1. business and industrial
2. company
3. merger and acquisition

Q 1
FIRST QUARTER 2015
REAL ESTATE PORTFOLIO KEY FACTS as at March 31, 2015 (all metrics stated at RioCan's interest)
Canadian Properties
Net Leasable Area (“NLA”) (sq.ft.):
Income Producing Properties
Properties Under Development
Total
Number of Tenancies
U.S. Properties
Retail
Office
Total
Retail
Office
Total
Grand Total
38,014,000
3,840,000
41,854,000
1,831,000
—
1,831,000
39,845,000
3,840,000
43,685,000
10,033,000
—
10,033,000
—
—
—
10,033,000
—
10,033,000
49,878,000
3,840,000
53,718,000
7,584
Portfolio Occupancy
Canadian Properties
96.6%
97.5%
96.7%
Retail
Office
Total
U.S. Properties
96.6%
—
96.6%
Total
96.7%
97.5%
96.7%
Geographic Diversification
Number of properties
Percentage of
annualized
rental revenue
Ontario
Quebec
Alberta
British Columbia
Other Canada
Northeastern United States
Texas
58.2%
8.2%
10.2%
5.4%
2.4%
7.0%
8.6%
100.0%
Income
producing
properties
Properties under
development
Total
190
37
29
23
11
28
20
338
11
—
4
—
—
—
—
15
201
37
33
23
11
28
20
353
Anchor and National Tenants (including U.S.)
Percentage of:
Annualized rental revenue
Total NLA
86.3%
86.8%
Top Ten Sources of Revenue by Tenant (including U.S.)
Rank
1
2
3
4
5
6
7
8
9
10
(i)
(ii)
(iii)
Tenant
Loblaws/Shoppers Drug Mart (i)
Walmart
Canadian Tire Corporation (ii)
Cineplex/Galaxy Cinemas
Metro/Super C/Loeb/Food Basics
Winners/Homesense/Marshalls/TJ Max
Target (iii)
Staples/Business Depot
Giant Food Stores/Stop & Shop (Royal Ahold)
Sobey's Inc./Safeway
Total
Percentage of
annualized rental
revenue
Weighted
average
remaining
lease term (yrs)
4.1%
3.9%
3.7%
3.3%
2.9%
2.8%
1.9%
1.8%
1.7%
1.6%
27.7%
Loblaws/Shoppers Drug Mart includes No Frills, Fortinos, Zehrs and Maxi.
Canadian Tire Corporation includes Canadian Tire, PartSource, Mark’s, Sport Mart, Sport Chek, Sports Experts, National Sports and Atmosphere.
On January 15, 2015, Target Corporation announced plans to discontinue its Canadian operations. See "Tenant Vacancies" on page 26 for further discussion.
7.2
12.6
8.1
9.0
6.4
6.9
11.8
5.2
11.1
10.3
8.8
REAL ESTATE PORTFOLIO KEY FACTS
RioCan’s lease expiries for the Canadian, U.S. and total portfolio, at RioCan’s interest, by property type for the next five years are as follows:
Lease Expiries - Canada
Retail Class
New Format Retail
Total NLA
18,997,000
Grocery Anchored Centre
8,442,000
Enclosed Shopping Centre
6,629,000
Non-Grocery Anchored Centre
2,134,000
Urban Retail
1,812,000
Office
1,831,000
Total
39,845,000
Average net rent per square foot
$
16.63
2015 (i)
1,234,000
6.5%
598,000
7.1%
597,000
9.0%
145,000
6.8%
64,000
3.5%
145,000
7.9%
2,783,000
7.0%
17.59
$
Lease expiries (NLA)
2016
2017
2018
1,877,000
1,661,000
2,151,000
9.9%
8.7%
11.3%
1,080,000
1,206,000
1,128,000
12.8%
14.3%
13.4%
965,000
626,000
628,000
14.6%
9.4%
9.5%
215,000
90,000
143,000
10.1%
4.2%
6.7%
78,000
114,000
273,000
4.3%
6.3%
15.1%
233,000
186,000
252,000
12.7%
10.2%
13.8%
4,448,000
3,883,000
4,575,000
11.2%
9.7%
11.5%
17.50
18.75
17.64
$
$
$
2019
2,507,000
13.2%
1,267,000
15.0%
615,000
9.3%
147,000
6.9%
276,000
15.2%
219,000
12.0%
5,031,000
12.6%
$
17.50
2015 (i)
464,000
6.5%
136,000
5.1%
21,000
8.8%
621,000
6.2%
19.53
Lease expiries (NLA)
2016
2017
2018
229,000
501,000
711,000
3.2%
7.0%
10.0%
266,000
198,000
320,000
9.9%
7.4%
11.9%
4,000
18,000
28,000
1.9%
7.7%
12.0%
499,000
717,000
1,059,000
5.0%
7.1%
10.6%
16.73
$
17.62
$
16.81
2019
1,235,000
17.4%
248,000
9.2%
42,000
17.6%
1,525,000
15.2%
$
15.10
Lease expiries (NLA)
2016
2017
2018
2,106,000
2,162,000
2,862,000
8.1%
8.3%
11.0%
1,346,000
1,404,000
1,448,000
12.1%
12.6%
13.0%
965,000
626,000
628,000
14.6%
9.4%
9.5%
219,000
108,000
171,000
9.2%
4.6%
7.2%
78,000
114,000
273,000
4.3%
6.3%
15.1%
233,000
186,000
252,000
12.7%
10.2%
13.8%
4,947,000
4,600,000
5,634,000
9.9%
9.2%
11.3%
17.42
18.57
17.48
$
$
$
2019
3,742,000
14.3%
1,515,000
13.6%
615,000
9.3%
189,000
8.0%
276,000
15.2%
219,000
12.0%
6,556,000
13.1%
$
16.95
(i) Tenant lease expiries for the remaining nine months of 2015.
Lease Expiries - U.S.
Retail Class
New Format Retail
Total NLA
7,109,000
Grocery Anchored Centre
2,688,000
Non-Grocery Anchored Centre
Total
Average net rent per square foot (U.S. dollars)
236,000
10,033,000
$
14.02
$
$
(i) Tenant lease expiries for the remaining nine months of 2015.
Lease Expiries - Total
Retail Class
New Format Retail
Total NLA
26,106,000
Grocery Anchored Centre
11,130,000
Enclosed Shopping Centre
6,629,000
Non-Grocery Anchored Centre
2,370,000
Urban Retail
1,812,000
Office
1,831,000
Total
49,878,000
Average net rent per square foot
$
(i) Tenant lease expiries for the remaining nine months of 2015.
16.10
2015 (i)
1,698,000
6.5%
734,000
6.6%
597,000
9.0%
166,000
7.0%
64,000
3.5%
145,000
7.9%
3,404,000
6.8%
17.94
$
RIOCAN FIRST QUARTER REPORT 2015
our annualized rental revenues, as of the date of this
report, create a source of cash flow that is resilient and
remarkably consistent. Our occupancy rate will
inevitably decline in the short term as a result of
current events, however the strength of our
management team and the quality of our locations will
mean that this will end up being just a “bump in the
road” with the fullness of time.
EDWARD SONSHINE, O.ONT., Q.C.
Chief Executive Officer
CEO’S REPORT TO UNITHOLDERS
These events reinforce our strategy to intensify a
number of our properties in urban markets with a
residential component. By adding rental residential to
those urban locations that have supporting transit
infrastructure, we will be able to secure a group of
consumers that, in effect, live above the store. This will
not only improve the performance of our retailers, but
will also provide an additional highly stable source of
new rental revenue. Needless to say, we are very
excited by this opportunity that will secure our future
growth.
Dear Fellow Unitholder
If you have been following the headlines in the press
lately, you will have noticed that the recurring theme of
these headlines has been resoundingly negative,
particularly as it pertains to the retail environment.
Certain segments of the retail world have without a
doubt been struggling. We have seen retailers in the
electronics and office supply space, for instance,
announce store closings. The announced departure of
Target has also cast a cloud over the retail environment
in Canada. If you were to consider these events in
isolation, you would likely come to the same conclusion.
However, there is always more to the story than the
headlines. Within RioCan’s portfolio of 353 properties
there are many success stories. Retail segments like
theatres, food & beverage, fitness, sporting goods,
groceries and service oriented retail are performing
well and in many cases expanding. If you consider the
Target situation, several retailers made capital
improvements in advance of Target’s arrival, and now
attract customers with improved facilities and
efficiencies. As a result, they are seeing great returns
on their investment and implementation of such
strategies.
Even in the fashion segment, which has also faced its
share of headlines, there are tenants like the TJX
Brands, which include Winners, HomeSense and
Marshalls, that are opening new stores and growing
their market share. Fast food restaurants, mid level
family dining, Canadian Tire, with its SportChek and
Mark’s brands, and entertainment concepts like
Cineplex’s recently announced Rec Room, have all
expressed an interest in new locations.
RioCan’s philosophy is based on diversification. Our
portfolio of properties and emphasis on a strong group
of national and anchor tenants that represent 86.3% of
The current interest rate environment is also one that is
supportive of RioCan’s operations. In the first four
months of 2015, RioCan raised $475 million through two
debenture offerings. The first, a nine-year offering that
carried an interest rate of 3.287% and a second offering
of slightly more than four years at an interest rate of
2.04%. We used the proceeds from these offerings to
repay more expensive debt and to invest in our
development pipeline.
We will remain diligent in maintaining the strength of
our balance sheet, as it is the soundness of RioCan’s
financial profile that gives us the strategic flexibility to
undertake projects that are the scale of this nature
where others may not.
The retail market is constantly evolving; the retailers,
the store formats, and the preferences of consumers.
The constant element has always been, and will be,
about the quality of the location and the ability to adapt
to a changing market. RioCan has both of these
elements, through a combination of a large portfolio of
well located, highly desirable properties, and the
management expertise to successfully act upon
strategic opportunities that arise.
2015 will not be easy, but I am very confident in our
abilities to be successful in light of these challenges. As
always, I thank you, our unitholders for your continued
confidence and trust in RioCan.
Edward Sonshine, O.Ont., Q.C.
Chief Executive Officer
May 2015
RioCan
FINANCIAL REVIEW
MANAGEMENT’S DISCUSSION
AND ANALYSIS
TABLE OF CONTENTS
Management’s Discussion and Analysis
2
2
3
4
7
16
17
18
19
21
28
29
34
35
36
41
41
43
43
45
45
50
51
ABOUT THIS MANAGEMENT’S DISCUSSION AND
ANALYSIS
FORWARD-LOOKING INFORMATION
ABOUT RIOCAN
PRESENTATION OF FINANCIAL INFORMATION AND
NON-GAAP MEASURES
OPERATIONAL AND FINANCIAL INFORMATION
2015 FINANCIAL HIGHLIGHTS
2015 OPERATING HIGHLIGHTS
CAPITAL MANAGEMENT
OUTLOOK AND STRATEGY
OCCUPANCY
RESULTS OF OPERATIONS
Reconciliation of Net Earnings to Net Earnings at
RioCan’s Interest
Results of Operations – RioCan’s Interest
Operating Funds from Operations (OFFO) &
Adjusted Funds From Operations (AFFO)
Net Operating Income
Other Revenue
Other Expenses
ASSET PROFILE
Investment Property
Income Properties
Acquisitions During 2015
Capital Expenditures on Income Properties
Joint Operations and Partnership Activities
55
57
58
69
70
70
71
71
73
73
73
74
75
77
77
78
78
79
79
80
82
82
83
83
83
Properties Under Development
Development Property Acquisitions
Development Pipeline Summary
Mortgages and Loans Receivable
RELATED PARTY TRANSACTIONS
CAPITAL STRATEGY AND RESOURCES
Capital Structure
Debt and Leverage Metrics
Debt
Revolving Lines of Credit
Debentures Payable
Mortgages Payable and Lines of Credit - RioCan’s
Interest
Aggregate Maturities
Hedging Activities
Trust Units
Preferred Units
Guarantees
Liquidity
Deferred Income Taxes
Distributions to Unitholders
SELECTED QUARTERLY CONSOLIDATED INFORMATION
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
FUTURE CHANGES IN ACCOUNTING POLICIES
CONTROLS AND PROCEDURES
RISKS AND UNCERTAINTIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
ABOUT THIS MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (MD&A) relates to the three month period from January 1, 2015 to March 31, 2015
(Q1 2015). All references to “Q1 2014” refer to the three month period from January 1, 2014 to March 31, 2014. "Fiscal 2014"
refers to the 12-month period from January 1, 2014 to December 31, 2014.
Unless the context indicates otherwise, all references to “RioCan” and "the Trust” in this MD&A refer to RioCan Real Estate
Investment Trust and its consolidated operations. All references to the Trust’s “units” refer collectively to RioCan common trust
units, Cumulative Rate Reset Preferred Trust Units, Series A (Preferred Units, Series A) and Cumulative Rate Reset Preferred
Trust Units, Series C (Preferred Units, Series C). All references to the Trust’s “unitholders” refer collectively to holders of RioCan
common trust units, holders of Preferred Units, Series A and holders of Preferred Units, Series C. All references to “Units” or
“Unitholders” refer to RioCan’s common trust units and holders thereof. All references to “Preferred Units” refer to the Preferred
Units, Series A and the Preferred Units, Series C. All references to “management” refer to the trustees and senior officers of
RioCan, unless otherwise stated.
This MD&A has been prepared with an effective date of May 4, 2015, and should be read in conjunction with the unaudited
interim condensed consolidated financial statements for the three month period ended March 31, 2015. These documents, as
well as additional information relating to RioCan, including RioCan’s Annual Information Form (AIF), can be accessed at
www.riocan.com and at www.sedar.com. Certain comparative amounts have been reclassified to conform to the current period’s
presentation. Investment properties held for sale and held for resale assets were previously reported as part of investment
properties on the face of the consolidated balance sheets at the reporting period date. Investment properties held for sale,
residential development inventory (formerly, properties held for resale) and mortgages on properties held for sale, have been
separately presented on the face of the consolidated balance sheets and have no impact on net earnings, total assets, total
liabilities or total equity.
The Trust’s Board of Trustees has reviewed and approved this document.
FORWARD-LOOKING INFORMATION
Certain information included in this MD&A contains forward-looking information within the meaning of applicable Canadian
securities laws. This information includes, but is not limited to, statements made in “About RioCan”, “2015 Financial Highlights”,
“Outlook and Strategy”, “Asset Profile”, “Capital Strategy and Resources”, 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 MD&A 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 this MD&A which could cause actual events or results to differ materially from the forward-looking information
contained in this MD&A. 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, occupancy levels and defaults; lease renewals and rental
increases; 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; management information systems; unitholder liability; income and indirect taxes; U.S. investments, property
management and foreign currency risk; and credit ratings.
RioCan currently qualifies as a real estate investment trust for tax purposes and intends to continue to qualify for future years.
The Income Tax Act (Canada) contains provisions which potentially impose tax on publicly traded trusts which 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 real estate investment trust (REIT). Should RioCan no longer qualify as a REIT under the SIFT Provisions,
certain statements contained in this MD&A may need to be modified.
The Trust’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. The Trust anticipates that the subsidiary will continue to qualify as a
U.S. REIT in the future.
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 high growth
and urban markets; access to equity and debt capital markets to fund, at acceptable costs, future capital requirements and to
enable the Trust to refinance 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 this MD&A and “Risks and Uncertainties” in RioCan’s AIF. Although the forwardlooking information contained in this MD&A is based upon what management believes are reasonable assumptions, there can be
2
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
no assurance that actual results will be consistent with this forward-looking information. Certain statements included in this MD&A
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 MD&A. The forward-looking information contained in this MD&A is made as of the
date of this MD&A, and should not be relied upon as representing RioCan’s views as of any date subsequent to the date of this
MD&A.
Except as required by applicable law, management undertakes no obligation to publicly update or revise any forward-looking
information, whether as a result of new information, future events or otherwise.
ABOUT RIOCAN
RioCan is an unincorporated “closed-end” trust governed by the laws of the Province of Ontario and constituted pursuant to a
declaration of trust dated November 30, 1993, as most recently amended and restated on June 5, 2013 (the Declaration). The
Units are listed on the Toronto Stock Exchange (TSX) under the symbol REI.UN. The Preferred Units, Series A and Preferred
Units, Series C are listed on the TSX under the symbols REI.PR.A and REI.PR.C, respectively.
Overview of the Business
RioCan is Canada’s largest REIT, with a total enterprise value of approximately $16 billion as at March 31, 2015. RioCan owns
and manages Canada’s largest portfolio of shopping centres, with ownership interests in a portfolio of 353 retail properties in
Canada and the United States (U.S.) combined, including 15 under development, containing an aggregate of 78,646,000 square
feet as at March 31, 2015 (53,718,000 square feet at RioCan’s interest).
RioCan’s Canadian portfolio, as of March 31, 2015, comprises 305 shopping centres, including grocery anchored, new format
retail, urban retail, mixed use, and non-grocery anchored centres. Of these properties, 215 are properties held through outright
ownership (210 income properties and 5 properties under development), while 90 centres, including 10 under development, are
co-owned with 22 partners through joint arrangements. RioCan’s primary joint arrangements in Canada are with Allied Properties
REIT (Allied), Canada Pension Plan Investment Board (CPPIB), Kimco Realty Corporation (Kimco), KingSett Capital (KingSett),
Tanger Factory Outlet Centers, Inc. (Tanger), and Trinity Development Group (Trinity). RioCan’s long-standing joint venture
partner, Kimco, represents the Trust’s largest Canadian joint venture partnership, comprising ownership of 43 income properties
and total assets of over $2.4 billion, on a 100% basis. For further details on the Trust’s joint venture relationships, refer to the
section entitled “Joint Operations and Partnership Activities.”
As of March 31, 2015, RioCan’s U.S. portfolio is comprised of 48 shopping centres, predominantly grocery anchored and new
format retail centres. All but one of these assets are 100% owned and operated by RioCan and this centre is held through a joint
venture arrangement with Kimco.
The Trust’s purpose is to deliver to its Unitholders stable and reliable cash distributions that increase over the long term. The
Trust accomplishes this goal by following a core strategy of owning, operating, and developing (including redeveloping and
intensifying) retail properties consisting of all retail formats, as well as mixed use real estate (which includes retail, office and
residential). RioCan has grown its business by using prudent strategies, core competencies, conservative financial leverage and
capital management, long-term strategic partnerships and by adapting to trends in commercial real estate. Its investment strategy
is to focus on stable, lower risk, retail properties in either stable or high growth urban markets in order to create stable and, over
time, growing cash flows from the property portfolio.
At any given time, RioCan could be discussing the purchase of new properties or the disposition of existing properties,
purchasing or holding marketable securities of real estate related entities and/or negotiating joint venture arrangements related to
the acquisition, holding or development of real estate. Consistent with the foregoing, RioCan is regularly engaged in discussions
with respect to possible acquisitions of new properties, disposition of existing properties in RioCan's portfolio and other real
estate investment arrangements.
Due to RioCan’s focus on major urban markets, RioCan has significant opportunities to redevelop and intensify urban properties.
These activities can significantly increase cash flows and value where additional density is created. These activities will lead to
increased ownership in urban mixed-use properties that will result in the development of residential property, as appropriate.
Depending on the circumstances, RioCan may own the residential component as rental properties, or decide to sell the density to
generate capital through transaction gains.
The specific retail assets in which RioCan currently invests are:
•
•
•
New format retail centres
New format retail centres (or power centres) are large aggregations of dominant retailers grouped together at high traffic and
easily accessible locations. These unenclosed campus-style centres are generally anchored by supermarkets and/or junior
department stores and may include entertainment (movie theatres and restaurants) and fashion components.
Neighbourhood convenience unenclosed centres
Neighbourhood convenience unenclosed centres are generally supermarket and/or junior department store anchored
shopping centres, typically comprising between 60,000 to 250,000 square feet of leasable area. Other tenants generally
include drug stores, restaurants, banks and other service providers.
Enclosed shopping centres
Enclosed shopping centres are generally large retail complexes containing stores, restaurants and other facilities with interior
common areas with access to all retail units. Typically these centres have one or more anchor tenants and are located close
to or in larger population centres.
3
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
Urban retail properties
Urban retail properties are high-quality, innovative, multi-level format retail centres located in major urban markets. The
centres are situated in high-density locations and may sometimes be part of a multi-use complex, thereby including office
space and/or a residential component as part of the property. The residential component includes either condominium
buildings and/or rental apartments.
Outlet shopping centres
RioCan’s joint venture arrangement with Tanger introduced the outlet shopping centre concept to RioCan’s portfolio. Outlet
shopping centres provide an opportunity for customers to purchase directly from the manufacturer at substantial savings.
RioCan and Tanger own and are in the process of developing a number of outlet centres across Canada. The outlet centres
will be similar in concept and design to those within Tanger’s existing U.S. portfolio, which are characterized by a tenant mix
of leading designer and brand-name manufacturers having a typical size of approximately 300,000 to 350,000 square feet.
The locations of the planned centres are intended to be within close proximity to larger urban markets and tourist areas
across Canada.
PRESENTATION OF FINANCIAL INFORMATION AND NON-GAAP MEASURES
Presentation of Financial Information
Unless otherwise specified herein, financial results, including related historical comparatives, contained in this MD&A are based
on RioCan’s unaudited interim condensed consolidated financial statements for the three month period ended March 31, 2015,
which have been prepared by management in accordance with International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB). The Canadian dollar is RioCan’s reporting currency for purposes of
preparing the Trust’s unaudited interim condensed consolidated financial statements for the three month period ended March 31,
2015. Accordingly, all dollar references in this MD&A are in Canadian dollars, unless otherwise specified herein.
Effective January 1, 2015, the Trust has changed its presentation of all tabular amounts in the unaudited interim condensed
consolidated financial statements from being rounded to the nearest million to rounded to the nearest thousand, unless otherwise
indicated.
Non-GAAP Measures
Consistent with RioCan’s management framework, the Trust uses certain measures to assess its financial performance that are
not generally accepted accounting principles (GAAP) measured under IFRS. These measures do not have any standardized
definition prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other reporting
issuers. 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 flows and profitability. RioCan’s management uses
these measures to aid in assessing the Trust’s underlying core performance and provides these additional measures so that
investors may do the same. Management believes that the non-GAAP measures described below, which supplement the GAAP
disclosures, provides readers with a more comprehensive understanding of management's perspective on RioCan's operating
results and performance.
The following discussion describes the non-GAAP measures RioCan uses in evaluating its operating results:
RioCan’s Interest
On January 1, 2013, RioCan changed its accounting policy for certain joint arrangements as required by IFRS 11, Joint
Arrangements. As a result, effective January 1, 2013, the Trust no longer proportionately consolidates certain joint arrangements
and now accounts for these investments using the equity method of accounting. All references herein to “consolidated” refer to
amounts as reported under IFRS. All references to “RioCan’s interest” refer to a non-GAAP financial measure representing
RioCan’s proportionate share of the financial position and results of operations of its entire portfolio, taking into account the
difference in accounting for joint ventures using proportionate consolidation versus equity accounting. Management considers
results presented on a proportionate basis to be a meaningful measure because it is consistent with how RioCan and its partners
manages the net assets and assesses operating performance of each of its co-owned properties. The Trust currently accounts for
certain of its investments in joint ventures and associates using the equity method of accounting (RioKim Montgomery JV LP
(Texas), Dawson Yonge LP (Canada), WhiteCastle New Urban Fund, LP and WhiteCastle New Urban Fund 2, LP).
For a reconciliation of the Trust’s results of operations and statement of financial position, please see "Results of Operations" in
this MD&A.
Funds From Operations (FFO)
FFO is a non-GAAP financial measure of operating performance widely used by the real estate industry. Congruent with the Real
Property Association of Canada’s (REALpac) intended use of FFO, RioCan considers FFO to be a meaningful measure of
operating performance as it adjusts for items included in IFRS net earnings that do not necessarily provide an accurate depiction
of the Trust’s past or recurring performance, such as unrealized changes in the fair value of real estate property, gains and losses
on the disposal of income properties, acquisition and disposition transaction costs and other non-cash items.
FFO should not be construed as an alternative to net earnings or cash flows provided by operating activities determined in
accordance with IFRS. RioCan’s method of calculating FFO is in accordance with REALpac’s recommendations but may differ
from other issuers’ methods and, accordingly, may not be comparable to FFO reported by other issuers.
4
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
During 2014, REALpac issued a revision to the November 2012 FFO definition, which adds adjustments for:
1) incremental leasing costs of full-time or salaried staff and related costs accounted for under IAS 17, Leases (IAS 17) which
prior to 2014, were previously capitalized; and
2) property taxes expensed under International Financial Reporting Interpretations Committee Issue 21, Levies (IFRIC 21), for
which the Trust had prior to 2014, recorded ratably over the relevant reporting periods to match the timing around which operating
costs were recovered from tenants.
A reconciliation of IFRS net earnings attributable to unitholders to FFO, can be found under “Results of Operations.”
Operating Funds From Operations (Operating FFO)
Operating FFO is a non-GAAP measure of operating performance representing the recurring cash flow generated through the
ownership and management of income properties or investments in arrangements or entities that generate their earnings through
the ownership and management of income properties. In addition to the adjusting items to arrive at FFO, Operating FFO also
excludes transaction gains and losses (net of tax) as well as expenditures related to development activities that, in management’s
view, form part of the costs of its development projects. RioCan considers Operating FFO to be a meaningful measure because it
adjusts for items included in FFO that management views as capital or transactional in nature and, therefore, not indicative of
RioCan's core income producing activities. Operating FFO is also a key measure of business performance that the Trust uses to
determine the level of its employee variable incentive-based compensation and certain equity unit plans each year. There is no
standard industry-defined measure of Operating FFO. As such, RioCan’s method of calculating Operating FFO will differ from
other issuers’ methods and, accordingly, will not be comparable to such amounts reported by other issuers. Please see “Results
of Operations” for a calculation of Operating FFO.
Adjusted Funds From Operations (Adjusted FFO)
Adjusted FFO is a non-GAAP financial measure of operating performance widely used in the real estate industry. Management
views Adjusted FFO (or "AFFO") as an alternative measure of cash generated from operations. Management also considers
AFFO generated as one of its inputs in determining the appropriate level of distribution to unitholders. Adjusted FFO is calculated
by adjusting Operating FFO for straight-line rent adjustments, non-cash compensation expenses, normalized costs for capital
expenditures on income properties, and leasing costs for maintaining shopping centres and current lease revenues.
Capital expenditures and leasing costs can vary widely from quarter to quarter due to the lease expiry profile, vacancies and
capital expenditure estimates due to the life cycle of the property resulting in volatility in Adjusted FFO. As well, the Trust reviews
capital spending levels based on the performance of the portfolio. For these reasons, normalized income property capital
expenditures and leasing costs have been estimated based on historical activity and management’s expectations on a
normalized level of activity. Capital expenditures are further discussed in “Capital Expenditures on Income Properties” indicating
the Trust’s expectation of such annualized expenditures.
In addition, non-recurring costs that impact operating cash flow may be adjusted. There is no standard industry-defined measure
of Adjusted FFO. As such, RioCan’s method of calculating Adjusted FFO will differ from other issuers’ methods and, accordingly,
will not be comparable to such amounts reported by other issuers. Please see “Results of Operations” for a calculation of
Adjusted FFO.
A reconciliation of cash flows provided by operating activities (an IFRS measure) to AFFO is presented under the section "Capital
Management - Distributions to Unitholders".
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
Adjusted EBITDA is a non-GAAP measure that is used as an input in several of the Trust’s debt metrics, providing information
with respect to certain financial ratios that the Trust uses in measuring its debt profile and assessing the Trust’s ability to satisfy
its obligations, including servicing its debt. Adjusted EBITDA is used in place of IFRS net earnings because it excludes major noncash items (including amortization and depreciation, unit-based compensation costs and fair value gains and losses on
investment properties), interest expense, transaction-related costs and other items that management considers non-operating in
nature. Please see “Capital Strategy and Resources - Capital Structure” for a reconciliation of Adjusted EBITDA to IFRS net
earnings and the debt metrics that utilize Adjusted EBITDA.
Operating EBITDA
Operating EBITDA is a non-GAAP measure that is used by the Trust in the computation of certain debt metrics, providing
information with respect to certain financial ratios that the Trust uses in measuring its debt profile. In addition to the adjusting
items to arrive at Adjusted EBITDA as defined above, Operating EBITDA also excludes the impact to EBITDA of transaction gains
and losses as well as expenditures related to properties under development that, in management’s view, form part of the capital
cost of its development projects.
Net Consolidated Debt to Adjusted EBITDA
Net consolidated debt to adjusted EBITDA is a non-GAAP measure of the Trust's financial leverage calculated as RioCan's
average debt outstanding at the reporting period date (net of cash) divided by Adjusted EBITDA (as defined above).
Net Debt to Adjusted EBITDA
Net debt to adjusted EBITDA is a non-GAAP measure of the Trust's financial leverage calculated as RioCan's proportionate share
of average debt outstanding at the reporting period date (net of cash) divided by Adjusted EBITDA (as defined above).
5
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Net Operating Debt to Operating EBITDA
Net operating debt to operating EBITDA is a non-GAAP measure of the Trust's financial leverage calculated as RioCan's
proportionate share of its average debt outstanding at the reporting period date (net of cash) less its proportionate share of debt
related to properties under development divided by Operating EBITDA (as defined above).
Net Operating Income (NOI)
NOI is a non-GAAP measure and is defined by RioCan as rental revenue from income properties less property operating costs.
NOI is an important measure of the income generated from the income producing real estate portfolio and is used by the Trust in
evaluating the performance of the portfolio, as well as a key input in determining the value of the portfolio. RioCan’s method of
calculating NOI may differ from other issuers’ methods and, accordingly, may not be comparable to NOI reported by other
issuers.
Same Store NOI
Same store NOI is a non-GAAP financial measure used by RioCan to assess the period-over-period performance of the same
asset base having consistent leasable area in both periods, which includes the impact of acquisitions and dispositions on a pro
rata basis. To calculate same store NOI growth, NOI for the period is adjusted to remove the impact of straight-line rents, lease
cancellation fees, foreign exchange and other non-recurring items. Same store performance is a common measure of NOI growth
used by the retail industry. RioCan considers this a meaningful measure because it allows management to determine what
portion of its period-over-period rental income increase is attributed to rent growth and leasing activity.
Same Property NOI
Same property NOI is a non-GAAP financial measure that is consistent with the definition of same-store NOI above, except that
same property includes the NOI impact of redevelopment or expansion of assets within the real estate portfolio. Same property
performance is a meaningful measure of operating performance because it allows management to assess rent growth and
leasing activity of its portfolio on a RioCan property basis and the impact of capital investments.
Total Enterprise Value
Total enterprise value is a non-GAAP measure calculated as the sum of RioCan's total debt measured on a proportionate basis,
common unit market capitalization and preferred market unit capitalization.
6
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
OPERATIONAL AND FINANCIAL INFORMATION
Operational Information
(thousands of square feet, except where otherwise noted)
As at and for the three months ended
March 31, 2015
U.S.
Canada
December 31, 2014
Total
U.S.
Canada
March 31, 2014
Total
U.S.
Canada
Total
Number of properties:
Income properties
48
290
338
48
277
325
47
277
Under development (i)
—
15
15
—
15
15
—
16
16
96.6%
96.7%
96.7%
97.1%
97.0%
97.0%
96.6%
96.9%
96.8%
13,382
58,293
71,674
13,379
58,677
72,056
13,295
57,645
70,940
Portfolio occupancy (committed)
Net leasable area (NLA) at 100%*
324
Income property NLA at RioCan’s
interest:
10,033
39,845
49,878
10,031
39,994
50,025
9,946
39,120
49,066
$ 14.02
$ 16.63
$ 16.10
$ 14.01
$ 16.69
$ 16.15
$ 13.75
$ 16.59
$ 16.01
Completed developments during
the period ended
—
146
146
—
6
6
—
288
288
Acquired during the period ended
—
436
436
—
194
194
64
65
129
Dispositions during the period
ended
—
(748)
(748)
—
—
—
—
(472)
(472)
Total portfolio
Average in place rent
Development pipeline upon
completion:
RioCan’s interest of project NLA
—
3,840
3,840
—
3,896
3,896
—
5,512
5,512
Total project NLA (ii)
—
6,972
6,972
—
7,021
7,021
—
10,835
10,835
n/a
73.6%
73.6%
n/a
73.3%
73.3%
n/a
72.2%
72.2%
Percentage of portfolio net rental
revenue derived from:
Six Canadian high growth markets
(annualized) (iii)
15.8%
86.3%
85.9%
15.6%
National and anchor tenants
(annualized)
85.8%
Largest tenant (annualized)
10.1%
4.8%
4.1%
9.9%
60.4%
71.3%
69.1%
60.4%
Percentage of portfolio NLA anchored
or shadow anchored by grocery
stores
Number of employees (excluding
seasonal) (iv)
n/a
15.6%
US market (annualized)
86.4%
736
15.8%
15.9%
86.4%
85.3%
4.7%
4.1%
10.1%
4.8%
4.4%
72.4%
70.0%
60.1%
72.9%
70.3%
n/a
86.5%
747
n/a
86.6%
15.9%
86.4%
700
*
Includes retail owned anchors.
n/a Not applicable.
(i)
Includes active development projects.
(ii) Includes active and non-active projects in greenfield and urban intensification developments.
(iii) The six Canadian high growth markets include the following: Calgary, AB; Edmonton, AB; Montreal, QC; Ottawa, ON (includes Gatineau region);
Toronto, ON; and Vancouver, BC.
(iv) Number of employees at March 31, 2015 includes 31 U.S.-based employees for RioCan’s U.S. management platform.
7
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financial Information
(thousands of dollars, except where otherwise noted)
Three months ended
March 31, 2015
December 31, 2014
March 31, 2014
Total revenue – Consolidated (i)
$
330,970
$
315,591
$
307,403
Total revenue – RioCan’s interest (ii)
$
334,320
$
317,471
$
309,356
Increase (decrease) in fair value of investment properties – Consolidated
$
(8,023)
$
33,654
$
67,058
Increase (decrease) in fair value of investment properties – RioCan’s interest (iii)
$
(7,328)
$
37,912
$
69,797
Net earnings before taxes and fair value adjustment
$
97,567
$
138,738
$
105,334
Net earnings attributable to unitholders
$
89,059
$
171,768
$
170,885
Net earnings per Unit attributable to common Unitholders – basic
$
0.27
$
0.54
$
0.55
Net earnings per Unit attributable to common Unitholders – diluted
$
0.27
$
0.54
$
0.55
Adjusted EBITDA (iv)
$
202,424
$
190,663
$
189,683
FFO (v)
$
126,999
$
126,100
$
124,614
FFO per Unit
$
0.40
$
0.40
$
0.41
FFO, excluding expenses for early retirement of debentures
$
136,928
$
126,100
$
124,614
FFO per Unit, excluding expenses for early retirement of debentures
$
0.43
$
0.40
$
0.41
Operating FFO (v)
$
138,040
$
129,518
$
126,882
Operating FFO per Unit (v)
$
0.44
$
0.42
$
0.42
AFFO (vi)
$
123,803
$
114,082
$
114,724
AFFO per Unit (vi)
$
0.39
$
0.37
$
0.38
Distributions as a percentage of AFFO
90.4 %
95.3 %
92.8%
Same store growth % (Canada) **
(0.1)%
0.6 %
3.1%
Same store growth % (U.S.) **
1.9 %
4.4 %
3.0%
Same property growth % (Canada) ***
0.1 %
0.4 %
2.6%
Same property growth % (U.S.) ***
1.6 %
4.4 %
3.0%
316,911
312,002
304,887
Weighted average common Units outstanding – basic (in thousands)
Distributions to common Unitholders
$
111,782
$
109,968
$
107,516
Distributions to common Unitholders per Unit
$
0.3525
$
0.3525
$
0.3525
Distributions per common Unit (annualized) (vii)
$
1.41
$
1.41
$
1.41
Distributions to common Unitholders net of distribution reinvestment plan
$
77,571
$
78,077
$
77,578
Distributions to common Unitholders net of distribution reinvestment plan per Unit (last twelve
months)
$
0.99
$
1.02
$
1.02
Common Unit issue proceeds under distribution reinvestment plan
$
34,211
$
31,891
$
29,938
Distribution reinvestment plan (DRIP) participation rate (viii)
30.6 %
(thousands of dollars, except where otherwise noted)
As at,
29.0 %
March 31, 2015
27.8%
December 31, 2014
March 31, 2014
Total enterprise value (ix)
$
16,187,723
$
15,116,002
$
14,549,081
Total assets – Consolidated
$
15,082,570
$
14,677,677
$
13,784,682
Total assets – RioCan’s interest (x)
$
15,128,526
$
14,721,054
$
13,820,299
Debt * – Consolidated
$
6,686,926
$
6,443,565
$
6,093,678
Debt * – RioCan’s interest (xi)
$
6,728,876
$
6,482,711
$
6,123,733
Debt to total assets (net of cash) – Consolidated (xii)
44.1 %
43.7 %
44.1%
Debt to total assets (net of cash) – RioCan’s interest (xii)
44.3 %
43.8 %
44.2%
Debt to total enterprise value – Consolidated (xiii)
41.3 %
42.6 %
41.9%
Debt to total enterprise value – RioCan’s interest (xiii)
41.6 %
42.9 %
42.1%
Debt service coverage ratio – RioCan’s interest (xiv)
2.25
2.20
2.12
Interest coverage ratio – RioCan’s interest (xv)
2.93
2.89
2.85
Fixed charge coverage ratio – RioCan’s interest (xvi)
1.09
1.08
1.06
Net consolidated debt to Adjusted EBITDA (xvii)
8.10
8.05
7.64
Net operating debt to Operating EBITDA – RioCan’s interest (xviii)
7.72
7.67
7.49
161 %
149 %
141%
Unencumbered assets to unsecured debt (xix)
Unencumbered assets
$
2,933,038
$
2,776,618
$
2,277,633
Total unitholders’ equity
$
8,019,822
$
7,868,570
$
7,384,877
Common Units outstanding (in thousands)
317,892
315,986
305,945
Closing market price per common Unit
$
28.97
$
26.43
$
26.63
Common Units – market capitalization (xx)
$
9,209,331
$
8,351,510
$
8,147,315
Preferred Units - Series A outstanding (in thousands)
5,000
Closing market price per Preferred Unit, Series A
$
Preferred Units - Series C outstanding (in thousands)
20.35
5,000
$
5,980
25.32
5,000
$
5,980
25.30
5,980
Closing market price per Preferred Unit, Series C
$
24.71
$
25.95
$
25.34
Preferred units – market capitalization (xxi)
$
249,516
$
281,781
$
278,033
RioCan’s method of calculating non-GAAP measures may differ from other issuers’ methods and accordingly may not be comparable to such amounts
reported by other issuers.
8
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
(i)
(ii)
(iii)
Calculated as the sum of rental revenue, fees and other income and interest income (consolidated).
A non-GAAP measurement. Calculated as the sum of rental revenue, fees and other income and interest income, all at RioCan’s interest.
A non-GAAP measurement. Calculated as consolidated change in fair value of investment properties plus RioCan’s share of change in fair value
of investment properties for its equity accounted for joint arrangements less non-controlling interests’ share of change in fair value of investment
properties.
(iv) A non-GAAP measurement. Adjusted EBITDA is defined as net earnings at RioCan’s interest before changes in fair value of income properties, net
interest expense and income taxes as well as other one-time adjustments. A reconciliation of Adjusted EBITDA to net earnings can be found under
“Capital Strategy and Resources”.
(v) A non-GAAP measurement. A reconciliation to net earnings can be found under “Results of Operations”.
(vi) A non-GAAP measurement for which a reconciliation to AFFO from FFO can be found in RioCan’s discussion under “AFFO”.
(vii) Annualized amount is based on the latest quarter’s distribution.
(viii) RioCan’s DRIP ratio is defined as the ratio of Units that holders elect to participate in the DRIP to total Units outstanding.
(ix) 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.
(x) A non-GAAP measurement. Calculated as consolidated assets of the Trust and adding back RioCan’s share of assets for its equity accounted
associates and joint ventures, less non-controlling interests’ share of assets.
(xi) A non-GAAP measurement. Calculated as consolidated mortgages and debentures payable of the Trust plus RioCan’s share of mortgages
payable for its equity accounted associates and joint ventures, less non-controlling interests’ share of mortgages payable.
(xii) A non-GAAP measurement. Calculated as debt net of cash, divided by total assets net of cash.
(xiii) A non-GAAP measurement. Calculated by the Trust as debt, divided by total enterprise value.
(xiv) A non-GAAP measurement. Debt service coverage is calculated on a rolling twelve month basis and is defined as Adjusted EBITDA divided by
total interest expense (including interest that has been capitalized) and scheduled mortgage principal amortization.
(xv) A non-GAAP measurement. Interest coverage is calculated on a rolling twelve month basis and is defined as Adjusted EBITDA divided by total
interest expense (including interest that has been capitalized), prepared at RioCan’s interest.
(xvi) A non-GAAP measurement. Fixed charge coverage ratio is calculated on a rolling twelve month basis and is defined as Adjusted EBITDA divided
by total interest expense (including interest that has been capitalized) and distributions to common and preferred unitholders, prepared at
RioCan's interest.
(xvii) A non-GAAP measurement. Net consolidated debt to Adjusted EBITDA is calculated on a rolling twelve month basis and is defined as: the average
consolidated debt (net of cash) divided by Adjusted EBITDA.
(xviii) A non-GAAP measurement. Net operating debt to Operating EBITDA is calculated on a rolling twelve month basis and is defined as the average
debt outstanding (net of cash) less debt related to property under development (both at RioCan’s interest) divided by Operating EBITDA (as found
under “Capital Strategy and Resources”).
(xix) Unencumbered assets to unsecured debt is defined as unencumbered assets at RioCan’s interest divided by unsecured debentures payable.
(xx) A non-GAAP measurement. Calculated by the Trust as closing market price of the common Units trading on the Toronto Stock Exchange on the
respective period end dates, multiplied by the number of common Units outstanding at such date.
(xxi) A non-GAAP measurement. Calculated by the Trust as the aggregate of the closing market price of each series of preferred units trading on the
Toronto Stock Exchange on the respective period end dates, multiplied by the number of Preferred Units of such series outstanding at such date.
*
Debt is defined as the sum of mortgages payable, lines of credit, and debentures payable.
**
Same store NOI growth is a non-GAAP financial measure used by RioCan to assess the period-over-period performance of the same asset base
having consistent leasable area in both periods, which includes the impact of acquisitions and dispositions on a pro rata basis. To calculate same
store NOI growth, NOI for the period is adjusted to remove the impact of straight-line rents, lease cancellation fees, foreign exchange and other
non-recurring items.
*** Same property NOI growth is a non-GAAP financial measure that is consistent with the definition of same-store NOI above, except that same
property includes the NOI impact of redevelopment or expansion of assets within the real estate portfolio. Same property performance is a
meaningful measure of operating performance because it allows management to assess rent growth and leasing activity of its portfolio on a
RioCan property basis and the impact of capital investments.
n/a Not applicable.
9
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Top 50 Tenants – Total Portfolio
As at March 31, 2015, RioCan’s 50 largest tenants in Canada and the U.S., as measured by annualized gross rental revenue,
have the following profile:
Rank
Annualized
rental
revenue
Tenant name
Number
of locations
NLA
(in thousands Percentage of
of square feet)
total NLA
Weighted average
remaining lease term
(years)*
1
Loblaws/Shoppers Drug Mart (i)
4.1%
83
2,017
4.0%
7.2
2
Walmart
3.9%
34
4,117
8.3%
12.6
3
Canadian Tire Corporation (ii)
3.7%
89
2,086
4.2%
8.1
4
Cineplex/Galaxy Cinemas
3.3%
29
1,336
2.7%
9.0
5
Metro/Super C/Loeb/Food Basics
2.9%
54
1,955
3.9%
6.4
6
Winners/Homesense/Marshalls/TJ Max
2.8%
73
1,675
3.4%
6.9
7
Target (iii)
1.9%
26
2,188
4.4%
11.8
8
Staples/Business Depot
1.8%
55
1,069
2.1%
5.2
9
Giant Food Stores/Stop & Shop (Royal Ahold)
1.7%
24
1,113
2.2%
11.1
10
Sobey's Inc./Safeway
1.6%
35
998
2.0%
10.3
11
Cara/Prime Restaurants
1.5%
109
471
0.9%
6.3
12
Best Buy (iv)
1.5%
29
691
1.4%
5.0
13
PetSmart
1.3%
43
675
1.4%
5.4
14
Dollarama
1.3%
81
673
1.3%
6.6
15
Reitmans/Penningtons/Smart Set/Addition-Elle/Thyme Maternity
1.1%
102
424
0.8%
5.1
16
Michaels
1.0%
35
611
1.2%
5.7
17
Lowes
1.0%
8
1,139
2.3%
22.1
18
TD Bank
0.9%
56
250
0.5%
5.6
19
GoodLife Fitness
0.8%
28
496
1.0%
11.6
20
Bluenotes/Stitches/Suzy Shier/Urban Planet/West 49 (YM Inc.)
0.8%
59
359
0.7%
5.3
21
Bank Of Montreal
0.8%
66
280
0.6%
10.1
22
Chapters/Indigo
0.7%
25
265
0.5%
3.4
23
Sears
0.6%
14
517
1.0%
5.3
24
The Bay/Home Outfitters
0.6%
11
532
1.1%
6.2
25
LA Fitness
0.6%
9
348
0.7%
10.0
26
Rexall Pharma Plus
0.6%
18
144
0.3%
10.9
27
Bed Bath & Beyond
0.5%
17
384
0.8%
7.0
28
Ardene
0.5%
50
212
0.4%
7.3
29
Old Navy/The Gap/Banana Republic
0.5%
26
227
0.5%
5.5
30
Liquor Control Board of Ontario (LCBO)
0.5%
20
166
0.3%
7.8
31
Bank of Nova Scotia
0.5%
31
129
0.3%
3.9
32
Value Village
0.5%
16
283
0.6%
5.5
33
Leon's/The Brick
0.4%
12
262
0.5%
6.2
34
London Drugs
0.4%
11
211
0.4%
3.6
35
Bell/The Source
0.4%
77
107
0.2%
6.0
36
CIBC
0.4%
29
108
0.2%
4.5
37
Burger King/TDL Group (Tim Hortons)
0.4%
55
127
0.3%
7.7
38
Laura
0.4%
23
128
0.3%
3.2
39
MTY Food Group Inc.
0.4%
84
98
0.2%
6.0
40
The Shoe Company
0.4%
27
143
0.3%
5.0
41
Subway
0.4%
96
104
0.2%
5.4
42
Pier 1 Imports
0.3%
18
145
0.3%
4.9
43
Golf Town
0.3%
12
151
0.3%
4.9
44
Ross Dress
0.3%
9
266
0.5%
4.1
45
Jysk Linen
0.3%
11
194
0.4%
7.9
46
Sleep Country Canada
0.3%
22
95
0.2%
4.6
47
Royal Bank of Canada
0.3%
23
82
0.2%
4.3
48
Brewers Retail
0.3%
22
117
0.2%
5.0
49
Rona/Revy/Reno
0.3%
3
188
0.4%
12.2
50
BouClair
0.3%
16
110
0.2%
5.5
52.1%
1,905
30,466
61.1%
7.9
*
(i)
(ii)
(iii)
Weighted average remaining lease term based on annualized gross rental revenue.
Loblaws/Shoppers Drug Mart includes No Frills, Fortinos, Zehrs and Maxi.
Canadian Tire Corporation includes Canadian Tire, PartSource, Mark’s, Sport Mart, Sport Chek, Sports Experts, National Sports and Atmosphere.
On January 15, 2015, Target Corporation announced plans to discontinue its Canadian operations. See "Tenant Vacancies" on page 26 for further
discussion.
(iv) On March 28, 2015, Best Buy Canada announced its consolidation of Future Shop and Best Buy stores under the Best Buy format. See "2015
Tenant Vacancy" on page 26 for further discussion.
10
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at March 31, 2015, the geographical diversification of RioCan’s total property portfolio is as follows:
Net leasable area (NLA) of the total portfolio at March 31, 2015
Annualized rental revenue denominated in Canadian dollars of the total portfolio at March 31, 2015
11
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Canadian Portfolio
As at March 31, 2015, the geographical diversification of RioCan’s Canadian property portfolio is as follows:
NLA of the Canadian portfolio at March 31, 2015
Annualized rental revenue of the Canadian portfolio at March 31, 2015
12
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at March 31, 2015, the diversification of RioCan’s Canadian property portfolio by property type is as follows:
NLA of the Canadian portfolio by property type at March 31, 2015
Annualized rental revenue of the Canadian portfolio by property type at March 31, 2015
The committed occupancy rate of the Canadian portfolio has remained relatively stable over the most recent eight quarters:
13
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Top 10 Tenants – Canadian Portfolio
As at March 31, 2015, RioCan’s 10 largest tenants in Canada, as measured by annualized gross rental revenue, have the
following profile:
Rank
*
(i)
(ii)
(iii)
Annualized
rental
revenue
Tenant name
Number of
locations
NLA
(in thousands
of square feet)
Percentage of
total NLA
Weighted
average
remaining
lease term
(years)*
1
Loblaws/Shoppers Drug Mart (i)
4.8%
83
2,017
5.1%
2
Canadian Tire Corporation (ii)
4.4%
89
2,086
5.2%
8.1
3
Walmart
4.1%
29
3,237
8.1%
12.3
4
Cineplex/Galaxy Cinemas
3.9%
29
1,336
3.4%
9.0
5
Metro/Super C/Loeb/Food Basics
3.5%
54
1,955
4.9%
6.4
6
Winners/Homesense/Marshalls
3.0%
67
1,515
3.8%
7.0
7
Target (iii)
2.3%
26
2,188
5.5%
11.8
8
Sobey's Inc./Safeway
1.8%
35
998
2.5%
10.3
9
Cara/Prime Restaurants
1.8%
109
471
1.2%
6.3
10
Staples/Business Depot
7.2
1.5%
37
718
1.8%
5.3
31.1%
558
16,521
41.5%
8.5
Weighted average remaining lease term based on gross annualized rental revenue.
Loblaws/Shoppers Drug Mart includes No Frills, Fortinos, Zehrs and Maxi.
Canadian Tire Corporation includes Canadian Tire, PartSource, Mark’s, Sport Mart, Sport Chek, Sports Experts, National Sports and Atmosphere.
On January 15, 2015, Target Corporation announced plans to discontinue its Canadian operations. See "Tenant Vacancies" on page 26 for further
discussion.
U.S. Portfolio
As at March 31, 2015, the geographical diversification of RioCan’s U.S. property portfolio is as follows:
NLA of the U.S. portfolio at March 31, 2015
14
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Annualized rental revenue of the U.S. portfolio by State at March 31, 2015
The committed occupancy rate of the U.S. portfolio for the most recent eight quarters is as follows:
Top 10 Tenants – U.S. Portfolio
As at March 31, 2015, RioCan’s 10 largest tenants in the U.S., as measured by annualized gross rental revenue, have the
following profile:
Rank
Annualized
rental
revenue
Tenant name
Number of
locations
NLA
(in thousands
of square feet)
Percentage
of
total NLA
Weighted
average
remaining
lease term
(years)*
1
Giant Food Stores/Stop & Shop (Royal Ahold)
10.1%
24
1,113
11.1%
11.1
2
Best Buy
3.8%
10
329
3.3%
5.6
3
Staples/Business Depot (i)
3.5%
18
351
3.5%
5.1
4
PetSmart
3.2%
14
295
2.9%
4.6
5
Walmart
3.0%
5
880
8.8%
13.7
6
Michaels
2.3%
14
291
2.9%
4.4
7
Ross Dress
2.2%
9
266
2.6%
4.1
8
Lowes
2.1%
3
476
4.7%
11.3
9
Bed Bath & Beyond
1.8%
9
237
2.4%
5.4
10
Market Street
1.8%
3
193
1.9%
8.8
33.8%
109
4,432
44.1%
8.2
*
Weighted average remaining lease term based on annualized gross rental revenue.
The following pro forma ranking assumes the successful closing deal below:
(i)
Staples has entered into an agreement to purchase Office Depot/Max, expected to close by the end of calendar year 2015. Upon closing,
Staples will become the Trust's third largest tenant by total annualized rental revenue.
15
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
2015 FINANCIAL HIGHLIGHTS
(thousands of dollars, except per unit amounts)
Three months ended March
31,
Three months ended March 31,
Increase/
(Decrease)
2015
2014
Net earnings attributable to common and preferred unitholders
$ 89,059
$ 170,885
(48.0)%
Net earnings per Unit attributable to common Unitholders – basic
$
0.55
(50.9)%
Operating FFO
$ 138,040
$ 126,882
8.8 %
Operating FFO per Unit
$
0.42
4.8 %
0.27
0.44
$
$
Net earnings attributable to unitholders
Q1 2015
Net earnings attributable to common and preferred unitholders for the three months ended March 31, 2015 was $89 million
compared to $171 million for the same period in 2014, a decrease of $82 million. This decrease, as explained on a RioCan interest
basis, was primarily due to the following:
•
higher net operating income of $8.3 million primarily due to the following: acquisitions, net of dispositions (completed over the
last 12 months); additional income property NLA resulting from completion of development projects; Canadian and U.S. NOI
growth; and a $4.9 million higher foreign currency gain from U.S. operations as compared to the same period in 2014;
•
higher fees and other income of $3.4 million due to an increase in investment income and construction fees from joint
arrangement projects as compared to the same period in 2014;
•
lower interest expense of $0.1 million, from interest savings due to the refinancing of maturing mortgages and debentures at
lower interest rates offset by an unfavourable foreign exchange impact on U.S. dollar denominated interest expense;
•
the favourable impact of foreign exchange on net earnings is $3.1 million, comprised of $4.9 million higher foreign currency
gains in NOI, partially offset by $1.8 million in higher interest expense on U.S. dollar denominated debt;
more than offset by the following:
•
a total fair value loss of $7.3 million during the quarter compared to fair value gains of $70 million during the same period in
2014. The decrease in fair value was primarily due to valuation adjustments recorded in connection with certain tenant
vacancies, partly offset by continued capitalization rate compression primarily in the U.S. Capitalization rates as at March 31,
2015, decreased by one and four basis points in Canada and the U.S., respectively, as compared to December 31, 2014.
Capitalization rates as at March 31, 2014, decreased by two and eight basis points in Canada and the U.S., respectively as
compared to December 31, 2013.
•
expense associated with the early redemption of debentures of $9.9 million;
•
lower interest income of $2.4 million due primarily to the impact of the settlement of certain mezzanine loans during the first
quarter of 2014 in connection with the acquisition of interests in three development projects;
•
higher transaction costs of $1.4 million due to increased property acquisition and disposition activity during the first quarter of
2015 compared to the same period in 2014; and
•
higher general and administrative expenses of $2.8 million primarily due to the timing of recognition of variable compensation
and public company costs, higher annualized depreciation and amortization and higher unit-based compensation expenses
resulting from a change in the timing of the Trust's annual equity based compensation grant date and merit based salary
increases. RioCan expects to realize an offset in compensation costs in the second half of 2015 due to the timing of expenses
and anticipates modest growth in full year general and administrative expense as compared to 2014.
Operating FFO
Q1 2015
Operating FFO at RioCan’s interest for the three months ended March 31, 2015 was $138 million or $0.44 per Unit, compared to
$127 million or $0.42 per Unit for the same period in 2014, representing an increase of $11 million or 8.8%. On a per Unit basis,
Operating FFO increased by $0.02 per Unit or 4.8%. Please see the “Results of Operations - RioCan’s Interest” section of this
MD&A.
The $11 million increase in Operating FFO at RioCan’s interest for the three months ended March 31, 2015 as compared to the
same period in 2014 is primarily due to the following:
•
an increase in NOI from rental properties of $14 million, which includes the impact of the following items: acquisitions, net of
dispositions (completed over the last 12 months); additional income property NLA resulting from completion of development
projects; Canadian and U.S. NOI growth; and a $4.9 million higher foreign currency gain from U.S. operations as compared to
the same period in 2014; and
•
an increase in fees and other income of $2.5 million due to an increase in investment income and construction fees from joint
arrangement projects as compared to the same period in 2014;
•
the favourable impact of foreign exchange on Operating FFO is $3.1 million, comprised of $4.9 million higher foreign currency
gains in NOI, partially offset by $1.8 million in higher interest expense on U.S. dollar denominated debt;
partly offset by the following:
16
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
lower interest income of $2.4 million due primarily to the impact of the settlement of certain mezzanine loans during the first
quarter of 2014 in connection with the acquisition of interests in three development projects;
•
an increase in interest expense of $0.2 million, mainly due to an unfavourable foreign exchange impact on U.S. dollar
denominated interest expense, partially offset by interest savings due to the refinancing of maturing mortgages and
debentures at lower interest rates; and
•
an increase in general and administrative costs of $2.8 million primarily due to the timing of recognition of variable
compensation and public company costs, higher annualized depreciation and amortization and higher unit-based
compensation expenses resulting from a change in the timing of the Trust's annual equity based compensation grant date and
merit based salary increases. RioCan expects to realize an offset in compensation costs in the second half of 2015 due to the
timing of expenses and anticipates modest growth in full year general and administrative expense as compared to 2014.
2015 OPERATING HIGHLIGHTS
Q1 2015
RioCan has remained focused on its core portfolio and continues to execute its growth strategy through acquisitions and
development, along with organic growth. In addition, RioCan is selectively paring its portfolio in order to increase its focus on
major urban markets.
Occupancy
•
•
Committed occupancy of 96.7% at March 31, 2015, as compared to 97.0% at December 31, 2014 and 96.8% at March 31,
2014.
Economic occupancy (occupied NLA for which tenants are paying rent) of 95.5% at March 31, 2015, as compared to 96.0%
at December 31, 2014 and 95.7% at March 31, 2014. The annualized rental impact once these tenants take occupancy and
commence paying rent is approximately $18 million.
Leasing
Rental rate increases on lease renewals continue to be positive, which is expected to contribute to future rental revenue growth.
Operationally, the leasing market is cautious, however, RioCan continues to experience demand for space by tenants, as
evidenced by leasing activity during the quarter. RioCan’s revenue generated within Canada’s six major markets totalled 73.6%
as at March 31, 2015 (73.3% at December 31, 2014 and 72.2% at March 31, 2014).
Canada
RioCan renewed 1,134,000 square feet in the Canadian portfolio at an average rent increase of $1.70 per square foot,
representing an increase of 9.8% and a renewal retention rate of 90.0%.
U.S.
RioCan renewed 64,000 square feet in the U.S. portfolio at an average rent increase of $1.61 per square foot, representing an
increase of 8.3% and a renewal retention rate of 64.3%. Due to the relatively low volume of US renewal leasing, the renewal
retention rate was substantially impacted due to one Best Buy tenant vacancy during the period. Excluding this vacancy, the
renewal retention rate would have been 86.8%.
Acquisitions and Dispositions Completed During the Quarter
Acquisition and development activity during the first quarter contributed to an overall decrease in owned NLA of 147,000 square
feet to 49,878,000 square feet, as compared to December 31, 2014. Compared to March 31, 2014, NLA has increased by
812,000 square feet or 1.7%. The following is a summary of acquisitions and dispositions during the quarter:
•
Acquired interests in 21 income properties (including 18 BMO branch locations) in Canada totalling $169 million, at RioCan's
interest, representing 436,000 square feet of additional NLA, at a weighted average capitalization rate of 5.5%. In connection
with these acquisitions, RioCan assumed mortgage financing of $24 million.
•
Acquired an interest in one development property in Canada for $3 million, at RioCan's interest. The property was acquired
free and clear of financing.
•
Disposed of five income properties in Canada for $120 million, at RioCan's interest, totalling NLA of approximately 748,000
square feet, at a weighted average capitalization rate of 6.8%. The Trust's mortgage obligations related to these properties
was $21 million.
Acquisitions and Dispositions Completed Subsequent to March 31, 2015
•
There were no investment property acquisitions or dispositions subsequent to quarter end as at the date of this report.
Acquisitions and Dispositions Under Contract
At any given time, RioCan could be discussing the purchase of new properties or the disposition of existing properties,
purchasing or holding marketable securities of real estate related entities and/or negotiating joint venture arrangements relating to
the acquisition, holding or development of real estate investments. There can be no assurance that any of these discussions will
result in a definitive agreement, and, if they do, what the terms or timing of any acquisition, investment or disposition would be.
RioCan expects to continue current discussions and actively pursue other acquisition, investment and disposition opportunities.
17
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Committed
•
Commitments to make capital contributions that would represent acquisitions totalling $325 million in Canada, at RioCan's
interest. These acquisitions are part of a joint venture agreement with Hudson's Bay Company, which is expected to close in
June 2015 - see "Income Property Acquisitions Under Contract" for further details.
•
An additional income property acquisition in the US that would represent an acquisition of $3 million, at RioCan's interest.
•
There are no committed development property acquisitions as at the date of this report.
•
Income property dispositions in Canada that would represent dispositions totalling $299 million, at RioCan's interest. These
dispositions are part of a joint venture agreement with Hudson's Bay Company, which is expected to close in June 2015 see "Property Dispositions Under Contract and Being Marketed" for further details.
•
The Trust has the disposition of its 80% non-managing interest in one income property in the US that is accounted for using
the equity method, under firm contract with Kimco where conditions have been waived pursuant to a purchase and sale
agreement for total proceeds of $44 million (US$35 million), subject to working capital and other closing adjustments.
Conditional
•
There are no conditional income property acquisitions as at the date of this report.
•
There are no conditional development property acquisitions as at the date of this report.
•
Income property dispositions in Canada that would represent dispositions totalling $9 million, at RioCan's interest.
•
Land dispositions in Canada that would represent dispositions totalling $18 million, at RioCan's interest.
•
The above transactions are in various stages of due diligence and while efforts will be made to complete these transactions,
no assurance can be given.
Pipeline
•
Income property acquisitions in Canada and the US that would total $147 million, at RioCan's interest.
•
There are no pipeline development property acquisitions as at the date of this report.
•
Income property dispositions in Canada with a fair value as at March 31, 2015 calculated in accordance with IFRS of $51
million, at RioCan's interest.
•
Land dispositions in Canada with a fair value as at March 31, 2015 calculated in accordance with IFRS of $59 million, at
RioCan's interest.
•
The above transactions are in various stages of negotiations and while efforts will be made to complete these negotiations,
no assurance can be given.
Development Projects Completed During the Quarter
During 2015, the Trust added approximately 146,000 square feet to its income producing NLA, most notably due to the opening
of Walmart at Sage Hill Crossing, representing 78,000 square feet at RioCan's proportionate interest. Other notable expansion
and redevelopment projects completed during the period included the retail podium at Brentwood Village, Centre St. Martin and
Herongate Mall.
CAPITAL MANAGEMENT
RioCan ended the quarter with a consolidated cash position of $60 million with available undrawn operating facilities of $413
million. Net of cash, the Trust’s debt to total assets (at RioCan’s interest) at March 31, 2015 is 44.3% (December 31, 2014 43.8%).
Debt
Mortgages Payable
During the quarter, RioCan had new fixed rate term mortgage borrowings of $127 million with a weighted average contractual
interest rate of 2.98%. As at March 31, 2015, total mortgages payable were $4.6 billion at RioCan's interest.
Debentures
Issuances
On February 12, 2015, the Trust issued $300 million of Series W senior unsecured debentures, which mature on February 12,
2024 and carry a coupon rate of 3.287%. A portion of the net proceeds were used to repay indebtedness, including the
redemption of the Trust's (the Series O Debentures) as described below, and the balance for general trust purposes.
On March 25, 2015, the Trust announced that it has amended the terms of its previously announced offering of Series Q senior
unsecured debentures (the Additional Debentures) and will be issuing $175 million Additional Debentures. The Additional
Debentures will carry a coupon rate of 3.85% and will mature on June 28, 2019. The Additional Debentures were sold at a price
of $107.312 per $100 principal amount plus accrued interest, with an effective yield of 2.04% if held to maturity. An aggregate of
$350 million of such debentures will be outstanding after giving effect to this offering. The Trust completed its issuance of the
Additional Debentures on April 2, 2015.
18
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Redemptions
On March 9, 2015, RioCan redeemed its US$100 million 4.10% Series N senior unsecured debentures due September 21, 2015
(the Series N Debentures), in full, in accordance with their terms, at a total redemption price of US$101.8 million, plus accrued
and unpaid interest of US$1.9 million, up to but excluding the redemption date. During the three months ended March 31, 2015,
the Trust recorded an early extinguishment charge of $2.3 million (US$1.8 million).
On March 11, 2015, RioCan redeemed its $225 million 4.499% Series O Debentures due January 21, 2016, in full, in accordance
with their terms, at a total redemption price of $231.8 million, plus accrued and unpaid interest of $1.4 million, up to but excluding,
the redemption date. During the three months ended March 31, 2015, the Trust recorded an early extinguishment charge of $7.6
million, which includes a write-off of the related unamortized deferred financing costs.
Secured Operating Lines
As at March 31, 2015, RioCan's maximum borrowing capacity under its operating lines remains unchanged from December 31,
2014 at approximately $726 million, with available borrowing capacity of $413 million.
Unencumbered Assets
As at March 31, 2015, the Trust’s debt strategy has resulted in approximately 23.3% of its income properties being
unencumbered by debt on a NLA basis, providing RioCan with access to a pool of assets for obtaining additional secured debt.
The fair value of the unencumbered income property assets as of March 31, 2015 is estimated at approximately $2.6 billion,
comprising 107 properties, or 19.8% of the fair value of the Trust’s income properties as compared to 89 properties with a fair
value of $2.5 billion as at December 31, 2014. In addition to the unencumbered income property assets, the Trust has 11
unencumbered properties under development with a fair value of $304 million as at March 31, 2015, bringing the total fair value of
unencumbered assets to approximately $2.9 billion.
Equity
RioCan’s DRIP ratio is defined as the ratio of Units that holders elect to participate in the DRIP to total Units outstanding. The
Trust raised additional capital of $34 million and reported a DRIP ratio of 30.6% for the quarter.
OUTLOOK AND STRATEGY
RioCan’s strong operating performance provided by its dominant Canadian retail platform, coupled with its U.S. platform, has
facilitated its continued growth and position as a leading North American REIT with a retail focus. RioCan’s prudent management
of its balance sheet and access to capital has provided it with the ability to take advantage of opportunities in the current
economic environment through same store rental income growth, acquisitions, greenfield development, redevelopments and
asset intensification as well as investing in marketable securities of real estate related entities from time to time. RioCan conducts
these activities either on its own or through strategic joint ventures and partner relationships.
The Trust will continue to pursue a disciplined approach to the development of new properties and the redevelopment and
intensification of existing properties in Canada, with a focus on major urban markets. A new initiative to incorporate residential
intensification in the portfolio's transit oriented major market development properties will capitalize on opportunities for growth
through the addition of residential assets, both condominium and rental residential, into RioCan's property portfolio.
RioCan will continue to seek acquisitions in selected markets, with a focus on properties that meet the Trust’s investment criteria
in both Canada and the U.S. RioCan will also take advantage of dispositions in secondary and tertiary markets in order to recycle
capital into developments and acquisitions in higher growth major markets. Consistent with the foregoing, RioCan is regularly
engaged in discussions with respect to possible acquisitions of new properties, dispositions of existing properties in RioCan's
portfolio and other real estate investment arrangements involving potential strategic joint ventures or the purchasing and holding
of marketable securities of real estate related entities. There can be no assurance that any of these discussions will result in a
definitive agreement, and, if they do, what the terms or timing of any acquisition, investment or disposition would be.
The current economy is unsettled, with the price of oil creating uncertainty in certain markets dependent on the oil industry, and
European and emerging market economic issues causing significant concerns over the potential pace of the global economic
recovery. The pace of economic recovery in both Canada and the U.S. has diverged somewhat as U.S. economic growth has
been more favourable and continues to look to be more resilient. Both economies continue to face significant risks as volatility in
the capital and energy markets has increased. The declines in energy prices is expected to have a negative impact on economic
growth and the housing markets in Western Canada, and to a lesser extent in Texas, if energy prices remain depressed.
However, the potential decline in growth from low energy prices is expected to be at least partially offset by increased consumer
spending from energy savings. In addition, the decline in the Canadian dollar should contribute to improved economic conditions
in Canada's manufacturing and export dependent sectors.
Demand from tenants in the near term is expected to remain fairly steady. It remains uncertain, however, what the full impact of
Target’s announcement to discontinue its operations in Canada will have on rental rates and tenant demand. RioCan will continue
to carefully monitor the status of these locations for potential re-leasing opportunities throughout 2015. U.S. retailers considering
expansion into Canada are doing so in a much more cautious and selective basis in their location decisions.
The current Canadian interest rate environment remains favourable and is expected to remain so through 2015, which should
continue to provide interest savings on the Trust's maturing debt. RioCan will continue to monitor both the economy and real
estate markets with a view to ensuring it has adequate access to capital, either by way of equity, debt, or selected asset
dispositions to meet its business requirements and maximize opportunities that may become available to it.
RioCan’s growth is expected to primarily come from organic growth from within the portfolio, along with asset intensification and
development in Canada.
19
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Given the competitive nature of the acquisition market and limited supply of acquisitions that meet RioCan's criteria, it is not
currently expected that acquisitions will provide significant growth. The Trust is, however, taking advantage of this market
environment to dispose of non-core, lower growth assets in order to improve its position in Canada's six major markets. RioCan is
committed to remaining focused on its portfolio in order to preserve high occupancy levels through active management and
leasing, which allows RioCan to maintain a stable stream of cash flows from long term assets which increase in value. The focus
on active management led to RioCan’s decision to establish its own management platform in the U.S.
Overall, RioCan believes that it is well positioned to withstand the currently unsettled retail environment, due to its size as well as
its diversified and stable portfolio, significant development pipeline, solid tenant base, flexible capital structure, conservative
borrowing practices and depth of its management team.
For the remainder of 2015:
Canada
•
•
•
Fundamentals in retail real estate in Canada are expected to remain steady, however there will be some disruption as a
result of Target's announced departure from Canada and other recent announced store closures, such as Future Shop,
which has created a more cautious environment with retailers. The expected impact is difficult to estimate at this time. We do
expect that there will be a negative impact in some markets, however, in certain situations there will be positive opportunities
for repositioning and increased rental revenues. The Canadian market benefits from concentrated retail tenants who
generally are financially strong, and a low level of development activity that is unlikely to create a supply imbalance.
The Trust will continue to review its portfolio with a view towards selective dispositions of properties where appropriate as a
further means of raising and recycling capital. The Trust evaluates the sale of selected assets as part of a process of actively
managing its portfolio and a means of increasing the portfolio weighting in the six major markets in Canada, which was
73.6% of its Canadian revenue as at March 31, 2015.
The Trust expects to realize organic growth from within the portfolio by way of contractual rental increases in existing leases,
additional rental income that can be achieved from positive rental spreads on lease renewals and the potential for positive
absorption in occupancy.
U.S.
•
•
RioCan’s operating platform in the U.S. has provided a basis for RioCan to expand its reach in the U.S. and provide the
ability to realize additional economies of scale as the portfolio grows.
Fundamentals in the U.S. markets within which RioCan operates is expected to remain steady as the U.S. economy grows.
As a result of population and economic growth and little new supply over the past seven years, RioCan expects to continue
to realize value in the portfolio through the leasing of currently vacant space and through rental growth in the small shop
spaces at these centres.
Macro Economic and Market Trends
•
•
•
•
The economic recovery in Canada is tepid, which has impacted retail sales and tenant activity. This economic environment, if
it continues, may have an impact on the demand for retail space and rental rates. In addition, RioCan is actively monitoring
the impact of oil prices on market conditions in Alberta along with overall consumer spending in Canada and the U.S.
The Trust has been closely monitoring the impact of the Canadian dollar relative to the U.S. dollar on its business over the
past year. In the near term, the Trust does not expect any significant direct impact other than the translation impact on U.S.
earnings and its net U.S. dollar denominated assets.
Interest expense savings derived from refinancing at current market interest rates are anticipated to continue throughout the
remainder of 2015 due to the low interest rate environment.
The Trust will continue to monitor the impact of online retail sales. RioCan believes that consumer trends will be towards
increasingly greater sales in enclosed malls and grocery anchored shopping centres. As well, it is anticipated that there will
be a higher proportion of sales generated from services versus products. Further, it is expected that existing retail models will
be adapted to integrated sales depots for online sales. RioCan is well positioned for these trends based upon the depth and
breadth of its portfolio, especially in urban markets. Grocery stores have been typically resilient against online sales and due
to RioCan’s strong portfolio of grocery anchored centres, the impacts are less severe.
Development Program
•
RioCan's development program is expected to be a key driver of future Operating FFO growth. Strong fundamentals arising
from growth in certain urban markets with strong economic and population growth, such as the Greater Toronto Area, and
the arrival of new retailers has allowed RioCan to increase its development activities. RioCan’s joint venture with Tanger for
the development of outlet shopping centres in Canada and RioCan’s urban focused joint venture with Allied further expand
the potential development and intensification opportunities available across multiple retail formats.
Going forward, substantial activity and growth will be seen through a variety of formats in development and redevelopment of
existing properties. Overall development spending based on committed projects (at RioCan’s interest), over the next three
years will range from $150 to $250 million per year. RioCan’s development pipeline is expected to add approximately 7.0
million square feet (3.8 million square feet at RioCan’s interest) of space upon completion over the next six years, with the
majority of forecasted yields on urban and residential projects ranging from 5% to 8%. RioCan is committed to property
development and redevelopment opportunities and is focused on completing the development pipeline currently underway.
Development activity is primarily concentrated in the six high growth markets in Canada and serves as an important
component of RioCan’s organic growth strategy. The markets of Toronto, Calgary and Ottawa are a principal focus for
development and intensification efforts where strong economic and population growth have afforded RioCan the opportunity
to increase its development activity.
20
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
In addition to RioCan’s development program, the Trust contributes to portfolio growth through the intensification of existing
properties. Within its portfolio, RioCan has identified strategic opportunities to increase density or add to an existing asset,
particularly residential intensification at the Trust's transit oriented developments. This intensification of existing properties
contributes to NOI growth in an efficient manner, leveraging the existing asset base.
Acquisitions and Dispositions
•
•
•
•
•
RioCan has noted that there is currently greater competition for acquisitions as there exists a significant number of wellcapitalized and high net worth investors seeking quality investments, especially due to the current low interest rate
environment. Management will continue to maintain a disciplined approach to evaluating acquisition opportunities, and
growth through acquisition will likely not occur at the same pace as the previous four years.
RioCan will continue its focus on the enclosed mall and urban retail segment, particularly in major markets, as a means of
leveraging its retail tenant base across Canada. There are additional opportunities for organic growth within the acquired
shopping centres, which RioCan believes it can realize with its deep infrastructure and management strength.
The Trust has selected two geographic areas of focus for acquisitions in the U.S. - the northeastern U.S. region and the four
major urban markets in Texas (Dallas-Fort Worth, Houston, Austin and San Antonio), which offer a complementary mix of
tenants to RioCan’s Canadian portfolio of largely nationally branded tenants.
The acquisitions that have been completed during the quarter and over a trailing 12 month basis, net of the impact of the
Trust's dispositions program, will contribute to RioCan’s Operating FFO growth. At the present time, RioCan anticipates the
relatively slow pace of acquisitions to continue.
RioCan continues to evaluate its portfolio in order to selectively dispose of assets as a means of recycling capital, and also
to increase the portfolio weighting in the six major markets in Canada. During the three months ended March 31 2015, the
Trust disposed of $120 million of properties in Canada (twelve months ended December 31, 2014 - $53 million in Canada).
As part of actively managing and improving the portfolio mix, RioCan will continue to identify properties for disposition,
however expects the pace of dispositions to be reduced for the balance of 2015.
Partner Relationships
The Trust will continue to capitalize on the strength of its partner relationships in Canada to acquire property, enhance RioCan’s
development projects, and generate additional income for its unitholders pursuant to arrangements where RioCan earns fees for
its services.
Capital Management Strategy
RioCan’s capital management framework limits the Trust’s maximum indebtedness to 60% of Aggregate Assets as defined by the
Declaration. RioCan remains focused on preserving a strong balance sheet and continuing to maintain substantial liquidity. Based
on the fair market value of its portfolio, its consolidated leverage ratio of 44.1% of Aggregate Assets is currently substantially
lower than the specified limit of 60%. Furthermore, RioCan believes it has sufficient unencumbered assets (approximately $2.9
billion as of March 31, 2015) and assets with low loan-to-value ratios that can be financed and/or refinanced to generate capital to
meet its capital requirements and grow its asset base. RioCan’s ability to access such financing is dependent on the availability of
debt in the market. A further source of capital is the Trust's distribution reinvestment and direct purchase plans. Unitholder
distributions reinvested through such plans result in the issuance of Units, as opposed to a cash outlay, thereby providing an
additional source of capital to fund RioCan’s activities.
RioCan has developed other metrics regarding debt and leverage that are tracked and disclosed on a quarterly basis to help
facilitate financial statement users’ and stakeholders’ understanding of RioCan’s leverage and its ability to service such leverage.
These metrics include net debt to adjusted EBITDA ratio, debt service coverage ratio, interest coverage ratio, fixed charge
coverage ratio and unencumbered assets to unsecured debt which are outlined in the “Capital Strategy and Resources” section
of this MD&A.
While having relatively low debt leverage exposure is important, the quality of the rental revenue available to service the Trust’s
debt and pay distributions to unitholders is equally important. The Trust strives to reduce its exposure to rental revenue risk in the
shopping centre portfolio through geographical diversification, staggered lease maturities, diversification of revenue sources
resulting from a large tenant base, avoiding dependence on any single tenant by ensuring no individual tenant contributes a
significant percentage of its gross revenue and ensuring a considerable portion of its rental revenue is earned from national and
anchor tenants. In addition, RioCan staggers its debt maturities to reduce its exposure to potential volatility in availability of debt
and interest rate movements. RioCan is able to access multiple sources of capital including, but not limited to, secured and
unsecured debt, preferred units and Units, which provide the Trust with greater flexibility in raising capital and to manage its
overall cost of capital.
OCCUPANCY
RioCan’s committed occupancy is 96.7% at March 31, 2015, as compared to 97.0% at December 31, 2014 and 96.8% at
March 31, 2014. Included in the occupancy rate is 623,000 square feet of NLA that has been leased but is not yet generating
rent, resulting in an economic occupancy rate of 95.5% (compared to 96.0% at December 31, 2014 and 95.7% at March 31,
2014), which represents the occupied NLA for which tenants are paying rent. The annualized rental impact once these tenants
take occupancy and commence paying rent is approximately $18 million.
During the quarter, RioCan renewed 1,134,000 square feet (March 31, 2014 - 1,282,000 square feet) in the Canadian portfolio at
an average rent increase of $1.70 per square foot (March 31, 2014 - $1.02 per square foot), representing an increase of 9.8%
and a renewal retention rate of 90.0%.
21
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Various operating and leasing metrics over the last eight quarters are as follows:
2015
2014
2013
(thousands of square feet, millions of
dollars, except where otherwise noted)
First
quarter
Fourth
quarter
Third
quarter
Second
quarter
First
quarter
Fourth
quarter
Third
quarter
Second
quarter
Committed occupancy
96.7 %
97.0%
97.0%
96.9%
96.8%
96.9%
97.0%
96.7%
Economic occupancy
95.5 %
96.0%
96.0%
95.9%
95.7%
95.8%
95.5%
95.4%
623
512
488
520
519
542
716
642
$ 17,580
NLA leased but not paying rent
Annualized rental impact
Retention rate – Canada
% increase in average net rent per sq
ft – Canada
Retention rate – U.S.
% increase in average net rent per sq
ft – U.S.
Average in place rent
$ 15,588
$ 15,336
$ 12,912
$ 14,004
$ 16,668
$ 15,204
85.0%
91.7%
88.8%
91.2%
97.0%
91.1%
95.9%
9.8 %
11.8%
12.9%
13.9%
7.0%
8.8%
11.2%
12.0%
64.3 %
78.3%
92.2%
97.3%
86.4%
98.2%
98.4%
92.0%
8.3 %
$ 16.10
Same store growth (i) – Canada
Same store growth (i) – U.S.
(i)
$ 15,696
90.0%
7.8%
$
16.15
9.3%
7.0%
16.01
$
8.3%
16.00
$
$
4.8%
16.01
$
3.8%
16.08
$
4.3%
16.07
$
15.77
(0.1)%
0.6%
1.9%
2.0%
3.1%
2.7%
2.2%
0.6%
1.9 %
4.4%
3.7%
1.4%
3.0%
1.7%
0.9%
1.4%
Refers to same store NOI growth on a year over year basis.
RioCan has consistently maintained high occupancy rates between 96.7% and 97.0% over the most recent eight quarters. For
the quarter ended March 31, 2015, the retention rate in Canada or the percentage of tenants who have renewed their leases
during the period increased to 90.0% from the quarter ended December 31, 2014 (85.0%). The U.S. renewal retention rate was
unfavourably impacted by a Best Buy tenant vacancy during the period, reflecting a low number of renewals during the first
quarter.
The historical portfolio occupancy rate broken down by property type is as follows:
2015
2014
2013
First
quarter
Fourth
quarter
Third
quarter
Second
quarter
First
quarter
Fourth
quarter
Third
quarter
Second
quarter
New format retail
97.8
98.3
98.3
98.3
98.4
98.6
98.5
98.4
Grocery anchored centre
97.9
97.7
97.6
97.7
97.2
98.0
97.9
96.9
Enclosed shopping centre
91.2
91.8
91.8
91.6
91.9
90.2
90.9
90.4
Non-grocery anchored centre
97.1
97.2
98.0
98.1
95.9
97.4
97.3
97.5
Urban retail
97.8
98.5
98.2
98.4
98.8
98.9
98.6
98.8
Office
98.4
97.5
96.7
97.3
97.2
97.3
97.3
97.8
Total Canada
96.7
97.0
97.0
97.0
96.9
96.9
96.9
96.6
New format retail
96.1
96.5
96.3
96.1
96.1
96.4
97.2
97.1
Grocery anchored centre
97.9
98.5
98.4
98.3
98.1
98.0
98.1
98.0
Non-grocery anchored centre
96.6
96.6
96.2
96.2
95.6
93.9
93.6
94.3
Total U.S.
96.6
97.1
96.9
96.7
96.6
96.8
97.4
97.3
Total Portfolio
96.7
97.0
97.0
96.9
96.8
96.9
97.0
96.7
(in percentages)
Canada
U.S.
Economic Occupancy
A rent commencement timeline for the NLA which has been leased but is not currently open is as follows:
(in thousands, except percentage amounts)
Total
Q1 2015
Q2 2015
Q3 2015
NLA commencing
623
Cumulative NLA commencing
623
Q4 2015
2016
352
98
126
5
42
352
450
576
581
623
% of NLA commencing
56.5%
15.7%
20.2%
0.8%
6.8%
Cumulative % total
56.5%
72.2%
92.4%
93.2%
100.0%
Square feet:
Average net rent:
Monthly rent commencing
$ 1,465 $
816
$
271
$
282
$
10
$
86
Cumulative monthly rent commencing
$ 1,465 $
816
$
1,087
$
1,369
$
1,379
$
1,465
% of rent for NLA commencing
55.7%
18.5%
19.2%
0.7%
5.9%
Cumulative % total rent commencing
55.7%
74.2%
93.4%
94.1%
100.0%
22
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Small Shop Occupancy
At March 31, 2015, RioCan’s small shop committed occupancy rate for the total portfolio is 91.4% (December 31, 2014 92.6%). RioCan defines small shops as retail tenants with less than 10,000 square feet of NLA. The following is a breakdown of
total portfolio committed occupancy:
As at,
March 31, 2015
Canada
U.S.
December 31, 2014
Total
Portfolio
Canada
U.S.
March 31, 2014
Total
Portfolio
Canada
U.S.
Total
Portfolio
99.1%
99.5%
99.2%
98.9%
99.9%
99.1%
98.6%
99.7%
98.8%
Small Shop (<10,000 sqft)
92.0%
88.3%
91.4%
93.2%
88.9%
92.6%
93.5%
87.5%
92.5%
Total
96.7%
96.6%
96.7%
97.0%
97.1%
97.0%
96.9%
96.6%
96.8%
Leasing Activity
RioCan’s portfolio leasing activity during the three months ended March 31, 2015 and 2014 are as follows:
2015
(in thousands, except per sqft amounts)
Square
feet
Three months ended March 31,
2014
Average
net rent
per sqft (i)
Average
net rent
per sqft (i)
Square
feet
Canada
613 $
18.81
305 $
18.30
1,134 $
19.12
1,282 $
15.47
New leasing
47 $
21.83
19 $
23.44
Renewals
64 $
20.90
60 $
22.53
New leasing
Renewals
U.S.
(i)
Net rent is primarily contractual basic rent pursuant to tenant leases.
Renewal Leasing
A summary of RioCan’s 2015 and 2014 renewal leasing is as follows:
(in thousands, except per sqft amounts)
Three months ended March 31,
2015
2014
Square feet renewed:
Canada
U.S.
1,134
1,282
64
60
Average net rent per square foot:
Canada
$
19.12
$
15.47
U.S.
$
20.90
$
22.53
Canada
$
1.70
$
1.02
U.S.
$
1.61
$
1.73
Increase in average net rent per square foot:
Percentage increase in average net rent per square foot:
Canada
9.8%
7.0%
U.S.
8.3%
8.3%
Canada
90.0%
91.2%
U.S.
64.3%
86.4%
Retention rate:
23
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Including anchor tenants, the components of renewal activity for the quarter by geography is as follows:
(in thousands, except per sqft amounts)
Three months ended March 31, 2015
Canada
U.S.
Renewals at market rental rates:
Square feet renewed
732
Average net rent per sqft
$
Increase in average net rent per sqft
$
Percentage increase in average net rent per sqft
40
22.04
$
2.20
$
21.92
1.55
11.1%
7.6%
402
24
Renewals at fixed rental rate options:
Square feet renewed
Average net rent per sqft
$
13.79
$
Increase in average net rent per sqft
$
0.78
$
19.20
1.71
6.0%
Percentage increase in average net rent per sqft
9.8%
Total:
1,134
Square feet renewed
Average net rent per sqft
$
Increase in average net rent per sqft
$
64
19.12
$
1.70
$
20.90
1.61
9.8%
Percentage increase in average net rent per sqft
8.3%
Including anchor tenants, the components of renewal activity for the Canadian portfolio for the three months ended March 31,
2015 by property type are as follows:
(in thousands, except per sqft amounts)
New
format
retail
Total
Grocery
anchored
centre
Enclosed
shopping
centre
Non-grocery
anchored
centre
Urban
retail
Office
Renewals at market rental rates:
Square feet renewed
7
33
Average net rent per sqft
$ 22.04
732
$
28.72
$
19.37
$
21.14
$
17.42
$
23.68
$ 16.20
Increase in average net rent per sqft
$
$
3.39
$
2.92
$
(0.19)
$
1.08
$
2.20
2.20
199
286
157
51
$
1.99
Renewals at fixed rental rate options:
Square feet renewed
402
220
74
55
53
—
—
Average net rent per sqft
$ 13.79
$
15.64
$
14.66
$
10.74
$
8.00
$
—
$
—
Increase in average net rent per sqft
$
$
1.10
$
0.24
$
0.05
$
1.00
$
—
$
—
0.78
Total:
Square feet renewed
7
33
Average net rent per sqft
$ 19.12
1,134
$
21.85
$
18.40
$
18.43
$
12.66
$
23.68
$ 16.20
Increase in average net rent per sqft
$
$
2.19
$
2.37
$
(0.13)
$
1.04
$
2.20
Percentage increase in average net rent
per sqft
1.70
9.8%
418
360
11.1%
14.8%
212
104
(0.7)%
24
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
8.9%
10.3%
$
1.99
14.0%
MANAGEMENT’S DISCUSSION AND ANALYSIS
Including anchor tenants, the components of renewal activity for the U.S. portfolio for the three months ended March 31, 2015 by
property type are as follows:
(in thousands, except per sqft amounts)
New format
Grocery
Non-grocery
retail anchored centre anchored centre
Total
Renewals at market rental rates:
Square feet renewed
40
28
5
7
Average net rent per sqft
$
21.92
$
22.47
$
22.40
$
19.28
Increase in average net rent per sqft
$
1.55
$
1.92
$
0.99
$
0.45
Average net rent per sqft
$
19.20
$
23.39
$
18.68
$
—
Increase in average net rent per sqft
$
1.71
$
1.88
$
1.68
$
—
Average net rent per sqft
$
20.90
$
22.55
$
19.40
$
19.28
Increase in average net rent per sqft
$
1.61
$
1.92
$
1.55
$
Renewals at fixed rental rate options:
Square feet renewed
24
3
21
—
Total:
Square feet renewed
64
31
8.3%
Percentage increase in average net rent per sqft
26
9.3%
7
8.7%
0.45
2.4%
Tenant Vacancies
RioCan strives to diversify its tenant base by location, by property type, by anchor type and by minimizing the degree of reliance
on any single tenant. In the regular course of business, RioCan will, however, encounter tenants that are subject to restructuring,
insolvency or bankruptcy activities. In most cases, rental revenue continues to be paid to RioCan by, or on behalf of, the tenant.
RioCan actively monitors such situations and, in those cases where vacancies result, RioCan endeavours to replace tenants as
quickly as possible at economically similar or better lease terms. Such vacancies will, in certain instances, give rise to rights for
adjacent tenants in the shopping centre that is the subject of the vacancy. Such right is commonly referred to as a co-tenancy
right, allows co-tenants rights ranging from rent reductions to lease terminations.
2015 Vacancy Activity
(thousands of square feet)
For the three months ended March 31,
2015
2014
Total
RioCan’s
Interest
Total
RioCan’s
Interest
Total vacancies during the year (i)
536
461
394
314
Vacated space re-leased
116
111
64
47
(i)
Excluding lease cancellation fees.
During the three months ended March 31, 2015, RioCan experienced vacancies of approximately 536,000 square feet, of which
RioCan’s interest was 461,000 square feet. The average gross rent on RioCan’s ownership interest was $30.82 per square foot.
Approximately 116,000 square feet of space vacated in 2015 has been leased to new tenants, of which RioCan’s interest was
111,000 square feet, at an average gross rent of $31.18 per square foot.
During the three months ended March 31, 2015, tenant vacancies for which lease cancellation fees of $5.6 million were
recognized by RioCan totalled 143,000 square feet of vacated NLA (92,000 square feet at RioCan’s interest) at an average net
rent of $14.37 per square foot ($14.52 per square foot at RioCan’s interest). The lease cancellation fees include a $4.8 million net
termination fee received from one tenant comprising 99,000 square feet in RioCan's Whitby Thickson.
On January 15, 2015, Target Corporation (Target) announced plans to discontinue its Canadian operations through its indirect
wholly-owned subsidiary, Target Canada, and that it was utilizing the Companies’ Creditors Arrangement Act (Canada) (CCAA) to
wind down its operations. As at March 31, 2015, RioCan has 26 locations under lease with Target Canada representing
approximately 1.9% of RioCan’s total annualized rental revenue with an average remaining lease term of approximately 12.7
years. All but one of these leases are guaranteed through an indemnity arrangement with Target, generally for the remaining
term of each lease. The one lease that is not covered by the Target indemnity is guaranteed by Walmart Canada.
Target liquidated its store inventory and closed all of its Canadian locations effective April 12, 2015.
In April 2015, RioCan received notice from Target that they have disclaimed 15 leases in properties owned by RioCan as a result
of Target's CCAA proceedings. These 15 stores represent 1,342,931 square feet of GLA at an average lease rate of $6.42 per
square foot, aggregating to $8.6 million of annualized rental revenue (at RioCan's interest). Subsequent to receiving the
disclaimer notices, RioCan has commenced negotiations with potential retailers to backfill the vacant premises and mitigate
damages to be pursued from Target under the terms of the indemnity agreement. The 11 locations that have not been disclaimed
remain protected under the CCAA. These locations comprise 1,282,000 square feet (845,000 square feet at RioCan's interest) at
an average lease rate of $6.88 per square foot.
25
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
The disclaimed properties are as follows:
Site
RioCan %
ownership
City
Province
GLA (100%) GLA (RioCan %)
1 Charlottetown Mall
Charlottetown
Prince Edward Island
50%
107,806
53,903
2 County Fair Mall
Smiths Falls
Ontario
100%
92,989
92,989
3 Desserte Ouest
Laval
Quebec
50%
116,147
58,074
4 Five Points Mall
Oshawa
Ontario
100%
102,444
102,444
5 Flamborough Power Centre
Flamborough
Ontario
100%
116,493
116,493
6 Gates of Fergus
Fergus
Ontario
50%
95,978
47,989
7 Mill Woods Town Centre
Edmonton
Alberta
40%
122,804
49,539
8 Millcroft Shopping Centre
Burlington
Ontario
50%
115,566
57,783
9 Orillia Square Mall
Orillia
Ontario
100%
91,440
91,440
10 RioCan Durham Centre
Ajax
Ontario
100%
121,280
121,280
11 RioCan Niagara Falls
Niagara Falls
Ontario
100%
106,103
106,103
12 RioCan Scarborough Centre
Scarborough
Ontario
100%
116,241
116,241
13 Shopper's World Brampton
Brampton
Ontario
100%
121,490
121,490
14 Stratford Centre
Stratford
Ontario
100%
88,935
88,935
15 Trinity Common Brampton
Brampton
Ontario
100%
118,228
118,228
1,633,944
1,342,931
Total
On March 28, 2015, Best Buy Canada announced its consolidation of Future Shop and Best Buy stores under the Best Buy
format. As at March 31, 2015, RioCan had ten Future Shop locations under lease, of which five locations were converted to a
Best Buy. The Future Shop locations store closings represented approximately 87,000 square feet RioCan's total NLA with an
average remaining lease term of approximately 4.1 years.
In addition to Target and Best Buy, RioCan has experienced additional store closures during the first quarter of 2015 including
Co-mark Inc., (which includes banners such as Ricki's, Cleo's and Bootlegger) (Chapter 11 - 17 locations in RioCan’s Canadian
portfolio comprising 44,000 square feet) and Radio Shack (Chapter 11 - 7 locations in RioCan’s U.S. portfolio comprising 17,000
square feet).
While the Trust is confident that these locations will be assigned or re-leased to replacement tenants over time, RioCan's outlook
for the retail market remains cautious.
New Leasing
Canadian Portfolio
For the quarter ended March 31, 2015, approximately 613,000 square feet of space was leased at an average net rent of
$18.81 per square foot, compared to approximately 305,000 square feet of space that was leased at an average net rent of
$18.30 per square foot during the first quarter of 2014.
A summary of RioCan’s 2015 and 2014 new leasing on the existing Canadian portfolio by property type is as follows:
(in thousands, except per sqft amounts)
2015
2014
Square feet leased:
New format retail
387
113
Grocery anchored centre
92
84
Enclosed shopping centre
74
98
Non-grocery anchored centre
9
8
Urban retail
21
—
Office
30
2
Total
613
305
Average net rent per square foot:
20.05 $
23.54
Grocery anchored centre
11.25
13.55
Enclosed shopping centre
19.94
16.36
Non-grocery anchored centre
23.60
15.90
Urban retail
25.37
—
Office
17.24
20.00
18.81 $
18.30
New format retail
$
Total
$
26
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
U.S. Portfolio
For the quarter ended March 31, 2015, RioCan achieved approximately 47,000 square feet of new leasing in the U.S. at an
average rate of $21.83 per square foot. During the three months ended March 31, 2014, RioCan achieved approximately 19,000
square feet of new leasing in the U.S. at an average rate of $23.44 per square foot.
A summary of RioCan’s 2015 and 2014 new leasing on the existing U.S. portfolio by property type is as follows:
(in thousands, except per sqft amounts)
2015
2014
41
14
Square feet leased:
New format retail
Grocery anchored centre
Total
6
5
47
19
Average net rent per square foot (U.S. dollars):
New format retail
$
21.49
$
24.04
Grocery anchored centre
Total
$
24.78
19.74
21.83
$
23.44
Lease Expiries
RioCan’s lease expiries for the Canadian portfolio, at RioCan’s interest, by property type for the next five years are as follows:
Lease expiries for the years ending
(in thousands, except per sqft and
percentage amounts)
Square feet:
New format retail
Grocery anchored centre
Enclosed shopping centre
Non-grocery anchored centre
Urban retail
Office
Total
Square feet expiring/Portfolio NLA
Average net rent per occupied square foot:
New format retail
Grocery anchored centre
Enclosed shopping centre
Non-grocery anchored centre
Urban retail
Office
Total average net rent per square foot
(i)
(ii)
Portfolio
NLA (i)
2015 (ii)
18,996
8,442
6,629
2,134
1,812
1,831
39,844
16.99
14.56
16.54
14.68
22.32
20.86
16.63
2016
1,877
1,080
965
215
78
233
4,448
11.2%
1,234
598
597
145
64
145
2,782
7.0%
$
$
17.45
16.18
19.21
14.35
28.51
16.40
17.59
2017
$
$
17.64
16.38
18.60
15.66
25.83
15.76
17.50
2018
1,661
1,206
626
90
114
186
3,883
9.7%
$
$
19.98
15.36
19.30
21.41
38.16
14.73
18.75
2019
2,151
1,128
628
143
273
252
4,576
11.5%
$
$
19.02
15.77
16.79
19.43
17.63
15.33
17.64
2,507
1,267
615
147
276
219
5,032
12.6%
$
$
18.30
16.49
17.48
17.46
18.58
13.03
17.50
Represents RioCan’s proportionate ownership share.
Lease expiries for the remaining nine months of 2015.
RioCan’s lease expiries for the U.S. portfolio, at RioCan’s interest, by property type for the next five years are as follows:
Lease expiries for the years ending
(in thousands, except per sqft and
percentage amounts)
Square feet:
New format retail
Grocery anchored centre
Non-grocery anchored centre
Total
Square feet expiring/Portfolio NLA
Average net rent per occupied square foot
(US dollars):
New format retail
Grocery anchored centre
Non-grocery anchored centre
Total average net rent per square foot
(i)
Portfolio
NLA (i)
2015 (ii)
7,109
2,688
236
10,033
2016
464
136
21
620
6.2%
2017
229
266
4
500
5.0%
2018
501
198
18
717
7.1%
2019
1,235
248
42
1,525
15.2%
711
320
28
1,059
10.6%
14.11
14.39
7.04
$
19.37
19.69
22.18
$
21.52
12.46
25.80
$
18.03
17.28
10.08
$
17.50
15.20
17.80
$
15.28
15.00
10.54
14.02
$
19.53
$
16.73
$
17.62
$
16.81
$
15.10
Represents RioCan’s proportionate ownership share.
27
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
(ii)
Lease expiries for the remaining nine months of 2015.
The components of RioCan’s Canadian and U.S. lease expiries for the remaining nine months of 2015 by property type are as
follows:
(in thousands, except per sqft
amounts)
Total
New
format
retail
Grocery
anchored
centre
Nongrocery
anchored
centre
Enclosed
shopping
centre
Urban
retail
Office
2015 expiries at market rental
rates:
Square feet expiring
2,477
1,040
$
19.20 $
19.36 $
925
657
77
Average in-place net rent per sqft $
14.58 $
15.77 $
17.61 $
9.29 $
8.28 $
— $
11.31
Average renewal net rent per sqft $
15.73 $
16.87 $
18.90 $
10.56 $
9.81 $
— $
11.68
1.15 $
1.10 $
1.29 $
1.28 $
1.53 $
— $
0.37
Average net rent per sqft
656
450
132
64
16.74 $
22.45 $
17.12 $
28.51 $
34
—
136
16.75
2015 expiries with fixed rental
rate options:
Square feet expiring
Increase in average net rent per
sqft
$
147
9
Total:
Square feet expiring
Average net rent per sqft
$
3,402
1,698
17.94 $
17.97 $
734
597
165
64
16.83 $
19.21 $
15.33 $
28.51 $
145
16.40
Contractual Rent Increases
Certain of RioCan’s leases allow for periodic increases in rates during the term of the leases which contributed to growth in same
store NOI. Contractual rent increases, including rent increases at time of renewal, in each year for the next five years are as
follows:
(in thousands)
For the years ending
2015 (i)
Canadian Portfolio
$
U.S. Portfolio
Net increase in contractual rent receipts
(i)
$
2016
6,463 $
6,283 $
1,136
1,093
7,599 $
7,376 $
2017
5,528 $
963
6,491 $
2018
6,039 $
1,051
7,090 $
2019
5,643
926
6,569
Increase for the remaining nine months of 2015.
RESULTS OF OPERATIONS
The following table shows the Trust’s ownership interests in certain associates and joint arrangements for the periods presented:
RioKim Montgomery JV LP (Texas)
80%
80%
Dawson Yonge LP (Canada)
40%
40%
March 31, 2014
80%
40%
Whitecastle New Urban Fund LP (WNUF)
14%
14%
14%
Whitecastle New Urban Fund 2, LP (WNUF2)
19%
19%
19%
Partnership
March 31, 2015
December 31, 2014
RioKim Montgomery JV LP (Texas)
This is an 80/20 joint venture between RioCan and Kimco managed by Kimco and is accounted for under the equity method of
accounting. On March 27, 2015, RioCan announced that Kimco Realty Corp. will be purchasing RioCan's 80% interest in RioKim
Montgomery JV LP (Texas) for total cash consideration of $44 million (US$35 million), subject to working capital and other closing
adjustments. The transaction is expected to close during the three months ended June 30, 2015 and RioCan's investment in this
joint venture has been reclassified as an asset held for sale in the consolidated balance sheet as at March 31, 2015.
Dawson Yonge LP (Canada)
This is a partnership between RioCan (40%), Marketvest Corporation (40%) and Dale-Vest Corporation (20%).
WNUF & WNUF 2
RioCan uses the equity method of accounting to account for its ownership interests of approximately 14% and 19% in WNUF and
WNUF 2, respectively.
Reconciliation of Net Earnings to Net Earnings at RioCan's Interest
The following tables provide a reconciliation from RioCan’s IFRS financial statements to RioCan’s financial statements utilizing its
proportionate interest in all of its portfolio investments.
28
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Adjustments
(thousands of dollars)
Consolidated
(i)
Three months ended March 31, 2015
NonControlling
Interests
(ii)
RioCan’s
Interest in
Equity
Accounted
Investments
and Joint
Ventures (iii)
RioCan’s
Interest
(iv)
REVENUE:
Base rent
$
209,455 $
— $
1,659 $
211,114
1,237
—
5
1,242
107,505
—
577
108,082
318,197
—
2,241
320,438
5,624
—
—
5,624
323,821
—
2,241
326,062
139,244
—
2,085
141,329
6,537
—
86
6,623
145,781
—
2,171
147,952
178,040
—
70
178,110
Share of net earnings in equity accounted joint ventures
2,011
—
(2,011)
Fees and other
5,923
—
1,109
7,032
Interest
1,226
—
—
1,226
187,200
—
(832)
186,368
Interest
59,015
—
342
59,357
General and administrative
14,310
—
6
14,316
Expense for early retirement of debentures
9,929
—
—
9,929
Leasing costs
2,955
—
—
2,955
Transaction costs
2,802
—
—
2,802
Demolition costs
487
—
—
487
Foreign exchange loss
131
—
—
131
4
—
—
4
97,567
—
Percentage rent
Property taxes and operating cost recoveries
Lease cancellation fees
Rental revenue
PROPERTY OPERATING COSTS:
Recoverable under tenant leases
Non-recoverable from tenants
Other income
—
Other expenses
Aborted deal costs
Earnings before fair value gains on investment property,
net
(1,180)
(8,023)
(485)
$
89,544 $
(485) $
— $
89,059
$
89,059 $
— $
— $
89,059
$
89,544 $
Net earnings per Unit attributable to common
Unitholders – basic
$
0.27
Net earnings per Unit attributable to common
Unitholders – diluted
$
0.27
Fair value gains (losses) on investment property, net
Net earnings
1,180
96,387
(7,328)
Net earnings attributable to:
Common and preferred unitholders
Non-controlling interests
485
Weighted average number of common Units outstanding
– basic (in thousands)
316,911
Weighted average number of common Units outstanding
– diluted (in thousands)
317,805
(i)
(ii)
(iii)
(iv)
(485)
—
(485) $
— $
—
89,059
Represents RioCan’s consolidated statement of earnings prepared in accordance with IFRS.
Represents the non-controlling interests’ proportionate share of the revenues and expenses for those associates and joint ventures that have
been consolidated.
Represents RioCan’s proportionate share of the revenues and expenses of all of its portfolio investments. Effectively, this utilizes the accounting
joint venture methodology (proportionate consolidation) in place prior to the implementation of IFRS 11 which requires equity accounting for joint
ventures.
Represents RioCan’s proportionate share of the revenues and expenses of all of its portfolio investments. Effectively, this utilizes the accounting
joint venture methodology (proportionate consolidation) in place prior to the implementation of IFRS 11 which requires equity accounting for joint
ventures.
29
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Adjustments
(thousands of dollars)
Consolidated
(i)
Three months ended March 31, 2014
NonControlling
Interests
(ii)
RioCan’s
Interest in
Equity
Accounted
Investments
and Joint
Ventures (iii)
RioCan’s
Interest
(iv)
REVENUE:
Base rent
$
195,554 $
1,041
Percentage rent
Property taxes and operating cost recoveries
Rental revenue
1,451 $
196,951
4
1,045
100,931
(37)
589
101,483
297,526
(91)
2,044
299,479
—
2,632
2,632
Lease cancellation fees
(54) $
—
—
300,158
(91)
2,044
302,111
125,508
(41)
1,944
127,411
4,895
(2)
25
4,918
130,403
(43)
1,969
132,329
169,755
(48)
75
169,782
PROPERTY OPERATING COSTS:
Recoverable under tenant leases
Non-recoverable from tenants
Other income
Share of net earnings in equity accounted joint ventures
3,131
—
Fees and other
3,650
—
—
Interest
3,595
—
—
(3,131)
—
3,650
3,595
180,131
(48)
Interest
59,134
—
326
59,460
General and administrative
11,506
—
16
11,522
Leasing costs
2,228
—
—
2,228
Transaction costs
1,360
—
—
1,360
543
—
—
543
24
—
—
24
2
—
—
2
(3,056)
177,027
Other expenses
Demolition costs
Foreign exchange loss
Aborted deal costs
Earnings before fair value gains on investment property,
net and income taxes
Fair value gain on investment property, net
Deferred income tax expense
105,334
(48)
(3,398)
101,888
67,058
(659)
3,398
69,797
800
Net earnings
$
171,592 $
$
170,885 $
—
—
800
(707) $
— $
170,885
— $
— $
170,885
Net earnings attributable to:
Common and preferred unitholders
Non-controlling interests
707
$
171,592 $
Net earnings per unit attributable to common
unitholders – basic
$
0.55
Net earnings per unit attributable to common
unitholders – diluted
$
0.55
Weighted average number of common units outstanding
– basic (in thousands)
304,887
Weighted average number of common units outstanding
– diluted (in thousands)
305,695
(i)
(ii)
(iii)
(iv)
(707)
—
(707) $
— $
—
170,885
Represents RioCan’s consolidated statement of earnings prepared in accordance with IFRS.
Represents the non-controlling interests’ proportionate share of the revenues and expenses for those associates and joint ventures that have
been consolidated.
Represents RioCan’s proportionate share of the revenues and expenses of all of its portfolio investments. Effectively, this utilizes the accounting
joint venture methodology (proportionate consolidation) in place prior to the implementation of IFRS 11 which requires equity accounting for joint
ventures.
Represents RioCan’s proportionate share of the revenues and expenses of all of its portfolio investments. Effectively, this utilizes the accounting
joint venture methodology (proportionate consolidation) in place prior to the implementation of IFRS 11 which requires equity accounting for joint
ventures.
30
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Reconciliation of Balance Sheet to Balance Sheet at RioCan's Interest
The following tables provide a reconciliation from RioCan’s IFRS financial statements to RioCan’s financial statements utilizing its
proportionate interest in all of its portfolio investments.
Adjustments
(thousands of dollars)
Consolidated
(i)
As at March 31, 2015
Noncontrolling
interests
(ii)
RioCan’s
Interest in Equity
Accounted
Investments and
Joint Ventures
(iii)
RioCan’s
Interest (iv)
ASSETS
Investment properties
$
Investments in associates and joint ventures
Mortgages and loans receivable
13,930,139 $
8,120 $
(15,106)
13,938,259
15,106
—
126,255
—
9,059
—
—
9,059
53,027
—
20,408
73,435
Deferred tax assets
Residential development inventory
— $
—
—
126,255
Assets held for sale
436,750
28,131
464,881
Receivables and other assets
452,356
—
2,753
455,109
59,878
—
1,650
Cash and equivalents
Total assets
61,528
45,956 $
15,128,526
— $
1,814,019
$
15,082,570 $
— $
$
1,814,019 $
— $
4,730,621
—
184,236
142,286
—
(142,286)
375,039
783
LIABILITIES
Debentures payable
Mortgages payable and lines of credit
Mortgages on properties held for sale (v)
Accounts payable and accrued liabilities
Total liabilities
4,006
4,914,857
—
379,828
$
7,061,965 $
783 $
45,956 $
7,108,704
$
265,451 $
— $
— $
265,451
EQUITY
Preferred unitholders’ equity
Common unitholders’ equity
7,754,371
—
—
7,754,371
Total unitholders’ equity
8,019,822
—
—
8,019,822
Non-controlling interests
783
(783)
—
—
8,020,605
(783)
—
8,019,822
Total equity
Total liabilities and equity
(i)
(ii)
(iii)
(iv)
(v)
$
15,082,570 $
— $
45,956 $
15,128,526
Represents RioCan’s consolidated balance sheet prepared in accordance with IFRS.
Represents the non-controlling interests' proportionate share of the assets and liabilities for those subsidiaries that have been consolidated.
Represents RioCan’s proportionate ownership interest in assets and liabilities of all of its portfolio investments. Effectively, this utilizes the
accounting joint venture methodology (proportionate consolidation) in place prior to the implementation of IFRS 11 which requires equity
accounting for joint ventures.
Represents RioCan’s consolidated balance sheet prepared in accordance with IFRS inclusive of its proportionate share of the assets and liabilities
of its associates and joint ventures that are accounted for using the equity method of accounting.
Represents a reclassification of mortgages on properties held for sale to mortgages payable and lines of credit, which is consistent with
management's view on total debt.
31
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Adjustments
(thousands of dollars)
Consolidated
(i)
As at December 31, 2014
Noncontrolling
interests
(ii)
RioCan’s
Interest in
Equity
Accounted
Investments
and Joint
Ventures (iii)
RioCan’s
Interest (iv)
ASSETS
Investment property
$
13,770,763 $
Investments in associates and joint ventures
Mortgages and loans receivable
Deferred tax assets
Residential development inventory
Assets held for sale
Receivables and other assets
Cash and equivalents
Total assets
— $
80,869 $
(63,016)
13,851,632
63,016
—
136,190
—
—
136,190
—
9,059
—
—
9,059
188,933
—
—
188,933
80,350
—
19,661
100,011
373,093
—
2,530
375,623
56,273
—
3,333
59,606
43,377 $
14,721,054
— $
1,856,501
$
14,677,677 $
— $
$
1,856,501 $
— $
4,566,096
—
60,114
(20,968)
LIABILITIES
Debentures payable
Mortgages payable and lines of credit
Mortgages on properties held for sale (v)
20,968
—
Accounts payable and accrued liabilities
365,244
298
Total liabilities
$
4,231
4,626,210
—
369,773
6,808,809 $
298 $
43,377 $
6,852,484
265,451 $
— $
— $
—
—
7,603,119
—
—
7,868,570
—
—
EQUITY
Preferred unitholders’ equity
$
Common unitholder’ equity
7,603,119
Total unitholders’ equity
7,868,570
Non-controlling interests
298
(298)
7,868,868
(298)
Total equity
Total liabilities and equity
(i)
(ii)
(iii)
(iv)
(v)
$
14,677,677 $
— $
—
43,377 $
265,451
7,868,570
14,721,054
Represents RioCan’s consolidated balance sheet prepared in accordance with IFRS.
Represents the non-controlling interests' proportionate share of the assets and liabilities for those subsidiaries that have been consolidated.
Represents RioCan’s proportionate ownership interest in assets and liabilities of all of its portfolio investments. Effectively, this utilizes the
accounting joint venture methodology (proportionate consolidation) in place prior to the implementation of IFRS 11 which requires equity
accounting for joint ventures.
Represents RioCan’s consolidated balance sheet prepared in accordance with IFRS inclusive of its proportionate share of the assets and liabilities
of its associates and joint ventures that are accounted for using the equity method of accounting.
Represents a reclassification of mortgages on properties held for sale to mortgages payable and lines of credit, which is consistent with
management's view on total debt.
32
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Adjustments
(thousands of dollars)
Consolidated
(i)
As at March 31, 2014
Noncontrolling
interests
(ii)
RioCan’s
Interest in
Equity
Accounted
Investments
and Joint
Ventures (iii)
RioCan’s
Interest
(iv)
ASSETS
Investment properties
$
13,282,748 $
Investments in equity accounted joint ventures
— $
74,675 $
(41,012)
13,357,423
41,012
—
160,456
—
—
160,456
7,809
—
—
7,809
Residential development inventory
57,078
—
—
57,078
Assets held for sale
24,541
—
—
24,541
173,574
—
—
173,574
37,464
—
1,954
39,418
Mortgages and loans receivable
Deferred tax assets
Receivables and other assets
Cash and equivalents
Total assets
$
13,784,682 $
— $
$
1,600,738 $
— $
4,492,940
—
306,127
139
—
35,617 $
13,820,299
— $
1,600,738
LIABILITIES
Debentures payable
Mortgages payable and lines of credit
Accounts payable and accrued liabilities
Total liabilities
30,055
5,562
4,522,995
311,828
$
6,399,805 $
139 $
35,617 $
6,435,561
$
265,451 $
— $
— $
265,451
EQUITY
Preferred unitholders’ equity
Common unitholders’ equity
7,119,287
—
—
7,119,287
Total unitholders’ equity
7,384,738
—
—
7,384,738
Non-controlling interests
139
(139)
—
—
7,384,877
(139)
—
7,384,738
Total equity
Total liabilities and equity
(i)
(ii)
(iii)
(iv)
$
13,784,682 $
— $
35,617 $
13,820,299
Represents RioCan’s consolidated balance sheet prepared in accordance with IFRS.
Represents the non-controlling interests' proportionate share of the assets and liabilities for those subsidiaries that have been consolidated.
Represents RioCan’s proportionate ownership interest in assets and liabilities of all of its portfolio investments. Effectively, this utilizes the
accounting joint venture methodology (proportionate consolidation) in place prior to the implementation of IFRS 11 which requires equity
accounting for joint ventures.
Represents RioCan’s consolidated balance sheet prepared in accordance with IFRS inclusive of its proportionate share of the assets and liabilities
of its associates and joint ventures that are accounted for using the equity method of accounting.
33
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Results of Operations – RioCan’s Interest (i)
The components of RioCan’s interest in net earnings attributable to common and preferred unitholders are as follows:
(thousands of dollars)
Three months ended March 31,
Three months ended March 31,
2015
Rental revenue
2014
$ 326,062 $ 302,111
Property operating costs
Fees and other income
147,952
132,329
178,110
169,782
7,032
3,650
1,226
3,595
186,368
177,027
Interest expense
59,357
59,460
General and administrative
14,316
11,522
Interest income
Expense for early retirement of debentures
9,929
—
Leasing costs
2,955
2,228
Transaction costs
2,802
1,360
Demolition costs
487
543
Foreign exchange loss
131
24
Aborted deal costs
4
2
Earnings before fair value gains on investment property, net and income taxes
96,387
101,888
Fair value gains (losses) on investment property, net
(7,328)
69,797
Deferred income tax expense
—
Net earnings – RioCan’s interest (i)
(i)
Increase
(decrease)
$
See section “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
34
5.3 %
(5.4)%
800
89,059 $ 170,885
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
4.9 %
(47.9)%
MANAGEMENT’S DISCUSSION AND ANALYSIS
Operating Funds from Operations (OFFO) & Adjusted Funds From Operations (AFFO)
The following tables provide an analysis of RioCan’s interest in Operating FFO, AFFO, and FFO for the three months ended
March 31, 2015 and 2014.
Three months ended March 31,
2015
RioCan’s
interest in
operating
FFO
(thousands of dollars, except per
Unit amounts and other data)
Rental revenue
$ 326,062
2014
Development/
Transaction redevelopment
gains (iv)
activities (ii)
$
— $
RioCan’s
interest in
operating
FFO
RioCan’s
interest in
FFO
— $ 326,062 $ 302,111
RioCan’s
interest in
FFO
Operating
FFO
Increase
(Decrease)
— $ 302,111
7.9%
Development/
Transaction redevelopment
gains (iv)
activities (ii)
$
— $
Property Operating Costs:
141,057
—
272
141,329
127,231
—
180
127,411
10.9%
Non-recoverable from tenants
6,623
—
—
6,623
4,918
—
—
4,918
34.7%
Accrued property taxes under
IFRIC 21 (v)
(28,121)
—
—
(28,121)
(22,511)
—
—
(22,511)
24.9%
206,231
192,473
—
192,293
7.3%
8,258
7,055
190
7,245
1.3%
214,489
199,528
190
199,538
7.1%
Recoverable under tenant leases
Net Operating Income
206,503
—
7,144
1,114
213,647
1,114
Interest expense
57,890
—
1,467
59,357
57,725
—
1,735
59,460
0.3%
General and administrative
14,316
—
—
14,316
11,522
—
—
11,522
24.2%
—%
Other revenue
Demolition costs
Preferred unit distributions
Aborted deal costs
Expense for early retirement of
debentures
Operating FFO
—
(272)
—
(180)
—
—
487
487
—
—
543
543
—
—
3,397
3,397
—
—
3,397
—%
4
—
—
4
2
—
—
2
100.0%
—
9,929
—
9,929
—
—
—
—
100.0%
75,607
9,929
1,954
87,490
72,646
—
2,278
74,924
4.1%
$ 126,882
$ 138,040
$
(8,815) $
(2,226)
8.8%
$
190 $
$ 126,999
FFO (i)
$
(180)
3,397
Other activities
Operating FFO per Unit
(272)
0.44
(2,458)
$ 124,614
$
0.42
0.40
4.8%
FFO per Unit
$
$
FFO, excluding expenses for early
retirement of debentures
$ 136,928
$ 124,614
FFO per Unit, excluding expenses
for early retirement of debentures
$
$
0.43
0.41
0.41
Adjustments to bring Operating FFO to AFFO (iii):
Add back/(deduct):
(3,528)
(1,074)
1,482
1,416
Leasing commissions and
tenant improvements
(6,250)
(6,250)
Capital expenditures
recoverable from tenants
(3,750)
(3,750)
Capital expenditures not
recoverable from tenants
(2,500)
(2,500)
Deduction of rents recorded on a
straight-line basis
Non-cash unit based
compensation expense
Normalized capital expenditures:
AFFO
$ 123,494
$ 114,724
7.6%
AFFO per Unit
$
$
2.6%
Weighted average number of
common Units outstanding (in
thousands)
0.39
316,911
0.38
304,887
Distribution Coverage Ratios:
Cash distributions per Unit
$
0.3525
$
0.3525
Distributions paid as a percentage
of Operating FFO
80.1%
83.9%
Distributions as a percentage of
AFFO
90.4%
92.8%
Distributions paid net of DRIP, per
Unit
Distributions net of DRIP as a
percentage of AFFO
$
0.24
$
61.5%
0.26
68.4%
(i) FFO is generally the same as IFRS net earnings other than excluding changes in the fair values of investment properties, deferred income taxes,
acquisition transaction costs and deducting preferred unit distributions.
(ii) To calculate OFFO, the Trust adjusts for certain costs not capitalized during the development period for accounting purposes that, in management’s
view, forms part of the cost of its development projects.
35
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
(iii) AFFO is calculated by adjusting Operating FFO for straight-line rent adjustments, non-cash compensation expenses, costs for capital expenditures
and leasing costs for maintaining shopping centre infrastructure and current lease revenues. In addition, non-recurring costs that impact operating
cash flow may be adjusted. FFO amounts related to transactions gains and losses and development/redevelopment are also excluded from AFFO.
(iv) Transaction gains, if any, are presented net of tax, where applicable.
(v) As a result of the requirements of IFRIC 21 wherein the obligating event that gives rise to the property tax liability (where such property taxes meet
the definition of a levy in IFRIC 21) does not occur over a period of time, an adjustment should be made to FFO to reflect a pro-rata expense over the
period of ownership and the actual timing of these cost recoveries from tenants.
A reconciliation of IFRS net earnings attributable to unitholders to FFO and Operating FFO, at RioCan's interest, is as follows:
Three months ended
March 31,
2015
2014
(thousands of dollars, except per Unit amounts)
Three months ended March 31,
Net earnings attributable to unitholders
$
89,059 $ 170,885
Increase
(decrease)
(47.9%)
Add back/(Deduct):
8,023
Fair value (gains) losses, net
Non-controlling interest relating to fair value gains
485
Fair value gains included in equity accounted investments and joint ventures
(1,180)
Deferred income tax expense
(67,058)
659
(3,398)
(112.0%)
(26.4%)
(65.3%)
—
800
28,121
22,511
Leasing costs
2,955
2,228
32.6%
Transaction costs
2,802
1,360
106.0%
(3,397)
(3,397)
Accrued property taxes under IFRIC 21 (i)
Preferred unit distributions
Foreign exchange loss
131
FFO
(100.0%)
24.9%
—%
24
445.8%
$ 126,999 $ 124,614
1.9%
Add back/(Deduct):
Costs not capitalized during the development period:
Property recoverable operating costs under tenant leases
272
180
Interest expense
1,467
1,735
(15.4%)
Demolition costs
487
543
(10.3%)
(190)
486.3%
Other revenue - transaction gains
(1,114)
Other expenses - transaction losses
Operating FFO
(i)
51.1%
9,929
—
100.0%
138,040
126,882
8.8%
As a result of the requirements of IFRIC 21 wherein the obligating event that gives rise to the property tax liability (where such property taxes meet
the definition of a levy in IFRIC 21) does not occur over a period of time, an adjustment should be made to FFO to reflect a pro-rata expense over
the period of ownership and the actual timing of these cost recoveries from tenants.
Net Operating Income
NOI is a non-GAAP measure and is defined by RioCan as rental revenue from income properties less property operating costs.
RioCan’s method of calculating NOI may differ from other issuers’ methods and, accordingly, may not be comparable to NOI
reported by other issuers.
Rental revenue includes all amounts earned from tenants related to lease agreements, including property tax and operating cost
recoveries, to the extent recoverable under tenant leases. Amounts payable by tenants to terminate their lease prior to the
contractual expiry date (lease cancellation fees) are included in rental revenue.
36
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
NOI at RioCan’s interest for the three months ended March 31, 2015 and 2014 is as follows:
(thousands of dollars)
Three months ended
March 31,
2015
2014
Three months ended March 31,
Base rent
Increase
(decrease)
$ 211,114
$ 196,951
7.2%
1,242
1,045
18.9%
108,082
101,483
6.5%
320,438
299,479
7.0%
113.7%
Percentage rent
Property taxes and operating cost recoveries
5,624
2,632
Rental revenue
326,062
302,111
7.9%
Recoverable under tenant leases
141,329
127,411
10.9%
Accrued property taxes under IFRIC 21 (ii)
(28,121)
(22,511)
24.9%
Lease cancellation fees
6,623
4,918
34.7%
119,831
109,818
9.1%
$ 206,231
$ 192,293
7.2%
64.4%
64.2%
0.2%
Non-recoverable from tenant
Property operating costs
NOI – RioCan’s interest (i)
NOI as a percentage of rental revenue (excluding the impact of lease cancellation fees)
(i)
(ii)
See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
As a result of the requirements of IFRIC 21 wherein the obligating event that gives rise to the property tax liability (where such property taxes meet
the definition of a levy in IFRIC 21) does not occur over a period of time, an adjustment should be made to NOI to reflect a pro-rata expense over
the period of ownership and the actual timing of these cost recoveries from tenants.
The amount of property taxes and operating costs that can be recovered from tenants is impacted by property vacancy and fixed
cost recovery tenancies.
RioCan’s interest in NOI on a portfolio basis is as follows:
2015
(thousands of dollars)
For the three months ended March 31,
Canadian
Portfolio
U.S.
Portfolio
2014
RioCan’s
Interest
Canadian
Portfolio
U.S.
Portfolio
RioCan’s
Interest
REVENUE:
Base rent
$ 168,170 $
Percentage rent
Property taxes and operating cost recoveries
Lease cancellation fees
Rental revenue
42,944 $
211,114 $ 159,980 $ 36,971 $
196,951
1,110
132
1,242
859
186
1,045
91,730
16,352
108,082
88,620
12,863
101,483
261,010
59,428
320,438
249,459
50,020
299,479
5,541
83
5,624
2,685
266,551
59,511
326,062
252,144
91,515
(53)
2,632
49,967
302,111
35,896
127,411
(22,511)
(22,511)
PROPERTY OPERATING COSTS:
Recoverable under tenant leases
Accrued property taxes under IFRIC 21 (ii)
Non-recoverable from tenants
Property operating costs
NOI – RioCan’s interest (i)
(i)
(ii)
96,346
44,983
141,329
(28,121)
(28,121)
4,999
1,624
6,623
3,569
1,349
4,918
101,345
18,486
119,831
95,084
14,734
109,818
41,025 $
206,231 $ 157,060 $ 35,233 $
—
$ 165,206 $
—
192,293
See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
As a result of the requirements of IFRIC 21 wherein the obligating event that gives rise to the property tax liability (where such property taxes meet
the definition of a levy in IFRIC 21) does not occur over a period of time, an adjustment should be made to NOI to reflect a pro-rata expense over
the period of ownership and the actual timing of these cost recoveries from tenants
37
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Canadian Portfolio
RioCan’s interest in NOI on a proportionate basis of its Canadian portfolio for the quarter ended March 31, 2015 and 2014 is as
follows:
(thousands of dollars)
Year ended
March 31,
2015
Three months ended March 31,
Base rent
Percentage rent
Property taxes and operating cost recoveries
Lease cancellation fees
Rental revenue
Recoverable under tenant leases
Non-recoverable from tenants
Property operating costs
NOI – RioCan’s interest (i)
NOI as a percentage of rental revenue (excluding the impact of lease cancellation fees)
2014
Increase
(decrease)
$ 168,170
$ 159,980
5.1%
1,110
859
29.2%
91,730
88,620
3.5%
261,010
249,459
4.6%
5,541
2,685
106.4%
266,551
252,144
5.7%
96,346
91,515
5.3%
4,999
3,569
40.1%
101,345
95,084
6.6%
$ 165,206
$ 157,060
5.2%
63.3%
63.0%
0.3%
“nm” – not meaningful.
(i)
See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
Same store and same property NOI on a proportionate basis for the quarter ended March 31, 2015 and 2014 for RioCan’s
Canadian portfolio are as follows:
(thousands of dollars)
Year ended
March 31,
2015
Three months ended March 31,
2014
Increase
(decrease)
Same Store:
Number of properties
260
260
Committed occupancy
96.7%
96.8%
(0.1%)
Economic occupancy
95.6%
95.6%
0.0%
$ 146,635
$ 146,779
2,158
1,851
16.6%
148,793
148,630
0.1%
Net Operating Income:
Same store (i)
Redevelopment and intensification (vii)
Same properties (ii)
(0.1%)
Acquisitions - IPP (iv)
2,839
—
Dispositions - IPP (v)
—
2,361
(100.0%)
nm
4,775
2,022
136.2%
156,407
153,013
2.2%
Lease cancellation fees, net
4,929
2,684
83.6%
Straight line rent adjustment
3,003
731
310.8%
Greenfield development (vi)
NOI before adjustments
(339)
(100.0%)
867
971
(10.7%)
$ 165,206
$ 157,060
Straight line lease write offs related to lease cancellations
—
NOI from properties under development (viii)
NOI - RioCan’s interest (iii)
5.2%
“nm” – not meaningful.
(i)
See Same Store definition in "Presentation of Financial Information and Non-GAAP Measures" section.
(ii) See Same Property definition in "Presentation of Financial Information and Non-GAAP Measures" section.
(iii) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
(iv) Acquisitions – Includes NOI on a pro-rated basis for Income Producing Properties (IPP) acquired within the periods being compared.
(v) Dispositions – Includes NOI on a pro-rated basis for IPP disposed of in the periods being compared.
(vi) Greenfield Development – Includes NOI from Greenfield properties as each individual unit is 100% income producing for two comparable periods.
(vii) Redevelopment and Intensification – Includes NOI from IPP or specific units within a property being re-positioned or expanded.
(viii) NOI from properties under development – Includes NOI from properties acquired for re-development purposes.
The change in same store NOI is the result of contractual rent increases, lease renewals and net absorption of existing space in
the portfolio, which is a product of vacancies and the resultant new leasing.
For the three months ended March 31, 2015, same store NOI decreased (0.1)% and same property NOI increased 0.1%, when
compared to the same period in 2014, primarily due to the following:
•
increased NOI as a result of new leasing of approximately $3.2 million;
•
increased NOI as a result of renewals and rent steps of approximately $2.3 million;
38
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
increased NOI as a result of re-leasing of space vacated due to bankruptcies and lease cancellations of $0.5 million; partially
offset by:
•
reduced NOI due to vacancy caused by normal course turnover of $4.5 million; and
•
reduced NOI of $1.2 million from lease cancellations and bankruptcies that have occurred in the last 12 months.
For the quarter ended March 31, 2015, the straight line rent adjustment increased primarily due to a number of new developments
taking possession during Q3 2014 including Stockyards, Tanger Ottawa, Tanger Cookstown, Collingwood, Mississauga Plaza,
Kennedy Commons and Niagara Falls Plaza, along with approximately $1 million due to timing that is not expected to reoccur.
For the three months ended March 31, 2015, lease cancellation fees mainly include $4.8 million from a tenant at RioCan's Whitby
Thickson. For the three months ended March 31, 2014, lease cancellation fees related primarily to Big Lots on seven locations.
For the full year 2015, RioCan expects same store NOI growth to be relatively flat, excluding the potential impact of Target.
Same store and same property NOI on a proportionate basis for the Canadian portfolio on a consecutive quarter-over-quarter
basis is as follows:
(thousands of dollars)
Three months ended
March 31, 2015
December 31, 2014
Increase
(decrease)
Same Store:
Number of properties
260
260
Committed occupancy
96.7%
96.9%
(0.2%)
Economic occupancy
95.6%
95.7%
(0.1%)
153,080
(1.9%)
Same store (i)
$
150,100
2,823
2,774
152,923
155,854
Redevelopment and intensification (vi)
Same properties (ii)
$
1.8%
(1.9%)
Acquisitions - IPP (iv)
1,301
—
Dispositions - IPP (v)
—
2,115
(100.0%)
40.1%
nm
2,183
1,558
156,407
159,527
Lease cancellation fees, net
4,929
187
2,535.8%
Straight line rent adjustment
3,003
2,684
11.9%
1,491
(41.9%)
Greenfield development (v)
NOI before adjustments
NOI from properties under development (vii)
867
NOI - RioCan’s interest (iii)
$
165,206
$
(2.0%)
163,889
0.8%
“nm” - not meaningful.
(i)
See Same Store definition in “Presentation of Financial Information and Non-GAAP Measures” section.
(ii) See Same Property definition in “Presentation of Financial Information and Non-GAAP Measures” section.
(iii) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
(iv) Acquisitions - Includes NOI on a pro-rated basis for IPP acquired within the periods being compared.
(v) Greenfield Development - Includes NOI from Greenfield properties as each individual unit is 100% income producing for two comparable periods.
(vi) Redevelopment and Intensification - Includes NOI from IPP or specific Units within a property being re-positioned or expanded.
(vii) NOI from properties under development - Includes NOI from properties acquired for re-development purposes.
Same store and same property NOI decreased sequentially by 1.9% and 1.9%, respectively, during the first quarter of 2015 as
compared to the fourth quarter of 2014, primarily due to the following:
•
increased NOI as a result of new leasing of approximately $0.8 million;
•
increased NOI as a result of renewals and rent steps of $0.7 million;
•
increased NOI as a result of re-leasing of space vacated due to bankruptcies and lease cancellations of $0.1 million; partially
offset by:
•
reduced NOI due to vacancy caused by normal course turnover of $1.3 million;
•
adjustments to prior year recoveries and tenant related recoverable expenses of $1.1 million;
•
a decrease in seasonal revenue and percentage rent of $1.0 million;
•
reduced NOI of $0.6 million from lease cancellations and bankruptcies that have occurred in the last three months;
•
reduced NOI for bad debts and disputed recoveries $0.2 million; and
•
a decrease in NOI of $0.2 million due to an increase in non-recoverable utilities during the winter season.
For the three months ended March 31, 2015, lease cancellation fees include $4.8 million from a tenant at RioCan's Whitby
Thickson.
39
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
U.S. Portfolio
RioCan’s interest in NOI on a proportionate basis of its U.S. portfolio for the quarter ended March 31, 2015 and 2014 is as follows:
(thousands of dollars)
Year ended
March 31,
2015
Three months ended March 31,
Base rent
$
42,944
Percentage rent
Property taxes and operating cost recoveries
$
2014
36,971
Increase
(decrease)
16.2%
132
186
16,352
12,863
27.1%
59,428
50,020
18.8%
Lease cancellation fees
(53)
83
(29.0%)
(256.6%)
Rental revenue
59,511
49,967
19.1%
Recoverable from tenant leases
44,983
35,896
25.3%
1,624
1,349
20.4%
(28,121)
(22,511)
24.9%
18,486
14,734
25.5%
35,233
16.4%
70.4%
(1.4%)
Non-recoverable from tenants
Accrued property taxes under IFRIC 21 (ii)
Property operating costs
NOI – RioCan’s interest (i)
$
$
69.0%
NOI as a percentage of rental revenue
(i)
(ii)
41,025
See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
Effective January 1, 2014, the Trust changed its accounting policies for treatment of certain property taxes pursuant to IFRIC 21. Where applicable,
prior period financial information has been restated for comparative reporting purposes. Please see "2014 Changes in Accounting Policy" for further
details.
Same store and same property NOI on a proportionate basis for the quarter ended March 31, 2015 and 2014 for RioCan’s U.S.
portfolio are as follows (at RioCan’s interest):
(thousands of dollars)
Three months ended March 31,
2014
Increase
(decrease)
33,126 $
32,551
1.8%
13,083
11,915
9.8%
449
323
39.0%
Rental revenue – US$
46,658
44,789
4.2%
Property operating costs – US$
14,702
13,430
9.5%
Same store (i) - US$
31,956
31,359
—
100
Three months ended March 31,
2015
Base rent – US$
$
Property tax and operating cost recoveries – US$
Other – US$
Re-development
Same properties (ii) - US$
31,956
31,459
Acquisitions - IPP (iv)
568
—
Dispositions - IPP (v)
—
NOI before adjustments
32,524
(1)
31,458
1.9%
(100.0%)
1.6%
nm
(100.0%)
3.4%
Lease cancellation fee
69
(48)
(243.8%)
Straight-lining of rents
362
638
(43.3%)
32,955
32,048
2.8%
8,070
3,185
153.4%
35,233
16.4%
NOI - US$
Foreign currency translation adjustment
NOI – RioCan’s interest (iii)
$
41,025 $
“nm” – not meaningful.
(i)
See Same Store definition in “Presentation of Financial Information and Non-GAAP Measures” section.
(ii) See Same Property definition in “Presentation of Financial Information and Non-GAAP Measures” section.
(iii) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
(iv) Acquisitions - Includes NOI on a pro-rated basis for IPP acquired within the periods being compared.
(v) Dispositions - Includes NOI on a pro-rated basis for IPP disposed of in the period being compared.
Same store and same property NOI increased 1.9% and 1.6% respectively, for the three months ended March 31, 2015 compared
to the same period in 2014 primarily due to:
•
increased NOI as a result of new leasing of approximately $0.7 million;
•
increase as a result of renewals and rent steps of approximately $0.4 million; partially offset by
•
reduced NOI due to vacancy caused by normal course turnover of $0.4 million.
40
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Same store and same property NOI on a proportionate basis for the U.S. portfolio on a consecutive quarter-over-quarter basis is
as follows (at RioCan’s interest):
(thousands of dollars)
Three months ended
December 31, 2014
Increase
(decrease)
33,691 $
33,665
0.1%
13,296
11,260
18.1%
449
343
30.9%
Rental revenue – US$
47,436
45,268
4.8%
Property operating costs – US$
14,936
12,436
20.1%
Same store (i) - US$
32,500
32,832
(1.0%)
—
100
(100.0%)
32,500
32,932
(1.3%)
24
—
NOI before adjustments
32,524
32,932
Lease cancellation fees
69
23
200.0%
362
569
(36.4%)
32,955
33,524
(1.7%)
4,350
85.5%
37,874
8.3%
March 31, 2015
Base rent – US$
$
Property tax and operating cost recoveries – US$
Other – US$
Re-development
Same properties (ii) - US$
Acquisitions - IPP (iv)
Straight-lining of rents
NOI - US$
8,070
Foreign currency translation
NOI – RioCan’s interest (iii)
$
41,025 $
nm
(1.2%)
“nm” – not meaningful.
(i)
See Same Store definition in “Presentation of Financial Information and Non-GAAP measures” section.
(ii) See Same Property definition in “Presentation of Financial Information and Non-GAAP measures” section.
(iii) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
(iv) Acquisitions - Includes NOI on a pro-rated basis for IPP acquired within the periods being compared.
(v) Dispositions - Includes NOI on a pro-rated basis for IPP disposed of in the period being compared.
Same store and same property NOI decreased by 1.0% and 1.3%, respectively, for the three months ended March 31, 2015 as
compared to the fourth quarter of 2014 primarily due to:
•
increased NOI as a result of renewals and rent steps of approximately $0.2 million; partially offset by:
•
increased NOI as a result of new leasing of approximately $0.1 million; partially offset by:
•
unfavourable adjustments to prior year recoveries, tenant related recoverable expenses and legal settlements of $0.4 million;
•
reduced NOI due to vacancy caused by normal course turnover of $0.2 million.
For the full year 2015, RioCan expects same store NOI growth to be slightly above 1%.
Other Revenue
Fees and Other Income
For the three months ended March 31, 2015, fees and other income increased $3.4 million as compared to the same period in
2014 primarily due to an increase in investment income and construction fees from joint arrangement projects as compared to the
same period in 2014.
Interest Income
Interest income for the three months ended March 31, 2015 was $1.2 million, representing a decrease from $3.6 million in the
respective comparative period in 2014. The decrease is due primarily to the impact of the settlement of certain mezzanine loans
during the first quarter of 2014 in connection with the acquisition of interests in three development projects.
Other Expenses
Interest
The components of interest expense, at RioCan's interest, are as follows:
(thousands of dollars)
March 31,
Three months ended March 31,
2015
Total interest expense
$
Capitalized to real estate and other capital projects
$
(6,031)
Net interest expense (i)
$
59,357
9.2%
Percentage capitalized to real estate investments
(i)
65,388
$
2014
Increase
(decrease)
65,238
0.2%
(5,778)
4.4%
59,460
(0.2%)
8.9%
See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
41
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
The increase in total interest expense for the quarter ended March 31, 2015 compared to the same period in 2014, resulted
primarily from carrying higher principal debt levels in the first quarter of 2015, largely due to acquisition activity and development
expenditures, partly offset by interest savings resulting from refinancing maturing mortgages and debentures at lower interest
rates. As at March 31, 2015, the weighted average interest rate of RioCan’s debt portfolio is 3.96%, a decrease of 34 basis points
from the weighted average rate of 4.30% as at March 31, 2014.
Interest is capitalized to investment properties when they are considered to be in active development. The amounts capitalized
increased as a result of higher development activity in the quarter ended March 31, 2015 as compared to the same period in
2014.
General and Administrative
The components of general and administrative, at RioCan’s interest, are as follows:
(thousands of dollars)
Three months ended
March 31,
2015
2014
Three months ended March 31,
$ 9,905
Non-recoverable salaries and benefits
$ 7,261
Increase
(decrease)
36.4%
Directly capitalized to properties under development (i)
(2,122)
(1,616)
31.3%
Leasing costs (ii)
(2,285)
(1,741)
31.2%
5,498
3,904
40.8%
Information technology costs
1,264
1,238
2.1%
Public company costs
1,370
992
Professional fees
1,356
1,540
(11.9%)
Unit based compensation expense
1,482
1,122
32.1%
Depreciation and amortization
1,260
796
58.3%
2,086
1,930
8.1%
$ 14,316
$ 11,522
24.2%
4.4%
3.8%
0.6%
Other general and administrative
General and administrative expense (iii)
38.1%
General and administrative expense:
As a percentage of rental revenue
(i)
(ii)
(iii)
Amounts capitalized to properties under development are primarily comprised of salaries and benefits and other costs directly related to
development activities at the properties.
Effective January 1, 2014, the Trust no longer capitalizes leasing costs pursuant to the adoption of IAS 17. As a result of this change, the Trust
records leasing costs on the consolidated statement of earnings.
See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
During the three months ended March 31, 2015, general and administrative costs increased $2.8 million or 24.2% compared to
the same period in 2014, primarily due to the following, an increase of: net non-recoverable salaries and benefits expense of $1.6
million, public company costs of $0.4 million, unit based compensation expense of $0.4 million and depreciation and amortization
of $0.5 million.
During the three months ended March 31, 2015, non-recoverable salaries and benefits increased $2.6 million or 36.4% as
compared to the same period in 2014. This increase was primarily related to higher non-recoverable salaries and benefits due to
the timing of recognition of variable compensation expenses, along with merit based salary increases. The remaining increase is
due to the inclusion of certain salary costs in the current quarter that were previously capitalized over the development phase of
the Trust's recently implemented ERP and reporting system project. RioCan expects to realize an offset in short term
compensation costs in the second half of 2015 and anticipates modest full year growth in non-recoverable salaries and benefits
compared to 2014.
Public company costs increased by $0.4 million or 38.1% compared to the same period in 2014, primarily due to the timing of
audit and other costs as well as higher trustee fees related to a deferred equity unit plan implemented during the second quarter
of 2014.
Unit based compensation expense increased by $0.4 million or 32.1% as compared to the same period in 2014. This increase is
due, in part, to a change in the timing of the Trust's annual option grant date from June to February of each year, starting this
quarter.
Depreciation and amortization increased by $0.5 million for the three months ended March 31, 2015. During 2014, the Trust
completed the implementation of a new ERP and financial reporting system. As noted above, the new system was phased into
production during the first two quarters of 2014, resulting in higher depreciation and amortization costs on an annualized basis.
For the full year 2015, RioCan expects between 3% to 4% growth in general and administrative costs as compared to the
same period in 2014.
Leasing Costs
Leasing costs are mainly comprised of payroll related costs of the internal leasing department of the Trust, as well as related
administration costs. For the three months ended March 31, 2015 leasing costs of $3.0 million have increased by $0.7 million or
32.6 % compared to the same period in 2014. The increase was partially due to the timing of recognition of variable
42
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
compensation costs. The remaining increase is due to headcount increases in Canadian leasing operations and administration.
Leasing costs incurred with external parties continue to be capitalized to the relevant property.
Transaction and Other Costs
The components of transaction and other costs, at RioCan’s interest, are as follows:
Three months ended
Increase
March 31,
2015
2014 (decrease)
(thousands of dollars)
Three months ended March 31,
Acquisitions and disposition costs
2,802 $
$
1,360
106.0%
Demolition costs
487
543
(10.3%)
Foreign exchange loss
131
24
445.8%
2
100.0%
1,929
77.5%
Aborted deal costs
4
Transaction and other costs (i)
(i)
3,424 $
$
See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
Acquisition and disposition costs increased for the three months ended March 31, 2015 compared to the same period in 2014
due to higher legal fees and commissions primarily related to the following property acquisitions and dispositions during 2015:
property acquisitions of RioCan Leaside and RioCan Grant Park, and property dispositions of Carrefour Neufchatel, Carrefour
Carnaval, Centre Commercial Forrest and Place Kennedy.
ASSET PROFILE
As at March 31, 2015, RioCan had ownership interests in a portfolio of 353 shopping centres comprising 71,674,000 square feet
(RioCan’s share being 49,878,000 square feet), compared to 340 shopping centres comprised of 70,940,000 square feet
(RioCan’s share being 49,066,000 square feet) at March 31, 2014. In addition, RioCan had ownership interests in development
projects at March 31, 2015 that will, upon completion, comprise approximately 6,972,000 square feet, of which RioCan’s
ownership interest will be approximately 3,840,000 square feet.
Investment Property
(thousands of dollars)
March 31, 2015
December 31, 2014
March 31, 2014
Investment property (at RioCan’s interest) is comprised of (i):
Income properties
$
Properties under development
$
(i)
13,261,142 $
13,202,200 $
677,117
649,432
13,938,259 $
13,851,632 $
12,683,176
674,247
13,357,423
See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
Change in the Fair Value of Investment Properties During 2015
Of the $87 million increase in investment property (RioCan’s interest) since December 31, 2014, the fair value loss for the three
months ended March 31, 2015 was $7.3 million, of which $19 million of the loss relates to income properties, partly offset by a
$12 million gain in properties under development. During this period, the capitalization rates used to value the total portfolio are
estimated to have decreased by one basis points. The carrying value of the Trust's investment property at March 31, 2015
includes valuation adjustments associated with certain Target locations, which represents the Trust's best estimate of fair value
based on the latest information available to date.
The table below provides the fair value and weighted average capitalization rate split between Canada and U.S.:
(in thousands, except percentages)
As at,
March 31, 2015
Weighted
average
Cap. rate*
*
December 31, 2014
Value
Canada
5.76% $ 11,170,608
U.S.
6.10%
Total
5.82% $ 13,938,259
2,767,651
Weighted
Average
Cap. Rate*
Value
March 31, 2014
Weighted
Average
Cap. Rate*
Value
5.77% $ 11,364,986
5.79% $ 11,095,682
6.14%
6.32%
2,486,646
5.83% $ 13,851,632
2,261,741
5.88% $ 13,357,423
presented at RioCan’s interest, including its proportionate interest in joint ventures accounted for using the equity method.
During 2015, the weighted average capitalization rates in Canada and the U.S. decreased by one and four basis points,
respectively, reflecting the status of each of these markets. In Canada, the rates decreased from 5.77% to 5.76%, and in the U.S.
the rate decreased from 6.14% to 6.10%, on a quarter-over-quarter basis. The associated fair value loss in Canada and fair value
gain in the U.S. were $51 million and $45 million, respectively (each at RioCan’s interest).
The tables below provides details of the average capitalization rates (weighted based on stabilized NOI) and ranges for each
retail class and market category, at RioCan’s interest, as at March 31, 2015.
43
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Canadian Portfolio
Overall portfolio
Retail Class
Weighted
average
Cap. Rate*
Primary market
Range
Weighted
average
Cap. Rate*
Secondary market
Range
Weighted
average
Cap. Rate*
Range
Enclosed Shopping
Centre
6.12%
5.00% - 9.00%
5.78%
5.00% - 8.35%
6.37%
5.34% - 9.00%
Grocery Anchored
Shopping Centre
5.90%
5.10% - 9.50%
5.70%
5.10% - 7.00%
6.30%
5.50% - 9.50%
Mixed Use
5.77%
4.80% - 8.00%
5.57%
4.80% - 7.25%
7.12%
6.25% - 8.00%
New Format Retail
5.61%
5.00% - 7.50%
5.42%
5.00% - 6.75%
6.10%
5.25% - 7.50%
Non-Grocery Anchored
Centre
6.30%
5.00% - 8.00%
5.95%
5.00% - 7.25%
6.80%
5.28% - 8.00%
Urban Retail
5.19%
4.60% - 5.52%
5.19%
4.60% - 5.52%
—
5.76%
4.60% - 9.50%
5.53%
4.60% - 8.35%
6.29%
*
—
5.25% - 9.50%
at RioCan’s interest.
U.S. Portfolio
Overall portfolio
Retail Class
Weighted
average
Cap. Rate*
Northeast**
Range
Weighted
average
Cap. Rate*
Texas
Range
Weighted
average
Cap. Rate*
Range
Grocery Anchored
Shopping Centre
6.01%
5.35% - 7.50%
6.03%
5.35% - 7.00%
5.96%
5.65% - 7.50%
New Format Retail
6.11%
5.30% - 7.25%
6.22%
5.35% - 7.25%
6.05%
5.30% - 6.75%
Non-Grocery Anchored
Centre
7.30%
7.30% - 7.30%
7.30%
7.30% - 7.30%
—
6.10%
5.30% - 7.50%
6.17%
5.35% - 7.30%
6.04%
*
**
—
5.30% - 7.50%
at RioCan’s interest.
Area includes Connecticut, Maryland, Massachusetts, New Jersey, New York, Rhode Island, Pennsylvania, West Virginia, Virginia and New
Hampshire.
Assets Held for Sale
Investment properties
Properties held for sale are investment properties which RioCan is either contemplating or in the process of disposing and may
no longer hold as investment property. As at March 31, 2015, the Trust has interests in nine investment properties held for sale
with an aggregate fair value of $384 million, calculated in accordance with IFRS (December 31, 2014 – $189 million).
Equity accounted investment in Joint Venture
On March 27, 2015, RioCan announced that Kimco Realty Corp. (Kimco) will be purchasing RioCan's 80% interest in RioKim
Montgomery JV LP (Texas) for total cash consideration of $44 million (US$35 million), subject to working capital and other closing
adjustments. The transaction is expected to close during the three months ended June 30, 2015. As at March 31, 2015, the carrying
value of the investment was $53 million, calculated in accordance with IFRS.
44
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Income Properties
(thousands of dollars)
Three months ended March 31,
Three months ended March 31,
2015
Balance - RioCan's interest, beginning of period
13,334,266 $
$
2014
12,501,667
Acquisitions (i):
Canada
U.S.
Changes in fair values of income properties
Capital expenditures
Dispositions
169,275
2,543
—
10,275
(18,436)
62,821
3,581
2,101
(50,250)
(120,060)
7,125
5,781
Transfers from properties under development
41,873
113,566
Transfers to properties under development
(9,731)
(28,815)
Tenant installation costs
Foreign currency translation gain
Straight line rent
233,705
89,082
3,439
1,419
1,568
Other
(2,473)
Balance – RioCan’s interest, end of period (ii)
$
13,646,605 $
12,707,717
Income properties
$
13,261,142 $
12,683,176
Properties held for sale
$
385,463 $
24,541
$
13,646,605 $
12,707,717
(i)
(ii)
Comprised of the purchase price including closing costs and other acquisition related costs.
See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
Acquisitions During 2015
During the three months ended March 31, 2015, RioCan completed acquisitions of interests in 21 income properties aggregating
$169 million, representing RioCan’s share of the purchase price and comprised of approximately 436,000 additional square feet.
In connection with these acquisitions, RioCan assumed mortgage financing of $24 million bearing interest at a weighted average
interest rate of 4.34%.
Property name and
location
RioCan’s
Capitalipurchase
zation
price (i)
rate (thousands)
NLA
at RioCan’s
interest
(in thousands
of sqft)
Weighted
average
in place
rent
Asset
class
(ii)
Year
%
built Leased
Weighted
average
remaining
lease
Largest tenant(s)
term
and NLA
(years) (iii) (thousands of sqft)
RioCan’s
ownership
interest
Q1 2015: CANADA
RioCan Leaside
Centre (remaining
50%), Toronto, ON
5.5%
$31,500
67
$26.48
NFR
1996
100.0%
1.8
18 property BMO
Portfolio, ON, BC
and QC
5.5%
50,238
174
15.92
NGA
18921992
100.0%
Brentwood Village,
Calgary AB
(remaining 50%)
5.3%
69,132
135
21.76
Grand Park,
Mississauga ON
(remaining 50%)
6.0%
18,405
60
20.13
Canada – Q1 2015
Acquisitions
5.5%
169,275
436
19.93
Total Q1 2015
Acquisitions
5.5% $ 169,275
436
$19.93
(i)
(ii)
(iii)
NFR
NFR
1988,
2000
2004
Canadian Tire (9),
PetSmart (24)
100%
12.5
BMO (174)
100%
4.3
Sears Home (46),
Bed Bath &
Beyond (38),
Canada Safeway
(25)
100%
4.8
Winners (27),
Staplease (20),
Shoppers Drug
Mart (16)
100%
99.8%
100.0%
RioCan's purchase price includes closing costs and other acquisition related costs.
“GA” - Grocery Anchored centre; “NGA” - Non Grocery Anchored centre; “NFR” - New Format Retail centre; “ MIX” - Mixed use retail centre; “OUT”
- Outlet mall; “ENC” - Enclosed shopping mall; “URB” - Urban retail centre; "OFF" - Office building.
Weighted average based on gross rental revenue.
45
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Further details around RioCan’s current quarter income property acquisitions are as follows:
Canada
•
On January 15, 2015, RioCan completed the acquisition of the remaining 50% interest in 845 Eglinton Avenue East at a
purchase price of approximately $31.5 million, representing a capitalization rate of 5.5%. The property is a 133,000 square
foot non-grocery anchored shopping centre located in Toronto, Ontario. In connection with the acquisition, RioCan assumed
$16 million in mortgage financing carrying interest at 3.34%, maturing in March 2017. As part of the transaction, the vendor is
entitled to additional consideration of up to approximately $6 million if RioCan is successful in its efforts to rezone the
property to permit a mixed use project.
•
On January 15, 2015, RioCan completed the acquisition of a 100% interest in an 18 property portfolio at a purchase price of
approximately $50.2 million, representing a capitalization rate of 5.5%. The properties, which are all single-tenant units
occupied by the Bank of Montreal totalling 174,000 square feet, were acquired free and clear of financing. Eleven of the
properties are located in Ontario, six are located in British Columbia and one is located in Quebec.
•
RioCan has entered into an agreement with Kimco Realty Corp. (Kimco) where RioCan purchased Kimco’s 50% interest in
two Canadian properties, Brentwood Village and RioCan Grand Park as part of a transaction whereby Kimco will purchase
RioCan’s 80% interest in Montgomery Plaza. The acquisitions of Brentwood Village and Grand Park by RioCan were
completed on March 31, 2015 and Montgomery Plaza will be completed upon obtaining customary lender consents. Further
details around the assets where additional interests have been acquired are as follows.
•
Brentwood Village, located in Calgary, Alberta, is a grocery anchored shopping centre containing 270,000 square feet of
leasable area. The shopping centre’s anchor tenants include Safeway, London Drugs, and Sears Whole Home. Other
national retailers at the site include Pier 1 Imports, Sleep Country, Penningtons, TD Canada Trust, Bank of Montreal and
Harvey’s. Approximately 50,000 square feet of retail space was demolished in 2011 and the air rights were sold to a
residential developer who subsequently constructed four condo towers. The residential towers include retail podiums
consisting of 24,000 square feet. RioCan acquired Kimco’s 50% interest at a purchase price of $65.1 million which
equates to a capitalization rate of 5.25% on in-place income and an additional $4.0 million as consideration for the
potential residential density associated with this site. The property was acquired free and clear of financing.
•
RioCan Grand Park, located in Mississauga, Ontario, is a 119,000 square foot new format retail property. The centre
contains a mix of national tenants that includes Winners and Shoppers Drug Mart. RioCan acquired Kimco’s 50%
interest at a purchase price of $18.4 million which equates to a capitalization rate of 6.00%. In connection with the
purchase, RioCan assumed Kimco’s 50% interest on the in-place debt of $8 million (at 50%) which carries a weighted
average interest rate of 6.35% and is scheduled to mature in 2019 and 2024, subject to a mark to market adjustment.
Income Property Acquisitions Completed Subsequent to March 31, 2015
As at the date of this report, RioCan has not completed any income property acquisitions subsequent to quarter end.
Income Property Acquisitions Under Contract
Committed Acquisitions
Joint Venture with Hudson’s Bay Company
On February 25, 2015, RioCan announced that it has agreed to form a joint venture with Hudson’s Bay Company (HBC) focused
on real estate growth opportunities in Canada. 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 new real estate acquisition and redevelopment
opportunities.
RioCan has committed to contribute up to $325 million to the newly established joint venture entity (JV Entity) for an eventual pro
forma equity stake of 20.2%. RioCan’s equity contribution will be comprised of three components. The first component is a $146.6
million equity contribution by way of the sale of a 50% interest in two enclosed mall properties as described below (see "Property
Dispositions Under Contract and Being Marketed"). The second component is by way of a $52.5 million capital commitment for
tenant and capital improvements to certain properties in the JV Entity. The final component is a capital commitment by RioCan by
way of an equity contribution of $125.9 million to be funded over the next three years for future acquisitions by the JV Entity.
The transaction values RioCan’s contribution of a 50% interest in two enclosed mall properties in Ontario (Oakville Place and
Georgian Mall) at $299 million based on a capitalization rate of 5.2%. RioCan’s initial equity contribution to the JV Entity will be
$146.6 million in the form of a 50% interest in the two mall properties, net of the existing debt of $142.4 million (at 50%), which
carries a weighted average interest rate of 3.7% and mature in 2018 and 2021, and net of a capital lease obligation related to a
ground lease of $10 million at Georgian Mall for an initial equity stake in the JV Entity of 10.3%. RioCan will continue to act as
manager for the enclosed malls that it will contribute to the JV Entity’s portfolio. RioCan will also contribute an additional $52.5M
to the JV Entity, part of which is to be utilized for improvements to certain properties contributed to the JV Entity.
RioCan has also committed to make an additional equity contribution to the JV Entity of approximately $125.9 million over the
next three years to fund future property acquisitions to increase the value and diversify the tenant base of the JV Entity. RioCan’s
contributions will be made by the third anniversary of the closing date. The JV Entity will be entitled to exclusivity on select
enclosed regional mall acquisition opportunities in Canada identified by RioCan, and all retail property acquisition opportunities
identified by HBC.
Under the agreement with RioCan, HBC will contribute ten owned or ground-leased properties to the JV Entity with an estimated
3.3 million square feet. The transaction values the HBC real estate contribution at approximately $1.7 billion based on a
capitalization rate of 5.1%. In addition to an eventual pro forma 79.8% equity stake in the JV Entity, HBC is expected to receive
46
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
approximately $350 million in cash proceeds from third party debt to be arranged in advance by HBC and assumed by the JV
Entity, and the JV Entity is expected to assume approximately $48 million of existing debt secured against one of the properties
contributed by HBC. As a result, HBC will have an initial equity stake in the JV Entity of $1.3 billion, representing an initial 89.7%
interest in the JV Entity. The JV Entity will enter into a new lease with HBC for each of the ten store locations with a lease term of
twenty years that provides for moderate annual rental increases during the term of the lease and any extensions. Closing is
subject to conventional closing conditions for a transaction of this nature. Until such time as such conditions are satisfied or
waived, there is no assurance that the transaction will be completed or on the terms contemplated.
The transaction details set forth above have been calculated on the basis that the initial contribution of equity to the JV Entity by
HBC consists of the ten properties currently contemplated. There are three land leased properties, the inclusion of which is
subject to obtaining landlord approval or, alternatively, a determination by a court that consent is not required or cannot be
unreasonably withheld (a proceeding which has been commenced by HBC). Should HBC fail to obtain such landlord consent or
favourable court ruling within a stipulated time frame following the prescribed closing date, these three properties would not be
included in the transaction and consequently, the statistics cited herein would be subject to amendment.
Other Committed Acquisition
Additionally, RioCan has the acquisition of a single unit pad tenanted by Mattress Firm at Bird Creek Crossing under firm contract
where conditions have been waived pursuant to a purchase and sale agreement at a sales price of $3 million (US$2 million). Bird
Creek Crossing is an unenclosed shopping centre comprised of 389,000 square feet of gross leasable area in Temple, Texas,
anchored by Best Buy, and shadow-anchored by SuperTarget and Home Depot. Major tenants in the shopping centre include
Michaels, PetSmart, Office Max and Spec’s Fine Wines.
Conditional Acquisitions
There are no conditional income property acquisitions as at the date of this report.
Pipeline Acquisitions
RioCan is also currently in negotiations regarding various income property acquisitions in Canada and the US that, if completed,
would represent acquisitions of approximately $147 million at RioCan’s interest. These transactions are in negotiations and while
efforts will be made to complete the negotiations, no assurance can be given.
Acquisitions During 2014
Capitalization
rate
Location
$
RioCan’s purchase price
(i) (thousands)
NLA (in thousands of square
feet) at RioCan’s interest
Canada
5.7%
61,973
194
Fourth Quarter 2014 Acquisitions
5.7%
61,973
194
Canada
5.3%
52,501
147
U.S.
6.1%
31,615
82
Third Quarter 2014 Acquisitions
5.6%
84,116
229
Canada
7.0%
23,733
112
Second Quarter 2014 Acquisitions
7.0%
23,733
112
Canada
5.5%
11,517
65
U.S.
8.0%
10,275
64
First Quarter 2014 Acquisitions
6.7%
21,792
129
Canada
5.8%
149,724
518
U.S.
6.6%
41,890
146
Total 2014 Acquisitions
5.9%
191,614
664
2014 Acquisitions:
(i)
$
Excludes closing costs and other acquisition related costs.
Dispositions During 2015
Canadian Disposition Activity
As a further means of raising and re-cycling capital, the Trust evaluates the sale of selected assets as part of a process of
actively managing the portfolio and a means of increasing the portfolio weighting to the urban markets in Canada.
During the three months ended March 31, 2015, RioCan disposed of five income properties aggregating $120 million
representing a weighted average capitalization rate of 6.8%, comprised of 748,000 square feet. The Trust's mortgage obligations
related to these properties was $21 million.
47
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Capitalization
rate
Property name and location
GLA
Debt disposed of at
associated
RioCan’s
RioCan’s
with
interest
sales price
property (in thousands
(thousands) (thousands)
of sqft)
Ownership
Asset
interest
class disposed of
(i) by RioCan
Q1 2015
Carrefour Neufchatel, Quebec City, QC
6.2%
Carrefour Carnaval - St. Leonard, Montreal, QC (ii)
7.0%
Centre Carnaval, Drummondville, QC
7.2%
Centre Commercial Forest, Montreal, QC
—
205
GA
100%
28,090
7,700
171
GA
100%
18,521
—
147
GA
100%
7.5%
17,950
—
119
NGA
100%
Place Kennedy, Levis, QC
7.0%
20,589
13,180
106
NGA
100%
Total Q1 2015 Dispositions
6.8%
$ 120,060
$ 20,880
748
(i)
(ii)
$
34,910
$
“GA” - Grocery Anchored Centre; “NGA” - Non Grocery Anchored Centre; “NFR” - New Format Retail; "ENC" - Enclosed shopping centre; "Land" Excess density.
The $7.7 million mortgage associated with the property was repaid by RioCan prior to closing.
As at the date of this report, RioCan has not completed any dispositions subsequent to March 31, 2015.
Property Dispositions Under Contract and Being Marketed
Income property dispositions
As part of the agreement with HBC discussed above in the "Income Property Acquisitions Under Contract" section, RioCan has
agreed, under firm contract where conditions have been waived, to contribute to the JV Entity 50% interests in two income
properties at a sale price of approximately $299 million (at the 50% interests being disposed of), representing a weighted average
capitalization rate of 5.2%. RioCan will retain the remaining 50% interest in each property. There is approximately $142 million of
debt associated with these properties (at the 50% interests being disposed of), carrying interest at a weighted average rate of
3.71% and maturing in 2018 and 2021.
RioCan has one income property disposition in Canada under conditional contract where conditions have not yet been waived
that, if completed, would represent a disposition of $9 million, at RioCan's interest. The property is free and clear of financing.
This transaction is undergoing due diligence procedures and while efforts will be made to complete the transaction, no assurance
can be given.
RioCan is also in the process of marketing for sale income properties in Canada with an aggregate fair value as at March 31,
2015 calculated in accordance with IFRS of approximately $51 million, at RioCan's interest. There is $14 million of mortgage
financing associated with these properties. RioCan is under no obligation to proceed with the proposed dispositions which, if
completed, will be done to facilitate its objectives of paring its portfolio and focusing on major markets.
Disposition of equity accounted investment
The Trust has the disposition of its 80% non-managing interest in one income property in the US that is accounted for using the
equity method, under firm contract with Kimco where conditions have been waived pursuant to a purchase and sale agreement
for total proceeds of $44 million (US$35 million), subject to working capital and other closing adjustments. RioCan will dispose of
its 80% interest in Montgomery Plaza as part of the transaction with Kimco discussed above in the "Acquisitions During 2015"
section. Montgomery Plaza is located at the corner of Carroll Street and W Seventh Street, close to downtown Fort Worth. The
property is 97% occupied and shadow-anchored by Super Target and anchored by Marshalls, Ross Dress for Less, PetSmart,
Michaels and Office Depot. The anchors are complemented by other nationally recognized tenants including Pier 1 Imports,
Starbucks and Chick-fil-A.
Land dispositions
RioCan has dispositions of land parcels under conditional contracts where conditions have not yet been waived for total sales
proceeds of approximately $18 million, at RioCan's interest. These land parcels are free and clear of financing. While efforts will
be made to complete the transactions, no assurance can be given.
RioCan is also in the process of marketing for sale land parcels with an aggregate fair value as at March 31, 2015 calculated in
accordance with IFRS of approximately $59 million, at RioCan's interest. These land parcels are free and clear of financing.
RioCan is under no obligation to proceed with the proposed dispositions.
Other disposition
RioCan and its partner, KingSett, have entered into an agreement with the developer, Embassy BOSA Inc., to sell up to $30
million in air rights (representing 600,000 square feet) above the CPA development site in Calgary's East Village, along with
approximately $40 million in cost reimbursement for infrastructure works. Embassy BOSA Inc. has waived its due diligence
conditions. The transaction remains subject to a number of both mutual and unilateral normal course development conditions.
The intention is for two residential towers to be erected upon the planned retail podium. The transaction contemplates that
Embassy BOSA Inc. be responsible, on a cost to complete basis, for all incremental costs associated with the residential
component of the overall project.
48
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Dispositions During 2014
RioCan's sales price
(thousands)
Debt associated with
property (thousands)
NLA disposed of
at RioCan's interest
(in thousands of sqft)
Total Q3 2014 (Canada only)
$2,274
—
—
Total Q1 2014 (Canada only)
$50,250
—
472
Total 2014 Dispositions
$52,524
—
472
Property Ownership by Geographic Area
Provincial and U.S.
NLA at RioCan's
Interest
NLA at
Partners'
Interest
Retailer Owned
Anchors
Total Site NLA
18,541
3,758
3,263
25,562
Ontario East
5,451
1,203
1,257
7,911
Ontario West
2,306
79
565
2,950
Total Ontario
26,298
5,040
5,085
36,423
(in thousands of sqft)
As at March 31, 2015
Ontario Central
Quebec
4,859
874
657
6,390
Alberta
4,599
1,949
2,175
8,723
British Columbia
2,533
1,477
426
4,436
New Brunswick
573
141
95
809
Saskatchewan
268
—
—
268
Newfoundland
215
—
—
215
Manitoba
265
201
93
559
Prince Edward Island
166
166
—
332
69
69
—
138
U.S.
10,033
58
3,290
13,381
Income Producing Properties
49,878
9,975
11,821
71,674
3,840
2,741
391
6,972
53,718
12,716
12,212
78,646
NLA at RioCan's
Interest
NLA at
Partners'
Interest
Retailer Owned
Anchors
Total Site NLA
Calgary, Alberta
2,334
800
1,266
4,400
Edmonton, Alberta
1,407
1,117
758
3,282
Montreal, Quebec
3,159
689
150
3,998
Ottawa, Ontario (i)
3,582
934
1,012
5,528
Toronto, Ontario (ii)
14,109
2,948
2,225
19,282
1,345
1,055
373
2,773
25,936
7,543
5,784
39,263
3,557
2,741
391
6,689
29,493
10,284
6,175
45,952
Nova Scotia
Properties Under Development
Total
Six Canadian High Growth Markets
(in thousands of sqft)
As at March 31, 2015
Vancouver, British Columbia (iii)
Income Producing Properties
Properties Under Development
Total
(i)
(ii)
(iii)
Area extends from Nepean and Vanier to Gatineau, Quebec.
Area extends north to Newmarket, Ontario, west to Burlington, Ontario and east to Ajax, Ontario.
Area extends east to Abbotsford, British Columbia.
49
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Portfolio Geographic Diversification
As at March 31, 2015
Area
Percentage of
annualized rental
revenue
Percentage of
Percentage of
annualized
area occupied
rental revenue
Occupancy
by anchor and from anchor and
percentage national tenants national tenants
Ontario Central
37.5%
43.2%
97.2%
86.0%
89.8%
Ontario East
10.9%
10.9%
96.2%
89.8%
87.4%
Ontario West
4.6%
4.1%
96.8%
91.2%
89.5%
Total Ontario
53.0%
58.2%
97.0%
87.2%
89.5%
Quebec
9.7%
8.2%
95.8%
83.8%
83.6%
Alberta
9.2%
10.2%
98.5%
85.8%
80.9%
British Columbia
5.1%
5.4%
96.1%
88.7%
84.2%
New Brunswick
1.1%
0.9%
82.8%
88.1%
88.3%
Saskatchewan
0.5%
0.3%
86.5%
90.9%
82.7%
Newfoundland
0.4%
0.3%
98.3%
91.5%
85.8%
Manitoba
0.5%
0.5%
92.8%
78.4%
73.9%
Prince Edward Island
0.3%
0.3%
99.0%
97.3%
95.3%
Nova Scotia
0.1%
0.1%
100.0%
97.1%
92.1%
20.1%
15.6%
96.6%
89.4%
85.8%
100.0%
100.0%
96.7%
86.8%
86.3%
U.S.
Total Portfolio
Capital Expenditures on Income Properties
Capital expenditures
Capital expenditures refer to capital expenditures that are necessary to maintain the existing earnings capacity of the Trust’s
property portfolio and are dependent upon many factors, including, but not limited to the age and location of the income
properties. As at March 31, 2015, the estimated weighted average age of the income property portfolio is s 20.5 and 12.6 years
for the Canadian and U.S. portfolios respectively (March 31, 2014 - 20.1 and 11.5 years for the Canadian and U.S. portfolios,
respectively). Capital expenditures are considered in determining RioCan’s calculation of AFFO, which influences amounts that
are distributed to unitholders, primarily consist of leasing commissions, tenant improvements and certain recoverable and nonrecoverable capital expenditures.
Leasing Commissions and Tenant Improvements
RioCan’s portfolio requires ongoing investments of capital for tenant installation costs related to new and renewal tenant leases.
Tenant installation costs consist of tenant improvements and other leasing costs, including compensation costs associated with
RioCan’s internal leasing professionals.
Investments of capital for tenant installation costs for RioCan’s income properties are dependent upon many factors, including,
but not limited to, the lease maturity profile, unforeseen tenant bankruptcies and the location of the income properties.
Recoverable and Non-recoverable Capital Expenditures
RioCan also invests capital on a continuous basis to physically maintain the income properties. Typical costs incurred are for roof
replacement programs and the resurfacing of parking lots. Tenant leases generally provide for the ability to recover a significant
portion of such costs from tenants over time as property operating costs. RioCan expenses or capitalizes these amounts to
income properties, as appropriate.
As the majority of the portfolio is located in Canada and the northeastern U.S., the majority of such activities occur when weather
conditions are favourable. As a result, these expenditures are not consistent throughout the year.
Revenue enhancing capital expenditures
Capital spending for new or existing income properties that are expected to create, improve and/or extract additional value to the
overall earnings capacity of the property portfolio are considered revenue enhancing. RioCan considers such amounts to be
investing activities. As a result, RioCan does not expect such expenditures to be funded from cash flows from operating activities
and does not consider such amounts as a key determinant in setting the amount that is distributed to its unitholders. Revenue
enhancing capital expenditures are not included in the determination of RioCan's AFFO.
50
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Expenditures for leasing commissions and tenant improvements and recoverable, non-recoverable and enhancing capital
expenditures included in consolidated income properties are as follows:
(thousands of dollars)
Three months ended March 31,
Three months ended March 31,
Estimated
expenditures
for 2015
Annual
normalized
expenditures
(millions of
dollars)
2015
2014
7,111 $
9,949 $
28,000
$24 - 30
Recoverable from tenants
3,820
2,617
15,000
13 - 16
Non-recoverable from tenants
1,390
915
10,000
7 - 10
152
894
12,473
14,375
53,000
44 - 56
Leasing commissions and tenant improvements
$
Capital expenditures:
Revenue enhancing
Office capital investment (i)
$
(i)
467
1,623
12,940 $
15,998
Includes certain expenditures related to one-time upgrades to mechanical and electrical components of the office component of the RioCan Yonge
Eglinton Centre, and a portion of which is recoverable from the office tenants.
Joint Operations and Partnership Activities
Co-ownership activities represent real estate investments in which RioCan owns an undivided interest and where it has joint
control with its partners.
The Trust’s co-ownership arrangements are governed by co-ownership agreements with its various partners. RioCan’s standard
co-ownership agreement provides exit and transfer provisions, including, but not limited to, buy/sell and/or right of first offers that
allow for the unwinding of these co-ownership arrangements should the circumstances necessitate.
Generally, the Trust is only liable for its proportionate share of the obligations of the co-ownerships in which it participates, except
in limited circumstances. Credit risk arises in the event that co-owners default on the payment of their proportionate share of such
obligations. Co-ownership agreements will typically provide RioCan with an option to remedy any non-performance by a
defaulting co-owner. These credit risks are mitigated as the Trust has recourse against the asset under its co-ownership
agreements in the event of default by its co-owners, in which case the Trust’s claim would be against both the underlying real
estate investments and the co-owners that are in default. In addition to the matter noted above, RioCan has provided guarantees
on debt totalling $296 million as at March 31, 2015 (December 31, 2014 - $309 million) on behalf of partners and co-owners.
RioCan’s more significant joint operation relationships are as follows:
Allied
•
Allied is a leading owner, manager and developer of urban office environments.
•
The Partnership with RioCan is focused on acquisition and redevelopment of sites in urban areas of major Canadian cities
that are well suited for mixed use intensification.
•
Two Toronto development projects - College & Manning and King & Portland.
The Well
•
The Well joint venture formed with partners, Allied and Diamond, acquired 7.74 acres of land since December 2012 in
downtown Toronto.
•
RioCan and Allied have an undivided 40% interest and Diamond has an undivided 20% interest (RioCan’s effective
ownership is 43.9% as a result of its investment in Diamond’s Whitecastle New Urban Fund II).
•
Although the site is currently the home of the Globe and Mail newspaper, the tenant has announced plans to relocate to 351
King Street East, Toronto.
•
The property will be redeveloped as a mixed-use development comprising in excess of three million square feet of retail,
office and residential space.
CPPIB
•
CPPIB is a professional investment management firm that invests the assets of the Canada Pension Plan.
•
Seven income producing and development properties, located in Ontario, Alberta and British Columbia.
•
Major partner on East Hills, Calgary development project and sole partner on McCall Landing, Calgary.
Kimco
•
Kimco is a publicly traded REIT that owns and operates North America’s largest portfolio of neighbourhood and community
shopping centres.
•
Represents RioCan’s largest joint venture partner.
•
42 Canadian investment properties and one U.S. property, representing 47% of the Trust’s total JV properties.
KingSett
•
KingSett is a private equity real estate business with investments focused on office, retail and industrial properties in the
central and suburban business districts of Canada’s major markets.
51
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
•
Partnership with RioCan focused on acquisitions of greenfield development and prominent urban centres with intensification
and/or redevelopment potential.
Two income properties in the Greater Toronto Area - RioCan Yonge Sheppard Centre (intensification project) and Burlington
Mall.
Two Alberta development projects - Sage Hill and CPA Lands.
Tanger
•
Tanger is a public REIT since 1993 and a leading developer and manager of outlet shopping centres in the U.S., each one
known as a Tanger Outlet Center.
•
Partnership with RioCan focused on acquisition, development and leasing of outlet shopping centres similar in concept and
design to those within the existing Tanger U.S. portfolio, located in close proximity to larger urban markets and tourist areas
across Canada.
•
Four income properties in Ontario and Quebec - Cookstown Outlet Mall, Les Factoreries Tanger - Bromont, Tanger Outlets
Ottawa and Les Factoreries Tanger - Saint-Sauveur.
Trinity
•
Trinity, a private company, has played a prominent role in the development of new format regional retail centres across
Canada.
•
Partnership with RioCan focused on acquisition and development of greenfield projects.
•
Nine income producing and development properties, located in Ontario and Alberta.
Selected Financial Information by Joint Operation - Proportionate Share
Number of
Investment
Properties (i)
(thousands of dollars)
As at March 31, 2015
For the three months
Total ended March 31, 2015
Liabilities
NOI
Total
Assets
Allied
2
The Well
1
99,340
39,840
343
Bayfield
5
112,612
43,157
1,716
CMHC Pension Fund
1
42,617
19,595
521
CPPIB
7
585,610
89,077
5,727
First Gulf Corporation
$
42,240
8,075
$
$
336
1
81,203
36,224
1,006
43
1,191,298
391,775
16,159
KingSett
4
295,365
79,645
2,697
Metropia and Bazis Inc.
1
91,409
48,217
(25)
Sun Life
2
94,075
14,381
1,326
Tanger
4
191,148
19,504
2,071
Trinity
9
402,011
174,738
4,493
Other
11
175,417
60,717
7,267
Total Joint Operations
91
Kimco (Incl. U.S.)
(i)
$
3,404,345
$
1,024,945
Includes properties under development.
52
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
$
43,637
MANAGEMENT’S DISCUSSION AND ANALYSIS
RioCan’s proportionately consolidated co-ownerships, partnerships and consolidated joint ventures are as follows:
Summary of Joint Arrangements
(thousands of square feet, except other data)
As at March 31, 2015
RioCan's
ownership
interest
Number of
income
properties
assets (i)
NLA of income
properties assets
at 100%
50%
—
—
NLA upon
completion of
Number of PUD PUD projects
projects (i)
at 100%
Proportionately consolidated joint operations
Allied
The Well
Bayfield
CMCH Pension Fund
CPPIB
First Gulf Corporation
2
624
40%
—
—
1
2,060
30%-40%
5
1,952
—
—
50%
1
318
—
—
40%-50%
5
2,120
2
1,504
—
50%
1
317
—
15.5%-50%
42
8,736
—
—
KingSett
50%
2
1,237
2
705
Metropia and Bazis Inc.
50%
—
—
1
54
40%-50%
2
749
—
—
50%
4
767
—
—
Trinity
50%-81.25%
7
1,493
2
419
Other
40%-75%
10
1,179
—
—
79
18,868
10
5,366
291
—
—
Kimco
Sun Life
Tanger
Equity accounted joint ventures
(i)
(ii)
Kimco (Montgomery) (ii)
80%
1
Marketvest Corporation/Dale-Vest
Corporation
40%
1
67
—
—
2
358
—
—
81
19,226
10
5,366
The number of properties under development (PUD) includes those properties with phased development where tenancies have already
commenced operations, as per the “Development Pipeline Summary”.
This investment is classified as Assets held for sale at March 31, 2015.
53
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Total Assets by Joint Arrangement
(thousands of dollars)
Income
properties
As at March 31, 2015
PUD (i)
Residential
development
inventory
Other (ii)
Total December 31, 2014
Proportionately consolidated joint
operations
Allied
$
The Well
Bayfield
CMCH Pension Fund
CPPIB
First Gulf Corporation
Kimco (iii)
KingSett
Metropia and Bazis Inc. (iii)
20,294 $
— $
1,422 $
—
98,068
—
1,272
99,340
99,347
110,234
1,299
—
1,079
112,612
114,634
20,524 $
42,240 $
41,398
41,944
449
—
224
42,617
42,620
480,283
97,529
—
7,798
585,610
590,445
76,156
4,308
—
739
81,203
80,896
1,092,110
4,109
684
10,036
1,106,939
1,221,916
220,730
73,405
—
1,230
295,365
291,336
2,500
42,600
32,448
13,861
91,409
75,161
Sun Life
93,689
—
—
386
94,075
25,659
Tanger
167,004
11,636
—
12,508
191,148
184,249
Trinity (iii)
328,662
48,934
19,895
4,520
402,011
397,538
Other
150,439
10,369
—
6,444
167,252
165,198
2,784,275
413,000
53,027
61,519
3,311,821
3,330,397
80,801
—
—
3,558
84,359
76,779
8,120
—
—
45
8,165
8,169
3,603
92,524
Total assets of proportionately
consolidated joint operations
Equity accounted joint ventures
Kimco (Montgomery)
Marketvest Corporation/DaleVest Corporation
Total assets of equity accounted
joint ventures
Total Joint Arrangements
(i)
(ii)
(iii)
88,921
$
2,873,196 $
—
413,000 $
—
53,027 $
65,122 $ 3,404,345 $
84,948
3,415,345
The value of properties under development includes active development projects as well as the value of excess density where development is
currently non-active.
Primarily includes cash, rents receivable and other operating expenditures recoverable from tenants.
Residential development inventory includes the following properties: Tillicum Center (Kimco), Northeast Yonge Eglinton e-condos (Metropia and
Bazis Inc.) and Stouffville excess residential density (Trinity).
54
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Total Liabilities by Joint Arrangement
(thousands of dollars)
As at,
March 31, 2015
December 31, 2014
Proportionately consolidated joint operations
Allied
8,075 $
$
7,959
The Well
39,840
39,585
Bayfield
43,157
37,187
CMCH Pension Fund
19,595
19,625
CPPIB
89,077
68,395
First Gulf Corporation
36,224
37,466
360,079
385,059
KingSett
79,645
100,059
Metropia and Bazis Inc.
48,217
42,618
Sun Life
14,381
12,982
Tanger
19,504
24,242
Trinity
174,738
176,008
Other
56,964
56,909
989,496
1,008,094
31,696
29,038
Kimco
Total liabilities of proportionately consolidated joint operations
Equity accounted joint ventures
Kimco (Montgomery)
Marketvest Corporation/Dale-Vest Corporation
Total liabilities of equity accounted joint ventures
$
3,753
3,785
35,449
32,823
1,024,945 $
1,040,917
NOI by Joint Arrangement
(thousands of dollars)
Three months ended March 31,
2015
2014
Proportionately consolidated joint operations
Allied
$
The Well
336 $
346
343
366
1,716
1,777
521
555
CPPIB
5,727
4,788
First Gulf Corporation
1,006
710
16,360
17,673
2,697
2,811
Bayfield
CMCH Pension Fund
Kimco
KingSett
(25)
Metropia and Bazis Inc.
47
Sun Life
1,326
Tanger
2,071
711
Trinity
4,493
6,522
Other
Total NOI of proportionately consolidated joint operations
1,000
7,133
2,286
43,704
39,592
—
44
—
44
Fully consolidated subsidiaries
Trinity (White Shield)
Total NOI of fully consolidated joint ventures
Equity accounted joint ventures
Kimco (Montgomery)
Marketvest Corporation/Dale-Vest Corporation
(201)
(58)
134
113
(67)
Total NOI of equity accounted joint ventures
$
43,637 $
55
39,691
Properties Under Development
RioCan has a development program primarily focused on new format and urban retail centres. The provisions of the Trust’s
Declaration have the effect of limiting direct and indirect investments, net of related mortgage debt, in non-income producing
55
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
properties to no more than 15% of the Adjusted Unitholders’ Equity of the Trust. “Adjusted Unitholders’ Equity” is a non-GAAP
measure defined in RioCan’s Declaration as the amount of unitholders’ equity plus the amount of accumulated amortization of
income properties recorded by the Trust, calculated in accordance with GAAP. As at March 31, 2015, RioCan's investments in
non-income producing properties as a percentage of Adjusted Unitholders' Equity was 3.4% and, therefore, the Trust is in
compliance with this restriction. RioCan undertakes such developments on its own, or on a co-ownership or partnership basis,
with established developers to whom the Trust generally provides mezzanine financing. With some exceptions for land in the high
growth markets, RioCan will generally not acquire or fund significant expenditures for undeveloped land unless it is zoned and an
acceptable level of space has been pre-leased or pre-sold. An advantage of unenclosed, new format retail is that it lends itself to
phased construction keyed to leasing levels, which avoids the creation of meaningful amounts of vacant space. In addition to
RioCan’s various development projects, the Trust also contributes to portfolio growth through the intensification and
redevelopment of existing properties where RioCan has identified opportunities to increase density or add to an existing
asset. This intensification and redevelopment of existing properties contributes to NOI growth in an efficient manner, leveraging
the existing asset base, and can also lead to significant gains resulting from the sale of residential rights.
Development square feet by Property Type as at March 31, 2015
Development square feet by Geographic Area as at March 31, 2015
56
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Development Properties Continuity
The change in the IFRS consolidated net carrying amount is as follows:
(thousands of dollars)
Three months ended
March 31,
2015
2014
Three months ended March 31,
$
Consolidated balance, beginning of period
Acquisitions (i)
Development expenditures
Changes in fair values of properties under development
Completion of properties under development
Transfers from income properties
Transfers from (to) residential development inventory (ii)
Dispositions
Other
Consolidated balance, end of period
$
Properties under development
Properties held for sale
$
$
(i)
(ii)
706,299 $ 582,498
3,038
141,462
40,410
39,762
11,602
7,774
(41,873)
(113,566)
9,731
28,815
27,323
(11,189)
—
(1,048)
5
(261)
756,535 $ 674,247
677,117 $
79,418
756,535 $
649,706
24,541
674,247
Comprised of the purchase price, including closing costs and other acquisition related costs.
In 2011, RioCan acquired its Toronto Sheppard Centre investment property with the intent of constructing condominium units on the excess
density portion. During the three months ended March 31, 2015, management decided to change its original plans to now build multi-residential
rental units. As such, a portion of the carrying value of this property has been transferred during the period from residential development inventory
to properties under development.
Development Property Acquisitions
During the three months ended March 31, 2015, RioCan acquired an interest in one development property in Canada at a
purchase price of $3 million, at RioCan's interest.
•
On February 6, 2015, RioCan completed the acquisition of an 81.25% interest in a 5.8 acre land parcel at RioCan Centre
Vaughan, located in Vaughan, Ontario, at a purchase price of $4 million ($3 million at RioCan’s interest). Trinity acquired the
remaining 18.75% interest and the property was acquired free and clear of financing. The land parcel acquired is adjacent to
phase II of RioCan’s existing shopping centre at RioCan Centre Vaughan.
Development Property Acquisitions Subsequent to March 31, 2015
As at the date of this report, RioCan has not completed any development property acquisitions after quarter end.
Development Property Acquisitions Under Contract
RioCan has agreed to fund a redevelopment project by Metropia and Bazis in the Yorkville district of Toronto, Ontario. The
existing structures on the acquired sites will be demolished and redeveloped into a mixed use centre including retail and rental
units. Metropia and Bazis will contribute equity of $10 million, with the remainder of the project to be funded by RioCan. RioCan
has the option to acquire a 50% interest in the project at any point in time. The objective of this project is to assemble lands for a
mixed use development with partners Metropia and Bazis. The initial acquisitions of redevelopment sites are expected to be
completed during the second quarter of 2015.
Development Activity in 2015
During the three months ended March 31, 2015, RioCan transferred from properties under development to income producing
properties $42 million in costs (at RioCan's interest) pertaining to 146,000 (at RioCan's interest) square feet of completed
greenfield development or expansion and redevelopment projects.
A summary of RioCan’s 2015 transfers to income properties from development projects is as follows:
NLA (in thousands of square feet)
at RioCan’s Interest
2015
Property location
RioCan’s %
ownership
Total
First quarter
50%
12
12
24
Kim Vy Restaurant, Sinjo Restaurant,
Anytime Fitness, University Daycare
Herongate Mall, Ottawa, ON
75%
17
17
23
Dollarama, PetSmart
Centre St Martin, Laval, QC
100%
39
39
39
Giant Tiger Retail & Office
50%
78
78
156
146
146
242
Brentwood Village, Calgary, AB
(i)
Sage Hill Crossing, Calgary, AB
(i)
NLA at 100% Tenants transferred to IPP
Walmart
At the time of transfer of NLA from development property to income property, RioCan owned at 50% interest in Brentwood Village. On March 31,
2015, RioCan acquired the remaining 50% interest in the property and now owns a 100% interest.
57
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
A summary of RioCan’s 2014 transfers to income properties from development projects is as follows:
NLA (in thousands of square feet) at RioCan’s Interest
2014
Property location
RioCan’s %
ownership
Brentwood Village, Calgary, AB
Total
Fourth
quarter
Third
quarter
Second
quarter
First
quarter
NLA at
100% Tenants transferred to IPP
50%
12
—
—
—
12
24 University City retail
Centre St. Martin, Laval, QC
100%
34
—
—
—
34
34 Pharma Prix, Rossy
Collingwood Centre,
Collingwood, ON
100%
82
—
75
7
—
81 Sobeys Expansion,
Winners, Sport Chek,
Carter's, Dollarama, Bed
Bath & Beyond
Yonge & Erskine, Toronto, ON
50%
6
6
—
—
—
12 TD Bank
100%
26
—
—
26
—
26 Gold's Gym
Kennedy Commons, Toronto, ON
50%
43
—
43
—
—
85 Michaels, LA Fitness
Mississauga Plaza, Toronto, ON
100%
50
—
50
—
—
50 LA Fitness
Niagara Falls Plaza, Toronto, ON
100%
41
—
41
—
—
41 LA Fitness
Northumberland Square,
Miramichi, NB
100%
43
—
20
—
23
43 Giant Tiger, Winners
RioCan Fairgrounds, Orangeville,
ON
100%
28
—
—
28
—
28 Walmart Expansion
50%
78
—
78
—
—
Timmins Square, Timmins, ON
30%
10
—
5
—
5
Corbett Centre, Fredericton, NB
100%
26
—
26
—
—
East Hills, Calgary, AB
40%
52
—
—
52
—
Grant Crossing, Ottawa, ON
60%
20
—
3
17
—
Herongate Mall, Ottawa, ON
75%
7
—
—
7
—
RioCan Centre Belcourt,
Orleans, ON
60%
38
—
—
38
—
63 Dollar Tree, Toys R Us,
H&R Block, Beyond the
Batter
Southbank Centre, Okotoks, AB
50%
26
—
—
14
12
53 Sport Chek, Ardene,
Carters, Solo Liquor,
GoodLife Fitness
Tanger Outlets Ottawa, Ottawa,
ON
50%
159
—
159
—
—
The Stockyards, Toronto, ON
50%
221
—
20
—
201
1,002
6
520
189
287
Galeries Laurentides, St.Jerome, QC
Tanger Outlets Cookstown,
Cookstown, ON
156 Carter's, Guess, Toys R
Us, Nike, American Eagle,
Puma, Eddie Bauer,
Multiple national tenants
31 Ardene
26 HomeSense, Hallmark
130 Walmart
33 Dollarama, JYSK, Urban
Barn
9 Shawarma Prince, Flashy
Nails, Extreme Pita,
Gabriels Pizza
318 Carter's, American Eagle,
Eddie Bauer, Gap, Guess,
Subway, Old Navy,
Multiple national tenants
442 Old Navy, Winners, Linen
Chest, Sport Chek,
PetSmart, Michaels,
Multiple national tenants
1,685
Development Pipeline Summary
The fair market value of properties under development, including properties under development held for sale, at March 31, 2015
is $757 million (March 31, 2014 - $674 million), which includes costs of $762 million (March 31, 2014 - $659 million) and a
cumulative fair value reduction of $5 million (March 31, 2014 - increment of $15 million).
As at March 31, 2015, RioCan’s greenfield development and urban intensification pipeline will, upon completion, comprise
approximately 6,972,000 square feet, which includes approximately 577,000 square feet which is already income producing.
RioCan’s ownership interest will be approximately 3,840,000 square feet.
58
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following tables represent the components of properties under development type and status as of:
(thousands of dollars)
Active
As at March 31, 2015
Noncommitted
Committed
Non-active
Total
Comprised of:
Greenfield Development
$
$
65,322
108,378
130,611
Expansion and Redevelopment
$
—
$
171,600
—
238,989
227,808
31,981
—
259,789
Excess Density
—
—
81,974
81,974
Other (i)
—
—
4,184
$
(i)
106,278
Urban Intensification
442,464
$
227,914
$
86,158
4,184
$
756,536
including earnouts and other.
(thousands of dollars)
Active
As at March 31, 2014
Noncommitted
Committed
Non-active
Total
Comprised of:
Greenfield Development
$
Urban Intensification
$
73,995
$
—
$
341,755
33,480
101,381
—
134,861
121,604
29,870
—
151,474
Excess Density
—
—
40,905
40,905
Other (i)
—
—
5,252
5,252
Expansion and Redevelopment
$
(i)
267,760
422,844
$
205,246
$
46,157
$
674,247
including earnouts and other.
Definitions
Greenfield Development - vacant land located in suburban markets.
Urban Intensification - development or redevelopment projects located in urban markets.
Expansion and Redevelopment - projects that will improve the property through demolition, renovation and/or the addition of
density.
Excess Density - leasable area identified and available for future development if and when market demand exists.
Active Committed - a property where the pro forma budget has been approved, all major planning issues have been resolved,
tenants have been secured and construction is about to start or has started.
Active Non-committed - a property where the development team is creating the pro forma budget, all planning issues are being
resolved, the leasing team is in the process of securing tenants, but construction has not started.
Non-active - a property that has future development potential.
On an individual development basis, the majority of the urban and residential projects are estimated to generate NOI yields of
approximately 5% to 8%. On an aggregate basis, RioCan expects these development projects to generate a weighted average
NOI yield of 6% to 8%. Capital expenditures for active projects for the remainder of 2015 are estimated to be approximately $102
million. During the quarter ended March 31, 2015, total costs incurred were approximately $40 million, excluding mezzanine
loans advanced of approximately $0.9 million.
RioCan is committed to property development and redevelopment opportunities and is focused on completing the construction of
the development pipeline underway, on time and on budget, and continuing to make progress on leasing. Commencement of
construction for several of the development projects have been deferred until economic conditions warrant. Potential anchor
tenants are currently more cautious in committing to new developments, which will impact the timing of several developments, as
RioCan will not commence construction until it has secured the requisite leasing commitments and appropriate risk-adjusted
returns.
RioCan’s estimated development project square footage and development costs are subject to change, which changes may be
material to the Trust, as assumptions regarding, among other items, anchor tenants, tenant rents, building sizes, project
completion timelines, availability and cost of construction financing, and project costs, are updated periodically based on revised
site plans, the cost tendering process and continuing tenant negotiations.
Development activity is expected to increase in the upcoming years due to demand from U.S.-based tenants entering the
Canadian market and the demand from existing tenants, especially in urban locations. Due to the economic recession of the last
few years, the level of development in general has been low across the country.
59
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Estimated Spending Summary by Development Category – Active Projects
(thousands of dollars)
2015 (i)
Greenfield Development
$
22,509 $
2016
33,483 $
2017+
FD (ii)
10,129 $
Total
213,437 $
279,558
964,388
Urban Intensification
13,833
77,997
104,284
768,274
Expansion & Redevelopment
65,284
147,701
29,286
—
242,271
101,626
259,181
143,699
981,711
1,486,217
94
130
—
Total Construction Expenditures Funded by RioCan (iii)
Mezzanine Funding Obligation (iv)
Total RioCan Funding Requirements
$
101,720 $
259,311 $
(1,826)
143,699 $
(1,602)
979,885 $ 1,484,615
(i) For the remainder of 2015.
(ii) Future Development - projected costs to build NLA not leased.
(iii) Includes project costs funded by RioCan construction lines.
(iv) Credits reflect proceeds from potential land parcel sale.
The NLA of development pipeline expected to be completed by year, as at March 31, 2015 is as follows:
(thousands of square feet)
NLA - 100%
NLA - RioCan%
IPP(i)
2015
2016
2017
Greenfield Development
2,877
1,838
316
52
189
854
427
Urban Intensification
4,095
2,002
54
—
76
343
1,530
Sub-total
6,972
3,840
370
52
265
1,197
1,956
Expansion & Redevelopment
1,432
1,035
—
166
650
219
—
Total
8,404
4,875
370
218
915
1,416
1,956
(i)
2018+
Phases of the development pipeline that are currently income producing (at RioCan's interest).
The development (including expansions and redevelopment projects) pipeline NLA expected to be completed by year, as at
March 31, 2015 is as follows:
Subject to pre-leasing and market conditions
Greenfield Development
RioCan’s current greenfield development pipeline consists of five properties that are expected to add approximately 2,877,000
square feet (1,838,000 square feet at RioCan’s interest) of space upon completion over the next six years. 470,000 square feet
(315,500 square feet at RioCan’s interest) is already income producing. RioCan is committed to property development and
redevelopment opportunities and is focused on completing its existing development pipeline. These developments will be an
important component of RioCan’s organic growth strategy over time. RioCan’s development program is focused on well-located
urban and suburban land in the six major market markets in Canada. RioCan’s projected returns on development properties are
higher than the returns that can be generated through properties that are purchased. Furthermore, population growth over time
will lead to improved tenant sales and further increases in rent at these properties as tenants renew upon expiry of their original
term. Development properties that have been completed by RioCan and its partners during the last fifteen years contribute
significantly to RioCan’s existing growth.
60
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Highlights of RioCan’s greenfield development pipeline as at March 31, 2015, are as follows:
Estimated square feet upon completion of the
development project
(thousands of
square feet)
RioCan’s
%
ownership
Retailer
owned
anchors RioCan’s
(i)
interest
Anticipated date of
development completion
Total
leasing
activity
%
Current
(ii) Leased development
Partners
Anchors
Total
estimated
development
CPP /
Lansdowne /
40%
Tristar
Walmart,
Cineplex
886
160
290
436
329
45%
Q2 2016
2018
283
—
283
—
195
69%
Q2 2016
2017
394
—
197
197
297
75%
Q2 2016
2016
1,563
160
770
633
821
59%
96
74
7
15
—
—%
2016
2017 (iii)
Partners’
interests
Potential
future
developments
Greenfield
Development
Properties:
East Hills, Calgary,
AB*
Flamborough
Power Centre,
Hamilton, ON
100%
Sage Hill, Calgary,
AB*
50%
KingSett
Walmart,
Loblaws,
London
Drugs
Greenfield
Developments –
Committed
RioCan Centre
Vaughan,
Vaughan, ON Ph 3
31.25%
Windfield Farms,
Oshawa, ON *
Trinity /
Strathallan
1,218
157
1,061
—
—
—%
Greenfield
Developments –
Non-committed
1,314
231
1,068
15
—
—%
Total Greenfield
Developments
2,877
391
1,838
648
821
33%
(i)
(ii)
(iii)
*
100%
Retailer owned anchors include both completed and contemplated sales.
Leasing activity includes leasing that is conditional on receiving municipal approvals and meeting construction deadlines.
The first phases are expected to be substantially complete by the date indicated.
Property represents one of RioCan’s 15 properties under development.
Acquisition and development expenditures incurred to date
RioCan’s interest
(thousands of dollars)
RioCan’s
%
ownership
Estimated
project cost
(100%) (i)
Amount
included in
IPP
Amount
included in
PUD
Total
Partners’
interest
Total
Estimated remaining
construction
expenditures to complete
RioCan’s
interest
Partners’
interest
Total
Greenfield Development
Properties:
East Hills, Calgary, AB
Flamborough Power Centre,
Hamilton, ON
Sage Hill, Calgary, AB
40% $
308,314 $
61,753
31,405
7,560
38,965
—
38,965
22,788
—
22,788
50%
112,322
5,695
18,325
24,020
21,909
45,929
33,197
33,197
66,394
—
6,834
6,834
—
6,834
—
—
—
482,389
37,583
106,278
143,861
116,230
260,091
111,965
117,167
229,132
31.25%
10,395
—
7,785
7,785
11,154
18,939
100%
223,476
—
53,211
53,211
—
53,211
170,265
—
170,265
—
4,326
4,326
—
4,326
—
—
—
65,322
65,322
11,154
76,476
167,595
Greenfield Developments –
Committed
Windfield Farms, Oshawa, ON
Fair value adjustments
Greenfield Developments –Noncommitted
Total Greenfield Developments
(i)
(ii)
73,559 $ 74,042 $ 94,321 $168,363 $ 55,980 $ 83,970 $139,950
100%
Fair value adjustments
RioCan Centre Vaughan, Vaughan,
ON Ph 3 (ii)
483 $
233,871
$
716,260 $
—
37,583 $
(2,670)
(5,874)
(8,544)
(5,874) 161,721
171,600 $209,183 $ 127,384 $336,567 $ 279,560 $ 111,293 $390,853
Proceeds from sale to shadow anchors reduce projected cost.
Credits reflects proceeds from a potential land parcel sale.
61
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Estimated remaining development activity to be funded by RioCan
2015
(thousands of
dollars)
RioCan’s
%
ownership
RioCan’s
interest
2016
Mezzanine
financing
RioCan’s
interest
2017 & Thereafter
Mezzanine
financing
RioCan’s
interest
Future Development
Mezzanine
financing
RioCan’s
interest
Mezzanine
financing
Total
RioCan’s
interest
Mezzanine
financing
Greenfield
Development
Properties:
East Hills,
Calgary, AB
Flamborough
Power Centre,
Hamilton, ON
40% $
2,698 $
— $ 21,603 $
— $
100%
1,860
—
—
—
50%
16,078
—
9,302
20,636
—
Sage Hill,
Calgary, AB
Greenfield
Developments
–Committed
7,666 $
— $ 24,013 $
— $ 55,980 $
—
—
—
20,928
—
22,788
—
—
—
—
7,816
—
33,196
—
30,905
—
7,666
—
52,757
—
111,964
—
(3,043)
RioCan Centre
Vaughan,
Vaughan, ON
Ph 3 (i)
31.25%
157
94
216
130
—
—
Windfield Farms,
Oshawa, ON
100%
1,716
—
2,362
—
2,463
—
163,723
1,873
94
2,578
130
2,463
—
160,680
Greenfield
Developments
–Noncommitted
Total Greenfield
Developments
(i)
$ 22,509 $
94 $ 33,483 $
130 $ 10,129 $
— $ 213,437 $
(1,826)
—
(1,826)
(2,670)
(1,602)
170,264
167,594
(1,826) $ 279,558 $
—
(1,602)
(1,602)
Credits reflects proceeds from a potential land parcel sale.
A summary of first quarter 2015 highlights from RioCan’s Greenfield Development projects are as follows:
East Hills - Calgary, Alberta
Development continues at the site which is anchored by a 130,000 square foot Walmart that opened in March 2014. An
additional 67,000 square feet of retail space is currently under construction which is expected to be completed by mid-2016.
Tenants including CIBC, TD Bank and Sleep Country Canada are expected to commence operations in Q3 2015. In addition,
construction is scheduled to begin in the third quarter of 2015 on an additional 134,000 square feet of retail space. This building is
expected to be completed by early 2016. Tenants including Marshalls, Michaels, Petsmart, Bed Bath & Beyond, Sport Chek,
Mark’s Work Wearhouse and Dollarama are expected to commence operations during the second quarter of 2016. A conditional
deal has been completed with Costco to purchase approximately 14.8 acres of the site. It is anticipated that Costco will
commence construction of a 160,000 square foot store in the third quarter of 2015 and commence operations during the second
quarter of 2016.
Flamborough Power Centre - Flamborough, Ontario
This 25-acre site is currently being developed into a 283,000 square foot new format retail centre. An 8,000 square foot pad is
leased to Investors Group, which will commence operations in first quarter of 2016. An additional 96,000 square feet of retail
space is available to be developed at the property,
Sage Hill - Calgary, Alberta
Construction is complete on the 153,000 square foot Walmart premises. The Grand Opening occurred on January 29, 2015. The
balance of the centre is currently under construction with Loblaws slated to open in Q4 2015 and the remainder of the tenants
over the course of 2016.
Urban Intensification
A focus within RioCan’s development growth strategy is urban development and intensification. RioCan’s current urban
development pipeline consists of eight properties that are expected to add approximately 4,095,000 square feet (2,002,000
square feet at RioCan’s interest) of space upon completion over the next six years, excluding condominium units that will be sold.
RioCan’s urban development program currently is focused on properties located in densely populated areas in the urban cores of
Toronto and Calgary.
Land use intensification opportunities arise from the fact that retail centres are generally built with lot coverages of approximately
25% of the underlying land. Therefore, particularly in urban markets, RioCan can seek to obtain additional density, retail or
otherwise, on its existing property portfolio and, as the land is already owned, it anticipates achieving strong returns on new
construction. Population growth is significant in these areas and retailers want locations that are able to access this
population. RioCan’s urban development program will serve that demand and returns on these properties will contribute
significantly to RioCan’s growth strategy over time. As a result of the aforementioned population growth, cities are building
infrastructure to serve this population that will benefit RioCan’s urban development growth strategy.
62
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Highlights of RioCan’s urban intensification pipeline as at March 31, 2015, are as follows:
Estimated square feet upon completion of the
development project
(thousands of
square feet)
RioCan’s
%
ownership
Partners
Anticipated date of
development completion
Anchors
Total
estimated
development
Retailer
owned
anchors(i)
RioCan’s
interest
Partners’
interests
Total
leasing
%
activity(ii) Leased
Current
development
Potential
future
developments
Whole
Foods
76
—
76
—
70
92%
Q2 2016
2016
145
—
145
—
52
36%
2017
170
—
85
85
102
60%
2018
434
—
217
217
18
4%
2018
825
—
523
302
242
29%
114
—
57
57
59
52%
2018
Urban
Intensification
Properties:
1860 Bayview
Avenue,
Toronto, ON*
100%
Bathurst Street &
College Street,
Toronto, ON*
100%
—
CPA Lands,
Calgary, AB*
50%
KingSett
NE Yonge
Eglinton,
Toronto, ON*
(iv)
50%
Metropia /
Bazis
Loblaws
Urban
Intensification
–Committed
College &
Manning,Toron
to, ON*
Dupont Street,
Toronto, ON*
The Well, Toronto,
ON* (iv)
King & Portland,
Toronto, ON*
50%
Allied
100%
192
—
192
—
—
—%
2020
40%
Allied /
Diamond
2,520
—
1,008
1,512
—
—%
2019 (iii)
50%
Allied
2017
444
—
222
222
48
11%
Urban
Intensification Non-committed
3,270
—
1,479
1,791
107
3%
Total Urban
Intensification
4,095
—
2,002
2,093
349
9%
(i)
(ii)
(iii)
(iv)
*
Retailer owned anchors include both completed and contemplated sales.
Leasing activity includes leasing that is conditional on receiving municipal approvals and meeting construction deadlines.
The first phases are expected to be substantially complete by the dates indicated.
Includes amounts for offices, retail and residential apartments only (excludes residential condominiums).
Property represents one of RioCan’s 15 properties under development.
Acquisition and development expenditures incurred to date
(thousands of dollars)
RioCan’s
%
ownership
Estimated
project
cost
(100%) (i)
Estimated remaining construction
expenditures to complete
RioCan’s interest
Amount
included in
IPP
Amount
included in
PUD
Total
Partners’
interest
Total
RioCan’s
interest
Partners’
interest
Total
Urban Intensification Properties:
1860 Bayview Avenue, Toronto, ON
100% $
Bathurst Street & College Street,
Toronto, ON
56,831 $
— $
28,355 $
28,355 $
— $ 28,355 $ 28,476 $
— $
28,476
100%
91,591
—
26,481
26,481
—
26,481
65,110
—
65,110
CPA Lands, Calgary, AB
50%
127,441
—
11,624
11,624
10,626
22,250
52,596
52,596
105,192
NE Yonge Eglinton, Toronto, ON
50%
233,637
126
33,432
33,558
32,419
65,977
83,830
83,830
167,660
8,487
8,487
Fair value adjustments
8,487
509,500
126
108,379
108,505
43,045
151,550
230,012
136,426
366,438
50%
52,036
8,545
4,710
13,255
12,027
25,282
13,377
13,377
26,754
100%
98,637
—
15,187
15,187
—
15,187
83,450
—
83,450
The Well, Toronto, ON
40%
1,566,331
691
77,809
78,500
110,446
188,946
550,954
826,431
1,377,385
King & Portland, Toronto, ON
50%
221,253
10,460
14,638
25,098
22,961
48,059
86,597
86,597
173,194
—
18,266
18,266
—
18,266
—
—
—
19,696
130,610
150,306
145,434
295,740
734,378
926,405
1,660,783
Urban Intensification – Committed
College & Manning,Toronto, ON
Dupont Street, Toronto, ON
Fair value adjustments
Urban Intensification - Noncommitted
Total Urban Intensification
(i)
1,938,257
$2,447,757 $
19,822 $ 238,989 $ 258,811 $ 188,479 $447,290 $ 964,390 $1,062,831 $2,027,221
Proceeds from sale to shadow anchors reduce projected cost, and exclude potential condominium residential units.
63
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Estimated remaining development activity to be funded by RioCan
2015
(thousands of
dollars)
RioCan’s
%
ownership
RioCan’s
interest
2016
Mezzanine
financing
RioCan’s
interest
2017 & Thereafter
Mezzanine
financing
RioCan’s
interest
Future Development
Mezzanine
financing
RioCan’s
interest
Mezzanine
financing
Total
RioCan’s
interest
Mezzanine
financing
Urban Intensification
Properties:
1860 Bayview
Avenue, Toronto,
ON
100% $
Bathurst Street &
College Street,
Toronto, ON
— $
— $ 28,476 $
— $
— $
— $
— $
— $ 28,476 $
—
100%
1,431
—
29,114
—
27,065
—
7,500
—
65,110
—
CPA Lands, Calgary,
AB
50%
1,800
—
577
—
602
—
49,616
—
52,595
—
NE Yonge Eglinton,
Toronto, ON (i)
50%
6,451
—
14,821
—
62,558
—
—
—
83,830
—
9,682
—
72,988
—
90,225
—
57,116
—
230,011
—
50%
217
—
212
—
442
—
12,505
—
13,376
—
Urban Intensification
– Committed
College &
Manning,Toronto,
ON
Dupont Street,
Toronto, ON
100%
490
—
674
—
1,406
—
80,880
—
83,450
—
The Well, Toronto,
ON
40%
2,666
—
3,460
—
10,828
—
534,000
—
550,954
—
King & Portland,
Toronto, ON
50%
778
—
663
—
1,383
—
83,773
—
86,597
—
4,151
—
5,009
—
14,059
—
711,158
—
734,377
—
Urban Intensification
– Non-committed
Total Urban
Intensification
(i)
$ 13,833 $
— $ 77,997 $
— $ 104,284 $
— $ 768,274 $
— $ 964,388 $
—
Cost to complete to be financed by construction line.
A summary of first quarter 2015 highlights from RioCan’s Urban Intensification projects are as follows:
1860 Bayview Avenue - Toronto, Ontario
1860 Bayview Avenue is currently a development site located at the northwest corner of Bayview Avenue and Broadway Avenue
in the Leaside area of Toronto. Once completed, the centre will consist of approximately 76,000 square feet of retail space and
will be anchored by a 52,500 square foot Whole Foods grocery store. RioCan acquired a 100% interest in the site on a forward
purchase basis in the first quarter of 2014. The project has received zoning approval and development is expected to be
completed by Q2 2016.
Bathurst Street and College Street - Toronto, Ontario
This 1.3 acre site is located just west of the downtown core in Toronto near Bathurst and College Street. The property will be developed
into 145,000 square foot three storey urban retail building. On July 15, 2014, the Ontario Municipal Board (OMB) endorsed the
settlement between the City and RioCan with respect to a 4-storey commercial building at 410-444 Bathurst Street, and approved
a zoning amendment and site plan to implement the settlement. The OMB’s order in respect of the zoning appeal and site plan
referral is conditional on implementing the City’s conditions of site plan approval. Site plan approval is expected to be finalized by
July 2015.
CPA Lands - Calgary, Alberta
This 2.8 acre site is located in the East Village area of downtown Calgary, Alberta. The site is one of downtown Calgary’s few
remaining privately owned full city blocks. The site was acquired in the second quarter of 2013 on a 50/50 joint venture basis
between RioCan and KingSett. The property will be developed as a mixed use project. The site is zoned for the proposed
development and RioCan has submitted for a development permit, which the Trust expects to receive in September 2015.
Development of this site is anticipated to commence in 2016.
Yonge Street & Eglinton Avenue East - Toronto, Ontario
Construction on this site began in April 2014. The demolition of the TD Bank branch took place in Q4 2014 and the demolition of the
remaining residential apartment building is scheduled for Q2 2015. It is anticipated that the project will contain a 58 floor condominium
tower and a 36 floor residential rental tower as well as 57,000 square feet of retail and commercial space featuring a flagship TD
Bank branch. The rental tower will have 458 units and the condominium will have 621 units, of which all but one unit have been
pre-sold as of the date of this report. The project is expected to be completed by 2018. The site is zoned for the proposed
development. The demolition of the remaining residential apartment building has commenced.
64
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
College Street and Manning Avenue - Toronto, Ontario
This site is comprised of 551-555 College Street, formerly owned exclusively by Allied and 547 and 549 College Street, formerly
owned exclusively by RioCan. Given the strategic downtown location of each respective property, Allied and RioCan have formed
a 50-50 joint venture partnership to create a mixed use development including office, retail and residential space. Upon
completion, the development shall be 114,000 square foot site, including approximately 59,000 square feet that is currently
income producing, 49,000 square feet of residential rental density and 6,000 square feet of retail space, featuring 185 feet of
frontage on College Street. This site was successfully re-zoned for the proposed development during July 2014.
Dupont Street - Toronto, Ontario
This 1.4 acre site, located on Dupont Street near Christie Avenue, is north-west of the downtown core of Toronto. The site is
expected to be developed into 192,000 square foot eight storey mixed use urban retail and residential building. RioCan has a
100% ownership interest in the site. A rezoning application was submitted during July 2014. RioCan expects to have zoning
approvals in place by mid 2016.
The Well - Toronto, Ontario
This 7.74 acre site is currently the home of The Globe & Mail newspaper and is located on part of a large city block bounded by
Spadina Avenue, Front Street, Draper Street and Wellington Street. The site is in close proximity to Toronto's downtown office
corridor and adjacent to a large and growing residential population. The property will be redeveloped as a mixed-use
development that will include approximately 1,611,000 square feet of retail and office space, 909,000 square feet of residential
rental units and 461,000 square feet of condominium space that will become a landmark destination to live, work and shop in
Toronto. The ownership structure of the property is RioCan 40%, Allied 40% and Diamond 20%. A rezoning application was filed
during February 2014 and the Trust expects to have zoning approvals in place by the third quarter of 2015.
King Street & Portland Street - Toronto, Ontario
This site is comprised of 602-606 & 620 King Street West, formerly owned exclusively by Allied Properties REIT, and adjacent
properties extending from King Street West through to Adelaide Street West that Allied and RioCan acquired jointly. Given the
site’s premier location in the heart of the affluent King West neighbourhood, Allied and RioCan have formed a 50/50 joint venture
partnership to create one property, with frontage on King Street West, Portland Street and Adelaide Street West. Upon
completion, the site will obtain a mixed use office, retail and residential complex with approximately 444,000 square feet of gross
floor area. A rezoning application was filed in August 2013. RioCan expects to have zoning approvals in place by July 2015.
Expansion & Redevelopment
RioCan’s expansion and redevelopment project costs for the remainder of 2015 are currently expected to be approximately $65
million. As at March 31, 2015, RioCan’s expansion and redevelopment pipeline will, upon completion, comprise approximately
1,432,000 square feet, of which RioCan’s ownership interest will be approximately 1,035,000 square feet. RioCan's expansion
and redevelopment projects exclude condominium units that will be sold.
Highlights of RioCan’s expansion and redevelopment projects are as follows:
65
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
(thousands of square
feet, thousands of
dollars)
As at March 31, 2015
491 College Street,
Toronto, ON
Estimated project cost
RioCan’s %
ownership
Tenant(s)
50%
Project
NLA
RioCan’s
interest
Partners’
interest
Total
Historical
costs (i)
5,544 $ 11,088 $
3,964 $
Development
expenditures
to date at
RioCan’s
interest
Sub-total
Costs
Incurred
to date
2015
2016
2017+
4,307 $
137 $
2,798 $
3,807
3,807
514
3,279
—
4,444
957
5,401
2,402
664
—
30 $
5,544 $
Corbett Centre,
Fredericton, NB
Sleep
Country
100% Canada
32
7,600
—
7,600
—
Eglinton Avenue &
Warden Avenue,
Toronto, ON
Dentist,
Mucho
Burrito,
100% Popeyes
15
4,023
—
4,023
343 $
Estimated remaining
development activity
at RioCan’s interest
2,266
Herongate Mall,
Ottawa, ON
75% Fit For Less
43
5,989
1,996
7,985
4,759
2,112
6,871
3,878
—
—
Kennedy Commons,
Toronto, ON
Kitchen Stuff
Plus,
50% McDonald's
15
1,293
1,293
2,586
800
795
1,595
498
—
—
Mill Woods Town
Centre,
Edmonton, AB
Lenscrafters,
40% Cellicon
10
373
552
925
1,148
244
1,392
129
—
—
RioCan Centre
Victoria, Whitby,
ON
50%
174
16,270
16,270
32,540
9,004
1,519
10,523
3,088
11,663
—
115
30,236
—
30,236
17,381
5,467
22,848
11,563
8,726
4,479
RioCan Colossus
Centre, Vaughan,
ON
Bed Bath &
Beyond, Buy
Buy Baby,
100% Staples
RioCan Hall, Toronto,
ON
100% Michaels
32
2,843
—
2,843
14,600
1,359
15,959
1,484
—
—
Shoppers City East,
Ottawa, ON*
Shoppers
Drug Mart,
63% Beer Store
47
7,155
4,238
11,393
18,487
2,713
21,200
—
4,442
—
Tanger Outlets Kanata, Kanata,
ON
50%
79
13,786
13,786
27,572
5,754
2,597
8,351
3,985
7,203
—
The Stockyards,
Toronto, ON
50%
20
1,652
1,652
3,304
6,700
168
6,868
—
1,484
—
West Ridge Place,
Orillia, ON
PetSmart,
100% Fit for Less
23
897
—
897
2,900
361
3,261
536
—
—
Yonge & Eglinton
Centre, Toronto,
ON
Winners,
Cineplex
100% Expansion
45
87,479
—
87,479
8,600
72,066
80,666
15,413
—
—
104
79,123
79,123
158,246
21,900
8,008
29,908
21,242
37,244
12,630
—
—
—
—
4,850
—
4,850
—
—
—
784
264,263
124,454
388,717
125,291
102,516
227,807
64,869
77,503
19,375
Yonge Sheppard
Centre, Toronto,
ON (ii)
Longos, LA
Fitness, Mall
50% Renovation
Fair Value
Adjustments
Total Committed
Expansion and
Redevelopment
properties
Brookside Mall,
Fredericton, NB
50% TBD
70
2,097
2,097
4,194
261
1,081
1,342
—
1,017
—
Les Factoreries
Tanger - Bromont,
Bromont, Quebec
50% TBD
70
8,936
8,936
17,872
1,340
144
1,484
—
8,792
—
Les Factoreries
Tanger - SaintSauveur, Saint
Sauveur, Quebec
50% TBD
19
3,062
3,062
6,124
279
98
377
—
2,964
—
Mega Centre NotreDame, Dorothee,
Quebec
100% TBD
181
39,017
—
39,017
12,450
1,492
13,942
—
37,525
—
RioCan Centre
Barrie, Barrie,
Ontario
100% TBD
26
8,421
—
8,421
1,486
872
2,358
—
7,549
—
RioCan Centre
Burloak, Oakville,
Ontario
50% TBD
141
7,986
7,986
15,972
4,959
1,140
6,099
71
2,703
4,071
Timiskaming Square,
New Liskeard, ON
100% TBD
79
3,536
—
3,536
1,445
671
2,116
—
2,865
—
Westney Road &
Taunton Road,
Ajax, ON
100% TBD
62
13,687
—
13,687
10,605
720
11,325
344
6,783
5,840
—
—
—
—
—
—
—
648
86,742
22,081
108,823
415
70,198
9,911
Fair Value
Adjustments
Total Non-committed
Expansion and
Redevelopment
properties
Total
(i)
(7,064)
25,761
1,432 $ 351,005 $ 146,535 $ 497,540 $ 151,052 $
—
6,218
(7,064)
31,979
108,734 $ 259,786 $ 65,284 $ 147,701 $ 29,286
Historical Costs - Carrying amounts transferred from IPP for former anchors targeted for redevelopment.
66
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
(ii)
*
Yonge Sheppard Centre's interior mall retrofit is excluded from NLA, however, it is included in estimated project costs. Condo related NLA and
costs are excluded from the table.
Property represents one of RioCan’s 15 properties under development.
A summary of first quarter 2015 highlights from RioCan’s Expansion and Redevelopment projects are as follows:
Corbett Centre - Fredericton, New Brunswick
Construction of a new 5,000 square foot Sleep Country began in Q3 2014. The tenant took possession of their premises in March
2015 and is expected to commence operations in May 2015.
Herongate Mall - Ottawa, Ontario
During the first quarter of 2015, construction was completed on a building occupied by a 12,000 square foot PetSmart and a
10,000 square foot Dollarama. Dollarama took possession of their premises in January 2015 and commenced operations during
the first quarter of 2015. PetSmart took possession of their premises during February and commence operations during the first
quarter of 2015. A deal has been completed with a 15,000 square foot Fit for Less. Construction will commence on the extension
of this building property during the third quarter of 2015.
Kennedy Commons - Scarborough, Ontario
The redevelopment of a former AMC Theatre is close to completion. A newly constructed 45,000 square foot LA Fitness and a
23,000 square foot Michael’s have commenced operations. Sleep Country and Kitchen Stuff Plus are expected to commence
operations in the second quarter of 2015.
RioCan Centre Victoria - Whitby, Ontario
A lease buyout was completed with a tenant in March 2015 which will allow the landlord to redevelop the site. Negotiations are
currently underway with a national retailer who would lease approximately 70,000 square feet. Providing this deal is finalized, the
former Rona premises would be demolished and new construction would commence during 2016. A total of 174,000 square feet
can be developed on this site.
RioCan Colossus Centre, Vaughan, Ontario
A lease buyout was completed with Rona during December 2013. The former Rona premises were demolished in late-2014.
Leases have been completed with a 28,000 square foot Bed Bath & Beyond, a 22,000 square foot Buy Buy Baby, a 20,000
square foot Staples and a 10,000 square foot Party City. Site plan approval is expected to be received in July 2015.
Construction of approximately 115,000 square feet is expected to commence during the third quarter of 2015 and tenants are
expected to commence operations in mid-2016.
Tanger Outlets - Ottawa, Kanata, Ontario
Construction is complete on the 299,000 Phase 1 of this outlet mall format site. The Grand Opening was held in October 2014.
Tenant such as Polo Ralph Lauren, J. Crew, Nike, The Gap, Banana Republic, Coach, Under Armour, Michael Kors, and Brooks
Brothers among other outlet format tenants have reported excellent sales. A second phase featuring 51,000 square feet will commence
construction in 2015. Additional leases currently are under negotiation for phase II.
The Stockyards - Toronto, Ontario
Tenant openings continued in the first quarter of 2015 in this unique 551,000 square foot two storey urban retail centre. Two tenants
aggregating approximately 4,000 square feet commenced operations in the first quarter of 2015 including Chipotle and Westclair
Dental. Numerous other tenants including Anytime Fitness are expected to commence operations during the second quarter of 2015.
Yonge & Eglinton Centre - Toronto, Ontario
Construction of the retail expansion is nearing completion and will include 45,000 square feet of new retail, a connection to the office
towers and ingress/egress to the food court and subway. Leases have been executed with Winners and Cineplex VIP Theatres,
which will be expanding their current premises. The project is scheduled to be completed by the fourth quarter of 2015.
Sheppard Centre - Toronto, Ontario
This 6.18 acre site is comprised of approximately 599,000 rentable square feet (retail and office), 1,722 underground parking stalls
and the potential to accommodate 421,000 square feet of development area, including 317,000 square feet of residential rental units
and 104,000 square feet of commercial space (63,000 square feet of net new commercial space), of which 54,000 square feet has
been leased to Longo’s grocery store and 50,000 square feet has been leased to LA Fitness. The ownership structure of the property
is RioCan 50% and KingSett 50%. A rezoning application was filed in 2013 and the Trust expects to have zoning approvals as well
as final site plan agreement in place by the fourth quarter of 2015.
Excess Density
In addition to RioCan’s various development projects, the Trust contributes to portfolio growth through the intensification of
existing properties where RioCan has identified opportunities to increase density or add to an existing asset. This intensification
of existing properties is an important component of RioCan’s organic growth strategy. As at March 31, 2015, RioCan’s total
excess density fair market value is $82 million and its potential consists of approximately 2 million square feet, of which RioCan’s
ownership interest will be approximately 1.5 million square feet.
67
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Residential Development
RioCan is committed to ensuring that the individual properties in its portfolio are utilized to their highest and best use. While there
are numerous ways to utilize its existing properties beyond their current use of conventional retail centres, RioCan has focused on
mixed use projects containing predominantly multi-residential rental buildings. RioCan has identified 46 properties that it deems to
be strong intensification opportunities. These are in the six major urban markets and are typically located in the vicinity of substantive
transit infrastructure. RioCan’s objective is to develop approximately 18,000 apartment 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.
There are numerous attributes that attracted RioCan to the multi-unit residential sector. The addition of a residential component will
enhance the value of the underlying retail element of the property. It is a sector that allows a steady and continuous income stream
with a growth profile that will serve as a hedge against inflation. The residential rental sector serves as a healthy diversification to
RioCan’s retail portfolio. Given the extent of this initiative, RioCan will possess a scale that will result in numerous efficiencies going
forward. RioCan owns the underlying land, often at irreplaceable transit oriented locations, thus giving it the unique opportunity to
create a tremendous amount of value. Finally, residential rental will typically attract favourable financing terms based on the availability
of CMHC insurance.
RioCan has established a team to carry forward the residential rental initiative, drawing from its existing areas of expertise. The
team is comprised of existing RioCan executives as well as third-party consultants. As the initiative continues to grow, additional
resources will be added to the platform to facilitate such growth.
RioCan has filed applications for rezoning eight mixed use projects which, upon completion, should comprise a total of 5,662,000
square feet, of which approximately 2,520,000 square feet will be residential rental units held for long-term rental income;
approximately 952,000 square feet will be condominiums for sale; and 2,190,000 square feet will be incremental commercial gross
leasable area. This would permit RioCan to have an interest in approximately 2,992 residential units. 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. The figures in the chart below and those noted herein are at 100% interest and as at May 4, 2015. In some cases,
RioCan has partners and, therefore, does not hold a 100% interest.
Property
Location
Application
Submission
Date
Ownership (%)
Commercial
Residential
Rental (i)
Condominium
491,000
Yonge Eglinton
Northeast Corner
Toronto,
ON
January 2012
50% (Metropia/
Bazis)
57,000
377,000
Sunnybrook Plaza (ii)
Toronto,
ON
December 2014
100%
25,000
375,000
College & Manning
(iii)
Toronto,
ON
September 2013
50% (Allied)
6,000
740 Dupont Street
Toronto,
ON
July 2014
100%
Sheppard Centre (ii)
Toronto,
ON
May 2013
King & Portland (iii)
Toronto,
ON
August 2013
The Well
Toronto,
ON
Tillicum (iv), (ii)
Victoria,
BC
February 2009
(ii)
(iii)
(iv)
Total
925,000
458
—
400,000
426
49,000
—
55,000
77
87,000
105,000
—
192,000
140
50% (KingSett)
104,000
317,000
—
421,000
374
50% (Allied)
—
396,000
116
2,981,000
1143
292,000
258
5,662,000
2,992
284,000
112,000
40% (Allied /
Diamondcorp)
1,611,000
909,000
50% (Kimco)
16,000
276,000
2,190,000
2,520,000
TOTAL
(i)
Residential
Rental
Units
Potential GLA (square feet at 100%)
461,000
—
952,000
Residential rental gross leaseable area (GLA) represents residential rental units that will produce long-term rental income and excludes any
condominium units that will be sold. The value associated with the residential rental units is included in the Redevelopment tables in the Properties
Under Development section of this MD&A (where applicable).
The development tables currently do not include potential residential density contemplated for this property, but will be updated to include residential
density as the development plan is finalized.
GLA excludes the square footage that is currently generating income.
The value of the potential residential development is currently classified as residential development inventory; RioCan is contemplating keeping these
assets to develop residential units.
RioCan intends to file applications to rezone 19 additional properties by the end of 2015. These proposed redevelopments are
expected to produce approximately 8.2 million square feet, of which 7.5 million square feet is expected to be residential. This
would permit RioCan to have an interest in an additional 9,248 residential units. As these projects are in preliminary stages, there
can be no assurance that any of these developments will be undertaken and if so, on what terms.
68
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 March 31, 2015, the Trust has
$53.0 million of residential development inventory comprising of the following four assets ($80.3 million as at December 31, 2014
comprising of five assets):
•
Tillicum Centre, Victoria, BC (Excess residential density);
•
Stouffville Residential Lands, Stouffville, ON - Residential homes (Trinity);
•
Yonge & Eglinton Northeast Corner, Toronto, ON - Condominium units for sale (Metropia and Bazis Inc.); and
•
CPA Lands, Calgary, AB - Air rights (KingSett).
With respect to excess residential/condominium density, RioCan is considering the potential of retaining such density and
developing residential rental properties.
CPA Lands
RioCan and its partner, KingSett, have entered into an agreement with the developer, Embassy BOSA Inc., to sell up to $30
million in air rights (representing 600,000 square feet) above the CPA development site in Calgary's East Village, along with
approximately $40 million in cost reimbursement for infrastructure works. Embassy BOSA Inc. has waived its due diligence
conditions. The transaction remains subject to a number of both mutual and unilateral normal course development conditions.
The intention is for two residential towers to be erected upon the planned retail podium. The transaction contemplates that
Embassy BOSA Inc. be responsible, on a cost to complete basis, for all incremental costs associated with the residential
component of the overall project.
Mortgages and Loans Receivable
RioCan’s Declaration contains provisions that have the effect of limiting the aggregate value of the investment by the Trust in
mortgages, other than mortgages taken back on the sale of RioCan’s properties, to a maximum of 30% of Adjusted Unitholders’
Equity which is defined in the section, “Presentation of Financial Information and Non-GAAP Measures.” Additionally, RioCan is
limited to the amount of capital that can be invested in non-income producing properties to no more than 15% of the Adjusted
Unitholders’ Equity, which limitation applies to both greenfield development projects and mortgages receivable to fund the coowners’ share of such developments, referred to in this MD&A as mezzanine financing. At March 31, 2015, RioCan was in
compliance with these restrictions.
Contractual mortgages and loans receivable as at March 31, 2015 and December 31, 2014 are comprised of the following:
Mezzanine financing to co-owners
0%
7%
Weighted
Average
Rate
3.9%
Vendor-take-back and other
4%
5%
4.5%
Total
0%
7%
3.9%
Contractual rates
(thousands of dollars)
Low
High
March 31, 2015 December 31, 2014
$
117,112
$
125,601
$
136,190
9,143
$
126,255
10,589
Prior to maturity, payments on these mortgages and loans receivable from co-owners are made from the cash flows generated
from operations and capital transactions relating to the underlying properties.
The changes in the carrying amount of mortgages and loans receivable are as follows:
(thousands of dollars)
Three months ended March 31,
Three months ended March 31,
Balance, beginning of period
Principal advances (i)
Principal repayments (i), (ii)
Interest receivable – repaid (ii)
Interest receivable – accrued
Balance, end of period
(i)
(ii)
2015
2014
$ 136,191
$ 248,272
2,000
11,144
(12,802)
(81,063)
(281)
(21,380)
1,147
3,483
$ 126,255
$ 160,456
Advances and repayments related to residential development inventory are included in cash flows from operating activities (see “Distributions to
Unitholders” below). All other such amounts are included in cash flows used in investing activities.
During the three months ended March 31, 2014, RioCan acquired Trinity’s equity interest in four development assets for aggregate purchase
consideration of $117 million. The consideration received by Trinity was used to repay, in full, the outstanding mezzanine financing principal and
accrued interest in the amount of $82 million on the projects, in conjunction with the closing of the transaction. RioCan also assumed mortgage
financing of $24 million in connection with the acquisition.
69
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Future repayments are as follows:
Mezzanine financing
to co-owners
(thousands of dollars)
Due on demand
$
15,835
Vendor-take-back
and other
$
Total
—
$ 15,835
Year ending December 31:
2015
12,874
4,143
17,017
2016
24,454
—
24,454
2017
14,221
—
14,221
2018
15,799
5,000
20,799
2019
5,169
—
5,169
28,760
—
28,760
9,143
$ 126,255
Thereafter
$
117,112
$
RELATED PARTY TRANSACTIONS
RioCan may have transactions in the normal course of business with entities whose directors or trustees are also its trustees and/
or management. Any such transactions are in the normal course of operations and are measured at market based exchange
amounts.
Transactions subsequent to the formation of a co-ownership that are not contemplated by the co-ownership agreement are
considered to be related party transactions for financial statement purposes.
CAPITAL STRATEGY AND RESOURCES
RioCan strives for an optimal financial structure to drive appropriate risk adjusted total returns. The principal objectives of the
capital strategy are to:
•
optimize the risk-adjusted cost of capital through an appropriate mix of debt and equity;
•
raise debt from a variety of sources and maintain a well staggered maturity schedule;
•
maintain significant committed undrawn loan facilities to support current and future business requirements;
•
actively manage financial risks, including interest rate, foreign exchange, liquidity and counterparty risks; and
•
selectively sell assets as part of actively managing the portfolio and to increase the portfolio weighting to the six urban
markets in Canada as a means to strategically recycle capital.
Management believes that the quality of RioCan’s assets and strong balance sheet are attractive to lenders and equity investors
and should enable RioCan to continue to access multiple sources of capital at competitive rates. In addition, management
believes that current market conditions will continue to provide opportunities for RioCan - a well capitalized, highly experienced
and growing company - to acquire or develop high-quality assets at attractive returns. Opportunities to acquire or develop
properties may come through outright acquisitions or joint venture arrangements. RioCan maintains a disciplined investment
strategy, which focuses on high-quality assets in its targeted markets, emphasizing long-term value creation.
Capital Strategy Supporting Continued Growth
To support growth, RioCan employs a three-fold capital strategy:
•
provide the capital necessary to fund growth;
•
maintain sufficient flexibility to access capital in many forms, both public and private; and
•
manage the overall financial structure in a fashion that preserves investment grade credit ratings.
RioCan plans to further strengthen its balance sheet by reducing its overall debt leverage over time, thereby strengthening
various interest and cash flow coverage ratios. It is management’s intention that the Trust continually have access to the capital
resources necessary to expand and develop its business. Accordingly, the Trust may, from time-to-time, seek to obtain funds
through additional common and preferred equity offerings, unsecured debt financings and/or mortgage/construction loan
financings and other capital alternatives in a manner consistent with its intention to operate with a conservative debt structure,
along with the recycling of capital through the paring of the portfolio through selective asset sales.
Liquidity and Cash Management
RioCan maintains committed revolving bank facilities to provide financial liquidity. These can be drawn/repaid at short notice,
reducing the need to hold liquid resources in cash and deposits. This minimizes costs arising from the difference between
borrowing and deposit rates, while reducing credit exposure.
Capital Management Framework
RioCan defines capital as the aggregate of common and preferred unitholders’ equity and debt. The Trust’s capital management
framework is designed to maintain a level of capital that:
•
complies with investment and debt restrictions pursuant to the Trust’s Declaration;
•
complies with debt covenants;
70
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
enables RioCan to achieve target credit ratings;
•
funds the Trust’s business strategies; and
•
builds long-term unitholder value.
The key elements of RioCan’s capital management framework are set out in the Trust’s Declaration, and/or approved by the
Trust’s Board, through the Board’s annual review of the strategic plan and budget, supplemented by periodic Board and Board
committee meetings. Capital adequacy is monitored by management of the Trust by assessing performance against the approved
annual plan throughout the year, which is updated accordingly, and by monitoring adherence to investment and debt restrictions
contained in the Declaration and debt covenants (see note 28 in the RioCan’s 2014 Annual Financial Statements). In selecting
appropriate funding choices, RioCan’s objective is to manage its capital structure in such a way so as to diversify its funding
sources while minimizing its funding costs and risks. For 2015, RioCan expects to be able to satisfy all of its financing
requirements through the use of a combination of: cash on hand, cash generated by operations, refinancing of maturing debt,
financing of certain assets currently unencumbered by debt, construction financing facilities, sale of non-core properties,
utilization of its operating lines, and through public offerings of unsecured debentures, preferred units and common equity.
Capital Structure
As at March 31, 2015 and December 31, 2014, RioCan’s capital structure, prepared at RioCan’s interest utilizing proportionate
consolidation, was as follows:
(thousands of dollars)
March 31, 2015
Increase
(decrease)
December 31, 2014
Capital:
Mortgages payable and lines of credit
$
4,914,857
$
4,626,210
$
288,647
Debentures payable
1,814,019
1,856,501
(42,482)
Total debt
6,728,876
6,482,711
246,165
Common and preferred unitholders’ equity
8,019,822
7,868,570
151,252
Total capital
$
14,748,698
$
14,351,281
$
397,417
Total assets
$
15,128,526
$
14,721,054
$
407,472
Cash and equivalents
$
61,528
$
59,606
$
1,922
Ratio of Total debt, net of cash, to Total assets, net of cash, at
RioCan’s interest
44.3%
43.8%
0.5%
Ratio of floating rate debt to total debt
10.4%
7.8%
2.6%
Debt and Leverage Metrics
Three months ended
March 31,
2015
Interest coverage ratio – RioCan’s interest (i)
>3.00x
3.10
3.41
2.93
2.89
Debt service coverage ratio – RioCan’s interest (ii)
>2.25x
2.36
2.54
2.25
2.20
Fixed charge coverage ratio – RioCan’s interest (iii)
>1.1x
1.12
1.16
1.09
1.08
Net consolidated debt to Adjusted EBITDA ratio (iv)
n/a
8.04
8.10
8.05
Net debt to Adjusted EBITDA ratio – RioCan’s interest (iv)
March 31,
2015 (v)
Rolling 12 months ended
Targeted
Ratios
March 31, December 31,
2015
2014
n/a
8.08
8.14
8.09
Net operating debt to Operating EBITDA – RioCan’s
interest (iv)
<6.5x
7.70
7.72
7.67
Distributions as a percentage of AFFO
<90%
90.4%
94.5%
94.5%
(thousands of dollars)
As at,
March 31, December 31,
2015
2014
Unencumbered assets
Unsecured debentures
Unencumbered assets to Unsecured debt (vi)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
>200%
$ 2,933,038
$2,776,618
$ 1,825,000
$1,865,990
161%
149%
Interest coverage is defined as Adjusted EBITDA for the period divided by total interest expense (at RioCan’s interest), including interest that has
been capitalized to properties under development.
Debt service coverage is defined as Adjusted EBITDA for the period divided by total interest expense (at RioCan’s interest), including interest that
has been capitalized to properties under development and scheduled mortgage principal amortization.
Fixed charge coverage is defined as Adjusted EBITDA for the period divided by total interest expense, including interest that has been capitalized,
and distributions to common and preferred unitholders.
Represents a non-GAAP measure. Please see section, Presentation of Financial Information and Non-GAAP Measures, for further details.
Adjusted to exclude interest capitalized to properties under development.
Unencumbered assets to unsecured debt is defined as unencumbered assets at RioCan’s interest divided by unsecured debentures payable.
71
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
The interest coverage ratio (calculated on a rolling 12-month basis) continued to improve compared to December 31, 2014. Debt
service coverage ratio on a rolling 12-month basis, also continued to improve mainly due to refinancing debt at lower interest
rates, as well as the Trust converting some of its amortizing debt to interest only debt. As at March 31, 2015, unencumbered
assets to unsecured debt increased to 161%, as compared to 149% as at December 31, 2014 due to an increase in
unencumbered assets of $156 million and a decrease of $41 million in unsecured debentures.
As part of its capital management strategy, it is RioCan’s objective to further improve its leverage and coverage ratios. The Trust’s
objective is to achieve the targeted ratios indicated in the above table over time.
During the first quarter of 2015, the Trust generated $34 million through its common Unit DRIP program, representing a DRIP
participation rate of 30.6%. The generation of this additional capital supports the Trust’s growth strategy and provides liquidity in
support of RioCan’s development program, where there has been a substantial increase in activity since 2014 on multiple
projects. RioCan’s objective is for this increased level of activity to continue for 2015 and for several years thereafter, with an
increased focus on urban development.
The following table presents a reconciliation of consolidated net earnings attributable to unitholders to Adjusted and Operating
EBITDA at RioCan’s interest:
Three months
ended
March 31,
2015
(thousands of dollars)
Net earnings attributable to unitholders
$
89,059 $
12 months ended
March 31,
2015
581,432 $
December 31,
2014
663,258
Add (deduct) the following items:
Deferred income tax recovery
—
(750)
50
7,328
(79,678)
28,121
5,610
—
Leasing costs (iii)
2,955
11,668
10,941
Non-cash unit based compensation expense
1,482
5,338
5,272
236,192
Fair value (gains) losses on investment property, net
Accrued property taxes under IFRIC 21
Interest expense
(156,803)
59,357
236,089
Expense for early redemption of debentures
9,929
9,929
—
Depreciation and amortization included in general and administrative expense
1,260
6,020
5,556
131
283
176
Foreign exchange loss
Transaction costs
Adjusted EBITDA
Adjust: Transaction gains (ii)
2,802
4,195
2,753
202,424
780,136
767,395
(1,114)
Adjust: Items related to properties under development
759
Operating EBITDA
$
202,069 $
Three months annualized – Adjusted EBITDA
$
809,696
Three months annualized – Operating EBITDA
$
808,276
$
(1,015)
3,534
(91)
3,498
782,655 $
770,802
6,565,246 $
6,366,302 $
6,220,717
(58,076)
(46,638)
Consolidated net debt and net operating debt is calculated as follows:
(thousands of dollars)
Average debt outstanding
Less: average cash on hand
6,507,170
Net debt
6,178,255
(321,143)
(310,245)
$
6,186,027 $
6,009,419 $
5,883,592
$
6,605,794 $
6,400,989 $
6,252,813
(60,567)
(48,930)
Less: Debt related to properties under development (i)
Net Operating Debt
6,319,664
(42,462)
(294,663)
Net debt and net operating debt at RioCan's interest is calculated as follows:
(thousands of dollars)
Average debt outstanding
Less: average cash on hand
6,545,227
Net debt
Less: Debt related to properties under development (i)
Net Operating Debt, at RioCan's interest
(i)
(ii)
$
6,352,059
(322,106)
(311,063)
6,223,121 $
6,040,996 $
Allocated based on the ratio of Debt to Total Assets.
Transaction gains relate to current tax recoveries associated with RioCan’s investments in WCNUF I and II.
72
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
(44,824)
6,207,989
(295,423)
5,912,566
MANAGEMENT’S DISCUSSION AND ANALYSIS
Debt
RioCan intends to maintain strong debt service coverage and fixed charge coverage ratios as part of its commitment to
maintaining its investment-grade debt ratings from Standard and Poor’s (S&P) and from Dominion Bond Rating Services Limited
(DBRS). A credit rating generally provides an indication of the risk that the borrower will not fulfill its obligations in a timely manner
with respect to both interest and principal commitments. Rating categories range from highest credit quality (generally AAA) to
default payment (generally D).
As at March 31, 2015, S&P provided RioCan with an entity credit rating of BBB and a credit rating of BBB- relating to RioCan’s
senior unsecured debentures (Debentures). An obligor with a credit rating of BBB by S&P exhibits adequate capacity to meet its
financial obligations, however, adverse economic conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation. A credit rating of BBB- or higher is an investment grade
rating.
As at March 31, 2015, DBRS provided RioCan with a credit rating of BBB (high) relating to the Debentures. A credit rating of BBB
by DBRS is generally an indication of adequate credit quality, the capacity for the payment of financial obligations is considered
acceptable but the entity may be vulnerable to future events.
Revolving Lines of Credit
As at March 31, 2015, RioCan had five revolving lines of credit in place with Canadian Schedule I financial institutions, having an
aggregate capacity of $726 million (December 31, 2014 - $718 million).
The following table summarizes the details of the secured lines of credit as at March 31, 2015:
(thousands of dollars)
Amounts drawn
Facility
maximum loan
amount
Cash
advances
1 $
250,000 (i)
2
130,000 (i)
63,445
3
185,000 (i)
4
5
$
(i)
(ii)
Maturity
17,869
48,686 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
June 2017 (ii)
20,000
—
163,164 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
December 2016 (ii)
75,000 (i)
30,000
—
45,000 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
June 2017 (ii)
85,651
24,744
—
60,907 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
December 2015
283,496 $
9,587 $
Interest rates
November 2016 (ii)
$
145,307 $
Available
to be
drawn
95,106 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
725,651
$
Letters
of credit
27,456 $
412,863
Secured by charges against certain income properties. Should the aggregate agreed values for lending purposes of such properties fall to a level
which would not support a borrowing of the maximum loan amount, RioCan has the option to provide substitute income properties as additional
security.
Subject to meeting certain conditions, these loans can be extended for a further year on same terms and conditions.
Debentures Payable
The Trust has the following series of senior unsecured debentures outstanding as at March 31, 2015:
Series
P
S
Q
U
R
V
T
W
I
$
$
Principal amount
150,000
250,000
175,000
150,000
250,000
250,000
200,000
300,000
100,000
1,825,000
Maturity date
March 1, 2017
March 5, 2018
June 28, 2019
June 1, 2020
December 13, 2021
May 30, 2022
April 18, 2023
February 12, 2024
February 6, 2026
Coupon rate
3.80%
2.87%
3.85%
3.62%
3.72%
3.75%
3.73%
3.29%
5.95%
Interest payment frequency
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
As at March 31, 2015, RioCan had debentures outstanding totalling $1.8 billion, net of unamortized debt financing costs
(December 31, 2014 - $1.9 billion).
The debentures have covenants relating to RioCan’s 60% leverage limit to Aggregate Assets as set out in RioCan’s Declaration,
the maintenance of a $1.0 billion Adjusted Book Equity, defined in the indenture, and maintenance of an interest coverage ratio of
1.65 times or better. There are no requirements under the unsecured debenture covenants that require RioCan to maintain
unencumbered assets. The Series I debentures, which are due in 2026 and aggregate $100 million, have an additional provision
73
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
that provides RioCan with the right, at any time, to convert these debentures to mortgage debt, subject to the acceptability of the
security given to the debenture holders. In such an event, the covenants relating to the 60% leverage limit, minimum book equity
and interest coverage ratio would be eliminated for this series of debenture.
Q1 2015 Activity
Issuances
On February 12, 2015, the Trust issued $300 million of Series W senior unsecured debentures, which mature on February 12,
2024 and carry a coupon rate of 3.287%. A portion of the net proceeds were used to repay indebtedness, including the
redemption of the Trust's Series O Debentures as described below, and the balance for general trust purposes.
On March 25, 2015, the Trust announced that it has amended the terms of its previously announced offering of Series Q senior
unsecured debentures (the Additional Debentures) and will be issuing $175 million Additional Debentures. The Additional
Debentures will carry a coupon rate of 3.85% and will mature on June 28, 2019. The Additional Debentures were sold at a price
of $107.312 per $100 principal amount plus accrued interest, with an effective yield of 2.04% if held to maturity. An aggregate of
$350 million of such debentures will be outstanding after giving effect to this offering. The Trust completed its issuance of the
Additional Debentures on April 2, 2015.
Redemptions
On March 9, 2015, RioCan redeemed its US$100 million 4.10% Series N Debentures, in full, in accordance with their terms, at a
total redemption price of US$101.8 million, plus accrued and unpaid interest of US$1.9 million, up to but excluding the
redemption date. During the three months ended March 31, 2015, the Trust recorded an early extinguishment charge of $2.3
million (US$1.8 million).
On March 11, 2015, RioCan redeemed its $225 million 4.499% Series O Debentures due January 21, 2016, in full, in accordance
with their terms, at a total redemption price of $231.8 million, plus accrued and unpaid interest of $1.4 million, up to but excluding,
the redemption date. During the three months ended March 31, 2015, the Trust recorded an early extinguishment charge of $7.6
million, which includes a write-off of the related unamortized deferred financing costs.
Changes in the carrying amount of debentures resulted primarily from the following:
(thousands of dollars)
Three months ended March
31,
2015
2014
Three months ended March 31,
Balance, beginning of period
$
Issuances
1,865,990 $
300,000
(349,900)
Repayments
Foreign currency translation
Contractual obligations
Balance, end of period
$
150,000
—
8,910
4,196
1,825,000
1,610,597
(10,981)
Unamortized debt financing costs, net of premiums and discounts
1,456,401
1,814,019 $
(9,859)
1,600,738
Mortgages Payable and Lines of Credit - RioCan's Interest
During the three months March 31, 2015, RioCan had new mortgage borrowings and operating line draws as follows:
(thousands of dollars, except other data)
Contractual
Amount
Three months ended March 31, 2015
Weighted
average
contractual
interest rate
Average
term to
maturity
in years
New borrowings:
Fixed rate term mortgages – Canada
$
Fixed rate term mortgages – U.S.
2.89%
4.88
19,922
3.46%
7.90
5,859
2.43%
3.75
229,957
1.98%
1.61
20,388
1.31%
0.69
$
383,176
2.29%
—
$
126,972
2.98%
5.36
256,204
1.93%
1.59
383,176
2.29%
—
Construction financing
Operating lines of credit
Other bank loans
New borrowings – RioCan’s interest (i)
107,050
Aggregate new borrowings debt at:
Fixed rate debt
Floating rate debt
Aggregate new borrowings debt – RioCan’s interest (i)
(i)
$
See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
As at March 31, 2015, the Trust’s mortgages payable and drawn lines of credit (at RioCan’s interest), was $4.9 billion ($4.6 billion
as at December 31, 2014). The vast majority of the Trust’s Canadian mortgage indebtedness provides recourse to the assets of
the Trust, as opposed to only having recourse to the specific property charged. RioCan follows this policy as it generally results in
74
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
lower interest costs than would otherwise be obtained. In the United States, mortgage debt is generally non-recourse financing,
with no U.S. secured debt having recourse to the assets of the Canadian operations of the Trust.
As at March 31, 2015, the contractual interest rates on mortgages payable and amounts drawn on operating lines had a
weighted average contractual interest rate of 4.06% per annum. Changes in the carrying amount of the mortgages payable and
lines of credit, at RioCan’s interest, resulted primarily from the following:
(thousands of dollars)
Three months ended March 31,
Three months ended March 31,
2015
Contractual obligations, beginning of period - RioCan's interest
$
4,615,566 $
2014
4,528,490
New Borrowings:
Fixed rate term mortgages – Canada
Fixed rate term mortgages – U.S.
Construction lines
Advances on operating line of credit
Other bank loans
107,050
10,415
19,922
5,643
5,859
2,140
229,957
30,579
20,388
—
Principal repayments:
Scheduled amortization
Operating lines of credit
At maturity: Fixed rate term mortgages
(21,637)
(72,025)
(39,129)
(141,256)
(85,658)
(13,180)
Disposition of Canadian properties
Assumed on the acquisition of properties
24,184
Foreign currency translation
Contractual obligations, end of period
Unamortized differential between contractual and market interest rates on liabilities assumed at
the acquisition of properties
Balance, end of period – RioCan’s interest (i)
$
—
31,690
125,674
49,120
4,901,737
4,511,653
27,521
27,345
(14,401)
Unamortized debt financing costs
(i)
(20,402)
4,914,857 $
(16,003)
4,522,995
See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
At the outset of 2015, RioCan had $621 million of mortgage principal maturing in 2015 at a weighted average contractual interest
rate of 4.55%. During the first quarter of 2015, RioCan had new term mortgage borrowings of $127 million at a weighted average
interest rate of 2.98% and an average term of 5.36 years. For the quarter ended March 31, 2014, repayments of maturing
mortgage balances and scheduled amortization amounted to $162 million.
For 2015, RioCan has $473 million of mortgage principal maturities at a weighted average contractual interest rate of 4.49%.
Aggregate Maturities
As at March 31, 2015, RioCan’s Aggregate Debt had a 4.18 year weighted average term to maturity (December 31, 2014 – 3.95
years) bearing interest at a weighted average contractual interest rate of 3.96% per annum (December 31, 2014 – 4.12%). 10.4%
of the Trust’s Aggregate Debt is at floating interest rates at March 31, 2015 compared to 7.8% at December 31, 2014.
RioCan's fixed and floating rate debt as a percentage of total Aggregate Debt and weighted average contractual interest rate are
as follows:
Aggregate
debt
As at March 31, 2015
Percentage of
Weighted
total RioCan's
average
aggregate contractual
debt interest rate
Average
term to
maturity
in years
Aggregate Debt at:
Fixed rate debt
$
6,027,515
89.6%
4.44%
4.43
701,361
2.05
6,728,876
10.4%
100%
1.81%
$
3.96%
4.18
Floating rate debt
Aggregate Debt – RioCan’s interest (i)
(i)
See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
75
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
RioCan’s debt maturity profile and future repayments are as outlined below:
Contractual principal maturities and interest rates (i)
(thousands of dollars,
except percentage amounts)
Fixed rate
Mortgages
payable
As at March 31, 2015
Floating rate
Mortgages
payable,
bank loans
and lines of
credit
Weighted
average
interest
rate
Weighted
average
interest
rate
Total
mortgages
payable and
lines of credit
Scheduled
principal
amortization
Weighted
average
interest
rate
Total
mortgages,
lines of credit
and
debentures
payable
Weighted
average
interest
rate
Debentures
payable
Weighted
average
interest
rate
Year ending December 31:
2015 (ii)
444,142
4.73%
$ 148,395
1.34%
651,219
3.88% $
—
—%
651,219
3.88%
2016
563,845
4.63%
170,985
2.36%
67,230
802,060
4.11%
—
—%
802,060
4.11%
2017
708,812
4.22%
279,846
1.68%
55,002
1,043,660
3.53%
150,000
3.80%
1,193,660
3.56%
2018
601,306
3.83%
—
—%
41,482
642,788
3.83%
250,000
2.87%
892,788
3.56%
2019
305,323
4.08%
102,135
1.94%
34,650
442,108
3.60%
175,000
3.85%
617,108
3.67%
1,273,065
4.74%
—
—%
46,837
1,319,902
4.74%
1,250,000
3.79%
2,569,902
4.30%
$ 3,896,493
4.44%
$ 701,361
1.81%
$ 303,883
$ 4,901,737
4.06%
$ 1,825,000
3.67%
$ 6,726,737
3.96%
$
Thereafter
$
58,682
$
$
Unamortized differential between contractual and market interest rates on liabilities assumed at the acquisition of properties
27,521
Unamortized debt financing costs, premiums and discounts, net
(25,382)
Balance - RioCan's interest
$ 6,728,876
(i)
At RioCan’s interest. Amounts for 2015 also include due on demand facilities.
(ii)
Amounts pertain to the remaining nine months of 2015.
The principal maturities by lender by year of maturity are as follows:
Contractual (i)
Principal maturities by type of lender
Life
insurance
industry
(thousands of dollars)
Mortgage
conduit
Pension
funds
Banks
Unsecured
debentures
Other
Scheduled
principal
amortization
Total
Year ending December 31:
2015 (ii)
168,203
180,125
131,490
408,994
—
14,221
—
67,230
802,060
2017
238,426
168,545
398,829
125,382
57,476
150,000
55,002
1,193,660
2018
72,430
45,650
450,842
13,490
18,894
250,000
41,482
892,788
2019
61,216
—
303,271
37,802
5,169
175,000
34,650
617,108
506,581
326,914
360,211
79,359
—
1,250,000
46,837
2,569,902
840,802
$ 2,146,442
104,851
$ 1,825,000
303,883
$ 6,726,737
Thereafter
$
$ 1,207,468
$
$
224,295 $
42,258 $
$
298,291
9,091 $
$
—
$
$
58,682
$
651,219
148,690 $
2016
Unamortized differential between contractual and market interest rates on liabilities assumed at the acquisition of properties
27,521
Unamortized debt financing costs, premiums and discounts, net
(25,382)
Balance - RioCan's interest
$ 6,728,876
(i)
At RioCan’s interest. Amounts for 2015 also include due on demand facilities.
(ii)
Amounts pertain to the remaining nine months of 2015.
The table below presents RioCan’s interest in assets at fair value that are available to it to finance and/or refinance for debt
maturing in 2015 and 2016:
Number of
Properties
(thousands of dollars)
Unencumbered income property assets
107
Fair Value of Income
Properties at
Principal balance
of debt maturing
March 31, 2015
2,628,815 $
2016
— $
—
11
304,223
—
—
118
2,933,038
—
—
Encumbered assets with debt maturing in 2015
30
1,349,304
459,794
—
Encumbered assets with debt maturing in 2016
42
Unencumbered development property assets
Unencumbered assets
Total
$
2015
2,171,604
$
6,453,946
—
$
459,794
714,931
$
714,931
RioCan has the continued flexibility to generate additional funds in 2015 through refinancing maturing loan balances as well as
repaying such balances to increase the size of RioCan’s pool of unencumbered assets. As at March 31, 2015, RioCan had 118
properties that were unencumbered with a fair value of approximately $2.9 billion. During the second quarter of 2015, it is
RioCan's intent to obtain approximately $116 million of secured term debt and repay approximately $170 million of secured term
debt (both amounts excluding renewals), and to encumber 4 assets with an estimated fair market value of $70 million (on a net
basis).
Considering RioCan’s current levels of cash, undrawn credit facilities, relatively low leverage and demonstrated historical access
to debt capital markets, the Trust expects that all maturities will be refinanced or repaid in the normal course of business, and as
76
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
such, RioCan does not currently anticipate that it will be required to sell assets and/or issue equity to meet its maturing debt
obligations for 2015.
Hedging Activities
The effectiveness of the Trust's hedging relationships is reviewed on a quarterly basis. At March 31, 2015 the Trust has assessed
that there is no ineffectiveness in the hedge of its interest rate exposure.
Trust Units
As at May 4, 2015, there are 318.3 million common Units issued and outstanding and 9.4 million options outstanding under the
Trust’s incentive unit option plan (the Plan). All common Units outstanding have equal rights and privileges and entitle the holder
thereof to one vote for each Unit at all meetings of Unitholders. During the quarter and year ended March 31, 2015 and 2014, the
Trust issued Units as follows:
(number of Units in thousands)
Three months ended March 31,
Three months ended March 31,
Units outstanding, beginning of period (i)
2015
2014
315,986
304,075
1,238
1,557
7
17
Units issued:
Distribution reinvestment plan
Direct purchase plan
Unit option plan
Units outstanding, end of period (i)
(i)
661
296
317,892
305,945
Included in units outstanding are exchangeable limited partnership units of four limited partnerships that are subsidiaries of the Trust (the “LP
units”) which were issued to vendors, as partial consideration for income properties acquired by RioCan (March 31, 2015 – 1,137,871 LP units;
March 31, 2014 – 1,165,871 LP units). RioCan is the general partner of the limited partnerships. The LP units are entitled to distributions
equivalent to distributions on RioCan Units, must be exchanged for RioCan Units on a one-for-one basis and are exchangeable at any time at the
option of the holder.
During the three months ended March 31, 2015, 1.2 million Units were issued pursuant to the Trust’s distribution reinvestment
plan compared to 1.6 million Units during the same period in 2014. Participation in the distribution reinvestment plan was 30.6%
for the three months ended March 31, 2015, compared to 27.8% for the three months ended March 31, 2014.
Restricted Equity Units
RioCan has a Restricted Equity Unit (REU) plan which provides for an allotment of REUs to each non-employee trustee. The
value of the REUs allotted appreciate and depreciate with increases or decreases in the market price of the Trust’s Units.
Effective May 28, 2014, this plan has been replaced by the Trustees' deferred equity unit plan as the form of unit-based incentive
compensation to Trustees as discussed below.
REU members are also entitled to be credited with REUs for distributions paid in respect of Units of the Trust based on an
average market price of the Units as defined by the plan. The REUs vest and are settled three years from the date of issuance by
a cash payment equal to the number of vested REUs credited to the member multiplied by the average market price of the Trust’s
Units at the settlement date, less applicable withholdings. The REU plan liability at March 31, 2015 was $1.8 million ($1.5 million
at December 31, 2014).
Deferred Equity Units
On May 28, 2014, the Board of Trustees approved the adoption of a Deferred Equity Unit (DU) plan for non-employee Trustees of
the Trust (Participants) to further align the interests of the Trustees of RioCan and the Unitholders. The DU plan replaces the
REU plan as the form of unit-based incentive compensation to non-employee Trustees.
Participants may be awarded deferred units, each of which are economically equivalent to one Unit, from time to time at the
discretion of the Board of Trustees upon recommendation from management, subject to a maximum annual grant not to exceed
that number of deferred units which is $150,000 divided by the average market price of a Unit on the award date. Participants
may also elect to receive up to 100% of his or her annual retainer and meeting fees for a calendar year otherwise payable in cash
in the form of deferred units. The DU plan liability at March 31, 2015 was $1.5 million ($1.2 million at December 31, 2014).
Unit Options
The Trust provides long-term incentives to certain employees by granting options through the Plan. The objective of granting unitbased compensation is to encourage Plan members to acquire an ownership interest in RioCan over time and acts as a financial
incentive for such persons to act in the long-term interests of RioCan and its unitholders. The exercise price for each option is
equal to the volume weighted average trading price of the Units on the Toronto Stock Exchange for the five trading days
immediately preceding the date of grant except for those options granted prior to May 27, 2009 which have an exercise price
equal to the closing price of the Trust’s Units on the date prior to the day the option was granted. Of the 29.2 million Units
approved to be granted under the Plan, 1.9 million Units remain available for grant under the Plan as at March 31, 2015
(December 31, 2014 – 3.3 million Units).
During the three months ended March 31, 2015, 1.4 million options were granted under the Plan compared to 0.5 million granted
during the same period in 2014, reflecting a change in the timing of the Trust's annual option grant to first quarter. During the
three months ended March 31, 2015, 0.7 million Units were issued pursuant to exercises of the incentive Unit options, compared
to 0.3 million Units exercised during the same period in 2014.
77
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
New executive compensation plan
In February 2015, the Trust granted units under the new performance equity unit plan (PEU Plan) with a 3-year performance
period effective January 1, 2015 for senior executives. The implementation of the PEU Plan will reduce the proportion of longterm incentives granted through Unit options by replacing an equivalent value with performance equity units (PEUs). PEUs will be
subject to both internal and external measures consisting of both absolute and relative performance. Subject to performance,
PEUs granted during February 2015 vest in February 2018, and are cash settled.
The Trust accounts for this plan under the fair value method of accounting which uses the Monte-Carlo simulation pricing model
to determine the fair value of market-based awards. The Monte-Carlo simulation pricing model uses the same input assumptions
as the Black-Scholes model, however, it allows for the incorporation of the market-based performance hurdles that must be met
before the PEU vests in the holder. Compensation costs related to awards with a market-based condition are recognized
regardless of whether the market condition is satisfied, provided that the requisite service has been provided.
During the three months ended March 31, 2015, the Trust granted 0.1 million PEUs under its PEU Plan. As at March 31, 2015,
accounts payable and accrued liabilities includes a PEU Plan compensation accrual of $0.3 million.
Preferred Units
On December 6, 2010, the Trust’s Declaration was amended and restated to permit the future authorization and issuance of a
class of preferred equity securities. RioCan believes that preferred units provides the Trust with further enhanced ability to more
actively pursue value enhancing opportunities and acquisitions by providing the Trust with greater flexibility in raising capital. In
addition, the preferred units potentially provide the Trust with an opportunity to reduce its cost of capital.
In the first quarter of 2011, the Trust issued 5 million 5.25% Preferred Units, Series A at a price of $25 per unit for aggregate
gross proceeds of $125 million. Also, on November 20, 2011, the Trust issued 5.98 million 4.7% Preferred Trust Units, Series C at
a price of $25 per unit for aggregate gross proceeds of $149.5 million.
S&P and DBRS provided credit ratings for the Preferred Units, Series A and Preferred Units, Series C Units of the Trust. The
Preferred Units, Series A and Preferred Units, Series C Units have both been assigned a rating of “Pfd-3 (high)” by DBRS and a
rating of “P-3 (high)” by S&P. DBRS has five rating categories of preferred shares for which it will assign a rating. The ‘‘Pfd-3’’
rating is the third highest category available from DBRS for preferred securities and is considered to be of adequate credit quality.
According to DBRS, preferred securities rated ‘‘Pfd-3’’are of adequate credit quality and while protection of distributions and
principal is still considered acceptable, the issuing entity is more susceptible to adverse changes in financial and economic
conditions, and there may be other adverse conditions present which detract from debt protection. Pfd-3 ratings generally
correspond with companies whose senior bonds are rated in the higher end of the BBB category. A “P-3 (High)” rating by S&P is
the third of the three sub-categories within the second highest rating of the eight standard categories of ratings utilized by S&P for
preferred units. “High” and “low” grades may be used to indicate a relative standing of a credit within a particular rating category.
Guarantees
RioCan provides guarantees on behalf of third parties, including co-owners and partners, for which the Trust generally is paid a
fee, as, among other reasons, it generally results in lower interest costs and higher loan-to-value ratios than would otherwise be
obtained. Also, RioCan’s guarantees remain in place for debts assumed by purchasers in connection with certain property
dispositions and will remain until such debts are extinguished or lenders agree to release RioCan’s covenants. Credit risks arise
in the event that these parties default on repayment of their debt since they are guaranteed by RioCan. These credit risks are
mitigated as RioCan has recourse under these guarantees in the event of a default by the borrowers, in which case the Trust’s
claim has security against both the purchaser and the underlying real estate investments. As at March 31, 2015, the estimated
amount of debt subject to such guarantees and, therefore, the maximum exposure to credit risk was approximately $468 million
(December 31, 2014 - $470 million) with expiries between 2015 and 2034. As at March 31, 2015 and during 2015 there have
been no defaults by the primary obligors for debts on which RioCan has provided guarantees, and as a result, no contingent loss
on these guarantees has been recognized in the Trust’s financial statements.
The parties on behalf of which RioCan had outstanding guarantees are as follows:
(thousands of dollars)
As at,
March 31, 2015
December 31, 2014
Partners and co-owners
Kimco
$
147,754 $
164,326
Trinity
61,163
60,952
Other
87,541
84,376
Retrocom Mid-Market REIT
34,140
34,507
Devimco
65,446
65,830
CREIT
44,498
44,873
Assumption of mortgages by purchasers on property dispositions
Other
27,377
$
78
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
467,919 $
14,748
469,612
MANAGEMENT’S DISCUSSION AND ANALYSIS
Liquidity
Liquidity refers to the Trust having and/or generating sufficient amounts of cash and equivalents to fund the ongoing operational
commitments, distributions to unitholders and planned growth in the business.
RioCan retains a portion of its operating cash flows to help fund ongoing maintenance capital expenditures, tenant installation
costs and long term unfunded contractual obligations, among other items.
Cash on hand, borrowings under the revolving credit facilities, the equity and debt capital markets and the potential sale of assets
also provide the necessary liquidity to fund ongoing and future capital expenditures and obligations.
At March 31, 2015, on a consolidated basis, RioCan had:
•
$60 million of cash;
•
$413 million of cash available under undrawn bank lines of credit;
•
Indebtedness, net of cash, is 44.1% of total assets, net of cash, based on fair value; and
•
118 unencumbered properties with a fair value of $2.9 billion.
Unitholder distributions reinvested through the distribution reinvestment and direct purchase plans result in the issuance of Units,
as opposed to a cash outlay, thereby providing an additional source of capital to fund RioCan’s activities (see “Distributions to
Unitholders” elsewhere in this MD&A).
RioCan’s liquidity profile, at RioCan’s interest, is as follows:
(thousands of dollars)
As at,
March 31, 2015
Cash and equivalents
$
61,528
Undrawn lines of credit
December 31, 2014
$
412,863
Liquidity
59,606
565,000
$
474,391
$
624,606
$
1,825,000
$
1,865,990
Contractual debt:
Unsecured debentures payable
4,901,737
Mortgages payable, bank loans and lines of credit
Total contractual debt
6,726,737
$
4,615,565
$
6,481,555
7.1%
9.6%
Percentage of unsecured debt
27.1%
28.8%
Percentage of secured debt
72.9%
71.2%
Liquidity as a percentage of total contractual debt
RioCan’s liquidity is impacted by the Trust’s contractual debt commitments and its forecasted development expenditures on active
projects at RioCan’s interest. RioCan's contractual debt commitments and development expenditures, at March 31, 2015 are as
follows:
Contractual Debt Commitments and Development Expenditures
(thousands of dollars)
Mortgages, bank loans
and lines of credit
2015
$
Unsecured debentures
Active developments
Total
*
$
2016
2017
2018
2019
Thereafter
Total
802,060
$ 1,043,660
442,108
$ 1,319,902
$ 4,901,737
—
—
150,000
250,000
175,000
1,250,000
1,825,000
101,720
259,311
143,699
—
—
979,885*
1,484,615
752,939
$ 1,061,371
$ 1,337,359
617,108
$ 3,549,787
$ 8,211,352
651,219
$
$
$
642,788
892,788
$
$
Represents forecasted development expenditures from years 2020 to 2021, net of financing.
Deferred Income Taxes
The Trust qualifies as a mutual fund trust and a REIT for Canadian income tax purposes. The Trust expects to distribute all of its
taxable income to unitholders and is entitled to deduct such distributions for Canadian income tax purposes. Accordingly, no
provision for current income taxes payable is required, except for amounts incurred in its incorporated Canadian subsidiaries.
The Trust’s U.S. subsidiary qualifies as a REIT for U.S. income tax purposes. This 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. Accordingly, no
provision for U.S. current income tax payable is required.
The Trust consolidates certain wholly owned incorporated entities that are subject to tax. The tax disclosures, expense and
deferred tax balances relate only to these entities.
Deferred income tax assets and liabilities are recognized for temporary differences between the tax and accounting basis of
assets and liabilities as well as for the benefit of unused tax credits and losses that are available to be carried forward to future
tax years to the extent that it is probable that the deductions, unused tax credits and losses can be realized. Deferred tax assets
and liabilities are measured at the undistributed tax rates that are expected to apply when the assets are realized or the liabilities
are settled, based on the tax laws that have been enacted or substantively enacted at the balance sheet date. Deferred income
tax relating to items recognized in equity will also be recognized in equity.
79
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
At March 31, 2015, the Trust had deferred tax assets of $9.1 million (December 31, 2014 – $9.1 million) primarily related to a
goodwill balance that arose during the restructuring the Trust undertook to qualify as a REIT for purposes of the Income Tax Act
(Canada).
If the Trust were to cease to qualify as a REIT for Canadian income tax purposes, certain distributions would not be deductible in
computing income for Canadian income tax purposes and the Trust would be subject to tax on such distributions at a rate
substantially equivalent to the general corporate income tax rate. Other distributions would generally continue to be treated as
returns of capital to unitholders.
Distributions to Unitholders
The Trust expects to distribute to its unitholders in each year an amount not less than the Trust’s taxable income for the year, as
calculated in accordance with the Income Tax Act after all permitted deductions under the Income Tax Act have been taken.
RioCan’s monthly distribution in 2015 was $0.1175 per Unit, representing, on an annualized basis, $1.41 per Unit.
Distributions to Unitholders are as follows:
(thousands of dollars, except when otherwise noted)
Three months ended March 31,
2015
Distributions to Unitholders
$
111,782
2014
$
107,516
(34,211)
Distributions reinvested through the distribution reinvestment plan
Distributions to common Unitholders, net of distribution reinvestment plan
$
77,571
(29,938)
$
30.6%
Distribution reinvestment plan participation rate
77,578
27.8%
Difference between consolidated cash flows provided by operating activities and distributions to Unitholders
A comparison of distributions to Unitholders with cash flows provided by operating activities and distributions, net of the Trust's
distribution reinvestment plan, is as follows:
Three months ended March 31, Twelve months ended March 31,
(thousands of dollars)
Cash flows provided by operating activities
$
2015
2014
2015
98,198 $
70,498 $
532,198 $
2014
423,498
Adjust for:
(3,432)
32,057
(34,432)
37,057
94,766
102,555
497,766
460,555
Less: Distributions to Unitholders
111,782
107,516
450,000
443,000
Excess (Deficit) of adjusted operating cash flow over
distributions to Unitholders
(17,016)
(4,961)
47,766
17,555
34,211
29,938
125,211
112,937
17,195 $
24,977 $
172,977 $
130,492
Changes in non-cash operating items
Adjusted operating cash flow (i)
Add back: Distributions reinvested through the distribution
reinvestment plan
Excess of adjusted operating cash flow over distributions,
net of distribution reinvestment plan
$
(i) Three months ended March 31, 2015 includes an expense for early redemption of debenture of $9.9 million.
In determining the annual level of distributions to Unitholders, the Trust considers forward-looking cash flow information including
forecasts and budgets and the future business prospects of the Trust. Furthermore, RioCan does not consider periodic cash flow
fluctuations resulting from working capital items such as the timing of property operating costs and tax installments, and semiannual debenture and mortgages payable interest payments in determining the level of distributions to Unitholders in any
particular period. In determining the annual level of distributions to Unitholders, RioCan also considers the impact of its
distribution reinvestment plan on its ability to sustain current distribution levels during the current period and on a rolling twelve
month basis.
Additionally, in establishing the level of cash distributions to Unitholders the Trust considers the impact of, among other items, the
future growth in the income producing portfolio, the current interest rate environment and cost of capital, completion of properties
under development, impact of future acquisitions and capital expenditures and leasing related to the income producing portfolio.
Distributions to Unitholders are expected to continue to be funded by cash flows generated from RioCan’s real estate investments
and fee generating activities.
The Trust does not use net earnings in accordance with IFRS as the basis to establish the level of Unitholders’ distributions as
net earnings include, among other items, non-cash fair value adjustments related to its investment property portfolio and deferred
income taxes. In establishing the level of annual distributions to Unitholders, consideration is given by RioCan to the level of cash
flow from operating activities, which includes, among other items, capital expenditures for the property portfolio and preferred
unitholder distributions.
80
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Reconciliation of consolidated cash flows provided operating activities to AFFO
The following table presents a reconciliation of cash provided by operating activities to AFFO:
(thousands of dollars)
Three months ended March 31,
2015
Cash provided by operating activities
$
Net change in non-cash operating items
Share of net earnings in associates and joint ventures
Fair value gains included in equity accounted investments and joint ventures
2014
98,198 $
70,498
(3,432)
32,057
2,011
3,131
(1,180)
(3,398)
Costs not capitalized during the development period:
272
180
Interest expense
1,467
1,735
Demolition costs
487
543
Property recoverable operating costs under tenant leases
(1,114)
Other revenue - transaction gains
(190)
Other expenses - transaction losses
9,929
—
Transaction costs
2,802
1,360
Depreciation and amortization
(1,260)
(796)
Preferred unit distributions
(3,397)
(3,397)
Leasing commissions and tenant improvements
(6,250)
(6,250)
Maintenance capital expenditures recoverable from tenants
(3,750)
(3,750)
Maintenance capital expenditures not recoverable from tenants
(2,500)
(2,500)
Normalized productive capacity maintenance capital expenditures:
Non-controlling interest
(485)
(707)
IFRIC 21 - Realty taxes
28,121
22,511
IAS 17 - Leasing costs
2,955
2,228
Foreign exchange loss
131
24
489
Other adjustments
AFFO
$
81
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
123,494 $
1,445
114,724
MANAGEMENT’S DISCUSSION AND ANALYSIS
SELECTED QUARTERLY CONSOLIDATED INFORMATION
(millions of dollars, except per unit
amounts)
2015
As at and for the quarter ended
2014
Q1
Total revenue
$
Net earnings (i)
Q4
331
$
316
Q3
$
307
2013
Q2
$
303
Q1
$
307
Q4
$
307
Q3
$
276
Q2
$
278
90
173
162
159
172
265
130
154
– Basic
0.27
0.54
0.51
0.51
0.55
0.86
0.41
0.50
– Diluted
0.49
Net earnings per common Unit (i)
0.27
0.54
0.51
0.50
0.55
0.86
0.41
Operating FFO
138
130
134
127
127
124
124
121
Operating FFO per Unit
0.44
0.42
0.43
0.42
0.42
0.41
0.41
0.40
15,083
14,677
14,392
13,945
13,784
13,530
13,092
12,931
6,687
6,444
6,438
6,170
6,094
5,959
5,733
5,579
Total distributions to common
Unitholders
112
110
109
108
108
107
107
106
Total distributions to common
Unitholders per Unit
0.3525
0.3525
0.3525
0.3525
0.3525
0.3525
0.3525
0.3525
DRIP Participation Rate
30.6%
29.0%
29.3%
25.6%
27.8%
25.6%
25.9%
25.2%
Net book value per common Unit
(ii)
24.39
22.11
23.71
23.39
23.28
23.01
22.44
22.42
– High
30.08
27.42
27.97
28.11
26.86
25.89
26.20
25.42
– Low
26.43
25.16
25.11
26.20
24.50
23.85
23.46
24.80
Total assets
Total mortgages and debentures
payable
Market price per common Unit
28.97
26.43
25.67
27.31
26.63
24.77
24.30
25.27
602,398
558,332
499,080
407,513
495,264
512,296
637,329
603,750
– High
25.45
25.63
25.61
26.00
25.48
25.18
25.90
25.25
– Low
20.23
24.65
25.10
25.06
24.75
24.24
24.26
25.03
– Close
20.35
25.32
25.10
25.40
25.30
24.90
24.75
25.25
5,458
2,236
2,025
2,277
4,038
5,132
4,579
3,288
– High
26.11
25.95
25.89
26.49
25.40
25.32
25.58
25.28
– Low
23.80
25.08
25.30
25.04
24.86
24.65
24.19
24.79
– Close
24.71
25.95
25.52
25.45
25.34
25.00
25.15
25.19
5,981
4,861
2,538
3,071
4,390
6,456
6,335
4,353
– Canadian
69.2%
72.1%
74.9%
75.0%
74.1%
72.3%
73.0%
73.2%
– Non-resident
30.8%
27.9%
25.1%
25.0%
25.9%
27.7%
27.0%
26.9%
– Close
Average daily volume
Market price per Preferred Unit –
Series A
Average daily volume
Market price per Preferred Unit –
Series C
Average daily volume
Non-resident ownership of units
(iii)
(i)
(ii)
(iii)
Refer to RioCan’s respective annual and interim MD&As issued for a discussion and analysis relating to those periods.
A non-GAAP measurement. Calculated by RioCan as common Unitholders’ equity divided by Units outstanding at the end of the period. RioCan’s
method of calculating net book value per unit may differ from other issuers’ methods and accordingly may not be comparable to net book value per
unit reported by other issuers.
Estimate based on mailing addresses as at the end of each quarter.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
RioCan’s unaudited interim condensed consolidated financial statements for the three months ended March 31, 2015 and 2014
are prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (IAS 34), as issued by the
International Accounting Standards Board (IASB). The significant accounting policies used in the preparation of the unaudited
interim condensed consolidated financial statements are consistent with those reported in the audited consolidated financial
statements for the years ended December 31, 2014 and 2013.
The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates under different
assumptions and conditions.
82
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
The MD&A for the years ended December 31, 2014 and 2013 contains a discussion of the significant accounting policies most
affected by estimates and judgment used in the preparation of the financial statements, being the accounting policies relating to
fair value, guarantees and deferred income taxes. Management determined that at March 31, 2015 there is no change to the
assessment of the significant accounting policies most affected by estimates and judgments as detailed in the MD&A for the
years ended December 31, 2014 and 2013.
FUTURE CHANGES IN ACCOUNTING POLICIES
RioCan monitors the potential changes proposed by the IASB and analyzes the effect that changes in the standards may have on
RioCan’s operations. Standards issued, but not yet effective, up to the date of issuance of the unaudited interim condensed
consolidated financial statements for the thee months ended March 31, 2015, are described below. This description is of
standards and interpretations issued, which the Trust reasonably expects to be applicable at a future date. The Trust intends to
adopt these standards when they become effective.
IFRS 15, Revenue from Contracts with Customers (IFRS 15)
IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with
customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be
entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured
approach to measuring and recording revenue. The new revenue standard is applicable to all entities and will supersede all
current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual
periods beginning on or after January 1, 2017, with early adoption permitted. At its meeting on April 28, 2015, the IASB tentatively
decided to defer the effective date of this standard by one year. If the proposed deferral of the effective date is finalized, IFRS 15
will be effective for annual reporting periods beginning on or after January 1, 2018, with earlier application still permitted. RioCan
is currently assessing the impact of IFRS 15 and intends to adopt the new standard on the required effective date.
IFRS 9, Financial Instruments (IFRS 9)
In July 2014, the IASB issued the final version of IFRS 9, which reflects all phases of the financial instruments project and
replaces IAS 39, Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard
introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for
annual periods beginning on or after January 1, 2018, with early application permitted. The adoption of IFRS 9 may have an
effect on the classification and measurement of RioCan's financial assets, but no impact on the classification and measurement
of its financial liabilities.
CONTROLS AND PROCEDURES
Internal Controls for Disclosure and Financial Reporting
At March 31, 2015, the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) of the Trust, along with the
assistance of senior management, have designed disclosure controls and procedures to provide reasonable assurance that
material information relating to RioCan is made known to the CEO and the Interim CFO, and have designed internal controls over
financial reporting and disclosure to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with IFRS.
During the three months ended March 31, 2015, there were no changes that occurred in the Trust's internal controls over
financial reporting that have significantly affected, or are reasonably likely to significantly affect, the Trust's internal control over
financial reporting.
REIT Qualification Monitoring
A key activity of RioCan is the monitoring processes to ensure that RioCan continues to qualify as a Canadian and US REIT.
From time to time, the members of the Board of Trustees, Audit Committee and senior management are updated on RioCan's
continued REIT qualification, including any significant legislation updates.
RISKS AND UNCERTAINTIES
The achievement of RioCan’s objectives is, in part, dependent on the successful mitigation of business risks identified. Real
estate investments are subject to a degree of risk. They are affected by various factors including changes in general economic
and local market conditions, equity and credit markets, fluctuations in interest costs, the attractiveness of the properties to
tenants, competition from other available space, the stability and credit-worthiness of tenants, and various other factors.
For a discussion of other risk factors that have been identified by RioCan refer to the 2014 Annual Report.
83
RIOCAN REAL ESTATE INVESTMENT TRUST FIRST QUARTER REPORT 2015
RioCan
UNAUDITED INTERIM
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2015 AND 2014
TABLE OF CONTENTS
Unaudited Interim
Condensed Consolidated Financial Statements
85 Interim Condensed Consolidated Balance Sheets
86 Interim Condensed Consolidated Statements of Earnings
87 Interim Condensed Consolidated Statements of Changes in
Equity
88 Interim Condensed Consolidated Statements of
Comprehensive Income
89 Interim Condensed Consolidated Statements of Cash Flows
91 Notes to Interim Condensed Consolidated Financial
Statements
RIOCAN REAL ESTATE INVESTMENT TRUST
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Canadian dollars, in thousands)
As at,
Note
March 31, 2015
December 31, 2014
ASSETS
$
13,930,139
4
Deferred tax assets
9
9,059
9,059
Investments in associates and joint ventures
3
15,106
63,016
Mortgages and loans receivable
5
126,255
136,190
53,027
80,350
3, 4
436,750
188,933
6
452,356
373,093
Residential development inventory
Assets held for sale
Receivables and other assets
Cash and cash equivalents
$
13,770,763
Investment properties
59,878
Total assets
56,273
$
15,082,570
$
14,677,677
$
1,814,019
$
1,856,501
LIABILITIES
Debentures payable
8
Mortgages payable and lines of credit
7
4,730,621
Mortgages on properties held for sale
7
142,286
20,968
10
375,039
365,244
Accounts payable and accrued liabilities
Total liabilities
$
4,566,096
7,061,965
$
265,451
$
6,808,809
EQUITY
Unitholders' equity:
Preferred
$
265,451
7,754,371
7,603,119
Total unitholders’ equity
8,019,822
7,868,570
Non-controlling interests
783
298
Common
11
8,020,605
Total equity
Total liabilities and equity
$
15,082,570
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
85
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
7,868,868
$
14,677,677
RIOCAN REAL ESTATE INVESTMENT TRUST
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Canadian dollars, in thousands, except per unit amounts)
For the three months ended March 31,
Note
Rental revenue
14
2015
$
323,821
2014
$
300,158
Property operating costs
Recoverable under tenant leases
15
Non-recoverable from tenants
Operating income
139,244
125,508
6,537
4,895
145,781
130,403
178,040
169,755
5,923
3,650
1,226
3,595
Other income
Fees and other income
16
Interest
Share of net earnings in equity accounted associates and joint ventures
3
2,011
3,131
Fair value gains (losses) on investment property, net
4
(8,023)
1,137
67,058
77,434
Other expenses
Interest
17
59,015
59,134
General and administrative
18
14,310
11,506
2,955
2,228
3,424
1,929
Leasing costs
Transaction and other costs
Expense for early redemption of debentures
8
Earnings before income taxes
Deferred income tax expense
9,929
—
89,633
74,797
89,544
172,392
—
Net earnings
$
800
89,544
$
171,592
89,059
$
170,885
Net earnings attributable to:
Common and preferred unitholders
Non-controlling interests
485
707
$
89,544
$
171,592
Net earnings per common unit – basic
20
$
0.27
$
0.55
Net earnings per common unit – diluted
20
$
0.27
$
0.55
Weighted average number of common units – basic (in thousands)
20
316,911
304,887
Weighted average number of common units – diluted (in thousands)
20
317,805
305,695
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
86
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Canadian dollars, in thousands)
Common
Trust Units
Note
Total Equity, December 31, 2013
$
4,239,207
Cumulative
Earnings
Cumulative
Unitholders
Distributions
$ 6,826,016 $
Accumulated
OCI
Total
Common
Equity
Total
Preferred
Equity
16,728
$ 6,992,987
$ 265,451
(4,088,964) $
NonControlling
Interests
$
Total
11,297 $ 7,269,735
Changes during the period
Net earnings
—
170,885
—
—
170,885
—
707
171,592
Other comprehensive income
—
—
—
29,960
29,960
—
—
29,960
Distributions to unitholders
13
—
—
—
(110,914)
—
—
(110,914)
Unit issue proceeds, net
11
34,953
—
—
—
34,953
—
—
34,953
Value associated with unit based compensation
12
1,416
—
—
—
1,416
—
—
—
—
—
—
—
—
Change in ownership interest
Total Equity, March 31, 2014
$
Common
Trust
Units
Note
Total Equity, December 31, 2014
4,275,576 $
$
4,536,957
(110,914)
6,996,901 $
Cumulative
Earnings
(4,199,878) $
Cumulative
Unitholders
Distributions
$ 7,489,038 $
46,688 $
7,119,287 $
(11,865)
265,451 $
139 $ 7,384,877
Accumulated
OCI
Total
Common
Equity
Total
Preferred
Equity
114,452
$ 7,603,119
$ 265,451
—
—
89,059
—
485
—
126,231
(4,537,328) $
1,416
(11,865)
NonControlling
Interests
$
Total
298 $ 7,868,868
Changes during the period
Net earnings
Other comprehensive income
—
89,059
—
—
Distributions to unitholders
13
—
—
Unit issue proceeds, net
11
49,660
—
Value associated with unit based compensation
12
1,482
—
Total Equity, March 31, 2015
$
4,588,099 $
7,578,097 $
89,544
126,231
—
—
126,231
—
(115,180)
—
—
(115,180)
—
—
49,660
—
—
49,660
—
—
1,482
—
—
1,482
(115,180)
(4,652,508) $
240,683 $
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
87
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
7,754,371 $
265,451 $
783 $ 8,020,605
RIOCAN REAL ESTATE INVESTMENT TRUST
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Canadian dollars, in thousands)
For the three months ended March 31,
2015
Net earnings
$
89,544 $
2014
171,592
Other comprehensive income:
Items that may be reclassified subsequently to net earnings:
Unrealized loss on interest rate swap agreements
Unrealized gain on translation of foreign operations
Unrealized gain on available-for-sale investment
Other comprehensive income, net of tax
Comprehensive income
(11,358)
(1,696)
99,158
30,637
38,431
1,019
126,231
29,960
$
215,775 $
201,552
Common and preferred unitholders
$
215,290 $
200,845
Non-controlling interests
$
485 $
707
Comprehensive income attributable to:
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
88
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian dollars, in thousands)
For the three months ended March 31,
Note
2015
2014
CASH FLOWS PROVIDED BY (USED IN):
Operating activities
Net earnings
$
89,544 $
171,592
Items not affecting cash
1,260
Depreciation and amortization
Recognition of rents on a straight-line basis
(3,532)
Incentive unit option compensation expense
Fair value (gains) losses on investment property, net
796
(1,060)
11
1,482
1,416
4
8,023
(67,058)
Share of net earnings in associates and joint ventures
Net change in non-cash operating items
Cash flows provided by operating activities
(2,011)
(3,131)
3,432
(32,057)
98,198
70,498
(147,237)
(39,615)
(58,348)
(5,766)
(37,940)
(5,347)
(7,174)
(10,651)
Investing activities
Acquisition of investment properties
Capital expenditures on properties under development
Capital expenditures on income properties
Tenant installation costs
Proceeds on disposition of investment properties
106,880
Contributions to associates and joint ventures
—
1,492
Distributions from associates and joint ventures
50,337
(1,862)
91
Mortgages and loans receivable
Advances
(2,000)
(11,144)
Repayments
12,802
15,272
Purchases related to available-for-sale investments, net of financing
(5,146)
(104,497)
Cash flows used in investing activities
—
(40,859)
Financing activities
Mortgages payable
Borrowings
Repayments
Advances on lines of credit
131,357
14,277
(161,658)
(105,815)
229,957
30,579
(72,025)
(39,129)
Issue of debentures payable, net
8
297,469
148,741
Repayment of debentures payable
8
(349,900)
Repayment of lines of credit
Acquisition of non-controlling interests
—
—
(3,023)
Distributions on common units
13
(111,558)
(108,436)
Proceeds from units issued under distribution reinvestment plan
11
34,211
29,937
Distributions paid on preferred units
13
(3,398)
(3,397)
15,449
4,827
Cash flows provided by (used in) financing activities
9,904
(31,439)
Net increase (decrease) in cash and cash equivalents
3,605
(1,800)
56,273
39,264
59,878 $
37,464
Proceeds from issue of common units, net
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
Supplemental cash flow information
21
The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.
89
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
RioCan
NOTES TO UNAUDITED INTERIM
CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 2015 AND 2014
TABLE OF CONTENTS
Notes to Unaudited Interim
Condensed Consolidated Financial Statements
To facilitate a better understanding of RioCan’s interim consolidated financial statements, significant accounting policies and related
disclosures, a listing of all the notes is provided below.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Trust Information
Basis of Preparation and Statement of Compliance
Equity Accounted Investment in Joint Venture Held for Sale
Investment Properties
Mortgages and Loans Receivable
Receivables and Other Assets
Mortgages Payable and Lines of Credit
Debentures Payable
Income Taxes
Accounts Payable and Accrued Liabilities
Unitholders’ Equity
Unit-based Compensation Plans
Distributions to Unitholders
Rental Revenue
91
91
92
92
94
95
95
96
97
98
98
99
100
100
15. Property Operating Costs - Recoverable Under Tenant
Leases
16. Fees and Other Income
17. Interest Expense
18. General and Administrative
19. Segmented Information
20. Net Earnings per Unit
21. Supplemental Cash Flow Information
22. Fair Value Measurement
23. Capital Management
24. Financial Instruments
25. Related Party Transactions
26. Contingencies and Commitments
100
100
100
101
101
103
103
103
104
104
105
105
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
1. Trust Information
RioCan Real Estate Investment Trust (the Trust or RioCan) owns, develops and operates Canada's largest portfolio of shopping
centres. RioCan is an unincorporated closed-end trust governed under the laws of the Province of Ontario, Canada and
constituted pursuant to a Declaration of Trust dated November 30, 1993, as most recently amended and restated on June 5,
2013 (the Declaration). The Trust’s registered office and principal place of business is located at 2300 Yonge Street, Suite 500,
Toronto, Ontario. RioCan also has regional offices outside of Canada in Mount Laurel, New Jersey and Dallas, Texas. RioCan's
common trust units (Units) are listed on the Toronto Stock Exchange (the TSX) under the symbol REI.UN and its preferred trust
units, Series A and its preferred trust units, Series C are listed on the TSX under the symbols REI.PR.A and REI.PR.C,
respectively.
These unaudited interim condensed consolidated financial statements were authorized for issue by RioCan's Board of Trustees
on May 4, 2015.
2. Basis of Preparation and Statement of Compliance
RioCan’s unaudited interim condensed consolidated financial statements (Interim Consolidated Financial Statements) have been
prepared by management in accordance with International Accounting Standard 34, Interim Financial Reporting (IAS 34), as
issued by the International Accounting Standards Board (IASB). Under International Financial Reporting Standards (IFRS),
additional disclosures are required in annual financial statements and therefore, these Interim Consolidated Financial Statements
and accompanying notes should be read in conjunction with the notes to the Trust’s audited annual consolidated financial
statements for the years ended December 31, 2014 and 2013 (2014 Annual Financial Statements) as set out on pages 125 to
166 of the 2014 Annual Report.
These Interim Consolidated Financial Statements have been prepared using consistent accounting policies and methods used in
the preparation of the Trust’s 2014 Annual Financial Statements.
Change in accounting policy
IAS 40, Investment Property (IAS 40)
On January 1, 2015, the Trust adopted an amendment where the description of ancillary services in IAS 40 differentiates between
investment property and owner-occupied property (i.e., property, plant and equipment). The amendment is applied prospectively
and clarifies that IFRS 3, Business Combinations, and not the description of ancillary services in IAS 40, is used to determine if
the transaction is the purchase of an asset or business combination. This amendment did not result in a material impact to the
consolidated financial statements.
Change in accounting presentation
Certain comparative amounts have been reclassified to conform to the current period’s presentation. Investment properties held
for sale and held for resale assets were previously reported as part of investment properties on the face of the consolidated
balance sheets at the reporting period date. Investment properties held for sale, residential development inventory (formerly,
properties held for resale) and mortgages on properties held for sale, have been separately presented on the face of the
consolidated balance sheets and have no impact on net earnings, total assets, total liabilities or total equity.
Effective January 1, 2015, the Trust has changed its presentation of all tabular amounts in the Interim Consolidated Financial
Statements from being rounded to the nearest million to rounded to the nearest thousand, unless otherwise indicated.
Future changes in accounting policies
RioCan monitors the potential changes proposed by the IASB and analyzes the effect that changes in the standards may have on
its operations.
Standards issued, but not yet effective, up to the date of issuance of these Interim Consolidated Financial Statements are
described below. These descriptions of the standards and interpretations issued are those that the Trust reasonably expects to be
applicable at a future date. The Trust intends to adopt these standards when they become effective.
IFRS 9, Financial Instruments (IFRS 9)
In July 2014, the IASB issued the final version of IFRS 9, which reflects all phases of the financial instruments project and
replaces IAS 39, Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard
introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for
annual periods beginning on or after January 1, 2018, with early application permitted. The adoption of IFRS 9 may have an
effect on the classification and measurement of RioCan's financial assets, but no impact on the classification and
measurement of its financial liabilities.
IFRS 15, Revenue from Contracts with Customers (IFRS 15)
IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with
customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to
be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured
approach to measuring and recording revenue. The new revenue standard is applicable to all entities and will supersede all
current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual
periods beginning on or after January 1, 2017, with early adoption permitted. At its meeting on April 28, 2015, the IASB
91
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
tentatively decided to defer the effective date of this standard by one year. If the proposed deferral of the effective date is
finalized, IFRS 15 will be effective for annual reporting periods beginning on or after January 1, 2018, with earlier application
still permitted. RioCan is currently assessing the impact of IFRS 15 and intends to adopt the new standard on the required
effective date.
3. Equity Accounted Investment in Joint Venture Held for Sale
On March 27, 2015, RioCan announced that Kimco Realty Corp. (Kimco) will be purchasing RioCan's 80% interest in RioKim
Montgomery JV LP (Texas) for total cash consideration of $44 million (US$35 million), subject to working capital and other closing
adjustments. The transaction is expected to close during the three months ended June 30, 2015. As at March 31, 2015, the carrying
value of the investment was $53 million and has been reclassified to assets held for sale on the consolidated balance sheet.
4. Investment Properties
As at,
March 31, 2015
Income properties
13,253,022
$
Properties under development
December 31, 2014
$
13,121,331
$
13,770,763
677,117
13,930,139
$
649,432
Income properties
For the three months ended March 31, 2015
Canada
$ 10,839,500 $
Balance, beginning of period
US
Total
2,413,897 $ 13,253,397
Acquisitions
169,275
—
169,275
Dispositions
(120,060)
—
(120,060)
Capital expenditures
2,898
682
3,580
Tenant installation costs
4,582
2,479
7,061
Transfers from properties under development
41,873
—
41,873
Transfers to properties under development
(9,731)
—
(9,731)
(63,617)
43,992
(19,625)
—
226,952
226,952
2,975
419
3,394
Fair value gains (losses), net
Foreign currency translation gain
Straight line rent
3,139
Other changes
$ 10,870,834 $
Balance, end of period
(1,571)
1,568
2,686,850 $ 13,557,684
$ 13,253,022
Investment properties
Properties held for sale (i)
304,662
$ 13,557,684
(i) All properties held for sale are in Canada.
As at March 31, 2015, properties held for sale includes a 50% interest in two income properties with an aggregate fair value of
$295 million in connection with the formation of a new real estate joint venture with Hudson's Bay Company. The transaction is
expected to close by June 30, 2015, subject to securing acceptable debt financing for the joint venture, along with customary
closing conditions and consents. See note 26 for a description of the Trust's investment commitment.
92
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
Properties under development
For the three months ended March 31, 2015
Total Canada (i)
Balance, beginning of period
$
706,299
Acquisitions
3,038
Development expenditures
40,410
Completion of properties under development
(41,873)
Transfers from income properties
9,731
Transfers from residential development inventory (ii)
27,323
Fair value gains, net
11,602
Other
5
Balance, end of period
$
756,535
Properties under development
$
677,117
Properties held for sale
79,418
$
756,535
(i) All properties under development are in Canada.
(ii) In 2011, RioCan acquired its Toronto Sheppard Centre investment property with the intent of constructing condominium units on the excess density
portion. During the three months ended March 31, 2015, management decided to change its original plans to now build multi-residential rental units.
As such, a portion of the carrying value of this property has been transferred during the period from residential development inventory to properties
under development.
Investment properties
Acquisitions
The following table summarizes the Trust's acquisitions of investment property for rental income and future development and
redevelopment opportunities:
Income properties
Three months ended March 31,
Total purchase price
$
2015
2014
169,275 $
10,255 $
(24,184)
Debt assumed
Difference between principal amount and fair value assumed
mortgage financing
Total consideration, net of debt assumed
(1,474)
$
Properties under development
143,617 $
2015
—
—
2014
3,038 $
140,772
—
(23,690)
—
10,255 $
3,038 $
—
117,082
During the three months ended March 31, 2015, RioCan completed 21 acquisitions of interests in income properties in Canada at
an aggregate purchase price of $169 million totalling 436,000 square feet of additional NLA, representing a weighted average
capitalization rate of 5.5%. In connection with these acquisitions, RioCan assumed mortgage financing of $24 million.
During the three months ended March 31, 2015, RioCan completed one acquisition of an interest in a development property in
Canada for $3 million. The property was acquired free and clear of financing.
Dispositions
Income properties
Three months ended March 31,
2015
Total sales price
$
120,060 $
$
106,880 $
Mortgages associated with investment property dispositions
13,180
Total consideration, net of related debt
2014
50,250
—
50,250
During the three months ended March 31, 2015, RioCan disposed of five income properties in Canada at an aggregate sales
price of $120 million totalling NLA of approximately 748,000 square feet, representing a weighted average capitalization rate of
6.8%. The Trust's mortgage obligation related to these properties was approximately $21 million, of which $8 million was repaid
by RioCan prior to closing.
93
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
Valuation methodology
As highlighted in note 22, the fair value methodology for the Trust’s income properties, properties under development and
investments in equity accounted associates and joint ventures uses inputs that are considered Level 3, as significant
unobservable inputs are required to determine fair value.
The tables below provide further details of the average capitalization rates for income properties and investments in equity
accounted associates and joint ventures (in aggregate) and ranges for each retail class weighted based on stabilized net
operating income (SNOI). Capitalization rates are based on RioCan’s proportionate share of the SNOI and results of operations
of its entire portfolio.
March 31, 2015
Weighted
Average Cap.
Rate
December 31, 2014
Weighted
Average Cap.
Rate
Range
Range
Canadian Portfolio
5.76%
4.60% - 9.50%
5.77%
4.60% - 9.50%
US Portfolio
6.10%
5.30% - 7.50%
6.14%
5.30% - 7.50%
Total Weighted Average
5.82%
4.60% - 9.50%
5.83%
4.60% - 9.50%
The fair value loss in investment properties for the three months ended March 31, 2015 was $8 million (fair value gain of $67
million for the three months ended March 31, 2014).
The following table provides a sensitivity analysis for the weighted average capitalization rate applied as at March 31, 2015:
Capitalization rate sensitivity
Increase (decrease)
*
Fair value of
investment
portfolio
Weighted average
capitalization rate*
Fair value
variance
% change
Ratio of debt, net of
cash, to total assets,
net of cash
(1.00%)
4.82% $
16,598,642 $
2,850,504
20.7 %
37.1%
(0.75%)
5.07% $
15,773,275 $
2,025,138
14.7 %
38.9%
(0.50%)
5.32% $
15,028,465 $
1,280,328
9.3 %
40.6%
(0.25%)
5.57% $
14,353,318 $
605,181
4.4 %
42.4%
March 31, 2015
5.82% $
13,748,138 $
—
—%
44.1%
0.25%
6.07% $
13,174,461 $
(573,677)
(4.2)%
45.9%
0.50%
6.32% $
12,657,196 $
(1,090,941)
(7.9)%
47.6%
0.75%
6.57% $
12,180,802 $
(1,567,336)
(11.4)%
49.3%
1.00%
6.82% $
11,740,245 $
(2,007,892)
(14.6)%
50.9%
at RioCan’s interest.
In addition, a 1% increase in SNOI would result in higher portfolio fair values of $123 million. A 1% decrease in SNOI would result
in a lower portfolio fair values of $145 million. A 1% increase in SNOI coupled with a 0.25% decrease in capitalization rates would
result in higher portfolio fair value of $745 million. A 1% decrease in SNOI coupled with a 0.25% increase in capitalization rates
would result in lower portfolio fair value of $702 million.
Target
On January 15, 2015, Target Corporation (Target) announced plans to discontinue its Canadian operations through its indirect
wholly-owned subsidiary, Target Canada, and that it was utilizing the Companies’ Creditors Arrangement Act (Canada) (CCAA) to
wind down its operations. As at March 31, 2015, RioCan has 26 locations under lease with Target Canada representing
approximately 1.9% of RioCan’s total annualized rental revenue with an average remaining lease term of approximately 12.7
years. All but one of these leases are guaranteed through an indemnity arrangement with Target, generally for the remaining
term of each lease. The one lease that is not covered by the Target indemnity is guaranteed by Walmart Canada.
The carrying value of the Trust's investment property at March 31, 2015 includes valuation adjustments associated with certain
Target locations, which represents the Trust's best estimate of fair value based on the latest information available to date.
5. Mortgages and Loans Receivable
March 31, 2015
Current
$
Non-current
$
94
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
December 31, 2014
37,981 $
44,865
88,274
91,325
126,255 $
136,190
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
As at March 31, 2015, mortgages and loans receivable bear interest at effective and contractual rates between 0% and 7.0% per
annum (effective and contractual interest rates between 0% and 7% per annum as at December 31, 2014) with a weighted
average effective and contractual rate of 3.9% per annum (weighted average effective and contractual rate at 3.9% as at
December 31, 2014), and mature between the remainder of 2015 and 2020.
Future repayments for the periods ending December 31 are as follows:
Due on demand
$
15,835
2015
17,017
2016
24,454
2017
14,221
2018
20,799
5,169
2019
Thereafter
28,760
$
126,255
6. Receivables and Other Assets
March 31, 2015
December 31, 2014
Current
Noncurrent
Total
Current
Noncurrent
Total
335,246
19,284
354,530
254,783
19,298
274,081
60,644
—
60,644
52,405
—
52,405
Management information system
—
25,390
25,390
—
26,511
26,511
Funds held in trust
—
11,792
11,792
—
20,096
20,096
Prepaid expenses and other assets
Contractual rents receivable
$
395,890 $
56,466 $
452,356 $
307,188 $
65,905 $ 373,093
Contractual rents receivable, including both billed and accrued amounts, are non-interest bearing and are generally on 30-90 day
terms. Prepaid expenses and other assets mainly comprise of available-for-sale investments, prepaid property taxes and office
furniture and equipment.
7. Mortgages Payable and Lines of Credit
Mortgages payable and lines of credit and mortgages on properties held for sale consist of the following:
As at
Current
March 31, 2015 December 31, 2014
$
Non-current
Fixed rate mortgages
722,527 $
794,728
4,150,380
3,792,336
$
4,872,907 $
4,587,064
$
4,178,025 $
4,089,755
Floating rate mortgages
270,404
260,285
Floating rate operating lines
282,276
120,681
Construction financing and other floating rate facilities
142,202
116,343
Mortgages payable and lines of credit
Mortgages on properties held for sale
$
4,872,907 $
4,587,064
$
4,730,621 $
4,566,096
142,286
$
95
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
4,872,907 $
20,968
4,587,064
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
Future repayments of mortgages payable and lines of credit and mortgages on properties held for sale are as follows:
Weighted
average
contractual
interest rate
Scheduled
principal
amortization
Principal
maturities
Total
repayments
For the periods ending December 31:
2015
3.88% $
58,178 $
588,885 $
2016
4.11%
66,531
734,830
801,361
2017
3.53%
54,271
985,530
1,039,801
2018
3.84%
40,720
600,443
641,163
2019
3.60%
33,858
407,458
441,316
Thereafter
4.75%
44,886
1,243,981
1,288,867
4,561,127 $
4,859,571
4.06% $
Contractual obligations
298,444 $
647,063
Unamortized differential between contractual and market interest
rates on liabilities assumed at the acquisition of properties
27,521
Unamortized debt financing costs, premiums and discounts, net
(14,185)
$
4,872,907
As at March 31, 2015, $11.5 billion of the aggregate carrying value of investment properties, properties held for sale and
residential development inventory, serves as security for RioCan's mortgages payable, floating rate credit facilities (December 31,
2014 - $11.3 billion), of which $9.0 billion is associated with properties located in Canada (December 31, 2014 - $9.1 billion) and
$2.5 billion is associated with properties in the U.S. (December 31, 2014 - $2.2 billion).
Mortgages payable
As at March 31, 2015, mortgages payable and mortgages on properties held for sale bear interest at a weighted average
effective and contractual rate of 4.38% and 4.28% per annum, respectively, and mature between 2015 and 2034. As at December
31, mortgages payable and mortgages on properties held for sale bear interest at a weighted average effective and contractual
rate of 4.46% and 4.34% per annum, respectively,
The weighted average effective rates for fixed and floating rate mortgages payable and mortgages on properties held for sale are
as follows:
March 31, 2015
December 31, 2014
Fixed rate
4.54%
4.61%
Floating rate
1.86%
1.96%
Total
4.38%
4.46%
As at March 31, 2015, US dollar denominated mortgages amounted to US$1.2 billion (December 31, 2014 – US$1.2 billion).
Lines of Credit
As at March 31, 2015, RioCan had five revolving lines of credit in place with five Canadian Schedule I financial institutions, having
an aggregate capacity of $726 million (December 31, 2014 - $718 million).
As at March 31, 2015, the Trust’s undrawn lines of credit total $413 million.
8. Debentures Payable
Debentures payable consist of the following:
As at
Current
March 31, 2015 December 31, 2014
$
— $
1,814,019
1,740,511
$
1,814,019 $
1,856,501
Non-current
115,990
As at March 31, 2015, total debentures payable bear interest at a weighted average effective rate of 3.92% per annum (contractual
rate of 3.67% per annum). As at December 31, 2014, total debentures payable bear interest at a weighted average effective rate
96
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
of 4.11% per annum (contractual rate of 3.86% per annum). Future repayments are as follows:
Weighted average
contractual
interest rate
Principal
maturities
For the year ending December 31: 2017
3.80%
150,000
2018
2.87%
250,000
2019
3.85%
175,000
Thereafter
3.81%
1,250,000
1,825,000
Contractual obligations
(10,981)
Unamortized debt financing costs, net of premiums and discounts
$
1,814,019
Issuances
On February 12, 2015, the Trust issued $300 million of Series W senior unsecured debentures, which mature on February 12,
2024 and carry a coupon rate of 3.287%. A portion of the net proceeds were used to repay indebtedness, including the
redemption of the Trust's Series O senior unsecured debentures (the Series O Debentures) as described below, and the balance
for general trust purposes.
On March 25, 2015, the Trust announced that it has amended the terms of its previously announced offering of Series Q senior
unsecured debentures (the Additional Debentures) and will be issuing $175 million Additional Debentures. The Additional
Debentures will carry a coupon rate of 3.85% and will mature on June 28, 2019. The Additional Debentures were sold at a price
of $107.312 per $100 principal amount plus accrued interest, with an effective yield of 2.04% if held to maturity. An aggregate of
$350 million of such debentures will be outstanding after giving effect to this offering. The Trust completed its issuance of the
Additional Debentures on April 2, 2015.
Redemptions
On March 9, 2015, RioCan redeemed its US$100 million 4.10% Series N senior unsecured debentures due September 21, 2015
(the Series N Debentures), in full, in accordance with their terms, at a total redemption price of US$101.8 million, plus accrued
and unpaid interest of US$1.9 million, up to but excluding the redemption date. During the three months ended March 31, 2015,
the Trust recorded an early extinguishment charge of $2.3 million (US$1.8 million).
On March 11, 2015, RioCan redeemed its $225 million 4.499% Series O Debentures due January 21, 2016, in full, in accordance
with their terms, at a total redemption price of $231.8 million, plus accrued and unpaid interest of $1.4 million, up to but excluding,
the redemption date. During the three months ended March 31, 2015, the Trust recorded an early extinguishment charge of $7.6
million, which includes a write-off of the related unamortized deferred financing costs.
9. Income Taxes
The components of deferred tax assets on the consolidated balance sheets are as follows:
March 31, 2015
December 31, 2014
Tax effected temporary differences between accounting and tax basis of:
Intangibles and other
Deferred tax assets
$
9,059 $
9,059
$
9,059 $
9,059
97
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
10. Accounts Payable and Accrued Liabilities
March 31, 2015
Current
Property operating costs
$ 111,871 $
Development costs
Capital expenditures
Fair value of contingent consideration
Noncurrent
December 31, 2014
Total
18,190 $ 130,061 $
Current
Noncurrent
85,284 $
17,567 $ 102,851
Total
57,829
—
57,829
75,767
—
75,767
1,679
—
1,679
4,491
—
4,491
818
—
818
775
—
775
Interest on mortgages and debentures payable
31,359
—
31,359
30,837
—
30,837
Distributions to unitholders payable
37,352
—
37,352
37,128
—
37,128
Deferred revenue
14,520
26,212
40,732
20,581
23,027
43,608
Tenant installation costs
11,324
—
11,324
12,352
—
12,352
Incentive compensation
2,193
—
2,193
9,477
—
9,477
Unfunded employee future benefits
—
12,849
12,849
—
12,953
12,953
Fair value of equity unit plans
—
3,645
3,645
—
2,775
2,775
Fair value of interest rate swap agreements
—
27,429
27,429
—
15,989
15,989
Finance lease obligation
—
13,407
13,407
—
14,036
14,036
4,362
—
4,362
2,205
—
2,205
Other
$ 273,307 $ 101,732 $ 375,039 $ 278,897 $
86,347 $ 365,244
11. Unitholders' Equity
Common trust units
The Trust is authorized to issue an unlimited number of common units. The common units are entitled to distributions, as and
when declared by the Board (and upon liquidation) to a pro rata share of the residual net assets remaining after the preferential
claims, thereon, of debt holders and preferred unitholders. As the Trust is a closed end trust, the units are not puttable. The units
issued and outstanding are as follows:
For the three months ended March 31,
2015
2014
Units
$
Units
$
315,986
4,536,957
304,075
4,239,207
1,238
34,211
1,557
29,938
7
202
17
314
661
15,327
296
4,701
Value associated with unit options granted
—
1,482
—
1,416
Unit issue costs
—
Units outstanding, beginning of period
Units issued:
Distribution reinvestment plan
Direct purchase plan
Unit option plan
Units outstanding, end of period
317,892
(80)
4,588,099
—
—
305,945
4,275,576
Included in units outstanding are exchangeable limited partnership units of three limited partnerships that are subsidiaries of the
Trust (the LP units), which were issued to vendors as partial consideration for income properties acquired by RioCan (March 31,
2015 - 1.1 million, December 31, 2014, 1.1 million units). RioCan is the general partner of the limited partnerships. The LP units
are entitled to distributions equivalent to distributions on RioCan units, and are exchangeable for RioCan units on a one-for-one
basis at any time at the option of the holder.
Normal Course Issuer Bid
On July 25, 2013, RioCan announced the TSX approval of its notice of intention to make a normal course issuer bid (NCIB) for a
portion of its Units as appropriate opportunities arise from time to time. RioCan’s NCIB will be made in accordance with the
requirements of the TSX. Under the NCIB, RioCan may acquire up to a maximum of 15,039,156 of its Units, or approximately 5%
of its issued and outstanding Units as at July 19, 2013, for cancellation over the 12 months commencing on or about August 3,
2013 until August 2, 2014. On August 5, 2014, the TSX accepted the Trust 's filed notice to renew its NCIB program. The new
NCIB program commenced on August 7, 2014 and will terminate on August 6, 2015, or until such earlier date on which authorized
purchases under the NCIB have been completed.
The number of Units that can be purchased pursuant to the bid is subject to a current daily maximum of 107,172 Units (which is
equal to 25% of 428,691, being the average daily trading volume from February 2014 through to July 31, 2014), subject to
RioCan’s ability to make one block purchase of Units per calendar week in excess of such limits. RioCan intends to fund the
purchases out of its available cash and undrawn credit facilities. Purchases are made at market prices through the facilities of the
Exchange.
During the three months ended March 31, 2015, RioCan did not purchase for cancellation any of its Units under its NCIB.
98
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
12. Unit-based Compensation Plans
Incentive unit option plan
During the three months ended March 31, 2015, the Trust granted 1.4 million unit options under the incentive unit option plan to
certain employees. The terms of the incentive unit option plan are described in note 12 to the 2014 Annual Financial Statements.
The Trust accounts for this plan using the fair value method, under which compensation expense for each tranche of an award
is measured at the grant date and recognized over the vesting period. Unit-based compensation expense and the weighted
average assumptions utilized in the calculation thereof using the Black-Scholes option valuation model are as follows:
For the three months ended March 31,
2015
Fair value of unit options granted
$
3,248
2014
$
1,511
$
26.54
1,376
Unit options granted (in thousands)
Unit option exercise price
$
29.31
475
Expected risk free interest rate (i)
1.0%
Expected distribution yield (ii)
4.8%
5.3%
19.9%
24.5%
Expected unit price volatility (iii)
Expected option life (years) (iv)
2.0%
5.5 - 7
5.5 - 7
(i) Determined using the yield on Government of Canada benchmark bonds with an average maturity period similar to the expected option life.
(ii) Based on the annual distribution yield on the date of grant.
(iii) Estimated by considering historic average unit price volatility.
(iv) Estimated based upon expected holding period of options between the grant and exercise dates.
New executive compensation plan
In February 2015, the Trust granted units under the new performance equity unit plan (PEU Plan) with a 3-year performance
period effective January 1, 2015 for senior executives. The implementation of the PEU Plan will reduce the proportion of longterm incentives granted through Unit options by replacing an equivalent value with performance equity units (PEUs). PEUs will be
subject to both internal and external measures consisting of both absolute and relative performance. Subject to performance,
PEUs granted during February 2015 vest in February 2018, and are cash settled.
The Trust accounts for this plan under the fair value method of accounting which uses the Monte-Carlo simulation pricing model
to determine the fair value of market-based awards. The Monte-Carlo simulation pricing model uses the same input assumptions
as the Black-Scholes model, however, it allows for the incorporation of the market-based performance hurdles that must be met
before the PEU vests in the holder. Compensation costs related to awards with a market-based condition are recognized
regardless of whether the market condition is satisfied, provided that the requisite service has been provided.
During the three months ended March 31, 2015, the Trust granted 0.1 million PEUs under its PEU Plan. Unit-based
compensation expense and fair value assumptions using the Monte-Carlo valuation model are as follows:
For the three months ended March 31,
2015
Fair value of PEUs granted
$
3,766
$
33.93
PEUs granted (in thousands)
111
Grant date fair value per unit
Expected risk-free interest rate (i)
0.45%
Expected unit price volatility (ii)
14.0%
Expected total unitholder return (iii)
11.4%
(i)
Determined using the yield on Government of Canada benchmark bonds with an average maturity period similar to the PEU vesting period.
(ii) Estimated by considering historic average unit price volatility.
(iii) PEU are subject to relative total relative unitholder return (TUR) performance hurdles where vesting is dependent upon RioCan's TUR performance
relative to certain measures of internal and external measures as follows: a) one-third of PEU grants are subject to a relative performance against a
comparative group of peer companies; b) one-third of PEU grants are subject to an absolute outperformance hurdle against certain market indices; and
one-third of PEU grants are subject to an internal Operating FFO growth performance hurdle.
As at March 31, 2015, accounts payable and accrued liabilities includes a PEU Plan compensation accrual of $0.3 million.
Trustees’ restricted equity unit plan
As at March 31, 2015, accounts payable and accrued liabilities include accrued compensation costs relating to the REUs of $1.8
million (December 31, 2014 – $1.5 million).
Trustees’ deferred equity unit plan
As at March 31, 2015, accounts payable and accrued liabilities include accrued costs relating to deferred equity units of $1.5
million (December 31, 2014 - $1.2 million).
99
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
13. Distributions to Unitholders
RioCan currently qualifies as a mutual fund trust and a REIT for income tax purposes. RioCan intends, but is not contractually
obligated, to distribute all of the Trust’s taxable income to unitholders in each year, as calculated in accordance with the Act after
all permitted deductions under the Act have been taken.
Total distributions declared to unitholders are as follows:
For the three months ended March 31,
2015
Total
Distributions
Common Unitholders
$
2014
Distributions
per unit
0.3525 $
Distributions
per unit
107,516 $
0.3525
Preferred Unitholders – Series A
1,641
0.3281
1,641
0.3281
Preferred Unitholders – Series C
1,757
0.2938
1,757
0.2938
$
111,782 $
Total
Distributions
115,180
$
110,914
14. Rental Revenue
For the three months ended March 31,
2015
Base rent
$
205,504 $
2014
193,861
3,951
1,232
Common area maintenance recoveries
46,332
45,967
Realty tax recoveries
Straight-line rent
61,173
55,384
Percentage rent
1,237
1,082
Lease cancellation fees
5,624
Rental revenue
$
323,821 $
2,632
300,158
15. Property Operating Costs - Recoverable Under Tenant Leases
For the three months ended March 31,
2015
Realty tax
$
Common area maintenance (i)
47,041
$
(i)
92,203 $
139,244 $
2014
80,043
45,465
125,508
Includes salaries and benefits for the three months ended March 31, 2015 of $17 million (three months ended March 31, 2014 - $16 million).
16. Fees and Other Income
For the three months ended March 31,
Property and asset management fees
$
2015
2014
3,372 $
3,350
2,551
Income earned on available-for-sale investments
$
5,923 $
300
3,650
17. Interest Expense
For the three months ended March 31, 2015, interest was capitalized to properties under development based on a weighted
average interest rate of 4.4% (for the three months ended March 31, 2014 – 4.5%) as follows:
For the three months ended March 31,
2015
Total interest
$
65,046 $
$
59,015 $
6,031
Less: Interest capitalized to properties under development
100
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
2014
64,912
5,778
59,134
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
18. General and Administrative
For the three months ended March 31,
2015
2014
5,498 $
3,903
Unit based compensation expense
1,482
1,122
Information technology costs
1,264
1,238
Public company costs
1,359
986
Professional fees
1,356
1,535
Depreciation and amortization
1,260
796
Other
2,091
1,926
Salaries and benefits
$
Total general and administrative
$
14,310 $
11,506
For the three months ended March 31, 2015, unit based compensation expense includes $0.3 million related to the PEU plan,
and excludes $0.3 million (for the three months ended March 31, 2014 - $0.3 million) of compensation costs related to the Trust's
leasing operations which have been reclassified and recorded in Leasing costs on the consolidated statement of earnings.
Other general and administrative expenses primarily include $0.9 million occupancy and office costs (for the three months ended
March 31, 2014 - $0.8 million) and $1.0 million in marketing costs (for the three months ended March 31, 2014 - $0.7 million).
19. Segmented Information
The Trust operates in the shopping centre segment of the real estate industry in both Canada and the US.
As at March 31, 2015, the Trust’s portfolio comprises 353 retail properties, including 15 under development. The Trust’s portfolio
of 48 US grocery anchored and new format retail centres (December 31, 2014 – 48) comprise 47 directly owned centres and one
centre owned through a joint operation with Kimco Realty Corporation.
No single tenant accounts for 5% or more of the Trust’s consolidated rental revenue.
The following summary presents segmented financial information by geographic location, which is consistent with the manner in
which management currently evaluates operating segment performance.
Net earnings by reportable segment for the three months ended March 31, 2015 is as follows:
Canada
Rental revenue
$
266,175 $
US
Eliminations (i)
Total
57,646 $
— $
323,821
96,648
42,596
—
139,244
5,297
1,240
—
6,537
101,945
43,836
—
145,781
164,230
13,810
—
178,040
—
5,923
Property operating costs
Recoverable under tenant leases
Non-recoverable from tenants
Operating income
Other income
Fees and other
Interest
Share of net earnings in equity accounted associates and
joint ventures
5,923
—
10,396
(81)
1,315
(9,089)
1,226
696
—
2,011
(52,015)
43,992
—
(8,023)
(34,381)
44,607
(9,089)
1,137
Interest
47,323
20,781
(9,089)
59,015
General and administrative
13,295
1,015
—
14,310
Expense for early redemption of debentures
9,929
—
—
9,929
Leasing costs
2,327
628
—
2,955
Transaction and other costs
3,418
6
—
76,292
22,430
Fair value gains on investment property, net
Other expenses
(9,089)
3,424
89,633
Earnings before income taxes
$
53,557 $
35,987 $
— $
89,544
Net earnings
$
53,557 $
35,987 $
— $
89,544
(i)
Represents $9.1 million of inter-segment loan interest.
101
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
Net earnings by reportable segment for the three months ended March 31, 2014 is as follows:
Canada
Rental revenue
$
US
252,024 $
Eliminations (i)
Total
48,134 $
— $
300,158
91,501
34,007
—
125,508
3,819
1,076
—
4,895
95,320
35,083
—
130,403
156,704
13,051
—
169,755
—
3,650
Property operating costs
Recoverable under tenant leases
Non-recoverable from tenants
Operating income
Other income
Fees and other income
Interest
3,650
—
13,184
(48)
(9,541)
3,595
63
3,068
22,072
44,986
38,969
48,006
(9,541)
77,434
Interest
49,100
19,575
(9,541)
59,134
General and administrative
Share of net earnings in equity accounted joint ventures
Fair value gains on investment property, net
—
3,131
—
67,058
Other expenses
10,502
1,004
—
11,506
Leasing costs
1,859
369
—
2,228
Transaction and other costs
1,750
179
—
63,211
21,127
(9,541)
1,929
74,797
Earnings before income taxes
$
132,462 $
39,930 $
— $
Deferred income tax expense
$
800 $
— $
— $
800
Net earnings
$
131,662 $
39,930 $
— $
171,592
(i)
172,392
Represents $9.5 million of inter-segment loan interest.
The carrying value of real estate investments as at March 31, 2015 is as follows:
Canada
US
Eliminations (i)
Total
Real estate investments
Income properties (ii)
$
10,870,834 $
2,686,850 $
— $
13,557,684
Properties under development (iii)
756,535
—
—
756,535
Residential development inventory
53,027
—
—
53,027
$
11,680,396 $
2,686,850 $
— $
14,367,246
Total assets
$
12,679,879 $
2,797,357 $
(394,666) $
15,082,570
Total liabilities
$
5,948,036 $
1,508,595 $
(394,666) $
7,061,965
(i)
(ii)
(iii)
Represents inter-segment loans of $395 million (US$311 million).
Includes properties held for sale in Canada of $305 million.
Includes properties held for sale of $79 million.
The carrying value of real estate investments as at December 31, 2014 is as follows:
Canada
US
Eliminations (i)
Total
Real estate investments
Income properties (ii)
$
10,839,500 $
2,413,897 $
— $
Properties under development (iii)
706,299
—
—
Residential development inventory
80,350
—
—
Total assets
706,299
80,350
$
11,626,149 $
2,413,897 $
— $
14,040,046
$
12,538,928 $
2,525,159 $
(386,410) $
14,677,677
1,380,646
(386,410)
5,814,573
Total liabilities
(i)
(ii)
(iii)
13,253,397
Represents an inter-segment loan of $386 million (US$333 million).
Includes properties held for sale in Canada of $132 million.
Includes properties held for sale of $57 million.
102
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
6,808,809
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
20. Net Earnings per Unit
Net earnings per unit and weighted average common units outstanding are calculated as follows:
For the three months ended March 31,
2015
Net earnings attributable to common and preferred unitholders
$
2014
89,059 $
3,398
Distributions to preferred unitholders
Net earnings attributable to common unitholders
$
3,398
85,661 $
316,911
Weighted average common units outstanding – basic (ii)
Unexercised dilutive unit options (ii)
Weighted average common units outstanding – diluted (i), (ii)
170,885
167,487
304,887
894
808
317,805
305,695
Net earnings per unit – basic
$
0.27 $
0.55
Net earnings per unit – diluted
$
0.27 $
0.55
(i)
(ii)
The calculation of diluted weighted average units outstanding excludes options for 3.4 million units for the three months ended March 31, 2015
(three months ended March 31, 2014 - 5.1 million units) as their inclusion would be anti-dilutive.
Unit information is shown in thousands.
21. Supplemental Cash Flow Information
For the three months ended March 31,
2015
Interest received
$
2014
281 $
1,765
Interest paid
64,524
60,346
Acquisition of real estate investments through assumption of liabilities and mortgages given by vendors
25,658
109,095
22. Fair Value Measurement
The fair value hierarchy of assets and liabilities measured at fair value on the consolidated balance sheet or disclosed in the
notes to financial statements is as follows:
March 31, 2015
Level 1
December 31, 2014
Level 2
Level 3
Level 1
Level 2
Level 3
Assets measured at fair value:
Cash and equivalents
$
59,878 $
— $
— $
56,273 $
— $
—
Mortgages and loans receivable
—
120,629
—
—
128,139
—
Interest rate swap asset
—
—
—
—
—
—
295,021
—
—
229,645
—
—
Income properties
—
—
13,253,022
—
—
13,121,331
Properties under development
—
—
677,117
—
—
649,432
Properties held for sale
—
—
384,080
Available-for-sale investments
Investment properties:
Total assets measured at fair value
$
354,899 $
$
3,336 $
120,629 $14,314,219 $
188,933
285,918 $
128,139 $13,959,696
Liabilities measured at fair value:
Trustee equity unit plans
— $
309 $
2,775 $
— $
—
Interest rate swap liability
—
27,429
—
—
15,989
—
Contingent consideration
—
—
818
—
—
775
Mortgages payable and lines of credit and
mortgages on properties held for sale
—
5,203,865
—
—
4,845,580
—
Debentures payable
—
1,925,945
—
—
1,925,975
—
Liabilities for which fair values are disclosed:
Total liabilities measured and/or disclosed
at fair value
$
3,336 $ 7,157,239 $
1,127 $
There have been no transfers among levels during the reporting period.
103
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
2,775 $ 6,787,544 $
775
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
The following table presents the changes in fair value measurements of assets included in Level 3 of the fair value hierarchy:
$ 13,959,696
Balance - December 31, 2014
Investment properties and properties held for sale (see note 4)
354,523
$ 14,314,219
Balance - March 31, 2015
23. Capital Management
The Trust defines capital as the aggregate of unitholders’ equity and debt. The Trust’s capital management framework is
designed to maintain a level of capital that complies with investment and debt restrictions pursuant to RioCan’s Declaration,
complies with existing debt covenants, enables the Trust to achieve target credit ratings, funds its business strategies and builds
long-term unitholder value. The key elements of RioCan’s capital management framework are approved by its unitholders via the
Trust’s Declaration of Trust and by its Board through their annual review of the Trust’s strategic plan and budget, supplemented
by periodic Board and Board Committee meetings. Capital adequacy is monitored by the Trust by assessing performance against
the approved annual plan throughout the year, which is updated accordingly, and by monitoring adherence to investment and
debt restrictions contained in the Declaration and debt covenants.
As at and during the three months ended March 31, 2015, the Trust was in compliance with its investment and debt restrictions
pursuant to RioCan's Declaration.
24. Financial Instruments
Fair value of financial instruments
Financial instruments carried at amortized cost on the consolidated balance sheets are as follows:
March 31, 2015
Carrying
value
Mortgages and loans receivable
Fair
value
December 31, 2014
Carrying
value
Fair
value
$ 126,255 $ 120,629 $ 136,190 $ 128,139
Mortgages payable and lines of credit and mortgages on properties held for sale
4,872,907
5,203,865
4,587,064
4,845,580
Debentures payable
1,814,019
1,925,945
1,856,501
1,925,975
Risk management
The main risks arising from the Trust’s financial instruments are interest rate, liquidity, credit and foreign exchange risks. For a
summary of the Trust's approach to managing these risks, refer to the 2014 Annual Financial Statements.
Interest rate risk
The Trust enters into interest rate swaps as part of its strategy for managing certain interest rate risks. The Trust has applied
hedge accounting and recorded the changes in fair value for the effective portion of the derivative in OCI from the date of
designation. For any interest rate swaps which the Company does not apply hedge accounting, the change in fair value is
recognized in the statement of earnings.
As at March 31, 2015, the original notional amount of the interest rate swaps is $800 million (December 31, 2014 – $797 million)
and the term to maturity of these agreements ranges from December 2016 to December 2021. The fair value of the interest rate
swap agreements liabilities at March 31, 2015 is $27.4 million (December 31, 2014 - $16.0 million).
Liquidity risk
The Trust mitigates its liquidity risk by staggering the maturity dates of its long-term debt, limiting the use of floating rate debt,
actively renewing expiring credit arrangements, utilizing undrawn lines of credit; and issuing equity when considered appropriate.
•
For the schedule of future repayments of mortgages, floating rate debt and cash advances drawn against the Trust's lines of
credit, see note 7 for further details.
•
For the schedule of future repayments of debentures see note 8 for further details.
Credit risk
Credit risk arises from the possibility that:
• Tenants may experience financial difficulty and be unable to fulfill their lease commitments or tenants may fail to occupy and
pay rent in accordance with existing lease agreements, some of which are conditional.
• Borrowers default on the repayment of their mortgages to the Trust.
• Third parties default on the repayment of debt to the Trust.
During the three months ended March 31, 2015, certain tenants have announced their decision to either exit certain lease
agreements or discontinue operations in Canada. The Trust mitigates its credit risk, in part, with indemnity agreements or
guarantees with the parent companies of certain tenants.
104
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
Target Canada
On January 15, 2015, Target announced plans to discontinue its Canadian operations through its indirect wholly-owned
subsidiary, Target Canada. See note 4 for further discussion. As at March 31, 2015, total contractual rents receivable due from
Target Canada was $0.9 million. See note 4 for further discussion.
Foreign exchange risk
Foreign exchange risk arises because the US dollar denominated financial statements of the Trust's US operations may vary
upon consolidation and translation into Canadian dollars. As a result, the Trust may experience translation exposures because of
volatility in the exchange rate between the Canadian and US dollar.
As at March 31, 2015, the Trust’s US denominated net assets are $1.3 billion; therefore a 1% change in the value of the US dollar
will result in a gain or loss through OCI of approximately $13 million.
25. Related Party Transactions
Key management personnel are those individuals that have the authority and responsibility for planning, directing and controlling
the company’s activities, directly or indirectly. RioCan's Trustees do not plan, direct, or control the activities of the Trust directly
but provide oversight over the business.
The Trust’s key management personnel include the Trustees and the following individuals: the Chief Executive Officer, Edward
Sonshine; President and Chief Operating Officer, Raghunath Davloor; and Chief Financial Officer and Corporate Secretary,
Cynthia Devine (collectively, the Key Executives).
Remuneration of the Trust’s key management during the period was as follows:
Trustees
For the three months ended March 31,
2015
Compensation and benefits
$
Unit-based payments
Post-employment benefit cost
$
58 $
Key Executives
2014
179 $
2015
2014 (i)
1,339 $
810
561
283
663
599
—
—
11
112
619 $
462 $
2,013 $
1,521
(i) For the three months ended March 31, 2014, amounts reported under key executives include $0.4 million of total renumeration paid to the former
President and Chief Operating Officer.
Unit-based payments for Trustees are made pursuant to equity unit plans as described in note 12.
On February 4, 2015, the Trust announced the appointment of Cynthia Devine as Executive Vice President, Chief Financial
Officer and Corporate Secretary, effective March 16, 2015.
26. Contingencies and Commitments
Guarantees
As at March 31, 2015, the estimated amount of third party debt subject to RioCan guarantees, and therefore the maximum
exposure to credit risk, was approximately $468 million consisting of guarantees totalling $296 million (December 31, 2014 –
$309 million) to partners and co-owners and $171 million (December 31, 2014 – $161 million) on the assumption of mortgages by
purchasers on property dispositions with expiry dates between 2015 and 2034. There have been no defaults by the primary
obligors for debts on which the Trust has provided its guarantees, and as a result, no provision for these guarantees has been
recognized in these Interim Consolidated Financial Statements.
Investment commitments
On February 25, 2015, RioCan announced that it has reached an agreement in principle to form a joint venture with Hudson's
Bay Company (HBC) that will be focused on real estate growth opportunities in Canada. RioCan's contribution commitment to the
joint venture is $325 million in exchange for an eventual 20.2% equity ownership interest. The equity contribution will be
comprised of three components. The first component is a $146 million equity contribution by way of the sale of a 50% interest in
two investment properties, together with the transfer of the underlying mortgage debt. The second component is by way of a $52
million capital commitment for tenant and capital improvements to certain properties in the joint venture. The final component is a
capital commitment by RioCan by way of an equity contribution of $127 million to be funded over the next three years for future
acquisitions by the joint venture. The transaction is expected to close by June 30, 2015, subject to securing acceptable debt
financing for the joint venture, along with customary closing conditions and consents. Additionally, the agreement contemplates
three HBC assets that are subject to land leases, the inclusion of which is subject to obtaining landlord consent. Should HBC fail
to obtain such landlord consent within a stipulated time frame following the prescribed closing date, these three properties would
not be included in the transaction and consequently, the agreement would be subject to amendment.
On May 1, 2015, RioCan committed up to $44 million in capital contributions in consideration for a 20% limited partner ownership
interest in WhiteCastle New Urban Fund 3, LP. Amounts to be funded are callable by the general partner at any point prior to the
expiration of the investment period of May 1, 2020.
105
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
As at March 31, 2015, the Trust has unfunded investment commitments of approximately $18 million relating to WhiteCastle New
Urban Fund LP and WhiteCastle New Urban Fund 2, LP. Amounts to be funded are callable by the general partner at any point
prior to the expiration of the investment period of February 29, 2018.
Contractual obligations on real estate
RioCan has the acquisition of an income property in the US under firm contract where conditions have been waived pursuant to a
purchase and sale agreement at a sales price of $3 million (US$2 million).
The Trust has the disposition of its 80% non-managing interest in one income property in the US that is accounted for using the
equity method, under firm contract with Kimco where conditions have been waived pursuant to a purchase and sale agreement
for total proceeds of $44 million (US$35 million), subject to working capital and other closing adjustments.
Litigation
The Trust is involved with litigation and claims which arise from time to time in the normal course of business. In the opinion of
management, any liability that may arise from such contingencies will not have a significant adverse effect on the Trust’s Interim
Consolidated Financial Statements.
106
RIOCAN REAL ESTATE INVESTMENT FIRST QUARTER REPORT 2015
CORPORATE INFORMATION
SENIOR MANAGEMENT
Edward Sonshine, O.Ont., Q.C.
Chief Executive Officer
Raghunath Davloor
President, Chief Operating Officer
Cynthia Devine
Executive Vice President, Chief Financial
Officer & Corporate Secretary
Howard Rosen
Senior Vice President, Chief Accounting
Officer
John Ballantyne
Senior Vice President, Asset Management
Michael Connolly
Senior Vice President, Construction
Jonathan Gitlin
Senior Vice President, Investments
Danny Kissoon
Senior Vice President, Operations
Jordan Robins
Senior Vice President, Planning &
Development
Jeff Ross
Senior Vice President, Leasing
Stuart Baum
Vice President, Human Resources
Nigel Bunbury
Vice President, Financial Reporting &
Controls
Stuart Craig
Vice President, Planning & Development
Roberto DeBarros
Vice President, Construction
Andrew Duncan
Vice President, Development Engineering
Lyle Goodis
Vice President, Marketing
Oliver Harrison
Vice President, Asset Management
Oliver Hobday
Vice President, Legal
Kevin Miller
Regional Vice President, Operations Central Ontario
Pradeepa Nadarajah
Vice President, Property Accounting
Paran Namasivayam
Vice President, Recovery Accounting
Jane Plett
Vice President, Operations – Western
Canada
Kenneth Siegel
Vice President, Leasing
Jonathan Sonshine
Vice President, Asset Management
Jeffrey Stephenson
Vice President, Leasing
Naftali Sturm
Vice President, Finance
Renato Vanin
Vice President, Information Technology
BOARD OF TRUSTEES
Paul Godfrey, C.M., O.Ont. 1,2,3,4
(Chairman of Board of Trustees)
President and Chief Executive Officer
Postmedia Network Canada Corp.
Bonnie Brooks 3,4
Vice Chairman, Hudson’s Bay Company
Clare R. Copeland 1,2
Vice-Chair, Falls Management Company
Raymond M. Gelgoot
Retired, Former Partner,
Fogler Rubinoff LLP
Dale H. Lastman
Chair and Partner, Goodmans LLP
Sharon Sallows 1,2,4
Director and Chair of the Human Resources
and Compensation Committee of Ontario
Teachers’
Pension Plan Board
Edward Sonshine, O.Ont., Q.C.
Chief Executive Officer,
RioCan Real Estate Investment Trust
Charles M. Winograd 3,4
President, Winograd Capital Inc.
Luc Vanneste 1,2
Chair of the Audit Committee, RioCan
1 member of the Audit Committee
2 member of the Human Resources & Compensation
Committee
3 member of the Nominating & Governance Committee
4 member of the Investment Committee
UNITHOLDER INFORMATION
Head Office
RioCan Real Estate Investment Trust
RioCan Yonge Eglinton Centre,
2300 Yonge Street, Suite 500
P.O. Box 2386, Toronto, Ontario M4P 1E4
Tel: 416-866-3033 or 1-800-465-2733
Fax: 416-866-3020
Website: www.riocan.com
Email: [email protected]
UNITHOLDER AND INVESTOR CONTACT
Christian Green
Director, Investor Relations and Compliance
Tel: 416-864-6483
Email: [email protected]
AUDITORS
Ernst & Young LLP
TRANSFER AGENT AND REGISTRAR
CST Trust Company
P.O. Box Station B,
Montreal, Quebec H3B 3K3
Answerline: 1-800-387-0825 or
416-643-5500
Fax: 1-800-249-6189 or 514-985-8843
Website: www.canstockta.com
Email: [email protected]
STOCK EXCHANGE LISTING
The Toronto Stock Exchange
Trading Symbols:
Common Units – REI.UN
Preferred Units – Series A REI.PR.A
Series C REI.PR.C
RIOCAN YONGE EGLINTON CENTRE
2300 Yonge Street
Suite 500
P.O. Box 2386
Toronto, Ontario
M4P IE4
T
TF
F
W
416 866 3033
1 800 465 2733
416 866 3020
www.riocan.com