RioCan Announces First Quarter Results for 2019
TORONTO, May 07, 2019 (GLOBE NEWSWIRE) -- RioCan Real Estate Investment Trust (“RioCan” or the “Trust”) today announced its financial results for the three months ended March 31, 2019.
“RioCan’s industry-leading major market portfolio, leadership team, balance sheet, and development pipeline continued to deliver unitholder value in the first quarter of 2019. Our strategy to increase our presence in highly desirable, fast-growing markets will fuel FFO per unit growth long into the future,” said Edward Sonshine, Chief Executive Officer of RioCan. “We are growing RioCan Living™, our residential portfolio, with 2,300 units at varying stages of development and an additional 2,000 units expected to be underway by 2021. Furthermore, we are very satisfied with the speed of leasing and rental rates at our first rental residential projects, Yonge Eglinton Northeast Corner (eCentral) in Toronto and Gloucester Residential (Frontier) in Ottawa. Construction at The Well, Yonge Sheppard (Pivot) in Toronto, and Brentwood Village (Brio) in Calgary is progressing on track with all projects now out of the ground. We are confident that RioCan’s transit-oriented, mixed use developments will continue to reap sustainable growth and drive the quality of income higher than it has ever been.”
Three months ended March 31 (in millions except percentages, square feet and per unit values) 2019 2018 ----------------------------------------------------------------------------------------- ------- - ------- Financial Highlights Net income $ 194.5 $ 137.2 Weighted average units outstanding - diluted (in thousands) 305,046 321,988 FFO $ 142.2 $ 149.2 FFO per unit – diluted (i) $ 0.47 $ 0.46 ----------------------------------------------------------------------------------------- - ----- - ------- Operation Highlights Six major markets - % of total annualized revenue (iii) 87.5% 80.0% Greater Toronto Area - % of total annualized revenue (iii) 47.6% 43.7% Occupancy - committed six major markets (iii) 97.5% 97.9% Occupancy - committed (iii) 96.9% 96.6% Blended leasing spread 10.7% 8.3% Renewal leasing spread 8.2% 4.3% Same property NOI growth - six major markets (i) (ii) 1.7% 3.3% Same property NOI growth - overall portfolio (i) (ii) 1.4% 2.6% ----------------------------------------------------------------------------------------- ------- - ------- Development Highlights Development completions - sq ft in thousands 92.0 118.0 Development expenditures (iv) $ 92.5 $ 102.1 Properties held for development and residential inventory as a percentage of consolidated 8.4% 9.6% gross book value of assets (maximum permitted: 15%) (iii) (iv) ----------------------------------------------------------------------------------------- ------- - ------- Balance Sheet Strength Highlights Debt to Adjusted EBITDA (i) (v) 7.94x 7.63x Ratio of total debt to total assets (i) (iii) (v) 42.2% 42.4% Unencumbered assets (i) (iii) (v) $ 8,000 $ 8,114 Unencumbered assets to unsecured debt (i) (iii) (v) 229% 221% ----------------------------------------------------------------------------------------- ------- - -------
(i) A Non-GAAP measurement. For definitions and 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 months ended March 31, 2019.(ii) Refers to same property NOI (SPNOI) growth on a year-over-year basis. Prior periods as reported; not restated to reflect current period categories. Q1 2019 SPNOI growth was 2.9% and 2.5% for the Trust’s six major markets portfolio and overall portfolio, respectively, if Bombay/Bowring disclaimed leases are excluded and completed properties under development are included. Such completed developments have been owned by the RioCan in the comparative periods and are generating cash rent.(iii) Information presented as at March 31.(iv) Includes costs incurred for various properties under development and for residential inventory in respective reporting periods. (v) At RioCan’s proportionate share.
FFO Per Unit Growth and Capital Recycling
-- The Trust produced strong FFO per unit of $0.47in the First Quarter despite nearly $1.0 billion of secondary market asset dispositions closed since Q1 2018, a $1.0 million increase in unit-based trustee compensation costs due to mark to market, a $0.9 million one-time IFRS debt modification cost upon a debt maturity extension, and a $0.5 million of lease-up NOI loss, as expected during the early stages of lease-up on our first purpose-built rental tower, Yonge Eglinton Northeast Corner (eCentral) in midtown Toronto as it started occupancy in the First Quarter, as well as $4.4 million lower realized gains due to lower volume of marketable securities sold. -- Since the announcement of its strategic asset disposition program in October 2017, the Trust has completed or entered into firm, conditional or letter of intent agreements to sell $1.5 billion or 75 secondary market assets as of May 6, 2019, at a weighted average capitalization rate of 6.69%, materially in line with our IFRS values. -- Over the same period since October 2017, RioCan used a portion of the disposition proceeds to purchase and cancel 23.9 million RioCan units at a weighted average purchase price of $24.55 per unit for a total cost of $586.2 million. The remaining portions of the disposition proceeds were used to repay debt and fund development. -- Net incomeincreased by 41.8% for the three months ended March 31, 2019 over the comparable period primarily due to higher fair value gains on investment properties as the Trust continues to unlock the intrinsic values of its portfolio.
Major Market Focus
-- The percentage of total annualized rental revenue from the six major markets and Greater Toronto Area (GTA)increased to 87.5% and 47.6% as of March 31, 2019, up 750 and 390 basis points from March 31, 2018, respectively. These two key strategic metrics are progressing well towards their respective >90% and >50% targets, having increased 210 and 80 basis points in the first quarter of 2019 when compared to year end 2018.
Commercial Operation Highlights
-- Committed occupancyimproved by 30 basis points to 96.9% for the Trust’s overall commercial portfolio as of March 31, 2019 when compared to March 31, 2018. Committed occupancy for retail was up 20 basis points over the same period to 96.9% as of March 31, 2019. -- Committed occupancy for officeincreased by 150 basis points to 95.6% as of March 31, 2019 when compared to March 31, 2018, reflecting strong demand for well located office space in the Toronto, Ontario market. -- The average net rent per occupied square footgrew by 6.9% since Q1 2018, driven by both new and renewed leases. It demonstrates the continuous strengthening of the overall quality of the Trust’s commercial portfolio. The high spread on new leasing, together with a strong 8.2% renewal leasing spread, pushed the overall leasing spread to 10.7% for the quarter. -- Average net rent at the Trust’s active urban intensification projectsis $32.26 per square foot based on approximately 811,000 square feet of committed or in-place leases as of May 6, 2019, reflecting the quality of the Trust’s developments which are all major market focused and transit-oriented. These leases are expected to further drive increases in the average rent and improve the overall quality of the Trust’s portfolio. -- The Trust continues to strengthen its tenant mix, with 73.6% of its annualized net rent revenues coming from necessity-based and service-oriented tenants, an increase of 80 basis points from the end of 2018.
Residential Operation Highlights
-- Residential inventory gainsof $5.2 million were recognized in the quarter as purchasers continued to take possession of condominium units at Yonge Eglinton Northeast Corner (eCondos) in Toronto, Ontario. -- Residential rental leasingis progressing at a strong velocity with solid market rents achieved at the 466-unit Yonge Eglinton Northeast Corner (eCentral), the Trust’s first purpose-built RioCan Living™ property in Toronto, Ontario. As at May 6, 2019, 203 units (43.6% of all units) have been leased, averaging $3.85 rent per square foot for market rent units. Only lower level floors in the building have been released for leasing, which tend to have lower average rent when compared to rents on higher level floors in the building. Stabilization is expected in mid-2020. As of end of the First Quarter, 78 units were occupied, resulting in a moderate lease-up loss, as expected during the early stages of lease-up, of $0.5 million in the First Quarter. -- Residential rental leasingis also progressing well at the Trust’s 228-unit, first phase of the Gloucester residential development (Frontier) in Ottawa, Ontario, as the project construction is near completion. As of May 6, 2019, 126 units (55.5% of all units) have been pre-leased at an average rent per square foot of $2.48, which is ahead of expectations. First occupancy is expected in mid-2019.
Same Property NOI Growth
-- Same property NOI grew by 1.7% for the Trust’s six major market portfolio and decreased by 0.8% same property NOI for its secondary market properties, resulting in 1.4% same property NOI growth for the Trust’s overall commercial portfolio. -- Including completed properties under development and excluding the impact of Bombay/Bowring leases that were disclaimed in late 2018/early 2019, same property NOI grew by 2.9% for its six major market portfolio and by 2.5% for the Trust’s overall commercial portfolio. Completed properties under development include properties such as King Portland Centre and Bathurst College Centre that have been owned by RioCan in the comparative periods and are generating cash rent. The effect of the Bombay/Bowring leases is expected to be transitory as the Trust expects to re-lease the units to high quality tenants in the normal course during the year as these units are located in desirable markets.
RioCan’s development program is a significant component of its growth strategy to unlock the intrinsic value of its existing properties and deliver strong net asset value (“NAV”) growth to its unitholders. Notable milestones for several large mixed-use projects are included below. The number of residential units and net leasable area (NLA) square footage stated here are at 100% and all estimated value creation and costs are stated at RioCan’s interest.
-- Yonge Eglinton Northeast Corner (ePlace, including eCentral & eCondos)- This mixed-use project in Toronto, Ontario with direct access to the Yonge subway line and the new Eglinton Crosstown Light Rail Transit is near substantial completion. The 623 condominium units at eCondos were 100% pre-sold and possession of the majority of the remaining condominium units is scheduled to be completed by Q2 2019. Leasing at eCentral is progressing well as noted earlier. ePlace’s flagship retail anchor tenant, TD Bank, took possession in late 2018 and is expected to start operations in Q3 2019. The project is estimated to achieve a development yield of 5.3% with $119.8 million value creation on $221.5 million net project costs, taking into account the expected purchase of the remaining 50% interest in the residential rental and retail portions of ePlace in 2019 based on agreements in place. -- King Portland Centre- Office tenants within this 421,000 square foot mixed-use development in the trendy King West neighbourhood of Toronto have commenced operations. Retail tenants are expected to open for business in the second quarter of 2019. Scheduled possessions of the 100% pre-sold, 132-unit condominium component of the project (Kingly) are expected to be completed by Q3 2019. The project is estimated to achieve a development yield of 6.3% with $54.5 million value creation on $87.9 million net project costs. -- Gloucester Residential (Frontier) - The first phase of this project in Ottawa, Ontario includes 228 residential rental units and is progressing on schedule toward a mid-2019 construction completion. The leasing of the rental units continues to progress ahead of expectations. Phase One is estimated to achieve a development yield of 5.8% with $14.2 million value creation on $34.2 million net project costs. Given the strong leasing performance to date, construction of the 209-unit residential rental building was accelerated to Q2 2019. -- Sage Hill- This greenfield retail project in Calgary, Alberta was completed in 2017. The Trust acquired the remaining non- managing 50% interest from its partner in February 2019 for $70.5 million. The project is estimated to achieve a development yield of 7.0% with $40.3 million value creation on $120.8 million net project costs. This property’s success reflects the Trust’s capability in project execution, as well as the location and quality of RioCan’s development, despite the Alberta economy’s dependence on oil prices. -- The Well- Construction at this flagship mixed-use development in Toronto’s downtown West with nearly 3.0 million square feet of NLA continued with the office component reaching five storeys above grade. Construction of the retail component is expected to reach grade mid-2019. Developers of the condominium component of the project, who are scheduled to close on the purchase of air rights in 2020/2021, are expected to commence selling the condominium units in two of the three condominium buildings in the second quarter of 2019.
During the First Quarter, the Trust submitted additional zoning applications for 2.1 million square feet including an application for the Trust’s iconic property, RioCan Hall in Toronto’s entertainment district, bringing the Trust’s zoning applications submitted to 7.5 million square feet or 28.5% and zoning approvals to 11.2 million square feet or 42.6%. All of the Trust’s development projects are in Canada’s six major markets, which include 18.7 million square feet (at RioCan’s interest) of residential projects, representing 71.1% of its total development pipeline of 26.3 million square feet as of March 31, 2019.
Balance Sheet Strength
RioCan continued to exercise sound capital management in 2019 and maintained a strong balance sheet. Debt to Adjusted EBITDA at RioCan’s proportionate share was at 7.94x as at March 31, 2019, below the Trust’s 8.0x target despite substantial secondary market asset dispositions completed and a development balance of $1.2 billion as of March 31, 2019. Debt to total assets at RioCan’s proportionate share was 42.2%, as at March 31, 2019, in line with our leverage target. On a proportionate share basis, the Trust continued to maintain a large unencumbered asset pool of $8.0 billion as of March 31, 2019, which provided 229% coverage over its unsecured debt, well above its 200% target.
During the First Quarter, the Trust extended the maturity date of its $150.0 million non-revolving unsecured credit facility from December 27, 2019 to June 27, 2024 and fixed the all-in annual interest rate at 3.43% through an interest rate swap. The Trust also fixed the annual all-in interest rate for $125.0 million of its other non-revolving unsecured credit facility maturing on January 31, 2023 at 3.38% through an interest rate swap.
Further, during the First Quarter, the Trust entered into a $350.0 million five-year non-revolving unsecured credit facility with three financial institutions and has fully drawn on the credit facility to repay certain debt and for general Trust purposes. This credit facility matures on February 7, 2024 and, through an interest rate swap, bears an annual all-in fixed interest rate of 3.34%. These transactions demonstrate the Trust’s credit worthiness and access to multiple sources of capital, extend the average term to maturity of the Trust’s total debt, and reduced the Trust’s floating interest rate debt exposure to under 10%.
Subsequent to quarter end, the Trust exercised its option to extend the maturity date on its operating line of credit to May 31, 2024. All other terms and conditions remained the same.
RioCan launched its inaugural sustainability report on May 6, 2019. Publishing its first sustainability report is a major milestone in RioCan’s journey to embed sustainability across all aspects of its business. Please visit our web site www.riocan.com under Sustainability to review the full report and supplement.
Conference Call and WebcastInterested parties are invited to participate in a conference call with management on Tuesday May 7, 2019 at 10:00 a.m. (ET). You will be required to identify yourself and the organization on whose behalf you are participating.
In order to participate, please dial 647-427-3230 or 1-877-486-4304. If you cannot participate in the live mode, a replay will be available. To access the replay, please dial 1-855-859-2056 and enter passcode 9135829#.
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.
RioCan is one of Canada’s largest real estate investment trusts with a total enterprise value of approximately $14.1 billion as at March 31, 2019. RioCan owns, manages and develops retail-focused, increasingly mixed-use properties located in prime, high- density transit-oriented areas where Canadians want to shop, live and work. Our portfolio is comprised of 230 properties, including 14 development properties, with an aggregate net leasable area of approximately 38.3 million square feet including residential rental 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 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 unaudited interim condensed consolidated financial statements (“Consolidated Financial Statements”) and MD&A for the three months ended March 31, 2019, 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. The following measures Funds From Operations (“FFO”), Same Property NOI, Debt to Adjusted EBITDA, RioCan’s Proportionate Share, Unencumbered Assets to Unsecured Debt and Total Enterprise Value, 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 months ended March 31, 2019.
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 months ended March 31, 2019 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 stable retail environment; relatively historically low interest costs; a continuing trend toward land use intensification, including residential development in urban markets; access to equity and debt capital markets to fund, at acceptable costs, future capital requirements and to enable our refinancing of debts as they mature; the availability of investment opportunities for growth in Canada; and the timing and ability for RioCan to sell certain properties, the valuations to be realized on property sales relative to current IFRS values, and the Trust’s ability to utilize the capital gain refund mechanism. 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.
Our U.S. subsidiary qualified as a REIT for U.S. income tax purposes up to May 25, 2016, subsequent to the closing date of the sale of our U.S. property portfolio. For U.S. income tax purposes, the subsidiary distributed all of its U.S. taxable income and is entitled to deduct such distributions against its taxable income. The subsidiary’s qualification as a REIT depends on the REIT’s satisfaction of certain asset, income, organizational, distribution, unitholder ownership and other requirements up until May 25, 2016. Our U.S. subsidiary was subject to a 30% or 35% withholding tax on distributions of its U.S. taxable income to Canada. We did not distribute any withholding taxes paid or payable to our unitholders related to the disposition. Should RioCan’s U.S. subsidiary no longer qualify as a U.S. REIT for U.S. tax purposes prior to May 25, 2016, certain statements contained in this News Release or the MD&A for the three months ended March 31, 2019 may need to be modified.
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 InformationRioCan Real Estate Investment TrustQi TangSenior Vice President and Chief Financial Officer416-866-3033 | www.riocan.com