RioCan Real Estate Investment Trust Announces Financial Results for 2017 With 5.4% Growth in Operating Income and 2.1% Same Property NOI Growth

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TORONTO, Feb. 13, 2018 (GLOBE NEWSWIRE) -- RioCan Real Estate Investment Trust (“RioCan”) (TSX:REI.UN) today announced its financial results for the three months and year ended December 31, 2017.

“I am very pleased with our results this year, as 2017 marked the strongest year of same property performance for RioCan in seven years. The performance of our operations excelled in the past year, driving our FFO per unit, to its highest level in the Trust's history, excluding 2015 when we received a substantial Target settlement, and grew FFO per unit by 6.3% over 2016. Our occupancy levels returned to their historical average of near 97% in the second half of the year and our same property portfolio posted the best results that RioCan has delivered since 2010. We are anticipating that 2018 will continue the momentum that began in the second half of 2016, with another year of solid same property performance. By the end of this year, we should begin to realize some of the benefits of our development program with a number of completions that will propel our growth into 2019,” said Edward Sonshine, Chief Executive Officer of RioCan. “We are pleased with the progress that we have already made in executing our strategic vision for RioCan, and we are very confident in our ability to build on our early successes. Our strong balance sheet and the capital provided through the sale of secondary markets properties will enable RioCan to focus on the ongoing value creation in our major market portfolio that will greatly enhance the quality, resilience and growth profile of our portfolio and deliver strong FFO and net asset value growth to our unitholders during this very exciting time for RioCan.”

RioCan’s Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards (“IFRS”). Consistent with RioCan’s management framework, management uses certain financial measures to assess RioCan’s financial performance, which are not generally accepted accounting principles (GAAP) under IFRS. For full definitions of these measures, please refer to “Non-GAAP Measures” in RioCan’s December 31, 2017 Management's Discussion and Analysis. As a result of the sale of the U.S. operations, we have reported our former U.S. geographic segment performance as "discontinued operations" with comparative income statement amounts adjusted to reflect this change, unless otherwise noted.

The increase of $71.2 million is largely the net effect of the following:

The increase of $4.6 million is largely the net effect of the following:

(i) A non-GAAP measurement. A reconciliation to net income can be found under “Results of Operations” in RioCan's Management's Discussion and Analysis for the period ending December 31, 2017. 

As of February 13, 2018, four months since the strategy's announcement, the Trust has either completed or entered into firm agreements to sell $511.9 million of properties in secondary markets at a weighted average capitalization rate of 6.07% based on in-place net operating income (NOI), representing approximately 25% of the announced disposition target. The deals consist of the following:

In addition to the above $511.9 million closed and firm deals, the Trust has also entered into three conditional agreements as of February 13, 2018 to sell five properties in Ontario and Quebec for aggregate sale proceeds of $58.0 million at a weighted average capitalization rate of 6.66%. Should these firm and conditional transactions close by the end of the second quarter in 2018, as currently contemplated, the Trust would have completed the sale of 19 properties for aggregate sale proceeds of $569.9 million or approximately 28% of our disposition target by sales proceeds, at a weighted average capitalization rate of 6.13%. The aggregate proceeds from the sale of these properties are in line with the Trust's IFRS valuations.

The net proceeds from the dispositions have been and will be used to pay down debt, fund unit repurchases through RioCan’s Normal Course Issuer Bid (NCIB) program and fund the Trust’s development activities. Since the renewal of the NCIB program on October 20, 2017 and as of December 31, 2017, RioCan has purchased and cancelled 3.9 million Trust units at an average purchase price of $25.30 per unit.

Refers to same property NOI growth on a year over year basis. 

As a component of total same property NOI growth, same property NOI from RioCan's properties in Canada's six major markets increased 2.2% for the year ended December 31, 2017, while same property NOI over the same comparable period for the Trust's secondary markets grew 1.7%.

As a component of total same property NOI growth, same property NOI from RioCan's properties in Canada's six major markets increased 3.0% for the three months ended December 31, 2017 over the same period in 2016 while same property NOI from the Trust's secondary markets properties grew 2.6% over the same comparable period.

 

Unlike our previous experience with the vacated Target premises, we will not be required to undergo the time-consuming process to obtain site plan approvals to convert the majority of the Sears premises to multi-tenant units.

As such, we anticipate that replacement tenants will be in possession of the spaces by the end of 2018 and will be open and paying rent in Q1/Q2 of 2019, with costs of tenant work considerably less than what was incurred to fill the vacated Target spaces.

Subsequent to December 31, 2017, the Trust acquired Thickson Centre in Whitby, Ontario for a purchase price of $31.1 million at a capitalization rate of 6.16% with no assumption of debt. The Trust also acquired the remaining one third interest in an existing income property in Newmarket, Ontario for a purchase price of $18.5 million at a capitalization rate of 5.65% and assumed a mortgage payable with a fair value of $9.4 million.

Also, RioCan sold a portion of its available-for-sale marketable securities and recognized gains of $10.5 million in the Fourth Quarter and $46.0 million for the year ended December 31, 2017 .

(i)       Refer to section in RioCan's MD&A for further details and the calculation of Adjusted EBITDA for the respective periods.(ii)      Ratio is calculated on a continuing operations basis.

The Trust's interest, debt service and fixed charge coverage ratios, as well as Debt to Adjusted EBITDA , at RioCan's proportionate share for the year ended December 31, 2017 have all significantly improved compared to December 31, 2016 mainly due to lower interest and debt service costs as a result of the repayment of debt using the net proceeds from the U.S. sale and interest savings from mortgage refinancing and redemption of preferred units, and an increase in Adjusted EBITDA primarily as a result of acquisitions (net of dispositions), strong same property NOI growth, development completions, and higher gains from the sale of available-for-sale marketable securities

The Trust's leverage ratio (total debt to total assets) at RioCan's proportionate share remained low at 41.4% and within the Trust's target range as of December 31, 2017. This ratio increased by 1.4% over December 31, 2016 mainly as a result of payment of income taxes in Q1 2017 relating to the sale of the U.S. portfolio in 2016, which had been accrued in 2016, and the redemption of the Series C preferred units in Q2 2017.

The Trust continued to grow its portfolio of unencumbered assets during 2017. As of December 31, 2017, the Trust has $7.7 billion unencumbered assets, which generates 56.7% of the Trust's annualized NOI as of December 31, 2017, as compared to 49.5% as of December 31, 2016. The unencumbered assets to unsecured debt ratio decreased from 240% to 226% over this period, but remained well over our 200% target, as the increase in our unsecured debt of $635 million outpaced the $1.0 billion increase in unencumbered assets on a relative percentage basis.

As at December 31, 2017, we exceeded all of our debt metrics targets.

On January 31, 2018, the Trust issued $300 million of Series AA senior unsecured debentures, which mature on September 29, 2023 and carry a coupon rate of 3.209%. The interest on these debentures is payable semi­annually commencing September 29, 2018. The debentures were sold at a price of $999.95 per $1,000 principal amount with an effective yield of 3.209% if held to maturity.

 

In order to participate, please dial 647-427-3230 or 1-877-486-4304. If you cannot participate in the live mode, a replay will be available. To access the replay, please dial 1-855-859-2056 and enter passcode 5186169#.

A copy of the slides to be used for the conference call or, to access the simultaneous webcast, can be found on RioCan’s website at and click on the link for the webcast. The webcast will be archived 24 hours after the end of the conference call and can be accessed for 120 days.

Forward-looking information is not a guarantee of future events or performance and, by its nature, is based on RioCan’s current estimates and assumptions, which are subject to numerous risks and uncertainties, including those described under “Risks and Uncertainties” in RioCan's Management's Discussion and Analysis for the period ended December 31, 2017 ("MD&A"), which could cause actual events or results to differ materially from the forward-looking information contained in this News Release. Those risks and uncertainties include, but are not limited to, those related to: liquidity and general market conditions; tenant concentrations and related risk of bankruptcy or restructuring (and the terms of any bankruptcy or restructuring proceeding); occupancy levels and defaults, including the failure to fulfill contractual obligations by the tenant or a related party thereof; lease renewals and rental increases; the ability to re-lease and find new tenants for vacant space; retailer competition; potential changes in Ontario's rent control legislation; access to debt and equity capital; interest rate and financing risk; joint ventures and partnerships; the relative illiquidity of real property, the timing and ability of RioCan to sell certain properties; the valuations to be realized on property sales relative to current IFRS values; and the Trust's ability to utilize the capital gain refund mechanism; unexpected costs or liabilities related to acquisitions and dispositions; development risk associated with construction commitments, project costs and related approvals; environmental matters; litigation; reliance on key personnel; unitholder liability; income, sales and land transfer taxes; and credit ratings.

Our U.S. subsidiary qualified as a REIT for U.S. income tax purposes up to May 25, 2016, subsequent to the closing date of the sale of our U.S. property portfolio. For U.S. income tax purposes, the subsidiary distributed all of its U.S. taxable income and is entitled to deduct such distributions against its taxable income. The subsidiary’s qualification as a REIT depends on the REIT’s satisfaction of certain asset, income, organizational, distribution, unitholder ownership and other requirements up until May 25, 2016. Our U.S. subsidiary was subject to a 30% or 35% withholding tax on distributions of its U.S. taxable income to Canada. We did not distribute any withholding taxes paid or payable to our unitholders related to the disposition. Should RioCan’s U.S. subsidiary no longer qualify as a U.S. REIT for U.S. tax purposes prior to May 25th, 2016, certain statements contained in this MD&A may need to be modified.

General economic conditions, including interest rate fluctuations, may also have an effect on RioCan’s results of operations. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information may include, but are not limited to: a stable retail environment; relatively low and stable interest costs; a continuing trend toward land use intensification, including residential development in urban markets; access to equity and debt capital markets to fund, at acceptable costs, future capital requirements and to enable our refinancing of debts as they mature; the availability of investment opportunities for growth in Canada; and the timing and ability for RioCan to sell certain properties, the valuations to be realized on property sales relative to current IFRS values, and the Trust's ability to utilize the capital gain refund mechanism. For a description of additional risks that could cause actual results to materially differ from management’s current expectations, refer to Risks and Uncertainties in RioCan's MD&A for the period ended December 31, 2017 and Risks and Uncertainties in RioCan’s AIF. Although the forward-looking information contained in RioCan's MD&A for the period ended December 31, 2017 is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with this forward-looking information.

Certain statements included in this News Release may be considered “financial outlook” for purposes of applicable Canadian securities laws, and as such the financial outlook may not be appropriate for purposes other than this News Release. The forward-looking information contained in this News Release is made as of the date of this News Release, and should not be relied upon as representing RioCan’s views as of any date subsequent to the date of this News Release.

Management undertakes no obligation, except as required by applicable law, to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

RioCan Real Estate Investment TrustQi TangSenior Vice President and Chief Financial Officer416-866-3033

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Globe Newswire: 02:15 GMT Wednesday 14th February 2018

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