AHEAD OF THE CURVEANNUAL REPORT 2014 With a market capitalization of more than $9 billion, RioCan is the largest real estate investment trust in Canada. RioCan has ownership interests in 340 retail properties in some of North America’s most desired markets. Your REIT has 15 major properties under development, coming on stream over the next several years. RioCan’s strength is assured with a seasoned management team, disciplined financial focus, and a quality balance sheet.EDWARD SONSHINE, O.ONT.,Q.C. | Chief Executive OfficerCEO’S LETTER TO UNITHOLDERSRioCan is a pre-eminent North American REIT with a retail focus. Your REIT comprises a dominant Canadian retail platform, and a leading retail portfolio in select markets in the United States. To assure future growth, RioCan is redeveloping existing core assets of key retail sites in major Canadian cities. This report showcases select properties that will transform the lives of customers and communities alike.RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 20142_3AHEAD OF THE CURVE AHEAD OF THE CURVE
Ahead of the Curve... | characterizes
RioCan’s strategic thinking and operational practices.
As an example, a decade ago, RioCan identified, and then
acquired, a portfolio of properties in Canada’s six major
markets. This strategy was prescient: today, almost 75%
of annual revenue in Canada is derived from these six
major markets. To further enhance these sites, RioCan
has commenced intensifying them.
With RioCan’s tenant profile of national and anchor retailers,
risk is balanced – and diversified. Of note, 86.5% of our
annualized Canadian revenue as at December, 31 2014 is
generated by these high-profile tenants. Stable cash flows from
these brand-name tenants result in successful, and enduring
tenancies. Accordingly, RioCan’s occupancy rate was 97.0%
at December 31, 2014. Such success is based on mutually
profitable partnerships between RioCan and its leading tenants.
RioCan is thinking ahead of the curve in densely populated
urban areas that often lack high-quality shopping centres.
Brand-name national retailers are also typically under-
represented in these markets.
Because of the popularity of individuals working, living and
enjoying recreational activities in the core of the city, RioCan’s
mixed-use properties hold widespread appeal. Instead of a
“one-size” fits all template, your REIT develops site-specific
solutions, according to neighbourhood, need, desired retail
mix, and zoning. RioCan configures innovative spaces that
invite the perfect blend of tenants and customers alike.
RioCan’s development platform now encompasses a portfolio
of properties that will include a residential component. In some
cases, RioCan’s residential spaces include condominium units.
In others, RioCan will provide rental residential apartments.
RioCan has identified fifty of its properties that hold the
potential for additional intensification opportunities. These
properties are located in our six core Canadian markets
primarily in the Greater Toronto Area, and are typically
located in the vicinity of substantive transit infrastructure. This
intensification and residential development represents the next
stage of growth for your Trust.
We believe that the addition of a residential component to
certain properties will enhance the value of the underlying
real estate. These developments will feature a modern design,
ideal for customers to visit, shop in, eat at, and in some
instances live in. RioCan’s residential platform will offer
professional property management, security of tenure, and
a host of amenities. A flexible and creative approach to site
development for shopping, and living, ensures that RioCan
stays ahead of the curve.
The residential sector provides a steady and continuous income
stream with a growth profile that will serve as a hedge against
inflation. The residential component will also provide additional
diversification to RioCan’s retail portfolio. In total, RioCan’s
objective is to develop as many as 19,000 units over the next
ten years. We have identified an initial eight projects that will
provide about 3,369 units where zoning applications have been
filed or will be in the next several months, the details of which
can be found further on in this report.
Given the extent of this initiative, RioCan will possess a
scale that will result in numerous efficiencies going forward.
RioCan owns the underlying land, often at irreplaceable
locations, thus giving it the unique opportunity to create a
tremendous amount of value. RioCan has established a team
to carry forward the residential rental initiative, drawing
from its existing areas of expertise. The team is comprised of
existing RioCan executives as well as third-party consultants.
As this initiative matures, additional resources will be added
to the platform to facilitate such growth.
In the United States, RioCan operates in the highly populated,
northeast, and in four robust markets in Texas: Dallas-Fort
Worth, Houston, Austin and San Antonio.
RioCan’s business and prospects are strong. Your REIT’s
operating FFO increased 5.1% to $517 million for the year
ended December 31, 2014 compared to $492 million for
2013. In Canada, RioCan’s leasing team renewed 4.2 million
square feet and averaged an 11.4% rental rate increase,
amounting to $1.84/sq. foot in 2014. Our management
team and the strength of your Trust’s portfolio are designed
to address challenges as they arise.
As always, I thank you for your continued trust and
confidence in RioCan.
Edward Sonshine, O.Ont., Q.C.
Chief Executive Officer,
RioCan Real Estate Investment Trust
4_5RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014AHEAD OF THE CURVEURBAN MARKETS RioCan Yonge Eglinton Centre,Toronto, Ontario | Extensive renovations have been completed at the Yonge Eglinton Centre. A 45,000 sq. foot addition is underway and is expected to be completed mid 2015. New retailers will include Cineplex VIP Theatres and Winners.College and Bathurst, Toronto, Ontario | This conveniently located 1.3 acre site will be developed into a 145,000 sq. foot three storey urban mixed-use building. It includes 300 underground parking spots.Sage Hill, Calgary, Alberta | This large-scale 34-acre site in northwest Calgary is expected to be completed in 2016. Currently, the site is 72% pre-leased. Anchor tenants are Walmart and Loblaws.RioCan Yonge Eglinton Centre, Toronto, Ontario | This popular, midtown Toronto mixed-use complex includes leading retailers such as Indigo Books, Metro Grocery, Pickle Barrel and Urban Outfitters.Northeast Yonge and Eglinton, Toronto, Ontario | This striking development incorporates a 58 floor condominium tower, a 36 floor residential rental tower, and 54,000 sq. feet of retail and commercial space, including a flagship Toronto Dominion Bank branch.Ahead of the Curve Urban Markets | In urban markets, RioCan’s properties are popular attractions designed for convenient shopping, working, eating, and other recreational activities. RioCan’s high-profile sites are often situated at bustling, transit-accessible intersections.AHEAD OF THE CURVE AHEAD OF THE CURVEMIXED USE DEVELOPMENTRIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 20146_7 AHEAD OF THE CURVEEast Village, Calgary, Alberta | This 2.75 acre site in downtown Calgary features almost 270,000 sq. feet of retail including a key anchor: a 100,000 sq. foot Loblaws. This site features easy LRT and Skyway access, and 300 dedicated parking spots.Yonge & Sheppard, Toronto, Ontario | Positioned at the bustling intersections of Sheppard Avenue and Yonge Street, major retailers include Longos and LA Fitness. The Sheppard Centre includes two office properties, with three adjacent RioCan retail properties. Queen & Portland, Toronto, Ontario | Three storeys of this development are devoted to retail while the other four storeys are residential. Major tenants include Loblaws, Winners and Joe Fresh.King & Portland, Toronto, Ontario | This 400,000 sq. foot mixed-use complex features 20,000 sq. feet of retail, a 200,000 sq. foot office space, and 170,000 sq. feet of residential space.Ahead of the Curve Mixed Use Development | Accommodating space constraints in densely populated urban centres, RioCan designs its mixed-use properties to fulfill an array of shopping needs, and diverse eating and recreational activities. Designated sites combine office and living spaces too. RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 20148_9The Well, Toronto, Ontario | Toronto is abuzz with The Well, a transformative new development situated on 7.7 acres of prime real estate in downtown Toronto. This is the epitome of a mixed-use project, as it combines world-class shopping, living, working and recreation.The Well, Toronto, Ontario | The Well features 1.6 million sq. feet of retail and office space, 940,000 sq. feet of residential rental units, and 466,000 sq. feet of condominium space. RioCan has partnered with Allied Properties REIT and Diamond Corporation. Ahead of the Curve Mixed Use Development | With disciplined financial management and decades of experience in large-scale real estate, RioCan is perfectly positioned to co-manage large-scale projects like The Well, from conception through to completed project. AHEAD OF THE CURVEOUTLET CENTRESTanger Outlets, Cookstown, Ontario | Easily seen from Highway 400, this dynamic complex houses 41 top-tier retailers, including the Coach Factory, Danier Leather Factory Outlet, and Royal Doulton Outlet. Ahead of the Curve Outlet Centres | RioCan’s Outlet Centres are popular destinations, providing easy access and ample parking for diverse retail including high fashion at discount prices, food, sporting goods, health and beauty, and home furnishings. RioCan’s Outlet Centres are frequently visited, and help satisfy the needs of value-conscious consumers.Tanger Outlets, Ottawa, Ontario | Ottawa’s sole outlet centre is a much frequented regional draw. This 300,000 sq. foot site is prominently located beside Highway 417. Development of Phase II is underway, with completion expected in 2016. Ahead of the Curve in Canada
NLA of the Canadian portfolio by property
type at December 31, 2014
New Format Retail
46.5%
Annualized rental revenue of the Canadian
portfolio by property type at December 31, 2014
Enclosed Shopping Centre
16.9%
Non-Grocery Anchored Centre
5.1%
Urban Retail
4.5%
Office
4.6%
Grocery Anchored Centre
22.4%
New Format Retail
43.9%
Enclosed Shopping Centre
17.8%
Non-Grocery Anchored Centre
4.6%
Urban Retail
8.9%
Office
5.2%
Grocery Anchored Centre
19.6%
Top 10 Tenants – Canadian Portfolio
As at December 31, 2014, RioCan’s 10 largest tenants in Canada, as measured by
annualized gross rental revenue, have the following profile:
Tenant
name
1 Loblaws/Shoppers Drug Mart (i)
2 Canadian Tire Corporation (ii)
3 Walmart
4 Metro/Super C/Loeb/Food Basics
5 Cineplex/Galaxy Cinemas
6 Winners/HomeSense/Marshalls
7 Target Corporation (iii)
8 Sobey's Inc.
9 Cara/Prime Restaurants
10 Staples/Business Depot
Percentage of
annualized
rental
revenue
Number of
locations
NLA
(in thousands)
Percentage
of total
NLA
Weighted average
remaining lease
term (years)*
4.9%
4.3%
4.0%
3.9%
3.7%
3.1%
2.3%
1.9%
1.9%
1.7%
31.7%
84
89
28
57
29
69
26
36
110
41
569
2,024
2,020
3,119
2,119
1,336
1,537
2,184
991
472
810
5.1%
5.0%
7.8%
5.3%
3.3%
3.8%
5.5%
2.5%
1.2%
2.0%
16,612
41.5%
7.4
7.9
11.5
6.3
9.3
7.0
12.7
10.4
6.5
5.3
8.5
* Weighted average remaining lease term based on gross annualized rental revenue.
(i) Loblaws/Shoppers Drug Mart includes No Frills, Fortinos, Zehrs and Maxi. During 2014, Loblaws acquired Shoppers Drug Mart. Upon closing, Loblaws became RioCan's largest tenant by gross revenue. Comparative period information has
not been restated for this acquisition.
(ii) Canadian Tire Corporation includes Canadian Tire, PartSource, Mark’s, Sport Mart, Sport Chek, Sports Experts, National Sports and Atmosphere.
(iii) On January 15, 2015, Target Corporation announced plans to discontinue its Canadian operations. See "About RioCan - Overview of the Business".
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Ahead of the Curve in the U.S.
NLA of the Canadian portfolio by property
type at December 31, 2014
NLA of the U.S. portfolio at
December 31, 2014
NLA of the U.S. portfolio by property
type at December 31, 2014
Annualized rental revenue of the Canadian
portfolio by property type at December 31, 2014
Annualized rental revenue of the U.S.
portfolio by State at December 31, 2014
New Format Retail
Enclosed Shopping Centre
Non-Grocery Anchored Centre
46.5%
16.9%
5.1%
4.5%
Office
4.6%
22.4%
Urban Retail
Grocery Anchored Centre
West Virginia
2.5%
Virginia
2.5%
Connecticut
0.9%
Maryland
1.8%
Massachusetts
3.0%
New Hampshire
2.1%
New Jersey
7.1%
New York
2.4%
Pennsylvania
20.1%
Rhode Island
0.7%
Texas
56.9%
Top 10 Tenants – U.S. Portfolio
As at December 31, 2014, RioCan’s 10 largest tenants in the U.S., as measured by
annualized gross rental revenue, have the following profile:
Tenant
name
1 Giant Food Stores/Stop & Shop (Royal Ahold)
2 Best Buy
3 PetSmart
4 Michaels
5 Walmart
6 Ross Dress
7 Office Depot/Office Max
8 Market Street
9 Bed Bath & Beyond
10 Lowes
Top 10 Tenants – Canadian Portfolio
As at December 31, 2014, RioCan’s 10 largest tenants in Canada, as measured by
annualized gross rental revenue, have the following profile:
New Format Retail
Enclosed Shopping Centre
Non-Grocery Anchored Centre
43.9%
17.8%
4.6%
8.9%
Office
5.2%
19.6%
Urban Retail
Grocery Anchored Centre
Tenant
name
1 Loblaws/Shoppers Drug Mart (i)
2 Canadian Tire Corporation (ii)
3 Walmart
4 Metro/Super C/Loeb/Food Basics
5 Cineplex/Galaxy Cinemas
6 Winners/HomeSense/Marshalls
7 Target Corporation (iii)
8 Sobey's Inc.
9 Cara/Prime Restaurants
10 Staples/Business Depot
Percentage of
annualized
rental
revenue
Number of
locations
NLA
(in thousands)
Percentage
of total
NLA
Weighted average
remaining lease
term (years)*
4.9%
4.3%
4.0%
3.9%
3.7%
3.1%
2.3%
1.9%
1.9%
1.7%
84
89
28
57
29
69
26
36
110
41
569
2,024
2,020
3,119
2,119
1,336
1,537
2,184
991
472
810
5.1%
5.0%
7.8%
5.3%
3.3%
3.8%
5.5%
2.5%
1.2%
2.0%
7.4
7.9
11.5
6.3
9.3
7.0
12.7
10.4
6.5
5.3
8.5
West Virginia
2.8%
Virginia
2.7%
Connecticut
1.7%
Maryland
1.7%
Massachusetts
3.3%
New Hampshire
1.7%
New Jersey
9.2%
New York
1.6%
Pennsylvania
21.6%
Rhode Island
0.6%
Texas
53.1%
Percentage of
annualized
rental
revenue
Number of
locations
NLA
(in thousands)
Percentage
of total
NLA
Weighted average
remaining lease
term (years)*
1,113
11.1%
11.4
9.9%
3.7%
2.8%
2.6%
2.6%
2.0%
1.9%
1.9%
1.9%
1.7%
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11
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9
3
359
295
291
880
266
215
193
237
476
3.6%
2.9%
2.9%
8.8%
2.6%
2.1%
1.9%
2.4%
4.7%
5.8
4.8
4.3
12.1
4.4
4.6
8.9
5.7
12.3
8.3
* Weighted average remaining lease term based on gross annualized rental revenue.
(i) Loblaws/Shoppers Drug Mart includes No Frills, Fortinos, Zehrs and Maxi. During 2014, Loblaws acquired Shoppers Drug Mart. Upon closing, Loblaws became RioCan's largest tenant by gross revenue. Comparative period information has
* Weighted average remaining lease term based on gross annualized rental revenue.
not been restated for this acquisition.
(ii) Canadian Tire Corporation includes Canadian Tire, PartSource, Mark’s, Sport Mart, Sport Chek, Sports Experts, National Sports and Atmosphere.
(iii) On January 15, 2015, Target Corporation announced plans to discontinue its Canadian operations. See "About RioCan - Overview of the Business".
31.7%
16,612
41.5%
31.0%
103
4,325
43.0%
PROPERTY PORTFOLIO
CANADA
ALBERTA
As at December 31, 2014
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
17004 & 17008 107th Avenue NW
Edmonton, AB
5008 5020 97th Street NW, Edmonton, AB
Brentwood Village, Calgary, AB
East Hills Shopping Centre, Calgary, AB
Edmonton Walmart Centre, Edmonton, AB
Glenmore Landing, Calgary, AB
Jasper Gates Shopping Centre
Edmonton, AB
Lethbridge Towne Square, Lethbridge, AB
Lethbridge Walmart Centre
Lethbridge, AB
Lowe’s Sunridge Centre, Calgary, AB
Mayfield Common, Edmonton, AB
100%
11,963
11,963
100%
50%
40%
40%
50%
100%
100%
100%
100%
50%
11,943
11,943
134,935
269,870 Safeway, London Drugs, Sears Whole Home,
Bed Bath & Beyond
52,041
130,102 Walmart
127,714
370,895 Walmart, Golf Town, Totem Building Supplies*
73,356
94,243
146,711 Safeway
149,243 London Drugs, Safeway*
79,396
79,396 London Drugs
276,760
328,260 Walmart, Shoppers Drug Mart, Totem Building
211,416
211,416 Lowe's, Golf Town
Supplies*
214,886
429,772 Winners, Save-On-Foods, Value Village, JYSK,
World Health
Mill Woods Town Centre, Edmonton, AB
40%
236,274
585,705 Safeway (Co-op), Canadian Tire, Target,
North Edmonton Cineplex Centre
Edmonton, AB
Northgate Village Shopping Centre
Calgary, AB
100%
75,836
75,836 Cineplex
Goodlife Fitness
100%
277,599
404,689 Safeway, Gold's Gym, JYSK, Staples, Home
Depot*
RioCan Beacon Hill, Calgary, AB
50%
264,037
787,073 Canadian Tire, Winners, Future Shop, Sport
Chek, Goodlife Fitness, Home Depot*, Costco*
RioCan Centre Grande Prairie
Grande Prairie, AB
RioCan Centre Grande Prairie II
Grande Prairie, AB
100%
235,697
335,697 Rona, London Drugs, Cineplex, Staples,
Walmart*
50%
31,707
63,413 Winners, Michaels, JYSK
RioCan Meadows, Edmonton, AB
50%
154,608
409,215 Home Depot, Staples, Winners, Best Buy,
Loblaws*
RioCan Shawnessy, Calgary, AB
50%
234,471
839,586 Target, Sport Chek, Future Shop, Canadian Tire*,
Home Depot*, Co-op*, Walmart*
RioCan Signal Hill Centre, Calgary, AB
100%
473,373
588,373 Target, Winners, Michaels, Staples, Indigo,
Riverbend Square Shopping Centre
Edmonton, AB
Sage Hill Shopping Centre, Calgary, AB
Southbank Centre, Calgary, AB
South Edmonton Common, Edmonton, AB
100%
140,990
140,990 Safeway, Shoppers Drug Mart
Loblaws*
50%
50%
50%
76,518
72,607
153,035 Walmart
389,449 Winners, Michaels, Home Depot*, Costco*
215,209
981,488 London Drugs, The Brick, Home Outfitters,
Old Navy, Home Depot*, Walmart*, Loblaws*,
Cineplex*, Staples*, Best Buy*
*Non-owned anchor
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PROPERTY PORTFOLIO
As at December 31, 2014
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
South Trail Crossing, Calgary, AB
100%
313,911
463,911 Co-op, Winners, Staples, Sport Chek, Walmart*,
Southland Crossing Shopping Centre
Calgary, AB
100%
132,063
132,063 Safeway
Safeway*
Summerwood Shopping Centre, Edmonton, AB
100%
The Market at Citadel, Edmonton, AB
Timberlea Landing, Fort McMurray, AB
100%
100%
83,980
50,968
83,980 Save-On-Foods, Shoppers Drug Mart
50,968 Shoppers Drug Mart
134,874
134,874 Regional Municipality of Wood Buffalo
BRITISH COLUMBIA
Abbotsford Power Centre, Abbotsford, BC
BMO-1225 Douglas St., Victoria, BC
BMO-2219 Oak Bay Ave., Victoria, BC
BMO-3290 Grandview Hwy., Vancouver, BC
BMO-5710 Victoria Dr., Vancouver, BC
BMO-585 England Ave., Courtenay, BC
BMO-7075 Kingsway, Burnaby, BC
Cambie Street, Vancouver, BC
Chahko Mika Mall, Nelson, BC
Clearbrook Town Square, Abbotsford, BC
Cowichan Commons, Duncan, BC
Dilworth Shopping Centre, Kelowna, BC
Grandview Corners, Surrey, BC
Impact Plaza, Surrey, BC
Parkwood Place, Prince George, BC
Peninsula Village, South Surrey, BC
RioCan Langley Centre, Langley, BC
Southwinds Crossing, Oliver, BC
50%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
50%
100%
50%
50%
50%
100%
109,946
459,892 Target, Winners, PetSmart, Costco*, Rona/Revy*
25,133
25,133
3,541
4,454
5,549
5,885
5,010
3,541
4,454
5,549
5,885
5,010
148,215
148,215 Canadian Tire, Best Buy
173,106
173,106
94,481
188,962 Safeway, Staples
186,629
186,629 Walmart
197,058
197,058 Safeway, Staples, JYSK
262,944
610,887 Walmart, Future Shop, Indigo, Home Depot*
133,068
133,068 T&T Supermarket
186,362
372,724 The Bay, Overwaitea, London Drugs, Famous
Players, Staples
85,354
170,707 Safeway, London Drugs
190,285
380,569 Sears Whole Home, Chapters, HomeSense
72,972
72,972 Canadian Tire, Buy-Low Foods
Strawberry Hill Shopping Centre, Surrey, BC
50%
168,905
337,810 Home Depot, Cineplex, Winners, Chapters,
Sport Chek
The Junction, Mission, BC
50%
141,267
330,607 Save-On-Foods, Famous Players, London Drugs,
Canadian Tire*
Tillicum Centre, Victoria, BC
50%
235,937
471,874 Target, Famous Players, Safeway, Winners,
London Drugs
Vernon Square, Vernon, BC
100%
98,110
151,110 London Drugs, Safeway*
MANITOBA
Garden City, Winnipeg, MB
Kildonan Crossing Shopping Centre
Winnipeg, MB
30%
100%
86,341
380,408 Canadian Tire, Winners, Sears*
179,029
179,029 Safeway, PetSmart
*Non-owned anchor
PROPERTY PORTFOLIO
NEW BRUNSWICK
As at December 31, 2014
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
Brookside Mall, Fredericton, NB
50%
140,604
281,207 Sobeys, The Province of New Brunswick,
Corbett Centre, Fredericton, NB
Northumberland Square, Miramichi, NB
Quispamsis Town Centre, Quispamsis, NB
100%
100%
100%
186,006
158,931
88,034
Goodlife Fitness
281,006 Winners, Home Depot*, Costco*
158,931
88,034 Shoppers Drug Mart, Goodlife Fitness
NEWFOUNDLAND
Shoppers on Topsail, St. John’s, NFLD
100%
29,690
29,690 Shoppers Drug Mart
Trinity Conception Square, Carbonear, NFLD
100%
182,545
182,545 Metro, Walmart
NOVA SCOTIA
Halifax Walmart Centre, Halifax, NS
50%
68,995
137,990 Walmart
ONTARIO
12 Vodden Street, Brampton, ON
100%
1208 & 1216 Dundas Street East, Whitby, ON
100%
32,294
7,697
32,294
7,697
1650-1660 Carling Avenue, Ottawa, ON
1910 Bank Street, Ottawa, ON
2422 Fairview Street, Burlington, ON
2950 Carling Avenue, Ottawa, ON
2955 Bloor Street West, Toronto, ON
2990 Eglinton Avenue East, Toronto, ON
3736 Richmond Road, Ottawa, ON
404 Town Centre, Newmarket, ON
100%
100%
100%
100%
100%
100%
100%
50%
4055-4065 Carlingview Avenue, Ottawa, ON
100%
410 King Street North, Waterloo, ON
410-444 Bathurst Street, Toronto, ON
506 & 510 Hespeler Road, Cambridge, ON
547-563 College Street, Toronto, ON
649 Queen Street West, Toronto, ON
6666 Lundy’s Lane, Niagara Falls, ON
735 Queenston Road, Hamilton, ON
100%
100%
100%
50%
100%
100%
100%
740 Dupont Street, Toronto, ON
100%
Adelaide Centre, London, ON
Ajax Marketplace, Ajax, ON
100%
100%
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142,188
142,188 Canadian Tire
6,425
6,221
6,425
6,221
10,442
10,442 Pharma Plus
8,777
6,140
2,938
8,777
6,140
2,938
133,924
267,848 Walmart, Metro
22,496
2,067
16,975
12,515
74,388
14,200
8,434
8,818
25,000
80,998
70,724
22,496
2,067
16,975
12,515
74,388 LCBO
14,200 CB2
8,434
8,818
25,000
80,998 Metro
70,724 Food Basics, Pharma Plus
*Non-owned anchor
PROPERTY PORTFOLIO
As at December 31, 2014
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
Albion Centre, Etobicoke, ON
Belleville Stream Centre, Belleville, ON
Belleville Walmart Centre, Belleville, ON
Bellfront Shopping Centre, Belleville, ON
BMO-1293 Bloor Street West, Toronto, ON
50%
100%
100%
100%
100%
BMO-145 Woodbridge Avenue, Vaughan, ON
100%
BMO-1556 Bank Street, Ottawa, ON
BMO-2 King Street West, Bowmanville, ON
BMO-200 Ouelette Avenue, Windsor, ON
BMO-270 Dundas Street, London, ON
BMO-297 King Street East, Kingston, ON
BMO-519 Brant Street, Burlington, ON
BMO-79 Durham Street, Sudbury, ON
BMO-81 King Street West, Hamilton, ON
BMO-945 Smyth Road, Ottawa, ON
Brant Street Power Centre, Toronto, ON
Burlington Mall, Burlington, ON
Cambrian Mall, Sault Ste. Marie, ON
Campus Estates, Guelph, ON
Chapman Mills Marketplace, Ottawa, ON
Cherry Hill Centre, Fergus, ON
Churchill Plaza, Sault Ste. Marie, ON
City View Plaza, Nepean, ON
Clarkson Crossing, Mississauga, ON
Clarkson Village Shopping Centre
Mississauga, ON
Colborne Place, Brantford, ON
Coliseum Ottawa, Ottawa, ON
Collingwood Centre, Collingwood, ON
Commissioners Court Plaza, London, ON
County Fair Mall, Smiths Falls, ON
Dufferin Plaza, Toronto, ON
Dundas 427 Marketplace, Mississauga, ON
Eagle’s Landing, Vaughan, ON
Eastcourt Mall, Cornwall, ON
Elmvale Acres, Ottawa, ON
Empress Walk, Toronto, ON
Fairlawn Plaza, Ottawa, ON
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
50%
100%
100%
75%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Fallingbrook Shopping Centre, Orleans, ON
100%
188,246
376,491 Canadian Tire, Fortinos
89,237
89,237 Stream International
275,410
275,410 Walmart
109,995
159,995 Bed Bath & Beyond, Canadian Tire*
5,683
5,860
4,835
5,584
21,070
21,834
10,079
5,190
24,075
5,550
8,532
5,683
5,860
4,835
5,584
21,070
21,834
10,079
5,190
24,075
5,550
8,532
57,539
115,077 Best Buy, PetSmart, Home Outfitters
318,745
750,643 Canadian Tire, Target, Winners, HomeSense,
The Bay*
134,803
316,634 Sport Chek, Winners, Canadian Tire*, Loblaws*
72,861
72,861 No Frills
339,093
567,124 Walmart, Winners, Staples, PetSmart, Loblaws*
73,886
73,886 Zehrs
148,225
148,225 Metro
59,876
59,876 Pharma Plus, PartSource
106,535
213,069 Metro, Canadian Tire, Shoppers Drug Mart
63,844
63,844 HomeSense
70,406
70,406 No Frills
109,260
109,260 Famous Players, Shoppers Drug Mart
199,296
199,296 Fresh Co. (Sobeys), Canadian Tire, Sport Chek,
Bed, Bath & Beyond
94,140
94,140 Food Basics
162,640
162,640 Target, Food Basics
65,195
97,860
65,195 Staples
97,860 Staples
177,043
177,043 Metro (Yummy Market)
176,848
176,848 No Frills, Urban Planet, Dollarama, Shoppers
Drug Mart
146,696
146,696 Loblaws, Pharma Plus
180,626
238,626 Cineplex, Future Shop, Loblaws*
8,322
97,145
8,322 Sleep Country Canada
97,145 Metro, Shoppers Drug Mart
*Non-owned anchor
PROPERTY PORTFOLIO
As at December 31, 2014
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
Five Points Shopping Centre, Oshawa, ON
Flamborough Power Centre
Flamborough, ON
Flamborough Walmart Centre
Flamborough, ON
Frontenac Mall, Kingston, ON
Galaxy Centre, Owen Sound, ON
Garrard & Taunton, Whitby, ON
Gates of Fergus, Fergus, ON
Glendale Marketplace, Pickering, ON
Goderich Walmart Centre, Goderich, ON
Goodlife Plaza, St. Catharines, ON
Grant Crossing, Ottawa, ON
100%
100%
397,736
181,694
397,736 Target, Metro, Value Village, LA Fitness
181,694 Target, Value Village
100%
303,590
303,590 Walmart, Rona, Staples
30%
100%
100%
50%
100%
100%
100%
60%
84,810
91,563
282,700 Food Basics, Value Village
91,563 No Frills, Cineplex
146,835
146,835 Lowe's
52,983
53,963
96,853
105,965 Target
53,963 Your Independent Grocer, Pharma Plus
204,709 Walmart, Canadian Tire*, Loblaws*
144,983
144,983 Goodlife Fitness, Canadian Tire (Call centre)
135,505
325,842 Winners, HomeSense, Michaels, Value Village,
Lowe's*
Green Lane Centre, Newmarket, ON
33%
52,890
417,716 Bed Bath & Beyond, Michaels, PetSmart,
Halton Hills Shopping Plaza
Georgetown, ON
Hamilton Highbury Plaza, London, ON
Hamilton Walmart Centre, Hamilton, ON
Hartsland Market Square, Guelph, ON
Hawkesbury Centre, Hawkesbury, ON
Heart Lake Town Centre, Brampton, ON
Herongate Mall, Ottawa, ON
Highbury Shopping Plaza, London, ON
Hunt Club Centre, Ottawa, ON
Hunt Club Centre II, Ottawa, ON
Huron Heights, London, ON
Innes Road Centre, Gloucester, ON
Kanata Centrum Shopping Centre
Kanata, ON
100%
75,724
75,724 Food Basics
Costco*, Loblaws*
100%
100%
100%
50%
100%
75%
100%
100%
100%
50%
100%
100%
5,269
5,269
312,993
312,993 Walmart, Winners, Staples
108,719
108,719 Zehrs
37,133
74,266 Price Chopper, Shoppers Drug Mart
126,017
126,017 Metro
50,137
70,981
67,174
66,849 Food Basics, Pharma Plus
70,981 LA Fitness
67,174 Metro
141,820
141,820 Lowe’s
44,982
47,512
89,964 Shoppers Drug Mart
167,512 PetSmart, Costco*
286,445
466,445 Walmart, Chapters, Loblaws, Canadian Tire*,
Landmark Cinemas*
158,688 Price Chopper, Value Village,
Shoppers Drug Mart
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Kendalwood Park Plaza, Whitby, ON
50%
79,344
Kennedy Commons, Scarborough, ON
50%
169,846
420,691 The Brick, Metro, Sears Whole Home, Chapters,
Keswick Walmart, Keswick, ON
King George Square, Belleville, ON
King Plaza, Oshawa, ON
King & Portland, Toronto, ON
Lawrence Square, Toronto, ON
75%
50%
100%
50%
100%
LA Fitness, Michaels
120,363
160,484 Walmart
35,993
34,202
38,206
71,985 Metro
34,202 Shoppers Drug Mart
76,412
675,430
675,430 Target, Fortinos, Canadian Tire, Hudson Bay
Company
Lincoln Fields Shopping Centre, Ottawa, ON
50%
143,739
287,478 Walmart, Loeb
London Plaza, London, ON
Markington Square, Scarborough, ON
100%
100%
122,183
122,183 Gold's Gym, Value Village
173,032
173,032 Metro, Goodlife Fitness
*Non-owned anchor
PROPERTY PORTFOLIO
As at December 31, 2014
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
Meadow Ridge Plaza, Ajax, ON
Meadowlands Power Centre, Ancaster, ON
Merivale Market, Ottawa, ON
Millcroft Shopping Centre, Burlington, ON
Mississauga Plaza, Mississauga, ON
New Liskeard Walmart Centre
New Liskeard, ON
Niagara Falls Plaza, Niagara Falls, ON
Niagara Square, Niagara Falls, ON
Nortown Centre, Chatham, ON
Norwest Plaza, Kingston, ON
Oakridge Centre, London, ON
Orillia Square Mall, Orillia, ON
Pine Plaza, Sault Ste. Marie, ON
Queensway Cineplex, Toronto, ON
RioCan Centre Barrie, Barrie, ON
RioCan Centre Belcourt, Orleans, ON
RioCan Centre Burloak, Oakville, ON
RioCan Centre Kingston, Kingston, ON
RioCan Centre London North, London, ON
RioCan Centre London South, London, ON
RioCan Centre Merivale, Nepean, ON
100%
100%
75%
50%
100%
100%
100%
30%
50%
100%
100%
100%
100%
50%
100%
60%
50%
100%
100%
100%
100%
111,762
145,605
59,136
159,112
176,305
111,762 Sobeys, Goodlife Fitness
589,209 HomeSense, Future Shop, Sport Chek, Costco*,
Home Depot*, Sobeys*, Staples*
78,848 Food Basics, Shoppers Drug Mart
370,456 Target, Metro , Canadian Tire*
176,305 FreshCo (Sobeys)
110,522
155,278 Walmart, Canadian Tire*
80,608
80,608 Foodland, LA Fitness
121,247
404,155 Winners, Future Shop, JYSK, The Brick, Cineplex
35,712
39,916
34,024
71,423 Food Basics
39,916 Goodlife Fitness
139,524 Pharma Plus, CIBC, Loblaws*
320,582
320,582 Target, Canadian Tire, No Frills, The Brick
42,455
61,259
42,455 Food Basics
122,518 Cineplex
244,589
244,589 Mountain Equipment Co-op, Loblaws, Lowe’s
153,479
397,798 Empire Theatres, Goodlife Fitness, Food Basics,
Toys R Us, Lowe's*
227,312
552,623 Cineplex, Home Outfitters, Longo's, Home Depot*
632,777
753,822 Cineplex, Sears, Staples, Winners, HomeSense,
Old Navy, Home Depot*
105,040
165,040 Chapters, PetSmart, Loblaws*
139,601
139,601 Metro
201,632
201,632 Your Independent Grocer, Winners, Home
Outfitters
RioCan Centre Milton, Milton, ON
100%
171,465
256,465 Cineplex, LA Fitness, Home Depot*
RioCan Centre Newmarket, Newmarket, ON
RioCan Centre Sudbury, Sudbury, ON
RioCan Centre Vaughan, Vaughan, ON
RioCan Centre Windsor, Windsor, ON
40%
50%
100%
100%
26,688
66,721 Mark's Work Wearhouse, Staples
201,899
669,193 Famous Players, Staples, Chapters, Sears, Old
Navy, Costco*, Home Depot*
262,336
262,336 Walmart
239,321
349,321 Famous Players, Sears, The Brick,
Staples, Costco*
RioCan Colossus Centre, Vaughan, ON
100%
460,643
590,643 HomeSense, Golf Town, Marshalls, Cineplex,
Costco*
RioCan Durham Centre, Ajax, ON
100%
944,290
1,325,290 Walmart, Canadian Tire, Best Buy, Old Navy,
Target, Cineplex, Value Village, Winners,
Chapters, Sport Chek, HomeSense, Marshalls,
Home Depot*, Loblaws*, Costco*
RioCan Elgin Mills Crossing
Richmond Hill, ON
100%
320,325
441,325 Home Depot*
RioCan Fairgrounds, Orangeville, ON
100%
362,980
507,055 Walmart, Future Shop, Cineplex, Price Chopper,
Winners, Canadian Tire*, Home Depot*
RioCan Georgian Mall, Barrie, ON
100%
510,119
626,634 Winners, Atmosphere, HomeSense, H&M,
Victoria’s Secret, Sears*
*Non-owned anchor
PROPERTY PORTFOLIO
As at December 31, 2014
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
RioCan Grand Park, Mississauga, ON
RioCan Gravenhurst, Gravenhurst, ON
RioCan Hall, Toronto, ON
RioCan Leamington, Leamington, ON
RioCan Leaside Centre, Toronto, ON
RioCan Marketplace Toronto, Toronto, ON
RioCan Niagara Falls, Niagara Falls, ON
RioCan Oakville Place, Oakville, ON
RioCan Orleans, Cumberland, ON
RioCan Renfrew Centre, Renfrew, ON
50%
100%
100%
100%
100%
33%
100%
100%
100%
100%
RioCan Scarborough Centre, Scarborough, ON 100%
50%
50%
16%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
63%
100%
100%
100%
100%
100%
50%
80%
RioCan St. Laurent, Ottawa, ON
RioCan Thickson Ridge, Whitby, ON
RioCan Thickson Ridge –
Bed Bath & Beyond, Whitby, ON
RioCan Victoria, Whitby, ON
RioCan Warden, Scarborough, ON
RioCan West Ridge Place, Orillia, ON
RioCan Yonge Eglinton Centre, Toronto, ON
RioCentre Brampton, Brampton, ON
RioCentre Kanata, Ottawa, ON
RioCentre Newmarket, Newmarket, ON
RioCentre Oakville, Oakville, ON
RioCentre Thornhill, Thornhill, ON
Sandalwood Square Shopping Centre
Mississauga, ON
Sheppard Centre, Toronto, ON
Sherwood Forest Mall, London, ON
Shoppers City East, Ottawa, ON
Shoppers Drug Mart Pembroke
Pembroke, ON
Shoppers on Argyle, Caledonia, ON
Shoppes on Avenue, Toronto, ON
Shoppes on Queen West, Toronto, ON
Shoppers World Brampton, Brampton, ON
Shoppers World Danforth, Toronto, ON
Silver City Gloucester, Gloucester, ON
South Cambridge Shopping Centre
Cambridge, ON
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18_19
59,319
118,637 Winners, Shoppers Drug Mart, Staples
149,548
149,548 Canadian Tire, Sobeys
237,745
237,745 Famous Players, Marshalls, Goodlife Fitness,
Michaels
192,889
192,889 Walmart, Metro
133,035
133,035 Canadian Tire, PetSmart
56,482
413,582 Winners, Loblaws*, Home Depot*
268,876
457,925
367,451 Target, Staples, Loblaws, Home Depot*
457,925 The Bay, Sears, H&M
182,251
297,251 Metro, JYSK, Staples, Home Depot*
53,099
127,099 Loblaws*
320,014
156,061
181,535
320,014 Target, Staples, LA Fitness
312,121 Target, Loeb, Winners
493,070 Home Outfitters, Winners, JYSK, Future Shop,
PetSmart, HomeSense, Home Depot*
4,374
28,222 Bed Bath & Beyond
49,290
98,579
232,542
232,542 Lowe's, Marshalls, Future Shop
223,008
353,008 Sport Chek, Metro, Cineplex, Home Depot*
1,016,796
1,016,796 Famous Players, Indigo Books, Metro
103,607
103,607 Food Basics
108,562
118,819
108,562 Sobeys, Pharma Plus
118,819 Metro, Shoppers Drug Mart
106,884
106,884 Metro, Shoppers Drug Mart
140,370
140,370 No Frills, Winners, HomeSense
107,060
107,060 Value Village
299,650
599,299 Winners, Goodlife Fitness, Aon Hewitt, BMO
218,203
218,203 Metro, Shoppers Drug Mart, Goodlife Fitness
77,574
17,020
17,024
20,884
89,690
123,525 Shoppers Drug Mart
17,020 Shoppers Drug Mart
17,024 Shoppers Drug Mart
20,884 Bank of Montreal, Pharma Plus
89,690 Loblaws, Winners
689,840
689,840 Target, Canadian Tire, Winners, Staples, Oceans,
164,510
181,778
Bad Boy, Medix
329,019 Target, Metro, Staples
287,223 Famous Players, Chapters, Future Shop, Old
Navy, Loblaws*
100%
190,060
190,060 Zehrs, Home Hardware
*Non-owned anchor
PROPERTY PORTFOLIO
As at December 31, 2014
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
South Hamilton Square, Hamilton, ON
100%
305,292
305,292 Target, Fortinos, Shoppers Drug Mart, Goodlife
Southgate Shopping Centre, Ottawa, ON
Spring Farm Marketplace, Vaughn, ON
Stratford Centre, Stratford, ON
Sudbury Place, Sudbury , ON
Sunnybrook Plaza, Toronto, ON
Tanger Outlets Cookstown, Cookstown, ON
Tanger Outlets Ottawa, Ottawa, ON
The Stockyards, Toronto, ON
Timiskaming Square, New Liskeard, ON
Timmins Square OPS, Timmins, ON
Trafalgar Ridge Shopping Centre
Oakville, ON
Trenton Walmart Centre, Trenton, ON
Trinity Common Brampton, Brampton, ON
Trinity Crossing, Ottawa, ON
University Plaza, Dundas, ON
Upper James Plaza, Hamilton, ON
Victoria Crossing, Scarborough, ON
Viewmount Centre, Ottawa, ON
Walker Place, Burlington, ON
Walker Towne Centre, Windsor, ON
West Side Place, Port Colborne, ON
Westgate Shopping Centre, Ottawa, ON
Wharncliffe Centre, London, ON
White Shield Plaza, Toronto, ON
Woodview Place, Burlington, ON
Yonge & Erskine Avenue, Toronto, ON
PRINCE EDWARD ISLAND
100%
100%
100%
100%
100%
50%
50%
50%
100%
30%
100%
100%
100%
100%
100%
100%
100%
50%
50%
100%
100%
100%
100%
100%
100%
50%
72,774
73,077
158,736
144,442
50,980
152,161
133,452
259,053
160,777
117,150
131,251
147,416
662,185
191,464
183,780
126,252
64,707
65,385
34,929
39,788
93,123
Fitness
72,774 Metro, Shoppers Drug Mart
73,077 Sobeys, Shoppers Drug Mart
158,736 Target, Metro
200,186 Target, Your Independent Grocer*
50,980 Pharma Plus, CIBC
304,321 Under Armour, Nike, Polo Ralph Lauren
266,903 Polo Ralph Lauren, Old Navy, Nike
518,106 Target, Sport Chek, PetSmart, Winners,
HomeSense, Old Navy
160,777 Food Basics
390,501 Sears, No Frills, Winners, Sport Chek, Urban Planet
131,251 Goodlife Fitness, HomeSense
147,416 Walmart
877,185 Target, Famous Players, Metro, Winners,
HomeSense, Future Shop, Staples, Sport Chek,
Canadian Tire*, Home Depot*
371,464 Michaels, HomeSense, Value Village, Loblaws*
183,780 Metro, Shoppers Drug Mart
126,252 Canadian Tire, Metro
64,707 FreshCo (Sobeys)
130,770 Metro, Best Buy, HomeSense
69,857 FreshCo (Sobeys)
39,788
93,123 No Frills
167,964
167,964 Shoppers Drug Mart
60,711
162,601
147,852
3,578
60,711 No Frills
162,601 Lone Thai Grocery (Metro)
147,852 Metro, JYSK, Chapters
7,156 TD Canada Trust
Charlottetown Mall, Charlottetown, PEI
50%
166,173
332,345 Target, Loblaws Atlantic Superstore, Winners,
Sport Chek
QUEBEC
2335 Lapiniere Boulevard, Brossard, PQ
541 Saint-Joseph Boulevard
Gatineau, PQ
100%
100%
2,259
2,584
2,259
2,584
*Non-owned anchor
PROPERTY PORTFOLIO
As at December 31, 2014
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
BMO-279 Rue St Charles Ouest
Longueuil, PQ
Centre Carnaval LaSalle, LaSalle, PQ
Centre Carnaval Montreal, Montreal, PQ
Centre Carnaval Pierrefonds
Pierrefonds, PQ
Centre Carnaval Trois Rivieres
Trois Rivieres, PQ
Centre Jacques Cartier, Longueuil, PQ
Centre La Prairie, La Prairie, PQ
Centre Regional Chateauguay
Chateauguay, PQ
Centre Rene A. Robert Centre
Ste. Therese, PQ
Centre RioCan Kirkland, Kirkland, PQ
Centre Sicard, Ste. Therese, PQ
Centre St. Jean
St. Jean Sur Richelieu, PQ
Centre St. Julie, Ste. Julie, PQ
Centre St. Martin, Laval, PQ
Centre Concorde, Laval, PQ
Desserte Ouest, Laval, PQ
Galeries Laurentides, St. Antoine, PQ
Galeries Mille-Iles, Rosemere, PQ
Granby, Granby, PQ
Lachute Walmart Centre, Lachute, PQ
Les Factories Tanger Bromont
Bromont, PQ
Les Factories Tanger St. Sauveur
Prevost, PQ
Les Galeries Lachine, Montreal, PQ
Levis, Levis, PQ
Mega Centre Notre Dame
Sainte Dorothée, PQ
Mega Centre Rive-Sud, Levis, PQ
Place Carnaval Laval, Laval, PQ
Place Newman, LaSalle, PQ
RioCan Gatineau, Gatineau, PQ
RioCan Greenfield, Greenfield Park, PQ
RioCan La Gappe, Gatineau, PQ
Shoppers Drug Mart Repentigny
Repentigny, PQ
100%
6,714
6,714
100%
100%
100%
209,788
209,788 Super C, L’Aubainerie
67,815
67,815 Super C
129,417
129,417 Super C
100%
112,888
112,888 Super C, Rossy
50%
50%
50%
109,095
218,189 IGA, Guzzo Cinema, Value Village
34,541
69,081 Sobeys
100,151
200,302 Super C
50%
37,587
75,173 Sobeys
100%
100%
100%
50%
100%
50%
50%
100%
100%
100%
100%
50%
320,088
106,960
103,278
320,088 Famous Players, Staples, Winners
106,960 IGA, Jean Coutu
103,278 Sobeys
30,389
60,778 Sobeys
245,338
245,338 Provigo, Pharmaprix, L’Aubainerie
31,649
58,074
451,784
255,915
49,556
75,682
81,208
63,298 Sobeys
116,147 Target
451,784 Maxi
255,915 Staples, Maxi
49,556 L’Aubainerie
110,682 Walmart, Loblaws*
162,415 Urban Planet, Atmosphere
50%
57,849
115,697 Atmosphere, Nike
100%
100%
100%
100%
100%
100%
50%
50%
100%
100%
171,667
171,667 Maxi, Rossy
18,988
18,988
425,430
494,983 Winners, Sports Experts, Super C*, Shoppers
Drug Mart*
207,215
108,339
189,546
143,254
188,106
344,192
17,050
207,215 Walmart, Canadian Tire*, Home Depot*
108,339 Super C, Jean Coutu
189,546 Maxi, Winners, Rossy
286,507 Walmart, Canadian Tire, Super C
376,211 Maxi, Winners, Staples, Guzzo Cinemas
344,192 Walmart, Winners, Golf Town
17,050 Shoppers Drug Mart
Silver City Hull, Hull, PQ
100%
84,590
469,590 Famous Players, Rona*, Walmart*, Maxi*,
Staples*, Winners*
*Non-owned anchor
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20_21
PROPERTY PORTFOLIO
As at December 31, 2014
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
St. Hyacinthe Walmart Centre
Ste. Hyacinthe, PQ
Vaudreuil Shopping Centre
Vaudreuil-Dorion, PQ
SASKATCHEWAN
100%
166,892
254,392 Walmart, Staples, Canadian Tire*
100%
117,965
197,965 Golf Town, Staples, Canadian Tire*, Super C*
Parkland Mall, Yorkton, SA
100%
267,358
267,358 Canadian Tire, Value Village
*Non-owned anchor
PROPERTY PORTFOLIO
UNITED STATES
CONNECTICUT
As at December 31, 2014
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
Montville Commons, Montville, CT
Stop N Shop Plaza, Bridgeport, CT
MASSACHUSETTS
Northwoods Crossing, Taunton, MA
Shaws Plaza, Raynham, MA
MARYLAND
100%
100%
100%
100%
117,866
236,672 Stop & Shop, Home Depot*
54,510
54,510
159,562
159,562 BJ's Wholesale Club
175,842
175,842 Shaw's, Marshalls, PetSmart
First Colony Center, California, MD
Marlboro Crossroads, Upper Marlboro, MD
100%
100%
98,186
67,975
357,383 Target*, Lowe’s*
67,975 Giant Foods
NEW HAMPSHIRE
Village Shoppes at Salem, Salem, NH
100%
170,270
170,270 Sports Authority, PetSmart
NEW JERSEY
Cross Keys, Turnersville, NJ
100%
148,173
253,173 Sports Authority, Bed Bath & Beyond, AC Moore,
Home Depot*
Deptford Landing, Deptford, NJ
Sunrise Plaza, Forked River, NJ
100%
100%
517,097
260,895
517,097 Walmart, Sam’s Club, hhgregg, Michaels, PetSmart
260,895 Home Depot, Kohl’s
NEW YORK
Beekman Stop N Shop, Beekman, NY
Huntington Square, East Northport, NY
PENNSYLVANIA
Blue Mountain Commons, Harrisburg, PA
Columbus Crossing, Philadelphia, PA
Creekview Center, Warrington, PA
Exeter Commons, Exeter, PA
Gettysburg Marketplace, Gettysburg, PA
Loyal Plaza, Williamsport, PA
Monroe Marketplace, Selinsgrove, PA
Northland Center, State College, PA
Pitney Road, Lancaster, PA
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
4
1
0
2
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R
O
P
E
R
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A
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N
N
A
T
S
U
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T
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40,415
40,415 Giant Foods
116,221
116,221 Stop & Shop, Best Buy
123,353
142,166
136,423
123,353 Giant
142,166 Super Fresh, Old Navy, AC Moore
425,339 Giant, LA Fitness, Bed Bath & Beyond, Lowe’s*,
Target*
361,095
493,965 Lowe’s, Giant Foods Supermarket, Staples, Target*
82,789
293,825
364,930
82,789 Giant Foods
293,825 Kmart, Staples, Giant Foods
491,772 Giant Foods, Kohl’s, Dick’s Sporting Goods, Best
Buy, Target*
111,496
111,496 Giant Foods
45,915
183,848 Best Buy, Lowe’s*
*Non-owned anchor
PROPERTY PORTFOLIO
As at December 31, 2014
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
Sunset Crossing, Dickson City, PA
Town Square Plaza, Muhlenberg, PA
York Marketplace, York, PA
100%
100%
100%
74,142
127,678
305,410
74,142 Giant Foods
254,678 Giant Foods, PetSmart, AC Moore, Target*
305,410 Giant Foods, Lowe’s, Office Max
RHODE ISLAND
Super Stop & Shop Plaza, Richmond, RI
100%
60,488
60,488 Stop & Shop
TEXAS
1890 Ranch, Austin, TX
100%
486,896
793,896 Cinemark, Gold’s Gym, PetSmart, Ross Stores,
Target*, Hobby Lobby*
Alamo Ranch, San Antonio, TX
100%
468,046
843,046 Dick’s Sporting Goods, Best Buy, Ross Stores,
Arbor Park, San Antonio, TX
Bear Creek, Houston, TX
Bird Creek, Temple, TX
Cinco Ranch, Dallas, TX
Marshalls, PetSmart
139,718
139,718 Ross Stores, Michaels, Sprouts
87,912
87,912 HEB
124,941
388,975 Best Buy, PetSmart, Target*, Home Depot*
97,761
271,761 SuperTarget*
100%
100%
100%
100%
Great Southwest Crossing, Grand Prairie, TX
100%
153,105
283,173 Office Depot, PetSmart, Kroger, Sam’s Club*
Ingram Hills Shopping Center, San Antonio, TX
100%
Las Colinas Village, Irving, TX
Las Palmas Marketplace
El Paso, TX
100%
100%
80,347
104,741
637,290
80,347 La Fiesta
104,741 Staples
717,290 Lowe’s, Kohl’s, Bed Bath & Beyond, Ross Stores,
Cinemark*
Lincoln Square, Arlington, TX
100%
471,577
471,577 Ross Stores, PetSmart, Stein Mart, Bed Bath &
Louetta Central, Houston, TX
Market Street Colleyville, Dallas, TX
Market Street Stonebridge, Dallas, TX
Montgomery Plaza, Fort Worth, TX
Riverpark Shopping Center I, II
Sugar Land, TX
Riverwalk Market, Flower Mound, TX
Southpark Meadows I, II
Austin, TX
Suntree Square, Southlake, TX
Timber Creek, Dallas, TX
VIRGINIA
179,995
391,995 Kohl’s, Ross Stores, Walmart*
Beyond
72,617
88,389
232,897
317,340
72,617 Market Street
88,389 Market Street
465,011 Marshalls, Ross Stores, PetSmart, SuperTarget*
317,340 HEB, Walgreen’s, LA Fitness, Dollar Tree, Gander
Mountain
82,455
82,455 Market Street
921,141
1,071,141 Walmart, PetSmart, J.C. Penny, Hobby Lobby,
Sports Authority, Bealls, Best Buy, Ross Stores,
Marshalls, Target*
99,269
99,269 Tom Thumb
473,924
473,924 Walmart, Sam’s Club, JC Penny
100%
100%
100%
80%
100%
100%
100%
100%
100%
New River Valley, Christianburg, VA
Towne Crossing, Richmond, VA
100%
100%
164,663
111,016
164,663 Best Buy, Ross Stores, Bed Bath & Beyond, Staples
111,016 Bed Bath & Beyond, Michaels
WEST VIRGINIA
The Commons, Martinsburg, WV
100%
277,296
405,119 Dick’s Sporting Goods, Best Buy, TJ Maxx,
PetSmart, Target*
*Non-owned anchor
REAL ESTATE PORTFOLIO KEY FACTS as at December 31, 2014 (all metrics stated at RioCan's interest)
Net Leasable Area (“NLA”) (sq.ft.):
Income Producing Properties
Properties Under Development
Total
Number of Tenancies
Portfolio Occupancy
Retail
Office
Total
Geographic Diversification
Ontario
Quebec
Alberta
British Columbia
Other Canada
Northeastern United States
Texas
Canadian Properties
US Properties
Retail
Office
Total
Retail
Office
Total
38,165,713
1,828,189
39,993,902
10,030,675
3,896,248
—
3,896,248
—
42,061,961
1,828,189
43,890,150
10,030,675
—
—
—
10,030,675
—
10,030,675
Canadian Properties
US Properties
97.0%
97.5%
97.0%
97.1%
—
97.1%
Percentage
of annualized
rental
revenue
57.1%
9.1%
9.9%
5.2%
2.3%
7.1%
9.3%
100.0%
Income
producing
properties
179
41
29
17
11
28
20
325
Number of properties
Properties
under
development
11
—
4
—
—
—
—
15
Grand
Total
50,024,577
3,896,248
53,920,825
7,771
Total
97.0%
97.5%
97.0%
Total
190
41
33
17
11
28
20
340
Anchor and National Tenants (including U.S.)
Top Ten Sources of Revenue by Tenant (including U.S.)
Percentage of annualized rental revenue
Percentage of total NLA
86.4%
86.9%
Rank
Tenant
1
2
3
4
5
6
7
8
9
Loblaws/Shoppers Drug Mart (i)
Walmart
Canadian Tire Corporation (ii)
Metro/Super C/Loeb/Food Basics
Cineplex/Galaxy Cinemas
Winners/HomeSense/Marshalls/TJ Max
Target Corporation
Staples/Business Depot
Sobey's Inc.
10
Cara/Prime Restaurants
Total
Percentage of
annualized rental revenue
Weighted average remaining
lease term (yrs)
4.1%
3.7%
3.5%
3.1%
3.0%
2.7%
1.9%
1.6%
1.6%
1.5%
26.7%
7.4
11.5
7.9
6.3
9.3
6.9
12.7
5.2
10.4
6.5
8.5
Loblaws/Shoppers Drug Mart includes No Frills, Fortinos, Zehrs and Maxi.
(i)
(ii) Canadian Tire Corporation includes Canadian Tire, PartSource, Mark’s, Sport Mart, Sport Chek, Sports Experts, National Sports and Atmosphere.
REAL ESTATE PORTFOLIO KEY FACTS
RioCan’s lease expiries for the Canadian, U.S. and total portfolio, at RioCan’s interest, by property type for the next five years are as follows:
Lease Expiries - Canada
Retail Class
New Format Retail
Grocery Anchored Centre
Enclosed Shopping Centre
Non-Grocery Anchored Centre
Urban Retail
Office
Total
Total NLA
18,594,613
8,939,695
6,771,285
2,049,855
1,810,265
1,828,189
Lease expiries (NLA)
2015
2016
2017
2018
2019
1,575,962
1,918,743
1,595,714
2,121,844
2,497,735
8.5%
959,898
10.7%
895,095
13.2%
254,740
12.4%
67,110
3.7%
195,785
10.7%
10.3%
8.6%
11.4%
13.4%
1,144,786
1,239,523
1,167,515
1,363,012
12.8%
971,163
14.3%
228,785
11.2%
78,381
4.3%
245,285
13.4%
13.9%
564,304
8.3%
88,429
4.3%
112,664
6.2%
197,031
10.8%
13.1%
618,792
9.1%
143,808
7.0%
272,984
15.1%
254,486
13.9%
15.2%
627,916
9.3%
164,537
8.0%
275,948.5
15.2%
219,520
12.0%
39,993,902
3,948,590
4,587,143
3,797,665
4,579,429
5,148,669
9.9%
11.5%
9.5%
11.5%
12.9%
Average net rent per square foot
$
16.69
$
17.54
$
17.30
$
18.82
$
17.52
$
17.19
Lease Expiries - U.S.
Retail Class
New Format Retail
Grocery Anchored Centre
Non-Grocery Anchored Centre
Total
Total NLA
7,109,609
2,685,221
235,845
10,030,675
2015
538,843
7.6%
169,431
6.3%
27,495
11.7%
735,769
7.3%
Lease expiries (NLA)
2016
232,029
3.3%
266,247
9.9%
3,508
1.5%
501,784
5.0%
2017
507,363
7.1%
205,248
7.6%
18,150
7.7%
2018
710,903
10.0%
319,735
11.9%
28,269
12.0%
2019
1,237,920
17.4%
247,149
9.2%
41,500
17.6%
730,761
1,058,907
1,526,569
7.3%
10.6%
15.2%
Average net rent per square foot (U.S. dollars)
$
14.01
$
19.34
$
16.70
$
17.45
$
16.79
$
15.11
Lease Expiries - Total
Retail Class
New Format Retail
Total NLA
25,704,222
2015
2016
2017
2018
2019
2,114,805
2,150,772
2,103,077
2,832,747
3,735,655
8.2%
8.4%
8.2%
11.0%
14.5%
Lease expiries (NLA)
Grocery Anchored Centre
11,624,916
1,129,329
1,411,033
1,444,771
1,487,250
1,610,161
Enclosed Shopping Centre
Non-Grocery Anchored Centre
Urban Retail
Office
Total
6,771,285
2,285,700
1,810,265
1,828,189
9.7%
895,095
13.2%
282,235
12.3%
67,110
3.7%
195,785
10.7%
12.1%
971,163
14.3%
232,293
10.2%
78,381
4.3%
245,285
13.4%
12.4%
564,304
8.3%
106,579
4.7%
112,664
6.2%
197,031
10.8%
12.8%
618,792
9.1%
172,077
7.5%
272,984
15.1%
254,486
13.9%
13.9%
627,916
9.3%
206,037
9.0%
275,949
15.2%
219,520
12.0%
50,024,577
4,684,359
5,088,927
4,528,426
5,638,336
6,675,238
9.4%
10.2%
9.1%
11.3%
13.3%
Average net rent per square foot
$
16.15
$
17.82
$
17.24
$
18.60
$
17.38
$
16.70
AHEAD OF THE CURVE
RioCan
FINANCIAL REVIEW
MANAGEMENT’S DISCUSSION
AND ANALYSIS
TABLE OF CONTENTS
Management’s Discussion and Analysis
27 ABOUT THIS MANAGEMENT’S DISCUSSION AND ANALYSIS
27 FORWARD-LOOKING INFORMATION
28 ABOUT RIOCAN
29 PRESENTATION OF FINANCIAL INFORMATION AND
NON-GAAP MEASURES
Reconciliation of Net Earnings to Net Earnings at RioCan’s Interest
2014 FINANCIAL HIGHLIGHTS
2014 OPERATING HIGHLIGHTS
31
2014 CHANGES IN ACCOUNTING POLICY
33 OPERATIONAL AND FINANCIAL INFORMATION
42
43
45 CAPITAL MANAGEMENT
46 OUTLOOK AND STRATEGY
48 CORPORATE SOCIAL RESPONSIBILITY
50 OCCUPANCY
60 RESULTS OF OPERATIONS
61
67
68
Results of Operations – RioCan’s Interest
Operating Funds from Operations (OFFO) &
Adjusted Funds From Operations (AFFO)
Net Operating Income
70
75 Other Revenue
76 Other Expenses
78 ASSET PROFILE
78
79
79
85
Investment Property
Income Properties
Acquisitions During 2014
Capital Expenditures on Income Properties
Mortgages and Loans Receivable
Capital Structure
Debt and Leverage Metrics
Debt
Revolving Lines of Credit
Debentures Payable
Joint Operations and Partnership Activities
Properties Under Development
Development Property Acquisitions
Development Pipeline Summary
86
89
91
94
105
105 RELATED PARTY TRANSACTIONS
106 CAPITAL STRATEGY AND RESOURCES
107
107
108
109
109
110
111
111
113
114
114
115
116
116
118 SELECTED QUARTERLY CONSOLIDATED INFORMATION
118 SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
119 FUTURE CHANGES IN ACCOUNTING POLICIES
120 CONTROLS AND PROCEDURES
121 RISKS AND UNCERTAINTIES
Aggregate Maturities
Trust Units
Preferred Units
Guarantees
Liquidity
Deferred Income Taxes
Distributions to Unitholders
Mortgages Payable and Lines of Credit - RioCan’s Interest
Hedging Activities
4
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26_27
MANAGEMENT’S DISCUSSION AND ANALYSIS
ABOUT THIS MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (MD&A) relates to the year ended December 31, 2014, which reflects the 12-month
period from January 1, 2014 to December 31, 2014 (2014). All references to “2013” refer to the 12-month period from January 1,
2013 to December 31, 2013. All references to "2012" refer to the 12-month period from January 1, 2012 to December 31, 2012.
All references to "Q4 2014" refers to the three months ended December 31, 2014 and all references to "Q4 2013" refers to the
three months ended December 31, 2013.
Unless the context indicates otherwise, all references to “RioCan” and "the Trust” in this MD&A refer to RioCan Real Estate
Investment Trust and its consolidated operations. All references to the Trust’s “units” refer collectively to RioCan common trust
units, Cumulative Rate Reset Preferred Trust Units, Series A (Preferred Units, Series A) and Cumulative Rate Reset Preferred
Trust Units, Series C (Preferred Units, Series C). All references to the Trust’s “unitholders” refer collectively to holders of RioCan
common trust units, holders of Preferred Units, Series A and holders of Preferred Units, Series C. All references to “Units” or
“Unitholders” refer to RioCan’s common trust units and holders thereof. All references to “Preferred Units” refer to the Preferred
Units, Series A and the Preferred Units, Series C. All references to “management” refer to the trustees and senior officers of
RioCan, unless otherwise stated.
This MD&A has been prepared with an effective date of February 12, 2015, and should be read in conjunction with the audited
annual consolidated financial statements for the years ended December 31, 2014 and 2013 (2014 Annual Financial Statements).
These documents, as well as additional information relating to RioCan, including RioCan’s Annual Information Form (AIF), can be
accessed at www.riocan.com and at www.sedar.com. Certain comparative amounts have been reclassified to conform to the
current period's presentation.
The Trust’s Audit Committee has reviewed and approved this document and, prior to its release, the RioCan Board of Trustees
(Board of Trustees) approved it, on the Audit Committee's recommendation.
FORWARD-LOOKING INFORMATION
Certain information included in this MD&A contains forward-looking information within the meaning of applicable Canadian
securities laws. This information includes, but is not limited to, statements made in “About RioCan”, “2014 Financial Highlights”,
“Outlook and Strategy”, “Asset Profile”, “Capital Strategy and Resources”, and other statements concerning RioCan’s objectives,
its strategies to achieve those objectives, as well as statements with respect to management’s beliefs, plans, estimates, and
intentions, and similar statements 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 MD&A 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 under “Risks and
Uncertainties” in this MD&A which could cause actual events or results to differ materially from the forward-looking information
contained in this MD&A. 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, occupancy levels and defaults; lease renewals and rental
increases; retailer competition; access to debt and equity capital; interest rate and financing risk; joint ventures and partnerships;
the relative illiquidity of real property; 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; management information systems; unitholder liability; income and indirect taxes; U.S. investments, property
management and foreign currency risk; and credit ratings.
RioCan currently qualifies as a real estate investment trust for tax purposes and intends to continue to qualify for future years.
The Income Tax Act (Canada) contains provisions which potentially impose tax on publicly traded trusts which qualify as specified
investment flow-through entities (the SIFT Provisions). However, the SIFT Provisions do not impose tax on a publicly traded trust
which qualifies as a real estate investment trust (REIT). Should RioCan no longer qualify as a REIT under the SIFT Provisions,
certain statements contained in this MD&A may need to be modified.
Other factors, such as general economic conditions, including interest rate and foreign exchange 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 in high growth and urban markets; access to
equity and debt capital markets to fund, at acceptable costs, future capital requirements and to enable the Trust to refinance
debts as they mature; and the availability of investment opportunities for growth in Canada and the U.S. For a description of
additional risks that could cause actual results to materially differ from management’s current expectations, see “Risks and
Uncertainties” in this MD&A and “Risks and Uncertainties” in RioCan’s AIF. Although the forward-looking information contained in
this MD&A 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 MD&A 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 MD&A. The forward-looking information contained in this MD&A is made as of the date of this MD&A,
and should not be relied upon as representing RioCan’s views as of any date subsequent to the date of this MD&A.
Except as required by applicable law, management undertakes no obligation to publicly update or revise any forward-looking
information, whether as a result of new information, future events or otherwise.
27
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
ABOUT RIOCAN
RioCan is an unincorporated “closed-end” trust governed by the laws of the Province of Ontario and constituted pursuant to a
declaration of trust dated November 30, 1993, as most recently amended and restated on June 5, 2013 (the Declaration). The
Units are listed on the Toronto Stock Exchange (TSX) under the symbol REI.UN. The Preferred Units, Series A and Preferred
Units, Series C are listed on the TSX under the symbols REI.PR.A and REI.PR.C, respectively.
Overview of the Business
RioCan is Canada’s largest REIT, with a total enterprise value of approximately $15.1 billion as at December 31, 2014. RioCan
owns and manages Canada’s largest portfolio of shopping centres, with ownership interests in a portfolio of 340 retail properties
in Canada and the United States (U.S.) combined, including 15 under development, containing an aggregate of 79.1 million
square feet as at December 31, 2014 (53.9 million square feet at RioCan’s interest).
RioCan’s Canadian portfolio, as of December 31, 2014, comprises 292 shopping centres, including grocery anchored, new format
retail, urban retail, mixed use, and non-grocery anchored centres. Of these properties, 199 are properties held through outright
ownership (195 income properties and 4 properties under development), while 93 centres, including 11 under development, are
co-owned with 22 partners through joint arrangements. RioCan’s primary joint arrangements in Canada are with Allied Properties
REIT (Allied), Canada Pension Plan Investment Board (CPPIB), Kimco Realty Corporation (Kimco), KingSett Capital (KingSett),
Tanger Factory Outlet Centers, Inc. (Tanger), and Trinity Development Group (Trinity). RioCan’s long-standing joint venture
partner, Kimco, represents the Trust’s largest Canadian joint venture partnership, comprising ownership of 46 income properties
and total assets of over $2.6 billion, on a 100% basis. For further details on the Trust’s joint venture relationships, refer to the
section entitled “Joint Operations and Partnership Activities.”
As of December 31, 2014, RioCan’s U.S. portfolio is comprised of 48 shopping centres, predominantly grocery anchored and new
format retail centres. All but one of these assets are 100% owned and operated by RioCan and this centre is held through a joint
venture arrangement with Kimco.
On January 15, 2015, Target Corporation (Target) announced plans to discontinue its Canadian operations through its indirect
wholly-owned subsidiary, Target Canada, and that it was utilizing the Companies’ Creditors Arrangement Act (Canada) (“CCAA”)
to wind down its operations. As at December 31, 2014, RioCan has 26 locations under lease with Target Canada representing
approximately 1.9% of RioCan’s total annualized rental revenue with an average remaining lease term of approximately 12.7
years. All but one of these leases are guaranteed through an indemnity arrangement with Target, generally for the lesser of (i)
the remaining term of each lease and (ii) ten years. The one lease that is not covered by the Target indemnity is guaranteed by
Walmart Canada.
Under IFRS, the fair value measurement of properties reflect conditions inherent at the measurement date, but not conditions
arising after the measurement date. Property valuation of these locations reflects inputs that market participants would consider
applicable as of the date of the valuation, including appropriate assumptions about future occupancy rates, but would not reflect
adjustments based on events arising after such date, such as the actual timing of departure of Target from the Canadian market
and its related CCAA proceedings. The aggregate IFRS fair value of the real estate properties where Target Canada occupies a
tenancy was reflected at December 31, 2014 at a value of approximately $2 billion. Consistent with past practice, RioCan will
seek to re-lease vacant spaces that are ultimately created by Target’s withdrawal from the Canadian market, which ability to re-
lease will be subject to certain risks, including with respect to the ability to release the vacant spaces (subject to the CCAA
proceedings), the timing of releasing and the terms of any such releasing which may or may not be more beneficial to RioCan
than the existing lease terms with Target Canada. Some of RioCan’s retail lease agreements include co-tenancy clauses which
allow the tenant to pay a reduced rent amount and, in certain instances, terminate the lease if RioCan fails to maintain certain
occupancy levels or retain certain anchor tenancies, including Target Canada. See "Risks and Uncertainties - Ownership of Real
Estate - Tenant Bankruptcies and Lease Renewals and Rental Increases."
As of the date hereof, management cannot reasonably estimate the future financial impact to RioCan of Target's decision to exit
the Canadian market for reasons including, but not limited to, the following: uncertainty with respect to the CCAA proceedings
relating to the liquidation and wind-down of Target Canada; uncertainty pertaining to the nature and timing of the sale of Target
Canada's real estate assets; and, more generally, the early stage of proceedings and communications amongst RioCan and its
advisors, Target, tenants, the Court and other stakeholders following the recent announcement of Target’s exit plan.
As such, the Trust has not adjusted any financial information contained in this MD&A related to the Target announcement or
presented any pro-forma information, as of the date hereof, and for the years ended December 31, 2014, 2013 and 2012.
The Trust’s purpose is to deliver to its Unitholders stable and reliable cash distributions that increase over the long term. The
Trust accomplishes this goal by following a core strategy of owning, operating, and developing (including redeveloping and
intensifying) retail properties consisting of all retail formats, as well as mixed use real estate (which includes retail, office and
residential). RioCan has grown its business by using prudent strategies, core competencies, conservative financial leverage and
capital management, long-term strategic partnerships and by adapting to trends in commercial real estate. Its investment strategy
is to focus on stable, lower risk, retail properties in either stable or high growth urban markets in order to create stable and, over
time, growing cash flows from the property portfolio.
At any given time, RioCan could be discussing the purchase of new properties or the disposition of existing properties,
purchasing or holding marketable securities of real estate related entities and/or negotiating joint venture arrangements related to
the acquisition, holding or development of real estate. Consistent with the foregoing, RioCan is regularly engaged in discussions
with respect to possible acquisitions of new properties, disposition of existing properties in RioCan's portfolio and other real
estate investment arrangements.
28
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Due to RioCan’s focus on major urban markets, RioCan has significant opportunities to redevelop and intensify urban properties.
These activities can significantly increase cash flows and value where additional density is created. These activities will lead to
increased ownership in urban mixed-use properties that will result in the development of residential property, as appropriate.
Depending on the circumstances, RioCan may own the residential component as rental properties, or decide to sell the density to
generate capital through transaction gains.
The specific retail assets in which RioCan currently invests are:
• New format retail centres
New format retail centres (or power centres) are large aggregations of dominant retailers grouped together at high traffic and
easily accessible locations. These unenclosed campus-style centres are generally anchored by supermarkets and/or junior
department stores and may include entertainment (movie theatres and restaurants) and fashion components.
• Neighbourhood convenience unenclosed centres
Neighbourhood convenience unenclosed centres are generally supermarket and/or junior department store anchored
shopping centres, typically comprising between 60,000 to 250,000 square feet of leasable area. Other tenants generally
include drug stores, restaurants, banks and other service providers.
• Enclosed shopping centres
Enclosed shopping centres are generally large retail complexes containing stores, restaurants and other facilities with interior
common areas with access to all retail units. Typically these centres have one or more anchor tenants and are located close
to or in larger population centres.
• Urban retail properties
Urban retail properties are high-quality, innovative, multi-level format retail centres located in major urban markets. The
centres are situated in high-density locations and may sometimes be part of a multi-use complex, thereby including office
space and/or a residential component as part of the property. The residential component includes either condominium
buildings and/or rental apartments.
• Outlet shopping centres
RioCan’s joint venture arrangement with Tanger introduced the outlet shopping centre concept to RioCan’s portfolio. Outlet
shopping centres provide an opportunity for customers to purchase directly from the manufacturer at substantial savings.
RioCan and Tanger own and are in the process of developing a number of outlet centres across Canada. The outlet centres
will be similar in concept and design to those within Tanger’s existing U.S. portfolio, which are characterized by a tenant mix
of leading designer and brand-name manufacturers having a typical size of approximately 300,000 to 350,000 square feet.
The locations of the planned centres are intended to be within close proximity to larger urban markets and tourist areas
across Canada.
PRESENTATION OF FINANCIAL INFORMATION AND NON-GAAP MEASURES
Presentation of Financial Information
Unless otherwise specified herein, financial results, including related historical comparatives, contained in this MD&A are based
on RioCan’s 2014 Annual Financial Statements, which have been prepared by management in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The Canadian dollar is
RioCan’s reporting currency for purposes of preparing the Trust’s 2014 Annual Financial Statements. Accordingly, all dollar
references in this MD&A are in Canadian dollars, unless otherwise specified herein.
Non-GAAP Measures
Consistent with RioCan’s management framework, the Trust uses certain measures to assess its financial performance that are
not generally accepted accounting principles (GAAP) measured under IFRS. These measures do not have any standardized
definition prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other reporting
issuers. 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 flows and profitability. RioCan’s management uses
these measures to aid in assessing the Trust’s underlying core performance and provides these additional measures so that
investors may do the same. Management believes that the non-GAAP measures described below, which supplement the GAAP
disclosures, provides readers with a more comprehensive understanding of management's perspective on RioCan's operating
results and performance.
The following discussion describes the non-GAAP measures RioCan uses in evaluating its operating results:
RioCan’s Interest
On January 1, 2013, RioCan changed its accounting policy for certain joint arrangements as required by IFRS 11, Joint
Arrangements. As a result, effective January 1, 2013, the Trust no longer proportionately consolidates certain joint arrangements
and now accounts for these investments using the equity method of accounting. All references herein to “consolidated” refer to
amounts as reported under IFRS. All references to “RioCan’s interest” refer to a non-GAAP financial measure representing
RioCan’s proportionate share of the financial position and results of operations of its entire portfolio, taking into account the
difference in accounting for joint ventures using proportionate consolidation versus equity accounting. Management considers
results presented on a proportionate basis to be a meaningful measure because it is consistent with how RioCan and its partners
manages the net assets and assesses operating performance of each of its co-owned properties. The Trust currently accounts
for certain of its investments in joint ventures and associates using the equity method of accounting (RioKim Montgomery JV LP
(Texas), Dawson Yonge LP (Canada), WhiteCastle New Urban Fund, LP and WhiteCastle New Urban Fund 2, LP).
29
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
For a reconciliation of the Trust’s results of operations and statement of financial position, please see "Results of Operations" in
this MD&A.
Funds From Operations (FFO)
FFO is a non-GAAP financial measure of operating performance widely used by the real estate industry. Congruent with the Real
Property Association of Canada’s (REALpac) intended use of FFO, RioCan considers FFO to be a meaningful measure of
operating performance as it adjusts for items included in IFRS net earnings that do not necessarily provide an accurate depiction
of the Trust’s past or recurring performance, such as unrealized changes in the fair value of real estate property, gains and losses
on the disposal of income properties, acquisition and disposition transaction costs and other non-cash items.
FFO should not be construed as an alternative to net earnings or cash flows provided by operating activities determined in
accordance with IFRS. RioCan’s method of calculating FFO is in accordance with REALpac’s recommendations but may differ
from other issuers’ methods and, accordingly, may not be comparable to FFO reported by other issuers.
During 2014, REALpac issued a revision to the November 2012 FFO definition, which adds adjustments for:
1) incremental leasing costs of full-time or salaried staff and related costs accounted for under IAS 17, Leases (IAS 17) which
were previously capitalized; and
2) property taxes expensed under International Financial Reporting Interpretations Committee Issue 21, Levies (IFRIC 21), for
which the Trust had previously recorded ratably over the relevant reporting periods to match the timing around which operating
costs were recovered from tenants. Please see "2014 Changes in Accounting Policy" for further details.
A reconciliation of IFRS net earnings attributable to unitholders (excluding the impacts of the adoption of IFRS 11, Joint
Arrangements and IFRIC 21) to FFO, can be found under “Results of Operations.”
Operating Funds From Operations (Operating FFO)
Operating FFO is a non-GAAP measure of operating performance representing the recurring cash flow generated through the
ownership and management of income properties or investments in arrangements or entities that generate their earnings through
the ownership and management of income properties. In addition to the adjusting items to arrive at FFO, Operating FFO also
excludes transaction gains and losses (net of tax) as well as expenditures related to development activities that, in management’s
view, form part of the costs of its development projects. RioCan considers Operating FFO to be a meaningful measure because it
adjusts for items included in FFO that management views as capital or transactional in nature and, therefore, not indicative of
RioCan's core income producing activities. Operating FFO is also a key measure of business performance that the Trust uses to
determine the level of its employee variable incentive-based compensation each year. There is no standard industry-defined
measure of Operating FFO. As such, RioCan’s method of calculating Operating FFO will differ from other issuers’ methods and,
accordingly, will not be comparable to such amounts reported by other issuers. Please see “Results of Operations” for a
calculation of Operating FFO.
Adjusted Funds From Operations (Adjusted FFO)
Adusted FFO is a non-GAAP financial measure of operating performance widely used in the real estate industry. Management
views Adjusted FFO (or "AFFO") as an alternative measure of cash generated from operations. Management also considers
AFFO generated as one of its inputs in determining the appropriate level of distribution to unitholders. Adjusted FFO is calculated
by adjusting Operating FFO for straight-line rent adjustments, non-cash compensation expenses, normalized costs for capital
expenditures, and leasing costs for maintaining shopping centres and current lease revenues.
Capital expenditures and leasing costs can vary widely from quarter to quarter due to the lease expiry profile, vacancies and
capital expenditure estimates due to the life cycle of the property resulting in volatility in Adjusted FFO. As well, the Trust reviews
capital spending levels based on the performance of the portfolio. For these reasons, normalized capital expenditures and leasing
costs have been estimated based on historical activity and management’s expectations on a normalized level of activity. Capital
expenditures are further discussed in “Capital Expenditures on Income Properties” indicating the Trust’s expectation of such
annualized expenditures.
In addition, non-recurring costs that impact operating cash flow may be adjusted. There is no standard industry-defined measure
of Adjusted FFO. As such, RioCan’s method of calculating Adjusted FFO will differ from other issuers’ methods and, accordingly,
will not be comparable to such amounts reported by other issuers. Please see “Results of Operations” for a calculation of
Adjusted FFO.
A reconciliation of cash flows provided by operating activities (an IFRS measure) to AFFO is presented under the section "Capital
Management - Distributions to Unitholders".
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
Adjusted EBITDA is a non-GAAP measure that is used as an input in several of the Trust’s debt metrics, providing information
with respect to certain financial ratios that the Trust uses in measuring its debt profile and assessing the Trust’s ability to satisfy
its obligations, including servicing its debt. Adjusted EBITDA is used in place of IFRS net earnings because it excludes major non-
cash items (including amortization and depreciation, unit-based compensation costs and fair value gains and losses on
investment properties), interest expense, transaction-related costs and other items that management considers non-operating in
nature. Please see “Capital Strategy and Resources - Capital Structure” for a reconciliation of Adjusted EBITDA to IFRS net
earnings and the debt metrics that utilize Adjusted EBITDA.
The Trust's definition of Adjusted EBITDA was amended in the first quarter of 2014 to exclude the impact of changes in
accounting related to the adoption of IFRIC 21, Levies and certain additional interpretative guidance pertaining to IAS 17, Leases.
Where applicable, prior period financial information has been restated by the Trust for comparative reporting purposes.
30
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Operating EBITDA
Operating EBITDA is a non-GAAP measure that is used by the Trust in the computation of certain debt metrics, providing
information with respect to certain financial ratios that the Trust uses in measuring its debt profile. In addition to the adjusting
items to arrive at Adjusted EBITDA as defined above, Operating EBITDA also excludes the impact to EBITDA of transaction gains
and losses as well as expenditures related to properties under development that, in management’s view, form part of the capital
cost of its development projects.
Net Consolidated Debt to Adjusted EBITDA
Net consolidated debt to adjusted EBITDA is a non-GAAP measure of the Trust's financial leverage calculated as RioCan's
average debt outstanding at the reporting period date (net of cash) divided by Adjusted EBITDA (as defined above).
Net Debt to Adjusted EBITDA
Net debt to adjusted EBITDA is a non-GAAP measure of the Trust's financial leverage calculated as RioCan's proportionate share
of average debt outstanding at the reporting period date (net of cash) divided by Adjusted EBITDA (as defined above).
Net Operating Debt to Operating EBITDA
Net operating debt to operating EBITDA is a non-GAAP measure of the Trust's financial leverage calculated as RioCan's
proportionate share of its average debt outstanding at the reporting period date (net of cash) less its proportionate share of debt
related to properties under development divided by Operating EBITDA (as defined above).
Net Operating Income (NOI)
NOI is a non-GAAP measure and is defined by RioCan as rental revenue from income properties less property operating costs.
NOI is an important measure of the income generated from the income producing real estate portfolio and is used by the Trust in
evaluating the performance of the portfolio, as well as a key input in determining the value of the portfolio. RioCan’s method of
calculating NOI may differ from other issuers’ methods and, accordingly, may not be comparable to NOI reported by other
issuers. Effective January 1, 2014, NOI excludes the impact of a change in accounting policy for the Trust's adoption of IFRIC 21,
Levies as it relates to the timing of the liability recognition of certain U.S. property taxes. Where applicable, prior period financial
information has been restated by the Trust for comparative reporting purposes.
Same Store NOI
Same store NOI is a non-GAAP financial measure used by RioCan to assess the period-over-period performance of the same
asset base having consistent leasable area in both periods, which includes the impact of acquisitions and dispositions on a pro
rata basis. To calculate same store NOI growth, NOI for the period is adjusted to remove the impact of straight-line rents, lease
cancellation fees, foreign exchange and other non-recurring items. Same store performance is a common measure of NOI growth
used by the retail industry. RioCan considers this a meaningful measure because it allows management to determine what
portion of its period-over-period rental income increase is attributed to rent growth and leasing activity.
The Trust's definition of same-store NOI was amended in first quarter of 2014 to exclude the impact of the changes in IFRS
accounting policy for the adoption of IFRIC 21 and IAS 17 as discussed above. Where applicable, prior period financial
information has been restated by the Trust for comparative reporting purposes.
Same Property NOI
Same property NOI is a non-GAAP financial measure that is consistent with the definition of same-store NOI above, except that
same property includes the NOI impact of redevelopment or expansion of assets within the real estate portfolio. Same property
performance is a meaningful measure of operating performance because it allows management to assess rent growth and
leasing activity of its portfolio on a RioCan property basis and the impact of capital investments.
Total Enterprise Value
Total enterprise value is a non-GAAP measure calculated as the sum of RioCan's total debt measured on a proportionate basis,
common unit market capitalization and preferred market unit capitalization.
2014 CHANGES IN ACCOUNTING POLICY
IFRIC 21
IFRIC 21 was issued by the IASB in May 2013 and provides guidance on accounting for levies in accordance with the
requirements of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. IFRIC 21 is effective for annual periods
commencing on or after January 1, 2014 and is applied retrospectively. IFRIC 21 clarifies that an entity recognizes a levy liability
when the activity that triggers payment occurs, as identified by the relevant legislation. It also clarifies that a levy liability is
accrued ratably over a reporting period only if the activity that triggers payment occurs over such period, in accordance with the
relevant legislation. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability
should be recognized before the specified minimum threshold is reached.
Property taxes are charged by a government in accordance with legislation and are based on underlying property value. As such,
property taxes are within the scope of IFRIC 21. In the majority of the U.S. municipalities in which the Trust operates (other than
in the State of Pennsylvania), the obligating event for property taxes is ownership of the property on January 1st of the year for
which the tax is imposed. A person (or entity) is not relieved of this obligation because it no longer owns the property or changes
its use during the period. As a result, the full liability to pay annual property taxes for the relative U.S. jurisdiction has been
recorded in the Trust's consolidated financial statements as at and for the year ended December 31, 2014 and 2013.
31
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Property tax legislation in various jurisdictions in Canada does not clearly define a single obligating event that gives rise to a
liability to pay annual property taxes. As such, at any date within the year, the only amount of property taxes that an owner can
reasonably estimate they are liable for is a pro rata estimate of annual property taxes based on the number of days of ownership.
Ratable recognition of property taxes in Canada, therefore, continues to be appropriate under IFRIC 21.
Prior to the adoption of IFRIC 21, the Trust recorded all property taxes ratably over the relevant reporting periods to match the
timing around which operating costs were recovered from tenants. Adoption of IFRIC 21 did not result in an impact to net
earnings because the Trust recorded an offsetting fair value adjustment in consideration of the fact that the fair value of a
property is adjusted for prepaid property taxes between a buyer and seller on property transactions. Adoption of IFRIC 21 also did
not result in any impact to fair value gains and losses on investment property or net operating income on a full year basis due to
the reversal of all accrued property taxes during first quarter of each of 2014 and 2013 over the remainder of each fiscal year.
Amendments to IAS 17
In March 2014, the IFRS Interpretations Committee ("IFRIC") issued a decision related to the meaning of "incremental costs"
within the context of IAS 17. IFRIC determined that internal costs, such as salary costs of full-time staff involved in negotiating
and arranging new leases, do not qualify as incremental costs within the context of IAS 17 and, therefore, should not be
capitalized as initial direct leasing costs. The Trust has recorded the associated expense as leasing costs, which are reported as
a separate line on the consolidated statement of earnings.
Impact of Accounting Changes
The following tables summarize the resulting impact of adoption of IFRIC 21 and the amendments to IAS 17 on the Trust's prior
period financial results:
(thousands of dollars)
Selected Statement of Earnings
Items for the three months ended
December 31, 2013
Property operating costs -
recoverable under tenant leases
Net operating income
Leasing costs
Earnings before fair value gains on
investment property, net and income
taxes
Fair value gain (loss) on investment
property, net
Consolidated
RioCan's Interest
As
reported
IFRIC 21
IAS 17 Restated
reported IFRIC 21
IAS 17 Restated
As
98,734
(3,398)
—
—
—
—
—
—
95,336
99,121
(6,049)
—
93,072
—
196,398
6,049
— 202,447
2,458
2,458
—
—
2,458
2,458
129,059
3,398
(2,458)
129,999
126,179
6,049
(2,458)
129,770
135,560
(3,398)
2,458
134,620
137,699
(6,049)
2,458
134,108
Net earnings
265,489
—
— 265,489
264,748
—
— 264,748
(thousands of dollars)
Selected Statement of Earnings
Items for the year ended
December 31, 2013
Property operating costs -
recoverable under tenant leases
Net operating income
Leasing costs
Earnings before fair value gains on
investment property, net and income
taxes
Fair value gain on investment
property, net
Net earnings
As
reported
375,797
—
—
492,447
220,641
713,368
Consolidated
RioCan's Interest
IFRIC 21
IAS 17 Restated
reported IFRIC 21
IAS 17 Restated
As
—
—
—
—
—
—
— 375,797
388,683
—
—
757,889
7,768
7,768
—
(7,768)
484,679
480,368
7,768
228,409
228,803
— 713,368
709,451
—
—
—
—
—
—
— 388,683
— 757,889
7,768
7,768
(7,768)
472,600
7,768
236,571
— 709,451
32
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
OPERATIONAL AND FINANCIAL INFORMATION
Operational Information
(thousands of square feet, except where otherwise noted)
As at and for the years ended
December 31,
Number of properties:
Income properties
Under development (i)
2014
2013
2012
US Canada
Total
US Canada
Total
US Canada
Total
48
—
277
15
325
15
47
—
277
16
324
16
50
—
283
11
333
11
Portfolio occupancy (committed)
97.1% 97.0% 97.0% 96.8% 96.9% 96.9% 98.1% 97.2% 97.4%
Net leasable area (NLA) at 100%*
13,379
58,677
72,056
13,295
57,929
71,224
13,579
60,962
74,541
Income property NLA at RioCan’s
interest:
Total portfolio
10,031
39,994
50,025
9,882
39,358
49,240
8,816
40,674
49,490
Average in place rent
$ 14.01
$ 16.69
$ 16.15
$ 13.83
$ 16.63
$ 16.08
$ 14.02
$ 16.07
$ 15.70
Completed developments during
the period ended
Acquired during the period ended
Dispositions during the period
ended (v)
Development pipeline upon
completion:
—
1,002
1,002
—
747
747
27
546
573
146
—
518
(472)
664
(472)
1,478
1,558
3,036
1,740
(479)
(2,784)
(3,263)
—
280
(245)
2,020
(311)
RioCan’s interest of project NLA
Total project NLA (ii)
—
—
3,896
7,021
3,896
7,021
—
4,910
4,910
— 10,500
10,500
—
—
4,910
9,948
4,910
9,948
Percentage of portfolio net rental
revenue derived from:
Six Canadian high growth
markets (annualized) (iii)
n/a
73.3% 73.3%
n/a
71.7% 71.7%
n/a
67.5% 67.5%
US market (annualized)
15.8%
n/a
15.8% 15.0%
n/a
15.0% 13.6%
n/a
13.6%
National and anchor tenants
(annualized)
85.9% 86.5% 86.4% 85.7% 86.3% 86.2% 86.3% 86.1% 86.1%
Largest tenant (annualized) (vi)
9.9%
4.7%
4.1% 10.1%
4.0%
3.7%
9.2%
4.9%
4.3%
Percentage of portfolio NLA anchored
or shadow anchored by grocery
stores
Number of employees (excluding
seasonal) (iv)
60.4% 72.4% 70.0% 60.1% 70.0% 69.8% 58.0% 70.5% 68.8%
747
710
624
* Includes retail owned anchors.
n/a Not applicable.
(i)
(ii)
(iii) The six Canadian high growth markets include the following: Calgary, AB; Edmonton, AB; Montreal, QC; Ottawa, ON (includes Gatineau region);
Includes active development projects.
Includes active and non-active projects in greenfield and urban intensification developments.
Toronto, ON; and Vancouver, BC.
(iv) Number of employees at December 31, 2014 includes 33 U.S.-based employees for RioCan’s U.S. management platform.
(v) During the year ended December 31, 2014, RioCan disposed of two excess density land parcels with no NLA.
(vi) During 2014, Loblaws acquired Shoppers Drug Mart. Upon closing, Loblaws became RioCan's largest tenant by gross revenue. Comparative
period information has not been restated for this transaction.
33
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Financial Information (i)
(millions of dollars, except where otherwise noted)
As at and for the year ended December 31,
Total revenue – Consolidated (ii)
Total revenue – RioCan’s interest (iii)
Increase in fair value of investment properties – Consolidated *
Increase in fair value of investment properties – RioCan’s interest * (iv)
Net earnings before taxes and fair value adjustment *
Net earnings attributable to unitholders
Net earnings per Unit attributable to common Unitholders – basic
Net earnings per Unit attributable to common Unitholders – diluted
Adjusted EBITDA (v) *
FFO (vi) *
FFO per Unit *
Operating FFO (vi) *
Operating FFO per Unit (vi) *
AFFO (vii) *
AFFO per Unit (vii) *
Distributions as a percentage of AFFO
Weighted average common Units outstanding – basic (in thousands)
Distributions to common Unitholders
Distributions to common Unitholders per Unit
Distributions per common Unit (annualized) (viii)
Distributions to common Unitholders net of distribution reinvestment plan
Distributions to common Unitholders net of distribution reinvestment plan per Unit (last twelve
months)
Common Unit issue proceeds under distribution reinvestment plan
Distribution reinvestment plan (DRIP) participation rate (ix)
(millions of dollars, except where otherwise noted)
As at
Total enterprise value (x)
Total assets – Consolidated
Total assets – RioCan’s interest (xi)
Debt ** – Consolidated
Debt ** – RioCan’s interest (xii)
Debt to total assets (net of cash) – Consolidated (xiii)
Debt to total assets (net of cash) – RioCan’s interest (xiii)
Debt to total enterprise value – Consolidated (xiv)
Debt to total enterprise value – RioCan’s interest (xiv)
Debt service coverage ratio – RioCan’s interest (xv)
Interest coverage ratio – RioCan’s interest (xvi)
Fixed charge coverage ratio – RioCan’s interest (xvii)
Net consolidated debt to Adjusted EBITDA (xviii)
Net operating debt to Operating EBITDA – RioCan’s interest (xix)
Unencumbered assets to unsecured debt (xx)
Unencumbered assets
Total unitholders’ equity
Common Units outstanding (in thousands)
Closing market price per common Unit
Common Units – market capitalization (xxi)
Preferred Units - Series A outstanding (in thousands)
Closing market price per Preferred Unit, Series A
Preferred Units - Series C outstanding (in thousands)
Closing market price per Preferred Unit, Series C
Preferred units – market capitalization (xxii)
2014
1,233
1,241
147
157
517
663
2.11
2.10
766
507
1.65
517
1.68
464
1.51
93.4%
307,910
434
1.41
1.41
313
1.02
121
27.9%
December 31,
2014
15,117
14,677
14,720
6,444
6,483
43.7%
43.8%
42.6%
42.9%
2.20
2.89
1.08
8.05
7.67
149%
2,776
7,868
315,986
26.43
8,352
5,000
25.32
5,980
25.95
282
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2013
1,153
1,195
228
237
485
709
2.30
2.29
746
471
1.56
492
1.63
447
1.48
95.3%
302,324
426
1.41
1.41
316
1.04
110
25.8%
December 31,
2013
13,794
13,530
13,554
5,959
5,988
43.9%
44.0%
43.2%
43.4%
2.10
2.83
1.06
7.52
7.24
142%
2,068
7,261
304,075
24.77
7,532
5,000
24.90
5,980
25.00
274
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2012***
1,073
1,114
868
905
491
1,344
4.59
4.57
702
427
1.47
440
1.52
402
1.39
99.3%
289,950
401
1.38
1.38
293
1.01
108
26.9%
December 31,
2012
14,274
12,619
12,888
5,451
5,717
42.4%
43.6%
38.2%
40.1%
1.98
2.69
1.04
7.00
7.09
104%
1,353
6,847
300,099
27.56
8,271
5,000
25.94
5,980
26.15
286
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
RioCan’s method of calculating non-GAAP measures may differ from other issuers’ methods and accordingly may not be comparable to such amounts
reported by other issuers.
34
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
(i) During the first quarter of 2013, RioCan changed its accounting policy for certain joint arrangements as required by the new standard IFRS 11
“Joint Arrangements”. As a result, the Trust no longer proportionately consolidates certain joint arrangements and now accounts for these
investments using the equity method of accounting. Where applicable, prior period financial information has been restated to reflect this change in
accounting policy. An analysis of RioCan’s consolidated financial position and results of operations plus its interests in the equity accounted for
investments’ financial position and results of operations may be found under “Results of Operations”.
(ii) Calculated as the sum of rental revenue, fees and other income and interest income (consolidated).
(iii) A non-GAAP measurement. Calculated as the sum of rental revenue, fees and other income and interest income, all at RioCan’s interest.
(iv) A non-GAAP measurement. Calculated as consolidated change in fair value of investment properties plus RioCan’s share of change in fair value
of investment properties for its equity accounted for joint arrangements less non-controlling interests’ share of change in fair value of investment
properties.
(v) A non-GAAP measurement. Adjusted EBITDA is defined as net earnings at RioCan’s interest before changes in fair value of income properties, net
interest expense and income taxes as well as other one-time adjustments. A reconciliation of Adjusted EBITDA to net earnings can be found under
“Capital Strategy and Resources”.
(vi) A non-GAAP measurement. A reconciliation to net earnings can be found under “Results of Operations”.
(vii) A non-GAAP measurement for which a reconciliation to AFFO from FFO can be found in RioCan’s discussion under “AFFO”.
(viii) Annualized amount is based on the latest quarter’s distribution.
(ix) RioCan’s DRIP ratio is defined as the ratio of Units that holders elect to participate in the DRIP to total Units outstanding.
(x) A non-GAAP measurement. Calculated by the Trust as debt at RioCan’s interest plus common Unit market capitalization plus total Preferred Unit
market capitalization.
(xi) A non-GAAP measurement. Calculated as consolidated assets of the Trust and adding back RioCan’s share of liabilities for its equity accounted
for joint arrangements and less non-controlling interests’ share of assets.
(xii) A non-GAAP measurement. Calculated as consolidated mortgages and debentures payable of the Trust plus RioCan’s share of mortgages and
debentures payable for its equity accounted for joint ventures less non-controlling interests’ share of mortgages and debentures payable.
(xiii) A non-GAAP measurement. Calculated as debt net of cash divided by total assets net of cash.
(xiv) A non-GAAP measurement. Calculated by the Trust as debt divided by total enterprise value.
(xv) A non-GAAP measurement. Debt service coverage is calculated on a rolling twelve month basis and is defined as Adjusted EBITDA divided by
total interest expense (including interest that has been capitalized) and scheduled mortgage principal amortization.
(xvi) A non-GAAP measurement. Interest coverage is calculated on a rolling twelve month basis and is defined as Adjusted EBITDA divided by total
interest expense (including interest that has been capitalized), prepared at RioCan’s interest.
(xvii) A non-GAAP measurement. Fixed charge coverage ratio is calculated on a rolling twelve month basis and is defined as Adjusted EBITDA divided
by total interest expense (including interest that has been capitalized) and distributions to common and preferred unitholders, prepared at
RioCan's interest.
(xviii) A non-GAAP measurement. Net consolidated debt to Adjusted EBITDA is calculated on a rolling twelve month basis and is defined as: the average
consolidated debt (net of cash) divided by Adjusted EBITDA.
(xix) A non-GAAP measurement. Net operating debt to Operating EBITDA is calculated on a rolling twelve month basis and is defined as the average
debt outstanding (net of cash) less debt related to property under development (both at RioCan’s interest) divided by Operating EBITDA (as found
under “Capital Strategy and Resources”).
(xx) Unencumbered assets to unsecured debt is defined as unencumbered assets at RioCan’s interest divided by unsecured debentures payable.
(xxi) A non-GAAP measurement. Calculated by the Trust as closing market price of the common Units trading on the Toronto Stock Exchange on the
respective period end dates, multiplied by the number of common Units outstanding at such date.
(xxii) A non-GAAP measurement. Calculated by the Trust as the aggregate of the closing market price of each series of preferred units trading on the
*
Toronto Stock Exchange on the respective period end dates, multiplied by the number of Preferred Units of such series outstanding at such date.
Effective January 1, 2014, the Trust changed its accounting policies for the treatment of certain property taxes and leasing costs pursuant to IFRIC
21 and IAS 17, respectively. Where applicable, prior period financial information has been restated for comparative reporting purposes. Please see
"2014 Changes in Accounting Policy" for further details.
** Debt is defined as the sum of mortgages payable, lines of credit, and debentures payable.
*** December 31, 2012 numbers were not restated for the "2014 Change in Accounting Policy".
n/a Not applicable.
35
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Top 50 Tenants – Total Portfolio
As at December 31, 2014, RioCan’s 50 largest tenants in Canada and the U.S., as measured by annualized gross rental
revenue, have the following profile:
Rank Tenant name
1
Loblaws/Shoppers Drug Mart (i)
2 Walmart
3
4
5
Canadian Tire Corporation (ii)
Metro/Super C/Loeb/Food Basics
Cineplex/Galaxy Cinemas
6 Winners/HomeSense/Marshalls/TJ Max
7
8
9
10
11
12
13
14
15
Target Corporation (iii)
Staples/Business Depot
Sobey's Inc.
Cara/Prime Restaurants
Giant Food Stores/Stop & Shop (Royal Ahold)
Future Shop/Best Buy
Dollarama
PetSmart
Reitmans/Penningtons/Smart Set/Addition-Elle/Thyme Maternity
16 Michaels
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
TD Bank
Bluenotes/Stitches/Suzy Shier/Urban Planet/West 49 (YM Inc.)
Lowes
GoodLife Fitness
Chapters/Indigo
The Bay/Home Outfitters
Sears
Old Navy/The Gap/Banana Republic
Ardene
LA Fitness
Rexall Pharma Plus
Liquor Control Board of Ontario (LCBO)
Bank of Montreal
Bank of Nova Scotia
Value Village
Bed Bath & Beyond
Leon's/The Brick
Bell/The Source
35 MTY Food Group Inc.
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Laura
CIBC
London Drugs
The Shoe Company
Subway
Golf Town
Pier 1 Imports
Jysk Linen
TDL Group (Tim Hortons)
Royal Bank of Canada
Gold's Gym
Ross Dress
Rona/Revy/Reno
BouClair
Office Depot/Office Max
Annualized
rental
revenue
Number
of locations
NLA
(in thousands)
Percentage of
total NLA
Weighted average
remaining lease term
(years)*
4.1%
3.7%
3.5%
3.1%
3.0%
2.7%
1.9%
1.6%
1.6%
1.5%
1.5%
1.5%
1.3%
1.2%
1.2%
1.0%
0.9%
0.9%
0.8%
0.7%
0.7%
0.7%
0.6%
0.6%
0.6%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.4%
0.4%
0.4%
0.4%
0.4%
0.4%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
0.3%
84
33
89
57
29
75
26
48
36
110
24
32
83
42
106
35
57
64
8
23
25
11
15
27
51
9
23
20
30
31
17
16
12
80
88
25
29
11
26
93
12
18
11
47
24
5
9
3
18
11
2,024
4,000
2,020
2,119
1,336
1,697
2,184
946
991
472
1,113
759
693
653
440
611
253
389
1,138
439
266
532
506
245
222
348
143
166
111
129
303
346
262
111
110
136
108
198
138
100
151
137
194
110
88
251
266
188
131
215
4.0%
8.0%
4.0%
4.2%
2.7%
3.4%
4.4%
1.9%
2.0%
0.9%
2.2%
1.5%
1.4%
1.3%
0.9%
1.2%
0.5%
0.8%
2.3%
0.9%
0.5%
1.1%
1.0%
0.5%
0.4%
0.7%
0.3%
0.3%
0.2%
0.3%
0.6%
0.7%
0.5%
0.2%
0.2%
0.3%
0.2%
0.4%
0.3%
0.2%
0.3%
0.3%
0.4%
0.2%
0.2%
0.5%
0.5%
0.4%
0.3%
0.4%
50.4%
1,858
30,488
60.9%
7.4
11.5
7.9
6.3
9.3
6.9
12.7
5.2
10.4
6.5
11.4
5.1
6.8
5.4
5.0
6.0
5.8
5.5
24.0
12.0
3.6
6.3
5.6
5.0
7.4
10.3
10.1
7.9
6.1
4.2
5.7
6.6
6.5
5.6
6.1
3.3
4.7
4.0
5.2
5.3
5.0
5.1
8.6
6.5
4.3
13.7
4.4
12.4
5.8
4.6
7.8
* Weighted average remaining lease term based on annualized gross rental revenue.
(i)
Loblaws/Shoppers Drug Mart includes No Frills, Fortinos, Zehrs and Maxi. During 2014, Loblaws acquired Shoppers Drug Mart. Upon closing,
Loblaws became RioCan's largest tenant by gross revenue. Comparative period information has not been restated for this acquisition.
(ii) Canadian Tire Corporation includes Canadian Tire, PartSource, Mark’s, Sport Mart, Sport Chek, Sports Experts, National Sports and Atmosphere.
(iii) On January 15, 2015, Target Corporation announced plans to discontinue its Canadian operations. See "About RioCan - Overview of the
business" on page 3 for further discussion.
36
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at December 31, 2014, the geographical diversification of RioCan’s total property portfolio is as follows:
Net leasable area (NLA) of the total portfolio at December 31, 2014
Annualized rental revenue denominated in Canadian dollars of the total portfolio at December 31, 2014
37
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Canadian Portfolio
As at December 31, 2014, the geographical diversification of RioCan’s Canadian property portfolio is as follows:
NLA of the Canadian portfolio at December 31, 2014
Annualized rental revenue of the Canadian portfolio at December 31, 2014
38
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at December 31, 2014, the diversification of RioCan’s Canadian property portfolio by property type is as follows:
NLA of the Canadian portfolio by property type at December 31, 2014
Annualized rental revenue of the Canadian portfolio by property type at December 31, 2014
The committed occupancy rate of the Canadian portfolio has remained relatively stable over the most recent eight quarters:
39
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Top 10 Tenants – Canadian Portfolio
As at December 31, 2014, RioCan’s 10 largest tenants in Canada, as measured by annualized gross rental revenue, have the
following profile:
Rank
Tenant name
1
2
3
4
5
6
7
8
9
Loblaws/Shoppers Drug Mart (i)
Canadian Tire Corporation (ii)
Walmart
Metro/Super C/Loeb/Food Basics
Cineplex/Galaxy Cinemas
Winners/HomeSense/Marshalls
Target Corporation (iii)
Sobey's Inc.
Cara/Prime Restaurants
10
Staples/Business Depot
Annualized
rental
revenue
Number of
locations
NLA
(in thousands)
Percentage of
total NLA
4.9%
4.3%
4.0%
3.9%
3.7%
3.1%
2.3%
1.9%
1.9%
1.7%
31.7%
84
89
28
57
29
69
26
36
110
41
569
2,024
2,020
3,119
2,119
1,336
1,537
2,184
991
472
810
5.1%
5.0%
7.8%
5.3%
3.3%
3.8%
5.5%
2.5%
1.2%
2.0%
16,612
41.5%
Weighted
average
remaining
lease term
(years)*
7.4
7.9
11.5
6.3
9.3
7.0
12.7
10.4
6.5
5.3
8.5
* Weighted average remaining lease term based on gross annualized rental revenue.
(i)
Loblaws/Shoppers Drug Mart includes No Frills, Fortinos, Zehrs and Maxi. During 2014, Loblaws acquired Shoppers Drug Mart. Upon closing,
Loblaws became RioCan's largest tenant by gross revenue. Comparative period information has not been restated for this acquisition.
(ii) Canadian Tire Corporation includes Canadian Tire, PartSource, Mark’s, Sport Mart, Sport Chek, Sports Experts, National Sports and Atmosphere.
(iii) On January 15, 2015, Target Corporation announced plans to discontinue its Canadian operations. See "About RioCan - Overview of the
Business" on page 3 for further discussion.
U.S. Portfolio
As at December 31, 2014, the geographical diversification of RioCan’s U.S. property portfolio is as follows:
NLA of the U.S. portfolio at December 31, 2014
40
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Annualized rental revenue of the U.S. portfolio by State at December 31, 2014
The committed occupancy rate of the U.S. portfolio for the most recent eight quarters is as follows:
Top 10 Tenants – U.S. Portfolio
As at December 31, 2014, RioCan’s 10 largest tenants in the U.S., as measured by annualized gross rental revenue, have the
following profile:
Rank
Tenant name
Annualized
rental
revenue
Number of
locations
NLA
(in thousands)
Percentage
of
total NLA
1
2
3
4
5
6
7
8
9
Giant Food Stores/Stop & Shop (Royal Ahold)
Best Buy
PetSmart
Michaels
Walmart
Ross Dress
Office Depot/Office Max
Market Street
Bed Bath & Beyond
10
Lowes
9.9%
3.7%
2.8%
2.6%
2.6%
2.0%
1.9%
1.9%
1.9%
1.7%
24
11
14
14
5
9
11
3
9
3
1,113
11.1%
359
295
291
880
266
215
193
237
476
3.6%
2.9%
2.9%
8.8%
2.6%
2.1%
1.9%
2.4%
4.7%
31.0%
103
4,325
43.0%
* Weighted average remaining lease term based on annualized gross rental revenue.
Weighted
average
remaining
lease term
(years)*
11.4
5.8
4.8
4.3
12.1
4.4
4.6
8.9
5.7
12.3
8.3
41
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
2014 FINANCIAL HIGHLIGHTS
(millions of dollars, except per unit amounts)
2014
2013
Three months ended
December 31,
Increase/
(Decrease)
Year ended
December 31,
2014
2013
Increase/
(Decrease)
Net earnings attributable to common and preferred
unitholders
Net earnings per Unit attributable to common
Unitholders – basic
Operating FFO
Operating FFO per Unit
Net earnings attributable to unitholders
Q4 2014
$
$
$
$
172
0.54
130
0.42
$
$
$
$
265
(35.1)% $
663
0.86
124
0.41
(37.2)% $
4.5 % $
2.4 % $
2.11
517
1.68
$
$
$
$
709
2.30
492
1.63
(6.5)%
(8.3)%
5.1 %
3.1 %
Net earnings attributable to common and preferred unitholders (presented on both an IFRS and RioCan interest basis) for the
fourth quarter of 2014 was $172 million compared to $265 million for the same period in 2013, representing a decrease of $93
million. This decrease, as explained on a RioCan interest basis, was primarily due to the following:
•
higher net operating income of $7.2 million mainly due to the following: acquisitions, net of dispositions (completed over the
last 12 months); additional income property NLA resulting from completion of development projects; Canadian and U.S.
same property NOI growth; higher U.S. realty tax recoveries of $1.8 million under IFRIC 21; and a $3.0 million higher foreign
currency gain from U.S. operations as compared to the same period in 2013;
higher fees and other income of $2.3 million due to higher investment income; offset by:
lower fair value gains of $96 million primarily due to reduced pace, on a relative basis, of capitalization rate compression in
major markets, and reduced valuations for certain properties located in secondary or tertiary markets. Net fair value gains on
investment property for the fourth quarter of 2014 were $38 million at RioCan's interest compared to $134 million for the
same period in 2013. Capitalization rates for the fourth quarter of 2014 decreased by nil and five basis points in Canada and
the U.S., respectively, compared to the same period in 2013;
lower interest income of $2.9 million due primarily to the impact of the settlement of certain mezzanine loans during the first
quarter of 2014 in connection with the acquisition of interests in three development projects;
higher general and administrative expenses of $1.8 million primarily due to increased information technology costs,
depreciation and amortization associated with RioCan's expanded ERP platform as well as headcount increases associated
with the increased complexity of operations and the inclusion of certain salary costs in 2014 that were previously capitalized
over the development phase of RioCan's ERP system project.
Net earnings attributable to common and preferred unitholders (presented on both IFRS and RioCan interest basis) for the year
ended December 31, 2014 was $663 million compared to $709 million for the same period in 2013, a decrease of $46 million.
This decrease, as explained on a RioCan interest basis, was primarily due to the following:
•
higher net operating income of $25 million primarily due to the following: acquisitions, net of dispositions (completed over the
last 12 months); additional income property NLA resulting from completion of development projects (including the Tanger
Cookstown expansion, Tanger Ottawa and The Stockyards openings); Canadian and U.S. same property NOI growth; and a
$10 million higher foreign currency gain from U.S. operations as compared to the same period in 2013;
higher fees and other income of $3.6 million due to an increase in investment income and financing fees on joint venture
projects earned during 2014, partially offset by lower development fees generated on joint venture projects;
lower interest expense of $7.0 million, net of $3.3 million unfavourable impact of foreign exchange;
lower transaction costs of $1.1 million due to lower property disposition activity during 2014 compared to 2013; and
lower expense associated with the early redemption of debentures of $12 million in the prior year; offset by:
lower fair value gains of $80 million primarily due to reduced pace, on a relative basis, of capitalization rate compression in
major markets, and reduced valuations for certain properties located in secondary or tertiary markets. Net fair value gains on
investment property for the year ended December 31, 2014 were $157 million at RioCan's interest compared to $237 million
for the same period in 2013. Capitalization rates for 2014 decreased by four and 26 basis points in Canada and the U.S.,
respectively, as compared to 2013.
lower interest income of $6.4 million due primarily to the impact of the settlement of certain mezzanine loans during the first
quarter of 2014 in connection with the acquisition of interests in three development projects;
higher general and administrative expenses of $7.2 million primarily due to the following: increased information technology
costs, depreciation and amortization associated with the launch of a new ERP platform in 2014; professional fees related to
the introduction of a new senior executive incentive compensation plan and consulting fees related to certain activities
undertaken to optimize the Trust's U.S. legal entity and tax structure; and headcount increases associated with the increased
complexity of operations and the inclusion of certain salary costs in 2014 that were previously capitalized over the
development phase of RioCan's ERP system project.
42
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
2014
•
•
•
•
•
•
•
•
•
•
•
MANAGEMENT’S DISCUSSION AND ANALYSIS
Operating FFO
Q4 2014
Operating FFO at RioCan’s interest for the fourth quarter of 2014 was $130 million or $0.42 per Unit compared to $124 million or
$0.41 per Unit for the fourth quarter in 2013, representing an increase of $6 million or 4.5%. On a per Unit basis, Operating FFO
increased by $0.01 per Unit or 2.4%. Please see the “Results of Operations - RioCan’s Interest” section of this MD&A.
The $6 million increase in Operating FFO at RioCan’s interest for the fourth quarter of 2014 compared to the same period in 2013
is primarily due to the following:
•
an increase in NOI from rental properties of $5.6 million, which includes the impact of the following items: acquisitions, net of
dispositions (completed over the last 12 months); additional income property NLA resulting from completion of development
projects; Canadian and U.S. same property NOI growth; and a $3.0 million higher foreign currency gain from U.S. operations
as compared to the same period in 2013;
higher fees and other income of $2.3 million due to higher investment income;
lower interest expense of $1.6 million driven by lower rates, net of $1.5 million unfavourable impact of foreign exchange;
partly offset by:
lower interest income of $2.9 million due primarily to the impact of the settlement of certain mezzanine loans during the first
quarter of 2014 in connection with the acquisition of interests in three development projects; and
an increase in general and administrative costs of $1.8 million primarily due to increased information technology costs,
depreciation and amortization associated with RioCan's expanded ERP platform as well as headcount increases associated
with the increased complexity of operations and the inclusion of certain salary costs in 2014 that were previously capitalized
over the development phase of RioCan's ERP system project.
•
•
•
•
2014
Operating FFO at RioCan’s interest for the year ended December 31, 2014 was $517 million or $1.68 per Unit, compared to $492
million or $1.63 per Unit for the same period in 2013, representing an increase of $25 million or 5.1%. On a per Unit basis,
Operating FFO increased by $0.05 per Unit or 3.1%. Please see the “Results of Operations - RioCan’s Interest” section of this
MD&A.
The $25 million increase in Operating FFO at RioCan’s interest for the year ended December 31, 2014 as compared to the same
period in 2013 is primarily due to the following:
•
an increase in NOI from rental properties of $25 million, which includes the impact of the following items: acquisitions, net of
dispositions (completed over the last 12 months); additional income property NLA resulting from completion of development
projects (including the Tanger Cookstown expansion, Tanger Ottawa and The Stockyards openings); Canadian and U.S.
same property NOI growth; and a $10 million higher foreign currency gain from U.S. operations as compared to the same
period in 2013; and
an increase in fees and other income of $3.6 million due to an increase in investment income and financing fees on joint
venture projects earned during 2014, partially offset by lower development fees generated on joint venture projects;
a decrease in interest expense of $8.4 million, net of $3.3 million unfavourable impact of foreign exchange; partly offset by:
lower interest income of $6.4 million due primarily to the impact of the settlement of certain mezzanine loans during the first
quarter of 2014 in connection with the acquisition of interests in three development projects; and
an increase in general and administrative costs of $7.2 million due primarily to increased information technology costs,
depreciation and amortization associated with the launch of a new ERP platform in 2014; professional fees related to the
introduction of a new senior executive incentive compensation plan and consulting fees related to certain activities
undertaken to optimize the Trust's U.S. legal entity and tax structure; and headcount increases associated with the increased
complexity of operations and the inclusion of certain salary costs in 2014 that were previously capitalized over the
development phase of RioCan's ERP system project.
•
•
•
•
2014 OPERATING HIGHLIGHTS
Q4 2014
RioCan has remained focused on its core portfolio and continues to execute its growth strategy through acquisitions and
development, along with organic growth. In addition, RioCan is selectively paring its portfolio in order to increase its focus on
major urban markets.
Occupancy
• Committed occupancy of 97.0% at December 31, 2014, as compared to 97.0% at September 30, 2014 and 96.9% at
•
December 31, 2013.
Economic occupancy (occupied NLA for which tenants are paying rent) of 96.0% at December 31, 2014, as compared to
96.0% at September 30, 2014 and 95.8% at December 31, 2013. The annualized rental impact once these tenants take
occupancy and commence paying rent is approximately $16 million.
Leasing
Rental rate increases on lease renewals continue to be positive, which is expected to contribute to future rental revenue growth.
Operationally, RioCan continues to experience strong demand for space by tenants, especially in the major urban markets.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
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RioCan’s revenue generated within Canada’s six major markets totalled 73.3% as at December 31, 2014 (73.3% at
September 30, 2014 and 71.7% at December 31, 2013).
Canada
During the quarter, RioCan renewed 603,000 square feet in the Canadian portfolio at an average rent increase of $2.45 per
square foot, representing an increase of 11.8% and a renewal retention rate of 85.0%.
U.S.
During the quarter, RioCan renewed 62,000 square feet in the U.S. portfolio at an average rent increase of $1.69 per square foot,
representing an increase of 7.1% and a renewal retention rate of 78.3%.
Change in NLA and Acquisitions and Dispositions Completed During the Quarter
Acquisitions and development activity during the fourth quarter led to an overall increase in owned NLA of 318,000 square feet to
50.0 million square feet, as compared to September 30, 2014. Compared to December 31, 2013, NLA has increased by 785,000
square feet or 1.6%. The following is a summary of acquisitions and dispositions during the quarter:
•
Acquired interests in three income properties in Canada totalling $62 million, representing 194,000 square feet of additional
NLA at a weighted average capitalization rate of 5.7%. $2 million of existing debt financing was assumed in connection with
the acquisitions.
Acquired interests in three development properties in Canada totalling $9 million. These acquisitions were completed free
and clear of financing.
•
• No dispositions of investment properties took place during the fourth quarter of 2014.
Acquisitions and Dispositions Completed During 2014
•
•
Acquired interests in ten income properties totalling $191 million (eight properties in Canada for $149 million and two
properties in the U.S. for $42 million) representing 664,000 square feet of additional NLA at a weighted average
capitalization rate of 5.9%. In connection with these acquisitions, RioCan assumed mortgage financing of $24 million on the
Canadian properties and arranged mortgage financing of US$5 million on a U.S. property.
Acquired interests in 11 development properties in Canada totalling $172 million. Included in this amount are acquisitions of
interests from Trinity for $117 million. RioCan acquired Trinity's 25% interest in each of The Stockyards in Toronto, Ontario
and McCall Landing in Calgary, Alberta, Trinity's 10% interest in East Hills in Calgary, Alberta and Trinity's 40% interest in the
Bathurst Street and College Street land assembly in Toronto, Ontario. The consideration received by Trinity was used to
repay, in full, the outstanding mezzanine financing principal and accrued interest in the amount of $82 million on the projects.
In connection with the acquisition of Trinity's interest in The Stockyards, RioCan assumed third-party mortgage financing of
$24 million, which was repaid during the year.
• Disposals of five properties in Canada for $53 million totalling NLA of approximately 472,000 square feet, primarily in the first
quarter.
Acquisitions and Dispositions Completed Subsequent to December 31, 2014
•
19 income property acquisitions in Canada totalling $82 million, at a weighted average capitalization rate of 5.5%.
• One development property in Canada for $3 million.
•
Five income property dispositions in Canada totalling $120 million, at a weighted average capitalization rate of 6.8%.
Acquisitions and Dispositions Under Contract
At any given time, RioCan could be discussing the purchase of new properties or the disposition of existing properties,
purchasing or holding marketable securities of real estate related entities and/or negotiating joint venture arrangements relating to
the acquisition, holding or development of real estate investments. There can be no assurance that any of these discussions will
result in a definitive agreement, and, if they do, what the terms or timing of any acquisition, investment or disposition would be.
RioCan expects to continue current discussions and actively pursue other acquisition, investment and disposition opportunities.
Committed
•
There are no committed investment property acquisitions or dispositions as at the date of this report.
Conditional
•
•
•
•
There are no income property acquisitions as at the date of this report.
There are no development property acquisitions as at the date of this report.
Land dispositions in Canada that would represent dispositions totalling $18 million.
The above transactions are in various stages of due diligence and while efforts will be made to complete these transactions,
no assurance can be given.
Pipeline
•
•
•
•
Income property acquisitions in Canada that would represent acquisitions totalling $445 million.
There are no development property acquisitions as at the date of this report.
Income property dispositions in Canada with a fair value as at December 31, 2014 calculated in accordance with IFRS of
$308 million.
Land dispositions in Canada with a fair value as at December 31, 2014 calculated in accordance with IFRS of $41 million.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
The above transactions are in various stages of negotiations and while efforts will be made to complete these negotiations,
no assurance can be given.
Development Projects Completed During 2014
During 2014, the Trust added approximately 1,002,000 square feet to its income producing NLA, which included the Stockyards
development, the expansion of Tanger Outlets Cookstown and the successful grand opening of the nearly 300,000 square foot
Tanger Outlet Ottawa shopping centre. Tanger Outlets Ottawa located in Kanata, Ontario is the first newly constructed outlet
centre between RioCan and Tanger and contains more than 75 designer stores. Other notable expansion and redevelopment
projects completed during the year included Collingwood Centre, Mississauga Plaza, Kennedy Commons and Niagara Falls
Plaza.
CAPITAL MANAGEMENT
RioCan ended the quarter with a consolidated cash position of $56 million with available undrawn operating facilities of $565
million. Net of cash, the Trust’s debt to total assets (at RioCan’s interest) at December 31, 2014 is 43.8% (December 31, 2013 -
44.0%).
Debt
Mortgages Payable
During the quarter, RioCan had new fixed rate term mortgage borrowings of $98 million. As at December 31, 2014, total
mortgages payable were $4.5 billion at RioCan's interest.
Debentures
On January 23, 2014, the Trust issued $150 million of Series U senior unsecured debentures, which mature on June 1, 2020 and
carry a coupon rate of 3.62%.
On May 30, 2014, the Trust issued $150 million of Series V senior unsecured debentures, which mature on May 30, 2022 and
carry a coupon rate of 3.746%.
On August 11, 2014, the Trust issued $100 million of Series V senior unsecured debentures, which was a re-opening of the May
30, 2014 Series V senior unsecured debentures issuance. The additional debentures carry the same coupon and maturity as the
original issuance, but were issued at a premium to par for gross proceeds of $101.07 million resulting in an effective rate of
3.587%, making the effective rate on the full $250 million of Series V debentures 3.682%.
On February 3, 2015, RioCan announced that it is issuing a notice of redemption to holders of its US$100 million 4.10% Series N
senior unsecured debentures due September 21, 2015 (the “Series N Debentures”), representing a redemption, in full, of all of
the currently outstanding Series N Debentures. The Series N Debentures will be redeemed on March 9, 2015, in accordance
with their terms, at a total redemption price of US$101.8 million, plus accrued and unpaid interest of US$1.9 million, up to but
excluding the redemption date.
On February 3, 2015, RioCan also announced that it is issuing a notice of redemption to holders of its $225 million 4.499% Series
O senior unsecured debentures due January 21, 2016 (the “Series O Debentures”), representing a redemption, in full, of all of the
currently outstanding Series O Debentures. The Series O Debentures will be redeemed on March 11, 2015, in accordance with
their terms, at a total redemption price of $231.8 million, plus accrued and unpaid interest of $1.4 million, up to but excluding the
redemption date.
On February 12, 2015, the Trust issued $300 million of Series W senior unsecured debentures, which mature on February 12,
2024 and carry a coupon rate of 3.287%. A portion of the net proceeds will be used by RioCan to repay indebtedness, including
the redemption of the Trust's $225 million Series O Debentures as described above, and the balance for general trust purposes.
Secured Operating Lines
As of February 12, 2015, RioCan's maximum borrowing capacity under its operating lines are as follows:
(in millions of dollars)
78
185
250
130
75
718
Spread (i)
BA’s/LIBOR +125 bps
BA’s/LIBOR +125 bps
BA’s/LIBOR +125 bps
BA’s/LIBOR +125 bps
BA’s/LIBOR +125 bps
Maturity
December 2015
December 2016 (ii)
November 2016 (ii)
June 2017 (ii)
June 2017 (ii)
(i)
Lines are available in Canadian or U.S. dollars. Canadian draws are priced off of BA’s or Prime and U.S. draws are priced off of U.S. Base Rate or
LIBOR.
(ii) Subject to meeting certain conditions, these loans can be extended for a further year on same terms and conditions.
During the year ended December 31, 2014, RioCan renegotiated an existing operating facility and added two new operating lines.
The existing facility was increased from $100 million to $130 million. The two new operating lines added during the year were the
$78 million facility and $75 million facility as shown in the above table having maturities of December 2015 and June 2017,
respectively. Both of these facilities have pricing similar to RioCan’s other operating lines. The $78 million operating line
represented a conversion of a non-revolving term loan into a revolving operating facility.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
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These lines provide an efficient and flexible source of liquidity for the Trust.
Unencumbered Assets
As at December 31, 2014, the Trust’s debt strategy has resulted in approximately 22.2% of its income properties being
unencumbered by debt on a NLA basis, providing RioCan with access to a pool of assets for obtaining additional secured debt.
The fair value of the unencumbered income property assets as of December 31, 2014 is estimated at approximately $2.5 billion,
comprising 89 properties, or 18.6% of the fair value of the Trust’s income properties as compared to 86 properties with a fair
value of $1.8 billion as at December 31, 2013. In addition to the unencumbered income property assets, the Trust has 11
unencumbered properties under development with a fair value of $295 million as at December 31, 2014, bringing the total fair
value of unencumbered assets to approximately $2.8 billion.
Equity
RioCan’s DRIP ratio is defined as the ratio of Units that holders elect to participate in the DRIP to total Units outstanding. The
Trust raised additional capital of $32 million and reported a DRIP ratio of 29.0% for the quarter.
On November 24, 2014, the Trust issued an aggregate of 4.8 million common trust units at a price of $26.25 per unit for
aggregate gross proceeds $126 million. Unit issue costs associated with the offering were $5 million.
OUTLOOK AND STRATEGY
RioCan’s strong operating performance provided by its dominant Canadian retail platform, coupled with its U.S. platform, has
facilitated its continued growth and position as a leading North American REIT with a retail focus. RioCan’s prudent management
of its balance sheet and access to capital has provided it with the ability to take advantage of opportunities in the current
economic environment through same store rental income growth, acquisitions, greenfield development, redevelopments and
asset intensification as well as investing in marketable securities of real estate related entities from time to time. RioCan conducts
these activities either on its own or through strategic joint ventures and partner relationships. RioCan will continue to seek
acquisitions in selected markets, with a focus on properties that meet the Trust’s investment criteria in both Canada and the U.S.
The Trust will continue to pursue a disciplined approach to the development of new properties and the redevelopment and
intensification of existing properties in Canada, with a focus on major urban markets. A new initiative to incorporate residential
intensification in the portfolio's transit oriented major market development properties will capitalize on opportunities for growth
through the addition of residential assets, both condominium and rental residential, into RioCan's property portfolio. RioCan will
also take advantage of dispositions in secondary and tertiary markets in order to recycle capital into developments and
acquisitions in higher growth major markets. Consistent with the foregoing, RioCan is regularly engaged in discussions with
respect to possible acquisitions of new properties, dispositions of existing properties in RioCan's portfolio and other real estate
investment arrangements involving potential strategic joint ventures or the purchasing and holding of marketable securities of real
estate related entities. There can be no assurance that any of these discussions will result in a definitive agreement, and, if they
do, what the terms or timing of any acquisition, investment or disposition would be.
The current economy is unsettled, with the price of oil creating uncertainty in certain markets dependent on the oil industry, and
European and emerging market economic issues causing significant concerns over the potential pace of the global economic
recovery. The pace of economic recovery in both Canada and the U.S. has diverged somewhat as U.S. economic growth has
been more favourable and continues to look to be more resilient. Both economies continue to face significant risks as volatility in
the capital and energy markets has increased. The recent decline in energy prices is expected to have a negative impact on
economic growth and the housing markets in Western Canada, and to a lesser extent in Texas, if energy prices remain
depressed. However, the potential decline in growth from low energy prices is expected to be at least partially offset by increased
consumer spending from energy savings. In addition, the decline in the Canadian dollar should contribute to improved economic
conditions in Canada's manufacturing and export dependent sectors.
Demand from tenants in the near term is expected to remain steady with continued upward pressure on rental rates within
Canada’s major markets. It remains uncertain, however, what the full impact of Target’s announcement to discontinue its
operations in Canada will have on rental rates and tenant demand. RioCan will continue to carefully monitor the status of these
locations for potential re-leasing opportunities throughout 2015. U.S. retailers considering expansion into Canada are doing so in
a much more cautious and selective basis in their location decisions.
The current Canadian interest rate environment remains favourable and is expected to remain so throughout 2015, noting the
recent Bank of Canada decision to lower its key overnight lending interest rate by 25 basis points. This will continue to provide
interest savings on the Trust's maturing debt. RioCan will continue to monitor both the economy and real estate markets with a
view to ensuring it has adequate access to capital, either by way of equity, debt, or selected asset dispositions to meet its
business requirements and maximize opportunities that may become available to it.
RioCan’s growth is expected to primarily come from organic growth from within the portfolio, along with asset intensification and
development in Canada.
Given the competitive nature of the acquisition market and limited supply of acquisitions that meet RioCan's criteria, it is not
currently expected that acquisitions will provide significant growth. The Trust is, however, taking advantage of this market
environment to dispose of non-core, lower growth assets in order to improve its position in Canada's six major markets. RioCan is
committed to remaining focused on its portfolio in order to preserve high occupancy levels through active management and
leasing, which allows RioCan to maintain a stable stream of cash flows from long term assets which increase in value. The focus
on active management led to RioCan’s decision to establish its own management platform in the U.S.. Overall, RioCan believes
that it is well positioned in the marketplace, due to the depth of its management team, its size, as well as its diversified and stable
portfolio, significant development pipeline, solid tenant base, flexible capital structure, and conservative borrowing practices.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
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For 2015:
Canada
•
•
•
•
•
•
Fundamentals in retail real estate in Canada are expected to remain steady, however there will be some disruption as a
result of Target's announced departure from Canada and other recent bankruptcies, which has created a more cautious
environment with retailers. The expected impact is difficult to estimate at this time, as many variables such as what will
happen to the vacant space along with the impact on neighbouring tenants are yet to be determined. We do expect that
there will be a negative impact in some markets, however, in certain situations there will be positive opportunities for
repositioning and increased rental revenues. The Canadian market benefits from concentrated retail tenants who generally
are financially strong, and a low level of development activity that is unlikely to create a supply imbalance.
The Trust will continue to review its portfolio with a view towards selective dispositions of properties where appropriate as a
further means of raising and recycling capital. The Trust evaluates the sale of selected assets as part of a process of actively
managing its portfolio and a means of increasing the portfolio weighting in the six major markets in Canada, which was
73.3% of its Canadian revenue as at December 31, 2014.
The Trust expects to realize organic growth from within the portfolio by way of contractual rental increases in existing leases,
additional rental income that can be achieved from positive rental spreads on lease renewals and the potential for positive
absorption in occupancy.
U.S.
• RioCan has established a management operating platform in the U.S. operating out of offices in Mount Laurel, New Jersey
•
and Dallas, Texas to manage the Trust’s assets that were previously managed by RioCan’s partners. RioCan’s operating
platform in the U.S. has provided a basis for RioCan to expand its reach in the U.S. and provide the ability to realize
additional economies of scale as the portfolio grows.
Fundamentals in the U.S. markets within which RioCan operates is expected to remain steady as the U.S. economy grows.
As a result of economic growth and little new supply over the past seven years, RioCan expects to continue to realize value
in the portfolio through the leasing of currently vacant space and through rental growth in the small shop spaces at these
centres.
Macro Economic and Market Trends
•
The economic recovery in Canada continues to be slow, which has impacted retail sales and tenant activity. This economic
environment, if it continues, may have an impact on the demand for retail space and rental rates. In addition, RioCan is
actively monitoring the impact of oil prices on market conditions in Alberta along with overall consumer spending in Canada
and the U.S.
The Trust has been closely monitoring the impact of the Canadian dollar relative to the U.S. dollar on its business over the
past year. In the near term, the Trust does not expect any significant direct impact other than the translation impact on U.S.
earnings and its net U.S. dollar denominated assets.
Interest expense savings derived from refinancing at current market interest rates are anticipated to continue due to the low
Canadian interest rate environment, which is expected to remain for the rest of 2015.
The Trust will continue to monitor the impact of online retail sales. RioCan believes that consumer trends will be towards
increasingly greater sales in enclosed malls and shopping centres. As well, it is anticipated that there will be a higher
proportion of sales generated from services versus products. Further, it is expected that existing retail models will be adapted
to integrated sales depots for online sales. RioCan is well positioned for these trends based upon the depth and breadth of
its portfolio, especially in urban markets. Grocery stores have been typically resilient against online sales and due to
RioCan’s strong portfolio of grocery anchored centres, the impacts are less severe.
Development Program
• Developments completed during 2014 along with future developments, are expected to contribute to Operating FFO growth.
Strong fundamentals arising from growth in certain cities with strong economic and population growth, such as the Greater
Toronto Area, and new retailers has allowed RioCan to increase its development activities. RioCan’s joint venture with
Tanger for the development of outlet shopping centres in Canada and RioCan’s urban focused joint venture with Allied
further expand the potential development and intensification opportunities available across multiple retail formats.
• Going forward, substantial activity and growth will be seen through a variety of formats in development and redevelopment of
existing properties. Overall development spending, at RioCan’s interest, over the next three years will range from $150 to
$250 million per year. RioCan’s development pipeline is expected to add approximately 7.0 million square feet (3.9 million
square feet at RioCan’s interest) of space upon completion over the next six years, with the majority of forecasted yields
ranging from 6% to 10%. RioCan is committed to property development and redevelopment opportunities and is focused on
completing the development pipeline currently underway. Development activity is primarily concentrated in the six high
growth markets in Canada and serves as an important component of RioCan’s organic growth strategy. The markets of
Toronto, Calgary and Ottawa are a principal focus for development and intensification efforts where strong economic and
population growth have afforded RioCan the opportunity to increase its development activity.
In addition to RioCan’s development program, the Trust contributes to portfolio growth through the intensification of existing
properties. Within its portfolio, RioCan has identified strategic opportunities to increase density or add to an existing asset,
particularly residential intensification at the Trust's transit oriented developments. This intensification of existing properties
contributes to NOI growth in an efficient manner, leveraging the existing asset base.
•
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Acquisitions and Dispositions
• RioCan has noted that there is currently greater competition for acquisitions as there exists a significant number of well-
capitalized and high net worth investors seeking quality investments, especially due to the current low interest rate
environment. Management will continue to maintain a disciplined approach to evaluating acquisition opportunities, while
likely not at the same pace as the previous four years.
• RioCan will continue its focus on the enclosed mall and urban retail segment, particularly in major markets, as a means of
•
•
leveraging its retail tenant base across Canada. There are additional opportunities for organic growth within the acquired
shopping centres, which RioCan believes it can realize with its deep infrastructure and management strength.
The Trust has selected two geographic areas of focus for acquisitions in the U.S. - the northeastern U.S. region and the four
major urban markets in Texas (Dallas-Fort Worth, Houston, Austin and San Antonio), which offer a complementary mix of
tenants to RioCan’s Canadian portfolio of largely nationally branded tenants.
The acquisitions that have been completed during the quarter and over a trailing 12 month basis, net of the impact of the
Trust's dispositions program, will contribute to RioCan’s Operating FFO growth. At the present time, RioCan anticipates the
relatively slow pace of acquisitions to continue.
• RioCan continues to evaluate its portfolio in order to selectively dispose of assets as a means of recycling capital, and also
to increase the portfolio weighting in the six major markets in Canada. During 2014, the Trust disposed of $53 million of
properties in Canada (year ended December 31, 2013 - $616 million of property dispositions in Canada). As part of actively
managing and improving the portfolio mix, RioCan will continue to identify properties for disposition, with $120 million already
disposed of to date in 2015.
Partner Relationships
The Trust will continue to capitalize on the strength of its partner relationships in Canada to acquire property, enhance RioCan’s
development projects, and generate additional income for its unitholders pursuant to arrangements where RioCan earns fees for
its services.
Capital Management Strategy
RioCan’s capital management framework limits the Trust’s maximum indebtedness to 60% of Aggregate Assets as defined by the
Declaration. RioCan remains focused on preserving a strong balance sheet and continuing to maintain substantial liquidity. Based
on the fair market value of its portfolio, its consolidated leverage ratio of 43.7% of Aggregate Assets is currently substantially
lower than the specified limit of 60%. Furthermore, RioCan believes it has sufficient unencumbered assets (approximately $2.8
billion as of December 31, 2014) and assets with low loan-to-value ratios that can be financed and/or refinanced to generate
capital to meet its capital requirements and grow its asset base. RioCan’s ability to access such financing is dependent on the
availability of debt in the market. A further source of capital is the Trust's distribution reinvestment and direct purchase plans.
Unitholder distributions reinvested through such plans result in the issuance of Units, as opposed to a cash outlay, thereby
providing an additional source of capital to fund RioCan’s activities.
RioCan has developed other metrics regarding debt and leverage that are tracked and disclosed on a quarterly basis to help
facilitate financial statement users’ and stakeholders’ understanding of RioCan’s leverage and its ability to service such leverage.
These metrics include net debt to adjusted EBITDA ratio, debt service coverage ratio, interest coverage ratio, fixed charge
coverage ratio and unencumbered assets to unsecured debt which are outlined in the “Capital Strategy and Resources” section
of this MD&A.
While having relatively low debt leverage exposure is important, the quality of the rental revenue available to service the Trust’s
debt and pay distributions to unitholders is equally important. The Trust strives to reduce its exposure to rental revenue risk in the
shopping centre portfolio through geographical diversification, staggered lease maturities, diversification of revenue sources
resulting from a large tenant base, avoiding dependence on any single tenant by ensuring no individual tenant contributes a
significant percentage of its gross revenue and ensuring a considerable portion of its rental revenue is earned from national and
anchor tenants geographic diversification (U.S. and Canada economy). In addition, RioCan staggers its debt maturities to reduce
its exposure to potential volatility in availability of debt and interest rate movements. RioCan is able to access multiple sources of
capital including, but not limited to, secured and unsecured debt, preferred units and Units, which provide the Trust with greater
flexibility in raising capital and to manage its overall cost of capital.
CORPORATE SOCIAL RESPONSIBILITY
Corporate responsibility continues to be an area of focus for RioCan as it endeavours to maintain its role as one of Canada’s
corporate leaders. RioCan’s corporate responsibility philosophy is based on three cornerstones: Environmental Responsibility,
Corporate Philanthropy, and Responsibility to Employees.
Occupational Health and Safety
RioCan is committed to the mental and physical health and safety of all our employees. Protecting our employees from injury,
occupational disease or workplace violence is a continuing objective. Managers and Supervisors are held accountable for the
health and safety of employees under their supervision and ensure that equipment, machinery and working areas are safe, and
that employees work in compliance with established safe work procedures. Workers receive training in their specific work tasks to
safeguard their health and safety. Training courses to learn how to protect themselves from electrical hazards, chemical hazards,
musculoskeletal disorders, slips, trips and falls are mandatory and occur during the employee orientation process and periodically
afterwards to promote that working safely is always recognized as a priority at RioCan.
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Programs, policies and training to support a worker’s mental health are also an important part of the RioCan safety philosophy.
Violence and Harassment in the Workplace, Emergency Preparedness and Employee Assistance Programs allow RioCan to
provide a safe work environment and ensure that everyone knows what to do in case of any emergency.
Compliance to RioCan’s health and safety standards is vigorously audited to verify that processes and policies set out by the
company are being adhered to. Daily, weekly, monthly and annual audits are completed by Supervisors and Managers and a
selection of property audits in every region are validated annually by certified auditors from the OHS&E Department.
Risk and Accident reduction is the core of the Occupational Health and Safety program at RioCan. As a result of the company’s
prevention programs, high level of safety compliance and a strong Early and Safe Return to Work Program the number of Lost
Time Accidents was reduced to zero for 2014.
Environment
RioCan continuously makes efficiency improvements in its property portfolio and works with its tenants to facilitate their energy
conservation needs, which contribute to lowered emissions and reduced energy use.
In addition, development projects are viewed through the lens of sustainable building with these factors being incorporated
wherever possible. RioCan has worked with tenants as they customize their space to include geothermal heating and cooling,
waste water collection and lower carbon footprint initiatives.
RioCan has also taken specific environmental initiatives at its properties such as the installation of recycling receptacles which
reduce the amount of waste generated at RioCan properties across Canada. RioCan YEC is among the properties that have
been certified BOMA BESt. RioCan has implemented a number of initiatives since acquiring the property at which its head office
is located, to improve the efficiency and environmental footprint of the building. The property was certified in 2009 and RioCan
continues to upgrade the property’s efficiency. The company also plans to erect a “Living Wall” on site which will symbolize our
commitment to the environment.
Burlington Mall was also certified BOMA BESt in 2014. RioCan's environmental initiatives resulted in an acknowledgment by the
City of Burlington in the form of the Mayor’s Sustainable Green Business Award.
Corporate Philanthropy
Corporate Philanthropy is a key facet of RioCan’s profile as a good corporate citizen and one that RioCan has always viewed as
a priority. RioCan regularly sponsors a number of charitable organizations with a focus towards children’s and medical charities.
RioCan views its participation in the community where it does business to be of great importance, whether it is through direct
financial contributions, the donation of space for use by charitable organizations, or through the time taken by its employees
through volunteering across Canada.
RioCan recognizes the importance of its dedication to the development of communities through civic involvement and the funding
of vital programs. RioCan believes that support in fundraising efforts returns long-lasting benefits to society, its employees, and
the Trust. In 2014, RioCan employees participated in a company-wide fundraising campaign for United Way. For fundraising,
employees participated in the Real Estate stair climb and a kick-off lunch and learn. In addition, RioCan’s corporate head office
and satellite office participated in the Hospital for Sick Children annual Toy drive in which employees contributed more than 1,000
toys to this cause. RioCan was also a proud supporter of several other non-profit organizations including the Heart & Stroke
Foundation, the Baycrest Foundation, the University Health Network, and Mount Sinai Hospital.
RioCan also sponsors a number of Educational Institutions with a focus towards Real Estate programs and Corporate Social
Responsibility events. RioCan participates in career fairs and networking events to educate youth about best practices and
workplace experiences.
Community Building Events
RioCan is committed to its communities in which it conducts business. In early 2015, RioCan will launch an anti-bullying
campaign called “Red Dot Safe Spot” declaring all RioCan properties bully free zones. This campaign will further demonstrate
RioCan’s commitment to creating a safe hub for our neighbors and customers by supporting youth at risk and by participating in
the fight to end bullying.
Responsibility to Employees
RioCan strives to provide its employees with a safe work environment, free from discrimination and harassment. RioCan has a
number of employee-focused initiatives that are designed to improve workplace satisfaction.
Continuing Education and Training Policy
RioCan recognizes that proactive training, development and education initiatives are instrumental in ensuring that our people
become more effective in their present positions, as well as preparing them for future advancement in the company. RioCan is
dedicated to providing equal opportunities to employees with respect to training, development and education endeavours,
through the provision of financial support. RioCan encourages employees to continue to develop their skills with tuition subsidies
for job-related courses, a variety of in-house and online training programs, and subsidies for professional accreditation.
Employees have a maximum of $2,000 per calendar year towards this initiative.
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Employee Assistance Program
RioCan provides an Employee Assistance Program (EAP) that is a confidential and voluntary support service that can help
employees resolve problems and challenges they may encounter in personal or professional life. This program is at no cost to the
employee. The EAP is available 24 hours a day, seven days a week for immediate, confidential help. Employees can receive the
support they need over the telephone, in person, online and through a variety of issue-based health and wellness resources.
Code of Conduct
All RioCan Personnel must conduct themselves according to the highest standards of integrity, which include respect for others,
ethical principles, honesty, trust, fairness, openness, objectivity, and seek to avoid even the appearance of improper behaviour.
Moreover, RioCan and RioCan Personnel owe a duty of good faith to each other in all of their dealings.
Fair and courteous treatment of tenants, fellow employees, suppliers and the public is mandatory. Honesty and trustworthiness
are essential components of all interactions on behalf of or in connection with RioCan. It is also essential that a professional
image be maintained at all times. RioCan Personnel must demonstrate a responsible attitude, appropriate demeanor and suitable
attire at all times.
RioCan’s Code of Business Conduct and Ethics (“Code”) requires trustees, officers and employees to serve high standards of
business and personal ethics in the conduct of their duties and responsibilities. Employees are required to complete a yearly
mandatory course to enhance understanding and ensure compliance.
Whistleblower Protection Policy
It is the responsibility of all trustees, officers and employees to comply with the Code and to report violations or suspected
violations in accordance with the Whistleblower Protection Policy. The Whistleblower Protection Policy is intended to encourage
and enable employees and others to raise serious concerns within RioCan. This Code reflects RioCan’s open door policy and
suggests that employees share their questions, concerns, suggestions or complaints with someone who can address them
properly without fear of retaliation. If an employee prefers to make an anonymous report, they can utilize the third-party
confidential reporting system that is available 24 hours a day 7 days a week.
Service Excellence
RioCan was recognized as one of the Top 100 Employers in the greater Toronto area for 2015. This special designation
recognizes the Greater Toronto employers that lead their industries in offering exceptional places to work. RioCan’s commitment
to work life balance was one of the areas it was recognized for.
RioCan’s Yonge and Eglinton Centre was recognized by the fire service department as being a model of how complex building
should be managed during an emergency situation. In-depth training programs are provided to stakeholders with a careful look at
best practices in emergency situations. RioCan provides a mixture of learning methodologies including classroom lectures,
interactive presentations, workshops, reading materials, one-on-one coaching and role-playing events to aid understanding and
ensure safety compliance. Designated fire wardens also receive specialized training to increase preparedness for a real
emergency.
All RioCan employees who reach a work anniversary milestone are rewarded with a custom designed RioCan pin
commemorating their years of service. RioCan believes it is of utmost importance to recognize longstanding employees for all the
contributions and efforts made throughout their employment.
Employee Benefits
RioCan provides a competitive Employee Group Insurance Benefits Plan to all full-time employees and part-time hourly
employees who work a minimum of 28 hour comprising of health and dental benefits, life insurance, retirement savings plan,
pension plan and an employee unit purchase plan (EUPP).
Employee Statistics
RioCan is committed to providing equal opportunities to all our employees and candidates alike. Our success is due to the
abilities of talented men and women from diverse backgrounds. As at December 31, 2014, RioCan’s workforce is comprised of
51.14% females and 48.86% males. At the Manager level, we have almost an equal amount of men and women occupying these
roles (50.9% females and 49.1% males). When assessing the gender representation for Manager Level and up, females
represent 41.4% of these positions.
OCCUPANCY
RioCan’s committed occupancy is 97.0% at December 31, 2014, as compared to 97.0% at September 30, 2014 and 96.9% at
December 31, 2013. Included in the occupancy rate is 512,000 square feet of NLA that has been leased but is not yet generating
rent, resulting in an economic occupancy rate of 96.0% (compared to 96.0% at September 30, 2014 and 95.8% at December 31,
2013), which represents the occupied NLA for which tenants are paying rent. The annualized rental impact once these tenants
take occupancy and commence paying rent is approximately $16 million.
During the quarter, RioCan renewed 603,000 square feet (2013 - 1,408,000 square feet) in the Canadian portfolio at an average
rent increase of $2.45 per square foot (2013 - $1.37 per square foot), representing an increase of 11.8% and a renewal retention
rate of 85.0%.
50
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Various operating and leasing metrics over the last eight quarters are as follows:
2014
2013
(thousands of square feet, millions of
dollars, except where otherwise noted)
Fourth
quarter
Third
quarter
Second
quarter
First
quarter
Fourth
quarter
Committed occupancy
Economic occupancy
NLA leased but not paying rent
Annualized rental impact
Retention rate – Canada (i)
% increase in average net rent per sq ft –
Canada
Retention rate – U.S.
% increase in average net rent per sq ft –
U.S.
97.0%
96.0%
512
97.0%
96.0%
488
96.9%
95.9%
520
96.8%
95.7%
519
96.9%
95.8%
542
$
15.7
$
15.5
$
15.3
$
13.0
$
14.0
$
Third
quarter
97.0%
95.5%
716
17.0
Second
quarter
First
quarter
96.7%
95.4%
642
97.0%
95.8%
615
$ 15.0
$ 15.0
85.0%
91.7%
88.8%
91.2% 97.0%
91.1%
95.9%
68.3%
11.8%
78.3%
12.9%
92.2%
13.9%
97.3%
7.0%
86.4%
8.8%
98.2%
11.2%
98.4%
12.0%
92.0%
13.4%
98.8%
7.1%
9.3%
7.0%
8.3%
4.8%
3.8%
4.3%
2.3%
Average in place rent
$ 16.15
$ 16.01
$ 16.00
$ 16.01
$ 16.08
$ 16.07
$ 15.77
$ 15.77
Same store growth (ii) – Canada
Same store growth (ii) – U.S.
0.6%
4.4%
1.9%
3.7%
2.0%
1.4%
3.1%
3.0%
2.7%
1.7%
2.2%
0.9%
0.6%
1.4%
0.1%
1.4%
(i)
The first quarter of 2013 includes impact of the vacancy of Zellers totalling 188,000 sq ft at 100% (100,500 sq ft at RioCan’s interest) during the
quarter. The first quarter of 2013 retention rate excluding Zellers was 81.1%. The retention rate represents the percentage of tenants who have
renewed their leases.
(ii) Refers to same store NOI growth on a year over year basis.
RioCan has consistently maintained high occupancy rates between 96.7% and 97.0% over the most recent eight quarters.
The historical portfolio occupancy rate broken down by property type is as follows:
(in percentages)
Canada
New format retail
Grocery anchored centre
Enclosed shopping centre
Non-grocery anchored centre
Urban retail
Office
Total Canada
U.S.
New format retail
Grocery anchored centre
Non-grocery anchored centre
Total U.S.
Total Portfolio
2014
2013
Fourth
quarter
Third
quarter
Second
quarter
First
quarter
Fourth
quarter
Third
quarter
Second
quarter
First
quarter
98.3
97.7
91.8
97.2
98.5
97.5
97.0
96.5
98.5
96.6
97.1
97.0
98.3
97.6
91.8
98.0
98.2
96.7
97.0
96.3
98.4
96.2
96.9
97.0
98.3
97.7
91.6
98.1
98.4
97.3
97.0
96.1
98.3
96.2
96.7
96.9
98.4
97.2
91.9
95.9
98.8
97.2
96.9
96.1
98.1
95.6
96.6
96.8
98.6
98.0
90.2
97.4
98.9
97.3
96.9
96.4
98.0
93.9
96.8
96.9
98.5
97.9
90.9
97.3
98.6
97.3
96.9
97.2
98.1
93.6
97.4
97.0
98.4
96.9
90.4
97.5
98.8
97.8
96.6
97.1
98.0
94.3
97.3
96.7
98.5
97.1
91.2
97.5
98.1
98.1
97.0
97.3
98.1
91.8
97.4
97.0
51
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Economic Occupancy
At December 31, 2014, RioCan’s committed occupancy rate of the total portfolio is 97.0% which includes 512,000 square feet of
NLA that has been leased but is not yet paying rent, resulting in an economic occupancy rate of 96.0%. A rent commencement
timeline for the NLA which has been leased but is not currently open is as follows:
(in thousands, except percentage amounts)
Total
Q1 2015
Q2 2015
Q3 2015
Q4 2015
2016
Square feet:
NLA commencing
Cumulative NLA commencing
% of NLA commencing
Cumulative % total
Average net rent:
Monthly rent commencing
Cumulative monthly rent commencing
% of rent for NLA commencing
Cumulative % total rent commencing
Small Shop Occupancy
512
512
138
138
27.0%
27.0%
181
319
35.4%
62.4%
$ 1,308 $
$ 1,308 $
365
365
$
$
483
848
$
$
27.9%
27.9%
36.9%
64.8%
76
395
14.8%
77.2%
177
1,025
13.5%
78.3%
$
$
34
429
6.6%
83.8%
103
1,128
7.9%
86.2%
83
512
16.2%
100.0%
180
1,308
13.8%
100.0%
$
$
At December 31, 2014, RioCan’s small shop committed occupancy rate for the total portfolio is 92.6% (December 31, 2013 -
92.3%). RioCan defines small shops as retail tenants with less than 10,000 square feet of NLA. The following is a breakdown of
total portfolio committed occupancy:
As at
Small Shop (<10,000 sqft)
Total
Leasing Activity
December 31, 2014
December 31, 2013
Canada
98.9%
93.2%
97.0%
U.S.
99.9%
88.9%
97.1%
Total
Portfolio
99.1%
92.6%
97.0%
Canada
98.8%
93.1%
96.9%
U.S.
99.7%
88.2%
96.8%
Total
Portfolio
99.0%
92.3%
96.9%
RioCan’s portfolio leasing activity during the three months and year ended December 31, 2014 are as follows:
(in thousands, except per sqft amounts)
Three months ended December 31,
Canada
New leasing
Renewals
U.S.
New leasing
Renewals
(i) Net rent is primarily contractual basic rent pursuant to tenant leases.
(in thousands, except per sqft amounts)
Year ended December 31,
Canada
New leasing
Renewals
U.S.
New leasing
Renewals
(i) Net rent is primarily contractual basic rent pursuant to tenant leases.
2014
2013
Square
feet
Average
net rent
per sqft (i)
Square
feet
Average
net rent
per sqft (i)
429 $
603 $
40 $
62 $
22.24
23.20
19.98
25.61
375 $
1,408 $
4 $
191 $
17.99
16.88
19.76
12.06
2014
2013
Square
feet
Average
net rent
per sqft (i)
Square
feet
Average
net rent
per sqft (i)
1,312 $
4,192 $
124 $
396 $
22.19
18.00
21.34
22.16
1,499 $
3,880 $
87 $
633 $
18.97
18.22
21.96
12.96
52
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Renewal Leasing
A summary of RioCan’s 2014 and 2013 renewal leasing is as follows:
(in thousands, except per sqft amounts)
2014 Full
year
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Square feet renewed:
Canada
U.S.
Average net rent per square foot:
Canada
U.S.
Increase in average net rent per square foot:
Canada
U.S.
Percentage increase in average net rent per square
4,192
396
18.00
22.16
1.84
1.60
$
$
$
$
603
62
23.20
25.61
2.45
1.69
$
$
$
$
1,133
115
17.57
20.11
2.01
1.71
$
$
$
$
1,174
159
18.50
22.17
2.26
1.44
$
$
$
$
1,282
60
15.47
22.53
1.02
1.73
$
$
$
$
1,408
191
16.88
12.06
1.37
0.55
$
$
$
$
foot:
Canada
U.S.
Retention rate:
Canada
U.S.
11.4%
7.8%
90.2%
93.4%
11.8%
7.1%
85.0%
78.3%
12.9%
9.3%
91.7%
92.2%
13.9%
7.0%
88.8%
97.3%
7.0%
8.3%
91.2%
86.4%
8.8%
4.8%
97.0%
98.2%
Including anchor tenants, the components of renewal activity for the quarter and year ended December 31, 2014 by geography is
as follows:
(in thousands, except per sqft amounts)
Renewals at market rental rates:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Percentage increase in average net rent per sqft
Renewals at fixed rental rate options:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Percentage increase in average net rent per sqft
Total:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Percentage increase in average net rent per sqft
For the three months ended
December 31, 2014
Canada
U.S.
For the year ended
December 31, 2014
Canada
U.S.
$
$
$
$
$
$
482
24.86
2.75
12.4%
121
16.55
1.26
8.2%
603
23.20
2.45
11.8%
$
$
$
$
$
$
29
28.05
1.39
5.2%
33
23.51
1.94
9.0%
62
25.61
1.69
7.1%
$
$
$
$
$
$
2,223
22.33
2.79
14.3%
1,969
13.11
0.76
6.2%
4,192
18.00
1.84
11.4%
$
$
$
$
$
$
242
20.99
1.57
7.4%
154
24.07
1.65
7.4%
396
22.16
1.60
7.8%
53
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Including anchor tenants, the components of renewal activity for the Canadian portfolio for the three months ended December 31,
2014 by property type are as follows:
(in thousands, except per sqft amounts)
Total
New
format
retail
Grocery
anchored
centre
Enclosed
shopping
centre
Non-grocery
anchored
centre
Urban
retail
Office
Renewals at market rental rates:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Renewals at fixed rental rate options:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Total:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Percentage increase in average net rent
per sqft
482
$ 24.86
$
2.75
121
$ 16.55
$
1.26
603
$ 23.20
$
2.45
218
24.57
2.68
93
19.30
1.34
311
23.00
2.28
$
$
$
$
$
$
$
$
$
$
$
$
87
22.20
2.87
$
$
104
28.39
2.04
—
— $
— $
26
6.84
1.05
87
22.20
2.87
$
$
130
24.02
1.84
$
$
$
$
$
$
34
19.01
1.48
33
6
$
$
30.02
$ 18.55
6.87
$
0.80
—
— $
— $
—
2
— $ 18.00
— $
—
34
19.01
1.48
33
8
$
$
30.02
$ 18.44
6.87
$
0.64
11.8%
11.0%
14.8%
8.3%
8.4%
29.7%
3.6%
Including anchor tenants, the components of renewal activity for the Canadian portfolio for the year ended December 31, 2014 by
property type are as follows:
(in thousands, except per sqft amounts)
Total
New
format
retail
Grocery
anchored
centre
Enclosed
shopping
centre
Non-grocery
anchored
centre
Urban
retail
Office
Renewals at market rental rates:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Renewals at fixed rental rate options:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Total:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Percentage increase in average net rent
per sqft
2,223
$ 22.33
$
2.79
1,969
$ 13.11
$
0.76
4,192
$ 18.00
$
1.84
950
22.68
2.78
863
16.32
0.97
1,813
19.65
1.92
$
$
$
$
$
$
$
$
$
$
$
$
588
20.78
2.51
589
10.98
0.17
1,177
15.88
1.34
$
$
$
$
$
$
473
23.40
2.90
315
9.27
1.60
788
17.74
2.38
$
$
$
$
$
$
93
21.81
3.18
24
9.00
1.50
117
19.24
2.84
$
$
$
$
$
$
70
49
29.46
$ 14.78
5.32
$
0.98
176
2
11.84
$ 18.00
0.11
$
—
246
51
16.81
$ 14.89
1.58
$
0.95
11.4%
10.8%
9.2%
15.5%
17.3%
10.4%
6.8%
54
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Including anchor tenants, the components of renewal activity for the U.S. portfolio for the three months ended December 31,
2014 by property type are as follows:
(in thousands, except per sqft amounts)
Renewals at market rental rates:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Renewals at fixed rental rate options:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Total:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Percentage increase in average net rent per sqft
Total
New format
retail
Grocery
anchored centre
Non-grocery
anchored centre
29
28.05
1.39
33
23.51
1.94
62
25.61
1.69
7.1%
$
$
$
$
$
$
24
28.67
1.15
31
23.36
1.87
55
25.62
1.56
6.5%
$
$
$
$
$
$
2
24.00
2.50
2
26.45
3.45
4
25.07
2.92
13.2%
$
$
$
$
$
$
3
26.13
2.37
—
—
—
3
26.13
2.37
10.0%
$
$
$
$
$
$
Including anchor tenants, the components of renewal activity for the U.S. portfolio for the year ended December 31, 2014 by
property type are as follows:
(in thousands, except per sqft amounts)
Renewals at market rental rates:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Renewals at fixed rental rate options:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Total:
Square feet renewed
Average net rent per sqft
Increase in average net rent per sqft
Percentage increase in average net rent per sqft
Tenant Vacancies
Total
New format
retail
Grocery
anchored centre
Non-grocery
anchored centre
242
20.99
1.57
154
24.07
1.65
396
22.16
1.60
7.8%
$
$
$
$
$
$
163
22.23
1.62
115
24.73
1.55
278
23.19
1.59
7.4%
$
$
$
$
$
$
75
18.17
1.46
39
21.92
1.91
114
19.45
1.61
9.0%
$
$
$
$
$
$
4
27.26
1.81
—
—
—
4
27.26
1.81
7.1%
$
$
$
$
$
$
RioCan strives to diversify its tenant base by location, by property type, by anchor type and by minimizing the degree of reliance
on any single tenant. In the regular course of business, RioCan will, however, encounter tenants that are subject to restructuring,
insolvency or bankruptcy activities. In most cases, rental revenue continues to be paid to RioCan by, or on behalf of, the tenant.
RioCan actively monitors such situations and, in those cases where vacancies result, RioCan endeavours to replace tenants as
quickly as possible at economically similar or better lease terms. Such vacancies will, in certain instances, give rise to rights for
adjacent tenants in the shopping centre that is the subject of the vacancy. Such right commonly referred to as a co-tenancy right,
allows co-tenants rights ranging from rent reductions to lease terminations.
2014 Vacancy Activity
(thousands of square feet)
For the three months ended December 31,
Total vacancies during the period (i)
Vacated space re-leased
(i) Excluding lease cancellation fees.
2014
2013
Total
201
49
RioCan’s
Interest
169
32
Total
235
91
RioCan’s
Interest
189
86
55
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
(thousands of square feet)
For the year ended December 31,
Total vacancies during the year (i)
Vacated space re-leased
(i) Excluding lease cancellation fees.
2014
2013
Total
1,220
492
RioCan’s
Interest
1,000
399
Total
1,460
711
RioCan’s
Interest
1,212
608
During the three months ended December 31, 2014, RioCan experienced vacancies of approximately 201,000 square feet, of
which RioCan’s interest was 169,000 square feet. The average gross rent on RioCan’s ownership interest was $31.16 per square
foot. Approximately 49,000 square feet of space vacated in Q4 2014 has been leased to new tenants, of which RioCan’s interest
was 32,000 square feet, at an average gross rent of $35.89 per square foot.
During the three months ended December 31, 2014, tenant vacancies for which lease cancellation fees of $0.2 million were
recognized by RioCan totalled 16,329 square feet of vacated NLA (14,931 square feet at RioCan’s interest) at an average net
rent of $21.63 per square foot ($22.01 per square foot at RioCan’s interest).
During the year ended December 31, 2014, RioCan experienced vacancies of approximately 1,220,000 square feet, of which
RioCan’s interest was 1,000,000 square feet. The average gross rent on RioCan’s ownership interest was $30.08 per square
foot. Approximately 492,000 square feet of space vacated in 2014 has been leased to new tenants, of which RioCan’s interest
was 399,000 square feet, at an average gross rent of $31.48 per square foot.
During the year ended December 31, 2014, tenant vacancies for which lease cancellation fees of $4.9 million were recognized by
RioCan totalled 258,919 square feet of vacated NLA (218,359 square feet at RioCan’s interest) at an average net rent of $12.04
per square foot ($12.39 per square foot at RioCan’s interest). The lease cancellation fees include a $2.5 million net termination
fee received from Big Lots on seven locations comprising 198,000 square feet.
On December 5th, 2014, fashion chain Mexx filed for creditor protection. Unsuccessful in trying to restructure its operations, Mexx
Canada has begun to liquidate all of its 95 stores across Canada. RioCan previously had 18 Mexx locations under lease, the
majority of which are located in primary markets. Of these 18 locations, 15 leases have been effectively disclaimed with the
remainder set to close by the end of the first quarter of 2015. In anticipation of these store closures, RioCan has started to
actively market these locations to various national retailers in order to replace the vacancy and minimize the disruption to rental
income.
In addition to Mexx, RioCan has experienced higher than typical store closures during the first quarter of 2015 including the Cash
Store (CCAA - 13 locations in RioCan’s Canadian portfolio comprising 15,000 square feet); Radio Shack (Chapter 11 - 7 locations
in RioCan’s U.S. portfolio comprising 17,000 square feet); Sony (ceasing operations - 2 locations in RioCan’s Canadian portfolio
comprising 9,000 square feet); and Jones New York (ceasing operations - 2 locations in RioCan’s Canadian portfolio comprising
19,000 square feet). While the Trust is confident that a large number of these locations will be assigned or re-leased to
replacement tenants, RioCan's outlook for the retail market remains cautious.
On January 15, 2015, Target announced plans to discontinue its Canadian operations. As at December 31, 2014, RioCan has 26
Target locations under lease representing approximately 1.9% of RioCan’s total annualized rental revenue with an average
remaining lease term of approximately 12.7 years. As of the date hereof, management cannot reasonably estimate the future
financial impact to RioCan of Target's decision to exit the Canadian market due to uncertainty with respect to the CCAA
proceedings relating to the liquidation and wind-down process and the early stage of such proceedings.
New Leasing
Canadian Portfolio
For the quarter ended December 31, 2014, approximately 429,000 square feet of space was leased at an average net rent of
$22.24 per square foot, compared to approximately 375,000 square feet of space that was leased at an average net rent of
$17.99 per square foot during the fourth quarter of 2013.
Approximately 1,312,000 square feet (including 148,000 square feet pertaining to space leased at development sites) of space
was leased in the Canadian portfolio during the year ended December 31, 2014 at an average net rent of $22.19 per square foot,
compared to approximately 1,499,000 square feet of space that was leased at an average net rent of $18.97 per square foot
during the year ended December 31, 2013.
56
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
A summary of RioCan’s 2014 and 2013 new leasing on the existing Canadian portfolio by property type is as follows:
(in thousands, except per sqft amounts)
Square feet leased:
New format retail
Grocery anchored centre
Enclosed shopping centre
Non-grocery anchored centre
Urban retail
Office
Total
Average net rent per square foot:
New format retail
Grocery anchored centre
Enclosed shopping centre
Non-grocery anchored centre
Urban retail
Office
Total
U.S. Portfolio
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
2014 Full
year
538
263
283
36
172
20
1,312
178
56
71
3
114
7
429
161
56
73
19
10
8
86
67
41
6
48
3
113
84
98
8
—
2
327
251
305
$
22.23 $
19.77 $
20.46 $
28.88 $
23.54 $
17.18
24.59
15.99
27.91
14.71
18.82
26.35
22.00
25.88
10.93
17.42
23.95
12.91
36.61
15.73
20.14
42.39
22.90
30.84
17.03
13.55
16.36
15.90
—
20.00
$
22.19 $
22.24 $
20.65 $
28.82 $
18.30 $
153
109
43
9
59
2
375
13.78
16.94
25.67
20.24
24.93
19.00
17.99
For the quarter ended December 31, 2014, RioCan achieved approximately 40,000 square feet of new leasing in the U.S. at an
average rate of $19.98 per square foot. During the year ended December 31, 2014, RioCan achieved approximately 124,000
square feet of new leasing in the U.S. at an average rate of $21.34 per square foot.
A summary of RioCan’s 2014 and 2013 new leasing on the existing U.S. portfolio by property type is as follows:
(in thousands, except per sqft amounts)
2014 Full
year
Q4
2014
Q3
2014
Q2
2014
Q1
2014
Q4
2013
Square feet leased:
New format retail
Grocery anchored centre
Non-grocery anchored centre
Total
Average net rent per square foot (US dollars):
New format retail
Grocery anchored centre
Non-grocery anchored centre
Total
89
34
1
124
21.88
19.98
18.00
21.34
$
$
18
21
1
40
15
3
—
18
42
5
—
47
14
5
—
19
1
3
—
4
$ 22.92
$ 23.71
$ 19.77
$ 24.78
$ 22.00
17.54
18.00
28.16
26.43
19.74
18.50
—
—
—
—
$ 19.98
$ 24.39
$ 20.44
$ 23.44
$ 19.76
57
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Lease Expiries
RioCan’s lease expiries for the Canadian portfolio, at RioCan’s interest, by property type for the next five years are as follows:
(in thousands, except per sqft and
percentage amounts)
Square feet:
New format retail
Grocery anchored centre
Enclosed shopping centre
Non-grocery anchored centre
Urban retail
Office
Total
Square feet expiring/Portfolio NLA
Average net rent per occupied square foot:
New format retail
Grocery anchored centre
Enclosed shopping centre
Non-grocery anchored centre
Urban retail
Office
Total average net rent per square foot
Portfolio
NLA (i)
18,595
8,940
6,771
2,050
1,810
1,828
39,994
17.05
15.08
16.82
16.02
24.59
13.68
16.69
$
$
Lease expiries for the years ending
2015
2016
2017
2018
2019
1,576
960
895
255
67
196
3,949
9.9%
18.15
16.19
18.72
13.13
28.97
15.64
17.54
$
$
1,919
1,145
971
229
78
245
4,587
11.5%
17.45
15.91
18.81
15.09
25.83
16.00
17.30
$
$
1,596
1,240
564
88
113
197
3,798
9.5%
19.90
15.36
20.67
21.48
38.18
14.30
18.82
$
$
2,122
1,168
619
144
273
254
4,580
11.5%
19.03
15.53
16.46
19.70
17.63
15.30
17.52
$
$
2,498
1,363
628
165
276
220
5,150
12.9%
18.21
15.77
16.88
17.83
18.58
12.97
17.19
(i) Represents RioCan’s proportionate ownership share.
RioCan’s lease expiries for the U.S. portfolio, at RioCan’s interest, by property type for the next five years are as follows:
Portfolio
NLA (i)
7,110
2,685
236
10,031
(in thousands, except per sqft and
percentage amounts)
Square feet:
New format retail
Grocery anchored centre
Non-grocery anchored centre
Total
Square feet expiring/Portfolio NLA
Average net rent per occupied square foot
(US dollars):
New format retail
Grocery anchored centre
Non-grocery anchored centre
Lease expiries for the years ending
2015
2016
2017
2018
2019
539
169
27
735
7.3%
232
266
4
502
5.0%
507
205
18
730
7.3%
711
320
28
1,059
10.6%
1,238
247
42
1,527
15.2%
15.30
14.91
10.54
15.11
$
14.17
14.22
11.05
$
19.20
19.52
21.01
$
21.44
12.46
25.47
$
17.96
16.84
10.08
$
17.46
15.20
17.80
Total average net rent per square foot
14.01
$
19.34
$
16.70
$
17.45
$
16.79
$
(i) Represents RioCan’s proportionate ownership share.
58
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
The components of RioCan’s Canadian and U.S. lease expiries for 2015 by property type are as follows:
(in thousands, except per sqft
amounts)
2015 expiries at market rental
rates:
New
format
retail
Grocery
anchored
centre
Enclosed
shopping
centre
Total
Non-
grocery
anchored
centre
Urban
retail
Office
Square feet expiring
3,290
1,317
922
610
195
67
179
Average net rent per sqft
$
19.59 $
19.99 $
17.01 $
23.64 $
16.69 $
28.92 $
15.83
2015 expiries with fixed rental
rate options:
Square feet expiring
Average in-place net rent per sqft $
Average renewal net rent per sqft $
Increase in average net rent per
sqft
Total:
Square feet expiring
Average net rent per sqft
$
$
Contractual Rent Increases
1,396
13.65 $
14.61 $
798
15.82 $
16.92 $
208
15.30 $
16.06 $
285
8.16 $
8.84 $
87
7.66 $
8.87 $
1
35.00 $
35.00 $
17
13.59
13.94
0.96 $
1.10 $
0.76 $
0.68 $
1.21 $
0.00 $
0.35
4,686
2,115
1,130
895
282
68
196
17.82 $
18.41 $
16.69 $
18.72 $
13.90 $
28.97 $
15.64
Certain of RioCan’s leases allow for periodic increases in rates during the term of the leases which contributed to growth in same
store NOI. Contractual rent increases, including rent increases at time of renewal, in each year for the next five years are as
follows:
(in millions)
For the years ending
Canadian Portfolio
U.S. Portfolio
Net increase in contractual rent receipts
2015
2016
2017
2018
2019
$
$
8.0 $
1.5
9.5 $
6.0 $
1.1
7.1 $
5.5 $
1.0
6.5 $
5.9 $
1.1
7.0 $
5.5
0.9
6.4
59
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The following table shows the Trust’s ownership interests in certain joint arrangements for the periods presented:
Partnership
RPAI (Texas)
Property
1890 Ranch
Alamo Ranch
Bear Creek
Bird Creek Crossing
Great Southwest Crossing
Riverpark Shopping Center I, II
Southpark Meadows (Phase I, II)
Suntree Square
RioKim/Dunhill (Texas)
Las Palmas Marketplace
RioKim Montgomery JV LP (Texas)
Montgomery Plaza
Dawson Yonge LP (Canada)
RioCan Centre Newmarket
Dunhill (Texas)
Sterling (Texas)
RioCan White Shield LP (White
Shield (Canada))
RPAI (Texas)
Arbor Park
Las Colinas Village
Lincoln Square
Louetta Central
Timber Creek
Cinco Ranch
Ingram Hills Shopping Center
White Shield Plaza
December 31, 2014
December 31, 2013
100%
100%
100%
100%
100%
100%
100%
100%
100%
80%
40%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
80%
40%
100%
100%
100%
100%
100%
100%
100%
60%
These properties were equity accounted for between January 1, 2013 and September 30, 2013. The RPAI (Texas) properties,
which show RioCan's interest at 100% at December 31, 2013 and December 31, 2014, were acquired from RPAI on October 1,
2013 and are fully consolidated as of October 1, 2013.
RioKim/Dunhill (Texas)
This property was accounted for under the equity method of accounting between January 1, 2013 and September 30, 2013.
RioCan acquired interests from both Dunhill and Kimco during October 2013 resulting in RioCan's 100% ownership of this
property.
RioKim Montgomery JV LP (Texas)
This is an 80/20 joint venture between RioCan and Kimco managed by Kimco and is accounted for under the equity method of
accounting.
Dawson Yonge LP (Canada)
This is a partnership between RioCan (40%), Marketvest Corporation (40%) and Dale-Vest Corporation (20%). This property has
been equity accounted for between January 1, 2013 and December 31, 2014.
Dunhill (Texas) and Sterling (Texas)
These properties were consolidated with a non-controlling interest allocation from January 1, 2013 to September 30, 2013. These
properties were fully consolidated from October 1, 2013 to December 31, 2014.
White Shield (Canada)
On February 3, 2014, RioCan entered into an agreement to purchase the remaining 40% equity interest in White Shield
(Canada).This property was consolidated with a non-controlling interest allocation from January 1, 2013 to February 3, 2014. This
property was fully consolidated from February 4, 2014 to December 31, 2014.
60
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Reconciliation of Net Earnings to Net Earnings at RioCan's Interest
The following tables provide a reconciliation from RioCan’s IFRS financial statements to RioCan’s financial statements utilizing its
proportionate interest in all of its portfolio investments.
(thousands of dollars)
Three months ended December 31, 2014
REVENUE:
Base rent
Percentage rent
Rent subject to tenants’ sales thresholds
Property taxes and operating cost recoveries
Lease cancellation fees
Rental revenue
PROPERTY OPERATING COSTS:
Recoverable under tenant leases
Non-recoverable from tenants
Other income
Share of net earnings in equity accounted joint ventures
Fees and other
Interest
Other expenses
Interest
General and administrative
Leasing costs
Foreign exchange loss
Demolition costs
Aborted deal costs
Transaction costs
RioCan’s Interest
in Equity
Accounted
Investments and
Joint Ventures (iii)
RioCan’s
Interest
(i)
Consolidated
(ii)
$
205,830 $
1,469 $
207,299
1,853
1,041
100,110
308,834
210
309,044
95,427
5,454
100,881
208,163
5,380
5,688
860
220,091
59,025
18,363
3,593
128
1,049
26
43
3
—
407
1,879
—
1,879
141
266
407
1,472
(5,380)
—
—
1,856
1,041
100,517
310,713
210
310,923
95,568
5,720
101,288
209,635
—
5,688
860
(3,908)
216,183
325
25
—
—
—
—
—
59,350
18,388
3,593
128
1,049
26
43
Earnings before fair value gains on investment property, net and
137,864
(4,258)
133,606
income taxes
Fair value gain on investment property, net
Deferred income tax recovery
Net earnings
Net earnings attributable to:
Common and preferred unitholders
Non-controlling interests
Net earnings per Unit attributable to common Unitholders – basic
Net earnings per Unit attributable to common Unitholders – diluted
Weighted average number of common Units outstanding – basic
(in thousands)
Weighted average number of common Units outstanding – diluted
(in thousands)
4,258
—
37,912
(250)
— $
171,768
— $
171,768
—
—
— $
171,768
$
$
$
$
$
33,654
(250)
171,768 $
171,768 $
—
171,768 $
0.54
0.54
312,002
312,589
(i) Represents RioCan’s proportionate share of the revenues and expenses of all of its portfolio investments. Effectively, this utilizes the accounting
joint venture methodology (proportionate consolidation) in place prior to the implementation of IFRS 11 which requires equity accounting for joint
ventures.
(ii) Represents RioCan’s consolidated statement of earnings prepared in accordance with IFRS.
(iii) Represents RioCan’s proportionate share of the revenues and expenses of its joint ventures that are accounted for on the equity basis
of accounting.
61
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
(thousands of dollars)
Year ended December 31, 2014
REVENUE:
Base rent
Percentage rent
Rent subject to tenants’ sales thresholds
Property taxes and operating cost recoveries
Lease cancellation fees
Rental revenue
PROPERTY OPERATING COSTS:
Recoverable under tenant leases
Non-recoverable from tenants
Other income
Share of net earnings in equity accounted joint ventures
Fees and other
Interest
Other expenses
Interest
General and administrative
Leasing costs
Foreign exchange loss
Demolition costs
Aborted deal costs
Transaction costs
Earnings before fair value gains on investment property,
net and income taxes
Fair value gain on investment property, net
Deferred income tax expense
Net earnings
Net earnings attributable to:
Common and preferred unitholders
Non-controlling interests
Net earnings per Unit attributable to common Unitholders
– basic
Net earnings per Unit attributable to common Unitholders
– diluted
Weighted average number of common Units outstanding
– basic (in thousands)
Weighted average number of common Units outstanding
– diluted (in thousands)
$
$
$
$
$
Adjustments
Non-
Controlling
Interests
(iii)
RioCan’s Interest
in Equity
Accounted
Investments and
Joint Ventures (iv)
RioCan’s
Interest
(i)
Consolidated
(ii)
$
794,068 $
(54) $
5,788 $
799,802
5,796
3,780
395,484
1,199,128
4,912
1,204,040
406,115
19,381
425,496
778,544
12,905
21,525
7,554
820,528
234,900
52,666
10,941
176
2,208
301
2,753
516,583
147,432
50
—
—
(37)
(91)
—
(91)
(41)
(2)
(43)
(48)
—
—
—
(48)
—
—
—
—
—
—
—
(48)
(659)
—
14
—
1,636
7,438
—
5,810
3,780
397,083
1,206,475
4,912
7,438
1,211,387
2,855
311
3,166
4,272
(12,905)
(11)
—
408,929
19,690
428,619
782,768
—
21,514
7,554
(8,644)
811,836
1,292
94
—
—
—
—
—
(10,030)
10,030
—
236,192
52,760
10,941
176
2,208
301
2,753
506,505
156,803
50
663,965 $
(707) $
— $
663,258
663,258 $
707
663,965 $
— $
(707)
(707) $
— $
663,258
—
—
— $
663,258
2.11
2.10
307,910
308,672
(i) Represents RioCan’s proportionate share of the revenues and expenses of all of its portfolio investments. Effectively, this utilizes the accounting
joint venture methodology (proportionate consolidation) in place prior to the implementation of IFRS 11 which requires equity accounting for joint
ventures.
(ii) Represents RioCan’s consolidated statement of earnings prepared in accordance with IFRS.
(iii) Represents the non-controlling interests’ proportionate share of the revenues and expenses for those joint ventures that have been consolidated.
(iv) Represents RioCan’s proportionate share of the revenues and expenses of its joint ventures that are accounted for on the equity basis
of accounting.
62
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
(thousands of dollars)
Three months ended December 31, 2013
REVENUE:
Base rent
Percentage rent
Rent subject to tenants’ sales thresholds
Property taxes and operating cost recoveries
Lease cancellation fees
Rental revenue
PROPERTY OPERATING COSTS:
Recoverable under tenant leases
Non-recoverable from tenants
Other income
Share of net earnings in equity accounted joint ventures
Fees and other
Interest
Other expenses
Interest
General and administrative
Leasing costs
Foreign exchange loss
Demolition costs
Aborted deal costs
Transaction costs
Earnings before fair value gains on investment
property, net and income taxes
Fair value gain on investment property, net
Deferred income tax expense
Net earnings
Net earnings attributable to:
Common and preferred unitholders
Non-controlling interests
Net earnings per unit attributable to common
unitholders – basic
Net earnings per unit attributable to common
unitholders – diluted
Weighted average number of common units
outstanding – basic (in thousands)
Weighted average number of common units
outstanding – diluted (in thousands)
$
$
$
$
$
Adjustments
RioCan’s
Interest in
Equity
Accounted
Investments
and Joint
Ventures (iv)
IFRIC 21
- Realty
Taxes
(v)
RioCan’s
Interest
(i)
Consolidated
(ii)
Non-
Controlling
Interests
(iii)
$
195,385 $
(226) $
1,102 $
— $
196,261
1,508
1,174
95,853
293,920
4,291
298,211
95,336
4,006
99,342
198,869
3,596
3,342
3,778
0
—
(112)
(338)
—
(338)
(148)
(8)
(156)
(182)
—
—
1
—
—
554
1,656
—
1,656
535
12
547
1,109
(3,596)
—
0
—
—
—
—
—
—
(2,651)
—
(2,651)
2,651
—
—
—
1,508
1,174
96,295
295,238
4,291
299,529
93,072
4,010
97,082
202,447
—
3,342
3,779
209,585
(181)
(2,487)
2,651
209,568
60,292
16,598
2,458
65
850
551
(1,228)
129,999
134,620
(870)
(63)
(1)
—
—
—
—
—
(117)
(624)
—
265,489 $
(741) $
264,748 $
741
265,489 $
— $
(741)
(741) $
248
28
—
—
—
—
—
—
—
—
—
—
—
—
60,477
16,625
2,458
65
850
551
(1,228)
(2,763)
2,651
129,770
2,763
(2,651)
134,108
—
— $
— $
—
— $
—
(870)
— $
264,748
— $
264,748
—
—
— $
264,748
0.86
0.85
303,544
304,272
(i) Represents RioCan’s proportionate share of the revenues and expenses of all of its portfolio investments. Effectively, this utilizes the accounting joint venture
methodology (proportionate consolidation) in place prior to the implementation of IFRS 11 which requires equity accounting for joint ventures.
(ii) Effective January 1, 2014, the Trust changed its accounting policies for treatment of certain U.S. property taxes and leasing costs pursuant to IFRIC 21 and
IAS 17, respectively. Where applicable, certain prior period balances have been restated for comparative reporting purposes. Please see "2014 Changes in
Accounting Policy" for further details.
(iii) Represents the non-controlling interests’ proportionate share of the revenues and expenses for those joint ventures that have been consolidated.
(iv) Represents RioCan’s proportionate share of the revenues and expenses of its joint ventures that are accounted for using the equity method of accounting.
(v) Represents RioCan's proportionate share of the IFRIC 21 adjustments related to the Trust's joint ventures that are accounted for under the equity method.
63
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Adjustments
RioCan’s
Interest in
Equity
Accounted
Investments
and Joint
Ventures (iv)
IFRIC 21
- Realty
Taxes
(v)
RioCan’s
Interest
(i)
Consolidated
(ii)
Non-
Controlling
Interests
(iii)
$
738,525 $
(3,166) $
34,759 $
— $
770,118
(thousands of dollars)
Year ended December 31, 2013
REVENUE:
Base rent
Percentage rent
Rent subject to tenants’ sales thresholds
Property taxes and operating cost recoveries
Lease cancellation fees
Rental revenue
PROPERTY OPERATING COSTS:
Recoverable under tenant leases
Non-recoverable from tenants
Other income
Share of net earnings in equity accounted joint ventures
Fees and other
Interest
Other expenses
Interest
Expense for early retirement of debentures
General and administrative
Leasing costs
Foreign exchange loss
Demolition costs
Aborted deal costs
Transaction costs
5,051
4,696
363,162
1,111,434
9,420
(73)
—
(1,108)
(4,347)
—
1,120,854
(4,347)
375,797
16,224
392,021
728,833
31,870
17,871
13,970
(1,398)
(62)
(1,460)
(2,887)
—
—
6
792,544
(2,881)
234,336
12,094
45,212
7,768
170
3,173
1,272
3,840
(971)
—
(46)
—
—
—
—
—
3
—
11,858
46,620
69
46,689
14,284
462
14,746
31,943
(31,870)
21
(18)
76
9,849
—
442
—
—
—
—
—
Earnings before fair value gains on investment
484,679
(1,864)
(10,215)
property, net and income taxes
Fair value gain on investment property, net
228,409
(2,053)
10,215
Deferred income tax expense
Net earnings
Net earnings attributable to:
Common and preferred unitholders
Non-controlling interests
Net earnings per unit attributable to common
unitholders – basic
Net earnings per unit attributable to common
unitholders – diluted
Weighted average number of common units
outstanding – basic (in thousands)
Weighted average number of common units
outstanding – diluted (in thousands)
$
$
$
$
$
(280)
—
713,368 $
(3,917) $
709,451 $
— $
3,917
(3,917)
713,368 $
(3,917) $
—
— $
— $
—
— $
2.30
2.29
302,324
303,260
—
—
—
4,981
4,696
373,912
— 1,153,707
—
9,489
— 1,163,196
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
388,683
16,624
405,307
757,889
—
17,892
13,958
789,739
243,214
12,094
45,608
7,768
170
3,173
1,272
3,840
472,600
236,571
(280)
— $
709,451
— $
709,451
—
—
— $
709,451
(i) Represents RioCan’s proportionate share of the revenues and expenses of all of its portfolio investments. Effectively, this utilizes the accounting joint venture
methodology (proportionate consolidation) in place prior to the implementation of IFRS 11 which requires equity accounting for joint ventures.
(ii) Effective January 1, 2014, the Trust changed its accounting policies for treatment of certain property taxes and leasing costs pursuant to IFRIC 21 and IAS
17, respectively. Where applicable, prior period financial information has been restated for comparative reporting purposes. Please see "2014 Changes in
Accounting Policy" for further details.
(iii) Represents the non-controlling interests’ proportionate share of the revenues and expenses for those joint ventures that have been consolidated.
(iv) Represents RioCan’s proportionate share of the revenues and expenses of its joint ventures that are accounted for using the equity method of accounting.
(v) Represents RioCan's proportionate share of the IFRIC 21 adjustments related to the Trust's joint ventures that are accounted for under the equity method.
64
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Reconciliation of Balance Sheet to Balance Sheet at RioCan's Interest
The following tables provide a reconciliation from RioCan’s IFRS financial statements to RioCan’s financial statements utilizing its
proportionate interest in all of its portfolio investments.
(millions of dollars)
As at December 31, 2014
ASSETS
Investment properties
Investments in associates and joint ventures
Mortgages and loans receivable
Deferred tax assets
Receivables and other assets
Cash and equivalents
Total assets
LIABILITIES
Mortgages payable and lines of credit
Debentures payable
Accounts payable and accrued liabilities
Total liabilities
EQUITY
Preferred unitholders’ equity
Common unitholders’ equity
Total unitholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
RioCan’s Share of
Equity Accounted
Investments and
Joint Ventures
(ii)
81 $
(63)
—
—
22
3
43 $
39 $
—
4
43 $
— $
—
—
—
—
Consolidated
(i)
14,040 $
63
136
9
373
56
14,677 $
4,587 $
1,857
365
6,809 $
265 $
7,603
7,868
—
7,868
14,677 $
43 $
$
$
$
$
$
$
RioCan’s
Interest
(iii)
14,121
—
136
9
395
59
14,720
4,626
1,857
369
6,852
265
7,603
7,868
—
7,868
14,720
(i) Represents RioCan’s consolidated balance sheet prepared in accordance with IFRS.
(ii) Represents RioCan’s proportionate ownership interest in assets and liabilities of all of its portfolio investments. Effectively, this utilizes the
accounting joint venture methodology (proportionate consolidation) in place prior to the implementation of IFRS 11 which requires equity
accounting for joint ventures.
(iii) Represents RioCan’s consolidated balance sheet prepared in accordance with IFRS inclusive of its proportionate share of the assets and liabilities
of its joint ventures that are accounted for using the equity method of accounting.
65
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Adjustments
(millions of dollars)
As at December 31, 2013
ASSETS
Investment property
Investments in associates and joint ventures
Mortgages and loans receivable
Deferred tax assets
Receivables and other assets
Cash and equivalents
Total assets
LIABILITIES
Mortgages payable and lines of credit
Debentures payable
Accounts payable and accrued liabilities
Total liabilities
EQUITY
Preferred unitholders’ equity
Common unitholder’ equity
Total unitholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
$
$
$
$
$
$
Consolidated
(i)
Non-controlling
interests
(ii)
13,062 $
(11) $
36
248
9
136
39
13,530 $
4,512 $
1,447
299
6,258 $
265 $
6,996
7,261
11
7,272
13,530 $
—
—
—
—
—
(11) $
— $
—
—
— $
— $
—
—
(11)
(11)
(11) $
RioCan’s Share
of Equity
Accounted
Investments and
Joint Ventures
(iii)
68 $
(36)
—
—
1
2
35 $
29 $
—
6
35 $
— $
—
—
—
—
35 $
RioCan’s
Interest
(iv)
13,119
—
248
9
137
41
13,554
4,541
1,447
305
6,293
265
6,996
7,261
—
7,261
13,554
(i) Represents RioCan’s consolidated balance sheet prepared in accordance with IFRS.
(ii) Represents the non-controlling interests’ proportionate share of the assets and liabilities for those joint ventures that have been consolidated.
(iii) Represents RioCan’s proportionate ownership interest in assets and liabilities of all of its portfolio investments. Effectively, this utilizes the
accounting joint venture methodology (proportionate consolidation) in place prior to the implementation of IFRS 11 which requires equity
accounting for joint ventures.
(iv) Represents RioCan’s consolidated balance sheet prepared in accordance with IFRS inclusive of its proportionate share of the assets and liabilities
of its joint ventures that are accounted for using the equity method of accounting.
66
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Results of Operations – RioCan’s Interest (i)
The components of RioCan’s interest in net earnings attributable to common and preferred unitholders are as follows:
(thousands of dollars)
Rental revenue
Property operating costs
Fees and other income
Interest income
Interest expense
Expense for early retirement of debentures
General and administrative
Leasing costs
Foreign exchange loss
Demolition costs
Aborted deal costs
Transaction costs
Three months ended
December 31,
2014
2013
Increase
(decrease)
Year ended
December 31,
2014
2013
Increase
(decrease)
$ 310,923 $ 299,529
$1,211,387 $1,163,196
3.3 %
2.8 %
101,288
209,635
5,688
860
97,082
202,447
3,342
3,779
3.6%
216,183
209,568
3.2%
59,350
60,477
—
18,388
3,593
128
1,049
26
43
—
16,625
2,458
65
850
551
(1,228)
428,619
782,768
21,514
7,554
811,836
236,192
—
52,760
10,941
176
2,208
301
2,753
405,307
757,889
17,892
13,958
789,739
243,214
12,094
45,608
7,768
170
3,173
1,272
3,840
Earnings before fair value gains on investment
property, net and income taxes
Fair value gains on investment property, net
Deferred income tax expense (recovery)
133,606
37,912
129,770
134,108
(250)
(870)
3.0%
506,505
156,803
472,600
236,571
50
(280)
7.2 %
Net earnings – RioCan’s interest (i)
$ 171,768 $ 264,748
(35.1%) $ 663,258 $ 709,451
(6.5)%
(i) See section “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
67
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Operating Funds from Operations (OFFO) & Adjusted Funds From Operations (AFFO)
The following tables provide an analysis of RioCan’s interest in Operating FFO, AFFO, and FFO for the three months and years
ended December 31, 2014 and 2013.
Three months ended December 31,
2014
2013
(thousands of dollars, except per
Unit amounts and other data)
RioCan’s
interest in
operating
FFO
Transaction
gains (iv)
Development/
redevelopment
activities (ii)
RioCan’s
interest
in
FFO
RioCan’s
interest in
operating
FFO
Transaction
gains (iv)
Development/
redevelopment
activities and
other
RioCan’s
interest in
FFO
Operating
FFO
Increase
(Decrease)
Rental revenue
$ 310,923
$
— $
— $ 310,923 $ 299,529
$
— $
— $ 299,529
3.8%
Property Operating Costs:
Recoverable under tenant leases
95,027
Non-recoverable from tenants
Accrued property taxes under
IFRIC 21 (v)
Net Operating Income
Other revenue
Interest expense
General and administrative
Demolition costs
Preferred unit distributions
Aborted deal costs
Operating FFO
Other activities
FFO (i)
5,720
7,873
202,303
6,619
208,922
57,593
18,388
—
3,397
26
79,404
$ 129,518
Operating FFO per Unit
$
0.42
FFO per Unit
Adjustments to bring Operating FFO to AFFO (iii):
Add back/(deduct):
Deduction of rents recorded on a
straight-line basis
Non-cash unit based compensation
expense
Normalized capital expenditures:
Leasing commissions and
tenant improvements
Capital expenditures
recoverable from tenants
Capital expenditures not
recoverable from tenants
AFFO
AFFO per Unit
Weighted average number of
common Units outstanding (in
thousands)
Distribution Coverage Ratios:
(3,608)
672
(6,250)
(3,750)
(2,500)
$ 114,082
$
0.37
312,002
Cash distributions per Unit
$
0.3525
Distributions paid as a percentage of
Operating FFO
Distributions as a percentage of
AFFO
Distributions paid net of DRIP, per
Unit
Distributions net of DRIP as a
percentage of AFFO
83.9%
95.3%
$
0.25
67.6%
—
—
—
—
(71)
(71)
—
—
—
—
—
—
541
95,568
92,759
—
—
5,720
7,873
4,010
6,049
(541)
201,762
196,711
—
6,548
6,946
(541)
208,310
203,657
1,757
59,350
—
18,388
1,049
—
—
1,049
3,397
26
59,198
16,625
—
3,397
551
2,806
82,210
79,771
$ 123,886
—
—
—
—
175
175
—
—
—
—
—
—
313
93,072
—
—
4,010
6,049
(313)
196,398
—
7,121
(313)
203,519
1,279
60,477
2.4%
42.6%
30.2%
2.8%
(4.7%)
2.6%
(2.7%)
16,625
10.6%
—
850
—
—
850
3,397
551
2,129
81,900
$
(71) $
(3,347)
$
175 $
(2,442)
—%
—%
(95.3%)
(0.5%)
4.5%
2.4%
0.7%
0.0%
$ 126,100
$
0.40
$
0.41
$ 121,619
$
0.40
(884)
1,585
(6,250)
(2,750)
(2,250)
$ 113,337
$
0.37
303,544
$ 0.3525
86.0%
95.3%
$
0.26
70.3%
(i)
(ii)
(iii)
(iv)
FFO is generally the same as IFRS net earnings other than excluding changes in the fair values of investment properties, deferred income taxes,
acquisition transaction costs and deducting preferred unit distributions.
To calculate OFFO, the Trust adjusts for certain costs not capitalized during the development period for accounting purposes that, in
management’s view, forms part of the cost of its development projects.
AFFO is calculated by adjusting Operating FFO for straight-line rent adjustments, non-cash compensation expenses, costs for capital
expenditures and leasing costs for maintaining shopping centre infrastructure and current lease revenues. In addition, non-recurring costs that
impact operating cash flow may be adjusted. FFO amounts related to transactions gains and losses and development/redevelopment are also
excluded from AFFO.
Transaction gains, if any, are presented net of tax, where applicable.
68
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
(v)
Effective January 1, 2014, the Trust changed its accounting policy for treatment of certain U.S. property taxes pursuant to IFRIC 21. Where
applicable, prior period financial information has been restated for comparative reporting purposes. Adoption of IFRIC 21 did not result in an
impact to net earnings because the Trust recorded an offsetting fair value adjustment in consideration of the fact that the fair value of a property
is adjusted for prepaid property taxes between a buyer and seller on property transactions. The IFRIC 21 adjustment during the three months
ended December 31, 2013 is a partial draw down of the positive fair value adjustment to investment property recognized on January 1, 2013.
Consequently, the adjustment to calculate FFO and OFFO is an increase to property operating costs that reflects the actual timing of these cost
recoveries from tenants. Please see "2014 Changes in Accounting Policy" for further details.
Year ended December 31,
2014
2013
(thousands of dollars, except per
Unit amounts and other data)
RioCan’s
interest in
operating
FFO
Transaction
gains (iv)
Development/
redevelopment
activities (ii)
RioCan’s
interest in
FFO
RioCan’s
interest in
operating
FFO
Transaction
gains (iv)
Development/
redevelopment
activities and
other
RioCan’s
interest in
FFO
Operating
FFO
Increase
(Decrease)
Rental revenue
$1,211,387
$
— $
— $1,211,387 $1,163,196
$
— $
— $1,163,196
4.1%
Property Operating Costs:
Recoverable under tenant leases
407,639
Non-recoverable from tenants
Net Operating Income
Other revenue
Interest expense
General and administrative
Demolition costs
Preferred unit distributions
Aborted deal costs
Expense for early retirement of
debentures
Operating FFO
Other activities
FFO (i)
19,690
784,058
28,977
813,035
228,970
52,760
—
13,590
301
—
295,621
$ 517,414
Operating FFO per Unit
$
1.68
FFO per Unit
FFO, excluding expenses for early
retirement of debentures
FFO per Unit, excluding expenses
for early retirement of debentures
Adjustments to bring Operating FFO to AFFO (iii):
Add back/(deduct):
Deduction of rents recorded on a
straight-line basis
Non-cash unit based
compensation expense
Normalized capital expenditures:
Leasing commissions and
tenant improvements
Capital expenditures
recoverable from tenants
Capital expenditures not
recoverable from tenants
AFFO
AFFO per Unit
Weighted average number of
common Units outstanding (in
thousands)
Distribution Coverage Ratios:
(9,309)
5,451
(25,000)
(15,000)
(10,000)
$ 463,556
$
1.51
307,910
Cash distributions per Unit
$
1.4100
Distributions paid as a percentage
of Operating FFO
Distributions as a percentage of
AFFO
Distributions paid net of DRIP, per
Unit
Distributions net of DRIP as a
percentage of AFFO
83.9%
93.4%
$
1.02
67.5%
1,290
408,929
387,776
—
19,690
16,624
(1,290)
782,768
758,796
—
29,068
31,405
(1,290)
811,836
790,201
7,222
236,192
237,349
—
52,760
45,608
2,208
2,208
—
—
—
—
13,590
13,589
301
—
1,272
—
—
—
—
445
445
—
—
—
—
—
12,094
907
—
388,683
16,624
(907)
757,889
—
31,850
(907)
789,739
5,865
243,214
5.1%
18.4%
3.3%
(7.7%)
2.9%
(3.5%)
—
45,608
15.7%
3,173
—
—
—
3,173
13,589
—%
—%
1,272
(76.3%)
12,094
—%
—
—
—
91
91
—
—
—
—
—
—
—
9,430
305,051
297,818
12,094
9,038
318,950
$ 492,383
$
91 $
(10,720)
$
(11,649) $
(9,945)
(0.7%)
5.1%
3.1%
3.8%
2.0%
$ 506,785
$
1.65
$
1.63
$ 470,789
$
1.56
$ 482,883
$
1.60
(6,653)
5,925
(25,000)
(11,000)
(9,000)
$ 446,655
$
1.48
302,324
$ 1.4100
86.5%
95.3%
$
1.04
70.3%
(i)
FFO is generally the same as IFRS net earnings other than excluding changes in the fair values of investment properties, deferred income taxes,
acquisition transaction costs and deducting preferred unit distributions.
69
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
(ii) To calculate OFFO, the Trust adjusts for certain costs not capitalized during the development period for accounting purposes that, in
management’s view, forms part of the cost of its development projects.
(iii) AFFO is calculated by adjusting Operating FFO for straight-line rent adjustments, non-cash compensation expenses, costs for capital
expenditures and leasing costs for maintaining shopping centre infrastructure and current lease revenues maintenance). In addition, non-recurring
costs that impact operating cash flow may be adjusted. FFO amounts related to transactions gains and losses and development/redevelopment
are also excluded from AFFO.
(iv) Transaction gains are presented net of tax, where applicable. Transaction gains mainly relate to current tax recoveries associated with RioCan’s
investments in WCNUF I and II.
A reconciliation of IFRS net earnings attributable to unitholders to FFO is as follows:
(thousands of dollars, except per Unit amounts)
2014
2013
Three months ended
December 31,
Increase
(decrease)
Year ended
December 31,
2014
2013
Increase
(decrease)
Net earnings attributable to unitholders
$ 171,768 $ 264,748
(35.1%) $ 663,258 $ 709,451
(6.5%)
Add back/(Deduct):
Fair value gains, net
(33,654)
(131,969)
(74.5%)
(147,432)
(228,409)
Non-controlling interest relating to fair value gains
—
624
(100.0%)
659
2,053
Fair value gains included in equity accounted
investments and joint ventures
Deferred income tax expense (recovery)
Accrued property taxes under IFRIC 21 (i)
Leasing costs (i)
Transaction costs
Preferred unit distributions
Foreign exchange loss
FFO
FFO per Unit
(4,258)
(250)
(7,873)
3,593
43
(3,397)
128
(2,763)
(870)
(6,049)
2,458
(1,228)
(3,397)
54.1%
(10,030)
(10,215)
(71.3%)
30.2%
46.2%
(103.5%)
50
—
10,941
2,753
(280)
—
7,768
3,840
—%
(13,590)
(13,589)
65
96.9%
176
170
$ 126,100 $ 121,619
3.7% $ 506,785 $ 470,789
$
0.40 $
0.40
0.0% $
1.65
1.56
(35.5%)
(67.9%)
(1.8%)
(117.9%)
nm
40.8%
(28.3%)
—%
3.5%
7.6%
5.8%
Weighted average number of common Units
outstanding
312,002
303,544
307,910
302,324
(i) Effective January 1, 2014, the Trust changed its accounting policies for treatment of certain property taxes and leasing costs pursuant to IFRIC 21
and IAS 17, respectively. Where applicable, prior period financial information has been restated for comparative reporting purposes. Please see
"2014 Changes in Accounting Policy" for further details.
Net Operating Income
NOI is a non-GAAP measure and is defined by RioCan as rental revenue from income properties less property operating costs.
RioCan’s method of calculating NOI may differ from other issuers’ methods and, accordingly, may not be comparable to NOI
reported by other issuers.
Rental revenue includes all amounts earned from tenants related to lease agreements, including property tax and operating cost
recoveries, to the extent recoverable under tenant leases. Amounts payable by tenants to terminate their lease prior to the
contractual expiry date (lease cancellation fees) are included in rental revenue.
NOI at RioCan’s interest for the three months and years ended December 31, 2014 and 2013 is as follows:
(thousands of dollars)
Base rent
Percentage rent
Rents subject to tenants’ sales thresholds
Property taxes and operating cost recoveries
Lease cancellation fees
Rental revenue
Recoverable under tenant leases
Accrued property taxes under IFRIC 21 (ii)
Non-recoverable from tenant
Property operating costs
NOI – RioCan’s interest (i)
NOI as a percentage of rental revenue
(excluding the impact of lease cancellation
fees)
Three months ended
December 31,
2014
2013
Increase
(decrease)
Year ended December
31,
2014
2013
Increase
(decrease)
$ 207,299
$ 196,261
5.6% $ 799,802
$ 770,118
1,856
1,041
100,517
310,713
210
310,923
95,568
7,873
5,720
1,508
1,174
96,295
295,238
4,291
299,529
93,072
6,049
4,010
109,161
103,131
23.1%
(11.3%)
5,810
3,780
4,981
4,696
4.4%
397,083
373,912
5.2% 1,206,475
1,153,707
3.8% 1,211,387
1,163,196
2.7%
30.2%
42.6%
5.8%
408,929
388,683
—
19,690
428,619
—
16,624
405,307
$ 201,762
$ 196,398
2.7% $ 782,768
$ 757,889
(95.1%)
4,912
9,489
(48.2%)
3.9%
16.6%
(19.5%)
6.2%
4.6%
4.1%
5.2%
nm
18.4%
5.8%
3.3%
64.9%
66.5%
(1.6%)
64.9%
65.7%
(0.8%)
(i) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
70
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
(ii) Effective January 1, 2014, the Trust changed its accounting policies for treatment of certain property taxes pursuant to IFRIC 21. Where
applicable, prior period financial information has been restated for comparative reporting purposes. Please see "2014 Changes in Accounting
Policy" for further details.
The amount of property taxes and operating costs that can be recovered from tenants is impacted by property vacancy and fixed
cost recovery tenancies.
RioCan’s interest in NOI on a portfolio basis is as follows:
For the three months ended December 31,
(thousands of dollars)
REVENUE:
Base rent
Percentage rent
Rent subject to tenants’ sales thresholds
Property taxes and operating cost recoveries
Lease cancellation fees
Rental revenue
PROPERTY OPERATING COSTS:
Recoverable under tenant leases
Non-recoverable from tenants
Accrued property taxes under IFRIC 21 (ii)
Property operating costs
NOI – RioCan’s interest (i)
Canadian
Portfolio
2014
U.S.
Portfolio
RioCan’s
Interest
Canadian
Portfolio
U.S.
Portfolio
RioCan’s
Interest
2013
$ 168,131 $
39,168 $
207,299
$ 161,211 $ 35,050 $
196,261
1,629
1,041
87,958
258,759
184
227
—
12,559
51,954
26
1,856
1,041
100,517
310,713
210
1,382
1,174
86,924
250,691
4,291
126
—
9,371
44,547
—
258,943
51,980
310,923
254,982
44,547
90,475
4,580
—
5,093
1,140
7,873
95,568
5,720
7,873
88,945
2,869
—
4,127
1,141
6,049
95,055
14,106
109,161
91,814
11,317
$ 163,888 $
37,874 $
201,762
$ 163,168 $ 33,230 $
1,508
1,174
96,295
295,238
4,291
299,529
93,072
4,010
6,049
103,131
196,398
(i) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
(ii) Effective January 1, 2014, the Trust changed its accounting policies for treatment of certain property taxes pursuant to IFRIC 21. Where
applicable, prior period financial information has been restated for comparative reporting purposes. Please see "2014 Changes in Accounting
Policy" for further details.
For the year ended December 31,
(thousands of dollars)
REVENUE:
Base rent
Percentage rent
Rent subject to tenants’ sales thresholds
Canadian
Portfolio
2014
U.S.
Portfolio
RioCan’s
Interest
Canadian
Portfolio
U.S.
Portfolio
RioCan’s
Interest
2013
$ 649,552 $
150,250 $
799,802
$ 640,775 $ 129,343 $
770,118
5,088
3,780
722
—
5,810
3,780
4,493
4,696
488
—
4,981
4,696
Property taxes and operating cost recoveries
344,817
52,266
397,083
338,005
35,907
373,912
Lease cancellation fees
Rental revenue
PROPERTY OPERATING COSTS:
Recoverable under tenant leases
Non-recoverable from tenants
Property operating costs
NOI – RioCan’s interest (i)
1,003,237
203,238
1,206,475
987,969
165,738
1,153,707
4,912
—
4,912
9,121
368
9,489
1,008,149
203,238
1,211,387
997,090
166,106
1,163,196
354,603
14,544
369,147
54,326
5,146
59,472
408,929
19,690
428,619
347,762
13,168
360,930
40,921
3,456
44,377
$ 639,002 $
143,766 $
782,768
$ 636,160 $ 121,729 $
388,683
16,624
405,307
757,889
(i) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
71
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Canadian Portfolio
RioCan’s interest in NOI on a proportionate basis of its Canadian portfolio for the quarter and year ended December 31, 2014
and 2013 is as follows:
(thousands of dollars)
Base rent
Percentage rent
Rents subject to tenants’ sales thresholds
Property taxes and operating cost recoveries
Lease cancellation fees
Rental revenue
Recoverable under tenant leases
Non-recoverable from tenants
Property operating costs
NOI – RioCan’s interest (i)
NOI as a percentage of rental revenue
(excluding the impact of lease cancellation
fees)
Three months ended
December 31,
2014
2013
Increase
(decrease)
Year ended
December 31,
2014
2013
Increase
(decrease)
$ 168,131
$ 161,211
4.3% $ 649,552
$ 640,775
1,629
1,041
87,958
258,759
184
1,382
1,174
86,924
250,691
4,291
17.9%
(11.3%)
5,088
3,780
1.2%
344,817
3.2% 1,003,237
(95.7%)
4,912
258,943
254,982
1.6% 1,008,149
90,475
4,580
95,055
88,945
2,869
91,814
1.7%
59.6%
3.5%
354,603
14,544
369,147
4,493
4,696
338,005
987,969
9,121
997,090
347,762
13,168
360,930
$ 163,888
$ 163,168
0.4% $ 639,002
$ 636,160
1.4%
13.2%
(19.5%)
2.0%
1.5%
(46.1%)
1.1%
2.0%
10.4%
2.3%
0.4%
63.3%
65.1%
(1.8%)
63.7%
64.4%
(0.7%)
(i) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
Same store and same property NOI on a proportionate basis for the quarter and year ended December 31, 2014 and 2013 for
RioCan’s Canadian portfolio are as follows:
Redevelopment and intensification (vii)
2,500
2,813
(11.1%)
8,826
(thousands of dollars)
Same Store:
Number of properties
Committed occupancy
Economic occupancy
Net Operating Income:
Same store (i)
Same properties (ii)
Acquisitions - IPP (iv)
Dispositions - IPP (v)
Greenfield development (vi)
NOI before adjustments
Lease cancellation fees, net
Straight line rent adjustment
Straight line lease write offs related to lease
cancellations
NOI from properties under development (viii)
Three months ended
December 31,
2014
2013
Increase
(decrease)
Year ended
December 31,
2014
2013
Increase
(decrease)
265
96.9%
95.9%
265
97.0%
95.8%
(0.1%)
0.1%
265
96.9%
95.9%
265
97.0%
95.8%
$ 150,739
$ 149,772
0.6% $ 587,595
$ 575,979
153,239
152,585
2,180
—
4,107
—
3,596
1,957
0.4%
nm
596,421
14,567
(100.0%)
—
109.9%
12,131
159,526
158,138
0.9%
623,119
619,903
(95.6%)
267.2%
4,915
6,907
9,121
4,625
10,917
586,896
—
25,153
7,854
187
2,684
—
1,491
4,291
731
(937)
945
(100.0%) $
(452) $
(1,263)
(64.2%)
57.8% $
4,513
$
3,774
(0.1%)
0.1%
2.0%
(19.2%)
1.6%
nm
(100.0%)
54.5%
0.5%
(46.1%)
49.3%
19.6%
0.4%
NOI - RioCan’s interest (iii)
$ 163,888
$ 163,168
0.4% $ 639,002
$ 636,160
“nm” – not meaningful.
(i) See Same Store definition in "Presentation of Financial Information and Non-GAAP Measures" section.
(ii) See Same Property definition in "Presentation of Financial Information and Non-GAAP Measures" section.
(iii) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
(iv) Acquisitions – Includes NOI on a pro-rated basis for Income Producing Properties (IPP) acquired within the periods being compared.
(v) Dispositions – Includes NOI on a pro-rated basis for IPP disposed of in the periods being compared.
(vi) Greenfield Development – Includes NOI from Greenfield properties as each individual unit is 100% income producing for two comparable periods.
(vii) Redevelopment and Intensification – Includes NOI from IPP or specific units within a property being re-positioned or expanded.
(viii) NOI from properties under development – Includes NOI from properties acquired for re-development purposes.
The change in same store NOI is the result of contractual rent increases, lease renewals and net absorption of existing space in
the portfolio, which is a product of vacancies and the resultant new leasing.
72
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three months ended December 31, 2014, same store and same property NOI increased 0.6% and 0.4%, respectively,
when compared to the same period in 2013, primarily due to the following:
•
•
•
•
•
•
increased NOI as a result of new leasing of approximately $3.3 million;
increased NOI as a result of renewals and rent steps of approximately $2.0 million;
increased NOI as a result of re-leasing of space vacated due to bankruptcies and lease cancellations of $0.6 million;
adjustments to prior period recoveries and tenant related recoverable expenses of $0.4 million; partially offset by:
reduced NOI due to vacancy caused by normal course turnover of $4.2 million;
reduced NOI of $0.9 million from lease cancellations that have occurred in the last 12 months.
For the year ended December 31, 2014, same store and same property NOI increased 2.0% and 1.6%, respectively, when
compared to the same period in 2013, primarily due to the following:
•
•
•
•
•
•
•
•
increased NOI as a result of new leasing of approximately $13.9 million;
increased NOI as a result of renewals and rent steps of approximately $8.8 million;
increased NOI as a result of re-leasing of space vacated due to bankruptcies and lease cancellations of $3.3 million;
adjustments to prior year recoveries and tenant related recoverable expenses of $1.3 million;
a decrease in provision for bad debts and disputed tenant recoveries $1.4 million;
an increase in percentage rent of $0.3 million; partially offset by:
reduced NOI due to vacancy caused by normal course turnover of $14.3 million; and
reduced NOI of $3 million from lease cancellations that have occurred in the last 12 months.
For the year and the quarter ended December 31,2014, the straight line rent adjustment increased primarily due to a number of
new developments taking possession during the third quarter, including Stockyards, Tanger Ottawa, Tanger Cookstown,
Collingwood, Mississauga Plaza, Kennedy Commons and Niagara Falls Plaza.
For the year ended December 31, 2014, lease cancellation fees included Big Lots on seven locations, of which $0.5 million was
written off for unamortized straight line rents. For the year ended December 31, 2013, lease cancellation fees included $3 million
for Zellers at various locations and $5 million for Rona Colossus.
Same store and same property NOI on a proportionate basis for the Canadian portfolio on a consecutive quarter-over-quarter
basis is as follows:
(thousands of dollars)
Three months ended
Same Store:
Number of properties
Committed occupancy
Economic occupancy
Same store (i)
Redevelopment and intensification (vii)
Same properties (ii)
Acquisitions - IPP (iv)
Greenfield development (v)
NOI before adjustments
Lease cancellation fees, net
Straight line rent adjustment
Straight line lease write offs related to lease cancellations
NOI from properties under development (viii)
NOI - RioCan’s interest (iii)
December 31, 2014 September 30, 2014
Increase
(decrease)
265
96.9%
95.9%
$
153,234
$
1,724
154,958
459
4,109
159,526
187
2,684
—
1,491
265
96.9%
95.7%
151,820
1,457
153,277
—
3,135
156,412
1,395
2,018
(99)
1,002
$
163,888
$
160,728
—%
0.2%
0.9%
18.3%
1.1%
nm
31.1%
2.0%
(86.6%)
33.0%
(100.0%)
48.8%
2.0%
“nm” - not meaningful.
(i) See Same Store definition in “Presentation of Financial Information and Non-GAAP Measures” section.
(ii) See Same Property definition in “Presentation of Financial Information and Non-GAAP Measures” section.
(iii) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
(iv) Acquisitions - Includes NOI on a pro-rated basis for IPP acquired within the periods being compared.
(v) Greenfield Development - Includes NOI from Greenfield properties as each individual unit is 100% income producing for two comparable periods.
(vii) Redevelopment and Intensification - Includes NOI from IPP or specific Units within a property being re-positioned or expanded.
(viii) NOI from properties under development - Includes NOI from properties acquired for re-development purposes.
Same store and same property NOI increased sequentially by 0.9% and 1.1%, respectively, during the fourth quarter of 2014 as
compared to the third quarter of 2014, primarily due to the following:
•
increased NOI as a result of new leasing of approximately $1.1 million;
73
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
•
•
•
increased NOI as a result of renewals and rent steps of $0.6 million;
increased NOI as a result of re-leasing of space vacated due to bankruptcies and lease cancellations of $0.2 million;
adjustments to prior year recoveries and tenant related recoverable expenses of $0.9 million; partially offset by:
reduced NOI due to vacancy caused by normal course turnover of $1.4 million; and
reduced NOI of $0.1 million from lease cancellations that have occurred in the last three months.
For the three months ended December 31, 2014, lease cancellation fees relate primarily to the Active Sports at Silver City
Gloucester. Third quarter 2014 lease cancellation fees relate primarily to The Source at two locations, Black's at three locations
and Public Mobile at four locations.
U.S. Portfolio
RioCan’s interest in NOI on a proportionate basis of its U.S. portfolio for the quarter and year ended December 31, 2014 and 2013
is as follows:
(thousands of dollars)
Base rent
Percentage rent
Property taxes and operating cost recoveries
Lease cancellation fees
Rental revenue
Recoverable from tenant leases
Non-recoverable from tenants
Accrued property taxes under IFRIC 21 (ii)
Property operating costs
NOI – RioCan’s interest (i)
Three months ended
December 31,
2014
2013
Increase
(decrease)
Year ended
December 31,
2014
2013
$ 39,168
$ 35,050
11.7% $ 150,250
$ 129,343
227
12,559
51,954
26
126
9,371
44,547
—
51,980
44,547
5,093
1,140
7,873
4,127
1,141
6,049
14,106
11,317
80.2%
34.0%
16.6%
nm
16.7%
23.4%
(0.1%)
30.2%
24.6%
722
52,266
203,238
—
488
35,907
165,738
203,238
166,106
54,326
5,146
—
40,921
3,456
—
59,472
44,377
$ 37,874
$ 33,230
14.0% $ 143,766
$ 121,729
368
(100.0%)
Increase
(decrease)
16.2%
48.0%
45.6%
22.6%
22.4%
32.8%
48.9%
nm
34.0%
18.1%
(2.7%)
NOI as a percentage of rental revenue
72.9%
74.6%
(1.7%)
70.7%
73.4%
(i) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
(ii) Effective January 1, 2014, the Trust changed its accounting policies for treatment of certain property taxes pursuant to IFRIC 21. Where applicable,
prior period financial information has been restated for comparative reporting purposes. Please see "2014 Changes in Accounting Policy" for further
details.
Same store and same property NOI on a proportionate basis for the quarter and year ended December 31, 2014 and 2013 for
RioCan’s U.S. portfolio are as follows (at RioCan’s interest):
(thousands of dollars)
Base rent – US$
Property tax and operating cost recoveries – US$
Other – US$
Rental revenue – US$
Property operating costs – US$
Same store and same properties (i)(ii) - US$
Acquisitions - IPP (iv)
Dispositions - IPP (v)
NOI before adjustments
Lease cancellation fee
Straight-lining of rents
NOI - US$
Foreign currency translation adjustment
NOI – RioCan’s interest (iii)
Three months ended
December 31,
2014
2013
Increase
(decrease)
Year ended
December 31,
2014
2013
Increase
(decrease)
$ 33,021 $ 32,165
2.7% $ 117,763 $ 115,672
11,002
340
44,363
12,147
32,216
716
—
9,369
180
41,714
10,844
30,870
—
17
23
569
33,524
4,350
—
1,038
31,925
1,305
17.4%
88.9%
42,757
1,071
34,183
873
6.4% 161,591
150,728
12.0%
48,487
40,955
4.4% 113,104
109,773
nm
14,835
—
nm
1
(45.2%)
2,345
293
3,168
5.0% 130,285
118,250
1.8%
25.1%
22.7%
7.2%
18.4%
3.0%
nm
11.5%
(99.7%)
(26.0%)
10.2%
32,932
30,887
6.6% 127,939
114,789
(100.0%)
—
5,016
(100.0%)
$ 37,874 $ 33,230
14.0% $ 143,766 $ 121,729
18.1%
233.3%
13,481
3,479
287.5%
“nm” – not meaningful.
(i) See Same Store definition in “Presentation of Financial Information and Non-GAAP Measures” section.
(ii) See Same Property definition in “Presentation of Financial Information and Non-GAAP Measures” section.
(iii) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
(iv) Acquisitions - Includes NOI on a pro-rated basis for IPP acquired within the periods being compared.
(v) Dispositions - Includes NOI on a pro-rated basis for IPP disposed of in the period being compared.
74
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Same store and same property NOI increased 4.4% for the three months ended December 31, 2014, as compared to the same
period in 2013, primarily due to:
•
•
•
•
increased NOI as a result of new leasing of approximately $0.7 million;
increased NOI as a result of renewals and rent steps of approximately $0.4 million;
adjustments to prior year recoveries, tenant related recoverable expenses and operating efficiencies realized as a result of
RioCan's internalization of RioCan's Texas portfolio of $0.5 million; partially offset by:
reduced NOI due to vacancy caused by normal course turnover of $0.4 million.
Same store and same property NOI increased 3.0% for the year ended December 31, 2014 as compared to the same period in
2013 primarily due to:
•
•
•
•
increased NOI as a result of new leasing of approximately $2.5 million;
increase as a result of renewal and rent steps of approximately $1.7 million;
adjustments to prior year recoveries, tenant related recoverable expenses and operating efficiencies realized as a result of
RioCan's internalization of its Texas portfolio of $0.7 million; partially offset by:
reduced NOI due to vacancy caused by normal course turnover of $1.5 million.
Same store and same property NOI on a proportionate basis for the U.S. portfolio on a consecutive quarter-over-quarter basis is
as follows (at RioCan’s interest):
(thousands of dollars)
Three months ended
Base rent – US$
Property tax and operating cost recoveries – US$
Other – US$
Rental revenue – US$
Property operating costs – US$
Same store and same properties (i) (ii) – US$
Acquisitions - IPP
NOI before adjustments
Lease cancellation fees
Straight-lining of rents
NOI - US$
Foreign currency translation
NOI – RioCan’s interest (iii)
December 31, 2014 September 30, 2014
Increase
(decrease)
$
33,567 $
11,192
343
45,102
12,344
32,758
174
32,932
23
569
33,524
4,350
$
37,874 $
33,285
11,448
282
45,015
12,798
32,217
—
32,217
25
589
32,831
2,999
35,830
0.8%
(2.2%)
21.6%
0.2%
(3.5%)
1.7%
nm
2.2%
(8.0%)
(3.4%)
2.1%
45.0%
5.7%
“nm” – not meaningful.
(i) See Same Store definition in “Presentation of Financial Information and Non-GAAP measures” section.
(ii) See Same Property definition in “Presentation of Financial Information and Non-GAAP measures” section.
(iii) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
(iv) Acquisitions - Includes NOI on a pro-rated basis for IPP acquired within the periods being compared.
(v) Dispositions - Includes NOI on a pro-rated basis for IPP disposed of in the period being compared.
Same store and same property NOI increased by 1.7% for the three months ended December 31, 2014 as compared to the third
quarter of 2014 primarily due to:
•
•
•
•
increased NOI as a result of new leasing of approximately $0.2 million;
increased NOI as a result of renewals and rent steps of approximately $0.1 million;
adjustments to prior year recoveries and tenant related recoverable expenses of $0.3 million; partially offset by:
reduced NOI due to vacancy caused by normal course turnover of $0.1 million.
Other Revenue
Fees and Other Income
RioCan holds certain of its interests in various real estate investments through joint arrangements, investments accounted for by
the equity method and certain available-for-sale investments. Generally, RioCan provides asset, property management,
development and financing services for the Canadian co-ownerships and investments for which the Trust earns market-based
fees.
For the three months ended December 31, 2014, fees and other income increased $2.3 million as compared to the same period
in 2013 mainly due to higher investment income.
75
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the year ended December 31, 2014, fees and other income increased $3.6 million as compared to the same period in 2013
primarily due to an increase in investment income and financing fees on joint venture projects earned during 2014, partially offset
by lower development fees generated on joint venture projects.
Interest Income
Interest income for the quarter and year ended December 31, 2014 was $0.9 million and $7.6 million, respectively, representing
a decrease from the $3.8 million and $14.0 million in the respective comparative periods in 2013. The decrease in interest income
is due primarily to the impact of the settlement of certain mezzanine loans during the first quarter of 2014 in connection with the
acquisition of interests in three development projects.
Other Expenses
Interest
The components of interest expense, at RioCan's interest, are as follows:
(thousands of dollars)
Total interest expense
Capitalized to real estate and other investments
Net interest expense (i)
Three months ended
December 31,
2014
2013
Increase
(decrease)
Year ended
December 31,
2014
2013
$
$
67,090
$ 66,983
0.2% $ 268,592
$ 264,477
(7,740)
(6,506)
19.0%
(32,400)
(21,263)
59,350
$ 60,477
(1.9%) $ 236,192
$ 243,214
Increase
(decrease)
1.6%
52.4%
(2.9%)
Percentage capitalized to real estate investments
12%
10%
12%
8%
(i) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
The increase in total interest expense for both the quarter and year ended December 31, 2014 compared to the same periods in
2013, resulted primarily from carrying higher debt levels in 2014, largely due to acquisition activity and development
expenditures, partly offset by interest savings resulting from refinancing maturing mortgage debt at lower interest rates. As at
December 31, 2014, the weighted average interest rate of RioCan’s debt portfolio is 4.12%, a decrease of 18 basis points from
the weighted average rate of 4.30% as at December 31, 2013.
Interest is capitalized to investment properties when they are considered to be in active development. The amounts capitalized
increased as a result of higher development activity in both the quarter and year ended December 31, 2014 as compared to the
same periods in 2013.
General and Administrative
The components of general and administrative, at RioCan’s interest, are as follows:
(thousands of dollars)
Three months ended
December 31,
2014
2013
Increase
(decrease)
Year ended
December 31,
2014
2013
Increase
(decrease)
Non-recoverable salaries and benefits
$ 15,540
$ 13,634
14.0% $ 37,383
$ 32,621
14.6%
Directly capitalized to properties under development (i)
Leasing costs (ii)
Information technology costs
Public company costs
Professional fees
Unit based compensation expense
Depreciation and amortization
Other general and administrative
(2,726)
(2,710)
10,104
(2,146)
(2,165)
9,323
27.0%
25.2%
(7,826)
(7,686)
(5,830)
(6,192)
8.4% 21,871
20,599
1,500
2,262
1,385
325
1,290
1,522
495
2,141
639
1,270
424
2,333
203.0%
5.7%
116.7%
(74.4%)
204.2%
(34.8%)
3,865
6,377
5,325
4,064
4,375
6,883
2,072
6,075
3,778
4,717
1,737
6,630
General and administrative expense (iii)
$ 18,388
$ 16,625
10.6% $ 52,760
$ 45,608
34.2%
24.1%
6.2%
86.5%
5.0%
40.9%
(13.8%)
151.9%
3.8%
15.7%
General and administrative expense:
As a percentage of rental revenue
5.9%
5.6%
0.3%
4.4%
3.9%
0.5%
(i) Amounts capitalized to properties under development are primarily comprised of salaries and benefits and other costs directly related to
development activities at the properties.
(ii) Effective January 1, 2014, the Trust no longer capitalizes leasing costs pursuant to the adoption of IAS 17. As a result of this change in
accounting policy, the Trust now records leasing costs on the consolidated statement of earnings. Where applicable, prior period financial
information has been restated for comparative reporting purposes. Please see "2014 Changes in Accounting Policy" for further details.
(iii) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
Q4 2014
During the fourth quarter 2014, general and administrative costs increased $1.8 million or 10.6% compared to the same period in
2013, due to the following: $0.8 million increase in net non-recoverable salaries and benefits, $1.0 million increase in information
76
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
technology costs, $0.9 million increase in depreciation and amortization expense, $0.7 million increase in professional fees, partly
offset by a $0.9 million decrease in unit based compensation expense and a $0.8 million decrease in other general and
administrative expenses.
The increase was primarily due to the following:
higher payroll costs due mainly to increased headcount associated with increased complexity of the Trust's operations
and the inclusion of certain salary costs in 2014 that were previously capitalized over the development phase of the
Trust's recently implemented ERP system project;
increased information technology costs related to higher consulting and maintenance expenses in support of the
expanded system infrastructure as noted above;
increased depreciation and amortization as a result of the new ERP system was phased into production during the first
two quarters of 2014;
higher consulting fees related to certain activities undertaken to optimize the Trust's U.S. legal entity and tax structure;
unit based compensation recovery from forfeited stock options resulting from certain employee terminations and
departures from the Trust during the fourth quarter of 2014; and
higher recoveries of general administrative costs from tenants during the fourth quarter of 2014.
•
•
•
•
•
•
2014
During the year ended December 31, 2014, general and administrative costs increased $7.2 million or 15.7% compared to 2013,
primarily due to the following, an increase of: net non-recoverable salaries and benefits expense of $1.3 million, information
technology costs of $1.8 million, depreciation and amortization of $2.6 million and professional fees of $1.5 million.
During 2014, non-recoverable salaries and benefits increased $4.8 million or 14.6% as compared to 2013. The increase was
primarily due to higher salaries and benefits of $2.0 million and $1.5 million, related to increased activities of the Trust's properties
under development (planning and construction) and leasing operations. The remaining increase was mostly due to higher
headcount associated with increased complexity of the Trust's operations and the inclusion of certain salary costs in 2014 that
were previously capitalized over the development phase of the Trust's recently implemented ERP system project.
Information technology costs and depreciation and amortization increased by $1.8 million and $2.6 million, respectively, for the
year ended December 31, 2014. During 2014, the Trust completed the majority of its development and implementation of a new
ERP and financial reporting system. As noted above, the new system was phased into production during the first two quarters of
2014, resulting in higher depreciation and amortization costs. The increase in information technology costs is mainly due to
higher consulting and maintenance expenses in support of the expanded system infrastructure.
Professional fees increased by $1.5 million compared to 2013 primarily due to higher legal fees incurred during 2014 related to
the introduction of a new senior executive incentive compensation plan and consulting fees related to certain activities
undertaken to optimize the Trust's U.S. legal entity and tax structure.
Leasing Costs
Leasing costs are mainly comprised of payroll related costs of the internal leasing department of the Trust, as well as related
administration costs. As a result of the issued interpretation to IAS 17, these costs, which were previously capitalized to income
properties, are expensed as incurred. Leasing costs for the year ended December 31, 2014 have increased to $10.9 million
compared to $7.8 million in 2013, primarily due to the Trust's expansion of its U.S. operations as well as increases in costs
related to the new sales system platform. Leasing costs incurred with external parties continue to be capitalized to the relevant
property.
Transaction and Other Costs
The components of transaction and other costs, at RioCan’s interest, are as follows:
Three months ended
December 31,
Year ended
December 31,
Three months ended December 31,
Demolition costs
Aborted deal costs
Acquisitions and disposition costs (recoveries)
Foreign exchange loss
Transaction and other costs (i)
2014
$
1,049 $
26
43
128
$
1,246 $
2013
850
551
65
238
(1,228)
(103.5%)
(95.3%)
96.9%
2014
301
2,753
176
Increase
(decrease)
23.4% $
2,208 $
2013
3,173
1,272
3,840
170
Increase
(decrease)
(30.4%)
(76.3%)
(28.3%)
3.5%
423.5% $
5,438 $
8,455
(35.7%)
(i) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
Demolition costs decreased for the year ended December 31, 2014 compared to the same periods in 2013 due to increased 2013
redevelopment activities at Centre St. Martin, Galeries Laurentides and Dundas 427 Marketplace.
Aborted deal costs for the year ended December 31, 2014 primarily include deferred acquisition costs expensed as a result of
RioCan and its partner, Tanger, no longer proceeding with plans to acquire the lands adjacent to Calaway Park near Calgary, AB.
Acquisition and disposition costs decreased for the year ended December 31, 2014 compared to the same period in 2013 due to
higher legal fees and selling commissions related to the following 2013 property dispositions: RioCan Centre Thunderbay,
77
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Megacentre Lebourgneuf, RioCan Sainte Foy, Wheeler Park, St. Clair Beach Shopping Centre and Quartier Dix/30. Expenses
recognized during the 2014 primarily relate to residual costs from transactions completed in prior periods. The three months
ended December 31, 2013 also includes a $4 million realized foreign currency transaction gain related to the dissolution of two of
RioCan's joint arrangements in the U.S.
ASSET PROFILE
As at December 31, 2014, RioCan had ownership interests in a portfolio of 340 shopping centres comprising 72.1 million square
feet (RioCan’s share being 50.0 million square feet), compared to 344 shopping centres comprised of 74.5 million square feet
(RioCan’s share being 49.5 million square feet) at December 31, 2013. In addition, RioCan had ownership interests in
development projects at December 31, 2014 that will, upon completion, comprise approximately 7.0 million square feet, of which
RioCan’s ownership interest will be approximately 3.9 million square feet.
Investment Property
(millions of dollars)
Investment property (at RioCan’s interest) is comprised of (i):
Income properties
Properties under development
Properties held for resale
December 31, 2014
December 31, 2013
$
$
13,335 $
706
80
14,121 $
12,490
583
46
13,119
(i) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
Change in the Fair Value of Investment Properties During 2014
Of the $1.0 billion increase in investment property (RioCan’s interest) since December 31, 2013, the fair value gain for the year
ended December 31, 2014 was $157 million, of which $150 million relates to income properties and $7 million relates to
properties under development. During this period, the capitalization rates used to value the portfolio are estimated to have
decreased by eight basis points.
The table below provides the fair value and weighted average capitalization rate split between Canada and U.S.:
(in millions, except percentages)
As at
Canada
U.S.
Total
December 31, 2014
December 31, 2013
Weighted
average
Cap. rate*
5.77% $
6.14%
5.83% $
Weighted
Average
Cap. Rate*
5.81% $
6.40%
5.91% $
Value
11,634
2,487
14,121
Value
11,005
2,114
13,119
*
presented at RioCan’s interest, including its proportionate interest in joint ventures accounted for using the equity method.
During 2014, the weighted average capitalization rates in Canada and the U.S. decreased by four and twenty-six basis points,
respectively, reflecting the status of each of these markets. In Canada, the rates decreased from 5.81% to 5.77% on a year-over-
year basis, and in the U.S. the rate decreased from 6.40% to 6.14% on a year-over-year basis. The associated fair value gains in
Canada and the U.S. were $33 million and $124 million, respectively (each at RioCan’s interest).
The tables below provides details of the average capitalization rates (weighted based on stabilized NOI) and ranges for each
retail class and market category, at RioCan’s interest, as at December 31, 2014.
Canadian Portfolio
Retail Class
Enclosed Shopping
Centre
Grocery Anchored
Shopping Centre
Mixed Use
New Format Retail
Non-Grocery Anchored
Centre
Urban Retail
*
at RioCan’s interest.
Overall portfolio
Primary market
Secondary market
Weighted
average
Cap. Rate*
Weighted
average
Cap. Rate*
Range
Weighted
average
Cap. Rate*
Range
Range
6.05%
5.00% - 9.00%
5.75%
5.00% - 7.54%
6.29%
5.25% - 9.00%
5.95%
5.77%
5.60%
6.45%
5.14%
5.77%
5.10% - 9.50%
4.80% - 8.00%
5.00% - 7.50%
5.25% - 8.65%
4.60% - 5.57%
4.60% - 9.50%
5.75%
5.56%
5.42%
6.02%
5.14%
5.53%
5.10% - 7.00%
4.80% - 7.25%
5.00% - 6.75%
5.25% - 7.25%
4.60% - 5.52%
4.60% - 7.54%
6.33%
7.12%
6.06%
5.50% - 9.50%
6.25% - 8.00%
5.25% - 7.50%
7.01%
5.75% - 8.00%
—
—
6.27%
5.25% - 9.50%
78
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
U.S. Portfolio
Retail Class
Grocery Anchored
Shopping Centre
New Format Retail
Non-Grocery Anchored
Centre
Overall portfolio
Northeast**
Texas
Weighted
average
Cap. Rate*
Weighted
average
Cap. Rate*
Range
Weighted
average
Cap. Rate*
Range
Range
6.06%
6.15%
7.30%
6.14%
5.35% - 7.50%
5.30% - 7.25%
7.30% - 7.30%
5.30% - 7.50%
6.06%
6.25%
7.30%
6.21%
5.35% - 7.00%
5.50% - 7.25%
7.30% - 7.30%
5.35% - 7.30%
6.04%
6.10%
5.65% - 7.50%
5.30% - 6.75%
—
—
6.09%
5.30% - 7.50%
*
**
at RioCan’s interest.
Area includes Connecticut, Maryland, Massachusetts, New Jersey, New York, Rhode Island, Pennsylvania, West Virginia, Virginia and New
Hampshire.
Income Properties
(millions of dollars)
Consolidated balance, beginning of period
Acquisitions (i):
Canada
U.S.
Changes in fair values of income properties
Capital expenditures
Dispositions
Tenant installation costs
Transfers from properties under development
Transfers to properties under development
Foreign currency translation gain
Other
Consolidated balance, end of period
Adjustment for RioCan’s interest
Balance – RioCan’s interest, end of period (ii)
Three months ended
December 31,
Year ended
December 31,
2014
2013
2014
2013
$ 13,035 $ 11,688 $ 12,433 $ 11,278
62
—
38
12
—
8
33
(35)
85
16
72
191
133
13
(336)
8
31
(20)
66
1
139
42
140
28
(52)
30
363
(75)
192
14
601
228
215
28
(709)
33
123
(58)
105
3
$ 13,254 $ 12,433 $ 13,254 $ 12,433
81
57
81
57
$ 13,335 $ 12,490 $ 13,335 $ 12,490
(i) Comprised of the purchase price including closing costs and other acquisition related costs.
(ii) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
Acquisitions During 2014
During the three months ended December 31, 2014, RioCan completed acquisitions of interests in three income properties
aggregating $62 million representing RioCan’s share of the purchase price and comprised of approximately 194,000 additional
square feet.
During the year ended December 31, 2014, RioCan completed acquisitions of interests in ten income properties aggregating
$191 million representing RioCan’s share of the purchase price and comprised of approximately 664,000 additional square feet.
79
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Property name and
location
Q4 2014: CANADA
Mill Woods
Professional
Building,
Edmonton, AB
Meadow Ridge
Plaza, Ajax, ON
(remaining 80%
interest)
Mayfield Common,
Edmonton, AB
(additional 20%)
Canada – Q4 2014
Acquisitions
Total Q4 2014
Acquisitions
Q3 2014: CANADA
Trinity Common
Brampton,
Brampton, ON
(remaining 20%)
Chapman Mills
Pads, Ottawa, ON
Canada – Q3 2014
Acquisitions
Q3 2014: UNITED
STATES
Riverwalk Market,
Flower Mound, TX
US – Q3 2014
Acquisitions
Total Q3 2014
Acquisitions
Q2 2014: CANADA
University Plaza,
Hamilton, ON
IGA (Centre Rene
Robert), Ste.
Thérèse, PQ (v)
Canada – Q2 2014
Acquisitions
Total Q2 2014
Acquisitions
Q1 2014: CANADA
White Shield Plaza,
Toronto, ON
(remaining 40%) (iv)
Canada – Q1 2014
Acquisitions
Q1 2014: UNITED
STATES
Gander Mountain
at Riverpark,
Houston, TX
US – Q1 2014
Acquisitions
Total Q1 2014
Acquisitions
Total 2014
Acquisitions:
Canada
US
Total 2014
Acquisitions
Capitali-
zation
rate
RioCan’s
purchase
price (i)
(millions)
NLA
at RioCan’s
interest
(in thousands
of sqft)
Weighted
average
in place
rent
Asset
class
(ii)
Year
built
Weighted
average
remaining
lease
term
%
Leased
(years) (iii)
6.1% $
5
18 $
15.09
OFF
1988
84.3%
2.8
Largest tenant(s)
and NLA
(thousands of sqft)
RioCan’s
ownership
interest
City of Edmonton
(8)
40.34%
5.6%
5.8%
5.7%
5.7%
5.4%
5.3%
5.3%
6.1%
6.1%
5.6%
6.8%
9.8%
7.0%
7.0%
5.5%
5.5%
8.0%
8.0%
6.7%
30
27
62
62
43
9
52
32
32
84
22
1
23
23
12
12
10
10
22
90
18.96
GA 2010
100%
10.5
Sobeys (50),
Goodlife (24),
Dollarama (9)
86
17.25
NFR 1995
99%
5.2 Winners (62), Save
On Foods (54),
JYSK (30)
194
194
17.81
17.81
132
18.34
NFR 1999
100%
4.3
15
32.69
NFR 2005
100%
2.5
147
19.80
Target (118),
Cineplex/Galaxy
Cinemas (84),
Metro (55)
Wendy's, Tim
Horton's, TD Bank,
Scotiabank (20)
100%
50%
100%
75%
82
82
19.59
GA 2014
91%
7.0 Market Street (55)
100%
19.59
229
19.73
100
18.02
GA 1959/
2006
99%
12
—
GA
N/A
N/A
4.3
N/A
Dollarama (11),
Shoppers (18)
100%
N/A
100%
112
112
65
65
18.02
18.02
10.11
10.11
GA 1950/
1980
97%
2.2 Metro (18), Labels
(10), Dollarama (9)
100%
64
12.00
NFR 2005
100%
6.1
Gander Mountain
(64)
100%
64
129
12.00
11.05
5.8% $
6.6% $
5.9% $
149
42
191
518 $
146 $
664 $
17.46
16.26
17.19
80
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
(i) RioCan's purchase price includes closing costs and other acquisition related costs.
(ii)
“GA” - Grocery Anchored centre; “NGA” - Non Grocery Anchored centre; “NFR” - New Format Retail centre; “ MIX” - Mixed use retail centre; “OUT”
- Outlet mall; “ENC” - Enclosed shopping mall; “URB” - Urban retail centre; "OFF" - Office building.
(iii) Weighted average based on gross rental revenue.
(iv) Represents the buyout of the non-controlling interest in White Shield (Canada), which is a fully consolidated income property.
(v) Upon acquisition, RioCan leased this parcel of land to a tenant that will build additional density to expand its current operations.
Further details around RioCan’s current quarter income property acquisitions are as follows:
Canada
• On October 24, 2014, RioCan completed the acquisition of a 40.34% interest in the 47,000 square foot medical office
building at Mill Woods Town Centre at a purchase price of approximately $5 million, representing a capitalization rate of
6.1%. In connection with the acquisition, RioCan assumed approximately $2 million in mortgage financing carrying interest at
4.40%, maturing in December 2015. RioCan owns a 40.34% interest in Mill Woods Town Centre, which is a 538,000 square
foot single-level enclosed shopping centre located in Edmonton, Alberta, anchored by Target, Canadian Tire and Safeway.
Partner Bayfield Realty Advisors holds the remaining interests in both the shopping centre and medical office building, and
was the vendor of the 40.34% interest that RioCan acquired in the medical office building.
• On December 12, 2014, RioCan completed the acquisition of the remaining 80% interest in Meadow Ridge Plaza located in
Ajax, Ontario, at a purchase price of $30 million, representing a capitalization rate of 5.6%. This acquisition, which brings
RioCan's ownership interest in the property to 100%, was completed free and clear of financing. The centre is comprised of
a 46,000 square foot Sobeys and single tenant pads occupied by McDonald’s Restaurant, Bank of Nova Scotia and Beer
Store as well as a multi-tenant strip. Future development plans are being contemplated, as the property is zoned to
accommodate an additional 62,000 square feet of retail density.
• On December 12, 2014, RioCan completed the acquisition of an additional 20% interest in Mayfield Common located in
Edmonton, Alberta, at a purchase price of approximately $27 million, representing a capitalization rate of 5.8%. This
acquisition, which brings RioCan's ownership interest in the property to 50%, was completed free and clear of financing.
Mayfield Common is a 430,000 square foot new format retail centre located at the Stoney Plain Road and Mayfield Road
intersection, near the West Edmonton Mall. The centre is anchored by a 54,000 square foot Save-On-Foods and a 62,000
square foot Winners/HomeSense. Other national tenants include World Health, Value Village, Reitman’s, Roots, The Shoe
Company and Pro Hockey Life.
Income Property Acquisitions Completed Subsequent to December 31, 2014
Subsequent to year end, RioCan completed the acquisitions of 19 income properties in Canada aggregating $82 million, at a
weighted average capitalization rate of 5.5%.
Canada
• On January 15, 2015, RioCan completed the acquisition of the remaining 50% interest in 845 Eglinton Avenue East at a
purchase price of approximately $32 million, representing a capitalization rate of 5.5%. 845 Eglinton Avenue East is a
133,000 square foot non-grocery anchored shopping centre located in Toronto, Ontario. In connection with the acquisition,
RioCan assumed $16 million in mortgage financing carrying interest at 3.34%, maturing in March 2017. As part of the
transaction, the vendor is entitled to additional consideration of up to approximately $6 million if RioCan is successful in its
efforts to rezone the property to permit a mixed use project.
• On January 15, 2015, RioCan completed the acquisition of a 100% interest in an 18 property portfolio at a purchase price of
approximately $50 million, representing a capitalization rate of 5.5%. The properties, which are all single-tenant units
occupied by the Bank of Montreal totalling 174,000 square feet, were acquired free and clear of financing. 11 of the
properties are located in Ontario, six are located in British Columbia and one is located in Quebec.
Income Property Acquisitions Under Contract
Committed Acquisitions
As at the date of this report, RioCan does not have any income property acquisitions under firm contract.
Conditional Acquisitions
As at the date of this report, RioCan does not have any income property acquisitions under conditional contract.
Pipeline Acquisitions
RioCan is currently in negotiations, including with respect to potential joint venture arrangements, regarding various income
property acquisitions in Canada that, if completed, would represent approximately $445 million of additional acquisitions at
RioCan’s interest. These transactions are in various stages of negotiations and while efforts will be made to complete these
negotiations, no assurance can be given with respect to the completion of the arrangements or acquisitions.
81
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Acquisitions During 2013
Location
Canada
U.S.
Total Q4 2013
Canada
U.S.
Total Q3 2013
Canada
U.S.
Total Q2 2013
Canada
U.S.
Total Q1 2013
2013 Acquisitions:
Canada
U.S.
Total 2013 Acquisitions
Capitalization
rate
RioCan’s purchase price
(i) (millions)
NLA (in sqft) at RioCan’s interest
(thousands of sqft)
5.8% $
6.7%
6.5% $
5.5%
6.2%
5.9% $
5.2%
5.6%
5.2% $
6.0%
7.6%
6.3% $
5.3% $
6.6%
5.7% $
60
214
274
40
56
96
455
5
460
16
3
19
571
278
849
178
1,156
1,334
116
293
409
1,138
4
1,142
126
25
151
1,558
1,478
3,036
(i) Excludes closing costs and other acquisition related costs.
Dispositions During 2014
Canadian Disposition Activity
As a further means of raising and re-cycling capital, the Trust evaluates the sale of selected assets as part of a process of
actively managing the portfolio and a means of increasing the portfolio weighting to the urban markets in Canada.
During the three months ended December 31, 2014, RioCan did not dispose of any assets.
During the year ended December 31, 2014, RioCan disposed of five properties aggregating $52.6 million, comprised of
approximately 472,000 square feet.
Property name and location
Q3 2014
Southbank Centre (4.74 acres), Okotoks, Alberta
Chaleur Lands (31 acres), Bathurst, NB
Total Q3 2014 Dispositions
Q1 2014
Madawaska Centre, St. Basile, NB (ii)
Mega Centre Beauport, Québec, PQ
Canadian Tire at Millcroft Shopping Centre, Burlington, ON (iii)
Total Q1 2014 Dispositions
Total 2014 Dispositions
Debt
associated
with
property
(millions)
GLA disposed of
at RioCan’s
interest
(in thousands of
sqft)
RioCan’s
sales price
(millions)
$
$
$
$
$
2.1
0.2
2.3
0.9
46.7
2.7
50.3
52.6
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
263
183
26
472
472
Asset
class
(i)
Land
Land
ENC
NFR
NFR
Ownership
interest
disposed of
by RioCan
50%
100%
100%
100%
50%
(i)
“GA” - Grocery Anchored Centre; “NGA” - Non Grocery Anchored Centre; “NFR” - New Format Retail; "ENC" - Enclosed shopping centre; "Land" -
Excess density.
(ii) Madawaska Centre: Due to low occupancy, the property was sold primarily based on land value.
(iii) The sale of this store took place as Canadian Tire exercised an option in its lease to acquire its store.
Subsequent to December 31, 2014, RioCan completed the dispositions of five income properties located in Quebec (Carrefour
Neufchatel, Quebec City; Carrefour Carnaval - St. Leonard, Montreal; Centre Carnaval, Drummondville; Centre Commercial
Forest, Montreal and Place Kennedy, Levis) totalling $120 million, representing a weighted average capitalization rate of 6.8%.
The Trust's mortgage obligation related to these properties was approximately $21 million, bearing interest at a weighted average
contractual interest rate of 4.1%. The properties aggregated approximately 748,000 square feet of NLA.
Property Dispositions Under Contract and Being Marketed
Income property dispositions
As at the date of this report, RioCan does not have any income property dispositions under contract.
82
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
RioCan is in the process of marketing for sale income properties with an aggregate fair value as at December 31, 2014 calculated
in accordance with IFRS of approximately $11 million, at RioCan's interest. These properties are free and clear of financing.
RioCan is under no obligation to proceed with the proposed dispositions which, if completed, will be done to facilitate its
objectives of paring its portfolio and focusing on major markets.
RioCan is also currently in negotiations, including with respect to potential joint venture arrangements, regarding various income
property dispositions in Canada that, if completed, would represent dispositions of approximately $297 million, at RioCan’s
interest. These transactions are in negotiations and while efforts will be made to complete the negotiations, no assurance can be
given with respect to the completion of these arrangements or dispositions.
Land dispositions
RioCan has dispositions of land parcels under conditional contracts where conditions have not yet been waived for total sales
proceeds of approximately $18 million, at RioCan's interest. These land parcels are free and clear of financing.
RioCan is also in the process of marketing for sale land parcels with an aggregate fair value as at December 31, 2014 calculated
in accordance with IFRS of approximately $41 million, at RioCan's interest. These land parcels are free and clear of financing.
RioCan is under no obligation to proceed with the proposed dispositions which, if completed, will be done to facilitate its objective
of paring its portfolio and focusing on major markets.
Other dispositions
RioCan and its partner, KingSett, have entered into an agreement with the developer, Embassy BOSA Inc., to sell up to $30
million in air rights (representing 600,000 square feet) above the CPA development site in Calgary's East Village, along with
approximately $40 million in cost reimbursement for infrastructure works. Embassy BOSA Inc. has waived its due diligence
conditions. The transaction remains subject to a number of both mutual and unilateral normal course development conditions.
The intention is for two residential towers to be erected upon the planned retail podium. The transaction contemplates that
Embassy BOSA Inc. be responsible, on a cost to complete basis, for all incremental costs associated with the residential
component of the overall project.
Dispositions During 2013
Property name and location
Sales capitalization rate
RioCan's sales price
(millions)
Debt associated with
property (millions)
NLA disposed of
at RioCan's interest
(in thousands of sqft)
Q4 2013 Dispositions:
Canada
U.S.
Total Q4 2013
Total Q3 2013 (Canada only)
Total Q2 2013 (Canada only)
Total Q1 2013 (Canada only)
Total 2013 Dispositions
5.5%
6.8%
5.9%
9.9%
6.0%
7.8%
6.1%
226
106
332
16
364
10
722
93
56
149
—
67
—
216
809
479
1,288
311
1,588
76
3,263
Included in the Q4 2013 dispositions in the table above are the dispositions related to the dissolution of the joint venture
arrangement between RioCan with RPAI in the fourth quarter of 2013. Under the terms of the dissolution, RioCan conveyed its
80% interest in five properties with total NLA of 479,000 square feet (at RioCan's interest) to RPAI for a purchase price of US$103
million. RPAI assumed RioCan's portion of the mortgage financing of US$54 million.
83
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Property Ownership by Geographic Area (square feet)
At December 31, 2014
Provincial and U.S.
(in thousands of sqft)
Ontario Central
Ontario East
Ontario West
Total Ontario
Quebec
Alberta
British Columbia
New Brunswick
Saskatchewan
Newfoundland
Manitoba
Prince Edward Island
Nova Scotia
U.S.
Income Producing Properties
Properties Under Development
Total
Six Canadian High Growth Markets
(in thousands)
Calgary, Alberta
Edmonton, Alberta
Montreal, Quebec
Ottawa, Ontario (i)
Toronto, Ontario (ii)
Vancouver, British Columbia (iii)
Income Producing Properties
Properties Under Development
Total
NLA at RioCan's
Interest
NLA at
Partners'
Interest
Retailer Owned
Anchors
Total Site NLA
18,266
5,431
2,270
25,967
5,605
4,387
2,485
570
267
212
265
166
69
10,031
50,024
3,896
53,920
NLA at RioCan's
Interest
2,240
1,419
3,455
3,569
13,907
1,334
25,924
3,613
29,537
3,879
1,203
81
5,163
872
2,015
1,475
141
—
—
201
166
69
58
10,160
2,734
12,894
NLA at
Partners'
Interest
857
1,126
694
932
3,067
1,053
7,729
2,734
10,463
3,263
1,257
565
5,085
707
2,175
426
95
—
—
93
—
—
3,290
11,871
391
12,262
25,408
7,891
2,916
36,215
7,184
8,577
4,386
806
267
212
559
332
138
13,379
72,055
7,021
79,076
Retailer Owned
Anchors
Total Site NLA
1,266
758
150
1,012
2,225
373
5,784
391
6,175
4,363
3,303
4,299
5,513
19,199
2,760
39,437
6,738
46,175
(i) Area extends from Nepean and Vanier, to Gatineau, Quebec.
(ii) Area extends north to Newmarket, west to Burlington, ON and east to Ajax, ON.
(iii) Area extends east to Abbotsford, BC.
84
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Portfolio Geographic Diversification
At December 31, 2014
Ontario Central
Ontario East
Ontario West
Total Ontario
Quebec
Alberta
British Columbia
New Brunswick
Saskatchewan
Newfoundland
Manitoba
Prince Edward Island
Nova Scotia
U.S.
Total Portfolio
Percentage of
annualized rental
revenue
Occupancy
percentage
Percentage of
area occupied
by anchor and
national tenants
Percentage of
annualized
rental revenue
from anchor and
national tenants
42.4%
10.6%
4.0%
57.0%
9.1%
9.9%
5.2%
0.8%
0.3%
0.3%
0.5%
0.3%
0.1%
16.5%
100.0%
97.2%
96.8%
97.1%
97.1%
96.7%
98.9%
96.7%
83.1%
91.7%
98.6%
91.8%
99.4%
100.0%
97.1%
97.0%
85.5%
90.0%
91.2%
87.0%
81.4%
85.3%
88.6%
90.1%
93.2%
91.2%
80.4%
97.3%
97.0%
89.6%
86.9%
90.4%
86.9%
88.9%
89.6%
79.7%
79.6%
83.5%
88.6%
79.6%
86.4%
74.1%
93.8%
92.2%
85.9%
86.5%
Area
36.6%
10.9%
4.5%
52.0%
11.2%
8.8%
5.0%
1.1%
0.5%
0.4%
0.5%
0.3%
0.1%
20.1%
100.0%
Capital Expenditures on Income Properties
Capital expenditures
Capital expenditures refer to capital expenditures that are necessary to maintain the existing earnings capacity of the Trust’s
property portfolio and are dependent upon many factors, including, but not limited to the age and location of the income
properties. As at December 31, 2014, the estimated weighted average age of the income property portfolio is 20.3 and 12.4 years
for the Canadian and U.S. portfolios respectively (December 31, 2013 - 18.6 and 11.2 years for the Canadian and U.S. portfolios,
respectively). Capital expenditures are considered in determining RioCan’s calculation of AFFO, which influences amounts that
are distributed to unitholders, primarily consist of leasing commissions, tenant improvements and certain recoverable and non-
recoverable capital expenditures.
Leasing Commissions and Tenant Improvements
RioCan’s portfolio requires ongoing investments of capital for tenant installation costs related to new and renewal tenant leases.
Tenant installation costs consist of tenant improvements and other leasing costs, including compensation costs associated with
RioCan’s internal leasing professionals.
Investments of capital for tenant installation costs for RioCan’s income properties are dependent upon many factors, including,
but not limited to, the lease maturity profile, unforeseen tenant bankruptcies and the location of the income properties.
Recoverable and Non-recoverable Capital Expenditures
RioCan also invests capital on a continuous basis to physically maintain the income properties. Typical costs incurred are for roof
replacement programs and the resurfacing of parking lots. Tenant leases generally provide for the ability to recover a significant
portion of such costs from tenants over time as property operating costs. RioCan expenses or capitalizes these amounts to
income properties, as appropriate.
As the majority of the portfolio is located in Canada and the northeastern U.S., the majority of such activities occur when weather
conditions are favourable. As a result, these expenditures are not consistent throughout the year.
85
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Expenditures for leasing commissions and tenant improvements and recoverable and non-recoverable capital expenditures
included in consolidated income properties are as follows:
(millions of dollars)
Three months ended
December 31,
Year ended
December 31,
2014
2013
2014
2013
Estimated
expenditures
for 2015
Normalized
expenditures
Leasing commissions and tenant improvements
$
5 $
6 $
29 $
28 $
28 $ 24 - 30
Capital expenditures:
Recoverable from tenants
Non-recoverable from tenants (i)
Office capital investment (ii)
3
9
17
1
8
1
15
—
10
17
56
4
$
18 $
15 $
60 $
19
7
54
4
58
15
13 - 16
10 7 - 10
53
44 - 56
(i)
(ii)
Includes enhancing capital expenditures of $3 million and $5 million for the three months and year ended December 31, 2014 ($2 million and $3
million for the three months and year ended December 31, 2013), respectively.
Includes certain expenditures related to one-time upgrades to mechanical and electrical components of the office component of the RioCan Yonge
Eglinton Centre, and a portion of which is recoverable from the office tenants.
Enhancing capital expenditures
Capital spending for new property acquisitions, greenfield developments and the redevelopment of RioCan’s existing properties
to create and/or extract additional value are expected to improve the overall earnings capacity of the property portfolio. RioCan
considers such amounts to be investing activities. As a result, RioCan does not expect such expenditures to be funded from cash
flows from operating activities and does not consider such amounts as a key determinant in setting the amount that is distributed
to its unitholders. Enhancing capital expenditures are not included in the determination of RioCan's AFFO.
Joint Operations and Partnership Activities
Co-ownership activities represent real estate investments in which RioCan owns an undivided interest and where it has joint
control with its partners.
The Trust’s co-ownership arrangements are governed by co-ownership agreements with its various partners. RioCan’s standard
co-ownership agreement provides exit and transfer provisions, including, but not limited to, buy/sell and/or right of first offers that
allow for the unwinding of these co-ownership arrangements should the circumstances necessitate.
Generally, the Trust is only liable for its proportionate share of the obligations of the co-ownerships in which it participates, except
in limited circumstances. Credit risk arises in the event that co-owners default on the payment of their proportionate share of such
obligations. Co-ownership agreements will typically provide RioCan with an option to remedy any non-performance by a
defaulting co-owner. These credit risks are mitigated as the Trust has recourse against the asset under its co-ownership
agreements in the event of default by its co-owners, in which case the Trust’s claim would be against both the underlying real
estate investments and the co-owners that are in default. In addition to the matter noted above, RioCan has provided guarantees
on debt totalling $309 million as at December 31, 2014 (December 31, 2013 - $282 million) on behalf of partners and co-owners.
RioCan’s more significant joint operation relationships are as follows:
Allied
•
•
•
Allied is a leading owner, manager and developer of urban office environments.
The Partnership with RioCan is focused on acquisition and redevelopment of sites in urban areas of major Canadian cities
that are well suited for mixed use intensification.
Two Toronto development projects - College & Manning and King & Portland.
Allied/Diamond
•
The Well joint venture formed with partners, Allied and Diamond, acquired 7.74 acres of land since December 2012 in
downtown Toronto.
• RioCan and Allied have an undivided 40% interest and Diamond has an undivided 20% interest (RioCan’s effective
•
•
ownership is 43.9% as a result of its investment in Diamond’s Whitecastle New Urban Fund II).
Although the site is currently the home of the Globe and Mail newspaper, the tenant has announced plans to relocate to 351
King Street East, Toronto.
The property will be redeveloped as a mixed-use development comprising in excess of three million square feet of retail,
office and residential space.
CPPIB
• CPPIB is a professional investment management firm that invests the assets of the Canada Pension Plan.
•
• Major partner on East Hills, Calgary development project and sole partner on McCall Landing, Calgary and The Stockyards
Five income producing properties.
Toronto development project (recently completed).
86
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
•
•
•
•
•
Tanger
•
MANAGEMENT’S DISCUSSION AND ANALYSIS
Kimco
•
Kimco is a publicly traded REIT that owns and operates North America’s largest portfolio of neighbourhood and community
shopping centres.
Primary focus is on ownership of income producing properties.
45 Canadian investment properties and one U.S. property, representing nearly 50% of the Trust’s total JV properties.
• Represents RioCan’s largest joint venture partner.
•
•
KingSett
•
KingSett is a private equity real estate business with investments focused on office, retail and industrial properties in the
central and suburban business districts of Canada’s major markets.
Partnership with RioCan focused on acquisitions of greenfield development and prominent urban centres with intensification
and/or redevelopment potential.
Two income properties in the Greater Toronto Area - RioCan Yonge Sheppard Centre (intensification project) and Burlington
Mall.
Two Alberta development projects - Sage Hill and CPA Lands.
Tanger is a public REIT since 1993 and a leading developer and manager of outlet shopping centres in the U.S., each one
known as a Tanger Outlet Center.
Partnership with RioCan focused on acquisition, development and leasing of outlet shopping centres similar in concept and
design to those within the existing Tanger U.S. portfolio, located in close proximity to larger urban markets and tourist areas
across Canada.
Four income properties in Ontario and Quebec - Cookstown Outlet Mall, Les Factoreries Tanger - Bromont, Tanger Outlets
Ottawa and Les Factoreries Tanger - Saint-Sauveur.
Trinity
•
Trinity, a private company, has played a prominent role in the development of new format regional retail centres across
Canada.
Partnership with RioCan focused on acquisition and development of greenfield projects.
•
• Nine income producing and development properties, located in Ontario and Alberta.
Selected Financial Information by Joint Operation - Proportionate Share
(millions of dollars)
As at December 31, 2014
Allied
The Well Joint Venture (Allied/Diamond)
Bayfield Realty Advisors (Bayfield)
CMHC Pension Fund
CPPIB
First Gulf Corporation
Kimco (Incl. U.S.)
KingSett
Metropia and Bazis Inc.
Sun Life Financial (Sun Life)
Tanger
Trinity
Other
Total Joint Operations
(i)
Includes properties under development.
Number of
Investment
Properties (i)
Total
Assets
Total
Liabilities
$
$
41
99
115
43
590
81
1,299
291
75
26
184
395
174
8
40
37
20
68
37
413
100
43
13
24
175
61
2
1
5
1
7
1
46
4
1
2
4
9
11
94
For the three
months ended
December 31, 2014
For the year ended
December 31, 2014
$
NOI
— $
—
2
—
6
1
19
2
—
1
3
5
3
NOI
1
1
7
2
22
3
74
11
—
4
6
23
12
$
3,413
$
1,039
$
42
$
166
87
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
RioCan’s proportionately consolidated co-ownerships, partnerships and consolidated joint ventures are as follows:
Summary of Joint Arrangements
(thousands of square feet, except other data)
As at December 31, 2014
Proportionately consolidated joint operations
Bayfield
CPPIB
Kimco
KingSett
Sun Life
Tanger
Trinity
Other (ii)
Equity accounted joint ventures
Other (iii)
RioCan's
ownership
interest
Number of
income
properties
assets (i)
NLA of income
properties assets
at 100%
Number of PUD
projects (i)
NLA upon
completion of
PUD projects
at 100%
30%-40%
40%-50%
15.5%-50%
50%
40%-50%
50%
50%-81.25%
30%-75%
40%-80%
5
5
45
2
2
3
7
12
81
2
2
83
1,952
2,120
9,258
1,237
749
414
1,493
1,814
19,037
358
358
19,395
—
2
—
2
—
1
2
4
11
—
—
11
—
1,504
—
705
—
353
419
2,738
5,719
—
—
5,719
(i) The number of properties under development (PUD) includes those properties with phased development where tenancies have already
commenced operations, as per the “Development Pipeline Summary”.
Includes joint operation with Allied and Diamond, Allied and various other partners.
Includes joint ventures with Kimco (Montgomery) and Marketvest Corporation/Dale-Vest Corporation.
(ii)
(iii)
Total Assets by Joint Arrangement
(millions of dollars)
As at December 31, 2014
Proportionately consolidated joint
operations
Bayfield
CPPIB
Kimco
KingSett
Sun Life
Tanger
Trinity
Other (ii)
Total assets of proportionately
consolidated joint operations
Fully consolidated subsidiaries
White Shield (Canada) (iii)
Total assets of fully consolidated
joint ventures
Equity accounted joint ventures
Kimco (Montgomery)
Marketvest Corporation/Dale-
Vest Corporation
Total assets of equity accounted
joint ventures
Income
properties
PUD (iv)
Properties
held for resale
Other (i)
Total December 31, 2013
$
112 $
1 $
— $
2 $
115 $
489
1,198
207
25
168
322
305
2,826
—
—
73
8
81
93
12
64
—
11
47
140
368
—
—
—
—
—
—
1
19
—
—
19
41
80
—
—
—
—
—
80 $
8
11
1
1
5
7
19
54
—
—
4
—
4
590
1,222
291
26
184
395
505
3,328
—
—
77
8
85
58 $
3,413 $
110
477
1,195
274
71
113
525
432
3,197
15
15
64
8
72
3,284
Total Joint Arrangements
$
2,907 $
368 $
(i) Primarily includes cash, rents receivable and other operating related expenditures receivable from tenants.
(ii)
(iii) During the quarter ended March 31, 2014, RioCan completed the acquisition of the remaining 40% interest in this income property, bringing
Includes joint operations with Allied, Allied and Diamond and various other partners.
RioCan's interest in the property to 100%.
(iv) The value of PUD includes active development projects as well as the value of excess density where development is currently non-active.
88
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Total Liabilities by Joint Arrangement
(millions of dollars)
As at
Proportionately consolidated joint operations
Bayfield
CPPIB
Kimco
KingSett
Sun Life
Tanger
Trinity
Other (i)
December 31, 2014
December 31, 2013
$
37 $
68
385
100
13
24
175
205
36
87
407
127
13
13
204
181
Total liabilities of proportionately consolidated joint operations
1,007
1,068
Equity accounted joint ventures
Kimco (Montgomery)
Marketvest Corporation/Dale-Vest Corporation
Total liabilities of equity accounted joint ventures
29
4
33
31
4
35
$
1,039 $
1,103
(i)
Includes joint operations with Allied, Allied and Diamond and various other joint venture partners.
NOI by Joint Arrangement
(millions of dollars)
Year ended December 31,
Proportionately consolidated joint operations
Bayfield
CPPIB
Devimco
Kimco
Kingsett
Sun Life
Tanger
Trinity
Other (ii)
2014
2013
$
7 $
22
—
70
11
4
6
23
19
6
18
10
68
10
4
4
30
17
Total NOI of proportionately consolidated joint operations
162
167
Fully consolidated subsidiaries
Dunhill
Sterling
Trinity (White Shield)
Total NOI of fully consolidated joint ventures
Equity accounted joint ventures
Kimco/Dunhill
Kimco (Montgomery)
Marketvest Corporation/Dale-Vest Corporation
RPAI
Total NOI of equity accounted joint ventures
—
—
—
—
—
4
—
—
4
10
2
1
13
2
4
—
26
32
$
166 $
212
(i)
Includes joint operations with Allied, Allied and Diamond and various other joint venture partners.
Properties Under Development
RioCan has a development program primarily focused on new format and urban retail centres. The provisions of the Trust’s
Declaration have the effect of limiting direct and indirect investments, net of related mortgage debt, in non-income producing
properties to no more than 15% of the Adjusted Unitholders’ Equity of the Trust. “Adjusted Unitholders’ Equity” is a non-GAAP
measure defined in RioCan’s Declaration as the amount of unitholders’ equity plus the amount of accumulated amortization of
income properties recorded by the Trust, calculated in accordance with GAAP. As at December 31, 2014, RioCan's investments
in non-income producing properties as a percentage of Adjusted Unitholders' Equity was 3.5% and, therefore, the Trust is in
89
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
compliance with this restriction. RioCan undertakes such developments on its own, or on a co-ownership or partnership basis,
with established developers to whom the Trust generally provides mezzanine financing. With some exceptions for land in the high
growth markets, RioCan will generally not acquire or fund significant expenditures for undeveloped land unless it is zoned and an
acceptable level of space has been pre-leased or pre-sold. An advantage of unenclosed, new format retail is that it lends itself to
phased construction keyed to leasing levels, which avoids the creation of meaningful amounts of vacant space. In addition to
RioCan’s various development projects, the Trust also contributes to portfolio growth through the intensification and
redevelopment of existing properties where RioCan has identified opportunities to increase density or add to an existing
asset. This intensification and redevelopment of existing properties contributes to NOI growth in an efficient manner, leveraging
the existing asset base, and can also lead to significant gains resulting from the sale of residential rights.
Development square feet by Property Type as at December 31, 2014
Development square feet by Geographic Area as at December 31, 2014
90
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Development Properties Continuity
The change in the IFRS consolidated net carrying amount is as follows:
(millions of dollars)
Consolidated balance, beginning of period
Acquisitions (i)
Development expenditures
Changes in fair values of properties under development
Completion of properties under development
Transfers from income properties
Dispositions
Other
Three months ended
December 31,
Year ended
December 31,
2014
2013
2014
2013
$
642
$
541
$
9
60
(4)
(33)
35
—
(3)
—
48
—
$
583
172
237
7
440
56
141
6
(31)
(363)
(123)
20
—
5
75
(2)
(3)
58
—
5
Consolidated balance, end of period
$
706
$
583
$
706
$
583
(i) Comprised of the purchase price, including closing costs and other acquisition related costs.
Development Property Acquisitions
During the three months ended December 31, 2014, RioCan acquired interests in three development properties in Canada at an
aggregate purchase price of $9 million, at RioCan's interest.
During the year ended December 31, 2014, RioCan acquired interests in 11 development properties in Canada at an aggregate
purchase price of $172 million, at RioCan's interest.
Expected NLA
(in thousands of
square feet) at
RioCan's
interest upon
completion of
redevelopment
RioCan’s
purchase price
(i) (millions)
Asset class to
be redeveloped
(ii)
Expected year
of completion Partners
RioCan's
ownership
interest
3
27
4
54
33
19
11
12
6
1
2
20
76
173
276
347
302
145
186
173
248
71
NGA
GA
MIX
URB
NFR
2015 Kimco (50%)
2015 None
2017
Metropia(25%),
Bazis (50%)
2015 CPPIB (50%)
2017 CPPIB (50%)
NFR
2017
CPPIB (37.5%),
Lansdowne(12.5%),
Tristar (10%)
50%
100%
50%
50%
50%
40%
URB
NFR
MIX
MIX
NFR
2017 None
100%
2016 Trinity (18.75%)
81.25% - 100%
2017
Metropia(25%),
Bazis (50%)
2018 Allied (50%)
2017 CPPIB (50%)
50%
50%
50%
Property name and location
Acquisitions of development sites
- Q1 2014
Brentwood Village additional density,
Calgary, AB
$
1860 Bayview Avenue, Toronto, ON
Yonge & Eglinton land assembly: 31
Roehampton Ave, Toronto, ON
The Stockyards, Toronto, ON
(additional 25% from Trinity)
McCall Landing, Calgary, AB
(additional 25% from Trinity)
East Hills, Calgary, AB (additional
10% from Trinity)
Acquisitions of development sites
- Q2 2014
Bathurst & College land assembly,
Toronto, ON (remaining 40% from
Trinity)
RioCan Centre Vaughan, Vaughan,
ON
Acquisitions of development sites
- Q4 2014
Yonge & Eglinton land assembly:
TD Bank, Toronto, ON
King & Portland joint venture: 499
Adelaide Street West, Toronto, ON
Burloak Additional Lands (4 acres),
Oakville, ON
Total acquisitions of development
sites
$
172
2,017
(i) Excludes closing costs and other acquisition related costs
(ii) "URB" - Urban Retail; "MIX - Mixed Use Centre; "NFR" - New Format Retail; "OUT" - Outlet Mall; "GA" - Grocery Anchored; "NGA" - Non-grocery
anchored
91
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Further details around RioCan’s current quarter development property acquisitions are as follows:
Canada
• On November 3, 2014, RioCan completed the acquisition of a 50% interest in the site where TD Bank was formerly located
at the northeast corner of Yonge Street and Eglinton Avenue in Toronto, Ontario, at a purchase price of $12 million ($6 million
at RioCan’s interest). The acquisition, which was completed free and clear of financing, forms part of the existing Northeast
Yonge Eglinton land assembly, acquired in 2011 with Metropia and Bazis for the purpose of redeveloping into a mixed-use
retail and residential property. RioCan and its partners obtained zoning approval and the redevelopment commenced in April
2014.
• On December 5, 2014, RioCan completed the acquisition of 499 Adelaide Street West located in Toronto, Ontario, at a
purchase price of $0.6 million, at RioCan’s interest. The asset was acquired free and clear of financing and will be fully
redeveloped as part of the multi-parcel land assembly at the intersection of King Street West and Portland Street in Toronto,
Ontario. This acquisition forms part of the King and Portland Joint Venture with Allied Properties Real Estate Investment
Trust, with the intention to intensify the site by creating a mixed-use office, retail and residential complex.
• On December 10, 2014, RioCan completed the acquisition of a 50% interest in a 4-acre parcel of land adjacent to RioCan
Centre Burloak located in Oakville, Ontario, at a purchase price of approximately $4 million ($2 million at RioCan's
interest). The property was acquired free and clear of financing. Together with a contiguous residual 8.5 acre land parcel, the
combined 12.5 acre land parcel will be re-designated and re-zoned in the second quarter of 2015 and an additional 141,000
square feet of retail space will be available for development on the site. RioCan Centre Burloak is a 553,000 new format
retail centre situated on an 89-acre parcel of land anchored by Cineplex Theatre, Longo's Supermarket and a retailer-owned
Home Depot. The entire site is owned on a 50%/50% joint venture basis with partner CPPIB.
Development Property Acquisitions Subsequent to Quarter End
On February 6, 2015, RioCan completed the acquisition of an 81.25% interest in a 5.8 acre land parcel at RioCan Centre
Vaughan, located in Vaughan, Ontario, at a purchase price of $4 million ($3 million at RioCan’s interest). Trinity acquired the
remaining 18.75% interest and the property was acquired free and clear of financing. The land parcel acquired is adjacent to
phase II of RioCan’s existing shopping centre at RioCan Centre Vaughan.
Development Property Acquisitions Under Contract
As at the date of this report, RioCan does not have any development property acquisitions under contract.
92
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Development Activity in 2014
During the year ended December 31, 2014, RioCan transferred from properties under development to income producing
properties $363 million in costs pertaining to 1.0 million square feet of completed greenfield development or expansion and
redevelopment projects.
A summary of RioCan’s 2014 transfers to income properties from development projects is as follows:
NLA (in thousands of
square feet) at RioCan’s
Interest
2014
Total
Fourth
quarter
Third
quarter
Second
quarter
First
quarter
NLA at
100% Tenants transferred to IPP
Property location
Brentwood Village, Calgary,
AB
Centre St. Martin, Laval, QC
Collingwood Centre,
Collingwood, ON*
Yonge & Erskine, Toronto,
ON*
Galeries Laurentides, St.-
Jerome, QC*
RioCan’s
ownership
interest
50%
100%
100%
50%
100%
Kennedy Commons, Toronto,
50%
ON
Mississauga Plaza, Toronto,
ON*
Niagara Falls Plaza, Toronto,
ON*
Northumberland Square,
Miramichi, NB*
RioCan Fairgrounds,
Orangeville, ON*
Tanger Outlets Cookstown,
Cookstown, ON*
100%
100%
100%
100%
50%
Timmins Square, Timmins,
30%
ON*
Corbett Centre, Fredericton,
100%
NB
East Hills, Calgary, AB
Grant Crossing, Ottawa, ON
Herongate Mall, Ottawa, ON
RioCan Centre Belcourt,
Orleans, ON*
Southbank Centre, Okotoks,
AB*
Tanger Outlets Ottawa,
Ottawa, ON
40%
60%
75%
60%
50%
50%
159
The Stockyards, Toronto, ON
50%
221
12
34
82
6
26
43
50
41
43
28
78
10
26
52
20
7
38
26
—
—
—
6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
75
—
—
43
50
41
20
—
78
5
26
—
3
—
—
—
159
—
—
7
—
26
—
—
—
—
28
—
—
—
52
17
7
38
14
—
12
34
—
—
—
—
—
—
23
—
—
5
—
—
—
—
—
12
—
24 University City retail
34 Pharma Prix, Rossy
81 Sobeys Expansion, Winners,
Sport Chek, Carter's,
Dollarama, Bed Bath &
Beyond
12 TD Bank
26 Gold's Gym
85 Michaels, LA Fitness
50 LA Fitness
41 LA Fitness
43 Giant Tiger, Winners
28 Walmart Expansion
156 Carter's, Guess, Toys R Us,
Nike, American Eagle, Puma,
Eddie Bauer, Multiple national
tenants
31 Ardene
26 HomeSense, Hallmark
130 Walmart
33 Dollarama, JYSK, Urban Barn
9 Shawarma Prince, Flashy
Nails, Extreme Pita, Gabriels
Pizza
63 Dollar Tree, Toys R Us, H&R
Block, Beyond the Batter
53 Sport Chek, Ardene, Carters,
Solo Liquor, GoodLife Fitness
318 Carter's, American Eagle,
Eddie Bauer, Gap, Guess,
Subway, Old Navy, Multiple
national tenants
20
—
201
442 Old Navy, Winners, Linen
Chest, Sport Chek, PetSmart,
Michaels, Multiple national
tenants
* Greenfield & Redevelopment projects completed in 2014.
1,002
6
520
189
287
1,685
93
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
A summary of RioCan’s 2013 transfers to income properties from development projects is as follows:
NLA (in thousands of square feet) at
RioCan’s Interest
2013
Fourth
quarter
Third
quarter
Second
quarter
First
quarter
NLA at
100% Tenants transferred to IPP
Property location
Centre St. Martin,
Laval, QC
East Court Mall,
Cornwall, ON
Five Points Shopping
Centre, Oshawa,
Ontario
Galeries Laurentides,
St.-Jerome, QC
RioCan’s
ownership
interest
100%
100%
Total
70
91
100%
108
100%
78
Place Carnaval, Laval,
100%
QC
Queensway Cineplex,
Toronto, ON
RioCan Greenfield,
Greenfield Park, QC
RioCan West Ridge,
Orillia, ON
South Hamilton
Square, Hamilton,
ON
Sudbury Place,
Sudbury, ON
Timmins Square,
Timmins, ON
Toronto, ON
Grant Crossing,
Ottawa, ON
Herongate Mall,
Ottawa, ON
Meadow Ridge Plaza,
Ajax, ON
Southbank Centre,
Okotoks, AB
The Stockyards,
Toronto, ON
50%
50%
100%
100%
5
6
3
65
87
2
5
60%
75%
47
20%
50%
7
2
25%
49
100%
110
110
30%
13
Yonge Eglinton Centre,
100%
25
—
—
—
5
6
—
—
—
—
2
5
—
—
—
11
45
91
108
78
—
—
3
—
87
—
13
—
—
—
—
—
37
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7
—
—
7
—
—
—
—
—
—
—
65
—
—
—
—
—
70 Gold’s Gym, Dollarama,
L’Aubainerie
91 No Frills, Ardene,
Dollarama, Urban Planet
108 Target Retrofit and
Expansion, Burger King
78 Maxi, Urban Planet
5 TD Bank
12 Cineplex Expansion
5 National Bank
65 Big Lots, Sears
87 Target Retrofit and
Expansion
110 Target Retrofit and
Expansion
44 Urban Planet
2 Aroma Café relocation
8 Japanese Buffet, First
Choice, Thai Express,
Beyond the Batter,
Running Room
47
63 Food Basics, Rexall
Pharma Plus, Bank of
Nova Scotia, Herongate
Dental Clinic, Herongate
Barbershop, Subway
34 GoodLife Fitness,
Dollarama
5 Sleep Country Canada
192 Target Corporation, Royal
Bank of Canada
—
2
—
114
979
Development Pipeline Summary
748
164
462
The fair market value of properties under development at December 31, 2014 is $706 million (December 31, 2013 - $583 million),
which includes costs of $718 million (December 31, 2013 - $568 million) and a fair value reduction of $12 million (December 31,
2013 - increment of $15 million).
As at December 31, 2014, RioCan’s greenfield development and urban intensification pipeline will, upon completion, comprise
approximately 7.0 million square feet, which includes approximately 0.4 million square feet which is already income producing.
RioCan’s ownership interest will be approximately 3.9 million square feet.
94
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following tables represent the components of properties under development type and status as of:
As at December 31, 2014
Comprised of:
Greenfield Development
Urban Intensification
Expansion and Redevelopment
Excess Density
Other (i)
(i)
including earnouts and other.
As at December 31, 2013
Comprised of:
Greenfield Development
Urban Intensification
Expansion and Redevelopment
Excess Density
Other (i)
(i)
including earnouts and other.
Definitions
Non-active
Total
$
— $
Active
Committed
Non-
committed
$
$
112
81
202
—
—
65
130
32
—
—
$
395
$
227
$
—
—
79
5
84
$
—
—
41
7
48
$
177
211
234
79
5
706
291
128
116
41
7
583
Active
Committed
Non-
committed
Non-active
Total
$
— $
$
218
$
28
86
—
—
73
100
30
—
—
$
332
$
203
$
Greenfield Development - vacant land located in suburban markets.
Urban Intensification - development or redevelopment projects located in urban markets.
Expansion and Redevelopment - projects that will improve the property through demolition, renovation and/or the addition of
density.
Excess Density - leasable area identified and available for future development if and when market demand exists.
Active Committed - a property where the pro forma budget has been approved, all major planning issues have been resolved,
tenants have been secured and construction is about to start or has started.
Active Non-committed - a property where the development team is creating the pro forma budget, all planning issues are being
resolved, the leasing team is in the process of securing tenants, but construction has not started.
Non-active - a property that has future development potential.
On an individual development basis, the majority of the projects are estimated to generate yields of approximately 6% to 10%.
On an aggregate basis, RioCan expects these development projects to generate a weighted average NOI yield of 7% to 8%.
Capital expenditures for active projects for 2015 are estimated to be approximately $151 million. During the year ended
December 31, 2014, total costs incurred were approximately $237 million, excluding mezzanine loans advanced of approximately
$26 million.
RioCan is committed to property development and redevelopment opportunities and is focused on completing the construction of
the development pipeline underway, on time and on budget, and continuing to make progress on leasing. Commencement of
construction for several of the development projects have been deferred until economic conditions warrant. Potential anchor
tenants are currently more cautious in committing to new developments, which will impact the timing of several developments, as
RioCan will not commence construction until it has secured the requisite leasing commitments and appropriate risk-adjusted
returns.
RioCan’s estimated development project square footage and development costs are subject to change, which changes may be
material to the Trust, as assumptions regarding, among other items, anchor tenants, tenant rents, building sizes, project
completion timelines, availability and cost of construction financing, and project costs, are updated periodically based on revised
site plans, the cost tendering process and continuing tenant negotiations.
Development activity is expected to increase in the upcoming years due to demand from U.S.-based tenants entering the
Canadian market and the demand from existing tenants, especially in urban locations. Due to the economic recession of the last
few years, the level of development in general has been low across the country.
95
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Estimated Spending Summary by Development Category – Active Projects
(millions of dollars)
Greenfield Development
Urban Intensification
Expansion & Redevelopment
Total Construction Expenditures
Mezzanine Funding Obligation
Total RioCan Funding Requirements
2015
2016
2017+
FD (i)
Total
$
32.6 $
12.1 $
5.0 $ 238.3 $ 288.0
36.2
82.4
151.2
0.1
7.8
162.3
182.2
0.2
18.5
19.7
43.2
—
772.6
—
835.1
264.4
1,010.9
1,387.5
(1.9)
(1.6)
$
151.3 $ 182.4 $
43.2 $ 1,009.0 $ 1,385.9
(i)
Future Development - projected costs from 2017 to 2019+ to build NLA not leased.
The NLA of development pipeline expected to be completed by year, as at December 31, 2014 is as follows:
(thousands of square feet)
Greenfield Development
Urban Intensification
Sub-total
Expansion & Redevelopment
Total
NLA - 100%
NLA - RioCan%
IPP(i)
2015
2016
2017
2018+
2,903
4,119
7,022
1,395
8,417
1,846
2,051
3,897
1,046
4,943
239
54
293
—
293
174
76
250
211
461
151
—
151
678
829
861
364
1,225
157
1,382
421
1,557
1,978
—
1,978
(i) Phases of the development pipeline that are currently income producing (at RioCan's interest).
The development (including expansions and redevelopment projects) pipeline NLA expected to be completed by year, as at
December 31, 2014 is as follows:
Subject to pre-leasing and market conditions
Greenfield Development
RioCan’s current greenfield development pipeline consists of five properties that are expected to add approximately 2.9 million
square feet (1.8 million square feet at RioCan’s interest) of space upon completion over the next six years. 0.3 million square feet
(0.2 million square feet at RioCan’s interest) is already income producing. RioCan is committed to property development and
redevelopment opportunities and is focused on completing its existing development pipeline. These developments will be an
important component of RioCan’s organic growth strategy over time. RioCan’s development program is focused on well-located
urban and suburban land in the six major market markets in Canada. RioCan’s projected returns on development properties are
higher than the returns that can be generated through properties that are purchased. Furthermore, population growth over time
will lead to improved tenant sales and further increases in rent at these properties as tenants renew upon expiry of their original
term. Development properties that have been completed by RioCan and its partners during the last fifteen years contribute
significantly to RioCan’s existing growth and these types of properties are rarely, if ever, available for sale.
96
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Highlights of RioCan’s greenfield development pipeline as at December 31, 2014, are as follows:
Estimated square feet upon completion of the
development project
Anticipated date of
development completion
RioCan’s
%
ownership
Partners
Anchors
Total
estimated
development
Retailer
owned
anchors(i)
RioCan’s
interest
Partners’
interests
Total
leasing
activity
(ii)
%
Leased
Current
development
Potential
future
developments
(thousands of square feet)
Greenfield Development
Properties
East Hills, Calgary, AB *
40%
CPP /
Lansdowne
/ Tristar
Walmart,
Cineplex
Flamborough Power
Centre, Hamilton, ON *
100%
—
—
Sage Hill, Calgary, AB *
50%
Kingsett
Greenfield Developments
–Committed
RioCan Centre Vaughan,
Vaughan, ON Ph 3 *
31.25%
Trinity /
Strathallan
100%
—
Windfield Farms,
Oshawa, ON *
Greenfield Developments
–Non-committed
Total Greenfield
Developments
Walmart,
Loblaws,
London
Drugs
—
—
916
160
302
454
276
37%
Q3 2015
2017
283
394
—
—
283
—
195
69%
Q1 2016
2016
197
197
294
75%
Q2 2016
2016
1,593
96
160
74
782
7
1,214
157
1,057
1,310
231
1,064
651
15
—
15
765
—
—
—
53%
—%
—%
—%
2,903
391
1,846
666
765
30%
—
—
2016
2017 (iii)
(i) Retailer owned anchors include both completed and contemplated sales.
(ii) Leasing activity includes leasing that is conditional on receiving municipal approvals and meeting construction deadlines.
(iii) The first phases are expected to be substantially complete by the date indicated.
*
Property represents one of RioCan’s 15 properties under development.
Acquisition and development expenditures incurred to date
RioCan’s interest
Estimated remaining
construction
expenditures to complete
RioCan’s
%
ownership
Estimated
project cost
(100%) (i)
Amount
included in
IPP
Amount
included in
PUD
Total
Partners’
interest
Total
RioCan’s
interest
Partners’
interest
Total
(thousands of dollars)
Greenfield Development Properties
East Hills, Calgary, AB
40% $
313,426 $
483 $
68,728 $ 69,211 $ 88,310 $ 157,521 $ 62,362 $ 93,543 $155,905
Flamborough Power Centre, Hamilton, ON
100%
61,565
31,391
7,448
38,839
—
38,839
22,727
— 22,727
Sage Hill, Calgary, AB
Fair value adjustments
50%
110,644
21
—
21,639
21,660
19,924
41,584
34,530
34,530
69,060
14,447
14,447
—
14,447
—
—
—
Greenfield Developments – Committed
RioCan Centre Vaughan, Vaughan, ON Ph 3
31.25%
(ii)
485,635
10,395
Windfield Farms, Oshawa, ON
100%
223,476
Fair value adjustments
Greenfield Developments - Non-committed
233,871
31,895
112,262
144,157
108,234
252,391
119,619
128,073
247,692
—
—
—
—
7,649
7,649
11,081
18,730
(2,605)
(5,730)
(8,335)
52,595
52,595
4,326
4,326
—
—
52,595
170,881
— 170,881
4,326
—
—
—
64,570
64,570
11,081
75,651
168,276
(5,730) 162,546
Total Greenfield Developments
$
719,506 $
31,895 $
176,832 $208,727 $ 119,315 $ 328,042 $ 287,895 $ 122,343 $410,238
(i) Proceeds from sale to shadow anchors reduce projected cost.
(ii) Credits reflects proceeds from a potential land parcel sale.
97
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
(thousands of dollars)
Greenfield Development
Properties
RioCan’s
%
ownership
Estimated remaining development activity to be funded by RioCan
2015
2016
2017 & Thereafter
Future Development
Total
RioCan’s
interest
Mezzanine
financing
RioCan’s
interest
Mezzanine
financing
RioCan’s
interest
Mezzanine
financing
RioCan’s
interest
Mezzanine
financing
RioCan’s
interest
Mezzanine
financing
East Hills, Calgary, AB
40% $ 10,193 $
— $
1,973 $
— $
2,072 $
— $ 48,124 $
— $ 62,362 $
—
—
—
—
Flamborough Power
Centre, Hamilton, ON
100%
— $
Sage Hill, Calgary, AB
50%
19,533 $
Greenfield Developments –
Committed
RioCan Centre Vaughan,
Vaughan, ON Ph 3 (i)
29,726
31.25%
239
—
—
—
143
— $
7,137 $
9,110
251
—
—
—
151
—
—
2,072
—
—
—
—
—
22,727 $
7,861 $
—
—
22,727 $
34,531 $
78,712
(3,095)
— 119,620
(1,857)
(2,605)
(1,563)
Windfield Farms, Oshawa,
100%
2,630
—
2,761
—
2,899
— 162,591
— 170,881
—
ON
Greenfield Developments –
Non-committed
Total Greenfield
Developments
2,869
143
3,012
151
2,899
— 159,496
(1,857)
168,276
(1,563)
$ 32,595 $
143 $ 12,122 $
151 $
4,971 $
— $ 238,208 $
(1,857) $ 287,896 $
(1,563)
(i) Credits reflects proceeds from a potential land parcel sale.
(thousands of dollars)
Greenfield Development Properties
East Hills, Calgary, AB
Flamborough Power Centre, Hamilton, ON
Sage Hill, Calgary, AB
Greenfield Developments - Committed
RioCan Centre Vaughan, Vaughan, ON Ph 3
Windfield Farms, Oshawa, ON
Greenfield Developments - Non-Committed
Total Greenfield Developments
Funding Obligations
RioCan’s %
ownership
RioCan’s
interest
RioCan
RioCan on
behalf of
partners
(Mezzanine
loans)
Total
RioCan
funded
Partners
Total
40% $
62,362 $
— $
62,362 $
93,543 $
155,905
100%
50%
31.25%
22,727
34,530
119,619
—
100%
170,881
170,881
—
—
—
—
—
—
22,727
34,530
—
34,530
22,727
69,060
119,619
128,073
247,692
—
170,881
170,881
—
—
—
—
170,881
170,881
$
290,500 $
— $
290,500 $
128,073 $
418,573
A summary of fourth quarter 2014 highlights from RioCan’s Greenfield Development projects are as follows:
East Hills - Calgary, Alberta
Development continues at the site which is anchored by a 130,000 square foot Walmart that opened in March 2014. An additional
66,000 square feet of retail space is currently under construction and construction will be completed in the next six months.
Tenants including CIBC, TD Bank and Sleep Country Canada are expected to commence operations in Q3 2015. RioCan has the
sale of 15-acre parcel of land to a national retailer under conditional contract where conditions have not been waived.
Flamborough Power Centre - Flamborough, Ontario
This 25-acre site is currently being developed into a 267,000 square foot new format retail centre. An additional 80,000 square
feet of retail space will be developed at the property, including a 8,000 square foot pad to be leased to Investors Group that will
commence operations in first quarter of 2016.
Sage Hill - Calgary, Alberta
In the fourth quarter of 2014, RioCan completed site works (internal roads & services) related to the Walmart phase. During
January 2015, the Walmart commenced operations at this site.
McCall Landing - Calgary, Alberta
McCall Landing, located at 36th Street NE and Country Hills Boulevard NE in Calgary, is a 109-acre site that is currently being
marketed for sale. RioCan purchased Trinity’s 25% interest in the property in the first quarter of 2014, increasing the Trust’s
ownership interest in the property to 50%. As the property is to be disposed of, the value of the property has been moved from
the Greenfield Development to Excess Density.
Urban Intensification
A focus within RioCan’s development growth strategy is urban development and intensification. RioCan’s current urban
development pipeline consists of eight properties that are expected to add approximately 4.1 million square feet (2.1 million
square feet at RioCan’s interest) of space upon completion over the next six years, excluding condominium units that will be sold.
RioCan’s urban development program currently is focused on properties located in densely populated areas in the urban cores of
Toronto and Calgary.
98
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Land use intensification opportunities arise from the fact that retail centres are generally built with lot coverages of approximately
25% of the underlying land. Therefore, particularly in urban markets, RioCan can seek to obtain additional density, retail or
otherwise, on its existing property portfolio and, as the land is already owned, it may be able to achieve relatively higher returns
on new construction as well as from the sale of non-retail use density. Population growth is significant in these areas and retailers
want locations that are able to access this population. RioCan’s urban development program will serve that demand and returns
on these properties will contribute significantly to RioCan’s growth strategy over time. As a result of the aforementioned
population growth, cities are building infrastructure to serve this population that will benefit RioCan’s urban development growth
strategy.
Highlights of RioCan’s urban intensification pipeline as at December 31, 2014, are as follows:
Estimated square feet upon completion of the
development project
Anticipated date of
development completion
(thousands of square feet)
Urban Intensification Properties
RioCan’s
%
ownership
Partner(s)
Anchors
Total
estimated
development
Retailer
owned
anchors
(i)
RioCan’s
interest
Partners’
interests
%
Leased
Current
development
Potential
future
developments
89%
Q3 2015
1860 Bayview Avenue, Toronto,
100%
ON *
Bathurst Street & College Street,
100%
Toronto, ON *
—
—
Whole
Foods
—
CPA Lands, Calgary, AB *
50%
Kingsett
Loblaws
NE Yonge Eglinton, Toronto, ON *
(vi)
50% Metropia /
Bazis
Urban Intensification-Committed
College & Manning,Toronto, ON *
Dupont Street, Toronto, ON *
The Well, Toronto, ON * (iv)
50%
100%
40%
Allied
—
Allied /
Diamond
King & Portland, Toronto, ON *
50%
Allied
—
—
—
—
—
Urban Intensification -
Non-committed
Total Urban Intensification
76
145
174
438
833
114
271
2,548
352
3,285
4,118
—
—
—
—
—
—
—
—
—
—
—
Total
leasing
activity
(ii)
68
52
76
145
87
219
527
57
271
—
—
87
57
—
59
—
—
48
1,019
1,529
176
176
1,523
2,050
1,762
2,068
107
347
102
59%
219
18
4%
306
240
36%
29%
52%
—%
—%
14%
3%
8%
2015
2017
2019
2017
2018
2020
2019 (iii)
2018
—
—
—
—
—
—
—
(i) Retailer owned anchors include both completed and contemplated sales.
(ii) Leasing activity includes leasing that is conditional on receiving municipal approvals and meeting construction deadlines.
(iii) The first phases are expected to be substantially complete by the dates indicated.
(iv)
*
Includes amounts for offices, retail and residential apartments only (excludes residential condominiums).
Property represents one of RioCan’s 15 properties under development.
Acquisition and development expenditures incurred to date
Estimated remaining construction
expenditures to complete
RioCan’s %
ownership
Estimated
project cost
(100%) (i)
RioCan’s interest
Amount
included
in
IPP
Amount
included
in
PUD
Total
Partners’
interest
Total
RioCan’s
interest
Partners’
interest
Total
(thousands of dollars)
Urban Intensification Properties
1860 Bayview Avenue, Toronto, ON
100% $
56,831 $
— $
28,044 $
28,044 $
— $
28,044 $
28,787 $
— $
28,787
Bathurst Street & College Street,
100%
89,836
Toronto, ON
CPA Lands, Calgary, AB
NE Yonge Eglinton, Toronto, ON
Fair value adjustments
Urban Intensification – Committed
College & Manning,Toronto, ON
Dupont Street, Toronto, ON
The Well, Toronto, ON
King & Portland, Toronto, ON
Fair value adjustments
50%
50%
126,414
207,375
480,456
52,420
98,450
1,566,995
50%
100%
40%
50%
128,419
10,349
—
—
—
126
—
126
8,539
—
632
25,572
25,572
—
25,572
64,264
—
64,264
11,387
20,306
11,387
20,432
10,528
20,416
21,915
40,848
52,250
83,256
(4,549)
(4,549)
—
(4,549)
—
52,250
83,256
—
104,500
166,512
—
80,760
4,506
14,953
76,872
14,380
19,236
80,886
13,045
14,953
30,944
111,830
228,557
135,506
364,063
11,879
—
24,924
14,953
13,748
83,497
13,748
—
27,496
83,497
77,504
109,543
187,047
551,980
827,970
1,379,950
24,729
19,236
22,752
—
47,481
19,236
40,469
40,469
80,938
—
—
—
Urban Intensification - Non-committed
1,846,284
19,520
129,947
149,467
144,174
293,641
689,694
882,187
1,571,881
Total Urban Intensification
$ 2,326,740 $
19,646 $ 210,707 $ 230,353 $ 175,118 $ 405,471 $ 918,251 $1,017,693 $ 1,935,944
(i) Proceeds from sale to shadow anchors reduce projected cost, and exclude potential condominium residential units.
99
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Estimated remaining development activity to be funded by RioCan
2015
2016
2017 & Thereafter
Future Development
Total
RioCan’s %
ownership
RioCan’s
interest
Mezzanine
financing
RioCan’s
interest
Mezzanine
financing
RioCan’s
interest
Mezzanine
financing
RioCan’s
interest
Mezzanine
financing
RioCan’s
interest
Mezzanine
financing
100% $ 28,787 $
— $
— $
— $
— $
— $
— $
— $
28,787 $
100%
1,279
50%
50%
569
—
50%
100%
40%
50%
30,635
225
748
3,844
719
5,536
—
—
—
—
—
—
—
—
—
1,343
598
—
1,941
237
785
4,036
755
—
—
—
—
—
—
—
—
1,410
628
—
2,038
497
1,649
12,713
1,585
—
—
—
60,233
50,455
—
— 110,688
—
—
12,790
80,316
— 531,388
—
37,410
—
—
—
—
—
—
—
—
64,265
52,250
—
145,302
13,749
83,498
551,981
40,469
5,813
—
16,444
— 661,904
—
689,697
$ 36,171 $
— $
7,754 $
— $ 18,482 $
— $ 772,592 $
— $ 834,999 $
—
—
—
—
—
—
—
—
—
—
—
(thousands of dollars)
Urban Intensification
Properties
1860 Bayview Avenue,
Toronto, ON
Bathurst Street & College
Street, Toronto, ON
CPA Lands, Calgary, AB
NE Yonge Eglinton,
Toronto, ON (i)
Urban Intensification –
Committed
College &
Manning,Toronto, ON
Dupont Street, Toronto,
ON
The Well, Toronto, ON
King & Portland, Toronto,
ON
Urban Intensification –
Non-committed
Total Urban
Intensification
(i) Cost to complete to be financed by construction line.
(thousands of dollars)
Urban Intensification Properties:
RioCan’s %
ownership
RioCan’s
interest
RioCan
RioCan on behalf of
partners (Mezzanine
Loan)
Total RioCan
funded
Partners
Total
Funding Obligations
1860 Bayview Avenue, Toronto, ON
100% $
Bathurst Street & College Street, Toronto, ON
CPA Lands, Calgary, AB
NE Yonge Eglinton, Toronto, ON (i)
Urban Intensification - Committed
College & Manning,Toronto, ON
Dupont Street, Toronto, ON
The Well, Toronto, ON
King & Portland, Toronto, ON
Urban Intensification - Non-committed
100%
50%
50%
50%
100%
40%
50%
28,787
64,264
52,250
—
145,301
13,748
83,497
551,980
40,469
689,694
— $
28,787 $
—
—
—
—
—
—
—
—
—
64,264
52,250
—
145,301
13,748
83,497
551,980
40,469
689,694
— $
— $
28,787
64,264
52,250 $
104,500
— $
52,250
13,748
—
827,970
40,469
882,187
—
197,551
27,496
83,497
1,379,950
80,938
1,571,881
Total Urban Intensification
$
834,995 $
— $
834,995 $
934,437 $
1,769,432
(i) Cost to complete to be financed by construction line.
A summary of RioCan’s significant urban intensification projects currently underway are as follows:
1860 Bayview Avenue - Toronto, Ontario
1860 Bayview Avenue is currently a development site located at the northwest corner of Bayview Avenue and Broadway Avenue
in the Leaside area of Toronto. Once completed, the centre will consist of approximately 76,000 square feet of retail space and
will be anchored by a 52,500 square foot Whole Foods grocery store. RioCan acquired a 100% interest in the site on a forward
purchase basis in the first quarter of 2014. The project has received zoning approval and development is expected to be
completed by mid 2015.
Bathurst Street and College Street - Toronto, Ontario
This 1.3 acre site is located just west of the downtown core in Toronto near Bathurst and College Street. The property will be developed
into 145,000 square foot three storey urban retail building. On July 15, 2014, the Ontario Municipal Board (OMB) endorsed the
settlement between the City and RioCan with respect to a 4-storey commercial building at 410-446 Bathurst Street, and approved
a zoning amendment and site plan to implement the settlement. The OMB’s order in respect of the zoning appeal and site plan
referral is conditional on implementing the City’s conditions of site plan approval. During 2014, RioCan acquired the remaining 40%
interest from its partner, Trinity, for this development.
CPA Lands - Calgary, Alberta
This 2.8 acre site is located in the East Village area of downtown Calgary, Alberta. The site is one of downtown Calgary’s few
remaining privately owned full city blocks. The site was acquired in the second quarter of 2013 on a 50/50 joint venture basis
between RioCan and KingSett. The property will be developed as a mixed use project. The site has received zoning approval for
100
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
the proposed development and RioCan has submitted for a development permit, which the Trust expects to receive in June 2015.
Development of this site is anticipated to commence in 2016.
Yonge Street & Eglinton Avenue East - Toronto, Ontario
Construction on this site began in April 2014. The demolition of the TD Bank branch took place in Q4 2014 and remaining residential
apartment building is scheduled for Q1 2015. It is anticipated that the project will contain a 58 floor condominium tower and a 36
floor residential rental tower as well as 54,000 square feet of retail and commercial space featuring a flagship TD Bank branch. The
rental tower will have 465 units and the condominium will have 621 units, of which 606 have been pre-sold as of December 31,
2014. The project is expected to be completed by Q4 2017. The site is zoned for the proposed development. The demolition permit
for the remaining residential apartment building has been applied for and will be released upon the remaining tenants vacating the
premises in February 2015.
During 2014, the Trust arranged and secured a $318 million in construction financing ($159 million at RioCan's interest) related to
this development property.
College Street and Manning Avenue - Toronto, Ontario
This site is comprised of 551-555 College Street, formerly owned exclusively by Allied and 547 and 549 College Street, formerly
owned exclusively by RioCan. Given the strategic downtown location of each respective property, Allied and RioCan have formed
a 50-50 joint venture partnership to create one 114,000 square foot site (including approximately 52,000 square feet that is
currently income producing) with 185 feet of frontage on College Street. The joint venture has plans to intensify the site by
creating a mixed-use office, retail and residential complex. This site was successfully re-zoned for the proposed development
during July 2014.
Dupont Street - Toronto, Ontario
This 1.4 acre site, located on Dupont Street near Christie Avenue, is north-west of the downtown core of Toronto. The site is
expected to be developed into 271,000 square foot eight storey mixed use urban retail and residential building. RioCan has a
100% ownership interest in the site. A rezoning application was submitted during July 2014. RioCan expects to have zoning
approvals in place by mid 2016.
The Well - Toronto, Ontario
This 7.74 acre site is currently the home of The Globe & Mail newspaper and is located on part of a large city block bounded by
Spadina Avenue, Front Street, Draper Street and Wellington Street. The site is in close proximity to Toronto's downtown office
corridor and adjacent to a large and growing residential population. The property will be redeveloped as a mixed-use
development that will include approximately 1,608,000 square feet of retail and office space, 940,000 square feet of residential
rental units and 466,000 square feet of condominium space that will become a landmark destination to live, work and shop in
Toronto. The ownership structure of the property is RioCan 40%, Allied 40% and Diamond 20%. A rezoning application was filed
during February 2014 and the Trust expects to have zoning approvals in place by the third quarter of 2015.
King Street & Portland Street - Toronto, Ontario
This site is comprised of 602-606 & 620 King Street West, formerly owned exclusively by Allied Properties REIT, and adjacent
properties extending from King Street West through to Adelaide Street West that Allied and RioCan acquired jointly. Given the
site’s premier location in the heart of the affluent King West neighbourhood, Allied and RioCan have formed a 50/50 joint venture
partnership to create one property, with frontage on King Street West, Portland Street and Adelaide Street West. Upon
completion, the site will obtain a mixed use office, retail and residential complex with approximately 352,000 square feet of gross
floor area. A rezoning application was filed in August 2013. RioCan expects to have zoning approvals in place by May 2015.
Expansion & Redevelopment
RioCan’s expansion and redevelopment project costs for the remainder of 2015 are currently expected to be approximately $82
million. As at December 31, 2014, RioCan’s expansion and redevelopment pipeline will, upon completion, comprise
approximately 1.4 million square feet, of which RioCan’s ownership interest will be approximately 1.0 million square feet.
RioCan's expansion and redevelopment projects exclude condominium units that will be sold.
101
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Highlights of RioCan’s expansion and redevelopment projects are as follows:
Estimated project cost
RioCan’s
%
ownership
Tenant(s)
Project
NLA
RioCan’s
interest
Partners’
interest
Total
Historical
costs(i)
Development
expenditures
to date at
RioCan’s
interest
Sub-total
Costs
Incurred
to date
Estimated remaining
development activity
at RioCan’s interest
2015
2016
2017+
50% LCBO
30 $
5.1 $
5.1 $ 10.2 $
4.0 $
0.3 $
4.3 $
0.3 $
0.3 $
4.2
RioCan Colossus Centre,
100% TBD
116
29.1
Vaughan, ON
29.1
17.4
40
40
32
15
41
67
21
10
2.9
4.3
7.6
4.0
6.4
8.9
1.6
2.9
—
—
—
5.8
4.3
7.6
4.0
4.3
10.7
3.0
11.9
1.6
3.2
7.0
2.4
—
4.4
0.4
5.8
1.8
0.4
0.5
0.9
1.1
—
—
3.1
2.8
8.3
2.8
5.2
13.3
13.3
26.6
1.7
0.9
86.2
1.7
—
—
3.4
0.9
86.2
14.6
18.5
5.8
6.7
2.9
8.6
32
34
79
20
23
45
1.4
2.5
3.2
0.6
0.9
6.8
0.3
0.2
4.9
0.6
2.4
3.1
0.7
0.3
8.4
4.9
3.2
5.0
1.3
12.6
2.1
1.2
1.7
1.2
3.2
0.1
2.1
1.4
1.3
0.2
0.3
—
3.2
0.2
5.4
—
—
—
—
—
—
—
—
—
—
—
22.3
10.8
8.4
5.0
15.2
20.9
8.9
7.4
3.2
2.3
0.6
0.8
0.6
0.6
—
2.2
9.4
0.4
—
—
—
—
—
—
—
—
64.7
73.3
21.5
50% Longos, LA
104
79.1
79.1
158.2
7.6
2.0
9.6
33.3
37.2
6.6
Fitness, Mall
Renovation (ii)
Fair Value Adjustments
—
—
—
—
(1.3)
—
(1.3)
—
—
—
50% TBD
50% TBD
50% TBD
749
70
70
19
259.5
114.6
374.1
107.7
2.1
8.9
2.1
4.2
8.9
17.8
0.3
1.3
94.9
1.0
0.1
202.6
81.9
1.3
1.4
—
—
67.0
1.1
8.8
3.1
3.1
6.2
0.3
0.1
0.4
—
3.0
100% TBD
181
39.0
—
39.0
12.5
1.5
14.0
—
37.5
100% TBD
50% TBD
100% TBD
26
141
79
62
—
8.2
8.0
3.5
32.8
—
1.5
5.0
1.4
—
8.2
8.0
16.0
3.5
—
—
—
32.8
10.6
—
(6.9)
0.9
1.1
0.6
0.5
—
2.4
6.1
2.0
—
0.1
—
7.3
2.7
3.0
11.1
0.3
32.0
(6.9)
—
—
15.8
—
—
—
—
—
4.0
—
—
—
648
105.6
22.1
127.7
26.0
5.8
31.8
0.4
95.4
4.0
1,397 $
365.1 $
136.7 $ 501.8 $
133.7 $
100.7 $
234.4 $ 82.3 $ 162.4 $ 19.8
(i) Historical Costs - Carrying amounts transferred from IPP for former anchors targeted for redevelopment.
(ii) Yonge Sheppard Centre's interior mall retrofit is excluded from NLA, however, it is included in estimated project costs. Condo related NLA and
costs are excluded from the table.
102
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
(thousands of square
feet, millions of dollars)
As at December 31, 2014
491 College Street,
Toronto, ON
Brentwood Village,
Calgary, AB
50% Retail Podium
Centre St. Martin, Laval,
100% Giant Tiger
Québec
Corbett Centre,
Fredericton, NB
Eglinton Avenue &
Warden Avenue,
Toronto, ON
100% Sleep Country
Canada
100% Dentist, Mucho
Burrito,
Popeyes
Grant Crossing, Ottawa,
60% TBD
ON
Herongate Mall, Ottawa,
ON
75% Dollarama,
Petsmart
Kennedy Commons,
Toronto, ON
50% Sleep Country,
Sunset Grill
Mill Woods Town Centre,
40.34% LensCrafters,
Edmonton, AB
Cellicon
RioCan Hall, Toronto ,
100% Michael's
ON
Shoppers City East,
Ottawa, ON *
62.8% Shoppers Drug
Mart, Beer
Store
Tanger Outlets - Kanata,
50% Saks Off 5th
Kanata, ON
The Stockyards, Toronto,
50% TBD
100% Petsmart, Fit
for Less
100% Winners, Joe
Fresh,
Cineplex
Expansion
ON
West Ridge Place
Yonge & Eglinton Centre,
Toronto, ON
Yonge Sheppard Centre,
Toronto, Ontario
Total Committed
Expansion and
Redevelopment
properties
Brookside Mall,
Fredericton, NB
Les Factoreries Tanger -
Bromont, Bromont,
Quebec
Les Factoreries Tanger -
Saint-Sauveur, Saint
Sauveur, Quebec
Mega Centre Notre-
Dame, Dorothee,
Quebec
RioCan Centre Barrie,
Barrie, Ontario
RioCan Centre Burloak,
Oakville, Ontario
Timiskaming Square,
New Liskeard, ON
Westney Road & Taunton
100% TBD
Road, Ajax, ON
Fair Value Adjustments
Total Non-committed
Expansion and
Redevelopment
properties
Total
MANAGEMENT’S DISCUSSION AND ANALYSIS
Property represents one of RioCan’s 15 properties under development.
*
A summary of fourth quarter 2014 highlights from RioCan’s Expansion and Redevelopment projects are as follows:
Collingwood Centre - Collingwood, Ontario (development complete)
RioCan negotiated a lease termination agreement with Zellers (93,000 square feet) effective April 1, 2013. The enclosed mall
portion of the property was demolished and redeveloped in 2013 and 2014. A 20,000 square foot Winners commenced
operations in Q3 2014. A 20,000 square foot Sport Chek, a 18,500 square foot Bed Bath & Beyond, a 10,500 square foot
Dollarama and a 6,000 Fresh Co expansion commenced operations in Q4 2014. Finally, a 5,000 square foot Carter’s Osh Kosh is
expected to commence operations in Q1 2015 which will complete the project.
Corbett Centre - Fredericton, New Brunswick
Construction of a new 5,000 square foot Sleep Country began in Q3 2014. The tenant is expected to commence operations in
mid-2015.
Grant Crossing - Ottawa, Ontario
A 5,000 square foot Urban Barn took possession of their premises in September 2014. The tenant commenced operations in the
fourth quarter of 2014.
Herongate Mall - Ottawa, Ontario
In the fourth quarter of 2014, construction continued on a building that will be occupied by a 12,000 square foot PetSmart and a
10,000 square foot Dollarama. Dollarama took possession of their premises in January 2015 and commence operations during
the first quarter of 2015. PetSmart will take possession of their premises in February 2015 and commence operations during the
second quarter of 2015.
Kennedy Commons - Scarborough, Ontario
The redevelopment of a former AMC Theatre is close to completion. A newly constructed 45,000 square foot LA Fitness and a
23,000 square foot Michael’s have commenced operations. Sleep Country is expected to commence operations in the second quarter
of 2015 to complete the project.
Tanger Outlets - Ottawa, Kanata, Ontario
Construction is complete on the 299,000 Phase 1 of this outlet mall format site. The Grand Opening was held in October 2014.
Tenant such as Polo Ralph Lauren, J. Crew, Nike, The Gap, Banana Republic, Coach, Under Armour, Michael Kors, and Brooks
Brothers among other outlet format tenants have reported excellent sales. A second 54,000 square foot phase will commence
construction in 2015. Saks off 5th has executed a lease for a 28,000 square foot outlet and additional leases currently are under
negotiation.
Tanger Outlets - Cookstown - Innisfil, Ontario (development complete)
Construction is complete on the 150,000 square foot expansion. The Grand Opening was held in November 2014. Tenants
include: Polo Ralph Lauren, The Gap, Banana Republic, American Eagle Off Campus, Under Armour and Calvin Klein among
other outlet format tenants.
Yonge & Eglinton Centre - Toronto Ontario
Construction of the retail expansion is underway and will include 42,000 square feet of new retail, a connection to the office towers
and ingress/egress to the food court and subway. Leases have been executed with Winners, Joe Fresh and Cineplex VIP Theatres,
which will be expanding their current premises. The project is scheduled to be completed by mid 2015.
Excess Density
In addition to RioCan’s various development projects, the Trust contributes to portfolio growth through the intensification of
existing properties where RioCan has identified opportunities to increase density or add to an existing asset. This intensification
of existing properties is an important component of RioCan’s organic growth strategy. As at December 31, 2014, RioCan’s total
excess density fair market value is $79.3 million and its potential consists of approximately 2.1 million square feet, of which
RioCan’s ownership interest will be approximately 1.5 million square feet.
Residential Development
RioCan is committed to ensuring that the individual properties in its portfolio are utilized to their highest and best use. While there
are numerous ways to utilize its existing properties beyond their current use of conventional retail centres, RioCan has focused on
mixed use projects containing predominantly multi-residential rental buildings. RioCan has identified 50 properties that it deems to
be strong intensification opportunities. These are in the six major urban markets and are typically located in the vicinity of substantive
transit infrastructure. RioCan’s objective is to develop approximately 19,000 apartment units over the course of the next ten years.
Given the early stage of the evolution of this strategy, there can be no assurance that any of these developments will be undertaken,
and if they are, on what terms.
There are numerous attributes that attracted RioCan to the multi-unit residential sector. The addition of a residential component will
enhance the value of the underlying retail element of the property. It is a sector that allows a steady and continuous income stream
with a growth profile that will serve as a hedge against inflation. The residential rental sector serves as a healthy diversification to
RioCan’s retail portfolio. Given the extent of this initiative, RioCan will possess a scale that will result in numerous efficiencies going
forward. RioCan owns the underlying land, often at irreplaceable locations, thus giving it the unique opportunity to create a tremendous
amount of value. Finally, residential rental will typically attract favourable financing terms based on the availability of CMHC insurance.
103
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
RioCan has established a team to carry forward the residential rental initiative, drawing from its existing areas of expertise. The
team is comprised of existing RioCan executives as well as third-party consultants. As the initiative continues to grow, additional
resources will be added to the platform to facilitate such growth.
To this point, RioCan has filed applications for rezoning eight projects which, upon completion, should comprise a total of 5.8 million
square feet, of which 2.7 million square feet will be residential rental units held for long-term rental income, 1.0 million square feet
will be condominiums for sale and 2.1 million square feet will be incremental commercial gross leasable area. This would permit
RioCan to have an interest in approximately 3,369 residential units. The majority of these properties are located directly on, or in
close proximity, to major transit lines such as the existing Toronto Transit Commissions' subway lines or The Crosstown Eglinton
LRT line, which is currently under construction. The ability to intensify its existing retail properties into transit-oriented mixed use
developments is indicative of both the locational attributes of RioCan's land holdings and the strength of its management platform.
The figures in the chart below and those noted herein are at 100% interest and as at February 12, 2015. In some cases, RioCan
has partners and, therefore, does not hold a 100% interest.
Property
Location
Application
Submission
Date
Ownership (%)
Potential GLA (square feet at 100%)
Yonge Eglinton
Northeast Corner
Sunnybrook Plaza
College & Manning (ii)
740 Dupont Street
Sheppard Centre (iii)
King & Portland
The Well
Tillicum (iii)
TOTAL
Toronto,
ON
Toronto,
ON
Toronto,
ON
Toronto,
ON
Toronto,
ON
Toronto,
ON
Toronto,
ON
Victoria,
BC
January 2012
50% (Metropia/
Bazis)
Commercial
Residential
Rental (i)
Condominium
Total
54,000
384,498
491,491
929,989
December 2014
100%
24,928
374,791
September 2013
50% (Allied)
5,887
55,746
July 2014
100%
81,918
189,549
May 2013
50% (Kingsett)
104,000
319,000
August 2013
50% (Allied)
245,345
106,208
—
—
—
—
—
399,719
61,633
271,467
423,000
351,553
40% (Allied /
Diamondcorp)
1,608,698
940,000
466,206
3,014,904
1343
February 2009
50%
18,143
300,000
—
318,143
295
2,142,919
2,669,792
957,697
5,770,408
3,369
Residential
Rental
Units
465
426
77
225
399
139
(i) Residential rental GLA represents residential rental units that will produce long-term rental income and excludes any condominium units that will be
sold. The value associated with the residential rental units is included in the Urban Intensification and Expansion and Redevelopment tables in the
Properties Under Development section of this MD&A.
(ii) GLA (gross leasable area) excludes the square footage that is currently generating income.
(iii) The value of the potential residential development is currently classified as held for resale; RioCan is contemplating keeping these assets to develop
residential units.
RioCan intends to file applications to rezone 17 additional properties by the end of 2015. These proposed redevelopments are
expected to produce approximately 8.6 million square feet, of which 6.2 million square feet is expected to be residential. This
would permit RioCan to have an interest in an additional 8,713 residential units. As these projects are in preliminary stages, there
can be no assurance that any of these developments will be undertaken and if so, on what terms.
Properties Held for Resale
Properties held for resale are properties acquired or developed for which RioCan generally intends to sell rather than hold on a
long term basis. RioCan’s plan is to dispose of all or part of such properties in the ordinary course of business. It is expected that
the Trust will earn a return on these assets through a combination of property operating income earned during the relatively short
holding period, which will be included in net earnings, and sales proceeds. As at December 31, 2014, the Trust has $80.4 million
of properties held for resale comprising the following five assets ($45.9 million as at December 31, 2013 comprising four assets):
•
•
•
•
Tillicum Centre, Victoria, BC (Excess residential density);
Sheppard Centre, Toronto, ON (Excess residential density);
Stouffville Residential Lands, Stouffville, ON (Residential homes);
Yonge & Eglinton Northeast Corner, Toronto, ON (Condominium units for sale); and
• CPA Lands, Calgary, AB (air rights).
With respect to excess residential/condominium density, RioCan is considering the potential of retaining such density and
developing residential rental properties.
Properties Held for Sale
Properties held for sale are investment properties which RioCan is either contemplating or in the process of disposing and may
no longer hold as investment property. As at December 31, 2014, the Trust has twelve investment properties held for sale with an
aggregate fair value of $189 million (December 31, 2013 – $60 million).
104
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Mortgages and Loans Receivable
RioCan’s Declaration contains provisions that have the effect of limiting the aggregate value of the investment by the Trust in
mortgages, other than mortgages taken back on the sale of RioCan’s properties, to a maximum of 30% of Adjusted Unitholders’
Equity which is defined in the section, “Presentation of Financial Information and Non-GAAP Measures.” Additionally, RioCan is
limited to the amount of capital that can be invested in non-income producing properties to no more than 15% of the Adjusted
Unitholders’ Equity, which limitation applies to both greenfield development projects and mortgages receivable to fund the co-
owners’ share of such developments, referred to in this MD&A as mezzanine financing. At December 31, 2014, RioCan was in
compliance with these restrictions.
Contractual mortgages and loans receivable as at December 31, 2014 and December 31, 2013 are comprised of the following:
(millions of dollars)
Mezzanine financing to co-owners
Vendor-take-back and other
Total
Contractual rates
Low
0%
4%
0%
High
7%
5.5%
7%
Weighted
Average
Rate December 31, 2014 December 31, 2013
3.8% $
213
125
$
4.6%
3.9% $
11
136
$
35
248
Prior to maturity, payments on these mortgages and loans receivable from co-owners are made from the cash flows generated
from operations and capital transactions relating to the underlying properties.
The changes in the carrying amount of mortgages and loans receivable are as follows:
(millions of dollars)
Balance, beginning of period
Principal advances (i)
Mortgages and loans taken back on property dispositions
Principal repayments (i), (ii)
Interest receivable – repaid (ii)
Interest receivable – accrued
Balance, end of period
Three months ended
December 31,
2014
2013
Year ended December
31,
2014
$
141
$
246
$
248
$
13
—
(15)
(4)
1
6
—
(6)
(1)
3
54
—
(141)
(33)
8
2013
200
55
7
(24)
(3)
13
$
136
$
248
$
136
$
248
(i) Advances and repayments related to properties held for resale are included in cash flows from operating activities (see “Distributions to
Unitholders” below). All other such amounts are included in cash flows used in investing activities.
(ii) During the year ended December 31, 2014, RioCan acquired Trinity’s equity interest in four development assets for aggregate purchase
consideration of $117 million. The consideration received by Trinity was used to repay, in full, the outstanding mezzanine financing principal and
accrued interest in the amount of $82 million on the projects, in conjunction with the closing of the transaction. RioCan also assumed mortgage
financing of $24 million in connection with the acquisition.
Future repayments are as follows:
(millions of dollars)
Due on demand
Year ending December 31:
2014
2015
2016
2017
2018
Thereafter
Mezzanine
financing
to co-owners
Vendor-
take-back
and other
$
16
$
— $
23
51
14
16
5
$
125
$
6
—
—
5
—
11
Total
16
29
51
14
21
5
$
136
RELATED PARTY TRANSACTIONS
RioCan may have transactions in the normal course of business with entities whose directors or trustees are also its trustees and/
or management. Any such transactions are in the normal course of operations and are measured at market based exchange
amounts.
Transactions subsequent to the formation of a co-ownership that are not contemplated by the co-ownership agreement are
considered to be related party transactions for financial statement purposes.
105
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
CAPITAL STRATEGY AND RESOURCES
RioCan strives for an optimal financial structure to drive appropriate risk adjusted total returns. The principal objectives of the
capital strategy are to:
•
•
optimize the risk-adjusted cost of capital through an appropriate mix of debt and equity;
raise debt from a variety of sources and maintain a well staggered maturity schedule;
• maintain significant committed undrawn loan facilities to support current and future business requirements;
•
•
actively manage financial risks, including interest rate, foreign exchange, liquidity and counterparty risks; and
selectively sell assets as part of actively managing the portfolio and to increase the portfolio weighting to the six urban
markets in Canada as a means to strategically recycle capital.
Management believes that the quality of RioCan’s assets and strong balance sheet are attractive to lenders and equity investors
and should enable RioCan to continue to access multiple sources of capital at competitive rates. In addition, management
believes that current market conditions will continue to provide opportunities for RioCan - a well capitalized, highly experienced
and growing company - to acquire or develop high-quality assets at attractive returns. Opportunities to acquire or develop
properties may come through outright acquisitions or joint venture arrangements. RioCan maintains a disciplined investment
strategy, which focuses on high-quality assets in its targeted markets, emphasizing long-term value creation.
Capital Strategy Supporting Continued Growth
To support growth, RioCan employs a three-fold capital strategy:
•
provide the capital necessary to fund growth;
• maintain sufficient flexibility to access capital in many forms, both public and private; and
• manage the overall financial structure in a fashion that preserves investment grade credit ratings.
RioCan plans to further strengthen its balance sheet by reducing its overall debt leverage over time, thereby strengthening
various interest and cash flow coverage ratios. It is management’s intention that the Trust continually have access to the capital
resources necessary to expand and develop its business. Accordingly, the Trust may, from time-to-time, seek to obtain funds
through additional common and preferred equity offerings, unsecured debt financings and/or mortgage/construction loan
financings and other capital alternatives in a manner consistent with its intention to operate with a conservative debt structure,
along with the recycling of capital through the paring of the portfolio through selective asset sales.
Liquidity and Cash Management
RioCan maintains committed revolving bank facilities to provide financial liquidity. These can be drawn/repaid at short notice,
reducing the need to hold liquid resources in cash and deposits. This minimizes costs arising from the difference between
borrowing and deposit rates, while reducing credit exposure.
Capital Management Framework
RioCan defines capital as the aggregate of common and preferred unitholders’ equity and debt. The Trust’s capital management
framework is designed to maintain a level of capital that:
•
•
•
•
•
complies with investment and debt restrictions pursuant to the Trust’s Declaration;
complies with debt covenants;
enables RioCan to achieve target credit ratings;
funds the Trust’s business strategies; and
builds long-term unitholder value.
The key elements of RioCan’s capital management framework are set out in the Trust’s Declaration, and/or approved by the
Trust’s Board, through the Board’s annual review of the strategic plan and budget, supplemented by periodic Board and Board
committee meetings. Capital adequacy is monitored by management of the Trust by assessing performance against the approved
annual plan throughout the year, which is updated accordingly, and by monitoring adherence to investment and debt restrictions
contained in the Declaration and debt covenants (see note 28 in the RioCan’s 2014 Annual Financial Statements). In selecting
appropriate funding choices, RioCan’s objective is to manage its capital structure in such a way so as to diversify its funding
sources while minimizing its funding costs and risks. For 2015, RioCan expects to be able to satisfy all of its financing
requirements through the use of a combination of: cash on hand, cash generated by operations, refinancing of maturing debt,
financing of certain assets currently unencumbered by debt, construction financing facilities, sale of non-core properties,
utilization of its operating lines, and through public offerings of unsecured debentures, preferred units and common equity.
106
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Capital Structure
As at December 31, 2014 and December 31, 2013, RioCan’s capital structure, prepared at RioCan’s interest utilizing
proportionate consolidation, was as follows:
(millions of dollars)
Capital:
Mortgages payable and lines of credit
Debentures payable
Total debt
Common and preferred unitholders’ equity
Total capital
Total assets
Cash and equivalents
Ratio of Total debt, net of cash, to Total assets, net of cash, at
RioCan’s interest
Ratio of floating rate debt to total debt
Debt and Leverage Metrics
December 31, 2014
December 31, 2013
Increase
(decrease)
$
$
$
$
4,626
$
4,541
$
1,857
6,483
7,868
14,351
14,720
59
43.8%
7.8%
$
$
$
1,447
5,988
7,261
13,249
13,554
41
44.0%
8.0%
$
$
$
85
410
495
607
1,102
1,166
18
(0.2%)
(0.2%)
Three months ended
Rolling 12 months ended
Targeted
Ratios
December 31,
2014
December 31,
2014 (v)
December 31,
2014
December 31,
2013
Interest coverage ratio – RioCan’s interest (i), (vii)
>3.00x
Debt service coverage ratio – RioCan’s interest (ii),
(vii)
Fixed charge coverage ratio – RioCan’s interest (iii),
(vii)
Net consolidated debt to Adjusted EBITDA ratio (iv)
Net debt to Adjusted EBITDA ratio – RioCan’s
interest (iv)
>2.25x
>1.1x
n/a
n/a
Net operating debt to Operating EBITDA – RioCan’s
<6.5x
interest (iv)
2.84
2.16
1.05
8.38
8.42
7.96
3.21
2.37
1.10
8.38
8.42
7.96
2.89
2.20
1.08
8.05
8.09
7.67
2.83
2.10
1.06
7.52
7.56
7.24
Distributions as a percentage of AFFO
<90%
95.3%
95.3 %
94.5%
95.3%
As at
Unencumbered assets
Unsecured debentures
Unencumbered assets to Unsecured debt (vi)
>200%
December 31,
2014
December 31,
2013
$
$
$
$
2,776
1,866
149%
2,068
1,456
142%
(i)
Interest coverage is defined as Adjusted EBITDA for the period divided by total interest expense (at RioCan’s interest), including interest that has
been capitalized to properties under development.
(ii) Debt service coverage is defined as Adjusted EBITDA for the period divided by total interest expense (at RioCan’s interest), including interest that
has been capitalized to properties under development and scheduled mortgage principal amortization.
(iii) Fixed charge coverage is defined as Adjusted EBITDA for the period divided by total interest expense, including interest that has been capitalized,
and distributions to common and preferred unitholders.
(iv) Represents a non-GAAP measure. Please see section, Presentation of Financial Information and Non-GAAP Measures, for further details.
(v) Adjusted to exclude interest capitalized to properties under development.
(vi) Unencumbered assets to unsecured debt is defined as unencumbered assets at RioCan’s interest divided by unsecured debentures payable.
(vii) Coverage ratios excludes a yield maintenance charge of $2.9 million incurred during 2014 related to the early redemption of a development
property mortgage as the Trust does not consider its inclusion as an accurate measure of RioCan's ability to meet normal annualized interest cost
requirements.
The interest coverage ratio (calculated on a rolling 12-month basis) continued to improve compared to December 31, 2013. Debt
service coverage ratio on a rolling 12-month basis, also continued to improve mainly due to refinancing debt at lower interest
rates, as well as the Trust converting some of its amortizing debt to interest only debt. As at December 31, 2014, unencumbered
assets to unsecured debt increased to 149%, as compared to 142% as at December 31, 2013 due to an increase in
unencumbered assets of $708 million, partially offset by an increase of $410 million in unsecured debentures.
As part of its capital management strategy, it is RioCan’s objective to further improve its leverage and coverage ratios. The Trust’s
objective is to achieve the targeted ratios indicated in the above table over time.
107
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
During the fourth quarter of 2014, the Trust generated $32 million through its common Unit DRIP program, representing a DRIP
participation rate of 29.0%. The generation of this additional capital supports the Trust’s growth strategy and provides liquidity in
support of RioCan’s development program, where there has been a substantial increase in activity since 2013 on multiple
projects. RioCan’s objective is for this increased level of activity to continue for the remainder of 2014 and for several years
thereafter, with an increased focus on urban development.
The following table presents a reconciliation of consolidated net earnings attributable to unitholders to Adjusted and Operating
EBITDA at RioCan’s interest:
Three months ended
Year ended
December 31,
2014
December 31,
2014
December 31,
2013
$
171,768 $
663,258 $
709,451
(thousands of dollars)
Net earnings attributable to unitholders
Add (deduct) the following items:
Deferred income tax recovery
Fair value gains on investment property, net
Accrued property taxes under IFRIC 21 (iii)
Leasing costs (iii)
Non-cash unit based compensation expense
Interest expense
Expense for early redemption of debentures
Depreciation and amortization included in general and administrative
expense
Foreign exchange loss
Transaction costs
Adjusted EBITDA
Adjust: Transaction gains (ii)
Adjust: Items related to properties under development
Operating EBITDA
Three months annualized – Adjusted EBITDA
Three months annualized – Operating EBITDA
Consolidated net debt and net operating debt is calculated as follows:
(millions of dollars)
Average debt outstanding
Less: average cash on hand
Net debt
Less: Debt related to properties under development (i)
Net Operating Debt
Net debt and net operating debt at RioCan's interest is calculated as
follows:
(millions of dollars)
Average debt outstanding
Less: average cash on hand
Net debt
Less: Debt related to properties under development (i)
Net Operating Debt, at RioCan's interest
$
$
$
$
$
$
$
(250)
(37,912)
(7,873)
3,593
325
59,350
—
1,491
128
43
50
(280)
(156,803)
(236,571)
—
10,941
5,272
236,192
—
5,556
176
2,753
—
7,768
5,925
243,214
12,094
2,159
170
3,840
190,663
767,395
747,770
71
1,590
(91)
3,498
(445)
4,080
192,324 $
770,802 $
751,405
762,652
769,296
6,441 $
6,221 $
(54)
6,387
(297)
(42)
6,179
(295)
6,090 $
5,884 $
6,475 $
6,252 $
(56)
6,419
(298)
(45)
6,207
(296)
6,121 $
5,911 $
5,679
(58)
5,621
(234)
5,387
5,730
(74)
5,656
(215)
5,441
(i) Allocated based on the ratio of Debt to Total Assets.
(ii) Transaction gains relate to current tax recoveries associated with RioCan’s investments in WCNUF I and II.
(iii) Effective January 1, 2014, the Trust changed its accounting policies for treatment of certain property taxes and leasing costs pursuant to IFRIC 21
and IAS 17, respectively. Where applicable, prior period financial information has been restated for comparative reporting purposes. Please see
"2014 Changes in Accounting Policy" for further details.
Debt
RioCan intends to maintain strong debt service coverage and fixed charge coverage ratios as part of its commitment to
maintaining its investment-grade debt ratings from Standard and Poor’s (S&P) and from Dominion Bond Rating Services Limited
(DBRS). A credit rating generally provides an indication of the risk that the borrower will not fulfill its obligations in a timely manner
with respect to both interest and principal commitments. Rating categories range from highest credit quality (generally AAA) to
default payment (generally D).
108
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at December 31, 2014, S&P provided RioCan with an entity credit rating of BBB and a credit rating of BBB- relating to
RioCan’s senior unsecured debentures (Debentures). An obligor with a credit rating of BBB by S&P exhibits adequate capacity to
meet its financial obligations, however, adverse economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the obligation. A credit rating of BBB- or higher is an
investment grade rating.
As at December 31, 2014, DBRS provided RioCan with a credit rating of BBB (high) relating to the Debentures. A credit rating of
BBB by DBRS is generally an indication of adequate credit quality, the capacity for the payment of financial obligations is
considered acceptable but the entity may be vulnerable to future events.
Revolving Lines of Credit
As at December 31, 2014, RioCan had five revolving lines of credit in place with Canadian Schedule I financial institutions, having
an aggregate capacity of $718 million (December 31, 2013 - $535 million).
The following table summarizes the details of the secured lines of credit as at December 31, 2014:
(in millions of dollars)
Amounts drawn
Facility
maximum loan
amount
Cash
advances
Letters
of credit
Available
to be
drawn
Interest rates
1 $
250 (i) $
77 $
10 $
2
3
4
5
130 (i)
185 (i)
75 (i)
78
—
—
—
45
19
—
—
—
163 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
111 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
183 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
75 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
33 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
$
718
$
122 $
29 $
565
Maturity
November 2016 (ii)
June 2017 (ii)
December 2016 (ii)
June 2017 (ii)
December 2015
(i) Secured by charges against certain income properties. Should the aggregate agreed values for lending purposes of such properties fall to a level
which would not support a borrowing of the maximum loan amount, RioCan has the option to provide substitute income properties as additional
security.
(ii) Subject to meeting certain conditions, these loans can be extended for a further year on same terms and conditions.
Debentures Payable
On February 3, 2015, RioCan announced that it is issuing a notice of redemption to holders of its US$100 million 4.10% Series N
senior unsecured debentures due September 21, 2015 (the “Series N Debentures”), representing a redemption, in full, of all of
the currently outstanding Series N Debentures. The Series N Debentures will be redeemed on March 9, 2015, in accordance
with their terms, at a total redemption price of US$101.8 million, plus accrued and unpaid interest of US$1.9 million, up to but
excluding the redemption date.
On February 3, 2015, RioCan also announced that it is issuing a notice of redemption to holders of its $225 million 4.499% Series
O senior unsecured debentures due January 21, 2016 (the “Series O Debentures”), representing a redemption, in full, of all of the
currently outstanding Series O Debentures. The Series O Debentures will be redeemed on March 11, 2015, in accordance with
their terms, at a total redemption price of $231.8 million, plus accrued and unpaid interest of $1.4 million, up to but excluding the
redemption date.
On February 12, 2015, the Trust issued $300 million of Series W senior unsecured debentures, which mature on February 12,
2024 and carry a coupon rate of 3.287%. The debentures are subject to the same covenants as the Trust's other outstanding
debentures, with the exception of Series I, which has an additional provision as discussed in note 8 to the 2014 Annual Financial
Statements. Debenture issuance costs were approximately $2.1 million. A portion of the net proceeds will be used by RioCan to
repay indebtedness, including the redemption of the Trust's $225 million Series O Debentures as described above, and the
balance for general trust purposes.
As at December 31, 2014, RioCan had ten series of debentures outstanding totalling $1.9 billion (December 31, 2013 - eight
series totalling $1.4 billion).
The debentures have covenants relating to RioCan’s 60% leverage limit to Aggregate Assets as set out in RioCan’s Declaration,
the maintenance of a $1.0 billion Adjusted Book Equity, defined in the indenture, and maintenance of an interest coverage ratio of
1.65 times or better. There are no requirements under the unsecured debenture covenants that require RioCan to maintain
unencumbered assets. The Series I debentures, which are due in 2026 and aggregate $100 million, have an additional provision
that provides RioCan with the right, at any time, to convert these debentures to mortgage debt, subject to the acceptability of the
security given to the debenture holders. In such an event, the covenants relating to the 60% leverage limit, minimum book equity
and interest coverage ratio would be eliminated for this series of debenture.
109
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
2014 Activity
On January 23, 2014, the Trust issued $150 million of Series U senior unsecured debentures which mature on June 1, 2020 and
carry a coupon rate of 3.62%.
On May 30, 2014, the Trust issued $150 million of Series V senior unsecured debentures, which mature on May 30, 2022 and
carry a coupon rate of 3.746%.
On August 11, 2014, the Trust issued $100 million of Series V senior unsecured debentures, which was a re-opening of the May
30, 2014 Series V senior unsecured debentures issuance. The additional debentures carry the same coupon and maturity as the
original issuance, but were issued at a premium to par for gross proceeds of $101.07 million resulting in an effective rate of
3.587%, making the effective rate on the full $250 million of Series V debentures 3.682%.
2013 Activity
During the first quarter of 2013, the Trust issued $250 million principal amount of Series S senior unsecured debentures which
mature on March 5, 2018, and carry a coupon rate of 2.87%.
At maturity in March 2013, the $150 million Series G senior unsecured debentures with a coupon rate of 5.23% were repaid in
accordance with their terms.
On April 18, 2013, the Trust issued $200 million of Series T senior unsecured debentures which mature on April 18, 2023 and
carry a coupon rate of 3.725%.
On May 17, 2013, RioCan redeemed the $150 million Series M senior unsecured debentures due March 31, 2015, in accordance
with their terms, at a total redemption price of $1,072.30 plus accrued and unpaid interest of $7.275 to but excluding the
redemption date, both per $1,000 principal amount. The total redemption price, including accrued interest, was $161.9 million.
Changes in the carrying amount of debentures resulted primarily from the following:
Three months ended
December 31,
Year ended
December 31,
(millions of dollars)
Balance, beginning of period
Issuances
Repayments
Foreign currency translation
Contractual obligations
Unamortized debt financing costs
Balance, end of period
2014
2013
2014
$
1,862 $
1,453 $
1,456 $
—
—
3
400
—
10
2013
1,299
450
(300)
7
1,456
1,866
1,456
(9)
(9)
(9)
$
1,857 $
1,447 $
1,857 $
1,447
—
—
4
1,866
(9)
Mortgages Payable and Lines of Credit - RioCan's Interest
During the three months and year ended December 31, 2014, RioCan had new mortgage borrowings and operating line draws as
follows:
Three months ended December 31, 2014
Year ended December 31, 2014
Contractual
Amount
Weighted
average
contractual
interest rate
Average
term to
maturity
in years
Contractual
Amount
Weighted
average
contractual
interest rate
Average
term to
maturity
in years
(millions of dollars, except other data)
New borrowings:
Fixed rate term mortgages – Canada
$
Fixed rate term mortgages – U.S.
Floating rate term mortgages – Canada
Construction financing
Operating lines of credit
Other bank loans
98
—
—
16
62
—
New borrowings – RioCan’s interest (i)
$
176
Aggregate new borrowings debt at:
Fixed rate debt
Floating rate debt
Aggregate new borrowings debt –
RioCan’s interest (i)
$
$
98
78
176
3.17%
—%
—%
2.74%
3.25%
—%
3.16%
3.17%
3.15%
5.85 $
—
—
3.81
1.90
—
4.28 $
5.85
2.30
3.16%
4.28 $
162
92
4
20
231
100
609
254
355
609
2.72%
3.64%
2.49%
2.65%
2.70%
1.50%
2.65%
3.05%
2.36%
2.65%
5.00
5.30
4.50
3.15
1.95
0.90
3.15
5.11
1.76
3.15
(i) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
As at December 31, 2014, the Trust’s mortgages payable and drawn lines of credit (at RioCan’s interest), was $4.6 billion ($4.5
billion as at December 31, 2013). The vast majority of the Trust’s Canadian mortgage indebtedness provides recourse to the
110
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
assets of the Trust, as opposed to only having recourse to the specific property charged. RioCan follows this policy as it generally
results in lower interest costs than would otherwise be obtained. In the United States, mortgage debt is generally non-recourse
financing, with no U.S. secured debt having recourse to the assets of the Canadian operations of the Trust.
As at December 31, 2014, the contractual interest rates on mortgages payable and amounts drawn on operating lines had a
weighted average contractual interest rate of 4.22% per annum. Changes in the carrying amount of the mortgages payable and
lines of credit, at RioCan’s interest, resulted primarily from the following:
(millions of dollars)
Balance, beginning of period - RioCan's interest
New Borrowings:
Fixed rate term mortgages – Canada
Fixed rate term mortgages – U.S.
Floating rate term mortgages – Canada
Floating rate term mortgages – U.S.
Construction lines
Advances on operating line of credit
Assumed on the acquisition of properties
Other bank loans
Principal repayments:
Scheduled amortization
Operating lines of credit
At maturity: Fixed rate term mortgages
Floating rate term mortgage
Construction financing
Disposition of Canadian properties
Disposition of U.S. properties
Foreign currency translation
Contractual obligations
Unamortized differential between contractual and market interest rates on liabilities
assumed at the acquisition of properties
Unamortized debt financing costs
Balance, end of period – RioCan’s interest (i)
Three months ended
December 31,
Year ended
December 31,
2014
2013
2014
2013
$
4,604 $
4,533 $
4,528 $
4,417
123
162
237
98
—
—
—
16
62
2
8
(21)
(112)
(96)
—
—
—
—
54
89
—
7
4
65
91
—
(23)
(178)
(70)
—
(3)
(92)
(56)
38
92
4
—
20
231
48
108
(83)
(276)
(223)
(56)
(49)
—
—
109
4,615
25
(14)
89
78
7
15
245
342
—
(92)
(250)
(412)
—
(3)
(159)
(56)
70
4,528
28
(15)
4,615
4,528
25
(14)
28
(15)
$
4,626 $
4,541 $
4,626 $
4,541
(i) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
At the outset of 2014, RioCan had $327 million of mortgage principal maturing in 2014 at a weighted average contractual interest
rate of 4.62%. During 2014, RioCan had new term mortgage borrowings of $258 million at a weighted average interest rate of
3.07% and an average term of 5.15 years. For the year ended December 31, 2014, repayments of maturing mortgage balances
and scheduled amortization amounted to $362 million.
For 2015, RioCan has $621 million of mortgage principal maturities at a weighted average contractual interest rate of 4.55%.
Hedging Activities
The effectiveness of the Trust's hedging relationships is reviewed on a quarterly basis. At December 31, 2014 the Trust has
assessed that there is no ineffectiveness in the hedge of its interest rate exposure.
Aggregate Maturities
As at December 31, 2014, RioCan’s Aggregate Debt had a 3.95 year weighted average term to maturity (December 31, 2013 –
4.7 years) bearing interest at a weighted average contractual interest rate of 4.12% per annum (December 31, 2013 – 4.30%).
7.8% of the Trust’s Aggregate Debt is at floating interest rates at December 31, 2014 compared to 8.0% at December 31, 2013.
111
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
RioCan's fixed and floating rate debt as a percentage of total Aggregate Debt and weighted average contractual interest rate are
as follows:
As at December 31, 2014
Aggregate Debt at:
Fixed rate debt
Floating rate debt
Aggregate Debt – RioCan’s interest (i)
Percentage of
total RioCan's
aggregate
debt
Weighted
average
contractual
interest rate
Average
term to
maturity
in years
Aggregate
debt
$
$
5,980
503
6,483
92.2%
7.8%
100%
4.30%
1.96%
4.12%
4.12
1.94
3.95
(i) See “Reconciliation of Net Earnings to Net Earnings at RioCan's Interest” for a reconciliation to RioCan’s consolidated earnings.
RioCan’s debt maturity profile and future repayments are as outlined below:
Contractual principal maturities (i)
(millions of dollars,
except percentage
amounts)
Fixed rate
Floating rate
Weighted
average
interest
rate
Mortgages
payable
and lines
of credit
Weighted
average
interest
rate
Scheduled
principal
amortization
Mortgages
payable
Total
mortgages
payable
and lines
of credit
Weighted
average
interest
rate
Debentures
payable
Total
mortgages,
lines of
credit and
debentures
payable
Weighted
average
interest
rate
Weighted
average
interest
rate
As at December 31, 2014
Year ending
December 31:
2015
2016
2017
2018
2019
Thereafter
$
561
552
690
590
310
1,097
4.83%
$
160
1.67% $
4.65%
4.20%
3.84%
4.06%
4.90%
81
239
—
23
—
3.25%
1.47%
—%
2.50%
—%
77
66
54
40
33
42
$
798
699
983
630
366
1,139
4.10% $
4.47%
3.59%
3.84%
3.97%
4.90%
116
226
150
250
175
950
4.10% $
4.50%
3.80%
2.87%
3.85%
3.95%
914
925
1,133
880
541
2,089
$ 3,800
4.30%
$
503
1.96% $
312
$ 4,615
4.22% $ 1,867
3.86% $ 6,482
4.10%
4.48%
3.62%
3.56%
3.93%
4.49%
4.12%
(i) At RioCan’s interest. Amounts for 2015 also include due on demand facilities.
The principal maturities by lender by year of maturity are as follows:
Principal maturities by type of lender
Contractual (i)
(millions of dollars)
Year ending December 31:
2015
2016
2017
2018
2019
Thereafter
Life
insurance
industry
$
182 $
178
238
72
60
434
$
1,164
$
Mortgage
conduit
Banks
Pension
funds
Other
Unsecured
debentures
Scheduled
principal
amortization
161
130
76
47
—
350
764
$ 296 $
68 $
14 $
311
448
439
230
252
—
110
13
38
61
14
57
19
5
—
$
116
226
150
250
175
950
$
77
66
54
40
33
42
$ 1,976
$
290
$ 109
$
1,867
$
312
$
Total
914
925
1,133
880
541
2,089
6,482
(i) At RioCan’s interest. Amounts for 2015 also include due on demand facilities.
112
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
The table below presents RioCan’s interest in assets at fair value that are available to it to finance and/or refinance for debt
maturing in 2015 and 2016:
(millions of dollars)
Unencumbered income property assets
Unencumbered development property assets
Unencumbered assets
Encumbered assets with debt maturing in 2015
Encumbered assets with debt maturing in 2016
Construction financing on properties under development
Total
Number of
Properties
Fair Value of Income
Properties at
Principal balance
of debt maturing
December 31, 2014
2015
2016
89
11
100
37
37
1
$
2,481 $
— $
295
2,776
1,618
1,853
4
—
—
737
—
—
175
$
6,251
$ 737
$
—
—
—
—
855
4
859
RioCan has the continued flexibility to generate additional funds in 2015 through refinancing maturing loan balances as well as
repaying such balances to increase the size of RioCan’s pool of unencumbered assets. As at December 31, 2014, RioCan had
100 properties that were unencumbered with a fair value of approximately $2.8 billion. During the first quarter of 2015, it is
RioCan's intent to obtain approximately $90 million of secured term debt and repay approximately $70 million of secured term
debt (both amounts excluding renewals).
During the year, the Trust arranged for and secured a $318 million construction financing ($159 million at RioCan's interest), in
connection to the Yonge and Eglinton Northeast corner e-condo development for which it earned an arranging fee.
Considering RioCan’s current levels of cash, undrawn credit facilities, relatively low leverage and demonstrated historical access
to debt capital markets, the Trust expects that all maturities will be refinanced or repaid in the normal course of business, and as
such, RioCan does not currently anticipate that it will be required to sell assets and/or issue equity to meet its maturing debt
obligations for 2015.
Trust Units
As at February 12, 2015, there are 316.9 million common Units issued and outstanding and 8.7 million options outstanding under
the Trust’s incentive unit option plan (the Plan). All common Units outstanding have equal rights and privileges and entitle the
holder thereof to one vote for each Unit at all meetings of Unitholders. During the quarter and year ended December 31, 2014
and 2013, the Trust issued Units as follows:
(number of Units in thousands)
Units outstanding, beginning of period (i)
Units issued:
Public offerings
Distribution reinvestment plan
Direct purchase plan
Unit option plan
Units repurchased and cancelled
Units outstanding, end of period (i)
Three months ended
December 31,
Year ended
December 31,
2014
2013
2014
2013
307,465
302,561
304,075
300,099
4,800
2,468
19
1,234
—
—
1,167
15
—
(918)
4,800
4,738
42
2,331
—
—
4,365
53
476
(918)
315,986
302,825
315,986
304,075
(i)
Included in units outstanding are exchangeable limited partnership units of four limited partnerships that are subsidiaries of the Trust (the “LP
units”) which were issued to vendors, as partial consideration for income properties acquired by RioCan (December 31, 2014 – 1,137,871 LP
units; December 31, 2013 – 2,289,411 LP units). RioCan is the general partner of the limited partnerships. The LP units are entitled to distributions
equivalent to distributions on RioCan Units, must be exchanged for RioCan Units on a one-for-one basis and are exchangeable at any time at the
option of the holder.
On November 24, 2014, the Trust issued an aggregate of 4.8 million common trust units at a price of $26.25 per unit for
aggregate gross proceeds $126 million. Unit issue costs associated with the offering were $5 million.
During the year ended December 31, 2014, 4.7 million Units were issued pursuant to the Trust’s distribution reinvestment plan
compared to 4.4 million Units during the same period in 2013. Participation in the distribution reinvestment plan was 29.0% for
the three months ended December 31, 2014, compared to 25.9% for the three months ended December 31, 2013.
Restricted Equity Units
RioCan has a Restricted Equity Unit (REU) plan which provides for an allotment of REUs to each non-employee trustee. The
value of the REUs allotted appreciate and depreciate with increases or decreases in the market price of the Trust’s Units.
Effective May 28, 2014, this plan has been replaced by the Trustees' deferred equity unit plan as the form of unit-based incentive
compensation to Trustees as discussed below.
REU members are also entitled to be credited with REUs for distributions paid in respect of Units of the Trust based on an
average market price of the Units as defined by the plan. The REUs vest and are settled three years from the date of issuance by
a cash payment equal to the number of vested REUs credited to the member multiplied by the average market price of the Trust’s
113
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Units at the settlement date, less applicable withholdings. The REU plan liability at December 31, 2014 was $1.5 million ($1.7
million at December 31, 2013).
Deferred Equity Units
On May 28, 2014, the Board of Trustees approved the adoption of a Deferred Unit (DU) plan for non-employee Trustees of the
Trust (“Participants”) to further align the interests of the Trustees of RioCan and the Unitholders. The DU plan replaces the REU
plan as the form of unit-based incentive compensation to non-employee Trustees.
Participants may be awarded deferred units, each of which are economically equivalent to one Unit, from time to time at the
discretion of the Board of Trustees upon recommendation from management, subject to a maximum annual grant not to exceed
that number of deferred units which is $150,000 divided by the average market price of a Unit on the award date. Participants
may also elect to receive up to 100% of his or her annual retainer and meeting fees for a calendar year otherwise payable in cash
in the form of deferred units. The DU plan liability at December 31, 2014 was $1.2 million.
Unit Options
The Trust provides long-term incentives to certain employees by granting options through the Plan. The objective of granting unit-
based compensation is to encourage Plan members to acquire an ownership interest in RioCan over time and acts as a financial
incentive for such persons to act in the long-term interests of RioCan and its unitholders. The exercise price for each option is
equal to the volume weighted average trading price of the Units on the Toronto Stock Exchange for the five trading days
immediately preceding the date of grant except for those options granted prior to May 27, 2009 which have an exercise price
equal to the closing price of the Trust’s Units on the date prior to the day the option was granted. Of the 29.2 million Units
approved to be granted under the Plan, 3.3 million Units remain available for grant under the Plan as at December 31, 2014
(December 31, 2013 – 4.7 million Units). During 2014, 2.2 million options were granted under the Plan compared to 2.0 million
granted during 2013. During 2014, 2.3 million Units were issued pursuant to exercises of the incentive Unit options, compared to
0.5 million Units for 2013.
As part of its ongoing commitment to corporate governance matters, the Board and its Human Resources and Compensation
Committee retained an independent compensation consultant to assist them in their review and reformulation of the Trust’s
approach to executive compensation matters, and to recommend enhancements to further align the Trust’s compensation
program with interests of the Trust’s unitholders. RioCan's Management Information Circular dated April 11, 2014 outlines
changes to executive and Trustee compensation, as well as to RioCan's governance practices that received unitholder approval
at the May 28, 2014 annual and special meeting of unitholders. These changes are not expected to have a material impact on the
quantum of compensation that is paid to the Trust’s most senior executives but rather on the mix and timing of the components of
the compensation program.
Preferred Units
On December 6, 2010, the Trust’s Declaration was amended and restated to permit the future authorization and issuance of a
class of preferred equity securities. RioCan believes that preferred units provides the Trust with further enhanced ability to more
actively pursue value enhancing opportunities and acquisitions by providing the Trust with greater flexibility in raising capital. In
addition, the preferred units potentially provide the Trust with an opportunity to reduce its cost of capital.
In the first quarter of 2011, the Trust issued 5 million 5.25% Preferred Units, Series A at a price of $25 per unit for aggregate
gross proceeds of $125 million. Also, on November 20, 2011, the Trust issued 5.98 million 4.7% Preferred Trust Units, Series C at
a price of $25 per unit for aggregate gross proceeds of $149.5 million.
S&P and DBRS provided credit ratings for the Preferred Units, Series A and Preferred Units, Series C Units of the Trust. The
Preferred Units, Series A and Preferred Units, Series C Units have both been assigned a rating of “Pfd-3 (high)” by DBRS and a
rating of “P-3 (high)” by S&P. DBRS has five rating categories of preferred shares for which it will assign a rating. The ‘‘Pfd-3’’
rating is the third highest category available from DBRS for preferred securities and is considered to be of adequate credit quality.
According to DBRS, preferred securities rated ‘‘Pfd-3’’are of adequate credit quality and while protection of distributions and
principal is still considered acceptable, the issuing entity is more susceptible to adverse changes in financial and economic
conditions, and there may be other adverse conditions present which detract from debt protection. Pfd-3 ratings generally
correspond with companies whose senior bonds are rated in the higher end of the BBB category. A “P-3 (High)” rating by S&P is
the third of the three sub-categories within the second highest rating of the eight standard categories of ratings utilized by S&P for
preferred units. “High” and “low” grades may be used to indicate a relative standing of a credit within a particular rating category.
Guarantees
RioCan provides guarantees on behalf of third parties, including co-owners and partners, for which the Trust generally is paid a
fee, as, among other reasons, it generally results in lower interest costs and higher loan-to-value ratios than would otherwise be
obtained. Also, RioCan’s guarantees remain in place for debts assumed by purchasers in connection with certain property
dispositions and will remain until such debts are extinguished or lenders agree to release RioCan’s covenants. Credit risks arise
in the event that these parties default on repayment of their debt since they are guaranteed by RioCan. These credit risks are
mitigated as RioCan has recourse under these guarantees in the event of a default by the borrowers, in which case the Trust’s
claim has security against both the purchaser and the underlying real estate investments. As at December 31, 2014, the
estimated amount of debt subject to such guarantees and, therefore, the maximum exposure to credit risk was approximately
$470 million (December 31, 2013 - $467 million) with expiries between 2015 and 2034. As at December 31, 2014 and during
2014 there have been no defaults by the primary obligors for debts on which RioCan has provided guarantees, and as a result,
no contingent loss on these guarantees has been recognized in the Trust’s financial statements.
114
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
At December 31, 2014, the parties on behalf of which RioCan had outstanding guarantees are as follows:
(millions of dollars)
As at
Partners and co-owners
Kimco
Trinity
Other
Assumption of mortgages by purchasers on property dispositions
Retrocom Mid-Market REIT
Devimco
CREIT
Other
Liquidity
December 31, 2014 December 31, 2013
$
$
164 $
61
84
35
66
45
15
470 $
166
65
51
46
67
46
26
467
Liquidity refers to the Trust having and/or generating sufficient amounts of cash and equivalents to fund the ongoing operational
commitments, distributions to unitholders and planned growth in the business.
RioCan retains a portion of its operating cash flows to help fund ongoing maintenance capital expenditures, tenant installation
costs and long term unfunded contractual obligations, among other items.
Cash on hand, borrowings under the revolving credit facilities, the equity and debt capital markets and the potential sale of assets
also provide the necessary liquidity to fund ongoing and future capital expenditures and obligations.
At December 31, 2014, on a consolidated basis, RioCan had:
•
•
•
•
$56 million of cash;
$565 million of cash available under undrawn bank lines of credit;
Indebtedness, net of cash, is 43.7% of total assets, net of cash, based on fair value; and
100 unencumbered properties with a fair value of $2.8 billion.
Unitholder distributions reinvested through the distribution reinvestment and direct purchase plans result in the issuance of Units,
as opposed to a cash outlay, thereby providing an additional source of capital to fund RioCan’s activities (see “Distributions to
Unitholders” elsewhere in this MD&A).
RioCan’s liquidity profile, at RioCan’s interest, is as follows:
(millions of dollars)
As at
Cash and equivalents
Undrawn lines of credit
Liquidity
Contractual debt:
Unsecured debentures payable
Mortgages payable
Total contractual debt
Liquidity as a percentage of total contractual debt
Percentage of unsecured debt
Percentage of secured debt
December 31, 2014 December 31, 2013
$
$
$
$
$
$
$
$
59
565
624
1,866
4,615
6,481
9.6%
28.8%
71.2%
41
426
467
1,456
4,528
5,984
7.8%
24.3%
75.7%
RioCan’s liquidity is impacted by the Trust’s contractual debt commitments and its forecasted development expenditures on active
projects at RioCan’s interest. RioCan's contractual debt commitments and development expenditures, at December 31, 2014 are
as follows:
(millions of dollars)
Mortgages
Debentures
Developments
Total
Contractual Debt Commitments and Development Expenditures
2015
2016
2017
2018
2019
Thereafter
$ 798
$ 699
$ 983
$ 630
$
116
151
225
182
150
43
250
—
366
175
—
$
1,139
$
950
1,009*
$ 1,065
$ 1,106
$ 1,176
$ 880
$
541
$
3,098
$
Total
4,615
1,866
1,385
7,866
*
Represents forecasted development expenditures from years 2017 to 2019, net of financing.
115
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Deferred Income Taxes
The Trust qualifies as a mutual fund trust and a REIT for Canadian income tax purposes. The Trust expects to distribute all of its
taxable income to unitholders and is entitled to deduct such distributions for Canadian income tax purposes. Accordingly, no
provision for current income taxes payable is required, except for amounts incurred in its incorporated Canadian subsidiaries.
The Trust’s U.S. subsidiary qualifies as a REIT for U.S. income tax purposes. This subsidiary expects to distribute all of its U.S.
taxable income (if any) to Canada and is entitled to deduct such distributions for U.S. income tax purposes. Accordingly, no
provision for U.S. current income tax payable is required.
The Trust consolidates certain wholly owned incorporated entities that are subject to tax. The tax disclosures, expense and
deferred tax balances relate only to these entities.
Deferred income tax assets and liabilities are recognized for temporary differences between the tax and accounting basis of
assets and liabilities as well as for the benefit of unused tax credits and losses that are available to be carried forward to future
tax years to the extent that it is probable that the deductions, unused tax credits and losses can be realized. Deferred tax assets
and liabilities are measured at the undistributed tax rates that are expected to apply when the assets are realized or the liabilities
are settled, based on the tax laws that have been enacted or substantively enacted at the balance sheet date. Deferred income
tax relating to items recognized in equity will also be recognized in equity.
At December 31, 2014, the Trust had deferred tax assets of $9 million (December 31, 2013 – $9 million) primarily related to a
goodwill balance that arose during the restructuring the Trust undertook to qualify as a REIT for purposes of the Income Tax Act
(Canada).
If the Trust were to cease to qualify as a REIT for Canadian income tax purposes, certain distributions would not be deductible in
computing income for Canadian income tax purposes and the Trust would be subject to tax on such distributions at a rate
substantially equivalent to the general corporate income tax rate. Other distributions would generally continue to be treated as
returns of capital to unitholders.
Distributions to Unitholders
The Trust expects to distribute to its unitholders in each year an amount not less than the Trust’s taxable income for the year, as
calculated in accordance with the Income Tax Act after all permitted deductions under the Income Tax Act have been taken.
RioCan’s monthly distribution in 2014 was $0.1175 per Unit, representing, on an annualized basis, $1.41 per Unit.
Distributions to Unitholders are as follows:
(millions of dollars, except when otherwise noted)
Year ended December 31,
Distributions to Unitholders
Distributions reinvested through the distribution reinvestment plan
Distributions to common Unitholders, net of distribution reinvestment plan
Distribution reinvestment plan participation rate
$
$
2014
434
(121)
313
$
$
2013
426
(110)
316
27.9% 25.8%
Difference between consolidated cash flows provided by operating activities and distributions to Unitholders
A comparison of distributions to Unitholders with cash flows provided by operating activities and distributions, net of the Trust's
distribution reinvestment plan, is as follows:
(millions of dollars)
Year ended December 31,
Cash flows provided by operating activities
Adjust for:
Changes in non-cash operating items and other
Adjusted operating cash flow
Less: Distributions to Unitholders
Excess of adjusted operating cash flow over distributions to Unitholders
Add back: Distributions reinvested through the distribution reinvestment plan
Excess of adjusted operating cash flow over distributions, net of distribution reinvestment plan
2014
504 $
2013
408
1
505 $
434 $
71
121
192 $
45
453
426
27
110
137
$
$
$
$
In determining the annual level of distributions to Unitholders, the Trust considers forward-looking cash flow information including
forecasts and budgets and the future business prospects of the Trust. Furthermore, RioCan does not consider periodic cash flow
fluctuations resulting from working capital items such as the timing of property operating costs and tax installments, and semi-
annual debenture and mortgages payable interest payments in determining the level of distributions to Unitholders in any
particular period. In determining the annual level of distributions to Unitholders, RioCan also considers the impact of its
distribution reinvestment plan on its ability to sustain current distribution levels.
Additionally, in establishing the level of cash distributions to Unitholders the Trust considers the impact of, among other items, the
future growth in the income producing portfolio, the current interest rate environment and cost of capital, completion of properties
under development, impact of future acquisitions and capital expenditures and leasing related to the income producing portfolio.
116
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Distributions to Unitholders are expected to continue to be funded by cash flows generated from RioCan’s real estate investments
and fee generating activities.
The Trust does not use net earnings in accordance with IFRS as the basis to establish the level of Unitholders’ distributions as
net earnings include, among other items, non-cash fair value adjustments related to its investment property portfolio and deferred
income taxes. In establishing the level of annual distributions to Unitholders, consideration is given by RioCan to the level of cash
flow from operating activities, which includes, among other items, capital expenditures for the property portfolio and preferred
unitholder distributions.
Reconciliation of consolidated cash flows provided operating activities to AFFO
The following table presents a reconciliation of cash provided by operating activities to AFFO:
(millions of dollars)
Year ended December 31,
Cash provided by operating activities
Share of net earnings in associates and joint ventures
Net change in non-cash operating items
Costs not capitalized during the development period:
Recoverable under tenant leases
Interest expense
Demolition costs
Depreciation and amortization
Preferred unit distributions
Expense for early retirement of debentures
Normalized productive capacity maintenance capital expenditures:
Leasing commissions and tenant improvements
Maintenance capital expenditures recoverable from tenants
Maintenance capital expenditures not recoverable from tenants
Non-controlling interests
IAS 17 - Leasing costs
Other adjustments
AFFO
2014
$
504 $
13
1
(1)
7
2
(5)
(14)
—
(25)
(15)
(10)
(1)
11
(3)
2013
408
32
45
(1)
6
3
(2)
(14)
12
(25)
(11)
(9)
(4)
8
(1)
$
464 $
447
117
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
SELECTED QUARTERLY CONSOLIDATED INFORMATION
(millions of dollars, except per unit
amounts)
2014
2013
As at and for the quarter ended
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Total revenue
Net earnings (i)
$
$
316
172
$
305
162
$
302
159
$
307
172
$
307
265
$
276
130
$
278
154
292
164
Net earnings per common Unit (i)
– Basic
– Diluted
Operating FFO
Operating FFO per Unit
Total assets
Total mortgages and debentures
payable
Total distributions to common
Unitholders
Total distributions to common
Unitholders per Unit
DRIP Participation Rate
Net book value per common Unit
(ii)
Market price per common Unit
– High
– Low
– Close
0.54
0.54
130
0.42
0.51
0.51
134
0.43
0.51
0.50
127
0.42
0.55
0.55
127
0.42
0.86
0.86
124
0.41
0.41
0.41
124
0.41
0.50
0.49
121
0.40
0.53
0.53
124
0.41
14,677
6,444
14,392
6,438
13,945
6,170
13,784
6,094
13,530
5,959
13,092
5,733
12,931
5,579
12,713
5,477
110
109
108
108
107
107
106
106
0.3525
0.3525
0.3525
0.3525
0.3525
0.3525
0.3525
0.3525
29.0%
24.06
29.3%
23.71
25.6%
23.39
27.8%
23.28
25.6%
23.01
25.9%
22.44
25.2%
22.42
26.3%
22.18
27.42
25.16
26.43
27.97
25.11
25.67
28.11
26.20
27.31
26.86
24.50
26.63
25.89
23.85
24.77
26.20
23.46
24.30
25.42
24.80
25.27
27.90
26.53
27.80
Average daily volume
558,332
499,080
407,513
495,264
512,296
637,329
603,750
588,001
Market price per Preferred Unit –
Series A
– High
– Low
– Close
Average daily volume
Market price per Preferred Unit –
Series C
– High
– Low
– Close
Average daily volume
Non-resident ownership of units
(iii)
– Canadian
– Non-resident
25.63
24.65
25.32
2,236
25.95
25.08
25.95
4,861
25.61
25.10
25.10
2,025
25.89
25.30
25.52
2,538
26.00
25.06
25.40
2,277
26.49
25.04
25.45
3,071
25.48
24.75
25.30
4,038
25.40
24.86
25.34
4,390
25.18
24.24
24.90
5,132
25.32
24.65
25.00
6,456
25.90
24.26
24.75
4,579
25.58
24.19
25.15
6,335
25.25
25.03
25.25
3,288
25.28
24.79
25.19
4,353
26.60
25.82
26.40
3,229
26.75
25.80
26.30
4,641
72.1%
27.9%
74.9%
25.1%
75.0%
25.0%
74.1%
25.9%
72.3%
27.7%
73.0%
27.0%
73.2%
26.9%
72.8%
27.2%
(i) Refer to RioCan’s respective annual and interim MD&As issued for a discussion and analysis relating to those periods.
(ii) A non-GAAP measurement. Calculated by RioCan as common Unitholders’ equity divided by Units outstanding at the end of the period. RioCan’s
method of calculating net book value per unit may differ from other issuers’ methods and accordingly may not be comparable to net book value per
unit reported by other issuers.
(iii) Estimate based on mailing addresses as at the end of each quarter.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of RioCan’s financial position and results of operations are based upon the Trust’s 2014 Annual
Financial Statements, which have been prepared in accordance with IFRS. The preparation of financial statements requires
management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results may differ from those estimates under different assumptions and conditions.
RioCan believes that the following significant accounting policies are most affected by judgments and estimates used in the
preparation of its 2014 Annual Financial Statements. For a detailed description of these and other accounting policies refer to the
notes to RioCan’s 2014 Annual Financial Statements.
118
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Fair value
Fair value is the amount at which an item could be bought or sold in a current transaction between independent, knowledgeable
willing parties, as opposed to a forced or liquidation sale, in an arm’s length transaction under no compulsion to act.
Quoted market prices in active markets are the best evidence of fair value and are used as the basis for fair value measurement,
when available. When quoted market prices are not available, estimates of fair value are based on the best information available,
including prices for similar items and the results of other valuation techniques. Valuation techniques used would be consistent
with the objective of measuring fair value.
The techniques used to estimate future cash flows will vary from one situation to another depending on the circumstances
surrounding the asset or liability in question.
The Trust’s financial statements are affected by the fair value based method of accounting, the most significant areas of which
are as follows:
• The determination of fair value of Investment property is based upon, among other things, rental revenue from current leases
and reasonable and supportable assumptions that represent what knowledgeable, willing parties would assume about rental
revenue from future leases in light of current conditions, less future cash outflows in respect of tenant installation costs, capital
expenditures and investment property operations. The Trust uses the direct capitalization method to fair value its income
properties. Under this valuation method a capitalization rate is applied to normalized NOI to yield a fair value. Please see
“Asset Profile” for a further discussion of fair values of investment property and sensitivities to changes in capitalization rates.
• Unit based compensation expense is measured at fair value and expensed over the options’ vesting periods, calculated using
the Black-Scholes Model for option valuation. For the year ended December 31, 2014, RioCan recorded Unit based
compensation expense of approximately $4.1 million ($4.7 million for the comparative period of 2013).
• International Financial Reporting Standards IAS 39, “Financial Instruments: Recognition and Measurement” establishes the
standard for recognizing and measuring financial assets, financial liabilities and non-financial derivatives (please see the notes
to RioCan’s 2014 Annual Financial Statements). All financial instruments are required to be measured at fair value on initial
recognition, except for certain related party transactions. Measurement in subsequent periods depends on whether the
financial instrument has been classified as held-for-trading, available-for-sale, held-to-maturity, loans and receivables or other
liabilities.
• For the year ended December 31, 2014, the consideration for real estate acquired during 2014 included $48 million relating to
the assumption of mortgages payable and the granting of vendor-take-back mortgages by the vendors. These financial
liabilities were measured at fair value on initial recognition. If the interest rate used in the assessment of fair value has a
differential of 100 basis points, RioCan’s operations would be impacted by approximately $0.5 million annually.
• At least annually, RioCan reports in its financial statements the fair value of its mortgages and debentures payable, which
amounts are based upon discounted future cash flows using discount rates that reflect current market conditions for
instruments with similar terms and risks. Such fair value estimates are not necessarily indicative of the amounts that RioCan
might pay or receive in actual market transactions. Potential transaction costs have also not been considered in estimating fair
value.
The carrying cost of RioCan’s mortgages and debentures payable at December 31, 2014 is $6.4 billion. The Trust reported a $6.8
billion fair value relating to these mortgages and debentures payable in the notes to the 2014 Annual Financial Statements. If the
interest rate used in the assessment of fair value has a differential of 100 basis points, RioCan’s reported fair value relating to
mortgages and debentures payable would be impacted by approximately $180 million.
Guarantees
GAAP requires RioCan to assess whether there are contingent losses relating to guarantees that the Trust provided on behalf of
third parties, including co-owners and partners. In addition, RioCan’s guarantees remain in place for debts assumed by
purchasers in connection with certain property dispositions, and will remain until such debts are extinguished or the lenders agree
to release its covenants. Credit risk arises in the event that these parties default on repayment of their debt since they are
guaranteed by RioCan. These credit risks are mitigated as RioCan has recourse under these guarantees in the event of a default
by the borrowers, in which case the Trust would also have a claim against the underlying real estate investments. A contingent
loss is recorded by RioCan when the carrying values of the related real estate investments are not recovered either as a result of
the inability of the underlying assets’ performance to meet the contractual debt service terms of the underlying debt and the fair
value of the collateral assets are insufficient to cover the obligations and encumbrances in a sale between unrelated parties in the
normal course of business. RioCan’s estimates of future cash flow which, among other things, involve assumptions of estimated
occupancy, rental rates and residual value, and the effects of other factors, including general and local economic conditions and
changing tenant formats, could vary and result in a significantly different assessment of such contingent loss. As at December 31,
2014, there have been no defaults by the primary obligors for debts on which the Trust has provided its guarantees and as a
result, no contingent loss on these guarantees has been recognized in the Trust’s financial statements.
FUTURE CHANGES IN ACCOUNTING POLICIES
RioCan monitors the potential changes proposed by the IASB and analyzes the effect that changes in the standards may have on
RioCan’s operations. Standards issued, but not yet effective, up to the date of issuance of the consolidated unaudited financial
statements for the year ended December 31, 2014, are described below. This description is of standards and interpretations
issued, which the Trust reasonably expects to be applicable at a future date. The Trust intends to adopt these standards when
they become effective.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
IFRS 15, Revenue from Contracts with Customers (IFRS 15)
IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with
customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be
entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured
approach to measuring and recording revenue. The new revenue standard is applicable to all entities and will supersede all
current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual
periods beginning on or after January 1, 2017, with early adoption permitted. RioCan is currently assessing the impact of IFRS 15
and intends to adopt the new standard on the required effective date.
IFRS 9, Financial Instruments (IFRS 9)
In July 2014, the IASB issued the final version of IFRS 9, which reflects all phases of the financial instruments project and
replaces IAS 39, Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard
introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for
annual periods beginning on or after January 1, 2018, with early application permitted. The adoption of IFRS 9 may have an
effect on the classification and measurement of RioCan's financial assets, but no impact on the classification and measurement
of its financial liabilities.
CONTROLS AND PROCEDURES
Internal Controls for Disclosure and Financial Reporting
At December 31, 2014, the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) of the Trust, along with the
assistance of senior management, have designed disclosure controls and procedures to provide reasonable assurance that
material information relating to RioCan is made known to the CEO and the Interim CFO, and have designed internal controls over
financial reporting and disclosure to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with IFRS.
RioCan has established adequate internal controls over financial reporting to provide reasonable assurance regarding the
reliability of the Trust’s financial reporting and the preparation of the financial statements for external purposes in accordance with
IFRS. Management, including RioCan’s CEO and CFO assessed, or caused an assessment under their direct supervision, of the
design and operating effectiveness of the Trust’s internal controls over financial reporting as at December 31, 2014 on the criteria
set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that assessment, it was determined that, as of December 31, 2014, RioCan’s internal controls over
financial reporting were appropriately designed and were operating effectively based on the criteria established in the Internal
Control - Integrated Framework (2013).
During the first quarter of 2014, RioCan completed the conversion to a new enterprise resource planning (ERP) system, and
financial reporting application. The ERP and financial reporting system conversion has not resulted in any significant changes in
internal controls during the year ended months ended December 31, 2014. Management employed appropriate procedures to
ensure internal controls over financial reporting were in place during and after the conversion.
It should be noted that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Given the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues, including instances of fraud, if any, have been detected. These
inherent limitations include, among other items: (i) that management’s assumptions and judgments could ultimately prove to be
incorrect under varying conditions and circumstances; (ii) the impact of any undetected errors; and (iii) controls may be
circumvented by the unauthorized acts of individuals, by collusion of two or more people, or by management override.
Canadian Income Tax Legislation – REIT Status
The Trust currently qualifies as a REIT for purposes of the Income Tax Act (Canada). Accordingly RioCan continues to be able to
flow taxable income through to unitholders on a tax effective basis.
Generally, to qualify as a REIT, RioCan’s Canadian assets must be comprised primarily of real estate and substantially all of
RioCan’s Canadian source revenues must be derived from rental revenue, capital gains and fee income from properties in which
RioCan has an interest.
On October 24, 2012, the Minister of Finance tabled in the House of Commons a detailed Notice of Ways and Means motion to
implement outstanding technical tax amendments. As part of this motion, the Minister is creating a new 10% basket for the
holding of non-qualifying assets and increasing the non-qualifying revenue basket to 10% from 5% for purposes of the 95% REIT
Revenue Test, thereby reducing the qualifying revenue threshold to 90%.
On November 21, 2012, the proposed amendments above received first reading in the House of Commons. On March 8, 2013,
the amendments received their second reading in the House of Commons and on June 26, 2013, Bill C-48 received Royal Assent
(i.e. final approval). The amendments are retroactive to January 1, 2011.
The Trust does not believe that the enactment and the amendments above, which are generally less restrictive than the original
tax legislation, will impair its ability to continue to qualify as a REIT.
REIT Qualification Monitoring
A key activity of RioCan is the monitoring processes to ensure that RioCan continues to qualify as a REIT for purposes of the
Income Tax Act (Canada) following the adoption of the SIFT Provisions in 2010.
120
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
From time to time, the members of the Board of Trustees, Audit Committee and senior management are updated on RioCan's
continued REIT qualification, including any significant legislation updates.
RISKS AND UNCERTAINTIES
The achievement of RioCan’s objectives is, in part, dependent on the successful mitigation of business risks identified. Real
estate investments are subject to a degree of risk. They are affected by various factors including changes in general economic
and local market conditions, equity and credit markets, fluctuations in interest costs, the attractiveness of the properties to
tenants, competition from other available space, the stability and credit-worthiness of tenants, and various other factors.
Development Risk
Development risk arises from the possibility that completed developments will not be leased or that costs of development will
exceed original estimates, resulting in an uneconomic return from the leasing of such space. RioCan also expects to be
increasingly involved in mixed-use development projects that include residential condominiums and rental apartments. Purchaser
demand for residential condominiums is cyclical and is affected by changes in general market and economic conditions, such as
consumer confidence, employment levels, availability of financing for homebuyers, interest rates, demographic trends, and
housing demand. Furthermore, the market value of undeveloped land, buildable lots and housing inventories held by RioCan can
fluctuate significantly as a result of changing economic and real estate market conditions.
RioCan’s construction commitments are subject to those risks usually attributable to construction projects, which include:
(i) construction or other unforeseen delays including municipal approvals; (ii) cost overruns; and (iii) the failure of tenants to
occupy and pay rent in accordance with existing lease agreements, some of which are conditional. Construction risks are
minimized through the provisions of the Trust’s Declaration, which have the effect of limiting direct and indirect investments, net of
related mortgage debt, in non-income producing properties to no more than 15% of the Adjusted Book Value of RioCan’s
unitholders’ equity. RioCan also seeks to undertake such developments with established developers. With some exceptions for
land in the high growth markets, RioCan will generally not acquire or fund significant expenditures for undeveloped land unless it
is zoned and an acceptable level of space has been pre-leased or pre-sold. An advantage of unenclosed, new format retail is that
it lends itself to phased construction keyed to leasing levels, which reduces the creation of significant amounts of vacant but
developed space.
Liquidity and General Market Conditions
RioCan faces risks associated with general market conditions and their potential consequent effects. Current general market
conditions may include, among other things, the insolvency of market participants, tightening lending standards and decreased
availability of cash, and changes in unemployment levels, retail sales levels, and real estate values. These market conditions may
affect occupancy levels and RioCan’s ability to obtain credit on favourable terms or to conduct financings through the public
market.
Ownership of Real Estate
Tenant Concentration
With respect to tenant concentration risk, in the event a given tenant, or group of tenants, experience financial difficulty and is
unable to fulfill its lease commitments, or a given geographical area suffers an economic decline, the Trust could experience a
decline in revenue.
RioCan strives to manage tenant concentration risk through geographical diversification and diversification of revenue sources in
order to avoid dependence on any single tenant. RioCan’s objective, as exemplified by the requirements of its Declaration noted
above, is that no individual tenant contributes a significant percentage of its gross revenue and that a considerable portion of the
Trust’s revenue is earned from national and anchor tenants. RioCan attempts to lease to creditworthy tenants, will generally
conduct credit assessments for new tenants and generally is provided security by the tenants as part of negotiated deals. RioCan
attempts to reduce its risks associated with occupancy levels and lease renewal risk by having staggered lease maturities,
negotiating leases with base terms between five and ten years, and by negotiating longer term leases with built-in minimum rent
escalations where deemed appropriate.
In order to reduce RioCan’s exposure to the risks relating to credit and the financial stability of tenants, the Trust’s Declaration
restricts the amount of space which can be leased to any person and that person’s affiliates, other than in respect of leases with
or guaranteed by the Government of Canada, a province of Canada, a municipality in Canada or any agency thereof and certain
corporations, the securities of which meet stated investment criteria, to a maximum premises or space having an aggregate gross
leasable area of 20% of the aggregate gross leasable area of all real property held by RioCan. At December 31, 2014, RioCan
was in compliance with this restriction.
Tenant Bankruptcies
Several of RioCan's properties are anchored by large national tenants. The value of some of the Trust's properties, including any
improvements thereto, could be adversely affected if these anchor stores or major tenants fail to comply with their contractual
obligations, experience credit or financial instability or cease their operations.
Bankruptcy filings by retailers occur periodically in the course of normal operations for reasons, such as increased competition,
Internet sales, changing population demographics, poor economic conditions, rising costs and changing shopping trends and/or
perceptions. RioCan continually seeks to re-lease vacant spaces resulting from tenant terminations. The bankruptcy of a tenant,
particularly an anchor tenant, may make it more difficult to lease the remainder of the affected properties or may give rise to
certain rights under existing leases with other tenants.
121
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Lease Renewals and Rental Increases
Growth of rental income is dependent on strong leasing markets to ensure expiring leases are renewed and new tenants are
found promptly to fill vacancies at rental rates similar to those paid by existing tenants in order for the Trust to maintain its existing
occupancy levels of its properties. It is possible that RioCan may face a disproportionate amount of space expiring in any one
period. Additionally, rental rates could decline, tenant bankruptcies could increase and tenant renewals may not be achieved,
particularly in the event of a protracted disruption in the economy, such as a recession.
At December 31, 2014, RioCan had NLA, at its interest, of 50.0 million square feet and a portfolio occupancy rate of 97.0%.
Based on the Trust’s current annualized rental revenue on a weighted average portfolio basis of approximately $24 per square
foot, for every fluctuation in occupancy by a differential of 1%, the Trust’s operations would be impacted by approximately $12
million annually.
RioCan’s aggregate rentals over the next five years represent annual lease payments of $465 million based on current
contractual rental rates. For every such lease renewed upon maturity at an aggregate rental rate differential of 100 basis points,
the Trust’s net earnings would be impacted by approximately $5 million annually.
(in thousands)
Square feet
Square feet expiring portfolio NLA
Lease expiries (Canadian Portfolio)
Portfolio
NLA (i)
39,994
55.3%
2015
3,949
9.9%
2016
4,587
11.5%
2017
3,798
9.5%
2018
4,580
11.5%
2019
5,150
12.9%
Total net rent
$
388,806
$
69,249
$
79,374
$
71,466
$
80,228
$
88,489
(in thousands)
Square feet
Square feet expiring portfolio NLA
Lease expiries (U.S. Portfolio)
Portfolio
NLA (i)
10,031
45.4%
2015
735
7.3%
2016
502
5.0%
2017
730
7.3%
2018
1,059
10.6%
2019
1,527
15.2%
Total net rent
$
76,203
$
14,228
$
8,381
$
12,751
$
17,777
$
23,066
(i)
Represents RioCan’s proportionate ownership share.
Some of our retail lease agreements include co-tenancy clauses which allow the tenant to pay a reduced rent amount and, in
certain instances, terminate the lease, if RioCan fails to maintain certain occupancy levels or retain certain anchor tenancies. In
addition, certain of the Trust's tenants have the ability to terminate their leases prior to the lease expiration date if their sales do
not meet agreed upon thresholds. If occupancy, tenancy or sales fall below certain thresholds, rents that RioCan is entitled to
receive from tenants could be reduced.
Financial and Liquidity Risk
Access to capital
A risk to the Trust’s growth program and the refinancing of its debt upon maturity is that of not having sufficient debt and equity
capital available to RioCan. Given the relatively small size of the Canadian marketplace, there are a limited number of lenders
from which RioCan can borrow. RioCan’s financial condition and results of operations would be adversely affected if it were
unable to obtain financing or cost-effective financing.
At December 31, 2014, RioCan’s total indebtedness had a 4.0 year weighted average term to maturity bearing interest at a
weighted average contractual interest rate of 4.12% per annum.
Interest rate and financing risk
The terms of RioCan's credit agreements require the Trust to comply with a number of customary financial and other covenants,
such as maintaining debt service coverage and leverage ratios, adequate insurance coverage and certain credit ratings. These
covenants may limit the Trust's flexibility in conducting its operations and breaches of these covenants could result in defaults
under the instruments governing the applicable indebtedness.
RioCan’s operations are also impacted by interest rates, as interest expense represents a significant cost in the ownership of real
estate investments. At December 31, 2014,the Trust has aggregate contractual debt principal maturities through to December 31,
2017 of approximately $2.82 billion (43.6% of RioCan’s Aggregate Debt) with a weighted average contractual interest rate of
4.03%. For every such amount refinanced upon maturity at an aggregate interest rate differential of 100 basis points, the Trust’s
net earnings would be impacted by approximately $28.2 million annually.
RioCan seeks to reduce its interest rate risk by staggering the maturities of long term debt and limiting the use of floating rate
debt so as to minimize exposure to interest rate fluctuations. At December 31, 2014, 7.8% of the Trust’s aggregate debt was at
floating interest rates.
From time to time, the Trust may enter into interest rate swap transactions to modify the interest rate profile of its current or future
variable rate debts without an exchange of the underlying principal amount.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Joint Ventures and Partnerships
RioCan participates in joint ventures, partnerships and similar arrangements that may involve risks and uncertainties not present
absent third-party involvement, including, but not limited to, RioCan's dependency on partners, co-tenants or co-venturers that
are not under the Trust's control and that might compete with RioCan for opportunities, become bankrupt or otherwise fail to fund
their share of required capital contributions, or suffer reputational damage that could have an adverse impact on the Trust.
Additionally, RioCan's partners might at any time have economic or other business interests or goals that are different than or
inconsistent with those of the Trust, and the Trust may be required to take actions that are in the interest of the partners
collectively, but not in RioCan's sole best interests. Accordingly, RioCan may not be able to favourably resolve issues with
respect to such decisions, or the Trust could become engaged in a dispute with any of them that might affect RioCan's ability to
operate the business or assets in question.
Relative Illiquidity of Real Property
Real estate investments are relatively illiquid as a large proportion of RioCan's capital is invested in physical assets which can be
difficult to sell, especially if local market conditions are poor. A lack of liquidity could limit the Trust’s ability to sell components of
the portfolio promptly in response to changing economic or investment conditions. If RioCan were required to quickly liquidate its
assets, there is a risk that the Trust would realize sale proceeds of less than the current book value of its real estate investments.
As well, certain significant expenditures involved in real property investments, such as property taxes, maintenance costs and
mortgage payments, represent obligations that must be met regardless of whether the property is producing sufficient, or any,
revenue.
Unexpected Costs or Liabilities Related to Acquisitions
A risk associated with a real property acquisition is that there may be an undisclosed or unknown liability concerning the acquired
properties, and RioCan may not be indemnified for some or all of these liabilities. Following an acquisition, RioCan may discover
that it has acquired undisclosed liabilities, which may be material.
RioCan conducts what it believes to be an appropriate level of investigation in connection with its acquisition of properties and
seeks through contract to ensure that risks lie with the appropriate party.
Environmental Matters
Environmental and ecological related policies have become increasingly important in recent years. Under various federal,
provincial, state and municipal laws, RioCan, as an owner or operator of real property, could become liable for the costs of
removal or remediation of certain hazardous or toxic substances released on or in its properties or disposed of at other locations.
The failure to remove or remediate such substances, or address such matters through alternative measures prescribed by the
governing authority, may adversely affect RioCan’s ability to sell such real estate or to borrow using such real estate as collateral,
and could, potentially, also result in claims against the Trust. RioCan is not currently aware of any material non-compliance,
liability or other claim in connection with any of its properties, nor is RioCan currently aware of any environmental condition with
respect to any properties that it believes would involve material expenditures by the Trust.
It is the Trust’s policy to obtain a Phase I environmental audit conducted by a qualified environmental consultant prior to acquiring
any additional property. In addition, where appropriate, tenant leases generally specify that the tenant will conduct its business in
accordance with environmental regulations and be responsible for any liabilities arising out of infractions to such regulations. It is
RioCan’s practice to regularly inspect tenant premises that may be subject to environmental risk. The Trust maintains insurance
to cover a sudden and/or accidental environmental mishap.
Litigation
RioCan’s operations are subject to a wide variety of laws and regulations across all of its operating jurisdictions and RioCan faces
risks associated with legal and regulatory changes and litigation. In the normal course of operations, RioCan becomes involved in
various legal actions, including claims relating to personal injury, property damage, property taxes, land rights, and contractual
and other commercial disputes. Further, RioCan has operations in the U.S., which may, as a result of the prevalence of litigation
in the U.S., be more susceptible to legal action than the rest of RioCan's operations. The final outcome with respect to
outstanding, pending or future actions cannot be predicted with certainty, and the resolution of such actions may have an adverse
effect on the Trust's financial position or results of operations.
RioCan retains external legal consultants to assist it in remaining current and compliant with legal and regulatory changes and to
respond to litigation.
Key Personnel
RioCan's executive and other senior officers have a significant role in the success of the Trust and oversee the execution of
RioCan's strategy. RioCan's ability to retain its management team or attract suitable replacements should any members of the
management group leave is dependent on, among other things, the competitive nature of the employment market. RioCan has
experienced departures of key professionals in the past and may do so in the future, and the Trust cannot predict the impact that
any such departures will have on its ability to achieve its objectives. The loss of services from key members of the management
team or a limitation in their availability could adversely impact RioCan's financial condition and cash flow.
RioCan relies on the services of key personnel on its executive team, including its Chief Executive Officer, Edward Sonshine, and
its President, Chief Operating Officer and Interim Chief Financial Officer and Corporate Secretary, Raghunath Davloor, and the
loss of their services could have an adverse effect on RioCan. RioCan mitigates key personnel risk through succession planning,
but does not maintain key person insurance.
123
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
MANAGEMENT’S DISCUSSION AND ANALYSIS
Unitholder Liability
There is a risk that RioCan’s unitholders could become subject to liability. The Trust’s Declaration provides that no unitholder or
annuitant under a plan of which a unitholder acts as trustee or carrier will be held to have any personal liability as such, and that
no resort shall be had to the private property of any unitholder or annuitant for satisfaction of any obligation or claim arising out of
or in connection with any contract or obligation of RioCan. Only RioCan’s assets are intended to be subject to levy or execution.
The Declaration further provides that, whenever possible, certain written instruments signed by RioCan must contain a provision
to the effect that such obligation will not be binding upon unitholders personally or upon any annuitant under a plan of which a
unitholder acts as trustee or carrier. In conducting its affairs, RioCan has acquired and may acquire real property investments
subject to existing contractual obligations, including obligations under mortgages and leases that do not include such provisions.
RioCan will use its best efforts to ensure that provisions disclaiming personal liability are included in contractual obligations
related to properties acquired, and leases entered into, in the future.
Certain provinces have legislation relating to unitholder liability protection, including British Columbia, Alberta, Saskatchewan,
Manitoba, Ontario and Quebec. To RioCan’s knowledge, certain of these statutes have not yet been judicially considered and it is
possible that reliance on such statute by a unitholder could be successfully challenged on jurisdictional or other grounds.
Income Taxes
RioCan currently qualifies as a mutual fund trust and REIT for income tax purposes. RioCan expects to distribute all of the Trust’s
taxable income to unitholders and is, therefore, generally not subject to tax on such amounts. In order to maintain RioCan’s
current mutual fund trust status, the Trust is required to comply with specific restrictions regarding its activities and the
investments held by the Trust. If the Trust were to cease to qualify as a mutual fund trust, or a REIT for income tax purposes, the
consequences could be material and adverse.
No assurance can be given that the provisions of the Income Tax Act (Canada) regarding mutual fund trusts and REITs will not be
changed in a manner that adversely affects RioCan and its unitholders.
United States Investment, Management Platform and Currency Risk
RioCan intends to continue to make acquisitions from time to time in the United States as determined to be appropriate or
desirable. It is possible that such additional acquisitions may not be completed. Further there may be a lack of availability of
acquisition opportunities and exposure to economic, real estate and capital market conditions in the United States.
RioCan’s recent development of a property management platform in the U.S. will expand the Trust’s direct involvement in the
U.S. real estate market. The U.S. real estate market differs from the Canadian environment in many ways and the Trust’s
expertise and experience in Canada may not prove beneficial in a foreign jurisdiction. The Trust is mitigating the risks relating to
its entry into and exposure to the U.S. by hiring U.S. based employees with real estate experience, and making investments of
moderate scale. There can be no certainty, however, that RioCan’s U.S. investments will be successful.
Additionally, it is possible that the Trust’s U.S. investments will expose the Trust to foreign exchange fluctuations. The Trust will, in
part, mitigate this risk through the use of U.S. denominated debt.
As at December 31, 2014, the Trust’s US denominated net assets are $1,048 million; therefore a 1% change in the value of the
US dollar will result in a gain or loss through OCI of approximately $10.5 million and an approximate $1.8 million impact to
consolidated net earnings.
Credit Ratings
Real or anticipated changes in credit ratings on RioCan’s debentures or Preferred Units may affect the market value thereof. In
addition, real or anticipated change in credit ratings can affect the cost at which RioCan can access the debenture or preferred
unit market, as applicable.
124
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
AHEAD OF THE CURVE
RioCan
AUDITED ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2014 AND 2013
TABLE OF CONTENTS
Audited Annual
Consolidated Financial Statements
126 Management’s Responsibility for Financial Reporting
127 Independent Auditors’ Report
128 Consolidated Balance Sheets
129 Consolidated Statements of Earnings
130 Consolidated Statements of Changes in Equity
131 Consolidated Statements of Comprehensive Income
132 Consolidated Statements of Cash Flows
133 Notes to Condensed Consolidated Financial Statements
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of RioCan Real Estate Investment Trust (RioCan) is responsible for the preparation and fair
presentation of the accompanying annual consolidated financial statements and Management's Discussion and Analysis
(MD&A). The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS).
The consolidated financial statements and information in the MD&A necessarily include amounts based on best estimates
and judgments by management of the expected effects of current events and transactions with the appropriate
consideration to materiality. In addition, in preparing this financial information, we must make determinations about the
relevancy of information to be included, and estimates and assumptions that affect the reported information. The MD&A
also includes information regarding the impact of current transactions and events, sources of liquidity and capital
resources, operating trends, risks and uncertainties. Actual results in the future may differ materially from our present
assessment of this information because future events and circumstances may not occur as expected.
In meeting our responsibility for the integrity and fairness of the annual consolidated financial statements and MD&A and
for the accounting systems from which they are derived, management has established the necessary internal controls
designed to ensure that our financial records are reliable for preparing financial statements and other financial information,
transactions are properly authorized and recorded, and assets are safeguarded against unauthorized use or disposition.
As at December 31, 2014, our Chief Executive Officer and Interim Chief Financial Officer evaluated, or caused an
evaluation under their direct supervision, the design and operation of our internal controls over financial reporting (as
defined in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings) and, based on that
assessment, determined that our internal controls over financial reporting were appropriately designed and operating
effectively.
The Board of Trustees oversees management’s responsibility for financial reporting through an Audit Committee, which is
composed entirely of independent trustees. This committee reviews RioCan’s annual consolidated financial statements
and MD&A with both management and the independent auditors before such statements are approved by the Board of
Trustees. Other key responsibilities of the Audit Committee include selecting RioCan’s auditors, approving the unaudited
interim condensed consolidated financial statements and MD&A, and monitoring RioCan’s existing systems of internal
controls.
Ernst & Young LLP, independent auditors appointed by the unitholders of RioCan upon the recommendation of the Board
of Trustees, have examined our 2014 and 2013 annual consolidated financial statements and have expressed their
opinion upon the completion of such examination in the following report to the unitholders. The auditors have full and free
access to, and meet at least quarterly with, the Audit Committee to discuss their audits and related matters.
Edward Sonshine, O.Ont., Q.C.
Chief Executive Officer
Raghunath Davloor, CPA, CA
President, Chief Operating Officer, and Interim Chief Financial Officer
Toronto, Canada
February 12, 2015
126
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
INDEPENDENT AUDITORS’ REPORT
To the Unitholders of
RioCan Real Estate Investment Trust
We have audited the accompanying consolidated financial statements of RioCan Real Estate Investment Trust,
which comprise the consolidated balance sheets as at December 31, 2014 and 2013, and the consolidated
statements of earnings, changes in equity, comprehensive income, and cash flows for the years ended
December 31, 2014 and 2013, and a summary of significant accounting policies and other explanatory
information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation
and fair presentation of the consolidated financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
RioCan Real Estate Investment Trust as at December 31, 2014 and 2013, and its financial performance and its
cash flows for the years ended December 31, 2014 and 2013 in accordance with International Financial Reporting
Standards.
Toronto, Ontario
February 12, 2015
127
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(Audited – Canadian dollars, in millions)
Note
As at December 31,
2014
As at December 31,
2013
ASSETS
Investment properties
Deferred tax assets
Investments in associates and joint ventures
Mortgages and loans receivable
Receivables and other assets
Cash and cash equivalents
Total assets
LIABILITIES
Mortgages payable and lines of credit
Debentures payable
Accounts payable and accrued liabilities
Total liabilities
EQUITY
Preferred unitholders’ equity
Common unitholders’ equity
Total unitholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
4
9
17
5
6
7
8
10
$
$
$
$
14,040
$
13,062
9
63
136
373
56
9
36
248
136
39
14,677
$
13,530
$
4,587
1,857
365
6,809
$
4,512
1,447
299
6,258
265
6,996
7,261
11
7,272
13,530
11
$
265
$
7,603
7,868
—
7,868
$
14,677
$
The accompanying notes are an integral part of the consolidated financial statements.
Approved on behalf of the Board of Trustees
Paul Godfrey
Paul Godfrey, O. Ont., C.M.
Chairman
Edward Sonshine
Edward Sonshine, O. Ont., Q.C.
Trustee
128
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF EARNINGS
(Audited – Canadian dollars, in millions, except per unit amounts)
For the year ended December 31,
Rental revenue
Property operating costs
Recoverable under tenant leases
Non-recoverable from tenants
Operating income
Other income
Fees and other income
Interest
Share of net earnings in equity accounted associates and joint ventures
Fair value gains on investment property, net
Other expenses
Interest
General and administrative
Leasing costs
Transaction and other costs
Expense for early redemption of debentures
Earnings before income taxes
Net earnings
Net earnings attributable to:
Common and preferred unitholders
Non-controlling interests
Net earnings per common unit – basic
Net earnings per common unit – diluted
Weighted average number of common units – basic (in thousands)
Weighted average number of common units – diluted (in thousands)
The accompanying notes are an integral part of the consolidated financial statements.
Note
2014
2013
(restated -
note 2)
14
$
1,204
$
1,121
15
16
17
4
18
19
3
20
22
22
22
22
$
$
$
$
$
406
19
425
779
22
7
13
147
189
235
52
11
6
—
304
664
664
663
1
664
2.11
2.10
$
$
$
$
$
376
16
392
729
17
14
32
229
292
234
45
8
9
12
308
713
713
709
4
713
2.30
2.29
307,910
308,672
302,324
303,260
129
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Audited – Canadian dollars, in millions)
Total Equity,
December 31, 2012
Changes during the period
Net earnings
Other comprehensive
income
Realization of
cumulative foreign
currency translation
difference
Distributions to
unitholders
Unit issue proceeds, net
Common trust units
repurchased and
cancelled
Value associated with
unit options granted
Change in ownership
interest
Reclassification of
pension
Total Equity,
December 31, 2013
Total Equity,
December 31, 2013
Changes during the period
Net earnings
Other comprehensive
income
Distributions to
unitholders
Unit issue proceeds, net
Value associated with
unit options granted
Change in ownership
interest
Total Equity,
December 31, 2014
Common
Trust
Units
Note
Cumulative
Earnings
Cumulative
Unitholders
Distributions
Accumulated
OCI (loss)
Total
Common
Equity
Total
Preferred
Equity
Non-
Controlling
Interests
Total
$
4,130
$
6,125 $
(3,649) $
(24)
$
6,582
$
265
$
33 $ 6,880
11
13
11
11
11
—
—
—
—
119
(13)
5
—
—
709
—
—
—
—
(9)
—
—
1
—
—
—
(440)
—
—
—
—
—
—
47
709
47
(4)
(4)
—
—
—
—
—
(1)
(440)
119
(22)
5
—
—
—
—
—
—
—
—
—
—
—
4
—
—
(1)
—
—
—
713
47
(4)
(441)
119
(22)
5
(25)
(25)
—
—
$
4,241 $
6,826 $
(4,089) $
18 $
6,996 $
265 $
11 $ 7,272
Common
Trust
Units
Cumulative
Earnings
Cumulative
Unitholders
Distributions
Note
Accumulated
OCI (note 11)
Total
Common
Equity
Total
Preferred
Equity
Non-
Controlling
Interests
Total
$
4,241
$
6,826 $
(4,089) $
18
$
6,996
$
265
$
11 $ 7,272
11
13
11
11
—
—
—
291
5
—
663
—
—
—
—
—
—
—
(448)
—
—
—
—
96
—
—
—
—
663
96
(448)
291
5
—
—
—
—
—
—
—
1
—
664
96
— (448)
—
—
291
5
(12)
(12)
$
4,537 $
7,489 $
(4,537) $
114 $
7,603 $
265 $
— $ 7,868
The accompanying notes are an integral part of the consolidated financial statements.
130
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Audited – Canadian dollars, in millions)
For the year ended December 31,
Net earnings
Other comprehensive income:
Items that may be reclassified subsequently to net earnings:
Unrealized gain (loss) on interest rate swap agreements
Unrealized gain on translation of foreign operations
Unrealized gain (loss) on available-for-sale investment
Items that are not to be reclassified to net earnings, net of tax:
Actuarial gain (loss) on pension plan, net of tax
Other comprehensive income, net of tax
Comprehensive income
Comprehensive income attributable to:
Common and preferred unitholders
Non-controlling interests
The accompanying notes are an integral part of the consolidated financial statements.
11
11
11
11
$
$
$
$
2014
664 $
2013
713
(7)
79
26
(2)
96
760 $
759 $
1 $
6
38
(2)
1
43
756
752
4
131
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Audited – Canadian dollars, in millions)
For the year ended December 31,
CASH FLOWS PROVIDED BY (USED IN):
Operating activities
Net earnings
Items not affecting cash
Depreciation and amortization
Recognition of rents on a straight-line basis
Unit-based compensation expense
Fair value gains on investment property, net
Share of net earnings in associates and joint ventures
Net change in non-cash operating items
Cash flows provided by operating activities
Investing activities
Acquisition of investment properties
Capital expenditures on properties under development
Capital expenditures recoverable from tenants
Capital expenditures not recoverable from tenants
Capital expenditures - revenue enhancing
Tenant installation costs
Proceeds on disposition of investment properties
Contributions to associates and joint ventures
Distributions from associates and joint ventures
Proceeds on disposition of associates and joint ventures
Mortgages and loans receivable
Advances
Repayments
(Purchases) Proceeds related to available-for-sale investments, net of financing
Cash flows used in investing activities
Financing activities
Mortgages payable
Borrowings
Repayments
Advances of lines of credit
Repayment of lines of credit
Issue of debentures payable, net
Repayment of debentures payable
Acquisition of non-controlling interests
Distributions on common units
Proceeds from units issued under distribution reinvestment plan
Distributions paid on preferred units
Distributions paid to non-controlling interests
Common units repurchased and cancelled
Proceeds from issue of common units, net
Cash flows provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow information
The accompanying notes are an integral part of the consolidated financial statements.
Note
2014
2013
$
664 $
713
5
(9)
5
(147)
(13)
(1)
504
(192)
(231)
(10)
(12)
(9)
(29)
54
(4)
1
—
(54)
60
(96)
(522)
250
(411)
231
(276)
400
—
(3)
(433)
121
(14)
—
—
170
35
17
39
$
56 $
4
24
8
8
13
11
13
25
2
(6)
5
(229)
(32)
(45)
408
(563)
(156)
(19)
(4)
(7)
(28)
440
(30)
19
52
(49)
18
49
(278)
423
(476)
259
(250)
446
(300)
(25)
(425)
110
(14)
(1)
(22)
9
(266)
(136)
175
39
132
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
AHEAD OF THE CURVE
RioCan
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except
per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED
DECEMBER 31, 2014 AND 2013
TABLE OF CONTENTS
Notes to
Consolidated Financial Statements
To facilitate a better understanding of RioCan’s consolidated financial statements, significant accounting policies and related
disclosures, a listing of all the notes is provided below.
1. Trust information
2. Basis of Presentation
3. Significant Accounting Policies
4. Investment Properties
5. Mortgages and Loans Receivable
6. Receivables and Other Assets
7. Mortgages Payable and Lines of Credit
8. Debentures Payable
9. Income Taxes
10. Accounts Payable and Accrued Liabilities
11. Unitholders’ Equity
12. Unit-based Compensation Plans
13. Distributions to Unitholders
14. Rental Revenue
15. Property Operating Costs - Recoverable Under
Tenant Leases
16. Fees and Other Income
134
134
135
143
146
146
147
148
149
150
150
152
154
154
154
154
17. Subsidiaries and Joint Arrangements
18. Interest Expense
19. General and Administrative
20. Transaction and Other Costs
21. Segmented Information
22. Net Earnings per Unit
23. Hedging Activities
24. Net Change in Non-Cash Operating Items
25. Supplemental Cash Flow Information
26. Operating Leases - Trust as Lessor
27. Fair Value Measurement
28. Capital Management
29. Financial Instruments
30. Related Party Transactions
31. Employee Benefits
32. Contingencies and Commitments
33. Events After the Balance Sheet Date
155
156
156
157
157
158
159
159
160
160
160
161
162
163
164
164
165
3_3
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
1. Trust Information
RioCan Real Estate Investment Trust (the Trust or RioCan) owns, develops and operates Canada's largest portfolio of shopping
centres. RioCan is an unincorporated closed-end trust governed under the laws of the Province of Ontario, Canada and
constituted pursuant to a Declaration of Trust dated November 30, 1993, as most recently amended and restated on June 5,
2013 (the Declaration). The Trust’s registered office and principal place of business is located at 2300 Yonge Street, Suite 500,
Toronto, Ontario. RioCan also has regional offices outside of Canada in Mount Laurel, New Jersey and Dallas, Texas. RioCan's
common trust units (Units) are listed on the Toronto Stock Exchange (the TSX) under the symbol REI.UN and its preferred trust
units, Series A and its preferred trust units, Series C are listed on the TSX under the symbols REI.PR.A and REI.PR.C,
respectively.
These consolidated financial statements were authorized for issue by RioCan's Board of Trustees on February 12, 2015.
2. Basis of Presentation
(a) Basis of presentation and statement of compliance
RioCan’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS)
as issued by the International Accounting Standards Board (IASB).
These consolidated financial statements are prepared on a going concern basis and using the historical cost method, modified to
include the fair value measurement of investment property and certain financial instruments as set out in the relevant accounting
policies.
The Trust presents its consolidated balance sheets based on the liquidity method, whereby all assets and liabilities are presented
in increasing order of liquidity. The notes to the consolidated financial statements distinguish between current and non-current
assets and liabilities.
Certain comparative information has been reclassified to conform to the current year's presentation. All amounts are expressed
in Canadian dollars and rounded to the nearest million unless otherwise indicated.
(b) Principles of consolidation
(i) Subsidiaries
These consolidated financial statements include the assets, liabilities and result of operations of RioCan and its subsidiaries
after elimination of inter-company transactions and balances.
Subsidiaries are entities over which the Trust has control, where an entity has control when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the
entity. Power may be determined on the basis of voting rights or other contractual arrangements. Subsidiaries are fully
consolidated from the date of acquisition, being the date on which RioCan obtains control, and continue to be consolidated
until the date that such control ceases.
When RioCan does not own all of the equity in a subsidiary, the non-controlling equity interest is disclosed in the
consolidated balance sheet as a separate component of total equity.
(ii) Associates and joint ventures
Associates are entities over which RioCan has significant influence and that is neither a subsidiary or an interest in a joint
venture. Ownership of 20% to 50% of the voting shares of an investee would generally indicate that the Trust has significant
influence, although other factors such as the ability to impact key operating decisions could also indicate significant
influence.
A joint venture is a type of joint arrangement whereby the parties that share joint control have rights to the net assets of the
joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions
about the relevant activities require unanimous consent of the parties sharing control.
Investments in associates and joint ventures are accounted for using the equity method and initially recorded at cost and
adjusted by post-acquisition changes in RioCan’s share of the net assets of the associate. The statement of earnings reflects
the Trust’s share of the result of operations of the associate or joint venture.
The financial statements of RioCan's associates and joint ventures are prepared for the same reporting period as the Trust
and where necessary, adjustments are made to bring the accounting policies of such entities in line with those of the Trust.
(iii) Joint operations
A joint operation is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to
the assets and obligations for the liabilities relating to the arrangement. RioCan records only its share of the assets,
liabilities and share of the results of operations of the joint operation. The assets, liabilities and results of joint operations are
included within the respective line items of the consolidated balance sheets, consolidated statements of earnings, and
consolidated statements of comprehensive income.
(c) Critical Accounting Estimates and Use of Judgment
The preparation of RioCan's consolidated financial statements requires management to make judgments, estimates and
assumptions that affect the reported amounts of revenues and expenses during the reporting period and assets, liabilities and
134
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
contingent liabilities at the reporting period date. These estimates and judgments are made based on information available as at
the date of issuance of the consolidated financial statements that are believed to be reasonable. Actual results may differ from
these estimates.
In the process of applying RioCan's accounting policies, management was required to apply judgment and estimates in the areas
discussed below.
Investment properties
RioCan's accounting policies relating to investment properties are described in Note 2(e). In applying these policies, judgment is
required in determining whether certain costs represent additions to the carrying amount of the property and in distinguishing
between tenant incentives and capital improvements.
Development properties
Development costs for properties under development are capitalized in accordance with the accounting policy in Note 3(c). Initial
capitalization of costs requires management’s judgment in determining when the project commences with active development,
and identifying at which time a development property is substantially completed. This amount includes capitalized property taxes
as well as borrowing costs on both specific and general debt.
Valuation of investment properties
Fair value is the amount at which an item could be bought or sold in a current transaction between independent, knowledgeable
willing parties, as opposed to a forced or liquidation sale, in an arm’s length transaction under no compulsion to act.
Quoted market prices in active markets are the best evidence of fair value and are used as the basis for fair value measurement,
when available. When quoted market prices are not available, judgment is required to estimate fair value based on the best
information available, including prices for similar assets and the use of other valuation techniques. These valuation techniques
are consistent with the objective of measuring fair value and involve a degree of estimation depending on the availability of
market-based information.
Management internally estimates the fair value of each income property based on a valuation technique known as the direct
capitalization income approach. The fair value is determined by applying a capitalization rate to stabilized net operating income
(SNOI), which incorporates allowances for vacancy, management fees and structural reserves for capital expenditures for the
property. The resulting capitalized value is further adjusted, where appropriate, for costs to stabilize the income and non-
recoverable capital expenditures.
Estimated rental values, annual rent growth and long-term vacancy rates are unobservable inputs in the context of the Trust's fair
value model. Generally, a change in the assumption made for the estimated rental value is accompanied by a directionally
similar change in the rent growth per annum and an opposite change in the long-term vacancy rate. Each of these inputs when
increased or decreased, in isolation, would not result in a material change in the fair value of the Trust's investment properties.
As a result, management does not consider these variables as key inputs in estimating the fair value of income property.
Management uses an internal valuation process to estimate the fair value of properties under development that consist of
undeveloped land on a land value per acre basis using the particular attributes of the project with respect to zoning and pre-
development work performed on the site. Where a site is partially developed, the direct capitalization method is applied to
capitalize the pro forma NOI, stabilized with market allowances, from which the costs to complete the development are deducted.
The primary method of valuation for land acquired for development is the comparable sales approach, which considers recent
sales activity for similar land parcels in the same or similar markets. Land values are estimated using either a per acre or per
buildable square foot basis based on highest and best use. Such values are applied to RioCan's properties after adjusting for
factors specific to the site, including its location, intended use, zoning, servicing and configuration.
Unit-based compensation
RioCan uses estimates and judgment when determining the unit-based compensation expense during a reporting period. The
determination of the unit-based compensation expense resulting from the Trust's granting of employee unit options depends on
valuation models, which by their nature are subject to measurement uncertainty. The valuation method used to measure the fair
value for each unit option awarded by RioCan is the Black Scholes option pricing model. This model requires the use of
assumptions, such as expected stock price volatility and the use of historical data that may not be reflective of future
performance.
Significant influence
When determining the appropriate basis of accounting for RioCan's investees, the Trust makes judgments about the degree of
influence that RioCan exerts directly or through an arrangement over the investees' relevant activities. This may include the
ability to elect investee directors, appoint management or influence key decisions.
3. Significant Accounting Policies
(a) Business combinations
At the time of acquisition of property, whether through a controlling share investment or directly, the Trust considers whether the
acquisition represents the acquisition of a business. The Trust accounts for an acquisition as a business combination where an
integrated set of activities is acquired in addition to the property. More specifically, consideration is made of the extent to which
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
significant processes are acquired. If no, or only insignificant processes are acquired, the acquisition is treated as an asset
acquisition rather than a business combination.
The cost of a business combination is measured as the fair value of the assets given, equity instruments issued and liabilities
incurred or assumed at the acquisition date. Identifiable assets acquired and liabilities and contingent liabilities assumed in a
business combination are measured initially at fair value at the date of acquisition. The Trust recognizes assets or liabilities, if
any, resulting from a contingent consideration arrangement at their acquisition date fair value and such amounts form part of the
cost of the business combination. Subsequent changes in the fair value of contingent consideration arrangements are recognized
in net earnings. The difference between the purchase price and the Trust’s net fair value of the acquired identifiable net assets
and liabilities is goodwill. On the date of acquisition, the purchaser records positive goodwill as an asset. Negative goodwill is
immediately recognized in the consolidated statements of earnings. Goodwill is not amortized and must be tested for impairment
at least annually, or more frequently, if events or changes in circumstances indicate that impairment has occurred.
RioCan expenses transaction costs associated with business combinations in the period incurred.
When an acquisition does not meet the criteria for a business, it is accounted for as an acquisition of a group of assets and
liabilities, the cost of which includes transaction costs that are allocated to the assets and liabilities acquired based upon their
relative fair values. No goodwill is recognized for asset acquisitions.
(b) Fair value measurement
The Trust measures financial instruments, such as derivatives, and non-financial assets, such as investment properties, at fair
value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date under current market conditions. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
•
•
In the principal market for the asset or liability; or
In the absence of a principal market, in the most advantageous market for the asset or liability that is accessible by
RioCan.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the
asset or liability assuming that market participants act in their economic best interests. A fair value measurement of a non-
financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and
best use or by selling it to another market participant that would use the asset in its highest and best use.
The Trust uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to
measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair
value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
•
•
•
Level 1 - quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - valuation techniques for which the lowest level input that is significant to the fair value measurement is directly
or indirectly observable
Level 3 - valuation techniques for which the lowest level input that is significant to the fair value measurement is
unobservable
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Trust determines
whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input
that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, RioCan has determined classes of assets and liabilities on the basis of the nature,
characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
(c)
Investment properties
Investment properties are held to earn rental revenue or for capital appreciation or both. A key characteristic of an investment
property is that it generates cash flows largely independently of the other assets held by an entity.
Real estate property held under an operating lease is not classified as investment property. Instead, these leases are accounted
for in accordance with IAS 17, Leases. Certain land leases held under an operating lease, however, are classified as investment
property when the definition of an investment property is met. At the inception of these leases, investment property is recognized
at the lower of the fair value of the property and the present value of the future minimum lease payments and an equivalent
amount is recognized as a lease obligation.
(i) Income properties
Income properties are initially measured at cost. Subsequent to initial recognition, income properties are recorded at fair
value and related gains or losses arising from changes in fair value are recognized in net earnings in the period of change.
The determination of fair value is based on, among other things, rental revenue from current leases and reasonable and
supportable assumptions that represent what knowledgeable, willing parties would assume about rental revenue from future
leases in light of current conditions, less future cash outflows in respect of tenant installation costs, income property
operations and capital expenditures.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(ii) Properties under development
Properties under development include those properties, or components thereof, that will undergo activities that will take a
substantial period of time to prepare the properties for their intended use as income properties.
The cost of a development property that is an asset acquisition comprises the amount of cash, or the fair value of other
consideration, paid to acquire the property, including transaction costs. Subsequent to acquisition, the cost of a development
property includes costs that are directly attributable to these assets, including development costs, property taxes and
borrowing costs on both specific and general debt. Direct and indirect borrowing costs, development costs and property
taxes are capitalized when the activities necessary to prepare an asset for development or redevelopment begin, and
continue until the date that construction is substantially complete and all necessary occupancy and related permits have
been received, whether or not the space is leased. If RioCan is required as a condition of a lease to construct tenant
improvements that enhance the value of the property, then capitalization of costs continues until such improvements are
completed. Capitalization of finance costs is suspended if there are prolonged periods when development activity is
interrupted.
Interest capitalized is calculated using the Trust’s weighted average cost of borrowing after adjusting for borrowing
associated with specific developments. Where borrowing is associated with specific developments, the amount capitalized is
the gross interest incurred on such borrowing less any investment income arising on temporary investment of such
borrowing.
Properties under development are also adjusted to fair value at each balance sheet date with fair value adjustments
recognized in net earnings.
(iii) Assets held for resale
Assets held for resale are assets acquired or developed that RioCan has no intention of using for rental income purposes
and plans to sell in the ordinary course of business. The Trust expects to earn a return on such assets through a combination
of property operating income earned during the holding period and sales proceeds. Assets held for resale are recorded at the
lower of cost, including pre-development expenditures and capitalized borrowing costs, and net realizable value, which
RioCan determines using the estimated selling price in the ordinary course of business, less estimated selling costs.
Assets held for resale are reviewed for impairment at each reporting period date. An impairment loss is recognized in net
earnings when the carrying value of the asset exceeds its net realizable value.
Assets held for resale primarily include RioCan's residential development inventory and air rights.
(d) Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Trust and the revenue can be
reliably measured. Revenue is measured at the fair value of the consideration received. The following specific recognition criteria
must also be met before revenue is recognized:
(i) Rental revenue
Base rent
The Trust has not transferred substantially all of the benefits and risks of ownership of its investment properties and,
therefore, accounts for leases with its tenants as operating leases. Rental revenue includes all amounts earned from tenants
related to lease agreements including property tax and operating cost recoveries. Revenue recognition under a lease
commences when the tenant has the right to use the leased asset, which is typically when the tenant takes possession of, or
controls, the physical use of the leased property. Generally, this occurs on the lease commencement date. When RioCan is
required to make additions to the property in the form of tenant improvements that enhance the value of the property,
revenue recognition begins upon substantial completion of such additions.
Tenant incentives are recognized as a reduction of rental revenue on a straight-line basis over the term of the lease where it
is determined that the tenant fixturing has no benefit to RioCan beyond the existing tenancy.
Straight-line rent
Certain leases contain rent escalation clauses or provide for tenant occupancy during periods for which no rent is due.
RioCan records the total rental income on a straight-line basis over the full term of the lease, including the tenant fixturing
period. An accrued straight-line rent receivable is recorded from tenants for the difference between the straight-line rent and
the rent that is contractually owing.
Lease cancellation fees
Amounts payable by tenants to terminate their lease prior to the contractual expiry date are included in rental revenue as
lease cancellation fees at the effective date of the lease termination.
Percentage rent
Percentage rent is typically calculated based on a percentage of tenant sales over a specified threshold, which is in addition
to base rent.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(ii) Fees and other income
RioCan has interests in various investment properties through joint arrangements and investments in associates. The Trust
provides asset and property management services to co-owners, partners and third parties for which it earns market-based
construction, development, financing and arranging fees.
Fees are recognized as the service or contract activity is performed using the percentage of completion method. Under the
percentage of completion method, where services are provided over a specific period of time, revenue is recognized on a
straight-line basis unless there is evidence that some other method would better reflect the pattern of performance. Where
the contract outcome cannot be measured reliably, revenue is recognized only to the extent that the expenses incurred are
eligible to be recovered.
Other income includes investment income related to the Trust’s other financial assets and is included in earnings when
declared.
(iii) Transaction gains and losses
Transaction gains and losses may arise from the sale of assets held for resale. Revenue earned from the sale of assets held
for resale is recognized when all of the following conditions are met: a) the Trust has transferred to the purchaser the
significant risks and rewards of ownership; b) the Trust has no continuing managerial involvement in the property; c)
revenues and costs can be reliably measured; d) the purchaser has made a substantial commitment demonstrating its intent
to honour its obligation; and d) collection of any additional consideration is reasonably assured.
Revenue from residential land sales is recorded at the time that the risks and rewards of ownership have been transferred,
which is generally when possession or title passes to the purchaser, all material conditions of the sales contract have been
met, and a significant cash down payment or appropriate security is received.
Revenue from the sale of homes and residential condominium projects is recognized upon completion, when title passes to
the purchaser upon closing and at which time all proceeds are received or collectibility is reasonably assured.
Directly attributable selling and disposition costs are expensed as incurred.
(iv) Interest income
Revenue is recognized as interest accrues using the effective interest method.
(e) Unit-based compensation
(i) Equity settled
RioCan and its subsidiaries issue unit-based awards to certain employees. The cost of equity-settled unit-based payment
transactions equals the fair value of each tranche of options at their grant date. The cost of the unit options is recognized on
a proportionate basis consistent with the vesting features of each tranche of the grant.
(ii) Cash settled
RioCan has a Deferred Equity Unit (DEU) plan which provides for an allotment of DEUs to each non-employee trustee. The
cost of cash-settled unit-based payment transactions is measured at fair value and expensed over the vesting period with the
recognition of a corresponding liability. The liability is re-measured at fair value at each reporting period date with the vested
changes in fair value recorded in net earnings.
(f) Financial assets and financial liabilities
Financial assets include RioCan's contractual rents receivable, mortgages and loans receivable, cash and cash equivalents,
funds held in trust, available-for-sale securities and interest rate swap contracts. Financial liabilities include RioCan's secured
operating lines of credit, mortgages payable, debentures payable and accounts payable and accrued liabilities.
The fair value of a financial instrument is the amount of consideration that could be agreed upon in an arm’s length transaction
between knowledgeable, willing parties who are under no compulsion to act. In certain circumstances, however, the initial fair
value may be based on other observable current market transactions in the same instrument without modification or on a
valuation technique using market based inputs. The fair values of mortgages and loans receivable and debentures are based on
the current market conditions for instruments with similar terms and risks. The fair values of term mortgages, designated hedging
derivative instruments included in receivables and other assets and accounts payable and accrued liabilities are estimated based
on discounted future cash flows using discount rates that reflect current market conditions for instruments with similar terms and
risks.
(g) Recognition and measurement of financial instruments
The Trust determines the classification of its financial assets and liabilities at initial recognition. Financial instruments are
recorded initially at fair value and, in the case of financial assets and liabilities carried at amortized cost, adjusted for directly
attributable transaction costs.
Measurement in subsequent periods depends on whether the financial instrument has been classified as held-for-trading, loans
and receivables, available-for-sale, held-to-maturity, or other liabilities.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(i) Held-for-trading
Financial assets and financial liabilities classified as held-for-trading are measured at fair value with gains and losses
recognized in net earnings. Transaction costs are expensed as incurred. Other than cash and cash equivalents, the Trust
has no significant financial instruments classified as held-for-trading.
Derivative instruments are recorded on the consolidated balance sheets at fair value. Changes in the fair values of derivative
instruments are required to be recognized in net earnings, except for derivatives that are designated as a cash flow hedge, in
which case the fair value change for the effective portion of such hedging relationship is required to be recognized in other
comprehensive income (OCI).
(ii) Loans and receivables or held-to-maturity
Loans and receivables are financial instruments with fixed or determinable payments that are not quoted in an active market.
Financial instruments with fixed or determinable payments and fixed maturities are classified as held-to-maturity only when
the Trust has the positive intention and ability to hold it to maturity.
Financial assets classified as held-to-maturity, loans and receivables and other liabilities (other than those held-for-trading)
are required to be measured at amortized cost using the effective interest method. This method uses an effective interest
rate that discounts estimated future cash receipts through the expected life of the financial asset or liability to the net carrying
amount of the financial asset or liability. Amortized cost is computed using the effective interest method less any allowance
for impairment. Gains and losses are recognized in net earnings when the loans and receivables are de-recognized or
impaired, as well as through amortization.
The principal categories of the Trust’s financial assets and liabilities measured at amortized cost using the effective interest
method include: (a) accounts receivable and payable; (b) mortgages and loans receivable and mortgages payable; and
(c) debentures payable.
(iii) Available-for-sale
Available-for-sale financial assets are financial assets that are not categorized as either held-for-trading or designated at fair
value. Available-for-sale financial assets are initially measured at fair value with direct transaction costs included in the
carrying value of the asset. Available-for-sale financial assets are subsequently measured at fair value with unrealized gains
and losses recognized in OCI until the investment is derecognized or impaired, at which time the cumulative unrealized gain
or loss is recognized in net earnings.
Investments in equity instruments classified as available-for-sale that do not have a quoted market price in an active market
and whose fair value cannot be reliably measured are measured at cost.
(h) Impairment of financial assets
The Trust assesses at each balance sheet date whether there is any objective evidence of impairment for each financial asset (or
a group of financial assets). A financial asset is deemed to be impaired if there is objective evidence of impairment as a result of
an event that has occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash
flows of the financial asset that can be reliably estimated. Evidence of impairment may include indications that the debtor is
experiencing financial difficulty, which may include default or delinquency in interest or principal payments, the probability that it
will enter bankruptcy or other financial reorganization, and where observable data indicate that there is a measurable decrease in
the estimated future cash flows, such as changes in arrears payments or economic conditions that correlate with defaults.
(i) Impairment of loans and receivables
Loans and receivables are considered impaired when there is objective evidence that the full carrying amount of the loan or
receivable is not collectible.
When an impaired loan is identified, the amount of the loss is measured as the difference between the asset’s carrying
amount and the estimated realizable amount, which is measured by discounting the expected future cash flows at the
original effective interest rate of the loan or receivable. This difference between the carrying amount and the estimated
realizable value of the loan or receivable represents an impairment loss that is recognized in net earnings. Interest income
continues to be accrued on the reduced carrying amount based on the original effective interest rate of the loan. Loans and
receivables, together with the associated allowance, are written off when there is no realistic prospect of future recovery and
all collateral has been realized or has been transferred to RioCan. If, in a subsequent year, the amount of the estimated
impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously
recognized impairment loss is increased or decreased by adjusting the carrying value of the loan or receivable. If a past
write-off is later recovered, the recovery is recognized in net earnings.
(ii) Impairment of available-for-sale financial assets
For available-for-sale financial assets, the Trust assesses at each balance sheet date whether there is objective evidence
that an asset is impaired, which would include a significant or prolonged decline in the fair value of the investment below its
cost. If the evaluation indicates that there is objective evidence of impairment, the investment is written down to its current
fair value and a loss is recognized in net earnings. Subsequent increases in the fair value of available-for-sale assets are
recognized in OCI.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as
financial assets carried at amortized cost. Interest continues to be accrued at the original effective interest rate on the
reduced carrying amount of the asset and is recorded in interest income. If, in a subsequent year, the fair value of a debt
instrument increases and the increase can be objectively related to an event occurring after the impairment loss was
recognized in net earnings, the impairment loss is reversed through net earnings.
(i) Financial guarantee contracts
Financial guarantee contracts are contracts issued by RioCan that contingently require the Trust to make specified payments to
reimburse the holder for a loss it incurs because the specified debtor fails to make payment when due in accordance with the
terms of a debt instrument. When a debtor default occurs, financial guarantees are recognized on the consolidated balance
sheets initially as a liability measured at the fair value of the obligation undertaken in issuing the guarantee, adjusted for
transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the
higher of (i) the amount initially recognized and (ii) the best estimate of the expenditure required to settle the present obligation at
the balance sheet date.
(j) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amounts are reported in the consolidated balance sheets if there is
an enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the
assets and settle the liabilities simultaneously.
(k) Hedges
The accounting standard IAS 39, Financial Instruments: Recognition and Measurement (IAS 39) specifies the criteria under which
hedge accounting can be applied and how hedge accounting should be executed for each of the permitted hedging strategies:
fair value hedges, cash flow hedges, and hedges of a foreign currency exposure of a net investment in a foreign operation.
From time to time, the Trust may enter into interest rate swap (option) transactions to modify the interest rate profile of its current
or future debts without an exchange of the underlying principal amount. In such cash flow hedging relationships, the effective
portion of the change in the fair value of the hedging derivative is recognized in OCI. The ineffective portion is recognized in net
earnings.
Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
At the inception of a hedging relationship, RioCan formally designates and documents the hedging relationship to which the Trust
is applying hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation
includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the
Trust will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s cash flows
attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in cash flows and
are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting
periods for which they were designated.
In a net investment hedging relationship, the effective portion of foreign exchange gains and losses on the hedging instrument is
recognized in OCI and the ineffective portion is recognized in net earnings. The amounts recorded in accumulated other
comprehensive income (AOCI) are recognized in net earnings upon certain reductions in the net investment in the foreign
subsidiary.
(l) Comprehensive income
Comprehensive income comprises net earnings and OCI, which generally would include unrealized gains and losses on financial
assets classified as available-for-sale, unrealized foreign currency translation adjustments (net of hedging) arising from foreign
operations, changes in the fair value of the effective portion of cash flow hedging instruments, and actuarial gains and losses
related to RioCan's defined benefit pension plans. The Trust reports a consolidated statement of comprehensive income
comprising net earnings and OCI for the period.
(m) Income taxes
Upon qualifying as a real estate investment trust (REIT) in the fourth quarter of 2010, the Trust is considered, in substance, tax
exempt and therefore does not account for income taxes. Prior to qualifying as a REIT, the Trust was considered taxable. Upon
the Trust’s change in tax status, all deferred taxes of the Trust were reversed through net earnings or OCI based upon where the
amounts initially arose. The Trust’s US operations are qualifying US REITs and are not subject to income taxes. The Trust
consolidates certain wholly owned incorporated entities that continue to be subject to income taxes. These taxable subsidiaries,
and the Trust prior to its change in tax status, account for income taxes as follows:
(i) Current income tax
The Trust qualifies as a mutual fund trust and a REIT for income tax purposes. The Trust intends to distribute all of its taxable
income to unitholders and is entitled to deduct such distributions for income tax purposes. Accordingly, a provision for current
income taxes payable is not required, except for amounts incurred in its incorporated Canadian taxable subsidiaries.
The Trust’s US subsidiary qualifies as a REIT for US income tax purposes. The subsidiary expects to distribute all of its US
taxable income (if any) to Canada and is entitled to deduct such distributions for US income tax purposes. Accordingly, no
provision for US current income tax payable is required.
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RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(ii) Deferred income tax
Deferred income taxes are provided using the liability method for temporary differences at the balance sheet date between
the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, except:
1. where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is
not a business combination and, at the time of the transaction, affects neither the accounting nor taxable income or
loss; and
in respect of taxable temporary differences associated with investments in subsidiaries and interests in jointly
controlled entities, where the timing of the reversal of the temporary differences can be controlled and it is probable
that the temporary differences will not reverse in the foreseeable future.
2.
Deferred income tax assets are recognized for all deductible temporary differences to the extent that it is probable that
taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax
credits and unused tax losses, can be utilized except:
1. where the deferred income tax asset relating to the deductible temporary difference arises from the initial
2.
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests
in jointly controlled entities, deferred income tax assets are recognized only to the extent that it is probable that the
temporary differences will reverse in the foreseeable future and taxable profit will be available against which the
temporary differences can be utilized.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to undistributed profits in
the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or
substantively enacted at the balance sheet date and reflect the tax consequences that would follow from the manner in
which the entity expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and
liabilities. Deferred income taxes relating to temporary differences that are in equity are recognized in equity.
Deferred income tax assets and deferred income tax liabilities of the same taxable entity related to the same taxation
authority are offset.
(n) Furniture and equipment
Furniture and computer equipment are stated at cost less accumulated depreciation and accumulated impairment in value, if any.
Depreciation is recorded on a straight-line basis over the following expected useful lives:
Furniture and equipment
Computer hardware
Management information systems
5 years
3 to 5 years
5 to 10 years
Leasehold improvements
Lease term plus first renewal, if renewal is reasonably assured
(o) Intangible assets
The Trust’s intangible assets comprise its management information systems and computer application software that is initially
recognized at cost and amortized over its estimated useful life (5-10 years) on a straight-line basis. The cost of self-built
management information systems and software includes the cost of materials, direct labour, and interest expense. Capitalization
ceases and depreciation commences once the asset is in the location and condition necessary for it to be capable of operating in
the manner intended by management.
Non-refundable sales commissions paid with respect to the sale of inventory property, where it is probable that future economic
benefits will flow to the Trust and the asset can be measured reliably, are accounted for as an intangible asset. No amortization
prior to the recognition of revenue is recognized but rather a charge to net earnings occurs when the revenue associated with the
sale is recognized. RioCan pays certain upfront non-refundable selling commissions with respect to its sale of residential
condominium units at its development located in Toronto, Ontario at the northeast corner of Yonge and Eglinton.
(p) Cash and cash equivalents
Cash and cash equivalents comprise cash and short term investments with original maturities of three months or less.
(q) Provisions
Provisions are recognized when the Trust has a present obligation (legal or constructive) as a result of a past event, it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be
made of the amount of the obligation. Where the Trust expects some or all of a provision to be reimbursed, for example under an
insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.
The expense relating to any provision is presented in net earnings, net of any reimbursement. If the effect of the time value of
money is material, provisions are discounted using a current rate that reflects, where appropriate, the risks specific to the liability.
Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(r) Foreign currency translation
These consolidated financial statements are presented in Canadian dollars, which is the functional and presentation currency of
the Trust.
Assets and liabilities of operations having a functional currency other than Canadian dollars are translated at the rate of exchange
at the balance sheet date. Revenues and expenses are translated at average rates for the period, unless exchange rates
fluctuated significantly during the period, in which case the exchange rates at the dates of the transaction are used. The resulting
foreign currency translation adjustments are recognized in OCI.
Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the date of the
transactions. At the end of each reporting period, foreign currency denominated monetary assets and liabilities are translated to
the functional currency using the prevailing rate of exchange at the balance sheet date. Gains and losses on translation of
monetary items are recognized in the consolidated statement of earnings in general and administrative expense, except for those
related to monetary liabilities qualifying as hedges of the Trust’s investment in foreign operations or certain inter-company loans
to a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future, which are included in
OCI.
On the disposal of a foreign operation, the exchange differences relating to that foreign operation that have been recognized in
OCI and accumulated in the separate component of equity are recognized in profit or loss when the gain or loss on disposal is
recognized.
(s) Employee future benefits
The Trust operates a defined contribution pension plan and three defined benefit pension plans for certain employees. The Trust
expenses its required contributions to the defined contribution pension plan.
The cost of providing benefits under the defined benefit plans is determined separately for each plan. Actuarial gains and losses
for the defined benefit plans are recognized in full in the period in which they occur in OCI. Such actuarial gains and losses are
also immediately recognized in retained earnings and are not reclassified to profit or loss in subsequent periods. The past service
costs are recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the
benefits have already vested, immediately following the introduction of, or changes to, a pension plan, past service costs are
recognized immediately.
The defined benefit asset or liability comprises the present value of the defined benefit obligation (using a discount rate based on
high quality corporate bonds), less unamortized past service costs and less the fair value of plan assets out of which the
obligations are to be settled.
(t) Change in accounting policy
The Trust has applied certain interpretations and amendments that required restatement of previous financial statements. On
January 1, 2014, the Trust adopted the following IFRS standards as described below.
IFRIC Interpretation 21, Levies (IFRIC 21)
IFRIC 21 was issued by the IASB in May 2013 and provides guidance on accounting for levies in accordance with the
requirements of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. IFRIC 21 is effective for annual periods
commencing on or after January 1, 2014 and is applied retrospectively. IFRIC 21 clarifies that an entity recognizes a levy
liability when the activity that triggers payment occurs, as identified by the relevant legislation. It also clarifies that a levy
liability is accrued ratably over a reporting period only if the activity that triggers payment occurs over such period, in
accordance with the relevant legislation. For a levy that is triggered upon reaching a minimum threshold, the interpretation
clarifies that no liability should be recognized before the specified minimum threshold is reached.
Property taxes are charged by a government in accordance with legislation and are based on underlying property value. As
such, property taxes are within the scope of IFRIC 21. In the majority of the US municipalities in which the Trust operates
(other than in the State of Pennsylvania), the obligating event for property taxes is ownership of the property on January 1st
of the year for which the tax is imposed. A person (or entity) is not relieved of this obligation because it no longer owns the
property or changes its use during the period. As a result, the full liability to pay annual property and related expenses for
these US jurisdictions has been recorded in the Trust's Consolidated Financial Statements as at and for the years ended
December 31, 2014 and 2013.
Property tax legislation in various jurisdictions in Canada do not clearly define a single obligating event that gives rise to a
liability to pay annual property taxes. As such, at any date within the year, the only amount of property taxes that an owner
can reasonably estimate they are liable for is a pro rata estimate of annual property taxes based on the number of days of
ownership. Ratable recognition of property taxes in Canada, therefore, continues to be appropriate under IFRIC 21.
Prior to the adoption of IFRIC 21, the Trust recorded all property taxes ratably over the relevant reporting periods to match
the timing around which operating costs were recovered from tenants. Adoption of IFRIC 21 did not result in an impact to net
earnings because the Trust recorded an offsetting fair value adjustment in consideration of the fact that the fair value of a
property is adjusted for prepaid property taxes between a buyer and seller on property transactions.
The adoption of IFRIC 21 has no impact to the Trust's current and prior period consolidated balance sheets and statements
of earnings as at and for the years ended December 31, 2014 and 2013. Adoption of IFRIC 21 also did not result in any
142
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
impact to fair value gains and losses on investment property or revenue on a full year basis due to the reversal of all accrued
property taxes within the reporting period.
IAS 17, Leases (IAS 17)
In March 2014, the IFRS Interpretations Committee ("IFRIC") issued a decision related to the meaning of "incremental costs"
within the context of IAS 17. The IFRIC determined that internal costs, such as salary costs of full-time staff involved in
negotiating and arranging new leases, do not qualify as incremental costs within the context of IAS 17 and, therefore, should
not be capitalized as initial direct leasing costs. The Trust has recorded the associated expense as leasing costs, which are
reported as a separate line on the consolidated statement of earnings.
The resulting impact of adoption of IAS 17 interpretative guidance to the Trust's current and prior period consolidated
statements of earnings are as follows:
•
For the year ended December 31, 2014, recognition of leasing costs of $11 million (year ended December 31, 2013 - $8
million increase in leasing costs) and an $11 million increase in net fair value gains on investment properties (year
ended December 31, 2013 - $8 million increase in fair value gains). There is no impact to net earnings in either the
current or prior period. The Trust records the associated expense as leasing costs, which is reported as a separate line
on the consolidated statements of earnings.
(u) Future changes in accounting policies
RioCan monitors the potential changes proposed by the IASB and analyzes the effect that changes in the standards may have on
its operations.
Standards issued but not yet effective up to the date of issuance of these Consolidated Financial Statements are described
below. This description is of the standards and interpretations issued, that the Trust reasonably expects to be applicable at a
future date. The Trust intends to adopt these standards when they become effective.
IFRS 9, Financial Instruments (IFRS 9)
In July 2014, the IASB issued the final version of IFRS 9, which reflects all phases of the financial instruments project and
replaces IAS 39, Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard
introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for
annual periods beginning on or after January 1, 2018, with early application permitted. The adoption of IFRS 9 may have an
effect on the classification and measurement of RioCan's financial assets, but no impact on the classification and
measurement of its financial liabilities.
IFRS 15, Revenue from Contracts with Customers (IFRS 15)
IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with
customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to
be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured
approach to measuring and recording revenue. The new revenue standard is applicable to all entities and will supersede all
current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual
periods beginning on or after January 1, 2017, with early adoption permitted. RioCan is currently assessing the impact of
IFRS 15 and intends to adopt the new standard on the required effective date.
4. Investment Properties
Income properties
Properties under development
Properties held for resale
December 31, 2014
December 31, 2013
$
$
13,254
$
706
80
14,040
$
12,433
583
46
13,062
143
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Income properties
For the year ended December 31, 2014
Balance, beginning of year
Acquisitions (i)
Capital expenditures
Tenant installation costs
Dispositions
Transfers from properties under development
Transfers to properties under development
Fair value gains, net
Foreign currency translation gain
Straight line rent
Other changes
Balance, end of year
Canada
10,379
139
26
24
(52)
363
(75)
26
—
11
(1)
US
2,054
42
2
6
—
—
—
114
192
2
2
Total
12,433
181
28
30
(52)
363
(75)
140
192
13
1
$
10,840 $
2,414 $
13,254
(i) Excluded from acquisitions is the Trust's purchase of the remaining 40% interest in a fully consolidated income property during the year.
For the year ended December 31, 2013
Balance, beginning of year
Acquisitions
Reclassification on dissolution of equity accounted investments
Capital expenditures
Tenant installation costs
Dispositions
Transfers from properties under development
Transfers to properties under development
Fair value gains, net
Foreign currency translation gain
Straight line rent
Other changes
Balance, end of year
Properties under development
For the year ended December 31,
Canada (i)
Balance, beginning of year
Acquisitions
Development expenditures
Completion of properties under development
Transfers from income properties
Fair value gains, net
Dispositions
Other
Balance, end of year
(i) All properties under development are in Canada.
Properties held for resale
Canada
10,132
US
1,146 $
Total
11,278
601
—
19
25
(599)
123
(58)
139
—
(1)
(2)
228
586
2
8
(110)
—
—
84
105
5
—
829
586
21
33
(709)
123
(58)
223
105
4
(2)
$
10,379 $
2,054 $
12,433
2014
Total
583 $
172
237
(363)
75
7
(2)
(3) $
706 $
2013
Total
440
56
141
(123)
58
6
—
5
583
$
$
$
As at December 31, 2014, properties held for resale were $80.4 million, (December 31, 2013 – $45.9 million).
144
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Investment properties held for sale
Included in investment properties at December 31, 2014 are 12 investment properties held for sale with an aggregate fair value of
$188.9 million (December 31, 2013 – $60.2 million), for which $21.0 million of mortgages payable are secured by such properties
(December 31, 2013 – nil mortgage attached).
Investment properties
Included in investment properties is $110.9 million (December 31, 2013 – $97.4 million) of net rents receivable arising from the
recognition of rental revenue on a straight-line basis over the lease term.
Included in investment properties are finance leases on properties for which the Trust has exercised its options to purchase in
2034 and 2037. As at December 31, 2014, the fair value of these properties is $28.2 million (December 31, 2013 – $31.9 million).
Included in investment properties are three properties, Albion Centre, Georgian Mall and Shoppers World Danforth, which are
subject to land leases from third parties. The land lease for Georgian Mall, which expires in 2020, includes a buy-out option. The
land leases for Albion Centre and Shoppers World Danforth, which both expire in 2029, do not include buy-out options. These
three properties are operating leases, subject to IAS 40, Investment Property, and have been accounted for as finance leases
and recorded at fair value within income properties. The fair value of these three properties is $429.1 million for the land and
building (December 31, 2013 – $397.5 million) and the lease obligation is $14.0 million (December 31, 2013 – $15.6 million) and
is included in accounts payable and accrued liabilities.
Valuation methodology
As highlighted in note 27, the fair value methodology for the Trust’s income properties, properties under development and
investments in equity accounted associates and joint ventures is considered Level 3, as significant unobservable inputs are
required to determine fair value.
The table below summarizes the key unobservable inputs for the Trust's investment properties:
Classification
Valuation approach
Key unobservable input
Income properties
Direct capitalization income
approach
Capitalization rate
Properties under
development
Direct capitalization income
approach
Capitalization rate
Properties under
development - undeveloped
land
Direct comparison approach
Comparison to market
transactions for similar
assets
Inter-relationship between
key unobservable inputs
and fair value
measurement
There is an inverse
relationship between the
capitalization rate and the
fair value; in other words,
the higher the capitalization
rates, the lower the
estimated fair value.
There is an inverse
relationship between the
capitalization rate and the
fair value; in other words,
the higher the capitalization
rates, the lower the
estimated fair value.
Land value is in line with
market trends.
The tables below provide further details of the average capitalization rates for income properties and investments in equity
accounted associates and joint ventures in aggregate (weighted based on SNOI), and ranges for each retail class. Capitalization
rates are based on RioCan’s proportionate share of the SNOI and results of operations of its entire portfolio.
Canadian Portfolio
US Portfolio
Total Weighted Average
*
at RioCan’s interest
December 31, 2014
December 31, 2013
Weighted
Average Cap.
Rate*
5.77%
6.14%
5.83%
Range
4.60% - 9.50%
5.30% - 7.50%
4.60% - 9.50%
Weighted
Average Cap.
Rate*
5.81%
6.40%
5.91%
Range
4.76% - 9.00%
5.50% - 7.50%
4.76% - 9.00%
The fair value change in investment properties for year ended December 31, 2014 was $147 million ($229 million for the year
ended December 31, 2013).
145
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
The following table provides a sensitivity analysis for the weighted average capitalization rate applied as at December 31, 2014:
(in billions, except percentages)
Capitalization rate sensitivity
Increase (decrease)
(1.00%)
(0.75%)
(0.50%)
(0.25%)
December 31, 2014
0.25%
0.50%
0.75%
1.00%
*
at RioCan’s interest.
Weighted
average
capitalization
rate*
Fair value of
investment
portfolio
Fair value
variance
% change
Ratio of
debt, net of
cash, to total
assets, net
of cash
4.83% $
5.08% $
5.33% $
5.58% $
5.83% $
6.08% $
6.33% $
6.58% $
6.83% $
16.5 $
15.7 $
14.9 $
14.3 $
13.6 $
13.1 $
12.6 $
12.1 $
11.7 $
2.8
2.0
1.3
0.6
0.0
(0.6)
(1.1)
(1.5)
(2.0)
20.9 %
14.8 %
9.4 %
4.5 %
0.0 %
(4.1)%
(7.9)%
(11.4)%
(14.6)%
36.7%
38.5%
40.2%
42.0%
43.8%
45.6%
47.3%
48.8%
50.7%
In addition, a 1% increase or decrease in SNOI would result in an increase or decrease in portfolio fair values of $133 million,
respectively. A 1% increase in SNOI coupled with a 0.25% decrease in capitalization rates would result in an increase in fair
value of $752 million. A 1% decrease in SNOI coupled with a 0.25% increase in capitalization rates would result in a decrease in
portfolio fair value of $689 million.
5. Mortgages and Loans Receivable
Current
Non-current
December 31, 2014
December 31, 2013
$
$
45 $
91
136 $
147
101
248
As at December 31, 2014, mortgages and loans receivable bear interest at effective and contractual rates between 0% and 7.0%
per annum with a weighted average effective rate of 3.9% per annum (weighted average contractual rate of 3.9% per annum),
and mature between 2015 and 2019.
Future repayments are as follows:
Due on demand
For the period ending December 31:
2015
2016
2017
2018
2019
6. Receivables and Other Assets
Contractual rents receivable
Prepaid expenses and other assets
Management information system
Funds held in trust
Fair value of interest rate swap agreements
$
16
29
51
14
21
5
$
136
December 31, 2014
Non-
current
Total
Current
December 31, 2013
Non-
current
Total
— $
52 $
35 $
— $
18
27
21
—
273
27
21
—
31
—
—
—
13
18
38
1
35
44
18
38
1
$
Current
52 $
255
—
—
—
$
307 $
66 $
373 $
66 $
70 $
136
Contractual rents receivable, including both billed and accrued amounts, are non-interest bearing and are generally on 30-90 day
terms. Prepaid expenses and other assets mainly comprise prepaid property taxes, available-for-sale investments and office
furniture and equipment.
146
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
7. Mortgages Payable and Lines of Credit
Mortgages payable and lines of credit are made up of the following:
Fixed rate mortgages
Floating rate mortgages
Floating rate operating lines
Construction financing and other floating rate facilities
Current
Non-current
December 31, 2014
December 31, 2013
$
$
$
$
4,090 $
260
121
116
4,587 $
795
3,792
4,587
$
$
4,033
389
68
22
4,512
413
4,099
4,512
Future repayments of mortgages payable and lines of credit are as follows:
For the periods ending December 31:
Weighted
average
contractual
interest rate
Scheduled
principal
amortization
Principal
maturities
Total
repayments
2015
2016
2017
2018
2019
Thereafter
4.11% $
77 $
718 $
4.47%
3.60%
3.84%
3.97%
4.92%
65
53
40
33
40
633
926
588
333
1,070
Contractual obligations
4.22% $
308 $
4,268 $
Unamortized differential between contractual and market interest
rates on liabilities assumed at the acquisition of properties
Unamortized debt financing costs
$
795
698
979
628
366
1,110
4,576
25
(14)
4,587
As at December 31, 2014, $11.3 billion of investment properties serves as security for RioCan's mortgages payable and floating
rate credit facilities (December 31, 2013 - $11.0 billion), of which $9.1 billion is associated with investment properties in Canada
(December 31, 2013 - $9.1 billion) and $2.2 billion is associated with investment properties in US (December 31, 2013- $1.9
billion).
Mortgages Payable
As at December 31, 2014, mortgages payable bear interest at a weighted average effective rate of 4.46% per annum (weighted
average contractual rate of 4.34%% per annum) and mature between 2014 and 2034.
The weighted average effective rates for fixed and floating rate mortgages payable are as follows:
Fixed rate
Floating rate
Total
December 31, 2014
December 31, 2013
4.61%
1.96%
4.46%
4.79%
2.09%
4.55%
As at December 31, 2014, US dollar denominated mortgages amounted to US$1.2 billion (December 31, 2013 – US$1.3 billion).
Lines of Credit
As at December 31, 2014, RioCan had five revolving lines of credit in place with five Canadian Schedule I financial institutions,
having an aggregate capacity of $718 million (December 31, 2013 - $535 million).
147
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
The following table summarizes the details of the Trust’s secured lines of credit as at December 31, 2014:
Amounts drawn
Facility
maximum loan
amount (i)
Cash
advances
Letters
of credit
Available
to be
drawn Interest rates
$
250 (i)
$
77
$
10
$
130 (i)
185 (i)
75 (i)
78 (i)
—
—
—
45
19
—
—
—
1
2
3
4
5
163 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
111 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
183 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
75 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
33 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance plus 1.25%; US$ advances – US$ Base Rate plus
0.25% per annum or US$ LIBOR plus 1.25%
Maturity
November 2016 (ii)
June 2017 (ii)
December 2016 (ii)
June 2017 (ii)
December 2015
$
718
$
122
$
29
$
565
(i) Secured by charges against certain income properties. Should the aggregate agreed values for lending purposes of such properties fall to a level
that would not support a borrowing of the maximum loan amount, RioCan has the option to provide substitute income properties as additional
security.
(ii) Subject to meeting certain conditions, these loans can be extended for a further year on same terms and conditions.
Net current liabilities
Cash and cash equivalents
Receivables and other assets (note 6)
Mortgages and loans receivable (note 5)
Current assets
Accounts payable and accrued liabilities (note 10)
Debentures payable (note 8)
Net current assets before the under noted
Mortgages payable and lines of credit (note 7)
Net current liabilities
8. Debentures Payable
December 31, 2014
December 31, 2013
$
$
56 $
307
45
408
275
116
17
795
(778) $
39
50
147
236
232
—
4
413
(409)
As at December 31, 2014, $1,741 of the debentures payable, net of unamortized debt financing costs, is non-current
(December 31, 2013 – $1,447). The Trust has the following series of senior unsecured debentures outstanding as at
December 31, 2014:
Series
N (i)
O
P
S
Q
U
R
V
T
I
Principal amount
116
225
150
250
175
150
250
250
200
100
1,866
$
$
Maturity date
September 21, 2015
January 21, 2016
March 1, 2017
March 5, 2018
June 28, 2019
June 1, 2020
December 13, 2021
May 30, 2022
April 18, 2023
February 6, 2026
Coupon rate
4.10%
4.50%
3.80%
2.87%
3.85%
3.62%
3.72%
3.75%
3.73%
5.95%
Interest payment frequency
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
(i) US dollar denominated $100 million debenture.
The debentures have covenants relating to RioCan’s leverage limit of up to 60% of aggregate assets as set out in the Trust’s
Declaration, the maintenance of a $1.0 billion Adjusted Book Equity (as defined in the debenture), and maintenance of an interest
coverage ratio of 1.65 times or greater. There are no requirements under the unsecured debenture covenants for RioCan to maintain
unencumbered assets. RioCan has the right, at any time, to convert the Series I debentures to mortgage debt, subject to the
148
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
acceptability of the security given to the debenture holders. In such an event, the covenants relating to the 60% leverage limit,
minimum book equity and interest coverage ratio would be eliminated for those debentures.
On January 23, 2014, the Trust issued $150 million of of Series U senior unsecured debentures, which mature on June 1, 2020 and
carry a coupon rate of 3.62%. These debentures are subject to the same covenants as the above noted outstanding debentures, with
the exception of Series I, which has an additional provision as discussed above. Debenture issuance costs were approximately
$1.1 million.
On May 30, 2014, the Trust issued $150 million of Series V debentures. During the third quarter on August 8, 2014, the Trust issued
an additional $100 million Series V debentures, resulting in an aggregate of $250 million of Series V debentures outstanding. The
Series V debentures carry a coupon rate of 3.75%, mature on May 30, 2022 and are subject to the same covenants as the above
noted outstanding debentures, with the exception of Series I, which has an additional provision as discussed above. Debenture
issuance costs were approximately $2.0 million.
Subsequent to December 31, 2014, the Trust issued an additional $300 million of Series W senior unsecured debentures and issued
notices of redemptions to holders of its US$100 million Series N and $225 million Series O senior unsecured debentures. For further
details, see note 33.
As at December 31, 2014, debentures payable bear interest at a weighted average effective rate of 4.11% per annum
(contractual rate of 3.86% per annum). Future repayments are as follows:
For the year ending December 31: 2015
2016
2017
2018
2019
Thereafter
Contractual obligations
Unamortized debt financing costs
9.
Income Taxes
Weighted average
contractual
interest rate
Principal
maturities
4.10% $
4.50%
3.80%
2.87%
3.85%
3.95%
$
116
225
150
250
175
950
1,866
(9)
1,857
The Trust qualifies as a REIT for Canadian income tax purposes. The Trust expects to distribute all of its taxable income to
unitholders and is entitled to deduct such distributions for income tax purposes. Accordingly, no provision for Canadian current
income tax payable is required, except for amounts incurred in its incorporated Canadian subsidiaries.
The Trust’s US subsidiary qualifies as a REIT for US income tax purposes. The subsidiary expects to distribute all of its US
taxable income (if any) to Canada and is entitled to deduct such distributions for US income tax purposes. Accordingly, no
provision for US current income tax payable is required.
Where an entity does not qualify as a REIT for Canadian income tax purposes, certain distributions will not be deductible by that
entity in computing its income for Canadian tax purposes. As a result, the entity will be subject to tax at a rate substantially
equivalent to the general corporate income tax rate on distributed taxable income. Distributions paid in excess of taxable income
will continue to be treated as a return of capital to unitholders. Undistributed taxable income is subject to the top marginal
personal tax rate. The Trust consolidates certain wholly-owned incorporated entities that remain subject to tax. The tax
disclosures and expense relate only to these entities.
The components of deferred tax assets on the consolidated balance sheets are as follows:
Tax effected temporary differences between accounting and tax basis of:
Intangibles and other
Deferred tax assets
December 31, 2014 December 31, 2013
$
$
9 $
9 $
9
9
149
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
10. Accounts Payable and Accrued Liabilities
Property operating costs
Development costs
Other capital expenditures
Fair value of contingent consideration
Interest on mortgages and debentures payable
Distributions to unitholders payable
Deferred revenue
Tenant installation costs
Incentive compensation
Unfunded employee future benefits (note 31)
Fair value of Trustee equity unit plans (note 12)
Fair value of interest rate swap agreements
Finance lease obligation
Other
11. Unitholders' Equity
Common trust units
December 31, 2014
December 31, 2013
Current
Non-
current
Total
Current
Non-
current
Total
$
85 $
18 $
103 $
75 $
16 $
76
4
1
31
37
18
12
9
—
—
—
—
2
—
—
—
—
—
26
—
—
13
3
16
14
—
76
4
1
31
37
44
12
9
13
3
16
14
2
36
15
3
29
36
15
12
8
—
—
—
—
3
—
—
—
—
—
15
—
—
10
2
8
16
—
91
36
15
3
29
36
30
12
8
10
2
8
16
3
$
275 $
90 $
365 $
232 $
67 $
299
The Trust is authorized to issue an unlimited number of common units. The common units are entitled to distributions as and
when declared by the Board and on liquidation to a pro rata share of the residual net assets remaining after the preferential
claims thereon of debt holders and preferred unitholders. As the Trust is a closed end trust, the units are not puttable. The units
issued and outstanding are as follows:
For the year ended December 31,
2014
Units
(in thousands)
2013
Units
(in thousands)
$
Units outstanding, beginning of period
304,075
4,241
300,099
Units issued:
Public offerings
Distribution reinvestment plan
Direct purchase plan
Unit option plan
Common trust units repurchased and cancelled
Value associated with unit options granted
Unit issue costs
Units outstanding, end of period
4,800
4,738
42
2,331
—
—
—
126
121
1
49
—
5
(6)
—
4,365
53
476
(918)
—
—
$
4,130
—
110
1
8
(13)
5
—
315,986
4,537
304,075
4,241
Included in units outstanding are exchangeable limited partnership units of three limited partnerships that are subsidiaries of the
Trust (the LP units), which were issued to vendors as partial consideration for income properties acquired by RioCan
(December 31, 2014 – 1.138 million units; December 31, 2013 – 1.773 million units). RioCan is the general partner of the limited
partnerships. The LP units are entitled to distributions equivalent to distributions on RioCan units, and are exchangeable for
RioCan units on a one-for-one basis at any time at the option of the holder.
Public Offering
On November 24, 2014, RioCan issued an aggregate of 4.8 million common trust units at a price of $26.25 per unit for aggregate
gross proceeds of $126 million. Unit issue costs associated with the offering were approximately $5 million.
Normal Course Issuer Bid
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. RioCan’s NCIB will be made in accordance with the
requirements of the TSX. Under the NCIB, RioCan may acquire up to a maximum of 15,039,156 of its Units, or approximately 5%
of its issued and outstanding Units as at July 19, 2013, for cancellation over the 12 months commencing on or about August 3,
2013 until August 2, 2014. On August 5, 2014, the TSX accepted the Trust 's filed notice to renew its NCIB program. The new
150
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
NCIB program commenced on August 7, 2014 and will terminate on August 6, 2015, or until such earlier date on which authorized
purchases under the NCIB have been completed.
The number of Units that can be purchased pursuant to the bid is subject to a current daily maximum of 107,172 Units (which is
equal to 25% of 428,691, being the average daily trading volume from February 2014 through to July 31, 2014), subject to
RioCan’s ability to make one block purchase of Units per calendar week in excess of such limits. RioCan intends to fund the
purchases out of its available cash and undrawn credit facilities. Purchases are made at market prices through the facilities of the
Exchange.
Unit Purchases and Cancellations
During the year ended December 31, 2013, the Trust acquired and cancelled 917,700 units at a weighted average price of
$24.04 per unit, for a total cost of $22.1 million. The excess of the purchase price over the book value of the units purchased was
recorded as a charge to cumulative earnings amounting to $9.3 million. During the year ended December 31, 2014, no unit were
acquired and cancelled by the Trust.
Preferred trust units
The Trust is authorized to issue 50 million preferred units.
Series A
In 2011, the Trust issued a total of 5 million perpetual Cumulative Rate Reset Preferred Trust Units, Series A (the Series A Units)
for aggregate gross proceeds of $125 million ($120 million, net of issue costs). The Series A Units pay a cumulative distribution
yield of 5.25% per annum, payable quarterly, as and when declared by the Board of Trustees of RioCan, for the initial five-year
period ending March 31, 2016. The distribution rate will be reset on March 31, 2016 and every five years thereafter, at a rate
equal to the then five-year Government of Canada bond yield plus 2.62%.
The Series A Units are redeemable by RioCan, at its option, on March 31, 2016 and on March 31 of every fifth year
thereafter. Holders of Series A Units have the right to reclassify all or any part of their units as perpetual Cumulative Floating Rate
Preferred Trust Units, Series B (the Series B Units), subject to certain conditions, on March 31, 2016 and on March 31 of every
fifth year thereafter. Holders of Series B Units will be entitled to receive a cumulative quarterly floating distribution at a rate equal
to the then 90-day Government of Canada Treasury Bill yield plus 2.62%, as and when declared by the Board of Trustees of
RioCan. Holders of Series B Units will have the right to reclassify all or part of their units as Series A Units on March 31, 2021 and
on March 31 of every fifth year thereafter.
Series C
In 2011, the Trust issued an aggregate of 5.98 million Cumulative Rate Reset Preferred Trust Units, Series C (the Series C Units)
for aggregate gross proceeds of $149.5 million ($145 million, net of issue costs). The Series C Units pay a fixed cumulative
distribution yield of 4.70% per annum, payable quarterly, as and when declared by the Board of Trustees of RioCan, for the initial
approximate five and a half-year period ending June 30, 2017. The distribution rate will be reset on June 30, 2017 and every five
years thereafter at a rate equal to the then five-year Government of Canada bond yield plus 3.18%.
The Series C Units are redeemable by RioCan, at its option, on June 30, 2017 and on June 30 of every fifth year thereafter.
Holders of Series C Units have the right to reclassify all or any part of their units as Cumulative Floating Rate Preferred Trust
Units, Series D (the Series D Units), subject to certain conditions, on June 30, 2017 and on June 30 of every fifth year
thereafter. Holders of Series D Units will be entitled to receive a cumulative quarterly floating distribution at a rate equal to the
then 90-day Government of Canada Treasury Bill yield plus 3.18%, as and when declared by the Board of Trustees of
RioCan. Holders of Series D Units will have the right to reclassify all or part of their units as Series C Units on June 30, 2022 and
on June 30 of every fifth year thereafter.
The Series A Units and the Series C Units will rank equally with each other and with the outstanding Series B Units and the
Series D Units into which they may be reclassified.
Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss) as at and for the year ended December 31, 2014 consists of the following
amounts:
Unrealized gain (loss)
Interest
rate swap
agreements
Translation
of foreign
operations
Available-
for-sale
investments
Actuarial gain
(loss) on
pension
As at December 31, 2013
Other comprehensive income (loss)
As at December 31, 2014
$
$
(7) $
(7)
(14) $
24 $
79
103 $
1 $
26
27 $
— $
(2)
(2) $
Total
18
96
114
151
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
12. Unit-based Compensation Plans
Incentive unit option plan
As at December 31, 2014, the Trust’s incentive unit option plan (the plan) provides for option grants to a maximum of 29.2 million
units. As at December 31, 2014, up to 17.1 million unit options have been granted and exercised, 8.8 million unit options have
been granted and remain outstanding and 3.3 million unit options remain available for grant. The exercise price for each option is
equal to the volume weighted average trading price of the units on the TSX for the five trading days immediately preceding the
dates of grant except for those options granted prior to May 27, 2009, which have an exercise price equal to the closing price of
the units on the date prior to the day the option was granted. An option’s maximum term is ten years. All options granted after
December 31, 2003 vest at 25% per annum commencing on the first anniversary of the grant date, and become fully vested after
four years.
The following are summaries of the Trust's total outstanding options and related exercise price ranges of units granted under the
plan:
For the year ended December 31,
Options
Outstanding, beginning of year
Granted
Exercised
Forfeited or cancelled
Outstanding, end of year
Options exercisable at end of year
Weighted average fair value per unit of options granted during the year
2014
2013
Units (in
thousands)
Weighted
average
exercise
price
Units (in
thousands)
Weighted
average
exercise
price
9,704 $
2,171
(2,331)
(762)
8,782 $
4,402 $
$
24.01
27.29
21.21
27.04
25.30
23.60
3.22
8,376 $
2,035
(476)
(231)
9,704 $
5,168 $
$
22.84
27.50
17.48
25.80
24.01
22.22
3.53
For the year ended December 31, 2014
Outstanding Options
Vested Options
Exercise Price
Range ($/unit)
12.15 to 21.16
21.17 to 24.93
24.94
24.95 to 26.53
26.54
26.55 to 27.50
27.51 to 27.69
Number of Common
Shares Issuable (in
thousands)
Weighted Average
Exercise Price per
Common Share
Weighted Average
Remaining Life
(years)
Number of Common
Shares Issuable (in
thousands)
Weighted Average
Exercise Price per
Common Share
1,278 $
610 $
775 $
825 $
1,602 $
1,831 $
1,861 $
8,782 $
18.60
23.28
24.94
25.54
26.54
27.32
27.56
25.30
4.0
5.5
6.4
2.3
8.0
8.1
9.1
6.8
1,278 $
481 $
566 $
819 $
563 $
576 $
119 $
4,402 $
18.60
23.13
24.94
25.54
26.54
27.27
27.69
23.60
152
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
For the year ended December 31, 2013
Outstanding Options
Vested Options
Exercise Price
Range ($/unit)
12.15 to 21.16
21.17 to 24.93
24.94
24.95 to 26.53
26.54
26.55 to 27.50
27.51 to 27.69
Number of Common
Shares Issuable (in
thousands)
Weighted Average
Exercise Price per
Common Share
Weighted Average
Remaining Life
(years)
Number of Common
Shares Issuable (in
thousands)
Weighted Average
Exercise Price per
Common Share
2,480 $
1,319 $
1,025 $
1,025 $
1,365 $
2,015 $
475 $
9,704 $
18.78
22.78
24.94
25.70
26.54
27.34
27.69
24.01
4.8
4.6
7.4
3.3
8.5
9.1
9.2
6.5
2,123 $
1,061 $
507 $
1,013 $
341 $
123 $
— $
5,168 $
18.78
22.53
24.94
25.70
26.54
27.03
—
22.22
The Trust accounts for the plan using the fair value method, under which compensation expense for each tranche of an award is
measured at the grant date and recognized over the vesting period. Unit-based compensation expense and assumptions utilized
in the calculation thereof using the Black Scholes option valuation model are as follows:
(units in thousands)
Unit-based compensation expense
Unit options granted
Unit option holding period (years)
Weighted average volatility rate
Weighted average distribution yield
Weighted average risk free interest rate
Trustees’ restricted equity unit plan
For the year ended
December 31,
2014
4
$
$
2,171
5.5 - 7
23.5%
5.2%
2.0%
2013
5
2,035
5.5 - 7
25.2%
5.1%
1.8%
The Trustees’ restricted equity unit plan provides for an allotment of restricted equity units (REUs) to each non-employee trustee
(member). The value of REUs allotted appreciates or depreciates with increases or decreases in the market price of the Trust’s
units. Members are also entitled to be credited with REUs for distributions paid in respect of units of the Trust based on an
average market price of the units as defined by the plan. REUs vest and are settled three years from the date of issue by a cash
payment equal to the number of vested REUs credited to the member based on an average market price of the Trust’s units at
the settlement date. As at December 31, 2014, accounts payable and accrued liabilities include accrued compensation costs
relating to the REUs of $1.5 million (December 31, 2013 – $1.7 million).
Effective May 28, 2014, this plan has been replaced by the Trustees' deferred equity unit plan as the form of unit-based incentive
compensation to Trustees as discussed below.
Trustees’ deferred equity unit plan
On May 28, 2014, the Board of Trustees approved the adoption of a deferred unit plan for non-employee Trustees of the Trust
(“Participants”) to further align the interests of the Trustees of RioCan and its unitholders.
Participants may be awarded deferred units, each of which are economically equivalent to one unit, from time to time at the
discretion of the Board of Trustees upon recommendation from management, subject to a maximum annual grant not to exceed
that number of deferred units which is $150,000 divided by the average market price of a Unit on the award date. Participants
may also elect to receive up to 100% of his or her annual retainer and meeting fees for a calendar year otherwise payable in cash
in the form of deferred units. As at December 31, 2014, accounts payable and accrued liabilities include accrued costs relating to
deferred equity units of $1.2 million (December 31, 2013 - nil).
New executive compensation plan
In April 2014, the Trust issued a new incentive compensation plan effective January 1, 2015 for senior executives. The new plan
is disclosed in the Trust's 2014 Management Information Circular. RioCan does not expect that the new plan will have a material
impact on its consolidated financial results.
153
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
13. Distributions to Unitholders
RioCan currently qualifies as a mutual fund trust and a REIT for income tax purposes. RioCan intends, but is not contractually
obligated, to distribute all of the Trust’s taxable income to unitholders in each year, as calculated in accordance with the Act after
all permitted deductions under the Act have been taken.
Total distributions declared to unitholders are as follows:
For the year ended December 31,
2014
2013
Common Unitholders
Preferred Unitholders – Series A
Preferred Unitholders – Series C
Total
Distributions
Distributions
per unit
Total
Distributions
Distributions
per unit
$
$
$
434 $
7 $
7 $
1.4100 $
1.3125 $
1.1750 $
426 $
7 $
7 $
1.4100
1.3125
1.1750
On February 6, 2015, RioCan paid a distribution of 11.75 cents per unit for the month of January 2015 to common unitholders of
record as at January 30, 2015.
14. Rental Revenue
For the year ended December 31,
Base rent
Straight-line rent
Common area maintenance recoveries
Realty tax recoveries
Percentage rent
Lease cancellation fees
Rental revenue
15. Property Operating Costs - Recoverable Under Tenant Leases
For the year ended December 31,
Realty tax
Common area maintenance (i)
2014
$
788 $
10
163
232
6
5
2013
737
6
149
214
5
10
$
1,204 $
1,121
2013 (restated
- note 2)
2014
$
$
244 $
162
406 $
225
151
376
(i)
Includes salaries and benefits for the year ended December 31, 2014 of $64 million ($57 million the year ended December 31, 2013).
16. Fees and Other Income
For the year ended December 31,
Property and asset management fees earned from co-ownerships, partners and other
Dividends earned on available-for-sale investments
2014
2013
$
$
16 $
6
22 $
17
—
17
154
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
17. Subsidiaries and Joint Arrangements
Subsidiaries
The following are the significant subsidiaries of the Trust:
Equity Ownership Interest
Country of
Incorporation
December 31, 2014 December 31, 2013
RioCan Management (BC) Inc.
RioCan Management Inc.
RioCan (KS) Management LP
RioCan Management Beneficiary Trust
RioCan Yonge Eglinton LP
RioCan (Festival Hall) Trust
Timmins Square Limited Partnership
Shoppers World Brampton Investment Trust
RioCan Realty Investments Partnership Four LP
RioCan Realty Investments Partnership Seven LP
RioCan Realty Investments Partnership Nine LP
RioCan Realty Investments Partnership Ten LP
RioCan (GH) Limited Partnership
RioCan Property Services Trust
RioCan White Shield Limited Partnership (i)
RioCan (GTA Marketplace) LP
RC REIT Limited Partnership Trust
RioCan Holdings USA Inc.
RC Northeast Partnership LP
RC/RioCan Timber Creek Holdings LP
RC Dunhill LP
RC Sterling LP
RC Sterling II LP
RC/Dunhill LCV Arbor Holdings LP
RioCan America Management LP
RioCan USA Subsidiary Inc.
RC (RP) I LP
RC/Dunhill Louetta Holdings LP
RioKim USA LP
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
US
US
US
US
US
US
US
US
US
US
US
US
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
60%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
(i) On February 3, 2014, the Trust acquired an additional 40% equity interest in RioCan White Shield Limited Partnership from its partner, Trinity by
purchasing all 8 million of Trinity's Class C LP units for $11 million.
Joint Arrangements and Associates
The Trust has investments in certain joint ventures that are structured using entities that separate the investor and the investee.
As a result, the Trust only has rights to and is liable for the net assets of the investee for these joint ventures.
The following tables summarize the financial information of Dawson Yonge LP (Canada) (Dawson JV), RioKim Montgomery JV
LP (Texas) (Montgomery JV), WhiteCastle New Urban Fund, LP (WCNUF) and WhiteCastle New Urban Fund 2, LP (WCNUF 2),
which are the Trust's four associates and joint ventures that are accounted for using the equity method as at December 31, 2014.
RioCan has a 40%, 80%, 14.2%, and 19.3% equity ownership interest in Dawson JV, Montgomery JV, WCNUF and WCNUF 2,
respectively.
155
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
The following table details the changes in the Trust's investment in its joint ventures and associates:
For the year ended December 31,
Equity investment as at January 1,
Contributions to joint ventures (i)
Reclassification on dissolution of equity accounted investments (ii)
Share of net income from joint ventures and associates
Distributions from joint ventures and associates
Other (iii)
Equity investment as at December 31
2014
36
4
—
13
(1)
11
63
2013
321
30
(328)
32
(19)
—
36
(i) $30 million in contributions pertaining to 2013 primarily relates to the funding of mortgage principal and loan repayments on certain properties
during the year. The 2014 contribution activity relates to the funding of earn out settlements for Montgomery Plaza.
(ii) On October 1, 2013, RioCan completed the dissolution of its joint venture arrangements with its Texas partners, RPAI and Dunhill.
(iii) Reclassification of WCNUF and WCNUF 2 from Other asset into Investment in associates.
The following tables also reconcile the summarized financial information to the carrying amount of the Trust’s interest in these
joint ventures and associates:
As at December 31,
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets at 100%
Investments in equity accounted joint ventures and associates
For the year ended December 31,
Revenue
Expenses
Fair value gain
Interest expense
Net earnings and total comprehensive income @ 100%
Share of net earnings in equity accounted joint ventures and associates
18.
Interest Expense
2014
2013
16
226
17
92
133
63
10
(4)
13
(2)
17
13
6
95
(8)
(41)
52
36
64
(21)
15
(14)
44
32
For the year ended December 31, 2014, interest was capitalized to properties under development based on a weighted average
interest rate of 4.5% (for the year ended December 31, 2013 – 4.7%) as follows:
For the year ended December 31,
Total interest
Less: Interest capitalized to properties under development
19. General and Administrative
For the year ended December 31,
Salaries and benefits
Unit based compensation expense
Information technology costs
Public company costs
Professional fees
Depreciation and amortization
Other
Total general and administrative
2014
267 $
32
235 $
2013
255
21
234
$
$
2014
2013 (restated
- note 2)
$
22 $
21
4
4
6
5
4
7
5
2
6
4
2
5
$
52 $
45
Other general and administrative expenses include travel, occupancy, donations, advertising, promotion and marketing costs.
156
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
20. Transaction and Other Costs
For the year ended December 31, 2014, transaction and other costs include property disposition and demolition costs totalling $6
million (year ended December 31, 2013 - $9 million).
21. Segmented Information
The Trust operates in the shopping centre segment of the real estate industry in both Canada and the US.
As at December 31, 2014, the Trust’s portfolio comprises 340 retail properties, including 15 under development. The Trust’s
portfolio of 48 US grocery anchored and new format retail centres (December 31, 2013 – 47) comprise 47 directly owned centres
and one centre owned through a joint operation with Kimco Realty Corporation.
No single tenant accounts for 5% or more of the Trust’s consolidated rental revenue.
The following summary presents segmented financial information by geographic location, which is consistent with the manner in
which management currently evaluates operating segment performance.
Net earnings by reportable segment for the year ended December 31, 2014 is as follows:
Rental revenue
Property operating costs
Recoverable under tenant leases
Non-recoverable from tenants
Operating income
Other income
Fees and other
Interest
Share of net earnings in equity accounted associates and joint ventures
Fair value gains on investment property, net
Other expenses
Interest
General and administrative
Leasing costs
Transaction and other costs
Earnings before income taxes
Net earnings
Canada
US Eliminations (i)
$
1,007 $
197 $
— $
Total
1,204
354
15
369
638
20
45
1
33
99
194
48
9
5
256
481 $
481 $
$
$
52
10
62
135
8
—
12
114
134
79
4
2
1
86
183 $
183 $
—
(6)
(6)
6
(6)
(38)
—
—
(44)
(38)
—
(38)
— $
— $
406
19
425
779
22
7
13
147
189
235
52
11
6
304
664
664
(i) Represents $38 million of inter-segment loan interest and $6 million of inter-segment fees.
The carrying value of real estate investments and capital expenditures as at December 31, 2014 is as follows:
Real estate investments
Income properties
Properties under development
Properties held for resale
Total assets
Total liabilities
Capital expenditures
(i) Represents inter-segment loans of $383 million (US$331 million).
Canada
US Eliminations (i)
Total
$ 10,840 $ 2,414 $
— $
13,254
706
80
—
—
$ 11,626 $ 2,414 $
$ 12,535 $ 2,525 $
$
$
5,811 $ 1,381 $
279 $
12 $
—
—
— $
(383) $
(383) $
— $
706
80
14,040
14,677
6,809
291
157
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Net earnings by reportable segment for the year ended December 31, 2013 is as follows:
Rental revenue
Property operating costs
Recoverable under tenant leases
Non-recoverable from tenants
Operating income
Other income
Fees and other income
Interest
Share of net earnings in equity accounted joint ventures
Fair value gains on investment property, net
Other expenses
Interest
General and administrative
Leasing costs
Transaction and other costs
Expense for early redemption of debentures
Earnings before income taxes
Deferred income tax expense
Net earnings
(i) Represents inter-segment loan interest.
Canada
US
Eliminations (i)
$
997 $
124 $
— $
Total
1,121
344
16
360
637
17
57
1
140
215
206
40
8
8
12
274
32
—
32
92
—
—
31
89
120
71
5
—
1
—
77
$
$
$
578 $
(1) $
578 $
135 $
— $
135 $
—
—
—
—
—
(43)
—
—
(43)
(43)
—
—
—
—
(43)
— $
— $
— $
376
16
392
729
17
14
32
229
292
234
45
8
9
12
308
713
—
713
The carrying value of real estate investments and capital expenditures as at December 31, 2013 is as follows:
Real estate investments
Income properties
Properties under development
Properties held for resale
Total assets
Total liabilities
Capital expenditures
Canada
US
Eliminations (i)
Total
$
10,379 $
2,054 $
— $
12,433
583
46
—
—
$
$
11,008 $
2,054 $
11,753 $
2,140 $
5,354
204
1,267
10
—
—
— $
(363) $
(363)
—
583
46
13,062
13,530
6,258
214
(i) Represents an inter-segment loan of $363 million (US$341 million) between RioCan Holdings USA Inc. and RioCan REIT.
22. Net Earnings per Unit
Net earnings per unit and weighted average common units outstanding are calculated as follows:
For the year ended December 31,
Net earnings attributable to common and preferred unitholders
Distributions to preferred unitholders (note 13)
Net earnings attributable to common unitholders
Weighted average common units outstanding – basic (ii)
Unexercised dilutive unit options (ii)
Weighted average common units outstanding – diluted (i), (ii)
Net earnings per unit – basic
Net earnings per unit – diluted
2014
663 $
14
649 $
2013
709
14
695
307,910
302,324
762
936
308,672
303,260
2.11 $
2.10 $
2.30
2.29
$
$
$
$
(i)
The calculation of diluted weighted average units outstanding excludes options for 4.9 million units for the year ended December 31, 2014
(December 31, 2013 - 4.9 million units) as their inclusion would be anti-dilutive.
(ii) Unit information is shown in thousands.
158
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
23. Hedging Activities
From time to time, RioCan enters into interest rate swap transactions to modify the interest rate profile of its current or future
variable rate debt without an exchange of the underlying principal amount. The Trust qualifies for hedge accounting on such cash
flow hedging relationships whereby the change in the fair value of the effective portion of the hedging derivative is recognized in
OCI. The ineffective portion for accounting purposes is recognized in net earnings.
The Trust may enter into interest rate swap agreements on floating interest rate first mortgages to hedge the variability in cash
flows attributed to fluctuating interest rates. Settlement on both the fixed and variable portion of the interest rate swaps occurs on
a monthly basis. The following table summarizes the details of the interest rate swaps that are outstanding as at December 31,
2014:
Transaction date
December 2010
April 2011 (i)
May 2011
September 2011
December 2011
December 2011
September 2012
September 2012
September 2012
September 2012
September 2012
September 2012
November 2012
May 2018
May 2018
November 2013
November 2013
February 2014
March 2014 (ii)
March 2014 (iii)
September 2014
September 2014 (iv)
Original principal
amount (v)
Effective fixed
interest rate
$
$
16
17
2
23
33
30
23
16
27
26
45
21
13
58
17
25
111
29
64
58
73
70
797
5.03%
5.24%
4.89%
4.04%
3.36%
4.13%
3.78%
3.77%
3.74%
4.26%
4.08%
3.78%
3.08%
2.98%
3.07%
3.99%
2.16%
3.40%
3.61%
3.44%
3.89%
2.00%
Maturity date
December 2020
February 2016
May 2021
September 2021
December 2016
December 2021
December 2018
May 2018
May 2017
October 2018
November 2017
April 2017
November 2017
May 2018
May 2018
December 2020
February 2019
March 2019
December 2016
July 2018
November 2018
September 2019
(i) US denominated $14.4 million mortgage assumed upon property acquisition.
(ii) US denominated $55 million mortgage.
(iii) US denominated $50 million mortgage.
(iv) US denominated $60.5 million mortgage.
(v) All amounts shown in Canadian dollar equivalents.
The Trust has assessed that there is no ineffectiveness in the hedging of its interest rate exposure. The effectiveness of the
hedging relationships is reviewed on a quarterly basis. As an effective hedge, unrealized gains or losses on the interest rate swap
agreements are recognized in OCI. As at December 31, 2014, the fair value of the interest rate swaps are, in aggregate, a net
financial liability of $15.9 million (December 31, 2013 – $8.4 million). The associated unrealized gains or losses that are
recognized in OCI will be reclassified into net earnings in the same period or periods during which the interest payments on the
hedged item affect net earnings.
24. Net Change in Non-Cash Operating Items
For the year ended December 31,
Accounts receivable
Mortgage receivable interest
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Other
Net change in non-cash operating items
2014
2013
$
(17) $
9
(18)
21
4
$
(1) $
6
(11)
(41)
2
(1)
(45)
159
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
25. Supplemental Cash Flow Information
For the year ended December 31,
Interest received
Interest paid
Acquisition of real estate investments through assumption of liabilities and mortgages given by vendors
2014
$
9 $
265
163
2013
14
256
313
26. Operating Leases - Trust as Lessor
The Trust as lessor has entered into leases on its property portfolio. The leases typically have lease terms between five and 20
years and include clauses to enable periodic upward revision of the rental charge according to prevailing market conditions.
Some leases contain options to terminate before the end of the lease term.
Future minimum rentals receivable under non-cancellable operating leases are as follows:
Within 1 year
After 1 year, but not more than 5 years
More than 5 years
Total
December 31, 2014
765
2,215
1,543
4,523
$
$
The amount of contingent rent recognized in the statement of earnings for the year ended December 31, 2014 is $3.8 million
(December 31, 2013 - $4.7 million).
27. Fair Value Measurement
The fair value hierarchy of assets and liabilities measured at fair value on the consolidated balance sheet or disclosed in the
notes to financial statements is as follows:
December 31, 2014
December 31, 2013
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Assets measured at fair value:
Cash and equivalents
Mortgages and loans receivable
Interest rate swap asset (note 23)
Available-for-sale investments
Investment properties:
Income properties
Properties under development
Total assets measured at fair value
Liabilities measured at fair value:
Trustee equity unit plans
Interest rate swap liability (note 23)
Contingent consideration
Liabilities for which fair values are disclosed (note 29):
Mortgages payable and lines of credit
Debentures payable
Total liabilities measured and/or disclosed at fair
value
$
56 $
— $
— $
39 $
— $
—
—
230
—
—
286
128
—
—
—
—
128
—
—
—
13,254
706
13,960
—
—
—
—
—
39
—
—
—
16
12,433
583
248
1
—
—
—
249
13,032
$
3 $
— $
— $
— $
— $
—
—
—
—
3
16
—
4,846
1,926
6,788
—
1
—
—
1
—
—
—
—
—
8
—
4,712
1,439
6,159
—
—
3
—
—
3
There have been no transfers among levels during the reporting period.
160
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
The following table presents the changes in fair value measurements of assets included in Level 3 of the fair value hierarchy:
Balance - December 31, 2013
Investment properties (see note 4)
Net unrealized gain in OCI
Reclassification of available-for-sale investment
Purchases (net of returns)
Balance - December 31, 2014
28. Capital Management
13,032
944
(1)
(16)
1
13,960
The Trust defines capital as the aggregate of unitholders’ equity and debt. The Trust’s capital management framework is
designed to maintain a level of capital that complies with investment and debt restrictions pursuant to RioCan’s Declaration,
complies with existing debt covenants, enables the Trust to achieve target credit ratings, funds its business strategies and builds
long-term unitholder value. The key elements of RioCan’s capital management framework are approved by its unitholders via the
Trust’s Declaration of Trust and by its Board through their annual review of the Trust’s strategic plan and budget, supplemented
by periodic Board and Board Committee meetings. Capital adequacy is monitored by the Trust by assessing performance against
the approved annual plan throughout the year, which is updated accordingly, and by monitoring adherence to investment and
debt restrictions contained in the Declaration and debt covenants.
RioCan’s Declaration provides for maximum total debt levels up to 60% of Aggregate Assets (as defined in the Declaration). The
Trust is in compliance with this restriction.
Additionally, RioCan’s Declaration contains provisions that have the effect of limiting capital expended by the Trust for, among
other items, the following:
•
•
•
•
•
direct and indirect investments (net of related mortgages payable) in non-income producing properties (including
greenfield developments and mortgages receivable to fund the Trust’s co-owners’ share of such developments) to no
more than 15% of the Adjusted Unitholders’ Equity of the Trust (herein referred to as the “Basket Ratio” with Adjusted
Unitholders’ Equity as defined in the Declaration). The Trust is in compliance with this restriction;
total investment by the Trust in mortgages receivable, other than mortgages taken back by the Trust on the sale of its
properties, to no more than 30% of the Adjusted Unitholders’ Equity of the Trust. The Trust is in compliance with this
restriction;
any property acquired by the Trust, directly or indirectly, if the cost to the Trust of such acquisition (net of the amount of
mortgages payable assumed) exceeds 10% of the Adjusted Unitholders’ Equity of the Trust. The Trust is in compliance
with this restriction;
subject to the Basket Ratio, securities of an entity, other than to the extent that such securities would, for the purpose of
the Declaration, constitute an investment in real estate. The Trust is in compliance with this restriction; and
the amount of space that can be leased or subleased to any tenant, with certain exceptions, to a maximum space
having an aggregate gross leasable area of 20% of the aggregate gross leasable area of all real estate investments
held by the Trust. The Trust is in compliance with this restriction.
The Trust intends, but is not contractually obligated, to distribute to its unitholders in each year an amount not less than the
Trust’s income for the year, as calculated in accordance with the Income Tax Act (Canada) (the Tax Act) after all permitted
deductions under the Tax Act have been taken. RioCan’s Trustees rely upon forward looking cash flow information, including
forecasts and budgets and the future business prospects of RioCan, to establish the level of cash distributions.
The Trust’s debentures payable have covenants that are consistent with the Debt to Aggregate Assets ratio as discussed above,
maintenance of at least $1 billion of Adjusted Book Equity (defined in the indenture), and maintenance of at least an interest
coverage ratio (defined in the indenture) of 1.65 for a rolling twelve-month period.
161
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Capital
Mortgages payable and lines of credit (note 7)
Debentures payable (note 8)
Total Debt
Unitholders’ equity
Total capital
Ratio of Debt, net of cash, to Total Assets, net of cash
Basket Ratio
For the year ended
Interest coverage ratio
29. Financial Instruments
Fair value of financial instruments
December 31, 2014 December 31, 2013
Increase
(decrease)
4,587
1,857
6,444
7,868
14,312
43.7%
3.5%
4,512
1,447
5,959
7,261
75
410
485
607
13,220
1,092
43.9%
4.8%
(0.2)%
(1.3)%
2.92
2.91
0.01
The Trust’s receivables and other assets, mortgages and loans receivable and accounts payable and accrued liabilities are
substantially carried at amortized cost, which approximates fair value. Cash and equivalents and investments are measured at
fair value. The fair value of other financial instruments is based upon discounted future cash flows using discount rates that reflect
current market conditions for instruments with similar terms and risks. Such fair value estimates are not necessarily indicative of
the amounts the Trust might pay or receive in actual market transactions. Potential transaction costs have also not been
considered in estimating fair value.
Financial instruments carried at amortized cost on the consolidated balance sheets are as follows:
Mortgages and loans receivable
Mortgages payable and lines of credit
Debentures payable
Risk management
December 31, 2014
December 31, 2013
Carrying
value
Fair
value
Carrying
value
$
136 $
128 $
248 $
4,587
1,857
4,846
1,926
4,512
1,447
Fair
value
248
4,712
1,439
The main risks arising from the Trust’s financial instruments are credit, interest rate, liquidity and foreign exchange risks. The
Trust’s approach to managing these risks is summarized below:
Credit risk
Credit risk arises from the possibility that:
• Tenants may experience financial difficulty and be unable to fulfill their lease commitments or tenants may fail to occupy and
pay rent in accordance with existing lease agreements, some of which are conditional.
• Borrowers default on the repayment of their mortgages to the Trust.
• Third parties default on the repayment of debt to the Trust (for discussion on joint arrangements, see note 17, and on
guarantees, see note 32).
RioCan’s Declaration of Trust contains provisions that have the effect of limiting the amount of space that can be leased to one
tenant and its investment in mortgages receivable.
Additionally, the Trust mitigates tenant credit risk through geographical diversification, staggered lease maturities, diversification
of revenue sources resulting from a large tenant base, avoiding dependence on any single tenant by ensuring no individual
tenant contributes a significant percentage of the Trust’s gross revenue and ensuring a considerable portion of the Trust’s
revenue is earned from national and anchor tenants and conducting credit assessments for new tenants.
As at December 31, 2014:
• Minimum annualized rentals (exclusive of recoverable property operating costs and taxes) for tenant leases expiring in each of
the next five years ending December 31 are as follows: 2015 – $83 million; 2016 – $88 million; 2017 – $84 million; 2018 – $98
million; and 2019 – $112 million.
162
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
• The above aggregate rentals over the next five years represent annual lease payments of $465 million based on current
contractual rental rates. For every such lease renewed upon maturity at an aggregate rental rate differential of 100 basis
points, the Trust’s net earnings would be impacted by approximately $5 million annually.
• No individual tenant comprises more than approximately 5% of the Trust’s annualized rental revenue for 2014 and 2013.
• Approximately 86.4% of the Trust’s annualized rental revenue for 2014 and 2013 was derived from national and anchor tenants
(which tenant covenants are expected to be of higher credit quality than other tenants).
Interest rate and liquidity risks
The Trust is exposed to interest rate risk on its borrowings. Liquidity risk arises from the possibility of not having sufficient debt
and equity capital available to the Trust to fund its growth program and refinance its debts as they mature. The Trust’s financial
condition and results of operations would be adversely affected if it were unable to obtain financing, or obtain cost-effective
financing.
RioCan’s Declaration establishes a Debt to Aggregate Assets ratio limit of 60%.
Additionally, the Trust mitigates interest rate and liquidity risks by staggering the maturity dates of its long-term debt (see notes 7
and 8 for Aggregate Debt), by entering into interest rate swap (option) agreements (see note 23), and by limiting the use of
floating rate debt.
As at December 31, 2014:
• The Trust’s Aggregate Debt has a 3.95 year weighted average term to maturity bearing interest at a weighted average
contractual interest rate of 4.12% per annum.
• 7.8% of the Trust’s Aggregate Debt is at floating interest rates at December 31, 2014.
• The Trust’s undrawn lines of credit total $565 million (see note 7).
• The ratio of Debt, net of cash, to Total Assets, net of cash is 43.7%.
• As at December 31, 2014, the Trust had cash and cash equivalents of $56 million as compared to $39 million as at
December 31, 2013.
As at December 31, 2014, the Trust has aggregate contractual debt principal maturities through to December 31, 2017 of
approximately $2.82 billion (43.6% of RioCan’s Aggregate Debt) with a weighted average contractual interest rate of 4.03%. For
every such amount refinanced upon maturity at an aggregate interest rate differential of 100 basis points, the Trust’s net earnings
would be impacted by approximately $28.2 million annually.
Foreign exchange risk
The Trust operates in Canada and in the US. The functional currency of the Trust is the Canadian dollar as is the reporting
currency. The functional currency of the Trust’s US operations is the US dollar. The Trust also holds interest bearing debt and
common shares of Cedar denominated in US dollars. The Trust is exposed to both transaction and translation risk due to the
volatility of foreign currency exchange rates, primarily arising from its US dollar denominated investments and, to a lesser extent,
its monetary assets and liabilities denominated in this currency. The carrying values of these assets and liabilities, as well as the
comprehensive income and earnings derived from them, are subject to foreign exchange rate fluctuation.
Foreign exchange risk arises because the US dollar denominated financial statements of the Trust's US operations may vary
upon consolidation and translation into Canadian dollars. As a result, the Trust may experience translation exposures because of
volatility in the exchange rate between the Canadian and US dollar.
As at December 31, 2014, the Trust’s US denominated net assets are $1,048 million; therefore a 1% change in the value of the
US dollar will result in a gain or loss through OCI of approximately $10.5 million and an approximate $1.8 million impact to
consolidated net earnings.
30. Related Party Transactions
Key management personnel are those individuals that have the authority and responsibility for planning, directing and controlling
the company’s activities, directly or indirectly. RioCan's Trustees do not plan, direct, or control the activities of the Trust directly
but provide oversight over the business.
The Trust’s key management personnel include the Trustees and the following individuals: the Chief Executive Officer, Edward
Sonshine; President, Chief Operating Officer, and Interim Chief Financial Officer, Raghunath Davloor (collectively, the Key
Executives).
163
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Remuneration of the Trust’s key management during the period was as follows:
For the year ended December 31,
Compensation and benefits
Unit-based payments
Post-employment benefit cost (recovery)
Trustees
Key Executives
2014
2013
2014
2013
$
$
0.5 $
0.7 $
5.1 $
2.1
—
1.2
—
1.9
(0.3)
2.6 $
1.9 $
6.7 $
5.1
2.1
0.5
7.7
Unit-based payments for Trustees are made pursuant to a restricted equity unit plan and a deferred equity unit plan described
further in note 12.
On October 2, 2014, the Trust announced the resignation of Frederic Waks, President and Chief Operating Officer. Compensation
of Frederic Waks for the years ended December 31, 2014 and December 31, 2013 are $2.7 million and $2.9 million, respectively.
Effective October 21, 2014, Raghunath Davloor, Executive Vice President and Chief Financial Officer, was promoted to the role of
President and Chief Operating Officer and appointed Interim Chief Financial Officer and Corporate Secretary of the Trust.
On February 4, 2015, the Trust announced the appointment of Cynthia Devine as Executive Vice President, Chief Financial
Officer and Corporate Secretary, effective March 16, 2015.
31. Employee Benefits
The Trust maintains a total of four pension plans for its employees.
a) RioCan's defined contribution pension plan incurred current service costs in the amount of $0.9 million for the year ended
December 31, 2014 (year ended December 31, 2013 – $0.4 million).
b) There are three defined benefit pension plans, one of which is a registered plan and two are supplemental unregistered
plans. The Trust's obligations under its defined benefit pension plans are determined periodically through the preparation of
actuarial valuations and based on a specified length of service up to a stated maximum.
The fair value of the registered plan assets as at December 31, 2014 is $3.1 million (December 31, 2013 – $3 million). The
recognized pension obligation (net of plan assets) as at December 31, 2014 was $13.0 million (December 31, 2013 – $10.2
million). Pension costs, net of recoveries, of $0.3 million were recorded in net earnings for the year ended December 31,
2014 (pension costs for the year ended December 31, 2013 – $0.7 million).
The discount rate used was 3.9% (December 31, 2013 – 4.9%), a compensation growth rate of 4% (December 31, 2013 –
3.5%) and an expected long term rate of return on assets of 3.9% (December 31, 2013 – 4.9%).
Actuarial gains and losses for the defined benefit plans are recognized in full in the period in which they occur in OCI. Such
actuarial gains and losses are also immediately recognized in cumulative earnings and are not reclassified to earnings in
subsequent periods.
32. Contingencies and Commitments
Guarantees
As at December 31, 2014, the estimated amount of third party debt subject to RioCan guarantees, and therefore the maximum
exposure to credit risk, was approximately $470 million consisting of guarantees totalling $309 million (December 31, 2013 –
$282 million) to partners and co-owners and $161 million (December 31, 2013 – $185 million) on the assumption of mortgages by
purchasers on property dispositions with expiry dates between 2015 and 2034. There have been no defaults by the primary
obligors for debts on which the Trust has provided its guarantees, and as a result, no provision for these guarantees has been
recognized in these Consolidated Financial Statements.
Contractual obligations on real estate
RioCan does not have any investment property acquisitions or dispositions under firm contract as at the date of these financial
statements.
Litigation
The Trust is involved with litigation and claims which arise from time to time in the normal course of business. In the opinion of
management, any liability that may arise from such contingencies will not have a significant adverse effect on the Trust’s
Consolidated Financial Statements.
164
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Lease commitments – Trust as lessee
The Trust as lessee is committed under long-term operating leases with various expiry dates to 2029. Minimum annual rentals
are as follows:
Within 1 year
After 1 year, but not more than 5 years
More than 5 years
Total
December 31, 2014
Land
Leases
Operating
Leases
Total
Commitments
$
$
3 $
9
16
28 $
1 $
2
5
8 $
4
11
21
36
Included in the above are land lease commitments of $18.7 million which have been accounted for as finance leases and
investment properties. The corresponding lease obligation of $14.0 million has been recognized in accounts payable and accrued
liabilities as at December 31, 2014.
Investment commitment
As at December 31, 2014, the Trust has unfunded investment commitments of approximately $17.7 million relating to WCNUF
and WCNUF 2. Amounts to be funded are callable by the general partner at any point prior to the expiration of the investment
period, which is February 29, 2018.
33. Events After the Balance Sheet Date
Target Canada
On January 15, 2015, Target Corporation (Target) announced plans to discontinue its Canadian operations through its indirect
wholly-owned subsidiary, Target Canada, and that it was utilizing the Companies’ Creditors Arrangement Act (Canada) (“CCAA”)
to wind down its operations. As at December 31, 2014, RioCan has 26 locations under lease with Target Canada representing
approximately 1.9% of RioCan’s total annualized rental revenue with an average remaining lease term of approximately 12.7
years. All but one of these leases are guaranteed through an indemnity arrangement with Target, generally for the lesser of (i)
the remaining term of each lease and (ii) ten years. The one lease that is not covered by the Target indemnity is guaranteed by
Walmart Canada.
Under IFRS, the fair value measurement of properties reflect conditions inherent at the measurement date, but not conditions
arising after the measurement date. Property valuation of these locations reflects inputs that market participants would consider
applicable as of the date of the valuation, including appropriate assumptions about future occupancy rates, but would not reflect
adjustments based on events arising after such date, such as the actual timing of departure of Target from the Canadian market
and its related CCAA proceedings. The aggregate IFRS fair value of the real estate properties where Target Canada occupies a
tenancy was reflected at December 31, 2014 at a value of approximately $2 billion. Consistent with past practice, RioCan will
seek to re-lease vacant spaces that are ultimately created by Target’s withdrawal from the Canadian market, which ability to re-
lease will be subject to certain risks, including with respect to the ability to release the vacant spaces (subject to the CCAA
proceedings), the timing of releasing and the terms of any such releasing which may or may not be more beneficial to RioCan
than the existing lease terms with Target Canada. Some of RioCan’s retail lease agreements include co-tenancy clauses which
allow the tenant to pay a reduced rent amount and, in certain instances, terminate the lease, if RioCan fails to maintain certain
occupancy levels or retain certain anchor tenancies, including Target Canada.
As of the date of authorization of these consolidated financial statements, management cannot reasonably estimate the future
financial impact to RioCan of Target's decision to exit the Canadian market for reasons including, but not limited to, the following:
uncertainty with respect to the CCAA proceedings relating to the liquidation and wind-down of Target Canada; uncertainty
pertaining to the nature and timing of the sale of Target Canada's real estate assets; and, more generally, the early stage of
proceedings and communications amongst RioCan and its advisors, Target, tenants, the Court and other stakeholders following
the recent announcement of Target’s exit plan.
Series N and Series O Debenture Redemptions
On February 3, 2015, RioCan announced that it is issuing a notice of redemption to holders of its US$100 million 4.10% Series N
senior unsecured debentures due September 21, 2015 (the “Series N Debentures”), representing a redemption, in full, of all of
the currently outstanding Series N Debentures. The Series N Debentures will be redeemed on March 9, 2015, in accordance
with their terms, at a total redemption price of US$101.8 million, plus accrued and unpaid interest of US$1.9 million, up to but
excluding the redemption date.
On February 3, 2015, RioCan also announced that it is issuing a notice of redemption to holders of its $225 million 4.499% Series
O Debentures due January 21, 2016, representing a redemption, in full, of all of the currently outstanding Series O Debentures.
The Series O Debentures will be redeemed on March 11, 2015, in accordance with their terms, at a total redemption price of
$231.8 million, plus accrued and unpaid interest of $1.4 million, up to but excluding the redemption date.
165
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Audited – Canadian dollars, tabular amounts in millions, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
Series W Debenture Issuance
On February 12, 2015, the Trust issued $300 million of Series W senior unsecured debentures, which mature on February 12,
2024 and carry a coupon rate of 3.287% A portion of the net proceeds will be used by RioCan to repay indebtedness, including
the redemption of the Trust's Series O senior unsecured debentures (the "Series O Debentures") as described below, and the
balance for general trust purposes.
Acquisitions and Dispositions
On January 6, 2015, RioCan completed the dispositions of five income properties in Canada at an aggregate sales price of $120
million, at a weighted average capitalization rate of 6.8%. The Trust's mortgage obligation related to these properties was
approximately $21 million.
On January 15, 2015, RioCan completed the acquisitions of 19 income properties in Canada at an aggregate purchase price of
$82 million, at a weighted average capitalization rate of 5.5%. In connection with these acquisitions, RioCan assumed $16 million
of mortgage financing.
On February 6, 2015, RioCan completed the acquisition of one development property in Canada at a purchase price of $3 million.
166
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2014
AUDITORS
Ernst & Young LLP
TRANSFER AGENT AND REGISTRAR
CST Trust Company
P.O. Box Station B,
Montreal, Quebec H3B 3K3
Answerline: 1-800-387-0825 or
416-643-5500
Fax: 1-800-249-6189 or 514-985-8843
Website: www.canstockta.com
Email: inquiries@canstockta.com
STOCK EXCHANGE LISTING
The Toronto Stock Exchange
Trading Symbols:
Common Units – REI.UN
Preferred Units – Series A REI.PR.A
Series C REI.PR.C
ANNUAL MEETING
The 2015 Annual Meeting of RioCan REIT
will be held on June 17, 2015 at 10:00 a.m.
at SilverCity Theatres located at RioCan
Yonge Eglinton Centre, 2300 Yonge Street,
Toronto, Ontario. All unitholders are invited
and encouraged to attend in person or via
webcast at www.riocan.com.
On peut obtenir une version française du
présent rapport annuel sur le site web de
RioCan: www.riocan.com.
A French language version of this
annual report is available on RioCan’s
website: www.riocan.com.
CORPORATE INFORMATION
SENIOR MANAGEMENT
BOARD OF TRUSTEES
Paul Godfrey, C.M., O.Ont. 1,2,3,4
(Chairman of Board of Trustees)
President and Chief Executive Officer
Postmedia Network Canada Corp.
Bonnie Brooks 3,4
Vice Chairman, Hudson’s Bay Company
Clare R. Copeland 1,2
Vice-Chair, Falls Management Company
Raymond M. Gelgoot
Retired, Former Partner,
Fogler Rubinoff LLP
Dale H. Lastman
Chair and Partner, Goodmans LLP
Sharon Sallows 1,2,4
Director of Ontario Teachers’
Pension Plan Board
Edward Sonshine, O.Ont., Q.C.
Chief Executive Officer,
RioCan Real Estate Investment Trust
Charles M. Winograd 3,4
President, Winograd Capital Inc.
Luc Vanneste 1,2
Chair of the Audit Committee, RioCan
1 member of the Audit Committee
2 member of the Human Resources & Compensation
Committee
3 member of the Nominating & Governance Committee
4 member of the Investment Committee
UNITHOLDER INFORMATION
Head Office
RioCan Real Estate Investment Trust
RioCan Yonge Eglinton Centre,
2300 Yonge Street, Suite 500
P.O. Box 2386, Toronto, Ontario M4P 1E4
Tel: 416-866-3033 or 1-800-465-2733
Fax: 416-866-3020
Website: www.riocan.com
Email: inquiries@riocan.com
UNITHOLDER AND INVESTOR CONTACT
Christian Green
Director, Investor Relations and Compliance
Tel: 416-864-6483
Email: cgreen@riocan.com
Edward Sonshine, O.Ont., Q.C.
Chief Executive Officer
Raghunath Davloor
President, Chief Operating Officer
Cynthia Devine
Executive Vice President, Chief Financial Officer
& Corporate Secretary
Howard Rosen
Senior Vice President, Chief Accounting Officer
John Ballantyne
Senior Vice President, Asset Management
Michael Connolly
Senior Vice President, Construction
Jonathan Gitlin
Senior Vice President, Investments
Danny Kissoon
Senior Vice President, Operations
Jordan Robins
Senior Vice President, Planning & Development
Jeff Ross
Senior Vice President, Leasing
Stuart Baum
Vice President, Human Resources
Nigel Bunbury
Vice President, Financial Reporting & Controls
Stuart Craig
Vice President, Planning & Development
Roberto DeBarros
Vice President, Construction
Andrew Duncan
Vice President, Development Engineering
Lyle Goodis
Vice President, Marketing
Oliver Harrison
Vice President, Asset Management
Oliver Hobday
Vice President, Legal
Kevin Miller
Regional Vice President,
Operations - Central Ontario
Pradeepa Nadarajah
Vice President, Property Accounting
Paran Namasivayam
Vice President, Recovery Accounting
Jane Plett
Vice President, Operations – Western Canada
Kenneth Siegel
Vice President, Leasing
Jonathan Sonshine
Vice President, Asset Management
Jeffrey Stephenson
Vice President, Leasing
Naftali Sturm
Vice President, Finance
Renato Vanin
Vice President, Information Technology
RIOCAN YONGE EGLINTON CENTRE
2300 Yonge Street
Suite 500
P.O. Box 2386
Toronto, Ontario
M4P IE4
T 416 866 3033
TF 1 800 465 2733
F 416 866 3020
W www.riocan.com