RioCan Announces Results for First Half of 2013

July 31, 2013

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TORONTO – “I am very pleased with the strength of our results this past quarter. We have been able to generate significant growth in our funds from operations despite the drag on the portfolio from nine vacated Zellers locations, which became vacant over the first half of the year. This space is already 62% leased with 102% of the former rental income in place to come back on stream over the next year. We expect to see continued improvement in RioCan’s cash flow into 2014 from our multiple growth drivers that include growth from development completions, organic growth from within the portfolio and intensification of our existing properties,” said Edward Sonshine, Chief Executive Officer of RioCan.

RioCan Had Busy Six Months

“With a series of purchases in the Toronto area, and sales in secondary markets such as Thunder Bay and Moncton, we increased the percentage of RioCan’s Canadian assets situated in the six major markets of this country to over 72%. With virtually all of our development projects being in Toronto and Calgary, this percentage will continue to increase.”

RioCan Real Estate Investment Trust (“RioCan”) today announced its financial results for the three and six months ended June 30, 2013.

HIGHLIGHTS for the three and six months ended June 30, 2013:

All figures in Canadian dollars unless otherwise noted. RioCan’s results are prepared in accordance with International Financial Reporting Standards (“IFRS”).

RioCan’s Operating FFO increased by 14% to $121 million for the three months ending June 30, 2013 (“Second Quarter”) compared to $106 million in the second quarter of 2012. On a per unit basis, Operating FFO increased 8% to $0.40 per unit from $0.37 per unit in the same period of 2012;
RioCan’s Operating FFO increased by 17% to $245 million for the six months ended June 30, 2013 compared to $209 million for the same period in 2012. On a per unit basis, Operating FFO increased 9% to $0.81 per unit from $0.74 per unit for the same period in 2012;
RioCan’s concentration in Canada’s six major markets has increased to 72.1% from 67.5% at December 31, 2012;
Overall occupancy was 96.7% at June 30, 2013, compared to 97.4% at June 30, 2012. The decline in occupancy was largely due to five Zellers stores totalling 466,000 square feet that were returned to RioCan on April 1, 2013;
RioCan renewed 956,000 square feet in the Canadian portfolio during the Second Quarter at an average rent increase of $2.14 per square foot, representing an increase of 12.0%, compared to 13.4% for the same period in 2012;
RioCan renewed 1.8 million square feet in the Canadian portfolio during the six months ended June 30, 2013 at an average rent increase of $2.04 per square foot, representing an increase of 12.5%, compared to 11.6% for the same period in 2012;
During the Second Quarter, RioCan acquired interests in seven income properties in Canada and the US aggregating 1.1 million square feet at an aggregate purchase price of approximately $460 million at RioCan’s interest at a weighted average capitalization rate of 5.2%;
During the quarter RioCan sold four properties located in secondary markets aggregating 1.6 million square feet at a total sale price of $364 million;
During the quarter, RioCan redeemed its $150 million Series M debentures that carried an interest rate of 5.65% and issued $200 million Series T ten year senior unsecured debentures at an interest rate of 3.725%;
During the quarter, RioCan entered into an agreement to effectively dissolve its joint venture arrangement with Retail Properties of America, Inc. (“RPAI”). Under the terms of the dissolution, RPAI will convey its 20% managing interest in eight properties to RioCan. RioCan will, in turn, convey its 80% interest in the remaining five properties to RPAI. The transaction is expected to close on October 1, 2013;
RioCan entered into agreements to effectively dissolve its joint venture agreements with Dunhill Partners,Inc. (“Dunhill”) after the quarter end. Under the terms of the dissolution, RioCan will acquire Dunhill’s interests in six properties at a total purchase price of $83.5 million, which equates to a capitalization rate of 6.4%. The transaction is expected to close in phases during the third and fourth quarters of 2013; In addition to its office in the northeastern US, RioCan is in the process of establishing a second US office to be located in Dallas, Texas, and intends to assume the management duties for its Texas Portfolio; and
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.

Canada

Oakville Place is located directly off of Queen Elizabeth Way (“QEW”), the major highway running through Ontario’s “Golden Horseshoe”, in Oakville, Ontario. Oakville is a fast growing community with a strong, diversified economic base, and possesses one of Canada’s highest income demographics with an average household income statistic that is well above the national average. Oakville Place is a fashion focused, two level regional mall containing approximately 458,000 square feet of gross leasable area. The property was built in 1981 and has undergone significant renovations in 2004 and 2008. Oakville Place is 100% occupied and is anchored by The Bay and Sears. Other major retail tenants at Oakville Place include American Eagle, H&M, Jacob, Birks, Roots, Laura, Mexx and Shoppers Drug Mart. At September 30, 2012, the property’s Commercial Retail Units (“CRU”) generated average sales of approximately $493 per square foot. Approximately 94% of the gross rent is generated by national and regional tenants. RioCan purchased a 100% interest in the property at a purchase price of $259 million. In connection with the purchase, RioCan assumed the in place mortgage financing of $112 million which carries an interest rate of 4.7%, maturing in 2021.
Burlington Mall, located near the QEW at Guelph Line and Fairview Street, is a 782,000 square foot enclosed mall. The property is owned on a 50/50 joint venture basis with the KingSett Canadian Real Estate Investment Fund. Burlington Mall was constructed in 1968 and has undergone significant renovations in 2001, 2004 and 2006. The property is 99% occupied and is anchored by Target, Canadian Tire and Winners/HomeSense, and is shadow anchored by The Bay. Other major tenants include Dollarama, Old Navy, Shoppers Drug Mart and SportChek. At September 30, 2012, the property’s CRU generated average sales of approximately $386 per square foot. Approximately 87% of the gross rent is generated by national and regional tenants. RioCan will provide asset and property management functions for the property. The purchase price for the property was $206 million at 100% ($103 million at RioCan’s interest). In connection with the purchase, the parties assumed the in place mortgage financing of $105 million ($52.5 million at RioCan’s interest) which carries an interest rate of 3.8%, maturing in 2016.
South Cambridge Centre is a 190,000 square foot grocery anchored shopping centre. The property is 100% occupied and is anchored by a Zehrs grocery store (Loblaws). Other major tenants at the property include the Liquor Control Board of Ontario, The Beer Store and Home Hardware. RioCan purchased a 100% interest in the property at a purchase price of $35 million. In connection with the purchase, RioCan assumed the in place mortgage financing of $19.5 million which carries an interest rate of 5.5% maturing in June 2016.

Canadian Activity by RioCan

The acquisition of Oakville Place, Burlington Mall and South Cambridge Centre were part of the successful completion of the amended arrangement between H&R REIT and Primaris.

On May 1, 2013, RioCan acquired an additional 50% interest in March Road Shopping Centre in Ottawa, Ontario at a purchase price of $21 million, which equates to a capitalization rate of 5.3%. RioCan now holds a 100% interest in the property. March Road is a 109,000 square foot grocery anchored retail shopping centre anchored by Sobeys. In connection with the purchase, RioCan assumed the other 50% of the in place first mortgage financing of $11 million, which carries an interest rate of 4.0%, maturing in September 2021.
On May 3, 2013, RioCan acquired an additional 35.2% interest in Shoppers City East Shopping Centre in Ottawa, Ontario at purchase price of $10 million, which equates to a capitalization rate of 5.6% and was acquired free and clear of financing. Combined with RioCan’s initial acquisition of a 27.6% interest in the property in the fourth quarter of 2012, RioCan now holds a 62.8% interest in the property. Shoppers City East is a 148,000 square foot non grocery anchored retail shopping centre anchored by Giant Tiger. Other notable tenants include Staples and Shoppers Drug Mart. The site area is 19.4 acres and RioCan is considering redevelopment of the site.
On June 6, 2013, RioCan acquired a 100% interest in Dufferin Plaza in Toronto, Ontario at a purchase price of $27 million, which equates to a capitalization rate of 5.4%. Dufferin Plaza is a 65,000 square foot unenclosed shopping centre on 3.8 acres located on Dufferin Street just north of Lawrence Avenue in Toronto. The shopping centre is tenanted by Staples, TD Bank and Swiss Chalet, among others. In connection with the purchase, RioCan assumed mortgage financing of $11 million, which carries an interest rate of 5.5%, maturing in June 2017.