RioCan’s Third Quarter Results Driven by Robust Portfolio Fundamentals

Author of the article: Net income of $137.6 million and FFO of $0.40 per unit Committed occupancy increased to 96.4% and blended leasing spread was 7.5% Capital recycling gains momentum with $880.5 millionin of dispositions for 2021 High GRESB 2021 assessment scores earn top ranks, including 5 Star rating TORONTO, Nov. 09, 2021 (GLOBE NEWSWIRE)…
RioCan’s Third Quarter Results Driven by Robust Portfolio Fundamentals

Author of the article:

  • Net income of $137.6 million and FFO of $0.40 per unit
  • Committed occupancy increased to 96.4% and blended leasing spread was 7.5%
  • Capital recycling gains momentum with $880.5 million

    in of dispositions for 2021
  • High GRESB 2021 assessment scores earn top ranks, including 5 Star rating

TORONTO, Nov. 09, 2021 (GLOBE NEWSWIRE) — RioCan Real Estate Investment Trust (“RioCan” or the “Trust”) announced today its financial results for the three and nine months ended September 30, 2021 (the “Third Quarter”).

“RioCan has created one of Canada’s preeminent portfolios by strategically curating our asset mix through capital recycling initiatives. The strength of our high-quality properties is clearly reflected in our third quarter results with leasing activity, leasing spreads and occupancy continuing to trend favourably,” said Jonathan Gitlin, President and CEO of RioCan. “We are committed to operating and growing our business in a responsible and sustainable way. Our 2021 GRESB assessments demonstrate our ESG leadership status and I am extremely proud of our second consecutive 5 Star rating for Real Estate.”

  Three months ended

September 30
  Nine months ended

September 30
(in millions, except where otherwise noted, and per unit values)   2021     2020     2021     2020
                       
Financial Highlights                      
Net income (loss)   $ 137.6     $ 117.6     $ 389.6     $ (130.4)
Weighted average Units outstanding – diluted (in thousands)   317,961     317,728     317,818     317,721
 FFO (i)   $ 126.9     $ 128.8     $ 360.5     $ 383.3
 FFO (excluding debenture prepayment costs) (i)   $ 126.9     $ 128.8     $ 367.5     $ 383.3
 FFO per unit – diluted (i)   $ 0.40     $ 0.41     $ 1.13     $ 1.21
 FFO per unit – diluted (excluding debenture prepayment costs) (i)   $ 0.40     $ 0.41     $ 1.16     $ 1.21
                       

(i) A Non-GAAP measurement. For definitions and the basis of presentation of RioCan’s Non-GAAP measures, refer to the Non-GAAP Measures section in RioCan’s Management’s Discussion and Analysis (MD&A) for the three and nine months ended September 30, 2021.
   

FFO per Unit and Net Income

  • FFO per unit for the Third Quarter was $0.40, relatively consistent with $0.41 per unit in Q3 2020. FFO benefited from 6.6% same property NOI growth as the impact of the pandemic on operations has continued to diminish. RioCan’s tenant mix is comprised primarily of necessity-based retailers that have demonstrated resiliency throughout the last 20 months, while other uses have recovered as the economy re-opened. The benefit of the diminished impact of the pandemic was offset by a decrease in residential inventory gains in the quarter of $11.4 million or $0.04 per unit, due to timing of sales, and a reduction in NOI from commercial properties sold of $4.0 million, or $0.01 per unit.
  • Reported net income was $137.6 million, $20.1 million or 17.1% higher than Q3 2020 resulting from the similar factors as FFO per unit, above, as well as the benefit of fair value gains of $20.0 million recognized in Q3 2021, primarily related to Kennedy Commons, compared to fair value losses of $8.5 million in Q3 2020, partially offset by higher transaction costs.

ESG Update

  • In the 2021 GRESB Assessments for Real Estate, RioCan achieved top scores. For the second consecutive year, the Trust was recognized as an industry leader, receiving a 5 Star rating in the Real Estate Assessment and ranked first amongst its Canadian peers in the Public Disclosure Assessment. In addition, RioCan ranked second amongst 19 of North American retail centres listed peers. RioCan also received Regional Sector Leader status for its first-ever submission to the Mixed-Use category for Development Assessment.

Capital Recycling

  • The Trust’s capital recycling program is an effective way to fund value creation initiatives, such as developments, and to strengthen the Trust’s balance sheet. In 2021, as of November 9, 2021, a total of $660.0 million of dispositions were closed at a weighted average capitalization rate of 3.96%. The Trust further entered into firm or conditional agreements to dispose 100% or partial interests in a number of properties for total sales proceeds of $220.5 million, resulting in closed, firm and conditional deals totaling $880.5 million at a weighted average capitalization rate of 3.74%, of which all but $16.5 million are closed or firm.

Capital Management Update

  • RioCan had previously disclosed a capital management strategy that includes extending the tenor of long-term debt and increasing the proportion of unsecured debt. Subsequent to quarter end, the Trust took incremental steps to advance this strategy.
  • On November 8, 2021, RioCan issued $450.0 million, 2.829% of Series AE senior unsecured green bond debentures with a seven-year term, compared to a weighted average maturity of the debt portfolio of four years as at September 30, 2021. There was very strong demand for this issuance, which was over five times oversubscribed.
  • In addition, the Trust announced its intention to prepay the $250.0 million, 3.746% Series V unsecured debentures due May 30, 2022 and expects to record a prepayment cost of $3.8 million in Q4 2021. The Trust also prepaid $112.2 million of certain secured mortgages and associated interest rate swap hedges, and intends to repay an additional $41.3 million secured mortgage upon the closure of the Kennedy Commons transaction. If the above noted debenture issuance and debt repayments that were completed after quarter end are included, secured debt would comprise 43% of total debt, compared to 45% as at September 30, 2021.

Operation Highlights

  Three months ended

September 30
  Nine months ended

September 30
    2021     2020     2021     2020
                       
Operation Highlights (i)                      
Same property NOI growth (decline) (ii)   6.6 %     (9.1)%     2.8 %     (6.0)%
Occupancy – committed (iii)   96.4 %     96.0%     96.4 %     96.0%
Blended leasing spread   7.5 %     5.5%     6.8 %     5.6%
New leasing spread   7.2 %     9.2%     10.5 %     9.2%
Renewal leasing spread   7.6 %     4.6%     5.5 %     4.9%
Rent Collection (iv)   98.1 %     90.8%     98.1 %     90.8%
                       
(i) Includes commercial overall portfolio only.
(ii) A Non-GAAP measurement. For definitions and the basis of presentation of RioCan’s Non-GAAP measures, refer to the Non-GAAP Measures section in RioCan’s Management’s Discussion and Analysis (MD&A) for the three and nine months ended September 30, 2021.
(iii) Information presented as at respective periods then ended.
(iv) Represents percentage of total billed gross rents for the Third Quarter which has been collected in cash as of November 9, 2021.
   

  • Same property NOI improved in the quarter when compared to the same period last year as the pandemic-related provision fell from $14.4 million in Q3 2020 to $2.9 million due to strong cash collection from our tenants. As of November 9, 2021, essentially all of RioCan’s tenants were open and the Trust has collected 98.1% of its Q3 2021 billed gross rents in cash, the highest cash collection rate since the start of the pandemic.
  • New leasing of 344,000 square feet (at 100% ownership interest) was completed during the quarter at new leasing spread of 7.2% for the overall portfolio.
  • Renewed leases of 626,000 square feet were completed with a retention ratio of 89.2%. The renewal leasing spread was 7.6% for the overall portfolio, mainly driven by the major market renewal leasing spread of 8.1%.
  • As re-openings gained momentum through the quarter, committed and in-place occupancy for the total portfolio of 96.4% and 95.6% showed solid improvement, increasing by 30 and 50 basis points, respectively, when compared to Q2 2021, driven predominantly by retail leasing.
  • Office committed occupancy increased by 60 basis points over Q2 2021. As of November 9, 2021, The Well office component was 88% leased with leases for an additional 133,000 (at 100% ownership interest) square feet being finalized. If these leases are successfully completed, 99.5% of the office component will be leased.

RioCan Living Update

  • The Trust’s purpose-built residential rental portfolio, managed by RioCan Living™, continued to expand. As of November 9, 2021, this portfolio includes 1,428 completed units (at 100% ownership interest) across five buildings and an additional 1,324 units are currently under development. Pre-leasing continued at Latitude™, the 209-unit project in Ottawa, which has an expected move-in commencement date of Q1 2022 and occupancy at Strada™, the 61-unit project in Toronto, is expected to commence in Q4 2021.
  • In addition to the residential component of Litho.™, the retail podium has been leased to top quality tenants, including a grocery retailer and a liquor store, providing a high quality amenity for the residential tenants and the broader community.
  • RioCan Living also launched a number of new condominium projects in the quarter including Verge™ West Tower, the first phase of the mixed-use project located on The Queensway in Toronto and U.C. Towns 2 and U.C. Tower 2, the final phases of the U.C. development in Oshawa. Following the extremely successful launch of Verge West Tower, sales for Verge East Tower, the second phase of the project, began in October 2021. Subsequent to the quarter, RioCan’s 50% partner, Boardwalk REIT, agreed to sell its co-ownership interest in the Sandalwood project, located in Mississauga, Ontario, to condominium developer, Marlin Spring, addressing the local demand for housing ownership. This creates the opportunity for the Trust to establish a condominium partnership structure to earn management fees along with a promote and participate in condominium sales as a general partner with respect to its 50% ownership.
  • RioCan Living’s leasing activity for the residential rental buildings in operation and sales activity for condominium projects in the pre-construction phase were extremely robust as indicated in the respective following tables:

                             
Residential Rental Buildings in Operation   Number of

total units
    Date of

lease launch
    % of leased units

as of

November 9, 2021
    % of leased units

as of

August 4, 2021
    % increase
                             
eCentral (Yonge Eglinton Northeast Corner, Toronto) (i)   466     December 2018     92.5 %     88.4 %     4.1 %
Frontier (Gloucester, Ottawa)   228     May 2019     97.4 %     97.4 %     %
Brio (Brentwood Village, Calgary)   163     April 2020     97.5 %     93.8 %     3.7 %
Pivot (Yonge Sheppard Centre, Toronto) (ii)   361     October 2020     72.0 %     44.9 %     27.1 %
Litho. (Dupont Street, Toronto) (iii)   210     July 2021     37.1 %     12.9 %     24.2 %
                             
                             
Condominium Projects in Pre-construction (iv)   Number of

total units
    Date of

sales launch
    % of pre-sold units

released as of

November 9, 2021
    % of pre-sold units

released as of

August 4, 2021
    % increase
                             
U.C. Towns 2, Oshawa, ON   65     August 2021     100.0 %     %     100.0 %
U.C. Tower 2, Oshawa, ON (v)   993     August 2021     78.4 %     %     78.4 %
Queen & Ashbridge, Toronto, ON   399     September 2020     95.1 %     91.8 %     3.3 %
Verge West (phase one), Toronto, ON (vi)   197     July 2021     96.0 %     %     96.0 %
Verge East (phase two), Toronto, ON (vii)   335     October 2021     88.4 %     %     88.4 %
                             

(i) As of November 9, 2021, the 431 leased units included 376 market rent units.
(ii) As of November 9, 2021, the 260 leased units included 254 market rent units.
(iii) Litho, which was substantially complete in Q4 2021, had a number of early move-ins during the quarter.
(iv) Excludes a total of 1,242 condominium units under construction at the 11 YV, U.C. Uptowns and U.C. Tower projects for which sales launched in September 2019, March 2017 and November 2018, respectively.
(v) U.C. Tower 2 consists of two condominium towers and 18 townhomes. The pre-sold percentage is calculated on the total 606 units in phase one, consisting of 588 condominium units and 18 townhomes. The second phase of U.C. Tower 2 is expected to be released for sale in April 2022.
(vi) 176 of these units have been released for sale.
(vii) 251 of these units have been released for sale.
   

Development Highlights

  Three months ended

September 30
  Nine months ended

September 30
(in millions except square feet)   2021     2020     2021     2020
                       
Development Highlights                      
Development completions – sq. ft. in thousands   97.0     72.0     157.0     209.0
Development expenditures (i)   $ 136.0     $ 134.5     $ 333.7     $ 352.0
Under Active Development – sq. ft. in thousands (ii)   3,436.0     3,661.0     3,436.0     3,661.0
                       

(i)   Includes costs incurred for various properties under development and for residential inventory in respective reporting periods.

(ii)  Information presented as at respective periods then ended and includes properties under development and residential inventory.

  • RioCan’s in-house development team delivered 97,000 square feet of completions during the quarter, including the retail components of Lincoln Fields Shopping Centre in Ottawa and RioCan Shawnessy in Calgary and are managing an active mixed-use development portfolio of 3.2 million square feet. The total embedded development potential within the Trust’s portfolio is 40.5 million square feet, of which 20.5 million square feet are currently zoned or have submitted applications in the entitlement, permitting and development cycle.
  • Solid progress continued on The Well, with the construction of the commercial component, which includes office and retail, at approximately 80% complete, excluding fixturing. As of November 9, 2021, approximately 523,000 (at 100% ownership interest) square feet of office space at The Well was handed over to tenants for fixturing as the construction of the office base building approaches completion, with cash rent to start in the back half of 2022. Leasing is underway for the retail component, with opening expected in early 2023. RioCan’s (50% owned) purpose-built residential rental building, FourFifty The Well™, is also advancing with formwork complete up to floor 23 of 39 total floors. This building is expected to be complete in 2023.
  • Construction progress continues on a number of other projects across the portfolio. This includes the three projects in Ottawa which are advancing on schedule, with the first completion of Latitude expected in Q1 2022 as mentioned above, followed by Luma and Rhythm in Q2 2022 and Q4 2022, respectively.
  • The Trust’s development spend target for 2021 is estimated to be in the $425 million to $450 million range.

Balance Sheet Strength

(in millions except percentages)

As at
          September 30,

2021
  December 31,

2020
                     
Balance Sheet Strength Highlights                    
 Liquidity (i)            $  1,136   $ 1,577
 Debt to Adjusted EBITDA (i) (ii)             9.97x     9.47x
 Ratio of total debt to total assets (i) (ii) (iii)             44.4%     45.0%
 Unencumbered assets (i) (ii) (iii)           $  8,570   $ 8,727
 Unencumbered assets to unsecured debt (i) (ii) (iii)             226%     215%
                     
(i) At RioCan’s proportionate share.
(ii) A Non-GAAP measurement. For definitions and the basis of presentation of RioCan’s Non-GAAP measures, refer to the Non-GAAP Measures section in RioCan’s Management’s Discussion and Analysis (MD&A) for the three and nine months ended September 30, 2021.
(iii) Information presented as at respective periods then ended.
   

  • As at September 30, 2021, the Trust had $1.1 billion of liquidity in the form of cash and cash equivalents and undrawn lines of credit on a proportionate share basis. RioCan had a large unencumbered asset pool of $8.6 billion as of the quarter end on a proportionate share basis, which generated 60.9% of RioCan’s annualized NOI and provided 2.26x coverage over its unsecured debt.
  • Of the Trust’s $380.0 million mortgage maturities in 2021, only $23.7 million have yet to be refinanced or do not have refinancing commitments in place as of November 9, 2021. These are expected to be refinanced in due course.
  • Debt to Adjusted EBITDA was 9.97x on a proportionate share basis, as at September 30, 2021. The increase in Debt to Adjusted EBITDA from year end was primarily because of higher average debt as the Trust continues to invest in the development of new assets while these properties have yet to contribute EBITDA. If the proceeds from dispositions that closed subsequent to quarter end are included, Debt to Adjusted EBITDA would have been 9.91x on a proportionate share basis. This ratio is expected to improve over time as the EBITDA from the development projects comes on line and as the EBITDA impacts of the pandemic dissipate.

Conference Call and Webcast

Interested parties are invited to participate in a conference call with management on Wednesday, November 10, 2021 at 10:00 a.m. (ET). Participants will be required to identify themselves and the organization on whose behalf they are participating.

In order to participate, please dial 647-427-3230 or 1-877-486-4304. For those unable to participate in the live mode, a replay will be available at 1-855-859-2056, passcode 1167207#.

For a copy of the slides to be used for the conference call or to access the simultaneous webcast, visit RioCan’s website at http://investor.riocan.com/investor-relations/events-and-presentations/  and click on the link for the webcast.

About RioCan

RioCan is one of Canada’s largest real estate investment trusts. RioCan owns, manages and develops retail-focused, increasingly mixed-use properties located in prime, high-density transit-oriented areas where Canadians want to shop, live and work. As at September 30, 2021, our portfolio is comprised of 210 properties with an aggregate net leasable area of approximately 36.9 million square feet (at RioCan’s interest) including office, residential rental and 15 development properties. To learn more about us, please visit www.riocan.com .

Basis of Presentation and Non-GAAP Measures

All figures included in this News Release are expressed in Canadian dollars unless otherwise noted. RioCan’s unaudited interim condensed consolidated financial statements (“Condensed Consolidated Financial Statements”) are prepared in accordance with International Financial Reporting Standards (IFRS). Financial information included within this News Release does not contain all disclosures required by IFRS, and accordingly should be read in conjunction with the Trust’s Condensed Consolidated Financial Statements and MD&A for the three and nine months ended September 30, 2021, which is available on RioCan’s website at www.riocan.com and on SEDAR at www.sedar.com.

Consistent with RioCan’s management framework, management uses certain financial measures to assess RioCan’s financial performance, which are not in accordance with generally accepted accounting principles (GAAP) under IFRS. Funds From Operations (“FFO”) and FFO (excluding debenture prepayment costs), Same Property NOI, Debt to Adjusted EBITDA, Ratio of Total Debt to Total Assets, RioCan’s Proportionate Share and Unencumbered Assets to Unsecured Debt , as well as other measures that may be discussed elsewhere in this News Release, do not have a standardized definition prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other reporting issuers. RioCan supplements its IFRS measures with these Non-GAAP measures to aid in assessing the Trust’s underlying performance and reports these additional measures so that investors may do the same. Non-GAAP measures should not be considered as alternatives to net earnings or comparable metrics determined in accordance with IFRS as indicators of RioCan’s performance, liquidity, cash flow, and profitability. For full definitions of these measures, please refer to the “ Non-GAAP Measures ” section in RioCan’s MD&A for the three and nine months ended September 30, 2021.

Forward-Looking Information

This News Release contains forward-looking information within the meaning of applicable Canadian securities laws. This information reflects RioCan’s objectives, our strategies to achieve those objectives, as well as statements with respect to management’s beliefs, estimates and intentions concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking information generally can be identified by the use of forward-looking terminology such as “outlook”, “objective”, “may”, “will”, “would”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “plan”, “continue”, or similar expressions suggesting future outcomes or events. Such forward-looking information reflects management’s current beliefs and is based on information currently available to management. All forward-looking information in this News Release is qualified by these cautionary statements. Forward-looking information is not a guarantee of future events or performance and, by its nature, is based on RioCan’s current estimates and assumptions, which are subject to numerous risks and uncertainties, including those described in the “ Risks and Uncertainties ” section in RioCan’s MD&A for the three and nine months ended September 30, 2021 and in our most recent Annual Information Form, which could cause actual events or results to differ materially from the forward-looking information contained in this News Release. 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 gradual recovery and growth of the retail environment and the general economy over 2021; relatively historically low interest costs; a continuing trend toward land use intensification at reasonable costs and development yields, including residential development in urban markets; access to equity and debt capital markets to fund, at acceptable costs, future capital requirements and to enable our refinancing of debts as they mature; the availability of investment opportunities for growth in Canada; the timing and 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. Although the forward-looking information contained in this News Release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with this forward-looking information.

Given the current level of uncertainty arising from the COVID-19 pandemic, there can be no assurance regarding the impact of COVID-19 on the business, operations, and financial performance of RioCan and its tenants, as well as on consumer behaviors and the economy in general. General risks and uncertainties related to the COVID-19 pandemic also include, but are not limited to, the length, spread and severity of the pandemic; the timing of the roll out and efficacy of the vaccines, the nature and length of the restrictive measures implemented or to be implemented, including any loosening of the restrictive measures, by various levels of government in Canada; RioCan’s tenants’ ability to pay rents as required under their leases; the availability of various support programs that are or may be offered by the various levels of government in Canada; the introduction or extension of temporary or permanent rent control or other forms of regulation or legislation that may limit the Trust’s ability or the extent to which it can raise rents based on market conditions upon lease renewals or restrict existing landlord rights or a landlord’s ability to reinforce such rights; domestic and global supply chains; timelines and costs related to the Trust’s development projects; the pace of property lease-up and rents and yields achieved upon development completion; potential changes in leasing activities, market rents and property valuations; the capitalization rates that arm’s length buyers and sellers are willing to transact on properties; the availability and extent of rent deferrals offered or to be offered by the Trust; domestic and global credit and capital markets, and the Trust’s ability to access capital on favourable terms or at all and its ability to maintain its credit ratings; the total return and dividend yield of RioCan’s Units; and the health and safety of our employees, tenants and people in the communities that our properties serve.

The forward-looking statements contained in this News Release are made as of the date hereof, and should not be relied upon as representing RioCan’s views as of any date subsequent to the date of this News Release. Management undertakes no obligation, except as required by applicable law, to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

Contact Information RioCan Real Estate Investment Trust Dennis Blasutti Chief Financial Officer 416-866-3033 | www.riocan.com

Financial Post Top Stories

Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.

By clicking on the sign up button you consent to receive the above newsletter from Postmedia Network Inc. You may unsubscribe any time by clicking on the unsubscribe link at the bottom of our emails. Postmedia Network Inc. | 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300

Read More

Total
0
Shares
Leave a Reply

Your email address will not be published.

Related Posts
Japan’s Aug consumer inflation hits near 8-year high
Read More

Japan’s Aug consumer inflation hits near 8-year high

Author of the article: Reuters Leika Kihara and Takahiko Wada TOKYO — Japan’s core consumer inflation quickened to 2.8% in August to hit the fastest annual pace in nearly eight years, data showed on Tuesday, a sign inflationary pressures from higher raw material costs and a weak yen were broadening. While core consumer inflation exceeded…
U.S. airlines grapple with Omicron-related disruptions on last day of the year
Read More

U.S. airlines grapple with Omicron-related disruptions on last day of the year

Author of the article: Thousands of flights within the United States and internationally were delayed or canceled on Friday, adding to the travel disruptions during the holiday week due to adverse weather and rising cases of the Omicron coronavirus variant https://www.reuters.com/world/us/experts-warn-omicron-blizzard-disrupt-us-next-month-2021-12-30. Over 3,090 flights were canceled globally as of early Friday evening, including nearly 1,550…