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RioCan Real Estate Investment Trust Announces Financial Results for the Third Quarter 2017 With 4.1% Growth in Operating Income and 2.4% Same Property NOI Growth

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RioCan's HIGHLIGHTS for the three and nine months ended September 30, 2017:

  • For the quarter ended September 30, 2017 ("Third Quarter"), IFRS Operating income increased 4.1% to $186 million from $178 million for the third quarter of 2016;
  • Revenue increased 1.6% for the Third Quarter to $287 million as compared to $282 million for the third quarter of 2016;
  • Funds From Operations ("FFO") increased 7.9% to $151 million as compared to $140 million during the third quarter of 2016. FFO per unit in the Third Quarter increased 7.5% to $0.46 compared to $0.43 in the third quarter of 2016;
  • Same property NOI grew by 2.4%, or $4.0 million in the Third Quarter as compared to the same quarter in 2016;
  • Committed occupancy continued to improve, increasing 150 basis points to 96.8% at September 30, 2017 as compared to 95.3% at September 30, 2016. In-place occupancy increased 240 basis points from 93.6% at September 30, 2016 to 96.0% at September 30, 2017;
  • Retention rate remained high at 93.6% in the Third Quarter, significantly improved from a retention rate of 83.1% in the same period in 2016;
  • As announced subsequent to the quarter end, RioCan is taking steps to accelerate its focus in Canada's six major markets through the sale of approximately 100 of its properties with a current value in excess of $2.0 billion;
  • As at September 30, 2017, 75.2% of RioCan's annual rental revenue is from the six Canadian major markets while on a Net Leasable Area ("NLA") basis these markets account for 68.7% of RioCan's income producing property NLA. The Greater Toronto Area ("GTA") represents only 34.2% of RioCan's total NLA yet generates 40.0% of RioCan's annual rental revenue. Our target is to generate well over 90% of our annual rental revenue from Canada's six major markets, with over 50% from the GTA after completion of the targeted property sales as recently announced;
  • After the quarter end, RioCan renewed its Normal Course Issuer Bid ("NCIB"), and as previously announced, effective November 1, 2017 RioCan suspended its Distribution Reinvestment Plan ("DRIP") until further notice in order to maximize the effectiveness of its renewed NCIB program;
  • During the quarter, RioCan and its partner Metropia acquired adjacent sites in Toronto's prestigious Yorkville district with plans to develop the site into a mixed-use condominium project with an estimated half a million square feet of potential density;
  • During the quarter, RioCan and its partner Allied Properties REIT announced a change from rental units at the King Portland Centre to condominium units. Subsequent to the quarter end, the partners announced that they successfully sold the majority of the 133 condominium units and that they expect the profitability of these units to exceed initial expectations; and
  • Subsequent to quarter end, RioCan and its co-owner Allied entered into a binding agreement to acquire Diamond Corp's Whitecastle New Urban Fund 2 ("WNUF") undivided 20% interest in the commercial component of The Well. As a result of this transaction, each of Allied and RioCan will own an undivided 50% interest in the commercial component and will pursue the construction and ultimate operation of the commercial component as equal partners.

TORONTO, Ontario, Nov. 03, 2017 (GLOBE NEWSWIRE) -- RioCan Real Estate Investment Trust ("RioCan") (TSX:REI) today announced its financial results for the three and nine months ended September 30, 2017.

"We are pleased to have delivered a solid quarter for our unitholders in all respects.  Our same property NOI growth at 2.4% is the highest since the first quarter of 2014.  When taken together with the fact that our occupancy came in at 96.8%, it is clear that RioCan has put not only the Target bankruptcy in the rear view mirror, but also successfully managed the many other retailer stumbles that have occurred over the last three years," said Edward Sonshine, Chief Executive Officer of RioCan. "The recent announcement of the acceleration of our strategy to focus our portfolio much more into Canada's six major markets will lead to even better NOI and FFO growth.  When put together with our extremely strong financial position and the ongoing creation of value in our existing portfolio, this is an exciting time for RioCan."

Financial Highlights

All figures are expressed in Canadian dollars unless otherwise noted. For further information about RioCan's results for the three and nine months ended September 30, 2017, this earnings release should be read in conjunction with our unaudited interim consolidated financial statements ("Consolidated Financial Statements"), as well as Management's Discussion and Analysis ("MD&A") for the three and nine months ended September 30, 2017.

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 September 30, 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.

Net income from continuing operations attributable to unitholders

  Three months ended September 30, Nine months ended September 30,
(in millions except percentages and per unit values) 2017 2016 % Change 2017 2016 % Change
Net income from continuing operations $ 180.3   $ 253.7   (28.9 )% $ 498.5   $ 504.7   (1.2 )%
Net income per unit from continuing operations attributable to unitholders – diluted $ 0.55   $ 0.77   (28.6 )% $ 1.51   $ 1.52   (0.7 )%


Continuing Operations

Net income from continuing operations attributable to unitholders for the third quarter of 2017 is $180.3 million compared to $253.7 million during the same period in 2016. Excluding $77.2 million lower fair value gains over the comparable period, net income from continuing operations attributable to unitholders for the third quarter of 2017 is $145.3 million compared to $141.5 million in 2016, representing an increase of $3.9 million or 2.7%.

The increase of $3.9 million is largely the net effect of the following:

  • $8.3 million of income primarily due to strong same property performance, property acquisitions (net of dispositions), completed developments, and higher straight line rent revenue;
  • $3.3 million increase in gains related to the sale of available-for-sale marketable securities; and
  • $1.2 million in higher income from our equity accounted investments; partly offset by
  • $6.1 million in lower transaction gains due to a higher gain on the sale of an investment property during the third quarter of 2016;
  • $1.3 million less dividend income from available-for-sale marketable securities; and
  • $1.1 million in higher general and administrative expenses due to the impact of a reversal of a cost accrual during Q3 2016.

YTD 2017

Net income from continuing operations attributable to unitholders for the nine months ended September 30, 2017 is $498.5 million compared to $504.6 million during the same period in 2016. Excluding $72.6 million lower fair value gains over the comparable period, net income from continuing operations attributable to unitholders for the nine months ended September 30, 2017 is $432.6 million compared to $366.1 million in 2016, representing an increase of $66.5 million or 18.2%.

The increase of $66.5 million is largely the net effect of the following:

  • $31.4 million of income primarily due to property acquisitions (net of dispositions), strong same property performance, completed developments, and higher straight line rent revenue;
  • $25.1 million increase in gains related to available-for-sale marketable securities;
  • $7.0 million in interest savings due mainly to lower average debt balances outstanding as a result of debt repayments using proceeds from the sale of the U.S. portfolio in 2016, and the refinancing of debt at lower interest rates;
  • $6.5 million in higher income from our equity accounted investments, primarily as a result of fair value gains in our RioCan-HBC joint venture; and
  • $4.4 million in lower internal leasing costs and general and administrative expenses primarily due to mark to market adjustments of cash-settled unit based compensation costs and other prior period office rent adjustment;
  • $1.5 million increase in interest income; partly offset by
  • $6.1 million in lower transaction gains due to a higher gain on the sale of an investment property during the third quarter of 2016; and
  • $3.1 million less dividend income from available-for-sale marketable securities.

Funds From Operations ("FFO")

  Three months ended September 30, Nine months ended September 30,
(in millions except percentages and per unit values)

 
2017 2016 % Change 2017 2016 % Change
             
FFO from continuing operations $ 149.8   $ 140.0   7.1 % $ 438.5   $ 364.8   20.2 %
FFO from discontinued operations $ 1.1   $   N/A   $ 1.9   $ 50.9   N/A  
FFO (i) $ 151.0   $ 140.0   7.9 % $ 440.4   $ 415.7   5.9 %
FFO per Unit - basic $ 0.46   $ 0.43   7.5 % $ 1.35   $ 1.28   5.3 %

(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 September 30, 2017.

Q3 2017

FFO for the third quarter of 2017 is $151.0 million compared to $140.0 million in the third quarter of 2016 representing an increase of approximately $11.0 million or 7.9%. On a basic per unit basis, FFO is $0.46 compared to $0.43, representing an increase of 7.5%.

Continuing Operations

FFO from continuing operations increased from $140.0 million in the third quarter of 2016 to $149.8 million in the comparable period in 2017, an increase of $9.9 million or 7.1%. The $9.9 million increase in FFO from continuing operations for the quarter was primarily due to the net effect of the following:

  • $8.4 million higher NOI (at RioCan's proportionate share) mainly as a result of strong growth in same property NOI and acquisitions net of dispositions;
  • $3.3 million increase in gains related to the sale of available-for-sale marketable securities;
  • $1.8 million less Series C preferred unit distributions; and
  • $1.1 million in higher gains from inventory sales within our equity accounted investments; partially offset by
  • $1.3 million in other costs associated with transactions the Trust decided not to pursue further;
  • $1.3 million in lower dividend income on available-for-sale marketable securities;
  • $1.1 million in higher general and administrative expenses due to the impact of a reversal of a cost accrual during Q3 2016; and
  • $1.0 million in lower fee income and residential inventory sales, net of cost of sales.

YTD 2017

FFO for the first nine months of 2017 is $440.4 million compared to $415.7 million in the comparable period of 2016 representing an increase of approximately $24.7 million or 5.9%. On a basic per unit basis, FFO is $1.35 compared to $1.28, representing an increase of 5.3%, despite the sale of the U.S. portfolio in May 2016.

Continuing Operations

FFO from continuing operations increased from $364.8 million in the first nine months of 2016 to $438.5 million in the comparable period in 2017, an increase of $73.7 million or 20.2%. The $73.7 million increase in FFO from continuing operations for the period was primarily due to the following:

  • $31.4 million higher NOI (at RioCan's proportionate share) mainly as a result of acquisitions net of dispositions and growth in same property NOI,
  • $25.1 million increase in gains related to the sale of available-for-sale marketable securities;
  • $6.9 million lower interest costs (at RioCan's proportionate share);
  • $4.3 million Series A preferred unit redemption costs in Q1 2016;
  • $3.8 million lower general and administrative expenses due to mark to market adjustments of cash-settled unit based compensation costs and a prior period office rent adjustment;
  • $3.4 million less Series A and C preferred unit distributions;
  • $2.1 million in higher gains from inventory sales within our equity accounted investments; and
  • $1.5 million higher interest income; partially offset by
  • $3.1 million lower dividend income from the sale of available-for-sale marketable securities; and
  • $2.5 million in other costs associated with transactions the Trust decided not to pursue further.

Acceleration of Major Market Focus

On October 2, 2017, RioCan announced its plan to accelerate its portfolio focus in Canada's six major markets through the sale of approximately 100 properties located primarily in secondary markets across Canada over the next two to three years. On completion, RioCan expects to generate in excess of 90% of its annualized rental revenue from Canada's six major markets (currently 75.2%). This strategy will further enhance the quality, growth profile and resilience of the Trust's portfolio of retail focused, increasingly mixed-use properties located in prime, high density, transit oriented areas where Canadians want to shop, live and work.

The key elements of RioCan's strategy include:

  1. The sale of over $2.0 billion of income properties primarily located in Canada's secondary markets, including certain non-core assets in major markets, representing approximately 100 of RioCan's properties to be sold in phases over the next two to three years. The sales are expected to generate total net proceeds of approximately $1.5 billion;
     
  2. Repurchase and cancellation of the Trust's units through the Trust's Normal Course Issuer Bid ("NCIB") program while maintaining its strong credit fundamentals. It is estimated that approximately half of the net proceeds will be used for its NCIB program;
     
  3. Continued investment of approximately $300 million to $400 million per year into RioCan's robust development pipeline, which is focused exclusively in Canada's six major markets; and
     
  4. Suspension of its Distribution Reinvestment Plan ("DRIP") effective November 1, 2017, in order to maximize the effectiveness of the NCIB.

Operational Performance

Same Property NOI Growth

                          Three months ended
September 30, 2017
      Nine months ended
September 30, 2017
                                                                                       
Same Property Growth   2.4%   1.9%    

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

Same property NOI increased 2.4% or $4.0 million in the Third Quarter compared to the same period in 2016. Approximately $2.5 million of the increase related to higher occupancy, renewal rate growth and contractual rent increases and $1.5 million is due to an increase in NOI from Target backfills and other expansion and re-development projects completed.

The key performance indicators related to operating and leasing for the Canadian portfolio over the last eight quarters are as follows:

  2017 2016 2015
  Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
Committed occupancy 96.8 % 96.7 % 96.2 % 95.6 % 95.3 % 95.1 % 94.8 % 94.0 %
In-place occupancy 96.0 % 95.2
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