year ended December 31, | ||||||||
| 2015 | 2014 | 2015 | 2014 | ||||||
| Canada (i) | |||||||||
| Same Store Growth (decline) | (2.5 | %) | 0.6 | % | (1.4 | %) | 2.0 | % | |
| Same Property Growth (decline) | (3.4 | %) | 0.4 | % | (1.8 | %) | 1.6 | % | |
| United States (i) | |||||||||
| Same Store Growth (decline) | (1.2 | %) | 4.4 | % | 0.9 | % | 3.0 | % | |
| Same Property Growth (decline) | (1.6 | %) | 4.4 | % | 0.5 | % | 3.0 | % | |
| (i) | Refers to same store and same property NOI growth on a year over year basis. U.S. same store and same property growth is calculated in U.S. dollars. |
The primary driver for the decline in RioCan's Canadian same store and same property NOI for the three months and year ended December 31, 2015 was higher vacancies as a result of the challenging operating environment encountered in 2015, and co-tenancy losses in the fourth quarter. Partially offsetting these declines were increases in NOI from new leasing, rental revenue on renewals, and vacated space that has since been backfilled by new tenants.
The key performance indicators related to operating and leasing for the Canadian portfolio over the last eight quarters is as follows:
| 2015 | 2014 | ||||||||||||||
| (in percentages) | Q4 | Q3 | Q2* | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||
| Committed occupancy | 94.0 | 93.2 | 93.1 | 96.7 | 97.0 | 97.0 | 97.0 | 96.9 | |||||||
| Economic occupancy | 92.2 | 91.6 | 91.9 | 95.3 | 95.8 | 95.9 | 95.5 | 95.6 | |||||||
| Retention rate | 81.4 | 89.8 | 87.7 | 83.5 | 85.0 | 91.7 | 88.8 | 91.2 | |||||||
| % increase in average net rent per sq ft | 4.0 | 8.6 | 9.5 | 9.5 | 11.8 | 12.9 | 13.9 | 7.0 | |||||||
| * | reflects impact of Target Canada's disclaimed leases |
Highlights
- Reflecting the strength of RioCan's locations, the Trust renewed 1.0 million square feet in the Canadian portfolio at an average rent increase of $0.71 per square foot, representing an increase of 4.0% while retaining 81.4% of its tenants in the Fourth Quarter. In the same period of 2014, RioCan achieved an average rent increase of 11.8% ($2.45 per square foot), while retaining 85.0% of its tenants;
- In the year ended December 31, 2015, the Trust renewed 4.6 million square feet in the Canadian portfolio at an average rent increase of $1.37 per square foot, representing an increase of 8.1% while retaining 85.7% of its tenants. In the same period of 2014, RioCan achieved an average rent increase of 11.4% ($1.84 per square foot), while retaining 89.7% of its tenants;
- Consistent with RioCan's stated Canadian 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 74.8% of RioCan's Canadian annualized rental revenue as at December 31, 2015 (73.3% at December 31, 2014). The increase was driven by RioCan's acquisition of Kimco share of assets located primarily in these six major markets; and
- Due primarily to the departure of Target Canada, the percentage of annualized rental revenue generated by national and anchor tenants in Canada declined to 84.1% of RioCan's total annualized rental revenue as at December 31, 2015, as compared to 86.5% as at December 31, 2014.
- Target Canada's departure negatively impacted RioCan's committed occupancy by 2.2%, which declined to 94.0% as at December 31, 2015, compared to 97.0% at December 31, 2014.
Target Canada Co. (Target Canada)
During December 2015, RioCan entered into a binding agreement with Target Corp. concluding the terms of a settlement relating to the 18 disclaimed leases. We reached a settlement for $92 million at RioCan's interest, and recorded $88 million in net settlement proceeds received relating to the release of Target Corp. from the indemnity agreements, which is net of $3.5 million of receivable amounts related to outstanding Target rents due as of the disclaimer date and other direct costs of settlement, such as legal fees.
Since Target's departure, RioCan has made good progress towards leasing the vacated space and has successfully entered into either committed and conditional lease agreements, or is in advanced negotiations on 32 leases that collectively represent approximately $12.5 million or 115% of the total base rental revenue lost through Target's departure (at RioCan's proportionate share). There is an additional 0.3 million square feet (0.1 million square feet at RioCan's interest) that the Trust is currently marketing for lease that is expected to generate additional rental revenue.
The expected cost to complete the redevelopment work related to the 32 leases is currently estimated to be approximately $116 million (approximately $93 million at RioCan's proportionate share). The overall redevelopment costs will evolve as additional tenants are secured, development plans are completed and construction costs finalized.
| Deal count | Square feet at 100% | Square feet at RioCan's Interest | Annual base rental revenue at RioCan's interest (i) | ||||||
| Former Target Canada space | 19 | 2,091,480 | 1,662,977 | $ | 10.9 | ||||
| Backfill progress: | |||||||||
| Committed space | 17 | 572,660 | 418,199 | 7.4 | |||||
| Conditional agreements | 4 | 89,453 | 78,203 | 1.3 | |||||
| Advanced discussions | 11 | 396,943 | 348,209 | 3.8 | |||||
| Total backfill progress | 32 | 1,059,056 | 844,611 | $ | 12.5 | ||||
| Space currently being marketed (ii) | 255,442 | 136,238 | n.a. | ||||||
| NLA included in the Expansion & Redevelopment table | 1,314,498 | 980,849 | |||||||
| Flamborough Power Centre (iii) | 60,000 | 60,000 | |||||||
| RioCan Niagara Falls (iv) | 132,416 | 132,416 | |||||||
| Total NLA upon completion of redevelopment | 1,506,914 | 1,173,265 | |||||||
| Potential GLA converted for landlord uses (common area, loading docks, etc.) (ii) | 415,446 | 320,593 | n.a. | ||||||
| Space for demolition/potential redevelopment | 195,433 | 195,433 | n.a. | ||||||
| Total (v) | 2,117,793 | 1,689,291 | |||||||
| (i) | Amounts in millions of Canadian dollars. |
| (ii) | Represents square footage based on current redevelopment plans and is subject to change based on tenant demand. |
| (iii) | Property is currently being marketed and is classified as a Greenfield development project. |
| (iv) | Represents one of the 19 disclaimed Target properties, which Walmart Canada has assumed making payments on the annual rent obligation in accordance with a pre-existing covenant. |
| (v) | Expansion space at RioCan Niagara Falls results in an additional 26,000 square feet of net leasable area at this property. |
Development Activities
As at December 31, 2015, RioCan had ownership interests in 16 development projects that will, upon completion, comprise approximately 7.0 million square feet (3.9 million square feet at RioCan's interest). In addition to its development projects, RioCan continued its urban intensification activities, primarily in the Toronto, Ontario and Calgary, Alberta markets. Throughout the year ended December 31, 2015, RioCan transferred from properties under development to income producing properties $231 million in costs pertaining to 381,000 square feet of completed greenfield development or expansion and redevelopment projects.
Development Highlights in 2015 include:
- RioCan and its partner KingSett Capital received zoning approval from the City of Toronto, for its application for the redevelopment and expansion of RioCan Yonge Sheppard Centre. The final site plan agreement is expected to be in place by the first quarter of 2016.
- RioCan completed development of an additional 67,000 square feet of retail space at its East Hills development in Calgary, Alberta. In the fourth quarter of 2015, construction began on an additional 134,000 square feet of retail space. This phase is expected to be completed by the third and fourth quarters of 2016. Tenants include Marshalls, Michaels, PetSmart, Bed Bath & Beyond, Sport Chek, Mark's Work Wearhouse and Dollarama. A conditional deal has been completed with Costco to purchase approximately 14.8 acres of the site and the transaction is expected to close in Q1 2016. It is anticipated that Costco will commence construction of a 160,000 square foot store in the second quarter of 2016.
- Construction at the North East Corner of Yonge and Eglinton, in Toronto, Ontario, is well underway and during the second quarter of 2015 RioCan and its partners announced that the condominium portion of the project was fully sold.
- RioCan and its joint venture partner Allied received zoning approval for their development plans at King Street & Portland Street, College Street and Manning Ave., and the partners received official plan approval for their development plans at The Well, all located in Toronto, ON.
- RioCan has begun demolition at its Bathurst and College Street development in Toronto, Ontario. The site will be developed into a retail and office commercial building with completion expected in 2018.
- RioCan's retail expansion at the RioCan Yonge Eglinton Centre is complete. Winners and Cineplex have commenced operations. Sephora took possession of space on the ground floor of the expansion in the first quarter of 2016.
- RioCan has announced residential intensification plans for three of its Ottawa, Ontario properties; Westgate Shopping Centre, Elmvale Acres, and Silver City Gloucester.
Residential Development
RioCan has currently identified 46 properties that it considers to be strong possible intensification opportunities, all of which are in the six major markets and are typically located in the vicinity of substantive transit infrastructure. RioCan's objective is to obtain the appropriate zoning and approval for approximately 18,000 residential units over the course of the next ten years. 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 7 mixed use projects. In total, RioCan has filed rezoning applications for 21 mixed use projects which, if all planning permission requests are granted as applied for, is expected to comprise a total of approximately 13.6 million square feet, which will include residential rental units held for long-term rental income, condominiums for sale and incremental commercial gross leasable area. The mix between condominiums and rental residential may change over time depending on market conditions. The majority of these properties are located directly on, or in close proximity, to major transit lines such as the existing Toronto Transit Commissions' subway lines or The Crosstown Eglinton LRT line, which is currently under construction. The ability to intensify its existing retail properties into transit-oriented mixed use developments is indicative of both the locational attributes of RioCan's land holdings and its development capabilities.
Liquidity and Capital
| Rolling 12 months ended | ||||
| December 31, 2015 | December 31, 2014 | |||
| Interest coverage ratio - RioCan's interest | 3.10x | 2.89x | ||
| Debt service coverage ratio - RioCan's interest | 2.39x | 2.20x | ||
| Fixed charge coverage ratio - RioCan's interest | 1.12x | 1.08x | ||
| Net debt to Adjusted EBITDA ratio - RioCan's interest | 8.34x | 8.09x | ||
| Net Operating debt to Operating EBITDA - RioCan's interest | 7.93x | 7.67x | ||
| Unencumbered assets (millions) (i) | $3,321 | $2,554 | ||
| % of NOI generated from unencumbered assets (i) | 25 | % | 20 | % |
| Unencumbered assets to unsecured debt (i) | 166 | % | 137 | % |
Coverage metrics include results from both continuing and discontinued operations except for (i) which is calculated on a continuing operations basis.
Financing Highlights for the Fourth Quarter
Credit Facilities
At December 31, 2015, RioCan has five revolving lines of credit in place having an aggregate capacity of $934 million with $339 million available to be drawn. Subsequent to year end, we amended the terms of two existing operating lines to temporarily increase the Trust's borrowing capacity by $300 million to a total of $1.2 billion. The additional operating line capacity was used to fund the Kimco property acquisitions and is anticipated to be used to redeem the Cumulative Rate Reset Preferred Trust Units, Series A (the "Series A Preferred Units") at the end of March 2016. We anticipate that the proceeds from the sale of the Trust's U.S. Operations will be used to repay lines and will repay additional long term debt as part of the RioCan's strategy to lower leverage.
Term Financing
In Canada, RioCan obtained approximately $10 million fixed-rate mortgage financing during the quarter at an average interest rate of 2.46% and a weighted average term to maturity of 4.9 years.
RioCan has reduced its contractual interest rate on its Canadian outstanding debt to 3.65% at December 31, 2015 from 4.04% at December 31, 2014.
Preferred Units
Subsequent to year end, RioCan announced that it will redeem all 5 million outstanding units of its Series A Preferred Units on March 31, 2016 at the cash redemption price of $25.00 per Series A Unit, for total redemption proceeds of $125 million.
RioCan's Audited Consolidated Financial Statements and Management's Discussion and Analysis for the year ended December 31, 2015 is available on RioCan's website at www.riocan.com.
Conference Call and Webcast
Interested parties are invited to participate in a conference call with management on Thursday February 18, 2016 at 11:00 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 1-800-355-4959. If you cannot participate in the live mode, a replay will be available until March 17, 2016. To access the replay, please dial 905-694-9451 or 1-800-408-3053 and enter passcode 8236092#.
Scheduled speakers include Edward Sonshine, O.Ont. Q.C., Chief Executive Officer, Rags Davloor, President and Chief Operating Officer and Cynthia Devine, Executive Vice President, Chief Financial Officer and Corporate Secretary. Management's presentation will be followed by a question and answer period. To ask a question, press "star 1" on a touch-tone phone. The conference call operator will be notified of all requests in the order in which they are made, and will introduce each questioner.
Alternatively, to access the simultaneous webcast, go to the following link on RioCan's website http://investor.riocan.com/investor-relations/events-and-presentations/events/ 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 $15 billion as at December 31, 2015. RioCan owns and manages Canada's largest portfolio of shopping centres with ownership interests in a portfolio of 305 Canadian retail and mixed use properties, including 16 properties under development, containing an aggregate net leasable area ("NLA") of 46 million square feet. For further information, please refer to RioCan's website at 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, Funds From Operations ("FFO"), Operating Funds From Operations ("Operating FFO"), Adjusted Funds From Operations ("AFFO"), and Adjusted Earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), Operating EBITDA, Interest Coverage Ratio, Debt Service Coverage Ratio, Net Debt to Operating EBITDA, Net Operating Income ("NOI"), Same Store NOI, Same Property NOI, Total Enterprise Value, and RioCan's Proportionate Share 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 uses these measures to better assess the Trust's underlying performance and provides 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 fourth quarter 2015 Management Discussion and Analysis.
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 year ended December 31, 2015 ("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; 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 and indirect taxes; our U.S. investment and the related purchase and sale agreement entered into for the sale of our U.S. net assets, property management and foreign currency risk; and credit ratings.
The sale of our U.S. portfolio remains subject to certain closing conditions and there are risks and uncertainties with respect to the completion of the transaction on the terms agreed upon, or at all, together with 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, leverage ratios, circumstances, performance or expectations that are not historical facts, including but without limitation, to the intended use of sale proceeds.
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.
RioCan's U.S. subsidiary qualifies as a REIT for U.S. income tax purposes. The subsidiary expects to distribute all of its U.S. taxable income (if any) to Canada and is entitled to deduct such distributions for U.S. income tax purposes. The subsidiary's qualification as a REIT depends on the REIT's satisfaction of certain asset, income, organizational, distribution, unitholder ownership and other requirements on a continuing basis. We anticipate that the subsidiary will continue to qualify as a U.S. REIT until the closing of the sale of our U.S. asset portfolio. Our U.S. subsidiary is subject to a 30% or 35% withholding tax on distributions to Canada. Previously, we expected to flow-out any withholding tax paid to unitholders as foreign tax paid. Based upon the intended sale of our U.S. retail asset portfolio, however, RioCan expects to pay and deduct the U.S. withholding taxes payable, if any, related to the disposition proceeds.
Other factors, such as general economic conditions, including interest rate and foreign exchange rate fluctuations, may also have an effect on RioCan's results of operations. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information may include, but are not limited to: a stable retail environment; relatively low and stable interest costs; a continuing trend toward land use intensification, including residential development in 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 in Canada and the U.S. For a description of additional risks that could cause actual results to materially differ from management's current expectations, see "Risks and Uncertainties" in Riocan's MD&A and "Risks and Uncertainties" in RioCan's most recent AIF. Although the forward-looking information contained in this News Release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with this forward-looking information. Certain statements included in this News Release may be considered "financial outlook" for purposes of applicable Canadian securities laws, and as such the financial outlook may not be appropriate for purposes other than this News Release. The forward-looking information contained in this News Release is made as of the date of this News Release, and should not be relied upon as representing RioCan's views as of any date subsequent to the date of this News Release.
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.
| Fourth Quarter Unaudited Consolidated Statements Of Earnings |
| (in thousands of Canadian dollars, except per unit amounts) |
| Three months ended December 31, | 2015 | 2014 | |||||
| Revenue | |||||||
| Rental income | $ | 263,893 | $ | 259,218 | |||
| Residential inventory sales | 22,888 | - | |||||
| Property and asset management fees | 4,355 | 3,520 | |||||
| 291,136 | 262,738 | ||||||
| Direct costs | |||||||
| Property operating costs | |||||||
| Recoverable under tenant leases | 96,386 | 90,522 | |||||
| Non-recoverable from tenants | 6,316 | 4,591 | |||||
| Residential inventory cost of sales | 21,563 | - | |||||
| 124,265 | 95,113 | ||||||
| Operating earnings | 166,871 | 167,625 | |||||
| Other revenue | |||||||
| Share of net earnings in associates and joint ventures | 4,510 | 541 | |||||
| Interest | 1,457 | 957 | |||||
| Other income | 97,261 | 2,168 | |||||
| Fair value gains on investment properties, net | 1,183 | 3,458 | |||||
| 104,411 | 7,124 | ||||||
| Expenses | |||||||
| Interest | 47,853 | 48,436 | |||||
| General and administrative | 14,854 | 16,863 | |||||
| Transaction and other costs | 5,046 | 1,231 | |||||
| Leasing costs | 2,340 | 2,986 | |||||
| 70,093 | 69,516 | ||||||
| Earnings before income taxes from continuing operations | 201,189 | 105,233 | |||||
| Deferred income tax expense | 1,350 | (250 | ) | ||||
| Net earnings from continuing operations | $ | 199,839 | $ | 105,483 | |||
| Earnings (loss) from discontinued operations, net of tax | (377,837 | ) | 66,285 | ||||
| Net earnings (loss) | $ | (177,998 | ) | $ | 171,768 | ||
| Net earnings (loss) attributable to: | |||||||
| Common and preferred unitholders | $ | (178,041 | ) | $ | 171,768 | ||
| Non-controlling interests | 43 | - | |||||
| $ | (177,998 | ) | $ | 171,768 | |||
| Net earnings (loss) per unit - basic: | |||||||
| From continuing operations | $ | 0.61 | $ | 0.33 | |||
| From discontinued operations | (1.17 | ) | 0.21 | ||||
| Net earnings (loss) per unit - basic | $ | (0.56 | ) | $ | 0.54 | ||
| Net earnings (loss) per unit - diluted: | |||||||
| From continuing operations | $ | 0.61 | $ | 0.33 | |||
| From discontinued operations | (1.17 | ) | 0.21 | ||||
| Net earnings (loss) per unit - diluted | $ | (0.56 | ) | $ | 0.54 | ||
| Weighted average number of units (in thousands): | |||||||
| Basic | 321,894 | 312,002 | |||||
| Diluted | 322,195 | 312,589 | |||||
Contact Information:
Cynthia J. Devine
Executive Vice President, Chief Financial Officer and Corpor
(647) 253-4973
www.riocan.com