A N N U A L R E P O R T 2 0 1 5
C O R P O R A T E P R O FIL E
RioCan
Founded in 1993, RioCan has become Canada’s largest Real Estate Investment
Trust. RioCan invests in, develops, and manages more than 300 properties,
including shopping centres and mixed-use developments in Canada’s
six largest markets. Capitalizing on demographic, and retail trends,
in key urban centres, RioCan’s properties are major draws
for tenants and customers alike. RioCan brings to market
winning, mixed-use developments that satisfy a range
of needs, from quality shopping experiences,
to condominiums or rentals, and, in some
instances, office spaces. In Canada’s
six major markets, RioCan
is redefining urban
real estate.
TABLE OF CONTENTS
1 Financial Highlights
2 CEO’s Letter to Unitholders
12 Property Portfolio
23 Management’s Discussion and Analysis
97 Audited Annual Consolidated
Financial Statements
105 Notes to Consolidated
Financial Statements
IBC Corporate Information
0_1
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
Financial Highlights
Total Assets
20,000
15,000
s
n
o
i
l
l
i
m
$
10,000
5,000
0
2012
2013
2015
2014
Total Assets
Operating
Funds From Operations
Major Market Focus
20,000
15,000
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$
10,000
5,000
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2012
2013
2015
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80%
75%
70%
65%
60%
55%
2012
2013
2011
2010
RioCan's portfolio is focused in Canada's six largest markets
Toronto, Vancouver, Edmonton, Calgary, Ottawa and Montreal.
Operating
Funds From Operations
Major Market Focus
2015
2014
2013
2012
Total Assets
2013
2014
2015
2012
2011
2010
RioCan's portfolio is focused in Canada's six largest markets
Toronto, Vancouver, Edmonton, Calgary, Ottawa and Montreal.
Operating
Funds From Operations
Major Market Focus
s
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m
$
600
500
400
300
200
100
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20,000
15,000
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10,000
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2012
2013
2015
2014
2015
2014
2013
2012
2015
2014
2013
2014
2015
2012
2011
2010
RioCan's portfolio is focused in Canada's six largest markets
Toronto, Vancouver, Edmonton, Calgary, Ottawa and Montreal.
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Our Vision is
in Our Strategy
RioCan is Canada’s largest
real estate investment trust
with a total enterprise value of
approximately $15 billion as of
December 31, 2015. With 305
properties in canada, RioCan
offers more than 46 million
square feet of leasable space,
generating more than $1 billion
in annualized rent.
EDWARD SONSHINE,
O.ONT.,Q.C.
CHIEF EXECUTIVE OFFICER
THE RIGHT STRATEGY ... IMPLEMENTED
CEO’S LETTER TO
UNITHOLDERS
Dear Unitholders,
Unlike any year in our history of more than 20 years, 2015
will be remembered for challenges that impacted all
sectors of the economy. Under a difficult economic climate,
RioCan was tested in numerous ways. I am proud that
RioCan’s model of fiscal discipline, risk management and
diversification has stood the test of time and tribulation.
RioCan is not standing still, however.
The year started off with an unexpected announcement:
Target would depart the Canadian marketplace. As a result,
Target eventually returned more than two million square
feet of leasable space to your REIT. Although RioCan
was Target’s largest Canadian landlord, as part of your
Trust’s diversification strategy, Target’s total leased space
represented less than 2% of total annual rental revenue.
2_3
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RioCan’s management team had the foresight,
experience, and leverage to negotiate a “parent
guarantee” with Target, facilitating a rapid November
2015 settlement. Nonetheless, the scale of the Target
space consumed a significant portion of the leasing
and management teams’ time and efforts. I am pleased
to report that RioCan has made substantial progress
leasing these spaces. As of the date of this year’s
report, for instance, RioCan has agreements in place or
is in advanced stages of negotiations that will replace
approximately 115% of this rent.
Difficulties during the year did not stop with Target,
however. Best Buy/Future Shop, and a number of
mid-range fashion retailers announced store closings,
and this was just in the first quarter of 2015. Nonetheless,
your Trust demonstrated its initiative, resiliency and
strength of its high-traffic properties by achieving 7.6%
growth in the Trust’s operating funds from operations
(“OFFO”) on the year. RioCan is also slowly restoring
occupancy rates in our Canadian properties from a low
of 93.1% on June 30, 2015 to the current rate of 94.0%,
and we expect to be back at our more usual rates of over
95% within the year.
RioCan thrives on the challenges of a constantly
changing retail landscape. Rather than imposing a
uniform design on every property, RioCan leads the
market with customized site plans based on retail trends,
demographics, income levels, and traffic patterns.
RioCan offers consumers a range of shopping options in
its properties, while designing residential living spaces
in select urban sites. With rigorous research, financial
discipline, and an innovative approach, RioCan brings the
right solution to the right project.
RioCan is on the move. To ensure future growth, RioCan
actively conceives – and develops select high-profile
projects, some independently, and others with partners.
RioCan’s development pipeline is robust, comprising 16
transformative projects in the urban cores of Canada’s
six major markets.
Intensifying urban properties
In the highly populated urban centres in Canada’s six
major markets, where space is at a premium, RioCan
has designated forty-six properties for potential
intensification. These exciting mixed-use communities
are conveniently located on or near major transit hubs,
and provide easy access for people to live, work, shop
and play.
With a blend of income from retail and residential
streams, mixed-use properties help mitigate risk.
The residential component provides stable cash flow,
while adding value to the retail mix with an adjacent
customer base. In sum, RioCan’s projects satisfy a range
of retail needs while helping consumers enhance their
urban lifestyles.
Toronto awaits The Well
Toronto is abuzz with anticipation over The Well, a
world-class development and community-gathering
hub, located near Toronto’s downtown core. The Well
will be a landmark mixed-use community that features
retail at grade, rental and condominium living, and an
office tower on the northeast corner of the development.
Developed by RioCan and its partners Allied Properties
REIT and Diamond Corporation, this expansive site
is spread over more than 7.5 acres, and offers 3 million
square feet of space. By incorporating a dynamic
retail mix, entertainment, leading restaurants, and
green space, The Well will become a magnet for
thousands of Torontonians living in the downtown
west, as well as for visitors who seek out this
exciting destination.
RioCan, in partnership with KingSett Capital, is currently
redeveloping the Yonge Sheppard Centre. Earlier this
year, zoning was approved for the redevelopment plans
for this site at the intersections of two bustling subway
lines in north Toronto. The retail section is currently
being renovated. Key tenants include a Longo’s grocery
store which has leased 54,000 square feet and LA
Fitness which has leased another 50,000 square feet.
To complement the retail spaces, 339,000 square feet
of residential rental space is included in the plan. Final
approval for the site’s redevelopment plan is anticipated
in the first quarter of 2016.
Transforming urban centres
Both The Well and the Yonge Sheppard Centre are
integral to RioCan’s program to intensify forty-six
properties with a residential component, either in the
form of condominiums or rental properties. Based on
current plans, RioCan has designated bringing to
market up to approximately 18,000 residential units over
the next decade.
Currently, RioCan has obtained planning approvals
for seven mixed-use projects. RioCan has also filed
applications for twenty-one mixed-use projects which,
based on planning approvals, will comprise a total
of approximately 13.6 million square feet, of which
approximately 11 million square feet will be residential
spaces, while 3.1 million square feet will be incremental
commercial gross leasable area. Depending on market
conditions, the mix between condominium and rental
residential may change over time, but RioCan may have
an interest in as many as 11,000 residential rental units.
Emerging from Target’s departure in a
strengthened position
Target Corporation’s financial settlement provides a
substantial amount of capital most of which will be
used in the Trust’s redevelopment efforts. To lease
the former Target spaces, RioCan has entered into
advanced discussions, conditional agreements or signed
agreements with grocers, sporting goods suppliers,
fitness operators, discount retailers, service providers,
and others. Of note, these signings will replace an
excess of the rental revenue that was previously
generated from Target and provide more customer traffic
for all our tenants.
With its array of new tenants, RioCan will benefit from
increased cash flow derived from higher market-
based rental revenue and cost recoveries, which were
previously capped under the former Target Canada
leases. In short, RioCan will capitalize on the stronger
growth potential from a more diverse tenant pool than
that of just Target Canada. For these reasons, RioCan
has emerged from the Target departure in an even
stronger position.
accrued value of the U.S. properties. With the proceeds
of the sale, the balance sheet will be considerably
strengthened, providing liquidity, and financial flexibility
for new projects. Finally, with a less complex business
structure, RioCan will be a pure-play Canadian REIT
that will focus exclusively on managing Canadian
operations, and bringing to market our significant
development pipeline.
The sale proceeds of the U.S. properties resulted in an
internal rate of return of approximately 16% in Canadian
dollars. These gains are based on valuable properties
coupled with the strength of the U.S. dollar relative to
the Canadian currency. With these proceeds, RioCan
can fortify the Trust’s balance sheet and provide an even
stronger financial foundation for future growth.
Management anticipates that in the near term, the
proceeds from the sale will lower the Trust’s operating
funds from operations. With our acquisition of our
partner Kimco’s share in twenty-three Canadian
properties, the Trust has also reduced a portion of near
term dilution.
Even in a challenging 2015, on an OFFO basis, RioCan’s
business grew 7.6%. Looking ahead, the future is
promising. Canadians count on RioCan for state-of-
the-art developments that feature an appealing blend
of retailers, services and restaurants in conveniently
located centres and sites. With a creative blend of retail,
and in some instances residential and office space,
RioCan’s team seizes every opportunity to create vibrant
mixed-use communities that enhance urban life. Through
the ownership, development and management of retail
and residential real estate, RioCan intends to continue
its twenty-three year track record of maintaining or
increasing its distribution to Unitholders.
The United States: Opportune timing and a
solid return on investment
I thank you for your continued confidence in, and support
of RioCan.
Edward Sonshine, O.Ont., Q.C.
Chief Executive Officer
RioCan Real Estate Investment Trust
In the summer of 2015, RioCan conducted a strategic
review of the Trust’s operations in the United States.
Accordingly, RioCan entered into an agreement to sell
its portfolio of 49 U.S. properties in the northeast and
Texas. By design, the sale occurred at an opportune
time: RioCan achieved impressive gains of approximately
$930 million relative to its historical cost of $1.7 billion
based on estimated Canadian dollar proceeds. RioCan
proceeded with this transaction for a number of reasons.
First, RioCan has realized significant gains from the
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
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2.0%
1.1%
7.3%
9.4%
2.4% 1.3%
7.9%
12.5%
67.7%
12.0%
12.2%
64.1%
Annualized rental revenue of the
Canadian portfolio by geography
at December 31, 2015
Ontario
67.7%
Alberta
12.5%
Quebec
9.4%
Brithish Columbia
7.3%
Eastern Canada
2.0%
Manitoba / Saskatchewan
1.1%
Top 10 Tenants – Canadian Portfolio
As at December 31, 2015, RioCan’s 10 largest tenants in Canada,
as measured by annualized gross rental revenue, have the
following profile:
Percentage of
annualized
rental
revenue
NLA of the Canadian portfolio
by geography at December 31, 2015
Ontario
64.1%
Alberta
12.2%
Quebec
12.0%
Brithish Columbia
7.9%
Eastern Canada
2.4%
Manitoba / Saskatchewan
1.3%
Number of
locations
NLA
(in thousands)
Percentage
of total
NLA
Weighted average
remaining lease
term (years)(i)
Tenant
name
1 Loblaws/Shoppers Drug Mart (ii)
2 Canadian Tire Corporation (iii)
3 Walmart
4 Cineplex/Galaxy Cinemas
5 Metro/Super C/Loeb/Food Basics
6 Winners/HomeSense/Marshalls
7 Sobey's/Safeway
8 Cara/Prime Restaurants
9 Dollarama
10 Lowe’s (iv)
4.6%
4.4%
4.0%
3.8%
3.5%
3.4%
1.8%
1.7%
1.5%
1.4%
30.1%
82
90
30
29
52
72
33
106
82
11
587
2,099
2,402
3,505
1,443
2,133
1,825
1,053
489
725
1,379
17,053
5.0%
5.7%
8.3%
3.4%
5.1%
4.3%
2.5%
1.2%
1.7%
3.3%
40.5%
7.4
8.1
10.9
8.4
6.7
7.4
7.3
5.8
6.5
12.7
8.1
(i) Weighted average remaining lease term based on annualized gross rental revenue.
(ii) Loblaws/Shoppers Drug Mart includes No Frills, Fortinos, Zehrs and Maxi.
(iii) Canadian Tire Corporation includes Canadian Tire, PartSource, Mark’s, Sport Chek, Sports Experts, National Sports and Atmosphere.
(iv) In February 2016, Lowe's announced its intent to purchase Rona. Upon closing of this transaction, Lowe's would become RioCan's ninth
largest tenant by total annualized Canadian rental revenue.
The Vision To
Repurpose
Existing
Properties
The Sheppard Centre is
an exciting mixed-use
complex. Strategically
located at the
intersections of two
bustling streets, Yonge
and Sheppard, the Centre
is easily acessible by
pedestrians, local traffic,
highways, and two major
subway lines. In 555,000
square feet, Sheppard
Centre tenants include
national retail chains, two
major banks, Shopper’s
Drug Mart, Winners and
others. The demographics
are compelling: more than
half a million people, with
an average household
income of more than
$130,000, are less than a
10 minute drive away.
N O F
R E T AIL R E A L E S T A T E
T H E E V O L U TIO
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
Winners and
Sephora:
two new and
dynamic retailers
at the centre.
Newly renovated
with exciting shops,
restaurants, an
expanded multi-plex
cinema, and VIP
theatres.
Yonge Eglinton Centre
Located at one of Canada’s busiest crossroads,
Yonge Eglinton is thriving.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
Vision Is The
Ability To See
Redevelopment
Just west of the
downtown core, located
at the intersection of King
and Portland, is a 445,000
square foot mixed-use
development. As a prime
location, the site is an
easy walk to the financial
and theatre districts, and
just a few minutes from
a subway stop. Streetcar
access is right at the door.
The site will consist of
mixed-use office, retail
and residential space,
with approximately
445,000 square feet of
gross floor area.
Almost 300,000
households, with an
average household
income of $115,000,
are within a 10
minute walk.
RioCan is partnering
with Allied
Properties on King
and Portland and
three other unique
urban sites.
King and Portland
Adapting A Vision
Of Redevelopment
For Our Tenants
RioCan, Diamondcorp, and
Allied REIT are partnering on
The Well, a transformative
7.7 acre development at
the bustling intersection
of Spadina and Front.
This mixed-community
of more than 3,000,000
square feet will appeal
to residents, shoppers
and office tenants alike.
Featuring leading retailers,
a range of restaurants,
relaxing green space, and
public art, this vibrant,
community gathering hub
will be Toronto’s newest
destination for downtown
residents and visitors.
Several new residential
towers, extensive retail-
lined mid-block pedestrian
lanes, green spaces, and
a state-of-the-art office
tower will make The Well
a compelling, must-see
attraction in Toronto’s
downtown.
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10_11 RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
8_9
The Well
The Well features
ground-level retail
with residential
and office above.
305,000 households,
with an average
household income
of more than
$115,000, are within
a 10 minute drive.
PROPERTY PORTFOLIO
CANADA
CANADA
ALBERTA
As at December 31, 2015
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
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
100%
11,963
11,963
100%
100%
40%
50%
100%
100%
100%
11,943
11,943
290,898
290,898 Safeway, London Drugs, Sears Whole Home,
Bed Bath & Beyond
127,714
370,895 Walmart, Golf Town, Totem Building Supplies*
73,290
91,063
146,580 Safeway
146,063 London Drugs, Safeway*
79,396
79,396 London Drugs
281,467
281,467 Walmart, Shoppers Drug Mart
Lowe’s Sunridge Centre, Calgary, AB
100%
213,100
213,100 Lowe's, Golf Town
Mayfield Common, Edmonton, AB
Mill Woods Town Centre, Edmonton, AB
North Edmonton Cineplex Centre
Edmonton, AB
Northgate Village Shopping Centre
Calgary, AB
50%
40%
100%
207,442
233,444
414,883 Winners, Save-On-Foods, Value Village, JYSK
578,692 Safeway (Co-op), Canadian Tire, GoodLife Fitness
75,836
75,836 Cineplex
100%
277,685
404,775 Safeway, Gold's Gym, JYSK, Staples, Home
Depot*
RioCan Beacon Hill, Calgary, AB
50%
263,944
786,888 Canadian Tire, Winners, Best Buy, Sport Chek,
GoodLife Fitness, Home Depot*, Costco*
RioCan Centre Grande Prairie
Grande Prairie, AB
100%
283,138
383,138 Winners, Michaels, JYSK, Rona, London Drugs,
Cineplex, Staples, Walmart*
RioCan Meadows, Edmonton, AB
50%
154,694
409,388 Home Depot, Staples, Winners, Best Buy,
Loblaws*
RioCan Shawnessy, Calgary, AB
100%
470,547
841,192 Lowe’s, Sport Chek, Best Buy, Winners,
Home Depot*, Co-op*, Walmart*, Canadian Tire*
RioCan Signal Hill Centre, Calgary, AB
100%
477,173
592,173 Lowe’s, Winners, Michaels, Staples, Indigo,
Riverbend Square Shopping Centre
Edmonton, AB
Southbank Centre, Calgary, AB
South Edmonton Common, Edmonton, AB
100%
141,036
141,036 Safeway, Shoppers Drug Mart
Loblaws*
50%
100%
72,607
389,449 Winners, Michaels, Home Depot*, Costco*
430,418
981,488 London Drugs, The Brick, Home Outfitters,
Old Navy, Home Depot*, Walmart*, Loblaws*,
Cineplex*, Staples*, Best Buy*
South Trail Crossing, Calgary, AB
100%
313,913
313,913 Winners, HomeSense/Marshalls, Staples,
Sport Chek
Southland Crossing Shopping Centre
Calgary, AB
100%
132,063
132,063 Safeway
Summerwood Shopping Centre, Edmonton, AB
100%
83,980
83,980 Save-On-Foods, Shoppers Drug Mart
12
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
*Non-owned anchor
PROPERTY PORTFOLIO
As at December 31, 2015
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
The Market at Citadel, Edmonton, AB
Timberlea Landing, Fort McMurray, AB
100%
100%
50,968
50,968 Shoppers Drug Mart
105,379
105,379 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
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
50%
50%
100%
219,421
459,421 Lowe’s, Winners, PetSmart, Costco*, Rona/Revy*
25,133
25,133
3,541
4,454
4,432
5,885
5,010
3,541
4,454
4,432
5,885
5,010
148,215
148,215 Canadian Tire, Best Buy
173,106
173,106 Walmart, Save-On-Foods
188,962
188,962 Safeway, Staples
186,629
186,629 Walmart
197,058
197,058 Safeway, Staples, JYSK, World Gym
265,031
615,062 Walmart, Best Buy, Indigo, Home Depot*
134,382
134,382 T&T Supermarket
186,362
372,724 The Bay, Overwaitea, London Drugs, Famous
Players, Staples
85,372
170,744 Safeway, London Drugs
380,029
380,029 Sears Whole Home, Chapters, HomeSense,
Michaels, Marshalls, Winners
Southwinds Crossing, Oliver, BC
100%
72,972
72,972 Canadian Tire, Buy-Low Foods
Strawberry Hill Shopping Centre, Surrey, BC
100%
337,843
337,843 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
100%
466,961
466,961 Lowe’s, Cineplex, Save-On-Foods, Winners,
London Drugs
Vernon Square, Vernon, BC
100%
96,707
149,707 London Drugs, Safeway*
MANITOBA
Garden City, Winnipeg, MB
Kildonan Crossing Shopping Centre
Winnipeg, MB
30%
100%
86,138
379,730 Canadian Tire, Winners, Sears*
179,027
179,027 Safeway, PetSmart
13
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
*Non-owned anchor
PROPERTY PORTFOLIO
NEW BRUNSWICK
As at December 31, 2015
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%
139,848
279,695 Sobeys, The Province of New Brunswick,
GoodLife Fitness
Corbett Centre, Fredericton, NB
Northumberland Square, Miramichi, NB
Quispamsis Town Centre, Quispamsis, NB
100%
100%
100%
195,086
158,454
88,114
290,086 Winners, HomeSense, Home Depot*, Costco*
158,454 Winners, Giant Tiger
88,114 Shoppers Drug Mart, GoodLife Fitness
NEWFOUNDLAND
Shoppers on Topsail, St. John’s, NFLD
100%
29,656
29,656 Shoppers Drug Mart
Trinity Conception Square, Carbonear, NFLD
100%
182,155
182,155 Metro, Walmart
NOVA SCOTIA
Halifax Walmart Centre, Halifax, NS
50%
68,909
137,818 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
3736 Richmond Road, Ottawa, ON
2422 Fairview Street, Burlington, ON
2950 Carling Avenue, Ottawa, ON
2955 Bloor Street West, Toronto, ON
2990 Eglinton Avenue East, Toronto, ON
404 Town Centre, Newmarket, ON
100%
100%
100%
100%
100%
100%
100%
100%
4055-4065 Carlingview Avenue, Ottawa, ON
100%
410 King Street North, Waterloo, ON
549-555 College Street, Toronto, ON
506 & 510 Hespeler Road, Cambridge, ON
649 Queen Street West, Toronto, ON
6666 Lundy’s Lane, Niagara Falls, ON
735 Queenston Road, Hamilton, ON
100%
50%
100%
100%
100%
100%
740 Dupont Street, Toronto, ON
100%
Adelaide Centre, London, ON
Ajax Marketplace, Ajax, ON
100%
100%
142,188
142,188 Canadian Tire
6,425
2,938
6,221
6,425
2,938
6,221
10,442
10,442 Pharma Plus
8,777
6,200
8,777
6,200
267,865
267,865 Walmart, Metro
22,496
2,067
28,805
12,515
14,200
8,434
8,818
25,000
80,998
68,239
22,496
2,067
57,610
12,515
14,200 CB2
8,434
8,818
25,000
80,998 Metro
68,239 Food Basics, Pharma Plus
14
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
*Non-owned anchor
As at December 31, 2015
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
100%
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
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%
100%
100%
75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Fallingbrook Shopping Centre, Orleans, ON
100%
375,767
375,767 Canadian Tire, No Frills
89,237
89,237 Stream International
275,410
275,410 Walmart
109,995
159,995 Bed Bath & Beyond, Canadian Tire*
5,683
4,973
4,835
5,584
17,047
20,269
8,856
5,190
5,683
4,973
4,835
5,584
17,047
20,269
8,856
5,190
24,075
24,075
5,550
8,532
5,550
8,532
308,613
730,378 Canadian Tire, Indigo, Winners, HomeSense,
Sport Chek, The Bay*
134,808
316,639 Sport Chek, Winners, Canadian Tire*, Loblaws*
72,859
72,859 No Frills
338,805
566,740 Walmart, Winners, Staples, Indigo, Cineplex,
Loblaws*
73,886
73,886 Zehrs
147,409
147,409 Metro
59,992
59,992 Le Baron Outdoot Sports, PartSource
213,069
213,069 Metro, Canadian Tire, Shoppers Drug Mart
63,844
63,844 HomeSense
70,406
70,406 No Frills
109,260
109,260 Cineplex, Shoppers Drug Mart
206,068
206,068 FreshCo (Sobeys), Canadian Tire, Sport Chek,
Bed, Bath & Beyond, Winners
94,140
94,140 Food Basics
161,989
161,989 Target, Food Basics
62,081
97,885
62,081 Staples
97,885 Staples
177,038
177,038 Metro (Yummy Market)
176,978
176,978 No Frills
146,613
146,613 Loblaws, Pharma Plus
180,749
238,749 Cineplex, Best Buy, Loblaws*
8,322
97,145
8,322
97,145 Metro, Shoppers Drug Mart
15
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
PROPERTY PORTFOLIO*Non-owned anchor
As at December 31, 2015
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 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%
30%
100%
100%
50%
100%
100%
100%
60%
397,738
397,738 Metro, LA Fitness, JYSK
298,368
298,368 Walmart, Rona, Staples
83,881
91,563
279,602 Food Basics, Value Village
91,563 No Frills, Cineplex
146,835
146,835 Lowe's
37,634
53,963
99,882
75,267 Giant Tiger
53,963 Your Independent Grocer, Pharma Plus
207,738 Walmart, Canadian Tire*, Zehrs*
144,268
144,2683 GoodLife Fitness, Canadian Tire (call centre)
137,587
329,311 Winners, HomeSense, Michaels, Bed Bath &
Beyond, Lowe's*
Green Lane Centre, Newmarket, ON
66%
105,749
417,668 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 & Highbury, London, ON
Innes Road Centre, Gloucester, ON
Kanata Centrum Shopping Centre
Kanata, ON
Kendalwood Park Plaza, Whitby, ON
Kennedy Commons, Scarborough, ON
Keswick Walmart, Keswick, ON
King & Portland, Toronto, ON
King George Square, Belleville, ON
King Plaza, Oshawa, ON
Lawrence Square, Toronto, ON
100%
75,724
75,724 Food Basics
Costco*, Loblaws*
100%
100%
100%
50%
100%
75%
100%
100%
100%
50%
100%
100%
100%
50%
75%
50%
100%
100%
100%
5,269
5,269
312,993
312,993 Walmart, Winners, Staples
108,719
108,719 Zehrs
36,233
72,466
126,347
126,347 Metro
69,641
70,981
67,186
92,854 Food Basics, Pharma Plus
70,981 LA Fitness
67,186 Metro
143,815
143,815 Lowe’s
43,640
47,512
87,279 Shoppers Drug Mart
167,512 PetSmart, Costco*
284,826
384,826 Walmart, Chapters, Loblaws*
158,688
200,796
158,688 FreshCo (Sobeys), Shoppers Drug Mart
482,591 The Brick, Metro, Sears Whole Home, Chapters,
LA Fitness, Chapters, Michaels
120,363
160,484 Walmart
38,206
71,985
34,202
76,412
71,985 Metro
34,202 Shoppers Drug Mart
673,269
673,269 Marshalls, HomeSense, Fortinos, Canadian Tire,
Hudson Bay Company (office)
Lincoln Fields Shopping Centre, Ottawa, ON
100%
285,693
285,693 Walmart, Metro
London Plaza, London, ON
Markington Square, Scarborough, ON
Meadow Ridge Plaza, Ajax, ON
Meadowlands Power Centre, Ancaster, ON
100%
100%
100%
100%
122,183
122,183 Gold's Gym, Value Village
173,029
173,029 Metro, GoodLife Fitness
111,762
145,605
111,762 Sobeys, GoodLife Fitness
589,209 HomeSense, Best Buy, Sport Chek, Costco*,
Home Depot*, Sobeys*, Staples*
16
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
PROPERTY PORTFOLIO*Non-owned anchor
As at December 31, 2015
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
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
RioCan Centre Milton, Milton, ON
75%
50%
100%
100%
100%
30%
50%
100%
100%
100%
100%
50%
100%
60%
50%
100%
100%
100%
100%
100%
59,136
151,252
175,672
78,848 Food Basics, Shoppers Drug Mart
354,736 Metro, Canadian Tire*
175,672 FreshCo (Sobeys)
110,522
155,278 Walmart, Canadian Tire*
79,588
79,588 Foodland, LA Fitness
120,641
402,137 Winners, JYSK, The Brick, Cineplex, Michaels
35,712
39,924
71,423 Food Basics
39,924 GoodLife Fitness
34,024
139,524 Pharma Plus, Loblaws*
311,112
311,112 Canadian Tire, No Frills, The Brick
42,455
61,488
42,455 Food Basics
122,976 Cineplex
244,589
244,589 Loblaws, Lowe’s, Mountain Equipment Co-op
156,609
403,015 Empire Theatres, Food Basics, Toys R Us,
Lowe's*
227,312
552,623 Cineplex, Home Outfitters, Longo's, Home Depot*
631,007
752,052 Cineplex, Sears, Staples, Winners, HomeSense,
Old Navy, Best Buy, Home Depot*
105,040
165,040 Chapters, PetSmart, Loblaws*
139,458
139,458 Metro
201,613
201,613 Your Independent Grocer, Winners
171,465
286,465 Cineplex, LA Fitness, Home Depot*, Longo’s*
RioCan Centre Newmarket, Newmarket, ON
40%
26,688
66,721 Mark's Work Wearhouse, Staples
RioCan Centre Sudbury, Sudbury, ON
100%
403,769
669,165 Cineplex, Staples, Chapters, Sears, Winners,
HomeSense, Costco*, Home Depot*
RioCan Centre Vaughan, Vaughan, ON
RioCan Centre Windsor, Windsor, ON
RioCan Colossus Centre, Vaughan, ON
100%
100%
100%
262,336
262,336 Walmart
239,321
349,321 Cineplex, Sears, The Brick, Staples, Costco*
460,635
590,635 HomeSense, Golf Town, Marshalls, Cineplex,
Costco*
RioCan Durham Centre, Ajax, ON
100%
894,750
1,225,750 Walmart, Canadian Tire, Best Buy, Old Navy,
Cineplex, Winners, Chapters, Sport Chek,
HomeSense, Marshalls, Home Depot*, Loblaws*,
Costco*
RioCan Elgin Mills Crossing
Richmond Hill, ON
100%
320,325
441,325 Home Depot*, Costco, Michaels, Staples
RioCan Fairgrounds, Orangeville, ON
100%
366,437
510,512 Walmart, Best Buy, Cineplex, Winners, Canadian
RioCan Georgian Mall, Barrie, ON
50%
254,706
Tire*, Home Depot*
625,926 Atmosphere, HomeSense, H&M, Victoria’s
Secret, Sears*, The Bay, Sephora
RioCan Grand Park, Mississauga, ON
RioCan Gravenhurst, Gravenhurst, ON
RioCan Hall, Toronto, ON
RioCan Leamington, Leamington, ON
50%
100%
100%
100%
118,637
118,637 Winners, Shoppers Drug Mart, Staples
149,548
149,548 Canadian Tire, Sobeys
227,326
227,326 Cineplex, Marshalls, GoodLife Fitness, Michaels
192,889
192,889 Walmart, Metro
17
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
PROPERTY PORTFOLIO*Non-owned anchor
As at December 31, 2015
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
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
100%
66%
100%
50%
100%
100%
133,035
133,035 Canadian Tire, PetSmart
112,958
413,572 Winners, Loblaws*, Home Depot*
268,851
230,570
367,426 Staples, Zehrs, Home Depot*
461,140 The Bay, Sears, H&M, Sephora, Pusateri’s,
Shoppers Drug Mart, Sport Chek
182,251
297,251 Metro, JYSK, Staples, Home Depot*
53,099
127,099 No Frills*
RioCan Scarborough Centre, Scarborough, ON 100%
RioCan St. Laurent, Ottawa, ON
RioCan Thickson Ridge, Whitby, ON
100%
50%
326,823
308,031
326,823 Staples, LA Fitness, Al’s Premium Food Market
308,031 Lowes, Metro, Food Basics, Winners
181,381
492,761 Winners, JYSK, HomeSense, Ikea, Buy Buy Baby,
Sears, Whole Home, Home Depot*
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
Shoppers World Brampton, Brampton, ON
Shoppers World Danforth, Toronto, ON
Shoppes on Avenue, Toronto, ON
Shoppes on Queen West, Toronto, ON
Silver City Gloucester, Gloucester, ON
South Cambridge Shopping Centre
Cambridge, ON
South Hamilton Square, Hamilton, ON
Southgate Shopping Centre, Ottawa, ON
Spring Farm Marketplace, Vaughn, ON
Stratford Centre, Stratford, ON
16%
4,374
28,222 Bed Bath & Beyond
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
63%
100%
100%
100%
100%
100%
100%
80%
100%
100%
100%
100%
100%
49,290
98,579
230,918
230,918 Lowe’s, Marshalls, Michaels
226,415
356,415 Sport Chek, Food Basics, Cineplex, Home Depot*
1,052,956
1,052,956 Cineplex, Indigo, Metro, Toys R Us, Winners
103,607
103,607 Food Basics
108,562
117,908
108,562 Sobeys, Pharma Plus
117,908 Metro, Shoppers Drug Mart
106,884
106,884 Shoppers Drug Mart, Food Basics
140,370
140,370 No Frills, Winners, HomeSense
107,060
107,060 Value Village
262,556
218,208
23,355
17,020
525,111 Winners, Longo’s, LA Fitness
218,208 Food Basics, Shoppers Drug Mart, GoodLife
Fitness
37,189
17,020 Shoppers Drug Mart
17,024
17,024 Shoppers Drug Mart
693,969
693,969 Canadian Tire, Winners, Staples, Oceans, JYSK,
Giant Tiger
326,519
326,519 Lowe’s, Metro, Staples
20,884
89,690
181,778
189,739
20,884 Bank of Montreal, Pharma Plus
89,690 Loblaws, Winners
227,223 Cineplex, Chapters
189,739 Zehrs, Home Hardware
305,292
305,292 Fortinos, JYSK, GoodLife Fitness
72,627
73,077
72,627 Metro, Shoppers Drug Mart
73,077 Sobeys, Shoppers Drug Mart
158,736
158,736 Metro, Value Village
18
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
PROPERTY PORTFOLIO*Non-owned anchor
PROPERTY PORTFOLIO
As at December 31, 2015
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
Sudbury Place, Sudbury , ON
Sunnybrook Plaza, Toronto, ON
Tanger Outlets Cookstown, Cookstown, ON
100%
100%
50%
147,885
203,629 Canadian Tire, Real Canadian Superstore*
51,013
51,013 Pharma Plus, CIBC
155,608
311,216 Under Armour, Coach, Tommy Hilfi ger, Nike,
Polo Ralph Lauren
Tanger Outlets Ottawa, Ottawa, ON
50%
139,644
279,287 Polo Ralph Lauren, Old Navy, Nike, Saks, Under
The Stockyards, Toronto, ON
50%
255,127
Armour, Coach
510,253 Nations, Sport Chek, PetSmart, Winners,
HomeSense, Old Navy, Michaels
158,793 Food Basics
390,318 Sears, No Frills, Winners, Sport Chek
131,251 GoodLife Fitness, Winners/HomeSense
147,416 Walmart
826,957 Cineplex, Metro, Winners, HomeSense, Staples,
Sport Chek, Michaels, Canadian Tire*, Home
Depot*
371,464 Michaels, Winners/HomeSense, Loblaws*
183,435 Metro, Shoppers Drug Mart
126,253 Canadian Tire, Metro
64,635 FreshCo (Sobeys)
158,793
117,095
131,251
147,416
611,957
191,464
183,435
126,253
64,635
127,270
127,270 Metro, Best Buy, HomeSense
69,857
39,788
69,857 FreshCo (Sobeys)
39,788
101,396
253,489
77,323
77,323 No Frills
165,660
165,660 Shoppers Drug Mart
60,744
162,601
147,660
3,593
60,744 No Frills
162,601 Lone Thai Grocery
147,660 Metro, Chapters
7,186 TD Canada Trust
Timiskaming Square, New Liskeard, ON
Timmins Square, 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
The Well, Toronto, 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
100%
30%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
40%
100%
100%
100%
100%
100%
50%
PRINCE EDWARD ISLAND
PRINCE EDWARD ISLAND
Charlottetown Mall, Charlottetown, PEI
50%
165,630
331,259 Loblaws Atlantic Superstore, Winners,
Sport Chek, H&M
QUEBEC
2335 Lapiniere Boulevard, Brossard, PQ
541 Saint-Joseph Boulevard
Gatineau, PQ
100%
100%
2,259
2,584
2,259
2,584
19
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
*Non-owned anchor
As at December 31, 2015
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 Concorde, La Prairie, PQ
Centre La Prairie, Laval, 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
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%
5,015
5,015
100%
100%
100%
209,815
209,815 Super C, L’Aubainerie
67,815
67,815 Super C
129,589
129,589 Super C
100%
112,888
112,888 Super C
50%
50%
50%
31,649
34,541
63,298 Sobeys
69,081 IGA
104,963
209,925 Super C
50%
37,587
75,173 IGA
100%
100%
100%
50%
100%
50%
100%
100%
100%
100%
50%
319,887
106,404
101,563
319,887 Cineplex, Winners
106,404 IGA, Jean Coutu
101,563 IGA
30,389
60,778 IGA
226,558
226,558 Provigo, Pharmaprix, Giant Tiger, L’Aubainerie
58,074
116,147
452,895
252,450
48,870
78,761
81,317
452,895 Maxi
252,450 Maxi, Staples
48,870 L’Aubainerie
78,761 Walmart
162,633 Atmosphere, Tommy Hilfiger, Ouma
50%
57,859
115,717 Atmosphere, Nike
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
169,347
169,347 Maxi, Pharmaprix
18,988
18,988
424,807
494,360 Winners/HomeSense, Sports Experts,
Super C*, Shoppers Drug Mart*
204,649
108,346
189,487
300,007
359,735
355,840
17,050
393,518 Walmart, Canadian Tire*, Home Depot*
108,346 Adonis, Jean Coutu
189,487 Maxi, Winners
300,007 Walmart, Canadian Tire, Super C
359,735 Maxi, Winners, Staples, Guzzo Cinemas
355,840 Walmart, Winners, Golf Town
17,050 Shoppers Drug Mart
Silver City Hull, Hull, PQ
100%
84,590
499,775 Cineplex, Rona*, Walmart*, Maxi*,
Super C*, Winners*
20
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
PROPERTY PORTFOLIO*Non-owned anchor
PROPERTY PORTFOLIO
As at December 31, 2015
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%
117,908
197,908 Golf Town, Staples, Canadian Tire*, Super C*
Parkland Mall, Yorkton, SA
100%
266,662
266,662 Canadian Tire, Shoppers Drug Mart, Winners,
Save-On-Foods
21
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
*Non-owned anchor
CANADIAN REAL ESTATE PORTFOLIO KEY FACTS as at December 31, 2015 (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
Canadian Geographic Diversification
Ontario
Alberta
Quebec
British Columbia
Eastern Canada
Manitoba / Saskatchewan
Canadian Anchor and National Tenants
Percentage of:
Annualized rental revenue
Total NLA
Top Ten Sources of Revenue by Canadian Property Tenant
Rank
Tenant
1
2
3
4
5
6
7
8
9
10
Loblaws/Shoppers Drug Mart (i)
Canadian Tire Corporation (ii)
Walmart
Cineplex/Galaxy Cinemas
Metro/Super C/Loeb/Food Basics
Winners/HomeSense/Marshalls
Sobey's/Safeway
Cara/Prime Restaurants
Dollarama
Lowe's (iii)
Canadian Properties
Retail
40,280,000
3,939,000
44,219,000
Office
1,844,000
—
1,844,000
Total
42,124,000
3,939,000
46,063,000
6,545
Canadian Properties
93.9%
96.8%
94.0%
Percentage of
annualized rental
revenue
Income producing
properties
Properties under
development
Number of Canadian properties
67.7%
12.5%
9.4%
7.3%
2.0%
1.1%
100.0%
189
30
36
23
8
3
289
12
4
—
—
—
—
16
Total
201
34
36
23
8
3
305
Canadian Properties
84.1%
82.9%
Percentage of
annualized rental revenue
Weighted average
remaining
lease term (yrs)
4.6%
4.4%
4.0%
3.8%
3.5%
3.4%
1.8%
1.7%
1.5%
1.4%
30.1%
7.4
8.1
10.9
8.4
6.7
7.4
7.3
5.8
6.5
12.7
8.1
(i)
(ii)
(iii)
Loblaws/Shoppers Drug Mart includes No Frills, Fortinos, Zehrs and Maxi.
Canadian Tire Corporation includes Canadian Tire, PartSource, Mark’s, Sport Chek, Sports Experts, National Sports and Atmosphere.
In February 2016, Lowe's announced its intent to purchase Rona. Upon closing of this transaction, Lowe's would become RioCan's ninth largest tenant by total annualized Canadian
rental revenue.
Canadian Properties Lease Expiries
NLA
Average expiring rent per square foot
Total
42,124,000
17.11
$
2016
3,578,000
18.76
$
2017
4,181,000
18.19
$
2018
4,720,000
18.32
$
2019
5,376,000
18.07
$
2020
4,916,000
17.13
$
RioCan
FINANCIAL REVIEW
MANAGEMENT’S DISCUSSION
AND ANALYSIS
TABLE OF CONTENTS
Management’s Discussion and Analysis
24 ABOUT THIS MANAGEMENT’S DISCUSSION
AND ANALYSIS
24 FORWARD-LOOKING INFORMATION
25 BUSINESS OVERVIEW, OUTLOOK
AND STRATEGY
29 PRESENTATION OF FINANCIAL
INFORMATION AND NON-GAAP MEASURES
33 RESULTS OF OPERATIONS
33 Financial Information
34 2015 Financial Highlights
36 Operating Earnings
36 Net Operating Income (NOI)
39 Other Revenue
40 Other Expenses
42 Funds from Operations (FFO) and
Operating Funds from Operations (OFFO)
44
Adjusted Funds from Operations (AFFO)
Occupancy and Leasing
46 OPERATIONS
46
56 ASSET PROFILE
Investment Property
56
Acquisitions During 2015
56
Dispositions During 2015
59
Capital Expenditures on Income Properties
60
Co-ownership Arrangements
61
Properties Under Development
64
Development Property Acquisitions
64
Development Pipeline Summary
66
75
Mortgages and Loans Receivable
76 CAPITAL RESOURCES AND LIQUIDITY
Liquidity and Cash Management
76
Capital Management Framework
76
Capital Structure
76
Debt and Leverage Metrics
77
Credit Ratings
79
Revolving Lines of Credit
Debentures Payable
Mortgages Payable and Lines of Credit
Hedging Activities
Canadian Debt Profi le
Trust Units
Preferred Units
Guarantees
Liquidity
Distributions to Unitholders
79
80
81
83
83
84
85
85
86
87
89 SELECTED QUARTERLY INFORMATION
89 SIGNIFICANT ACCOUNTING POLICIES
AND ESTIMATES
91 FUTURE CHANGES IN
ACCOUNTING POLICIES
91 CONTROLS AND PROCEDURES
92 RELATED PARTY TRANSACTIONS
92 RISKS AND UNCERTAINTIES
23
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
ABOUT THIS MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis ("MD&A") is provided to enable a reader to asses our results of operations and
financial condition for the fiscal year ended December 31, 2015. This MD&A is dated February 17, 2016 and should be read in
conjunction with our annual consolidated financial statements and related notes for the year ended December 31, 2015 ("2015
Annual Consolidated Financial Statements"). Unless the context indicates otherwise, references to “RioCan”, the "Trust”, "we",
"us" and "our" in this MD&A refer to RioCan Real Estate Investment Trust and its consolidated operations. Unless otherwise
specified, all amounts are based on financial statements prepared in accordance with International Financial Reporting Standards
("IFRS") as issued by the International Accounting Standards Board ("IASB"). These documents, as well as additional information
relating to RioCan, including our most recently filed Annual Information Form, have been filed electronically with Canadian
securities regulators through the System for Electronic Document Analysis and Retrieval ("SEDAR") and may be accessed
through the SEDAR website at www.sedar.com or RioCan's website at www.riocan.com.
Unless otherwise specified, all amounts are in thousands of Canadian dollars and all percentage changes are calculated using
whole numbers. In addition, during 2015, RioCan reclassified the manner in which certain items are categorized as described in
more detail in Business Overview, Outlook and Strategy section herein. Accordingly, the results for 2014 have been adjusted on
a comparative basis to conform with the current presentation.
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 2015 Financial Highlights, Business Overview,
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 or restructuring (and the terms of any bankruptcy or restructuring
proceeding), occupancy levels and defaults, including the failure to fulfill contractual obligations by the tenant or a related party
thereof; lease renewals and rental increases; the ability to re-lease and find new tenants for vacant space; 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; unitholder liability;
income and indirect taxes; and credit ratings.
The sale of our U.S. portfolio remains subject to certain closing conditions and there are risks and uncertainties with respect to
the completion of the transaction on the terms agreed upon, or at all, together with 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, leverage ratios, circumstances,
performance or expectations that are not historical facts, including but without limitation, to the intended use of sale proceeds.
RioCan currently qualifies as a real estate investment trust for Canadian tax purposes and intends to qualify for future years. The
Income Tax Act (Canada) contains provisions which potentially impose tax on publicly traded trusts that 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 REIT. Should RioCan no longer qualify as a Canadian REIT under the SIFT Provisions, certain statements
contained in this MD&A may need to be modified. RioCan is still subject to Canadian tax in their incorporated Canadian
subsidiaries.
RioCan's U.S. subsidiary qualifies as a REIT for U.S. income tax purposes. The 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. The subsidiary’s
qualification as a REIT depends on the REIT’s satisfaction of certain asset, income, organizational, distribution, unitholder
ownership and other requirements on a continuing basis. We anticipate that the subsidiary will continue to qualify as a U.S. REIT
until the closing of the sale of our U.S. asset portfolio. Our U.S. subsidiary is subject to a 30% or 35% withholding tax on
distributions to Canada. Previously, we expected to flow-out any withholding tax paid to unitholders as foreign tax paid. Based
upon the intended sale of our U.S. retail asset portfolio, however, RioCan expects to pay and deduct the U.S. withholding taxes
payable, if any, related to the disposition proceeds.
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, including residential development in urban
markets; access to equity and debt capital markets to fund, at acceptable costs, future capital requirements and to enable our
refinancing of debts as they mature; 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, refer to
24
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
Management undertakes no obligation, except as required by applicable law, to publicly update or revise any forward-looking
information, whether as a result of new information, future events or otherwise.
BUSINESS OVERVIEW, OUTLOOK AND STRATEGY
Business Overview
RioCan is an unincorporated “closed-end” real estate investment trust listed on the Toronto Stock Exchange ("TSX") under the
symbol REI.UN. We are Canada’s largest real estate investment trust based on market capitalization with a total enterprise value
of approximately $15 billion at December 31, 2015. RioCan owns and manages Canada’s largest portfolio of shopping centres
with ownership interests in a portfolio of 305 Canadian retail and mixed use properties, including 16 properties under
development, containing an aggregate net leasable area ("NLA") of 46,063,000 square feet.
As discussed in more detail later in this MD&A, near the end of 2015 RioCan entered into an agreement to sell its U.S. portfolio of
49 wholly-owned investment properties to Blackstone Real Estate Partners VIII ("Blackstone"), predominantly comprised of
grocery anchored and new format retail centres located in the State of Texas and the Northeastern United States. The sale is
expected to close by the end of April 2016, subject to certain closing conditions. Until such time as such conditions are satisfied
or waived, there is no assurance that the transaction will be completed on the terms contemplated. The Trust's U.S. properties
previously represented its U.S. geographic segment. We have reclassified the assets and liabilities associated with this U.S.
disposal group to 'held for sale' at December 31, 2015 and we are reporting our former U.S. geographic segment performance as
discontinued operations with comparative income statement amounts restated to reflect this change, unless otherwise noted. As
a result, RioCan no longer distinguishes or groups its operations on a geographical or any other basis and, accordingly, has a
single reportable segment, which is consistent with the change in accounting presentation described in note 3 and further
described in note 4 of our 2015 Annual Consolidated Financial Statements.
RioCan's Canadian property portfolio includes grocery anchored, new format retail, urban retail, mixed use and non-grocery
anchored centres, of which 245 properties are 100% owned (239 income properties and 6 properties under development) and 60
(including 10 under development) are co-owned through joint arrangements with co-owners. RioCan’s primary joint arrangements
are with Allied Properties REIT (Allied), Canada Pension Plan Investment Board (CPPIB), Hudson's Bay Company (HBC), Kimco
Realty Corporation (Kimco), KingSett Capital (KingSett), Tanger Factory Outlet Centres, Inc. (Tanger), and Trinity Development
Group (Trinity). The partnership with CPPIB is RioCan's largest in terms of our ownership share of assets totalling $592 million.
During the year, we made changes to our co-ownership arrangements which included the commencement of the unwinding of a
Canadian co-ownership with our long-standing partner, Kimco. The Kimco joint venture dissolution was largely achieved through
the purchase of Kimco's interest in a portfolio of 23 properties for $774 million (including the acquisition of Tillicum in December)
and marketing for sale a second group of seven retail assets as at December 31, 2015. These acquisitions increase RioCan's
concentration in Canada's six major markets, most notably within the Greater Toronto Area.
In 2015, we also formed a joint venture with HBC comprising 12 properties focused on real estate growth opportunities in
Canada. The joint venture enables RioCan and HBC to build on the strength of existing real estate assets through potential future
redevelopment, as well as identify new real estate acquisition and reinvestment opportunities.
In terms of tenant mix, the most significant change occurred on January 15, 2015 when Target Corporation (Target) announced
plans to discontinue its Canadian operations. At the time of the announcement, RioCan had 26 locations under lease with
Target's wholly-owned subsidiary, Target Canada, representing 2,091,000 square feet of NLA (on a 100% basis). During 2015,
Target Canada disclaimed the leases and ceased paying rent at 19 of these locations pursuant to the Companies' Creditors
Arrangement Act ("CCAA"). We were able to successfully assign the lease obligations at the other seven locations to new
tenants under the same CCAA process. All but one of the 19 disclaimed leases were guaranteed through an indemnity provided
by Target for the remaining term of each lease. The one disclaimed location not covered by the Target indemnity has reverted to
Walmart Canada through a pre-existing covenant and Walmart Canada has resumed payment of the annual rental obligation. In
December 2015, in exchange for a release of Target from the indemnity agreements, RioCan reached a full settlement with the
U.S. parent of Target Canada for $149 million (inclusive of $17 million of HST), of which $105 million represents RioCan's share
(inclusive of $13 million of HST), with the remainder distributed to various co-owners. The proceeds of the settlement are being
used to mitigate losses caused by Target Canada's departure, including funding of the redevelopments underway at the 18
disclaimed locations. RioCan's leasing team continues to make significant progress on the re-leasing of the former Target space.
Our redevelopment plan is highly focused on utilizing the space more optimally so as to improve the overall shopping centre and
increase revenues in the most efficient, expedient and effective manner possible.
Outlook
Canada's growth performance outlook remains mixed due to the negative growth impact in recent quarters of lower oil prices, but
with some indications of an improving manufacturing sector. The Bank of Canada cut its target for overnight interest rates twice
during 2015 and interest rates are expected to remain low in 2016.
Overall, we remain well positioned to withstand an unsettled retail environment due to our large size and dominant position in
urban locations, including Canada's six major markets from which 74.8% of our portfolio net rental revenues are derived. In
25
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
addition to the competitive advantage provided by RioCan's significant scale and urban presence, our resiliency is also due to the
depth of our management team, our well diversified and stable portfolio, an unparalleled retail development pipeline, solid tenant
base, flexible capital structure and conservative borrowing practices.
We expect to achieve continued organic growth over the long term. Considering the recent events with Target and other tenant
disruptions, however, we also expect that there may be some quarter to quarter volatility in our same property results over the
next one to two years as we reposition some of the portfolio to become more productive assets. We may also see an impact on
same store results to the extent we experience additional vacancies or rent reductions triggered by co-tenancy provisions in
connection with the Target departure. In addition, following the anticipated sale of the U.S. portfolio, operating earnings may
decline in the near term subject to the potential reinvestment of sales proceeds. We have put in place a strategy that will reduce
the dilutive effects of the sale and allow RioCan to fortify its balance sheet in 2016. A portion of the the sales proceeds will be
used to repay our operating lines and other debt obligations, generating considerable interest savings. Refer to the Sale of U.S.
Operations section below for details.
In 2016, on a full year basis, we are expecting same store growth in Canada to be flat to slightly positive, assuming the current
market conditions prevail.
Macro Economic and Market Trends
Declining Canadian dollar
The Canadian dollar lost over 15% of its value against the U.S. dollar in 2015, largely due to depressed oil prices and increases
in interest rates by the U.S. Federal Reserve. While we expect divergent monetary policies in Canada and the U.S. to result in
continued downward pressure on the Canadian dollar, we do not expect this trend to have a significant impact on RioCan's
business or our tenants' operations. The prolonged weakness in the Canadian dollar has negatively impacted retailers that import
goods from the U.S., although there may be some positive growth in retail sales resulting from fewer Canadians shopping in the
U.S. The weaker Canadian dollar may also attract more tourists and foreign retailers to Canada, and more specifically to
Canada's major urban centres where we have a significant presence; although growth in profit will depend on our tenants' ability
to manage import costs and pass through price increases.
Energy prices
A slumping energy sector contributed to the slower pace of economic recovery both in Canada and abroad during 2015. The
decline in energy prices has created uncertainty in markets dependent on the oil and gas industries, causing energy companies
to make significant cuts in spending which will likely continue in 2016. If energy prices remain at the current low levels, the
headwinds on Canada's oil producing provinces will likely persist this year resulting in a negative impact on economic growth and
housing markets. We expect the potential decline in growth from low energy prices to be offset, in part, by increased consumer
spending from energy cost savings.
Interest rates
In its latest meeting, the Bank of Canada maintained the overnight interest rate at 0.5%, which we expect to remain unchanged
for most of 2016. The Bank of Canada's January 2016 forecast update showed the economy growing at a 1.5% average rate in
2016, partly attributable to the stimulative effects of low interest rates and a weaker Canadian dollar. The relatively low interest
rate environment in Canada is a positive for RioCan and should continue to provide interest savings on our maturing debt. We will
monitor the economy and real estate markets with a view to ensuring we have adequate access to capital, either by way of
equity, debt or strategic asset dispositions (subject to market conditions) to meet our business requirements and to maximize
financing opportunities as they become available.
E-commerce
While there appears to be an increasing desire for consumers to shop online, we have found that the entertainment and personal
services, food and beverage, grocery, home improvement, luxury fashion and healthcare markets tend to be less affected. In our
opinion, consumer trends in 2016 will be towards greater sales in enclosed malls and grocery anchored shopping centres for
which the shopping experience is still important to the majority of consumers. It is also expected that existing retail models will be
adapted to integrated sales depots for online sales, commonly referred to as omni channeling. We believe that we are well
positioned for online sales trends based upon the depth and breadth of our retail portfolio, especially in urban markets. Grocery
stores have been typically resilient to online consumer spending. We continue to proactively bolster our portfolio through a
greater focus on national and/or grocery anchored tenants offering specialty/ethnic foods and an improved overall shopping
experience.
Canadian retail environment
We expect fundamentals in Canadian retail real estate to remain steady in 2016, particularly necessity-based retail. This view is
supported by projected average growth in Canadian real gross domestic product and annualized household spending of about
2% for 2016. There will be some disruption as a result of Target's departure from Canada and other announced store closures
that occurred in 2015. These closures have created a more cautious environment with retailers, however, the pace of store
closures slowed toward the end of 2015. The Canadian market benefits from a largely sound retail tenant base who exhibit
financial strength. Over the long term, we expect that there is unlikely to be a continued supply imbalance as a result of low
development activity in Canada.
Strategy
RioCan's purpose is to deliver to its unitholders ("Unitholders") stable and reliable cash distributions that increase over the long
term. We accomplish this goal by following a core strategy of owning, operating, developing, redeveloping and intensifying retail
26
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
properties of all formats as well as mixed use development projects (including retail, residential and office). We have grown our
business by using prudent strategies, core competencies, conservative financial leverage and capital management, long-term
strategic partnerships and by adapting to changing trends in commercial real estate. Our investment strategy is to focus on
stable, lower risk retail properties in stable and/or urban markets to create consistent and growing cash flows over time from the
property portfolio.
To achieve our strategic objectives, management continues to:
•
Actively manage the existing portfolio to drive high occupancy levels and rent growth;
• Develop, redevelop and intensify retail properties consisting of all retail formats as well as mixed use, including a
residential component;
•
•
•
Acquire well-located properties primarily where value creation opportunities exist, including sites in close proximity to
existing properties, and to dispose of non-core lower growth assets in order to improve our position in our six major
markets;
Selectively review secondary market assets with low growth prospects and examine each property to ensure its highest
and best use over the long term;
Strengthen our financial position through a focused and prudent capital management strategy that provides flexibility in
raising capital and managing our overall cost of capital; and
• Capitalize on the strength of our existing and new partner relationships and co-ownerships.
Late in 2015, we made the strategic decision to exit our U.S. business. While this decision will have an impact on our earnings in
the short term, we believe that by redeploying proceeds into opportunities in Canada and paying down debt, we will strengthen
the Trust in the longer term.
Sale of U.S. Operations
Since we embarked on the expansion of our property portfolio into the United States during late 2009, that portfolio has been an
important contributor to the Trust's growth profile. We have benefited from the growth in the value of the U.S. portfolio from both
an asset value and foreign currency perspective, as well as having benefited from increased cash flow generated by this portfolio.
In December 2015, we received Board of Trustee approval to enter into an agreement with Blackstone to sell our U.S. portfolio of
49 retail properties located in the Northeastern U.S. and Texas for a total sale price of US$1.9 billion. The sale is expected to be
completed before April 30, 2016, subject to certain closing conditions.
We have decided to increase our U.S. net investment hedge in order to reduce our exposure to fluctuations in the Canadian/U.S.
foreign exchange rate on our U.S. net asset position. To date, we have increased our U.S. dollar denominated borrowings by US
$258 million and repaid outstanding Canadian debt utilizing the Canadian equivalent dollars from the U.S. borrowings converted
at an average exchange rate of 1.3921, which was established using a series of short-term forward derivative contracts. The
Trust has designated these additional U.S. borrowings as part of its existing net foreign investment hedge and will repay such
debt using a portion of the U.S. sale proceeds received on closing. In addition to the in-place U.S. property specific mortgages,
we have hedged an additional US$585 million or approximately 84% of the anticipated gross U.S. sale proceeds to be received
on transaction closing.
There are a number of benefits from selling our U.S. portfolio. The sale is expected to generate proceeds of approximately $1.2
billion (US$ 0.9 billion) net of outstanding mortgages payable, transaction costs and taxes. The proceeds from the sale will not
only enhance our corporate liquidity to fund our Canadian growth strategy and development pipeline, but will also significantly
deleverage our balance sheet. Upon closing of this sale transaction, we plan to simplify our business structure and improve our
strategic advantage in Canada by allowing management to focus exclusively on its Canadian operations.
In 2015, the U.S. portfolio contributed NOI of $166 million (US$128 million) and OFFO of $112 million (US$87 million). RioCan
will continue to benefit from the ownership of the U.S. portfolio until the sale is completed, which is currently anticipated to be
before the end of April 2016. In addition, we have put in place a strategy that will reduce the dilutive effects of the sale and allow
RioCan to fortify its balance sheet in 2016. Blackstone will assume or repay the debt on the portfolio of US$0.9 billion which
carries a weighted average contractual interest rate of approximately 4.3% and a weighted average term to maturity of
approximately 5.5 years. Taxes and transaction costs are estimated to be approximately US$130 million. Anticipated annualized
interest savings of approximately $18 million will further reduce the dilutive effects of the sale of our U.S. portfolio (or an
estimated $12 million of interest savings in 2016 based on the anticipated closing date). The Kimco acquisition is expected to
contribute approximately $40 million of OFFO in 2016, net of interest carrying costs on the operating lines for the first four months
of 2016, thus replacing a portion of OFFO that was contributed by the U.S. portfolio.
From the sales proceeds of approximately $1.2 billion, approximately $510 million will be used to repay operating lines that were
used to complete RioCan’s acquisition of Kimco’s interest in 23 properties in Canada. We have temporarily increased our
leverage in the short-term to fund the Kimco acquisition primarily through the use of floating rate facilities. A portion of the
anticipated remaining net proceeds of approximately $725 million from the sale of our U.S. portfolio will be used to repay our
operating lines and other debt obligations and further strengthen our balance sheet by reducing overall debt leverage to
approximately 39% following the disposal, on a pro forma basis, as compared to 46.1% at December 31, 2015. A more
conservative balance sheet will strengthen various financial ratios and potentially reduce our cost of capital over time. However,
our debt metrics will remain elevated until the closing of the U.S. sale, noting that the Kimco portfolio acquisition was was funded
with 100% debt.
For the first quarter of 2016, we are forecasting OFFO of approximately US$22 million from our US operations.
27
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Development Program
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.
RioCan is committed to ensuring that the individual properties in its portfolio are utilized to their highest and best use over the
long term. 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 (both rentals and condominiums), retail
and, to a lesser extent, office rental buildings.
In addition to opportunities being identified with the existing portfolio, certain properties owned as part of our real estate joint
venture with HBC have strong potential for intensification as urban mixed-used properties.
Residential Inventory
During 2015 RioCan continued with its initiative to incorporate redevelopment mixed-use projects with a residential component
into its transit-oriented major market developments. This strategy capitalizes on opportunities for growth through the addition of
both condominium and rental residential assets into our property portfolio. The allocation of condominium and rental residential
development may change over time based on market conditions. Over the long term, this intensification of existing properties
should contribute to net operating income growth in an efficient manner, leveraging the existing asset base and increasing net
asset value.
There are numerous attributes that attracted RioCan to the multi-unit residential sector. The addition of a residential component is
expected to enhance the value of the underlying retail element of the property. As well, we will be able to leverage our ownership
of land in key urban locations, often those along mass transit lines, which should provide a competitive cost advantage. 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 our overall scale, we expect to drive long term
efficiencies going forward. RioCan owns the underlying land, often at irreplaceable transit oriented locations, thus giving it the unique
opportunity to exploit and create a tremendous amount of portfolio value. Finally, residential rental projects will typically attract
favourable financing terms based on the availability of Canadian Mortgage and Housing Corporation (CMHC) insurance.
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, including potentially bringing in partners that have residential
development and management expertise.
Properties Under Development
RioCan's properties under development are expected to be a key driver of future operating funds from operations growth, through
the realization of growth in certain urban markets with strong economic and population growth, such as the Greater Toronto Area.
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.
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 major 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 historically strong economic and population growth have afforded RioCan the
opportunity to increase its development activity. We expect that beginning in late 2017, significant additions to operating results
will begin to be realized through our various completed developments projects.
Active Portfolio Management
RioCan is committed to remaining focused on its portfolio in order to preserve high occupancy levels through active management
and leasing of its portfolio, which allows RioCan to maintain a stable stream of cash flows from long term assets which have
historically increased in value. The Trust also expects to realize organic growth by way of contractual rental increases in existing
leases, additional rental income from positive rental spreads on lease renewals and the potential for positive absorption in
occupancy.
Acquisitions and Dispositions
There is greater competition for acquisitions because of a significant number of well-capitalized high net worth investors and
institutions seeking quality investments, especially due to the current low interest rate environment in Canada. RioCan will
continue to seek acquisitions in selected markets, with a focus on properties that meet our investment criteria in Canada. RioCan
will also take advantage of dispositions of non-core assets in order to recycle capital into developments and acquisitions in higher
growth major markets. We also evaluate the sale of selected assets as part of a process of actively managing our portfolio and as
a means of increasing the portfolio weighting in the six major markets in Canada. 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. There can be no
assurance that any of the discussions related to potential acquisition or dispositions will result in a definitive agreement, and, if
they do, what the terms or timing of any acquisition, investment or disposition would be.
Given the competitive nature of the acquisition market and limited supply of acquisitions that meet RioCan's criteria, it is not
currently expected that significant acquisitions will be a primary growth driver in the near term. In addition and on occasion,
management may be approached by a partner interested in disposing of its interest in a co-owned property. Our ability to acquire
our co-owners' interests in property where we already have an efficient management structure in place represents a competitive
28
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
advantage because we can acquire managing interests in highly desirable assets that are unavailable on the open market.
Consistent with our acquisition strategy noted above, we will continue to maintain a disciplined approach to evaluating these
acquisition opportunities to ensure they meet our investment criteria.
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, management strength and operational
synergies.
Capital Management
RioCan’s prudent management of its balance sheet and access to capital has historically provided it with the ability to take
advantage of opportunities through same store rental income growth, acquisitions, greenfield development, redevelopments and
asset intensification. RioCan conducts these activities either on its own or through strategic joint ventures and partner
relationships.
Management believes that the quality of RioCan’s assets and strong balance sheet are attractive to both 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.
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 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 and a large pool of unencumbered
assets;
• maintain and expand as necessary 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.
It is management’s intention that we continually have access to the capital resources necessary to expand and develop our
business. Accordingly, we may, from time-to-time, seek to obtain funds through additional common and preferred equity offerings,
unsecured debt financings and/or mortgage or construction loan financings and other capital alternatives in a manner consistent
with our intention to operate with a conservative debt structure, along with the recycling of capital through selective asset sales. A
further source of capital is our 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 working capital and development activities. On larger development projects, we may also partner with other firms as a
means of accessing capital, balancing risk and acquiring expertise.
RioCan staggers its debt maturities to reduce its exposure to potential volatility in the 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 and
preferred and common equity unit capital, which provide us with flexibility in raising capital and managing the overall cost of
capital.
Co-owner Relationships
We will continue to capitalize on the strength of our co-owner relationships to acquire property, enhance our development
projects, leverage partner expertise and generate additional unitholder value pursuant to arrangements where RioCan earns fees
for its services.
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 2015 Annual Consolidated Financial Statements. In connection with the sale of our U.S. assets, RioCan's investment
properties and mortgages payable associated with its U.S. geographic segment were reclassified to a disposal group held for
sale on the consolidated balance sheet. The consolidated statement of earnings results from our U.S. geographic segment were
presented as discontinued operations in accordance with IFRS.
All references, herein, to "Canada" and "U.S." represent the results from our continuing and discontinued operations, respectively.
Continuing operations is comprised of our former Canadian geographic segment and discontinued operations is comprised of our
former U.S. geographic segment.
29
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-GAAP Measures
Consistent with our management framework, we use 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. We use these measures to aid in assessing our
core performance and we present these additional measures so that investors may do the same. Management believes that the
non-GAAP measures described below, which supplement the IFRS disclosures, provides readers with a more comprehensive
understanding of management's perspective on our operating performance.
Effective July 1, 2015, certain financial information previously presented in this MD&A as "RioCan's Interest" is now disclosed in
accordance with IFRS. Debt metrics are shown on both an IFRS and RioCan proportionate basis (as defined below). Unless
otherwise indicated, comparative financial information has been updated to reflect the current year's presentation.
The following discussion describes the non-GAAP measures we use in evaluating our operating results. For greater clarity, each
measure defined below includes results from both continuing and discontinued operations on a combined basis.
Funds From Operations (FFO)
FFO is a non-GAAP financial measure of operating performance widely used by the real estate industry. The Real Property
Association of Canada (REALpac) has published a white paper describing the intended use of FFO and 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 our 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
prior to 2014, were previously capitalized; and
2) property taxes expensed under International Financial Reporting Interpretations Committee Issue 21, Levies (IFRIC 21), for
which the Trust had prior to 2014, recorded on a rateable basis over the relevant reporting periods to match the timing around
which operating costs were recovered from tenants.
A reconciliation of IFRS net earnings attributable to unitholders to FFO can be found under Results of Operations section in this
MD&A.
Operating Funds From Operations (OFFO)
OFFO 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. RioCan considers OFFO 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. In addition to the adjusting items to arrive at FFO, OFFO 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. In 2015, the $88 million in net proceeds from the Target settlement, which is net of $3.5 million in certain
costs, is excluded from the calculation of OFFO because management does not believe it is a representative measure of
recurring annual operating performance. OFFO is also a key measure of business performance that the Trust uses to determine
the level of its employee variable incentive-based compensation and certain long-term incentive based equity unit plans each
year. There is no standard industry-defined measure of OFFO. As such, RioCan’s method of calculating OFFO will differ from
other issuers’ methods and, accordingly, will not be comparable to such amounts reported by other issuers. Refer to Results of
Operations for a calculation of OFFO.
Adjusted Funds From Operations (AFFO)
AFFO is a non-GAAP financial measure of operating performance widely used in the real estate industry. Management views
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. AFFO is calculated by adjusting OFFO (which is based
upon FFO and adjusted as prescribed above) for straight-line rent adjustments, non-cash compensation expenses, normalized
costs for capital expenditures on income properties, 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 AFFO. As well, the Trust reviews capital
spending levels based on the performance of the portfolio. For these reasons, normalized income property 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 the Capital Expenditures on Income Properties section indicating the Trust’s
expectation of such annualized expenditures. In 2015, the net proceeds received from the Target settlement have been excluded
from AFFO largely because these funds will be reinvested into the former Target space in order to redevelop these locations for
future tenants.
30
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
In addition, non-recurring costs that impact operating cash flow may be adjusted. There is no standard industry-defined measure
of AFFO. As such, RioCan’s method of calculating AFFO will differ from other issuers’ methods and, accordingly, will not be
comparable to such amounts reported by other issuers. Refer to Results of Operations for a calculation of AFFO.
A reconciliation of cash flows provided by operating activities (an IFRS measure) to AFFO is presented under Results of
Operations.
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
adjusted to normalize the impact of the application of the requirements of IFRIC 21 by matching the pro-rata expense over the
period of property ownership with the actual timing of tenant cost recoveries.
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. The amount of property taxes and operating costs
that can be recovered from tenants is impacted by property vacancy and fixed cost recovery tenancies.
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.
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.
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.
Enterprise Value
Enterprise value is a non-GAAP measure calculated as the sum of RioCan's total debt measured on a proportionate basis, Unit
market capitalization and Preferred Unit market capitalization.
RioCan’s Proportionate Share
All references to “RioCan’s proportionate share” refer to a non-GAAP financial measure representing RioCan’s proportionate
interest in 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 certain results presented on a
proportionate basis to be a meaningful measure because it is consistent with how RioCan and its partners manage the net assets
and assess operating performance of each of its co-owned properties. The Trust currently accounts for its investments in joint
ventures and associates using the equity method of accounting.
The remaining definitions outlined below pertain to measures and/or inputs to our financial leverage, coverage ratios and other
key metrics that we use to manage capital and to assess our liquidity, borrowing capacity and cost of capital. All of these
measures exclude the net proceeds of the Target settlement for reasons discussed above and include the results of both
continuing and discontinued operations for the years ended December 31, 2015 and 2014. In our opinion, the following ratios
calculated on the basis of the combined continuing and discontinued operations provides a more meaningful measure of financial
performance with respect to the fiscal years reported.
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 our debt metrics, providing information with
respect to certain financial ratios that we use in measuring our debt profile and assessing our ability to satisfy obligations,
including servicing our 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. In
2015, the proceeds received from the Target settlement have been excluded from Adjusted EBITDA largely because these funds
will be reinvested into the former Target space in order to redevelop these locations for future tenants.
A reconciliation of Adjusted EBITDA to IFRS net earnings and the debt metrics that utilize Adjusted EBITDA are presented under
Capital Resources and Liquidity - Debt and Leverage Metrics in this MD&A.
Operating EBITDA
Operating EBITDA is a non-GAAP measure that is used in the computation of certain debt metrics, providing information with
respect to certain financial ratios that we use in measuring our 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
31
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
expenditures related to properties under development that, in management’s view, form part of the capital cost of its development
projects.
A reconciliation of Operating EBITDA to IFRS net earnings is presented under Capital Resources and Liquidity - Debt and
Leverage Metrics.
Net Debt to Adjusted EBITDA
Net debt to adjusted EBITDA is a non-GAAP measure of our financial leverage calculated on a rolling twelve month basis and
defined as our average debt outstanding at the reporting period date (net of cash) divided by Adjusted EBITDA.
Net Operating Debt to Operating EBITDA
Net operating debt to operating EBITDA is a non-GAAP measure of our financial leverage calculated on a rolling twelve month
basis and defined as our average debt outstanding at the reporting period date (net of cash) less its debt related to properties
under development divided by Operating EBITDA.
Debt Service Coverage
Debt service coverage is a non-GAAP measure of our financial leverage 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.
Interest Coverage
Interest Coverage is a non-GAAP measure of our financial leverage calculated on a rolling twelve month basis and is defined as
Adjusted EBITDA divided by total interest expense (including interest that has been capitalized).
Fixed Charge Coverage
Fixed Charge Coverage is a non-GAAP measure of our financial leverage 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.
32
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
Increase (decrease) in fair value of investment properties - continuing operations
$ (91,548)
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Financial Information
(thousands of dollars, except where otherwise noted)
As at and for the year ended December 31,
Total revenue from continuing operations (ii)
Net earnings from continuing operations before taxes and fair value adjustments
Net earnings from continuing operations attributable to unitholders
Net earnings per unit from continuing operations attributable to unitholders – basic
Net earnings per unit from continuing operations attributable to unitholders – diluted
Adjusted EBITDA - continuing operations (iii)
Net earnings attributable to unitholders
Net earnings per unit attributable to common Unitholders – basic
Net earnings per unit attributable to common Unitholders – diluted
FFO (iv)
FFO per Unit
OFFO (iv)
OFFO per Unit (iv)
AFFO (v)
AFFO per Unit (v)
Distributions as a percentage of AFFO
Same store growth % (Canada) (vi)
Same store growth % (U.S.) (vi)
Same property growth % (Canada) (vii)
Same property growth % (U.S.) (vii)
Weighted average common units outstanding – basic (in thousands)
Distributions to common Unitholders
Distributions to common Unitholders per unit
Distributions to common Unitholders net of distribution reinvestment plan
Distributions to common Unitholders net of distribution reinvestment plan per unit
Common Unit issue proceeds under distribution reinvestment plan
Distribution reinvestment plan (DRIP) participation rate (viii)
(thousands of dollars, except where otherwise noted)
As at
Total enterprise value (ix)
Total assets
Debt (x)
Debt – RioCan's proportionate share
Debt to total assets (net of cash) (xi)
Debt to total enterprise value (xii)
Debt service coverage ratio (xiii)
Interest coverage ratio (xiii)
Fixed charge coverage ratio (xiii)
Net debt to Adjusted EBITDA (xiii)
Net operating debt to Operating EBITDA (xiii)
Unencumbered Canadian assets to unsecured debt (xiv)
Unencumbered Canadian assets
Total unitholders’ equity
Common units outstanding (in thousands)
Common units – market capitalization (xv)
Preferred units – market capitalization (xvi)
2015
2014
2013
(not restated) (i)
$
$
1,087,736
510,404
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
416,892
1.26
1.26
649,814
141,763
0.40
0.40
622,364
1.95
556,680
1.74
500,976
1.57
90.4 %
(1.4)%
0.9 %
(1.8)%
0.5 %
319,492
453,094
1.41
310,379
0.97
142,715
31.5 %
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,025,003
413,342
34,423
447,008
1.41
1.40
626,262
663,258
2.11
2.10
506,785
1.65
517,414
1.68
463,556
1.51
93.4%
2.0%
3.0%
1.6%
3.0%
307,910
433,274
1.41
311,710
1.02
121,564
28.1%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,137,809
484,679
228,409
709,451
2.30
2.29
746,140
709,451
2.30
2.29
470,789
1.56
492,383
1.63
446,655
1.48
95.3%
1.7%
1.2%
1.3%
1.2%
302,324
426,324
1.41
316,534
1.04
109,790
25.8%
December 31, 2015 December 31, 2014 December 31, 2013
$
$
$
$
$
$
$
$
15,318,314
15,996,491
7,413,370
7,478,627
46.1 %
48.4 %
2.39
3.10
1.12
8.34
7.93
166 %
3,321,413
7,926,039
322,483
7,639,622
200,065
$
$
$
$
$
$
$
$
15,116,002
14,677,677
6,443,565
6,482,711
43.7%
42.6%
2.20
2.89
1.08
8.09
7.67
137%
2,553,661
7,868,570
315,986
8,351,510
281,781
$
$
$
$
$
$
$
$
13,794,000
13,529,341
5,959,395
5,988,444
43.9%
43.2%
2.10
2.83
1.06
7.52
7.24
142%
2,068,000
7,261,000
304,075
7,531,938
274,000
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.
(i) Comparative figures for 2013 have not been restated to conform to the current year's presentation. All references to "continuing operations"
include the results of operations for both our Canadian and U.S. geographic segments for the 2013 period.
(ii) Total revenue from continuing operations is the sum of rental income, residential inventory sales and property and asset management fees.
(iii) A non-GAAP measurement. Adjusted EBITDA is presented at RioCan's proportionate share. A reconciliation of Adjusted EBITDA to net earnings
can be found under Capital Resources and Liquidity section.
(iv) A non-GAAP measurement. A reconciliation to net earnings can be found under Results of Operations section.
(v) A non-GAAP measurement for which a reconciliation to AFFO from FFO can be found in RioCan’s discussion under Results of Operations section.
33
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
(vi) Same store NOI growth is a non-GAAP financial measure used by RioCan to assess the year-over-year performance of the same asset base
having consistent leasable area in both periods, which includes the impact of acquisitions and dispositions. 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.
(vii) Same property NOI growth 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.
(viii) RioCan’s DRIP ratio is defined as the ratio of units that holders elect to participate in the DRIP to total units outstanding.
(ix) A non-GAAP measurement. Calculated as debt at RioCan's proportionate share plus common unit market capitalization plus total preferred unit
market capitalization.
(x) Debt is defined as the sum of mortgages payable, lines of credit, mortgages on properties held for sale and debentures payable.
(xi) A non-GAAP measurement. Calculated as debt, net of cash, divided by total assets net of cash.
(xii) A non-GAAP measurement. Calculated as debt divided by total enterprise value.
(xiii) Defined as found in Non-GAAP Measures section and prepared at RioCan's proportionate share.
(xiv) Unencumbered assets to unsecured debt is defined as unencumbered assets divided by unsecured debentures payable.
(xv) A non-GAAP measurement. Calculated 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.
(xvi) A non-GAAP measurement. Calculated 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.
2015 Financial Highlights
Due to the anticipated sale of our U.S. retail portfolio, we have presented our results on both a continuing and discontinued
operations basis below.
(thousands of dollars, except per unit amounts)
OFFO
OFFO per unit
Net earnings attributable to unitholders from continuing operations
Net earnings per unit attributable to unitholder from continuing
operations (basic)
Three months ended
December 31,
Year ended
December 31,
2015
142,157
0.44
199,796
0.61
$
$
$
$
2014
129,518
0.42
105,483
0.33
$
$
$
$
2015
556,680
1.74
416,892
1.26
$
$
$
$
2014
517,414
1.68
447,008
1.41
$
$
$
$
Overall, despite some headwinds encountered earlier in the year with the announced Target exit from Canada and other tenant
bankruptcies and restructurings during the first half 2015, our full year performance compared to 2014 reported 7.6% growth in
OFFO. Although same store performance from our rental operations in Canada was slightly negative, our operating results from
our continuing and discontinued operations benefited from other growth drivers. Our results were aided in 2015 by a
strengthening U.S. dollar relative to the Canadian dollar and the continued low interest rate environment. We also undertook
some key strategic changes to our co-ownership arrangements, including the unwinding of our Canadian joint venture with
Kimco.
For a discussion of some of the key performance highlights impacting our OFFO results for the year and the fourth quarter of
2015, refer to Funds from Operations (FFO) and Operating Funds from Operations (OFFO) section in this MD&A.
Net earnings (loss) attributable to unitholders
(thousands of dollars, except per unit amounts)
Net earnings (loss) attributable to unitholders:
Continuing operations
Discontinued operations
Net earnings (loss) attributable to unitholders
Net earnings (loss) per unit attributable to unitholders (basic):
Continuing operations
Discontinued operations
$
Net earnings (loss) per unit attributable to unitholders (basic)
$
0.61
(1.17)
(0.56)
Continuing Operations
2015
Three months ended
December 31,
Year ended
December 31,
2015
2014
2015
2014
$
199,796
(377,837)
$ (178,041)
$
$
$
$
105,483
$
416,892
66,285
(275,129)
171,768 $
141,763
0.33
0.21
0.54
$
$
1.26
(0.86)
0.40
$
$
$
$
447,008
216,250
663,258
1.41
0.70
2.11
Net earnings from continuing operations attributable to unitholders for 2015 is $417 million compared to $447 million in 2014,
representing a decrease of $30 million or 7%. Excluding $127 million in fair value adjustments and increases in deferred taxes,
net earnings from continuing operations attributable to unitholders for 2015 is $510 million compared to $413 million in 2014,
representing an increase of $97 million or 23%.
34
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
The increase of $97 million is primarily explained by the following:
•
•
•
$92 million increase in other income primarily due to proceeds received related to our settlement with Target ($88 million net)
and, to a lesser extent, higher investment income earned on marketable securities holdings;
$10 million increase in our share of net earnings from equity accounted investments, comprising a $5 million increase related
to the WhiteCastle Funds and $4 million related to our joint venture with HBC. The latter amount was completely offset by the
impact of reduced NOI resulting from property interests having been transferred to the joint venture;
$9 million increase in operating earnings primarily due to net gains on the sale of residential townhomes, increased
acquisitions in Canada, net of dispositions and transfers to joint ventures, completed greenfield developments and higher
lease cancellation fees; and
•
$7 million in lower borrowing costs resulting from interest savings on the refinancing of debt at lower interest rates;
partially offset by the following items which negatively impact net earnings:
•
•
$10 million early repayment charge during the year on the redemption of our Series O and N debentures; and
$6 million in higher transaction costs mostly relating to land transfer taxes paid in connection with our Kimco portfolio
acquisition and selling costs related to the sale of a Quebec property portfolio in early 2015.
During 2015, we recognized a $126 million decline in gross fair value year-over-year, which represents the difference between a
gain of $34 million in 2014 and a loss of $92 million this year. The reduction in fair value is primarily due to the impact of the
following: Target's exit from Canada in the first half of 2015; increased projected costs to complete at certain development
properties due to changes in development plans; interior renovation costs at some of our enclosed malls; partially offset by fair
value gains on certain properties that were acquired during the year and slight reductions in capitalization rates on assets located
in primary markets.
Q4 2015
Net earnings from continuing operations attributable to unitholders for the fourth quarter is $200 million compared to $105 million
for the same period in 2014, representing an increase of $94 million or 89.5%. Excluding $3.9 million in fair adjustments and
increases in deferred taxes, net earnings from continuing operations attributable to unitholders for the fourth quarter of 2015 is
$200 million compared to $102 million in 2014, representing an increase of $98 million or 97%.
The increase of $98 million is primarily due to the following: a $95 million increase in other income driven largely by the $88
million of net proceeds received related to our settlement with Target and higher investment income earned on marketable
securities holdings.
Discontinued Operations
2015
The net loss from discontinued operations attributable to unitholders for 2015 is $275 million compared to earnings of $216
million for 2014, representing a decrease of $491 million. Excluding $499 million of fair value adjustments and increases in
current and deferred income taxes, net earnings from discontinued operations attributable to unitholders for 2015 is $111 million
compared to $103 million in 2014.
During 2015, we recognized a gross decline of $260 million in year-over-year fair value related to our discontinued operations,
which is mostly attributable to an increase in capitalization rates of our Northeast U.S. portfolio as well as other property specific
adjustments. Higher transaction costs of $3.4 million also contributed to the overall net loss from discontinued operations. The
deferred taxes and transaction costs are both related to our U.S. asset sale to Blackstone that was entered into in December
2015 and is anticipated to close in April 2016.
Pursuant to IFRS, the deferred income tax provision of $230 million primarily represents a taxable temporary difference
calculated on the difference between the accounting and tax bases of the Trust's U.S. investment properties. The timing of the tax
liability recognition is triggered by having entered into a binding agreement with Blackstone to sell the portfolio because this
indicates a change in our intent with respect to how we plan to realize value on the U.S. portfolio. As we do not intend to fully
distribute to unitholders the withholding taxes arising on the disposition proceeds, if any, the deferred income tax liability is
measured based on the Trust's U.S. withholding obligation as of December 31, 2015 related to the unrealized gain on investment
property. Since the deferred tax liability does not incorporate future transaction costs, and differences between the accounting
and tax bases at December 2015 compared to transaction amounts at the closing date, the amount recorded in the consolidated
financial statements may be materially different than the actual withholding taxes paid.
Q4 2015
The net loss from discontinued operations attributable to unitholders for the fourth quarter is $378 million compared to net
earnings of $66 million for the same period in 2014, representing a decrease of $444 million. Excluding the impact of fair value
adjustments and deferred taxes, net earnings from discontinued operations attributable to unitholders for the fourth quarter of
2015 is $36 million, which is unchanged from 2014. Operating performance in 2015 was largely impacted by a strengthening U.S.
dollar, which was offset by higher transaction costs of $3.5 million related to the sale of our U.S. business.
35
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Operating Earnings
All references, herein, to "Canada" and "U.S." represent the results from our continuing and discontinued operations, respectively.
Continuing operations is comprised of our former Canadian geographic segment and discontinued operations is comprised of our
former U.S. geographic segment.
The operating earnings for our Canadian continuing operations and U.S. discontinued operations for the years ended December
31, 2015 and 2014 are as follows:
Year ended December 31,
(thousands of dollars)
Revenue
Direct costs
Operating earnings
2015
2014
Canada
U.S.
Canada
$
$
1,087,736 $
233,613 $
1,025,003 $
423,506
664,230 $
66,823
166,790 $
369,534
655,469 $
U.S.
194,619
55,962
138,657
Revenue from our Canadian continuing operations benefited from the sale of 179 townhomes sold at our Stouffville townhouse
development project, which increased total revenue $32 million compared to 2014 or $2.7 million in operating earnings after
deducting cost of sales. The total project consists of 272 units and we expect the remaining units to close during Q1 2016. Base
rent, common area maintenance and realty tax recovery revenue were all up compared to 2014 mainly due to to new leasing,
renewal leasing, rent steps and higher acquisition activity, net of dispositions. The increase in direct costs is in line with the
increased gross revenue, although non-recoverable costs increased approximately $5.9 million compared to 2014 mainly due to
higher vacancies.
The operating earnings for our Canadian continuing operations and U.S. discontinued operations for the quarter ended
December 31, 2015 and 2014 are as follows:
Three months ended December 31,
(thousands of dollars)
Revenue
Direct costs
Operating earnings
2015
Canada
291,136 $
124,265
166,871 $
$
$
U.S.
61,086 $
8,124
52,962 $
2014
Canada
262,738 $
95,113
167,625 $
U.S.
49,825
5,768
44,057
Net Operating Income (NOI)
The NOI for our Canadian continuing operations and U.S. discontinued operations for the year ended December 31, 2015 and
2014 is as follows:
Year ended December 31,
(thousands of dollars)
Rental Revenue
Base rent (including straight line rent)
Percentage rent
Property taxes and operating cost recoveries
Lease cancellation fees
Property operating costs
Recoverable under tenant leases
Non-recoverable from tenants
Accrued property taxes under IFRIC 21 (i)
2015
2014
Canada
U.S.
Canada
U.S.
$
666,016
$
171,340
$
653,992
$
143,654
6,201
355,498
1,027,715
11,353
1,039,068
373,698
20,465
—
394,163
654
61,391
233,385
228
5,088
345,227
1,004,307
5,115
708
50,257
194,619
—
233,613
1,009,422
194,619
60,551
6,272
1,176
67,999
354,951
14,583
—
369,534
51,164
4,798
—
55,962
NOI
$
644,905
$
165,614
$
639,888
$
138,657
NOI as a percentage of rental revenue (excluding the impact of
lease cancellation fees)
62.8%
71.0%
63.7%
71.2%
Add: NOI of proportionate share of equity accounted
investments
RioCan-HBC JV
Other (ii)
5,531
1,054
—
1,167
—
409
—
3,815
NOI - RioCan's proportionate share
$
651,490
$
166,781
$
640,297
$
142,472
(i) Represents the favourable impact of foreign exchange on the timing of U.S. realty tax payments throughout the year.
(ii)
Includes NOI from RioCan's equity accounted investments in RioCan-HBC JV, Dawson-Yonge LP, WhiteCastle New Urban Fund, LP, WhiteCastle
New Urban Fund 2, LP, WhiteCastle New Urban Fund 3, LP. and RioKim Montgomery JV LP (Texas).
36
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
The NOI for our Canadian continuing operations and U.S. discontinued operations for the quarter ended December 31, 2015 and
2014 is as follows:
Three months ended December 31,
(thousands of dollars)
Rental Revenue
Base rent (including straight line rent)
Percentage rent
Property taxes and operating cost recoveries
Lease cancellation fees
Property operating costs
Recoverable under tenant leases
Non-recoverable from tenants
Accrued property taxes under IFRIC 21 (i)
2015
2014
Canada
U.S.
Canada
U.S.
$
168,997
$
45,457
$
169,309
$
2,527
91,870
263,394
499
263,893
96,386
6,316
—
102,702
237
15,392
61,086
—
61,086
6,327
1,797
9,473
17,597
1,629
88,019
258,957
261
259,218
90,522
4,591
—
95,113
37,484
224
12,091
49,799
26
49,825
4,905
863
7,873
13,641
36,184
NOI
$
161,191
$
43,489
$
164,105
$
NOI as a percentage of rental revenue (excluding the impact of
lease cancellation fees)
61.2%
71.2%
63.4%
72.7%
Add: NOI of proportionate share of equity accounted
investments
RioCan-HBC JV
Other (ii)
2,858
279
—
—
—
118
NOI - RioCan's proportionate share
$
164,328
$
43,489
$
164,223
$
—
1,355
37,539
(i) Represents a non-GAAP adjustment to normalize the impact of the application of the requirements of IFRIC 21 to the calculation of NOI by
(ii)
matching the pro-rata expense over the period of property ownership with the actual timing of tenant cost recoveries.
Includes NOI from RioCan's equity accounted investments in RioCan-HBC JV, Dawson-Yonge LP, WhiteCastle New Urban Fund, LP, WhiteCastle
New Urban Fund 2, LP, WhiteCastle New Urban Fund 3, LP. and RioKim Montgomery JV LP (Texas).
Canadian Portfolio
Same store and same property NOI for the quarter and year ended December 31, 2015 and 2014 for the Canadian portfolio,
representing our continuing operations, are as follows:
(thousands of dollars)
Same store (i) (ix)
Redevelopment and intensification (ii)
Same Properties (iii)
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 (vii)
Three months ended
December 31,
2015
2014
$ 140,313
$ 143,852
5,644
145,957
11,545
(114)
2,050
7,200
151,052
188
6,901
1,548
159,438
159,689
127
574
—
1,052
187
2,688
—
1,541
NOI
$ 161,191
$ 164,105
Add: NOI of proportionate share of equity
accounted investments:
RioCan-HBC JV
Other (viii)
2,858
279
—
118
NOI - RioCan's proportionate share
$ 164,328
$ 164,223
“nm” – not meaningful.
Year ended
December 31,
Increase
(decrease)
2015
(2.5%) $ 567,227
2014
$ 575,521
14,944
590,465
2,746
18,679
11,988
4,915
6,941
(452)
4,606
$ 639,888
Increase
(decrease)
(1.4%)
(16.3%)
(1.8%)
nm
(92.7%)
61.5%
0.1%
104.7%
1.7%
(10.6%)
(17.9%)
0.8%
(21.6%)
(3.4%)
nm
nm
32.4%
(0.2%)
(32.1%)
(78.6%)
12,511
579,738
23,953
1,358
19,359
10,062
7,056
nm
(404)
(31.7%)
3,783
(1.8%) $ 644,905
624,408
623,878
nm
5,531
136.4%
1,054
0.1% $ 651,490
—
409
$ 640,297
nm
157.7%
1.7%
37
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
(i) Refer to Same Store definition in Non-GAAP Measures section.
(ii) Redevelopment and Intensification – Includes NOI from Income Producing Properties (IPP) or specific units within a property being re-positioned
or expanded.
(iii) Refer to Same Property definition in Non-GAAP Measures section.
(iv) Acquisitions – Includes NOI for IPP acquired within the periods being compared.
(v) Dispositions – Includes NOI 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) NOI from properties under development – Includes NOI from properties acquired for re-development purposes.
(viii) Includes NOI from RioCan's equity accounted investments in RioCan-HBC JV, Dawson-Yonge LP, WhiteCastle New Urban Fund, LP, WhiteCastle
New Urban Fund 2, LP and WhiteCastle New Urban Fund 3, LP.
(ix) Full year same store NOI includes $1.4 million related to second quarter 2015 Target rent receivables that were deemed collected as part of the
overall Target settlement. No impact to Q4 2015 results.
2015
In 2015, same store NOI decreased (1.4%) or $8.3 million compared to 2014 as explained by the following aggregate changes in
Canadian same store NOI:
•
•
$29.4 million of lower total NOI caused by the following: approximately $27 million of lower NOI attributable to increased
vacancies, including the impact of previously agreed upon lease cancellations; $1.7 million due to an increase in bad
debt expense and $1 million due to Target co-tenancy losses; partially offset by
$21.4 million of higher total NOI resulting from the following: $10.1 million from new leasing; $8.6 million from
renewals and rent steps; and another $2.7 million from re-leasing of space vacated due to bankruptcies and lease
cancellations.
Based on leasing activity during the year, economic occupancy decreased from 95.8% in Q4 2014 to 92.2% in Q4 2015, Target
was responsible for 3.1% of this decrease.
During 2015, Canadian NOI benefited from higher lease cancellation fees of $5.1 million compared to 2014. Lease cancellation
fees primarily include $4.8 million received from one tenant at our RioCan Centre Victoria property and $3.7 million related to two
tenants at our RioCan Yonge Eglinton Centre location. During 2014, lease cancellations totalled $4.9 million, which was mostly
comprised of a $2.5 million fee for seven locations under the Big Lots banner. Other miscellaneous lease cancellations fees from
various smaller tenants made up the balance in 2014.
NOI in Canada benefited from higher acquisition activity, net of dispositions, which included the acquisitions of an 18-property
BMO portfolio and a collection of 23 Kimco properties in connection with the dissolution of our RioKim Canadian joint venture. In
aggregate, acquisitions generated an additional $21 million of Canadian NOI, which was partially offset by dispositions that
resulted in a $17.3 million decline in Canadian NOI. These disposals included a group of Quebec properties in early 2015 and
the sale of a 50% interest in each of Georgian Mall and Oakville Place to our RioCan-HBC joint venture.
Completed greenfield developments also contributed $7.4 million to Canadian NOI during 2015.
Q4 2015
For fourth quarter, same store NOI decreased (2.5%) or $3.5 million compared to 2014 as explained by the following aggregate
changes in Canadian same store NOI:
•
•
$9.8 million of lower total NOI caused by the following: $7.9 million of lower NOI attributable to increased vacancies,
including the impact of previously agreed upon lease cancellations; $1.3 million due to an increase in bad debt
expense and $0.6 million due to Target co-tenancy losses; partially offset by
$6.2 million of higher total NOI resulting from the following: $3.3 million from new leasing; $2.0 million from renewals
and rent steps; and another $0.9 million from re-leasing of space vacated due to bankruptcies and lease
cancellations.
Canadian same property NOI growth showed declines of (3.4%) and (1.8%) for the quarter and year ended December 31, 2015,
respectively, primarily driven by the reasons cited above for same store growth decline and the 18 disclaimed Target properties
that have been reclassified to development as of July 1, 2015, partially offset by the completion of other development
properties.
Straight line rent during fourth quarter decreased $1.5 million due to the write-off of unamortized Target rents. The remaining
decrease is primarily due to a number of new developments taking possession during the third quarter of 2014, including
Stockyards, Tanger Ottawa, Tanger Cookstown, Collingwood, Mississauga Plaza, Kennedy Commons and Niagara Falls Plaza.
38
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
U.S. Portfolio
Same store and same property NOI for the quarter and year ended December 31, 2015 and 2014 for our U.S. portfolio classified
as discontinued operations are as follows:
(thousands of dollars)
Rental revenue – US$
Property operating costs – US$
Same store (i) – US$
Re-development
Same properties (ii) – US$
Acquisitions – IPP (iii)
NOI before adjustments
Lease cancellation fee
Straight line rent adjustment
NOI – US$
Foreign currency translation adjustment
NOI
Add: NOI from RioKim Montgomery JV LP (Texas)
NOI - RioCan's proportionate share
$
$
Three months ended
December 31,
2015
44,210 $
$
12,971
31,239
—
31,239
700
31,939
—
460
2014
43,451
11,820
31,631
Increase
(decrease)
1.7% $
9.7%
(1.2%)
124
(100.0%)
Year ended
December 31,
2015
175,251 $
52,488
122,763
—
2014
172,322
50,610
121,712
Increase
(decrease)
1.7%
3.7%
0.9%
454
(100.0%)
31,755
(1.6%)
122,763
122,166
0.5%
—
31,755
nm
0.6%
23
545
(100.0%)
(15.6%)
3,714
1,237
200.2%
126,477
123,403
2.5%
nm
—
2,253
(22.5%)
177
1,745
32,399
11,090
43,489 $
32,323
0.2%
128,399
125,656
2.2%
3,861
187.2%
36,184
20.2% $
37,215
165,614 $
13,001
186.2%
138,657
19.4%
—
43,489 $
1,355
(100.0%)
37,539
15.9% $
1,167
166,781 $
3,815
(69.4%)
142,472
17.1%
“nm” – not meaningful.
(i) Refer to Same Store definition in Non-GAAP Measures section.
(ii) Refer to Same Property definition in Non-GAAP Measures section.
(iii) Acquisitions - Includes NOI for IPP acquired within the periods being compared.
2015
During the year, same store and same property NOI increased 0.9% and 0.5%, respectively, compared to 2014 primarily due to
the following: $2.8 million in new leasing and $1.5 million in renewals and rent steps; partially offset by $2.9 million reduced NOI
from tenant vacancies and bad debt expenses.
Q4 2015
During the quarter, same store and same property NOI decreased (1.2)% and (1.6%), respectively, compared to 2014 primarily
due to higher bad debt expenses of $0.4 million.
Other Revenue
Continuing Operations
(thousands of dollars)
Three months ended December 31,
Year ended December 31,
Share of net earnings in associates and joint ventures
$
Income earned on available-for-sale investments
Transaction gains (losses), net
Interest income
Target settlement proceeds, net
Fair value gains (losses) on investment properties, net
Total other revenue
2015
2015
4,510 $
4,386
4,608
1,457
88,267
1,183
104,411 $
$
2014
541 $
2,168
—
957
—
3,458
7,124 $
2015
10,378 $
12,790
(2,631)
5,370
88,267
(91,548)
22,626 $
2014
729
5,944
—
7,854
—
34,423
48,950
Total other revenue from continuing operations in 2015 decreased $26 million or 53.8% mainly due to higher fair value losses,
partially offset by the Target net settlement proceeds and higher income from marketable security investments.
Net earnings from equity accounted investments increased $9.6 million compared to 2014. This increase is primarily due to
higher gains on our investments in the WhiteCastle Funds and income from our joint venture with HBC. The income from the
RioCan-HBC JV is completely offset by the reduced operating earnings from the disposal of property interests into the joint
venture.
During the year, we earned higher income from marketable securities holdings of $6.8 million and incurred transaction losses
totaling $2.6 million mainly due to a difference between the IFRS fair value and transaction pricing on certain assets.
39
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Interest income decreased $2.5 million due to reductions in the size of our mezzanine loan portfolio that took place in early
2014 and 2015 related to the buyout of certain co-owner interests.
Other income increased $92 million compared to 2014 mainly due to $88 million of aggregate net cash proceeds relating to the
Target settlement. The settlement amount is net of $3.5 million related to outstanding Target rents due as of the disclaimer date
and other direct costs of settlement, such as legal fees.
The $126 million decline in gross fair value year-over-year represents the difference between a gain of $34 million in 2014 and a
loss of $92 million this year. The reduction in fair value is primarily due to the impact of the following: Target's exit from Canada in
the first half of 2015; increased projected costs to complete at certain development properties due to changes in development
plans; interior renovation costs at some of our enclosed malls; partially offset by fair value gains on certain properties that were
acquired during the year and slight reductions in capitalization rates on assets located in primary markets.
Q4 2015
Total other revenue from continuing operations during fourth quarter increased $97 million compared to 2014 mainly due to
RioCan having received the Target settlement proceeds in the quarter, partially offset by higher fair value losses.
Transaction gains of $4.6 million are primarily due to favorable transaction pricing differences during the quarter on certain HBC
properties related to our RioCan-HBC joint venture.
Other income increased $95 million primarily due to the $88 million of Target settlement net proceeds received during the
fourth quarter and, to a lesser extent, the following: higher investment income from marketable securities holdings, gains
related to our investments in the WhiteCastle Funds and income earned from our investment in the new joint venture with HBC
(offset by reduced property NOI relating to the contribution of interests in two enclosed malls to this joint venture).
Discontinued Operations
Three months ended December 31,
(thousands of dollars)
Share of net earnings (loss) in associates and joint ventures $
Transaction gains, net
2015
— $
—
Fair value gains (losses) on investment property, net
Total other revenue (loss)
(174,782)
(174,782) $
$
2014
4,839 $
—
30,196
35,035 $
Year ended December 31,
2014
2015
(4,145) $
7,529
(147,060)
(143,676) $
12,176
—
113,009
125,185
2015
Our share of the net earnings from this equity accounted investment decreased $16 million compared to 2014 primarily due to
fair value losses and RioCan having sold its U.S. joint venture investment in July 2015.
Net transaction gains related to discontinued operations increased $7.5 million compared to 2014 due to a foreign exchange gain
realized upon disposal of our U.S. joint venture investment (Montgomery Plaza).
The gross decline of $260 million in year-over-year fair value is mostly attributable to an increase in capitalization rates of our
Northeast U.S. portfolio, as well as other property specific adjustments.
Q4 2015
Other revenue was mainly impacted by a $205 million gross decline in fair value, which is mostly attributable to an increase in
capitalization rates of our Northeast U.S. portfolio, as well as other property specific adjustments during the quarter. Other
revenue also decreased $4.8 million compared to the same period in 2014 due to the recognition of our pro-rata share of fair
value losses in our Montgomery equity method investee.
Other Expenses
Interest
Continuing Operations
The components of interest expense are as follows:
(thousands of dollars)
Total interest expense
Capitalized to real estate and other capital projects
Net interest expense
Percentage capitalized to real estate investments
2015
Three months ended December 31,
Year ended December 31,
$
$
2015
55,285
(7,432)
47,853
13.4%
$
$
2014
56,176
(7,740)
48,436
13.8%
$
$
2015
214,203
(27,431)
186,772
$
$
12.8%
2014
226,473
(32,400)
194,073
14.3%
Net interest expense from continuing operations decreased $7.3 million compared to 2014 mainly due to interest savings resulting
from the refinancing of maturing mortgages and debentures at lower interest rates, partially offset by higher temporary financing
related to the Kimco property acquisitions. At December 31, 2015, the weighted average contractual interest rate of our Canadian
debt is 3.65%, which is 39 basis points lower in comparison to the December 31, 2014 rate of 4.04%.
40
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Interest capitalized to investment properties under development during 2014 includes a $2.9 million yield maintenance charge
related to an early mortgage repayment and $1.0 million in capitalized interest allocable to the Trust's completed ERP and
reporting project. During 2015, interest capitalized to real estate properties decreased mainly due to lower weighted average
interest rates compared to the prior year (4.2% in 2015 versus 4.5% for 2014).
Q4 2015
Net interest expense for the fourth quarter decreased slightly by $0.6 million compared to fourth quarter 2014 due to interest
savings resulting from the refinancing of maturing debt at lower interest rates, offset by higher overall leverage.
Discontinued Operations
Net interest expense relating to discontinued operations for 2015 increased $8.1 million compared to 2014. This increase is mostly
due to an unfavourable foreign exchange impact of $10.2 million on our U.S. dollar denominated borrowings. As at December 31,
2015, the weighted average contractual interest rate of the U.S. debt portfolio is 4.25%, which is 31 basis points lower in
comparison to the December 31, 2014 weighted average contractual rate of 4.56%.
General and Administrative
Continuing Operations
Three months ended December 31,
Year ended December 31,
(thousands of dollars)
2015
2014
2015
Non-recoverable salaries and benefits
$
9,131
$
14,862
$
36,555
$
Directly capitalized to investment properties (i)
Leasing costs (ii)
Unit-based compensation expense
Depreciation and amortization
Other general and administrative (iii)
General and administrative expense
(1,641)
(2,064)
5,426
1,615
1,073
6,740
(2,100)
(2,656)
10,106
328
1,153
5,276
(6,942)
(8,407)
21,206
4,741
4,434
20,670
$
14,854
$
16,863
$
51,051
$
As a percentage of rental revenue
5.6%
6.5%
4.9%
2014
35,694
(6,237)
(7,532)
21,925
4,075
4,019
18,931
48,950
4.8%
(i) Amounts capitalized to investment properties are comprised of salaries and benefits related to development activities and tenant installation costs.
(ii) Effective January 1, 2014, we no longer capitalize leasing costs pursuant to the adoption of IAS 17. As a result of this change, the Trust records leasing
costs on the consolidated statement of earnings.
(iii) Other general and administrative primarily includes the following: information technology, public company costs, travel, marketing and professional fees.
2015
General and administrative expenses related to continuing operations increased $2.1 million or 4.3% compared to 2014 primarily
due to an increase in the following costs: $1.7 million in other general and administrative expenses related to higher marketing,
promotion and certain tax compliance costs, $0.7 million in unit-based compensation and $0.4 million in depreciation and
amortization. These increases are partly offset by a $0.7 million decrease in net non-recoverable salaries and benefits. Although
the latter results in a favourable overall cost decrease after capitalization of direct costs of development, gross non-recoverable
salaries and benefits increased $0.9 million mainly due to increased planning, development and leasing activity reflecting growth in
the size of our property portfolio.
Q4 2015
During the fourth quarter, total general and administrative costs decreased $2.0 million or 11.9% compared to the same period in
2014 primarily driven by a decrease of $4.7 million in net non-recoverable salaries and benefits due to the timing of recognition of
variable compensation costs. Partially offsetting this decrease is $1.5 million in higher other administrative expenses mainly
related to higher marketing, promotion and tax compliance costs and $1.3 million in higher unit-based compensation, the latter of
which is due to a recovery recognized on forfeited unit options from a senior executive's retirement at the end of 2014.
Leasing Costs
Leasing costs related to continuing operations are comprised of the payroll expense of our internal leasing department as well as
related administration costs. Leasing costs increased $1.1 million to end the full year at $9.8 million compared to $8.7 million in
2014. Headcount increases in our Canadian leasing and administrative operations were the main reason for this increase. Any
external leasing costs, however, continue to be capitalized to the underlying properties.
Transaction and Other Costs
Transaction and other costs associated with continuing operations increased $5.6 million for the year compared to 2014. Most of
this increase relates to our share of the land transfer taxes paid on the acquisition of the Kimco property portfolio in late 2015, as
well as higher legal and selling costs incurred on the disposition of a portfolio of Quebec properties earlier in the year.
Transaction and other costs related to our discontinued operations were $3.4 million higher compared to 2014. This was due, in
large part, to higher legal and professional fees, employee retention and contract termination costs related to our announced U.S.
asset sale. Also in connection with our disposal our investment in the Montgomery U.S. joint venture, we paid withholding taxes of
$8.5 million which are included as current income tax expense in the results of our discontinued operations.
41
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Funds from Operations (FFO) and Operating Funds from Operations (OFFO)
The following table presents a reconciliation of IFRS net earnings from continuing and discontinued operations attributable to
unitholders to FFO and OFFO on a comparable basis:
(thousands of dollars, except per unit amounts)
Net earnings from continuing operations attributable to unitholders
Add back/(Deduct):
Fair value (gains) losses, net
Non-controlling interest relating to fair value gains
Fair value losses included in equity accounted investments and joint ventures
Deferred income tax expense (recovery)
Leasing costs
Transaction (gains) losses, net (i)
Transaction costs (ii)
Preferred unit distributions
Foreign exchange loss
FFO from continuing operations
Three months ended
December 31,
Year ended
December 31,
2015
2014
2015
2014
$ 199,796 $ 105,483 $ 416,892 $ 447,008
(1,183)
(3,458)
91,548
(34,423)
43
468
1,350
2,340
(4,608)
4,574
(3,397)
—
—
—
(250)
2,986
—
43
674
676
1,290
9,750
2,632
8,459
659
—
50
8,693
—
2,753
(3,397)
(13,590)
(13,590)
128
131
176
$ 199,383 $ 101,535 $ 518,462 $ 411,326
Net earnings (loss) from discontinued operations attributable to unitholders
$ (377,837) $
66,285 $ (275,129) $ 216,250
Add back/(Deduct):
Fair value (gains) losses, net
Fair value (gains) losses included in equity accounted investments and joint
ventures
Deferred income tax expense
Leasing costs
Accrued property taxes under IFRIC 21
Foreign exchange gain related to realty taxes (iii)
Transaction (gains) losses, net (i)
Transaction costs (ii)
FFO from discontinued operations
FFO
FFO from continuing operations
Add back/(Deduct):
Costs not capitalized during the development period:
Property recoverable operating costs under tenant leases (iv)
Interest expense (iv)
Demolition costs (iv)
Proceeds from sale of residential inventory, net of costs (v)
Target settlement proceeds, net
Expense for early retirement of debentures
Other transaction gains, net (vi)
OFFO from continuing operations
FFO from discontinued operations
Add back: Transaction losses, net (i)
OFFO from discontinued operations
OFFO
174,782
(30,196)
147,060
(113,009)
—
230,474
185
(8,297)
(1,176)
—
3,464
21,595 $
(4,258)
4,694
— 230,474
2,022
607
(7,873)
—
—
—
—
(1,176)
(7,529)
3,486
(10,030)
—
2,248
—
—
—
—
$
$ 220,978 $ 126,100 $ 622,364 $ 506,785
24,565 $ 103,902 $
95,459
$ 199,383 $ 101,535 $ 518,462 $ 411,326
354
1,833
487
(1,285)
(88,267)
—
(421)
541
1,757
1,049
71
—
—
—
1,175
6,811
2,164
(2,594)
(88,267)
9,929
(3,380)
1,290
7,222
2,208
(91)
—
—
—
$ 112,084 $ 104,953 $ 444,300 $ 421,955
$
21,595 $
8,478
30,073 $
24,565 $ 103,902 $
95,459
—
8,478
—
$
$ 142,157 $ 129,518 $ 556,680 $ 517,414
24,565 $ 112,380 $
95,459
(i)
Includes gains and losses related to certain equity accounted investments and the disposal of a development property.
(ii) Represents property acquisition and disposition costs.
(iii) Represents the favourable impact of foreign exchange based on the timing of U.S. realty tax payments.
(iv) 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.
Includes gross proceeds from the sale of residential inventory, net of direct cost of sales.
(v)
(vi) Represents WhiteCastle Fund transaction gains and $1.5 million previously written off straight-line rents related to Target recovered through the settlement proceeds.
42
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
FFO and OFFO Summary
(thousands of dollars, except per unit amounts)
2015
2014
Three months ended
December 31,
Increase
(Decrease)
Year ended
December 31,
2015
2014
Increase
(Decrease)
FFO from:
Continuing operations (i)
Discontinued operations
FFO
FFO per unit
OFFO from:
Continuing operations
Discontinued operations
OFFO
OFFO per unit
$ 199,383
$ 101,535
96.4%
$ 518,462
$ 411,326
21,595
24,565
(12.1%)
103,902
95,459
$ 220,978
$ 126,100
$
0.69
$
0.40
$ 112,084
$ 104,953
30,073
24,565
$ 142,157
$ 129,518
$
0.44
$
0.42
75.2%
69.8%
6.8%
22.4%
9.8%
6.4%
$ 622,364
$ 506,785
$
1.95
$
1.65
$ 444,300
$ 421,955
112,380
95,459
$ 556,680
$ 517,414
$
1.74
$
1.68
26.0%
8.8%
22.8%
18.4%
5.3%
17.7%
7.6%
3.7%
(i) For the year ended December 31, 2015, FFO from continuing operations includes the $88 million net Target settlement proceeds and operating
earnings arising from the sale of residential inventory of $2.7 million.
OFFO Highlights
2015
OFFO for 2015 is $557 million compared to $517 million in 2014, representing an increase of $40 million or approximately 7.6%.
On a per unit basis, OFFO is $1.74 compared to $1.68, representing an increase of $0.06 or approximately 3.7%.
Continuing Operations
In 2015, OFFO from continuing operations increased $22 million compared to 2014, primarily due to the following: higher NOI of
$5.0 million mainly driven by lease cancellation fees and the impact of completed property developments, lower interest expense
of $7.3 million, higher income earned on marketable securities holdings of $6.8 million and net earnings from equity accounted
investments of $5.3 million, partially offset by lower interest income of $2.5 million and higher general and administrative costs of
$2.1 million.
Discontinued Operations
In 2015, OFFO from our U.S. discontinued operations increased $17 million compared to 2014, primarily driven by higher NOI of
$27 million, which is partly offset by higher interest costs of $8.1 million and $2.1 million of lower earnings generated from our
equity accounted investments due to the sale of a U.S. property in the third quarter.
The overall favourable impact of foreign exchange on our net earnings from discontinued operations is $14 million for the year
and includes $24 million in exchange gains, partially offset by $10.2 million in higher translated interest expense on U.S. dollar
denominated debt.
Q4 2015
OFFO for the fourth quarter of 2015 is $142 million compared to $130 million in 2014, representing an increase of $12 million or
approximately 10%. On a per unit basis, OFFO is $0.44 compared to $0.42, representing an increase of $0.02 or approximately
6.4%.
Continuing Operations
During the fourth quarter of 2015, OFFO from continuing operations increased $7.1 million compared to 2014 primarily due to
higher net earnings from equity accounted investments and income from available-for-sale investments as well as lower general
and administrative expenses.
Discontinued Operations
During the fourth quarter of 2015, OFFO from discontinued operations increased $5.5 million compared to 2014, primarily due to
higher NOI of $7.3 million, largely due to foreign exchange gains, party offset by an increase of interest expense of $2.2 million.
The overall favourable impact of foreign exchange on net earnings from discontinued operations is $3.7 million for the quarter
and includes $7.2 million in exchange gains, partially offset by $3.6 million in higher translated interest expense on U.S. dollar
denominated debt.
43
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Adjusted Funds from Operations (AFFO)
The following table is a reconciliation of FFO to AFFO prepared based on the results of our continuing and discontinued
operations for all periods shown:
(thousands of dollars, except per unit amounts)
FFO (i)
Add back/(Deduct):
Costs not capitalized during the development period: (ii)
Property recoverable operating costs under tenant leases (ii)
Interest expense (ii)
Demolition costs (ii)
Deduction of straight-line rents
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
Proceeds from sale of residential inventory, net of costs (iii)
Target settlement proceeds, net
Expense for early retirement of debentures
Other transaction losses, net (iv)
AFFO (v)
Three months ended
December 31,
Year ended
December 31,
2015
220,978 $
$
2014
126,100 $
2015
622,364 $
2014
506,785
354
1,833
487
(1,285)
1,765
(6,250)
(3,750)
(2,500)
(1,285)
(88,267)
—
6,546
128,626 $
$
541
1,757
1,049
(3,608)
672
(6,250)
(3,750)
(2,500)
71
—
—
—
114,082 $
1,175
6,811
2,164
(9,328)
5,135
(25,000)
(15,000)
(10,000)
(2,594)
(88,267)
9,929
3,587
500,976 $
1,290
7,222
2,208
(9,309)
5,451
(25,000)
(15,000)
(10,000)
(91)
—
—
—
463,556
(i) A reconciliation of IFRS net earnings from continuing and discontinued operations attributable to unitholders to FFO is presented under Funds
from Operations (FFO) and Operating Funds from Operations (OFFO) section.
(ii) To calculate AFFO, 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) Includes gross proceeds from the sale of residential inventory, net of direct cost of sales.
(iv)
(v) AFFO is calculated by adjusting FFO for straight-line rent adjustments, non-cash compensation expenses, costs for capital expenditures and
Includes gains and losses related to the disposal of an equity accounted investment and WhiteCastle Funds.
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 transaction gains and losses and development/redevelopment are also excluded from AFFO.
AFFO Highlights
Three months ended
December 31,
(thousands of dollars, except per unit amounts)
2015
2014
AFFO
AFFO per unit
Distributions as a percentage of AFFO
$ 128,626
$ 114,082
$
0.40
$
90.1%
0.37
95.3%
2015
Increase
(Decrease)
Year ended
December 31,
2015
2014
Increase
(Decrease)
12.7% $ 500,976
1.57
8.0% $
(5.2%)
$ 463,556
$
1.51
8.1%
3.8%
90.4%
93.4%
(3.0%)
AFFO for the year ended December 31, 2015 was $501 million or $1.57 per Unit, compared to $464 million or $1.51 per Unit for
the same period in 2014, representing an increase of $37 million or 8.1%. On a per Unit basis, AFFO increased by $0.06 per Unit
or 3.8%. The increase in AFFO was primarily due to higher NOI and income from available-for-sale investments, partly offset by
a decrease in interest income and higher general and administrative expenses.
Distribution as a percentage of AFFO continued to improve during the year and was 90.4% compared to 93.4% for the year 2014.
Over the long term, the Trust targets a payout ratio of AFFO on a rolling twelve month basis, which allows RioCan to provide a
sustainable distribution of cash flow to unitholders, while retaining a portion of operational cash flow to reinvest into income
producing and development properties, and if necessary, to fund any unexpected expenditures for property maintenance that
might arise.
However, in the near term (2016/2017), with the sale of the U.S. operations we expect the AFFO payout ratio to be higher than
2015 with the full intention to improve the ratio towards our 90% target over the longer term with the growth and reinvestment of
proceeds.
Q4 2015
AFFO for the fourth quarter of 2015 was $129 million or $0.40 per unit compared to $114 million or $0.37 per unit for the fourth
quarter in 2014, representing an increase of approximately $15 million or 12.7%. On a per unit basis, AFFO increased by $0.03
per unit or 8.0%. The increase in AFFO was primarily due to higher NOI and income from available-for-sale investments, lower
44
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
general and administrative expenses, partly offset by a decrease in interest income.
Reconciliation of cash flows provided by operating activities to AFFO
The following table is a reconciliation of cash provided by operating activities to AFFO:
(thousands of dollars)
Cash provided by operating activities from continuing and discontinued
operations
Net change in non-cash operating items
Share of net earnings in associates and joint ventures
Three months ended
December 31,
Year ended
December 31,
2015
2014
2015
2014
$ 296,808 $ 157,772 $ 609,255 $ 501,694
(73,649)
(27,132)
4,510
5,380
(3,507)
6,233
815
12,905
Fair value losses (gains) included in equity accounted investments and joint
ventures
468
(4,258)
5,370
(10,030)
Costs not capitalized during the development period:
Property recoverable operating costs under tenant leases
Interest expense
Demolition costs
Transaction costs
Depreciation and amortization - corporate assets
Preferred unit distributions
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
Accrued property taxes under IFRIC 21
Foreign exchange gain related to realty taxes (i)
Leasing costs
Foreign exchange loss
Proceeds from sale of residential inventory, net of costs (ii)
Target settlement proceeds, net
Expense for early retirement of debentures
Other transaction losses, net (iii)
Other adjustments
AFFO
354
1,833
487
8,038
(1,115)
(3,397)
(6,250)
(3,750)
(2,500)
(43)
(8,297)
(1,176)
2,525
—
(1,285)
(88,267)
—
3,449
(117)
541
1,757
1,049
43
(1,167)
(3,397)
(6,250)
(3,750)
(2,500)
—
(7,873)
—
3,593
128
71
—
—
—
75
1,175
6,811
2,164
11,945
(4,655)
1,290
7,222
2,208
2,753
(4,041)
(13,590)
(13,590)
(25,000)
(15,000)
(10,000)
(674)
—
(1,176)
11,772
131
(2,594)
(88,267)
9,929
201
453
(25,000)
(15,000)
(10,000)
(707)
—
—
10,941
176
(91)
—
—
—
2,011
$ 128,626 $ 114,082 $ 500,976 $ 463,556
(i) Represents the favourable impact of foreign exchange based on the timing of U.S. realty tax payments.
(ii)
(iii)
Includes gross proceeds from the sale of residential inventory, net of direct cost of sales.
Includes gains and losses related to certain equity accounted investments, the disposal of a development property and WhiteCastle Fund
transaction gains.
45
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
OPERATIONS
RioCan has remained focused on its core portfolio and continues to execute its growth strategy through acquisitions and
developments, along with organic growth. In addition, RioCan is selectively paring its portfolio in order to increase its focus on
major urban markets.
Net Leasable Area
(thousands of square feet, except
where otherwise noted)
Q4
2015
Q3
Q2
Q1
Q4
2014
Q3
Q2
Q1
NLA at 100% (i)
Income properties
Canada
U.S.
Properties under development (ii)
NLA at RioCan's interest
Income properties
Canada
U.S.
Properties under development (ii)
57,898
13,208
6,985
42,124
10,027
3,939
58,092
58,412
58,292
58,677
58,259
58,002
57,645
13,208
13,388
13,382
13,379
13,380
13,298
13,295
7,085
7,095
6,972
7,021
8,781
9,692
10,835
39,282
39,926
39,845
39,994
39,676
39,382
39,120
10,027
10,038
10,033
10,031
10,031
3,968
3,975
3,840
3,896
4,525
9,949
5,065
9,946
5,512
(i)
(ii)
Includes non-owned anchors.
Includes active and non-active projects in greenfield and urban intensification developments located in Canada.
Canadian Investment Properties NLA
As at December 31, 2015, NLA at RioCan's interest was 42,124,000 square feet compared to 39,994,000 square feet as at
December 31, 2014.
The increase of 2,130,000 square feet of NLA during the year was due to higher acquisitions net of dispositions, NLA from
completed developments partially offset by NLA transferred to properties under development, during the year.
Acquisitions
RioCan acquired approximately 3,507,000 additional square feet in connection with certain investment property acquisitions
during the year. Approximately 3,071,000 square feet of this additional NLA is related to the acquisition of Kimco's interest in
certain Canadian properties.
Dispositions
During 2015, RioCan disposed of approximately 1,405,000 square feet in connection with certain investment properties located in
Ontario and Quebec.
NLA Transfers
During 2015, NLA increased by 381,000 square feet due to completed development projects which was partially offset by an NLA
decrease of 353,000 square feet due in part to the planned redevelopment of former Target properties. Refer to Development
Activity in 2015 section in this MD&A for further discussion.
Occupancy and Leasing
Committed Occupancy
The historical portfolio committed occupancy rates for our Canadian and U.S. property operations are as follows:
(in percentages)
Canada
U.S.
2015
Q3
93.2
97.1
Q4
94.0
96.3
Q2
93.1
97.3
Q1
96.7
96.6
Q4
97.0
97.1
2014
Q3
97.0
96.9
Q2
97.0
96.7
Q1
96.9
96.6
RioCan’s overall portfolio committed occupancy rate is calculated as leased NLA divided by total portfolio NLA. The Canadian
committed occupancy rate has been adversely impacted as a result of Target's exit from Canada. During the year, the committed
occupancy rate for Canadian properties decreased 3% from 97.0% as at December 31, 2014 to 94.0% as at December 31, 2015.
2.2% of this decrease was due to disclaimed Target leases during 2015. Refer to Tenant Vacancies section in this MD&A for
further details.
46
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Economic Occupancy
The historical portfolio economic occupancy rates for our Canadian and U.S. property operations are as follows:
(in percentages)
Canada
U.S.
Q4
92.2
95.6
2015
Q3
91.6
96.4
Q2
91.9
96.8
Q1
95.3
96.0
Q4
95.8
96.7
2014
Q3
95.9
96.5
Q2
95.5
96.4
Q1
95.6
96.4
Included in the occupancy rate is 789,000 square feet of NLA that has been leased but is not yet generating rent, resulting in an
economic occupancy rate of 92.2%, 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 $16.9 million.
The Canadian economic occupancy has also been impacted as a result of Target's exit from Canada. During the year, the
economic occupancy rate for Canadian properties decreased 3.6% from 95.8% as at December 31, 2014 to 92.2% as at
December 31, 2015. 3.1% of this decrease was due to disclaimed Target leases during 2015. The remainder of the decrease in
economic occupancy is attributable to vacancies incurred during 2015 and the resulting downtime to lease the premises to new
tenants. Refer to Tenant Vacancies section in this MD&A for further details.
A rent commencement timeline for the NLA on Canadian properties, which has been leased but is not currently open as at
December 31, 2015, is as follows:
(in thousands, except percentage amounts)
Total
Q1 2016
Q2 2016
Q3 2016
Q4 2016
2017+
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
Average In-Place Rent
789
789
127
127
16.1%
16.1%
191
318
24.2%
40.3%
88
406
11.1%
51.4%
17
423
2.2%
53.6%
$
$
1,407 $
1,407 $
352
352
$
$
433
785
$
$
179
964
$
$
30
994
$
$
25.0%
25.0%
30.8%
55.8%
12.7%
68.5%
2.1%
70.6%
366
789
46.4%
100.0%
413
1,407
29.4%
100.0%
The historical portfolio average in-place rent for our Canadian and U.S. properties is as follows:
Canada
U.S. (US$)
Q4
$ 17.11
$ 13.96
2015
Q3
Q2
Q1
Q4
2014
Q3
Q2
Q1
$ 17.08
$ 17.02
$ 16.63
$ 16.69
$ 16.51
$ 16.50
$ 16.59
$ 13.87
$ 13.89
$ 14.02
$ 14.01
$ 14.01
$ 13.82
$ 13.75
Average in place rent increased during the year, primarily due to higher contractual rent steps and rents from renewals and has
been positively impacted by Target's exit from Canada as the average net rent for the disclaimed stores was $6.49 per square
foot. During the fourth quarter of 2015, average in-place rent also increased as a result of RioCan gaining higher rents from the
acquisition of Kimco's interest in certain Canadian properties.
New Leasing Activity
RioCan’s portfolio new leasing activity is as follows:
2015
2014
(in thousands,
except per sqft
amounts)
NLA at 100%
Canada
U.S.
Full Year
Q4
Q3
Q2
Q1 Full Year
Q4
Q3
Q2
2,319
242
532
30
693
34
481
131
613
47
1,312
124
429
40
327
18
251
47
Q1
305
19
Average net rent per sqft (i)
Canada
U.S.
$ 18.99
$ 18.91
$ 16.23
$ 23.31
$ 18.81
$ 22.19
$ 22.24
$ 20.65
$ 28.82
$ 18.30
$ 19.71
$ 22.47
$ 21.32
$ 17.91
$ 21.83
$ 21.34
$ 19.98
$ 24.39
$ 20.44
$ 23.44
(i) Net rent is primarily contractual basic rent pursuant to tenant leases.
During 2015, new leasing activity NLA in Canada increased 1,007,000 square feet, which included 573,000 square feet of re-
leased vacant space related to former Target properties.
47
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Also during 2015, new leasing activity in Canada realized lower average net rents per square foot of $18.99 compared to $22.19
in 2014. The decrease in average net rents per square foot from the prior year, were due to increased volume of leases with
greater than 20,000 square feet compared to 2014. RioCan completed new leases totaling 1,238,000 square feet at an average
rental rate of $14.51 per square foot in units in excess of 20,000 square feet.
Renewal Leasing
A summary of our 2015 and 2014 renewal leasing activity for the Canadian and U.S. property portfolios is as follows:
(in thousands, except per
sqft amounts)
Square feet renewed:
Canada
U.S.
Average net rent per
square foot:
Canada
U.S. (US$)
Increase in average net
rent per square foot:
Canada
U.S. (US$)
Percentage increase in
average net rent per
square foot:
Canada
U.S.
Retention rate:
Canada
U.S.
2015
2014
Full Year
Q4
Q3
Q2
Q1 Full Year
Q4
Q3
Q2
Q1
4,607
1,001
1,300
1,117
1,189
285
47
72
91
75
4,192
396
603
62
1,133
1,174
1,282
115
159
60
$ 18.37
$ 18.19
$ 17.75
$ 18.07
$ 19.47
$ 18.00
$ 23.20
$ 17.57
$ 18.50
$ 15.47
$ 21.99
$ 27.80
$ 17.89
$ 22.72
$ 21.42
$ 22.16
$ 25.61
$ 20.11
$ 22.17
$ 22.53
$
$
1.37
1.57
$ 0.71
$ 0.46
$ 1.41
$ 1.57
$ 1.69
$ 1.84
$ 2.45
$ 2.01
$ 2.26
$ 1.02
$ 1.60
$ 2.18
$ 1.49
$ 1.60
$ 1.69
$ 1.71
$ 1.44
$ 1.73
8.1%
7.7%
4.0%
1.7%
8.6%
9.5%
9.8% 10.6%
9.5%
7.5%
11.4% 11.8% 12.9% 13.9%
7.8%
7.1%
9.3%
7.0%
7.0%
8.3%
85.7% 81.4% 89.8% 87.7% 83.5%
75.1% 73.7% 80.5% 91.7% 58.9%
89.7% 85.0% 91.7% 88.8% 91.2%
90.7% 78.3% 92.2% 97.3% 86.4%
Our percentage increase in average net rent per square foot for 2015 is 8.1% for Canada, which is attributable to strong growth
achieved in lease renewals completed with tenants particularly those located in western Canada. During the fourth quarter of
2015, Canadian renewal retention decreased as a result of certain large space tenants not renewing. Although we experienced a
slight decline in retention rates during 2015, we expect renewal leasing rates for Canada to remain steady for 2016.
Including anchor tenants, the components of renewal activity for our Canadian and U.S. property portfolio is as follows:
(in thousands, except per
sqft amounts)
Full Year
Q4
Q3
Q2
Q1 Full Year
Q4
Q3
Q2
Q1
2015
2014
Renewals at market rental rates:
Canada
Square feet renewed
2,959
Average net rent per sqft $ 20.82
806
$ 19.77
662
$ 20.62
704
$ 20.48
787
$ 22.37
2,223
$ 22.33
482
$ 24.86
594
$ 20.89
580
$ 24.42
567
$ 19.56
U.S.
Square feet renewed
Average net rent per sqft
(US$)
124
25
17
31
51
150
29
40
58
23
$ 26.91
$ 29.83
$ 31.32
$ 29.49
$ 22.46
$ 24.07
$ 28.05
$ 18.80
$ 28.24
$ 17.81
Renewals at fixed rental rates:
Canada
Square feet renewed
1,648
Average net rent per sqft $ 13.97
195
$ 11.67
638
$ 14.78
413
$ 13.97
402
$ 13.79
1,969
$ 13.11
121
$ 16.55
537
$ 13.91
594
$ 12.72
717
$ 12.25
U.S.
Square feet renewed
Average net rent per sqft
(US$)
163
22
56
61
24
246
33
76
101
36
$ 18.26
$ 25.53
$ 13.89
$ 19.27
$ 19.20
$ 20.99
$ 23.51
$ 20.79
$ 18.67
$ 25.62
Tenant Vacancies
We strive to diversify our tenant base by location, property type and anchor type and by minimizing the degree of reliance on any
single tenant. In the regular course of business, we will, however, encounter tenants that are subject to restructuring, insolvency
or bankruptcy activities. Except for the cessation of Target rent for 18 disclaimed leases, for the duration of the year rent
48
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
continues to be paid in most other cases by, or on behalf of, RioCan's tenants. We actively monitor such situations and in those
cases where vacancies occur, RioCan endeavours to replace tenants as quickly as possible at economically similar or better
lease terms. In certain instances, such vacancies will give rise to rights in favour of other tenants in the property that is the
subject of the vacancy. This is commonly referred to as a co-tenancy right and entitles co-tenants to certain rent reductions
resulting or lease terminations.
(in thousands, except per
sqft amounts)
Total vacancies (i)
100%
Canada
U.S
RioCan's interest
Canada
U.S
Vacated space re-leased
100%
Canada
U.S
RioCan's interest
Canada
U.S
(i) Excluding lease buyouts.
2015
2014
Full Year
Q4
Q3
Q2
Q1 Full Year
Q4
Q3
Q2
Q1
3,621
217
2,880
217
1,400
72
1,135
72
476
93
343
93
116
2
91
2
493
30
363
30
234
13
189
13
2,195
15
1,792
15
835
8
656
8
457
79
382
79
215
49
199
49
1,148
71
930
71
483
9
390
9
182
18
151
18
48
1
31
1
283
18
244
18
73
—
72
—
260
14
204
14
127
—
112
—
423
21
331
21
235
8
175
8
During the year ended December 31, 2015, RioCan experienced vacancies of approximately 3,621,000 square feet, of which
RioCan’s interest was 2,880,000 square feet. The average gross rent on RioCan’s ownership interest was $19.81 per square
foot. Approximately 1,400,000 square feet of space vacated in 2015 has been leased to new tenants, of which RioCan’s interest
was 1,135,000 square feet, at an average gross rent of $23.21 per square foot. Most of the 2015 vacancies in Canada is the
result of Target's exit from Canada.
Target
On January 15, 2015, Target announced plans to exit Canada through its indirectly wholly-owned subsidiary, Target Canada,
utilizing the CCAA to wind down its operations. In April 2015, Target Canada liquidated its store inventory and closed all of its
Canadian locations. At the time of the announcement, RioCan had 26 locations under lease with Target Canada, seven of which
were successfully assigned by RioCan to new tenants who assumed the full lease obligation under the same CCAA process.
The remaining 19 locations were disclaimed by Target Canada during the year and represent 1,662,978 square feet of NLA,
which represented an average remaining lease term of approximately 12.7 years, at RioCan's interest. All but one of the 19
disclaimed leases were guaranteed through an indemnity provided by Target for the remaining term of each lease. The one
disclaimed location not covered by the Target indemnity is RioCan Niagara Falls. This lease has reverted to Walmart Canada
through a pre-existing covenant and Walmart Canada has resumed payment of the annual rental obligation.
The 18 remaining disclaimed Target locations that we ceased recording rent upon the disclaim date of each lease, represents
approximately 1.5% of our 2015 base rent revenue of our Canadian operations. These leases had annualized base rent of
approximately $10.1 million, annualized common area maintenance costs and taxes of approximately $6.2 million and NLA of
1,557,000 square feet at an average net lease rate of $6.49 per square foot (all figures quoted at RioCan's proportionate share).
In December 2015, in exchange for a release of Target from the indemnity agreements, RioCan reached a full settlement with the
U.S. parent of Target Canada for $149 million (inclusive of $17 million of HST), of which $105 million represents RioCan's share
(inclusive of $13 million of HST), with the remainder distributed to various co-owners. The proceeds of the settlement are being
used to mitigate losses caused by Target Canada's departure, including funding of the redevelopments underway at the 18
disclaimed locations, which is currently estimated at $119 million at RioCan's proportionate share. RioCan's leasing team
continues to make significant progress on the re-leasing of the former Target space. Our redevelopment plan is highly focused
on utilizing the space more optimally so as to improve the overall shopping centre and increase revenues in the most efficient,
expedient and effective manner possible.
49
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table is a reconciliation of the vacant NLA associated with the 18 former Target locations, for which we are no
longer receiving rents:
Site
1 Burlington Mall
2 Charlottetown Mall
3 County Fair Mall
4 Desserte Ouest
5 Five Points Mall
City
Burlington
Province
Ontario
Charlottetown
Prince Edward Island
Smiths Falls
Laval
Oshawa
Ontario
Quebec
Ontario
Ontario
Ontario
Ontario
Alberta
Ontario
Ontario
Ontario
Ontario
Ontario
Ontario
Ontario
Ontario
Ontario
Ontario
6 Flamborough Power Centre
Flamborough
7 Gates of Fergus
8
Lawrence Square
9 Mill Woods Town Centre
10 Millcroft Shopping Centre
11 Orillia Square Mall
12 RioCan Durham Centre
Fergus
Toronto
Edmonton
Burlington
Orillia
Ajax
13 RioCan Niagara Falls (i)
Niagara Falls
14 RioCan Scarborough Centre
Scarborough
15 Shopper's World Brampton
Brampton
16 South Hamilton Square
17 Stratford Centre
18 The Stockyards
Hamilton
Stratford
Toronto
19 Trinity Common Brampton
Brampton
Subtotal
Less: RioCan Niagara Falls (i)
NLA of 18 former Target locations not paying rent
RioCan %
ownership
50%
NLA (100%) NLA (RioCan %)
60,762
121,523
50%
100%
50%
100%
100%
50%
100%
40%
50%
100%
100%
100%
100%
100%
100%
100%
50%
100%
107,806
92,989
116,147
102,444
116,493
95,978
89,432
122,804
115,566
91,440
121,280
106,103
116,241
121,490
93,125
88,935
153,456
118,228
2,091,480
(106,103)
1,985,377
53,903
92,989
58,074
102,444
116,493
47,989
89,432
49,539
57,783
91,440
121,280
106,103
116,241
121,490
93,125
88,935
76,728
118,228
1,662,978
(106,103)
1,556,875
(i) This lease has reverted to Walmart Canada through a pre-existing covenant and Walmart Canada has assumed payment of the annual rent
obligation.
By August 2015, RioCan had transfered the above 18 Target stores to development, which had a total carrying value of $135
million. These properties are in various stages of redevelopment to backfill the vacant space.
The seven leases that were not disclaimed have been assigned to new tenants (six to Lowe's Canada and one to Canadian Tire)
with annualized base rent of $3.4 million and NLA of 825,000 square feet (at RioCan's proportionate share). The new tenants
assumed all obligations including the rental obligations on the closing date of the respective assignments. Details of these
assigned leases is as follows:
Site
1 Abbotsford Power Centre
2 RioCan Shoppes at Shawnessy
3 RioCan St. Laurent
4 Shopper’s World Danforth
5 Signal Hill Centre
6 Sudbury Place
7 Tillicum Centre
City
Province
Abbotsford
British Columbia
Calgary
Ottawa
Toronto
Calgary
Sudbury
Victoria
Alberta
Ontario
Ontario
Alberta
Ontario
British Columbia
RioCan %
ownership (i)
100%
100%
100%
100%
100%
100%
100%
NLA
115,407
124,216
103,568
134,845
116,288
109,554
120,684
824,562
(i) Ownership interests are stated as at December 31, 2015 and reflect the updated ownerships as a result of the closing of the acquisition of a
property portfolio with Kimco.
During November 2015, RioCan entered into a binding agreement with Target concluding the terms of settlement relating to the
18 disclaimed leases. We have recorded $88 million in net settlement proceeds relating to the release of Target from the
indemnity agreements, which is net of $3.5 million of receivable amounts related to outstanding Target rents due as of the
disclaimer date and other direct costs of settlement, such as legal fees.
50
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Leasing Update
A summary of our leasing progress to date is as follows:
Former Target Canada space
Backfill progress:
Committed space
Conditional agreements
Advanced discussions
Total backfill progress
Space currently being marketed (ii)
NLA included in the Expansion & Redevelopment table
Flamborough Power Centre (iii)
RioCan Niagara Falls (iv)
Total NLA upon completion of redevelopment
Potential GLA converted for landlord uses (common area, loading docks,
etc.) (ii)
Space for demolition/potential redevelopment
Total (v)
Deal
count
Square feet
at 100%
Square feet at
RioCan's
Interest
Annual base
rental revenue
at RioCan's
interest (i)
19
2,091,480
1,662,977
$10.9
17
4
11
32
572,660
89,453
396,943
1,059,056
255,442
1,314,498
60,000
132,416
418,199
78,203
348,209
844,611
136,238
980,849
60,000
132,416
1,506,914
1,173,265
415,446
195,433
320,593
195,433
2,117,793
1,689,291
7.4
1.3
3.8
$12.5
n.a.
n.a.
n.a.
(i) Amounts in millions of Canadian dollars.
(ii) Represents square footage based on current redevelopment plans and is subject to change based on tenant demand.
(iii) Property is currently being marketed and is classified as a Greenfield development project.
(iv) Represents one of the 19 disclaimed Target properties, which Walmart Canada has assumed making payments on the annual rent obligation in
accordance with a pre-existing covenant.
(v) Expansion space at RioCan Niagara Falls results in an additional 26,000 square feet of net leasable area at this property.
We are actively in discussions with potential retailers to backfill the vacant premises. For most of the disclaimed Target Canada
leases, it is unlikely that a single tenant will be found to utilize the entirety of such space. Consequently, there will likely be a need
to break-up the space which will require incremental capital expenditures and time to complete the related work. We believe it will
take an estimated 18 to 24 months for a new tenant to commence paying rent in these reconfigured spaces, taking into
consideration lease negotiations, construction approvals, construction time and fitting out of such space. We are working
diligently to fill the disclaimed Target Canada lease space in the most efficient and effective manner possible and have made
significant progress. Over the long run, we believe that the re-tenanting of the larger Target boxes will result in a more diversified
revenue stream and a better draw for consumers.
To date, we have completed 17 leases totalling 573,000 square feet at 100% or 418,000 at RioCan's interest. These 17 leases,
will generate $7.4 million of base rental revenue per year, at RioCan's proportionate share.
We have 4 conditional offers to lease space totalling 89,000 square feet at 100% or 78,000 at RioCan's interest. These 4
conditional leases are expected to generate $1.3 million of base rental revenue per year, at RioCan's proportionate share.
In addition, we are in advanced stages of negotiation for another 11 leases totalling approximately 397,000 square feet at 100%
that are expected to be finalized by the end of the first quarter of 2016 (348,000 square feet at RioCan’s interest). These 11
leases are expected to generate $3.8 million of base rental revenue per year, at RioCan's proportionate share.
Collectively, these 32 leases represent approximately $12.5 million or 115% of the total net rental revenue lost through Target’s
departure (at RioCan's proportionate share). The expected cost to complete the redevelopment work related to the 32 leases is
currently estimated to be approximately $116 million (approximately $93 million at RioCan’s proportionate share). The overall
redevelopment costs will evolve as additional tenants are secured, development plans are completed and construction costs
finalized.
There is also 255,000 square feet at 100% that is currently being marketed, but is not presently the subject of active lease
negotiations where redevelopment plans are being prepared (136,000 square feet at RioCan’s interest).
The area that will be converted for landlord purposes including common area, loading docks and other uses represents 415,000
square feet at 100% (321,000 square feet at RioCan’s interest), which is subject to change based on tenant demand. The
remaining 195,000 square feet at 100% and RioCan’s interest represents space for potential redevelopment where plans have
not yet been finalized.
The lease agreements are in various stages of negotiations and there can be no assurance as to how many of the lease
agreements will be completed or their timelines.
51
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Other Store Closures
On March 28, 2015, Best Buy Canada announced its consolidation of Future Shop and Best Buy stores under the Best Buy
format. As at December 31, 2015, RioCan had ten Future Shop locations under lease, of which five locations were converted to a
Best Buy. The remaining five Future Shop locations were closed by Best Buy, however, the tenant continued to honour the terms
of the lease. RioCan subsequently worked with Best Buy to backfill all five of the locations with national tenants that include Ikea,
Winners and Michaels. These deals were done with no interruption of rent to RioCan at an average rent that exceeded what
Future Shop paid on the premises.
During 2015, in addition to Target and Best Buy, RioCan has experienced additional store closures from several chains such as
Co-mark Inc. (includes Ricki’s, Cleo’s and Bootlegger banners), Radio Shack, Mexx and Herbal Magic.
Subsequent to year end, on February 4, 2016, Danier Leather announced that it entered insolvency proceedings. As at
December 31, 2015 we have 8 Danier Leather locations under lease representing approximately 27,000 square feet of total NLA
with an average remaining lease term of 3.63 years.
Lease Expiries
RioCan’s lease expiries for the Canadian portfolio for the next five years are as follows:
(in thousands, except per sqft and percentage
amounts)
Square feet
Square feet expiring/Portfolio NLA
Portfolio
NLA (i)
42,124
2016
3,578
8.5%
2017
4,181
9.9%
2018
4,720
11.2%
2019
5,376
12.8%
Average net rent per occupied square foot
$
18.76
$
18.19
$
18.32
$
18.07
$
2020
4,916
11.7%
17.13
Lease expiries for the years ending
(i) Represents RioCan’s proportionate ownership share.
Approximately 71% of our Canadian portfolio NLA is comprised of new format retail and grocery anchored centres. Lease expiries
over the next five years in Canada will remain relatively steady averaging between 8% and 13% with a slight increase occurring
in between 2018 and 2019.
The components of our remaining Canadian lease expiries for 2016 are as follows:
(in thousands, except per sqft amounts)
2016 expiries at market rental rates:
Square feet expiring
Average net rent per sqft
2016 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
Total Canada
2,615
20.13
964
15.03
15.98
0.95
3,578
18.76
$
$
$
$
$
Canadian Contractual Rent Increases
Certain of our leases allow for periodic increases in rates during the lease term which contributes to growth in same store NOI.
Contractual rent increases (including rent increases at the time of renewal) in each year for the next five years for our Canadian
properties are as follows:
(in thousands)
For the years ending
Contractual rents
2016
2017
2018
2019
$
8,346 $
5,319 $
6,004 $
5,571 $
2020
4,109
52
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Property Ownership by Geographic Area
(in thousands of sqft)
As at December 31, 2015
Ontario
Alberta
Quebec
British Columbia
Eastern Canada
Manitoba / Saskatchewan
Income producing properties
Properties under development
Canadian investment properties
U.S. income producing properties
Six Canadian Major Markets
(in thousands of square feet)
As at December 31, 2015
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
27,020
5,143
5,071
3,329
1,029
532
42,124
3,939
46,063
10,027
NLA at
Partners'
Interest
4,015
1,537
Retailer
Owned
Anchors
5,086
2,175
436
678
375
201
7,242
2,730
9,972
—
657
426
95
93
8,532
316
8,848
3,181
Total Site
NLA
36,121
Percentage of
annualized gross
rental revenue
67.7%
8,855
6,164
4,433
1,499
826
57,898
6,985
64,883
13,208
12.5%
9.4%
7.3%
2.0%
1.1%
100.0%
—%
100.0%
Occupancy
percentage
93.5%
97.4%
93.2%
97.1%
84.0%
94.8%
94.0%
—%
94.0%
96.3%
NLA at
RioCan's
Interest
2,650
1,621
3,210
3,912
14,299
1,909
27,601
3,717
31,318
NLA at
Partners'
Interest
638
Retailer
Owned
Anchors Total Site NLA
4,554
1,266
899
402
551
2,561
492
5,543
2,730
8,273
758
150
1,012
2,225
373
5,784
316
6,100
3,278
3,762
5,475
19,085
2,774
38,928
6,763
45,691
(i) Area extends from Nepean and Vanier to Gatineau, Quebec.
(ii) Area extends north to Barrie, Ontario, west to Burlington, Ontario and east to Oshawa, Ontario.
(iii) Area extends east to Abbotsford, British Columbia.
As at December 31, 2015, the percentage of net revenue base derived from the six major markets increased to 74.8% compared
to 74.4% at September 30, 2015 and 73.3% at December 31, 2014. The increase during 2015 is in line with management's
strategy to acquire properties located in our six major markets and dispose of non-core lower growth assets.
53
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Top 25 Tenants – Canadian Portfolio
We strive to reduce its exposure to rental revenue risk in the shopping centre portfolio through geographical diversification,
staggered lease maturities, investment in residential developments, 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
our gross revenue and ensuring a considerable portion of rental revenue is earned from national and anchor tenants.
At December 31, 2015, RioCan’s 25 largest Canadian tenants measured by annualized gross rental revenue have the following
profile:
Rank Tenant name
1
2
Loblaws/Shoppers Drug Mart (ii)
Canadian Tire Corporation (iii)
3 Walmart
4
5
Cineplex/Galaxy Cinemas
Metro/Super C/Loeb/Food Basics
6 Winners/HomeSense/Marshalls
7
8
9
10
11
12
13
14
15
16
Sobey's/Safeway
Cara/Prime Restaurants
Dollarama
Lowe's (iv)
Staples/Business Depot
Reitmans/Penningtons/Smart Set/Addition-Elle/Thyme Maternity
TD Bank
Bank Of Montreal
PetSmart
GoodLife Fitness
17 Michaels
18
19
20
21
22
23
24
25
Best Buy (v)
Chapters/Indigo
Bluenotes/Stitches/Suzy Shier/Urban Planet/West 49 (YM Inc.)
The Bay/Home Outfitters
LA Fitness
Rexall Pharma Plus
Leon's/The Brick
DSW/ Town Shoes/ The Shoe Company
Annualized
rental
revenue
Number
of locations
NLA
(in thousands
of square feet)
Percentage of
total NLA
Weighted average
remaining lease term
(years) (i)
4.6%
4.4%
4.0%
3.8%
3.5%
3.4%
1.8%
1.7%
1.5%
1.4%
1.4%
1.3%
1.2%
1.1%
1.1%
1.0%
1.0%
0.9%
0.8%
0.8%
0.7%
0.7%
0.6%
0.6%
0.6%
82
90
30
29
52
72
33
106
82
11
35
95
56
50
30
29
22
18
25
56
9
8
17
13
32
2,099
2,402
3,505
1,443
2,133
1,825
1,053
489
725
1,379
740
435
302
384
439
572
419
367
298
342
425
306
148
307
219
5.0%
5.7%
8.3%
3.4%
5.1%
4.3%
2.5%
1.2%
1.7%
3.3%
1.8%
1.0%
0.7%
0.9%
1.0%
1.4%
1.0%
0.9%
0.7%
0.8%
1.0%
0.7%
0.4%
0.7%
0.5%
43.9%
1,082
22,756
54.0%
7.4
8.1
10.9
8.4
6.7
7.4
7.3
5.8
6.5
12.7
4.8
4.8
5.3
8.8
6.0
10.8
7.9
4.5
3.0
5.2
7.6
11.9
10.2
5.9
7.8
7.7
(i) Weighted average remaining lease term based on annualized gross rental revenue.
(ii) Loblaws/Shoppers Drug Mart includes No Frills, Fortinos, Zehrs and Maxi.
(iii) Canadian Tire Corporation includes Canadian Tire, PartSource, Mark’s, Sport Chek, Sports Experts, National Sports and Atmosphere.
(iv)
In February 2016, Lowe's announced its intent to purchase Rona. Upon closing of this transaction, Lowe's would become RioCan's ninth largest
tenant by total annualized Canadian rental revenue.
(v) On March 28, 2015, Best Buy Canada announced its consolidation of Future Shop and Best Buy stores under the Best Buy format. Refer to the
Tenant Vacancy section in this MD&A for further discussion.
54
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Selected Quarterly Canadian Key Performance Indicators
The key performance indicators related to operating and leasing Canadian properties over the last eight quarters are as follows
(note all metrics are stated at RioCan's interest, unless otherwise indicated):
(thousands of square feet, except
where otherwise noted)
Net leasable area (NLA):
NLA at 100% (i)
Income properties
Properties under development (ii)
NLA at RioCan's interest
Income properties
Properties under development (ii)
Occupancy:
Committed occupancy
Economic occupancy
NLA leased but not paying rent
Annualized rental impact
Average in-place rent
Percentage of portfolio net rental
revenue derived from six Canadian
major markets (iii)
New Leasing:
NLA
2015
2014
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
57,898
6,985
64,883
42,124
3,939
46,063
94.0 %
92.2 %
789
$16,884
$ 17.11
58,092
58,412
58,292
58,677
58,259
58,002
57,645
7,085
7,095
6,972
7,021
8,781
9,692
10,835
65,177
65,507
65,264
65,698
67,040
67,694
68,480
39,282
39,926
39,845
39,994
39,676
39,382
39,120
3,968
3,975
3,840
3,896
4,525
5,065
5,512
43,250
43,901
43,685
43,890
44,201
44,447
44,632
93.2 %
93.1 %
96.7 %
91.6 %
91.9 %
95.3 %
97.0%
95.8%
97.0%
95.9%
97.0%
95.5%
96.9%
95.6%
616
494
565
469
446
473
500
$16,076
$15,273
$16,235
$ 14,652
$ 14,641
$ 14,368
$ 12,459
$ 17.08
$ 17.02
$ 16.63
$ 16.69
$ 16.51
$ 16.50
$ 16.59
74.8 %
74.4 %
74.4 %
73.6 %
73.3%
73.3%
73.0%
72.2%
532
693
481
613
429
327
251
305
Average net rent per sqft
$ 18.91
$ 16.23
$ 23.31
$ 18.81
$ 22.24
$ 20.65
$ 28.82
$ 18.30
Renewal Leasing:
NLA
1,001
1,300
1,117
1,189
603
1,133
1,174
1,282
Average net rent per sqft
$ 18.19
$ 17.75
$ 18.07
$ 19.47
$ 23.20
$ 17.57
$ 18.50
$ 15.47
Retention rate
81.4 %
89.8 %
87.7 %
83.5 %
85.0%
91.7%
88.8%
91.2%
Number of employees (excluding
seasonal) (iv)
727
732
736
736
747
730
705
700
Includes non-owned anchors.
Includes active and non-active projects in greenfield and urban intensification developments located in Canada.
(i)
(ii)
(iii) The six Canadian major markets include the following: Calgary, AB; Edmonton, AB; Montreal, QC; Ottawa, ON (includes Gatineau region);
Toronto, ON; and Vancouver, BC.
(iv) Number of employees at December 31, 2015 includes 30 U.S.-based employees for our U.S. management platform.
55
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
ASSET PROFILE
Investment Property
Refer to note 5 of the 2015 Annual Consolidated Financial Statements for the year ended December 31, 2015 for the change in
consolidated IFRS carrying values of our income properties.
Change in the Fair Value of Investment Properties During 2015
For the year ended December 31, 2015, we reported a $92 million fair value loss related to continuing operations of which $79
million related to income properties and $13 million to properties under development. The majority of the fair value loss on
income properties is due to write-downs in value associated with the disclaimed Target locations. The carrying value of our
investment property at December 31, 2015 also reflects other property specific valuation adjustments resulting from interior
renovation costs at some of our enclosed malls and other tenant locations, higher net operating income and a reduction in
capitalization rates on Canadian primary market assets.
As at December 31, 2015 the weighted average capitalization rate for our investment properties and Canadian properties held for
sale is 5.72% (December 31, 2014 - 5.77%).
The tables below provide details of the average capitalization rate (weighted based on stabilized NOI) by market category as at
December 31, 2015.
Canadian Portfolio
Retail Class
Enclosed Shopping Centre
Grocery Anchored Shopping Centre
Mixed Use
New Format Retail
Non-Grocery Anchored Centre
Urban Retail
Total average portfolio capitalization rate
Weighted Average Capitalization Rate
Overall portfolio
Primary market Secondary market
6.32%
5.88%
5.56%
5.56%
6.28%
5.11%
5.72%
5.87%
5.70%
5.35%
5.38%
5.95%
5.11%
5.47%
6.66%
6.27%
7.11%
6.05%
6.74%
—
6.32%
Acquisitions During 2015
During the three months ended December 31, 2015, RioCan completed acquisitions of interests in 25 income properties
aggregating $778 million at a weighted average capitalization rate of 6.0%, representing RioCan's share of the purchase price
and comprised of approximately 3,081,000 additional square feet. In connection with these acquisitions, RioCan assumed
mortgage financing of $263 million bearing interest at a weighted average interest rate of 4.0%.
During the year ended December 31, 2015, RioCan completed acquisitions of interests in 49 income properties aggregating $997
million at a weighted average capitalization rate of 5.9%, representing RioCan's share of the purchase price and comprised of
approximately 3,744,000 additional square feet. In connection with these acquisitions, RioCan assumed mortgage financing of
$287 million bearing interest at a weighted average interest rate of 4.0%.
Capitali-
zation
rate
RioCan’s
purchase
price (i)
(thousands)
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)
Largest tenant(s)
and NLA
(thousands of sqft)
RioCan’s
ownership
interest
6.0% $ 715,016
2,835 $
16.69
Various
93 %
4.1
Various
(iv)
5.9% $
58,947
236 $
16.12
ENC 1982
97 %
4.1
Lowe's (121)
100%
6.0% $ 773,963
3,071 $
16.65
Property name and
location
Q4 2015: CANADA
Kimco Joint
Venture dissolution
- 22 properties
Tillicum Centre,
Victoria, BC
(remaining 50%)
Canada – Q4 2015
Acquisitions
Q4 2015: UNITED STATES
Monroe
Marketplace - Two
Pads, Selinsgrove,
PA
U.S. – Q4 2015
Acquisitions
Total Q4 2015
Acquisitions
6.4% $
4,361
10 $
37.59
GA 2015
100 %
10.0
Restaurants (10)
100%
6.4% $
4,361
10 $
37.59
6.0% $ 778,324
3,081 $
16.72
56
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Capitali-
zation
rate
RioCan’s
purchase
price (i)
(thousands)
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)
Property name and
location
Largest tenant(s)
and NLA
(thousands of sqft)
RioCan’s
ownership
interest
Q3 2015: UNITED STATES
Stassney Heights,
Austin, TX
McKinney
Marketplace,
Dallas, TX
U.S. – Q3 2015
Acquisitions
Total Q3 2015
Acquisitions
6.0% $
24,604
103 $
15.08
GA 1999
99 %
5.3
Fiesta Mart (62)
100%
6.7%
21,958
119
13.33
NFR 2000
98 %
Kohl's (87), Dollar
Tree (9)
3.1
100%
6.3% $
46,562
222 $
14.14
6.3% $
46,562
222 $
14.14
Q2 2015: UNITED STATES
Bird Creek
Shopping Centre -
Mattress Firm Pad
U.S. – Q2 2015
Acquisitions
Total Q2 2015
Acquisitions
Q1 2015: CANADA
RioCan Leaside
Centre (remaining
50%), Toronto, ON
18 property BMO
Portfolio, ON, BC
and QC
Brentwood Village,
Calgary AB
(remaining 50%)
Grand Park,
Mississauga ON
(remaining 50%)
Canada – Q1 2015
Acquisitions
Total Q1 2015
Acquisitions
7.8% $
2,775
5 $
35.00
GA 2014
100 %
9.5 Mattress Firm (5)
100%
7.8% $
2,775
5 $
35.00
7.8% $
2,775
5 $
35.00
5.5% $
31,500
67 $
26.48
NFR 1996
100 %
1.8
Canadian Tire
(95), PetSmart
(24)
100%
5.5%
50,238
174
15.92
NGA
5.3%
69,132
135
21.76
NFR
1892-
1992
1988,
2000
100 %
4.3
100 %
12.5
BMO (174)
100%
Sears Home (46),
Bed Bath &
Beyond (38),
Canada Safeway
(25)
Winners (27),
Staples (20),
Shoppers Drug
Mart (16)
100%
100%
6.0%
18,405
60
20.13
NFR 2004
100 %
4.8
5.5% $ 169,275
436 $
19.93
5.5% $ 169,275
436 $
19.93
Total 2015 Acquisitions:
Canada
U.S.
Total 2015
Acquisitions
5.9% $ 943,238
3,507 $
17.06
6.4% $
53,698
237 $
15.57
5.9% $ 996,936
3,744 $
16.97
(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) RioCan acquired the remaining 50% interests in 20 of the 22 property portfolio acquired from Kimco and acquired additional 33% interests in the
other two properties, bringing RioCan's ownership to 66% in both of those properties, with another partner continuing to own 33% interests in both.
Dissolution of Canadian Joint Venture with Kimco
During the fourth quarter of 2015, RioCan and Kimco carried out a transaction that marked the substantial unwinding of our
Canadian joint venture. We acquired Kimco’s interest in a portfolio of 23 Canadian properties at a purchase price of $774 million.
Under the terms of the transaction, we assumed Kimco’s share of the existing in-place debt of $263 million with an average
interest rate of 4.0% and a weighted average term to maturity of about 3.5 years.
The initial closing of our acquisition of Kimco’s interest in 19 properties was completed on October 6, 2015 at a purchase price of
$477 million. We assumed Kimco’s share of the existing in-place debt of $127 million. The subsequent closing of our acquisition
of Kimco's interest in three properties was completed on December 15, 2015 at a purchase price of $238 million where we
assumed Kimco's share of the existing in-place debt of $104 million. The portfolio is immediately accretive and is expected to
generate additional annualized net operating income of approximately $45 million. In a separate transaction on December 17,
2015, we acquired Kimco’s 50% interest in Tillicum Centre at a purchase price of $59 million where we assumed Kimco’s share of
57
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
the existing in-place mortgage financing of $32 million. We estimate that the acquisition is expected to generate incremental NOI
of approximately $3.6 million on an annualized basis.
As our management team has provided leasing, asset, and property management duties on these properties since the inception
of our joint venture relationship with Kimco, the increased interest in the portfolio has been easily absorbed by the Trust. This
acquisition increases the concentration of our portfolio located in Canada’s six major markets, most notably in the Greater Toronto
Area.
We continue to market for sale a second group of retail assets, which are in various stages of the disposition process. As at
December 31, 2015, there were seven properties to be disposed of, which has increased to eight properties as at the date of this
report. Refer to Dispositions Under Contract and Being Marketed section of this MD&A for details. There is no assurance that
these sale transactions will be completed. There remains a third group of three transitional properties that were previously
occupied by Target, which will be dealt with at a future date.
U.S.
On December 24, 2015, RioCan completed the acquisitions of 100% interests in two pads aggregating 10,000 square feet at
Monroe Marketplace in Selinsgrove, Pennsylvania, at an aggregate purchase price of US$3.1 million ($4.4 million Canadian
equivalent), representing a weighted average capitalization rate of 6.4%. The assets were acquired free and clear of financing.
These assets will be sold to Blackstone as part of the divestiture from the U.S. Monroe Marketplace, a new format retail centre
owned 100% by RioCan, is comprised of 365,000 square feet of leasable area anchored by Giant Foods, Kohl's and Dick's
Sporting Goods.
Joint Venture with Hudson’s Bay Company
During 2015, Hudson’s Bay Company (HBC) and RioCan announced the formation of a joint venture focused on real estate
growth opportunities in Canada (the RioCan-HBC JV). The initial property contributions occurred in two tranches as described
below.
First tranche closing on July 9, 2015:
•
The RioCan-HBC JV acquired properties for approximately $1.6 billion generating annual cash rents of $81 million. New and
assumed debt by the RioCan-HBC JV totaled $494 million comprised of $352 million in new debt and $142 million of
assumed mortgages.
• HBC contributed seven owned or ground-leased properties (including Hudson’s Bay flagship properties in downtown
Vancouver, Calgary, Ottawa, and Montreal) with approximately 2.6 million square feet. The transaction valued the first
tranche of the HBC real estate contribution at approximately $1.3 billion based on a capitalization rate of 5.0%, resulting in
an initial HBC equity stake of $950 million or 86.6% in the RioCan-HBC JV.
• HBC received $352 million in cash proceeds from third-party financing arranged in conjunction with the closing and assumed
by the RioCan-HBC JV.
• RioCan contributed a 50% interest in two mall properties in Ontario (Oakville Place and Georgian Mall) at a gross sales price
of $299 million based on a capitalization rate of 5.2%, net of existing debt and capital lease obligations aggregating to $152
million. Our contribution resulted in an initial equity stake of $147 million or 13.4% in the RioCan-HBC JV.
Second tranche closing on November 25, 2015:
• HBC indirectly contributed three ground-leased properties consisting of Yorkdale Shopping Centre, Scarborough Town
Centre and Square One (collectively, the YSS Properties) totaling 736,000 square feet to the RioCan-HBC JV. Considering
both tranches, the RioCan-HBC JV acquired properties at a total purchase price of approximately $2.0 billion. New and
assumed debt at the RioCan-HBC JV level totaled $541 million made up of $399 million in new debt and $142 million of
assumed mortgages.
•
•
The transaction valued this second tranche of the HBC real estate contribution at approximately $379 million based on a
capitalization rate of 5.3%. As part of the transaction, the HBC mortgage on the Yorkdale ground lease of approximately $48
million was assumed by an entity related to the RioCan-HBC JV.
Across the two tranches, the contributions of real estate from HBC were valued at approximately $1.6 billion, resulting in a
total HBC equity stake of $1.3 billion or 89.7% in the RioCan-HBC JV with a 10.3% equity interest for RioCan.
• On August 4, 2015, HBC obtained a favourable court declaration and order from the Superior Court of Justice-Ontario which
permits the indirect contribution of the three ground-leased YSS Properties to the RioCan-HBC JV. This declaration and
order was appealed by the related landlord and was upheld by the Ontario Court of Appeal. As a result, the transaction for
the YSS Properties is final.
We have committed to contribute a total of $325 million to the RioCan-HBC JV for an eventual pro forma equity stake of
approximately 20%. The balance of our contributions will consist of $53 million in tenant allowances and $125 million to be used
to fund future property acquisitions and diversify the tenant base. These contributions are expected to be made by the third
anniversary of the first tranche closing date.
The RioCan-HBC JV has established a dedicated management team focused on overseeing the contributed properties and
growing the portfolio, with support from HBC and RioCan. The RioCan-HBC JV Board is comprised of four directors, two of whom
have been appointed by each partner. Unanimous Board consent is required for all major operating decisions. RioCan will
continue to act as property manager for the enclosed malls that it has contributed to the RioCan-HBC JV’s portfolio.
58
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Acquisitions Completed Subsequent to December 31, 2015
On January 20, 2016, RioCan acquired a 100% interest in one income property at a purchase price of approximately $37 million,
representing a capitalization rate of 3.7%. The asset was acquired free and clear of financing.
Acquisitions Under Contract
As at the date of this report, RioCan does not have any income property acquisitions under contract.
Dispositions During 2015
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 quarter ended December 31, 2015, RioCan did not dispose of any interests in income properties.
During the year ended December 31, 2015, RioCan disposed of interests in nine income properties aggregating $448 million
representing a weighted average capitalization rate of 5.7%, comprised of approximately 1,405,000 square feet. The Trust's
mortgage obligations related to these properties was $155 million.
Capitalization
rate
RioCan’s
sales price
(thousands)
Debt
associated
with
property
(thousands)
GLA
disposed of at
RioCan’s
interest
(in thousands
of sqft)
Asset
class
(i)
Ownership
interest
disposed of
by RioCan
Property name and location
Q4 2015
None
Total Q4 2015 Dispositions
Q3 2015
Georgian Mall, Barrie, ON (ii)
Oakville Place, Oakville, ON (ii)
Centre Jacques Cartier, Longueuil, QC
Brant Street Power Centre, Burlington, ON
Total Q3 2015 Dispositions
Q2 2015
None
Q1 2015
Carrefour Neufchatel, Quebec City, QC
Carrefour Carnaval - St. Leonard, Montreal, QC
Centre Carnaval, Drummondville, QC
Centre Commercial Forest, Montreal, QC
Place Kennedy, Levis, QC
Total Q1 2015 Dispositions
$
— $
—
5.3% $ 174,313
$ 88,291
5.0%
7.9%
5.8%
124,692
53,734
8,875
20,275
—
—
5.3% $ 328,155
$ 142,025
—
—
—
—
—
13,180
6.2% $
34,910
$
7.0%
7.2%
7.5%
7.0%
28,090
18,521
17,950
20,589
6.8% $ 120,060
$ 13,180
—
256
235
109
57
657
—
205
171
147
119
106
748
ENC
ENC
ENC
NFR
GA
GA
GA
NGA
NGA
50%
50%
50%
50%
100%
100%
100%
100%
100%
Total Q2 2015 Dispositions
$
— $
Total 2015 Dispositions
5.7% $ 448,215
$ 155,205
1,405
(i)
“GA” - Grocery Anchored Centre; “NGA” - Non Grocery Anchored Centre; “NFR” - New Format Retail; "ENC" - Enclosed shopping centre; "Land" -
Excess density.
(ii) The disposition of a 50% interest in this property forms part of the formation of the new joint venture with Hudson's Bay Company - Refer to the
Joint Venture with Hudson's Bay Company section, herein.
Joint Venture with Hudson’s Bay Company
As part of the agreement with HBC discussed previously in the Acquisitions During 2015 section of this MD&A, on July 9, 2015
RioCan contributed to the RioCan-HBC JV 50% interests in two income properties at a sale price of approximately $299 million
(at the 50% interests disposed of), representing a weighted average capitalization rate of 5.2%. RioCan has retained the
remaining 50% interest in each property and will continue to manage. There is approximately $142 million of debt associated with
these properties (at the 50% interests disposed of), carrying interest at a weighted average rate of 3.7% and maturing in 2018
and 2021.
Disposition of equity accounted investment
On July 6, 2015, the Trust completed the disposition of its 80% non-managing interest in one income property in the U.S. that
was accounted for using the equity method for proceeds of $43 million (US$35 million).
59
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Dispositions Completed Subsequent to December 31, 2015
Subsequent to year end, RioCan disposed of interests in two income properties for $46 million representing a weighted average
capitalization rate of 5.2%, comprised of approximately 121,000 square feet. There was $14 million of mortgage financing
associated with these properties at the time of disposition.
Dispositions Under Contract and Being Marketed
RioCan has one income property disposition in Canada under firm contract where conditions have been waived that, if
completed, would represent a disposition of approximately $11 million. There is approximately $2 million of mortgage financing
associated with this property.
RioCan has income property dispositions in Canada under conditional contracts where conditions have not yet been waived that,
if completed, would represent dispositions of approximately $48 million. There is approximately $5 million of mortgage financing
associated with these properties. These transactions are undergoing due diligence procedures and while efforts will be made to
complete the transactions, no assurance can be given.
RioCan is also in the process of marketing for sale income properties in Canada with an aggregate fair value as at December 31,
2015 calculated in accordance with IFRS of approximately $41 million. There is approximately $16 million of mortgage financing
associated with these properties. 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.
In September 2015, RioCan and Kimco announced that they have agreed to unwind their Canadian joint venture, as discussed in
the Dissolution of Canadian Joint Venture with Kimco section in this MD&A. As at December 31, 2015, there were seven
properties to be disposed of, which has increased to eight properties as at the date of this report. Of the eight properties to be
disposed of as at the date of this report, two property dispositions have been completed at a sales price of $46 million (included in
the Dispositions Completed Subsequent to December 31, 2015 section above) while six properties with an IFRS carrying value
of $100 million are at various stages of the disposition process (included in the preceding paragraphs of this section). There is no
assurance that these sale transactions will be completed. There remains a third group of three transitional properties that were
previously occupied by Target, which will be dealt with at a future date.
Capital Expenditures on Income Properties
Capital expenditures
Capital expenditures refer to investments that are necessary to maintain the existing earnings capacity of our 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, 2015, the estimated weighted average age of the income property portfolio is 21.8 and 12.0 years for the
Canadian and U.S. portfolios, respectively (December 31, 2014 - 20.3 and 12.4 years for the Canadian and U.S. portfolios,
respectively). Capital expenditures are considered in determining our calculation of AFFO, which influences amounts that are
distributed to unitholders, primarily consisting of leasing commissions, tenant improvements and certain recoverable and non-
recoverable capital expenditures.
Leasing Commissions and Tenant Improvements
Our 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
our internal leasing professionals.
Investments of capital for tenant installation costs for our 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
We also invest capital on a regular basis to physically maintain the income properties. Typical costs incurred are for expenditures
such as 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. We expense or capitalize 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.
Revenue enhancing capital expenditures
Capital spending for new or existing income properties that is expected to create, improve and/or add to the overall earnings
capacity of the property portfolio are considered revenue enhancing. RioCan considers such amounts to be investing activities.
As a result, we do not expect such expenditures to be funded from cash flows from operating activities and do not consider such
amounts as a key determinant in setting the amount that is distributed to its unitholders. Revenue enhancing capital expenditures
are not included in the determination of AFFO.
60
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Expenditures for leasing commissions and tenant improvements and recoverable, non-recoverable and revenue enhancing
capital expenditures included in consolidated income properties are as follows:
Continuing Operations
(thousands of dollars)
Leasing commissions and tenant improvements
$
2015
7,807 $
2014
2015
3,480 $ 21,626 $ 22,164 $
2014
Three months ended
December 31,
Year ended
December 31,
Estimated
Canadian
property
expenditures
for 2016
Annual
normalized
expenditures on
Canadian
properties (ii)
(19,000)
$ 18 - 23
Capital expenditures:
Recoverable from tenants
Non-recoverable from tenants
Revenue enhancing
Office capital investment (i)
8,141
7,303
473
23,724
1,053
2,259
4,384
3,109
13,232
1,057
14,438
11,520
2,238
49,822
4,770
9,946
9,179
5,770
(15,000)
(10,000)
12 - 15
8 - 10
47,059 $
(44,000)
$ 38 - 48
4,042
$ 24,777 $ 14,289 $ 54,592 $ 51,101
(i)
Includes certain expenditures related to one-time upgrades to mechanical and electrical components of the office component of the RioCan Yonge
Eglinton Centre, a portion of which is recoverable from the office tenants.
(ii) Amounts in millions of Canadian dollars.
Discontinued Operations
(thousands of dollars)
Leasing commissions and tenant improvements
Capital expenditures:
Recoverable from tenants
Non-recoverable from tenants
Three months ended
December 31,
Year ended
December 31,
2015
1,273 $
2014
2,472 $
2015
9,179 $
2014
6,614
143
1,224
2,640 $
238
1,235
3,945 $
1,737
2,405
13,321 $
513
1,700
8,827
$
$
Capital expenditures on U.S. properties for Q1 2016 are estimated to be approximately $2 million.
Co-ownership Arrangements
Co-ownership activities represent real estate investments in which RioCan owns an undivided interest and where it has joint
control with its co-owners.
The Trust’s co-ownership arrangements are governed by co-ownership agreements with its various co-owners. RioCan’s
standard co-ownership agreement provides exit and transfer provisions, including, but not limited to, buy/sell and/or right of first
offers or refusals 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 $197 million as at December 31, 2015 (December 31, 2014 - $309 million) on behalf of co-owners.
During 2015, with our acquisition of Kimco's interest in a portfolio of 23 Canadian properties, our maximum exposure to loss
under guarantee contracts with Kimco was reduced by $119 million.
RioCan’s more significant co-ownership arrangements relationships are as follows:
Allied
•
•
•
Allied is a leading owner, manager and developer of urban office environments.
The joint venture 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.
Three Toronto development projects - College & Manning, 491 College and King & Portland.
Allied/Diamond
•
The Well joint venture formed with Allied and Diamond Corp. (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 2, LP).
61
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
The existing tenant is expected to vacate the premises at the end of 2016. The property will be redeveloped as a mixed-use
development comprising approximately three million square feet of retail, office and residential space.
It should be noted that we are exploring strategic options, including bringing in a partner on the residential component.
CPPIB
• CPPIB is a professional investment management firm that invests the assets of the Canada Pension Plan.
•
Seven income producing and development properties, located in Ontario, Alberta and British Columbia.
• Major co-owner on East Hills, Calgary development project and sole co-owner on McCall Landing, Calgary.
HBC
• HBC is principally a North American retailer with a focus on department stores, with such leading banners as Hudson's Bay,
Lord and Taylor, Saks Fifth Avenue and Saks Fifth Avenue Off Fifth.
• During the third quarter of 2015 HBC and RioCan formed a joint venture with each partner contributing properties and debt.
During the fourth quarter, HBC indirectly contributed an additional three ground-leased properties and the debt associated
with one of the assets. The joint venture currently owns 12 properties together located in Ontario, Quebec, British Columbia
and Alberta.
Kimco
•
Kimco is a publicly traded REIT that owns and operates North America’s largest portfolio of neighbourhood and community
shopping centres.
• During the fourth quarter of 2015, RioCan and Kimco carried out a transaction that marked the substantial unwinding of their
Canadian joint venture, with RioCan acquiring Kimco’s interest in a portfolio of 23 Canadian properties.
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.
The co-ownerships with RioCan are 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.
• One Alberta development project - Sage Hill.
Tanger has been 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.
The joint venture with RioCan is 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.
Tanger and RioCan own together four income properties in Ontario and Quebec - Cookstown Outlet Mall, Les Factoreries
Tanger - Bromont, Tanger Outlets Ottawa and Les Factoreries Tanger - Saint-Sauveur.
Trinity, a private company, has played a prominent role in the development of new format regional retail centres across
Canada.
Trinity and RioCan own eleven income producing and development properties together, located in Ontario and Alberta.
KingSett
•
•
•
•
•
•
Tanger
•
Trinity
•
62
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
Three months ended
December 31, 2015
Year ended
December 31, 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Selected Financial Information by Joint Operation - Proportionate Share
(thousands of dollars)
As at December 31, 2015
Allied
Allied/Diamond (The Well)
Bayfield
CMHC Pension Fund
CPPIB
First Gulf
Kimco
KingSett
Metropia/Bazis
Sun Life
Tanger
Trinity
Other
RioCan's
ownership
interest
Number of
Investment
Properties (i)
Assets (ii) Liabilities (ii)
50%
40%
30% -40%
50%
40% - 50%
50%
15.5% - 50%
50%
50%
40% - 50%
50%
50%-81.25%
50%-75%
3 $
45,236 $
5,825 $
1
5
1
7
1
12
3
1
2
4
11
9
100,657
108,179
40,499
592,057
81,094
243,623
297,022
113,293
94,982
184,429
478,669
143,383
41,127
45,801
19,849
90,338
34,820
66,993
101,996
66,761
14,410
18,627
223,774
46,697
NOI (iii)
393 $
337
1,498
436
3,638
1,132
6,918
2,489
(16)
1,298
2,167
5,414
1,848
Total Joint Operations
60 $ 2,523,123 $
777,018 $
27,552 $
(i)
Includes properties under development and is based on the number of proportionately owned properties as at December 31, 2015.
(ii) Assets and liabilities are stated at RioCan's proportionate share.
(iii) Represents the proportionate share of NOI related to all properties for which we owned a proportionate interest during the reporting period.
Total Assets by Joint Arrangement
(thousands of dollars)
As at December 31, 2015
Proportionately consolidated joint
operations
Income
properties
Residential
development
inventory
PUD (i)
Other (ii)
Total
December 31,
2014
Allied
$
20,007 $
23,181 $
— $
2,048 $
45,236 $
Allied/Diamond (The Well)
Bayfield
CMHC Pension Fund
CPPIB
First Gulf
Kimco
KingSett
Metropia/Bazis (iii)
Sun Life
Tanger
Trinity (iii)
Other
Total assets of proportionately
consolidated joint operations
Equity accounted joint ventures (iv):
—
105,258
38,021
477,050
77,669
228,432
231,720
2,512
94,241
167,363
402,693
130,335
98,068
1,805
1,992
108,872
3,142
12,202
64,338
68,178
—
12,803
56,317
11,980
—
—
—
—
—
—
—
37,290
—
—
7,986
—
2,589
1,116
486
6,135
283
2,989
964
5,313
741
4,263
11,673
1,068
100,657
108,179
40,499
592,057
81,094
243,623
297,022
113,293
94,982
184,429
478,669
143,383
$ 1,975,301 $
462,878 $
45,276 $
39,668 $
2,523,123 $
3,330,397
HBC (RioCan-HBC JV)
$
200,667 $
— $
— $
205 $
200,872 $
Kimco (RioKim Montgomery JV LP)
Marketvest Corporation/Dale-Vest
Corporation (Dawson-Yonge LP)
—
8,480
Total assets of equity accounted joint
ventures
209,147
—
—
—
—
—
—
—
58
263
Total Joint Arrangements
$ 2,184,448 $
462,878 $
45,276 $
39,931 $
—
8,538
—
76,779
8,169
209,410
2,732,533 $
84,948
3,415,345
The value of properties under development includes active development projects as well as the value of excess density where development is currently non-active.
(i)
(ii) Primarily includes cash, rents receivable and other operating expenditures recoverable from tenants.
(iii) Residential development inventory includes the following properties: Northeast Yonge Eglinton e-condos (Metropia and Bazis Inc.) and Stouffville excess residential
density (Minto and Trinity).
(iv) Includes the Trust's equity accounted joint arrangements only, and thus excludes our investment in the WhiteCastle Funds. For RioCan's ownership interests in
these equity accounted joint ventures, refer to note 6 of the 2015 Annual Consolidated Financial Statements.
63
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
NOI (iii)
1,234
1,365
6,607
1,979
20,574
4,222
55,361
10,736
(52)
5,248
7,915
19,164
12,936
147,289
41,398
99,347
114,634
42,620
590,445
80,896
1,221,916
291,336
75,161
25,659
184,249
397,538
165,198
MANAGEMENT’S DISCUSSION AND ANALYSIS
NOI by Joint Arrangement
(thousands of dollars)
Proportionately consolidated joint operations (i)
Allied
Allied/Diamond (The Well)
Bayfield
CMHC Pension Fund
CPPIB
First Gulf Corporation
Kimco
KingSett
Metropia/Bazis
Sun Life
Tanger
Trinity
Other
Total NOI of proportionately consolidated joint operations
Equity accounted joint ventures (ii):
HBC (RioCan-HBC JV)
Kimco (RioKim Montgomery JV LP)
Marketvest Corporation/Dale-Vest Corporation (Dawson-Yonge LP)
Total NOI of equity accounted joint ventures
Total Joint Arrangements
Year ended December 31,
2015
2014
$
1,234 $
1,365
6,607
1,979
20,574
4,222
55,361
10,736
(52)
5,248
7,915
19,164
12,936
147,289 $
5,531 $
1,167
499
7,197
154,486 $
$
$
$
1,465
1,463
6,963
2,102
21,997
3,300
70,396
11,488
97
3,906
5,741
23,202
9,327
161,447
—
3,815
458
4,273
165,720
(i) Represents the proportionate share of NOI related to all properties for which we owned a proportionate interest during the reporting period.
(ii) Includes the Trust's equity accounted joint arrangements only, and thus excludes our investment in the WhiteCastle Funds. For RioCan's
ownership interests in these equity accounted joint ventures, refer to note 6 of the 2015 Annual Consolidated Financial Statements.
Properties Under Development
RioCan has a development program primarily focused on mixed-use 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, 2015, RioCan's investments
in non-income producing properties as a percentage of Adjusted Unitholders' Equity was 2.9% and, therefore, the Trust is in
compliance with this restriction.
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 geographic area as at December 31, 2015 is as follows:
(in thousands of square feet)
NLA
Toronto
Suburban
GTA
1,985
1,057
Alberta
675
Other
Ontario
222
Total
3,939
Development Properties
Refer to note 5 of the 2015 Annual Consolidated Financial Statements for the change in consolidated IFRS carrying value of the
Trust's development properties.
Development Property Acquisitions
During the three months ended December 31, 2015, RioCan acquired an interest in one development property in Canada at a
purchase price of $4 million.
During the year ended December 31, 2015, RioCan acquired interests in three development properties in Canada at an
aggregate purchase price of $25 million.
Development Property Acquisitions Subsequent to December 31, 2015
As at the date of this report, RioCan has not completed any development property acquisitions subsequent to quarter end.
64
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Development Property Acquisitions Under Contract
RioCan has one development property in Canada under conditional contract where conditions have not yet been waived for $7
million. While efforts will be made to complete the acquisition, no assurance can be given.
RioCan has agreed to fund a prospective mixed-use development project by Metropia and Bazis Inc. in the Yorkville district of
Toronto, Ontario. The objective of this project is to assemble lands for a mixed use development. The existing structures on the
acquired sites may be demolished and redeveloped into a mixed use centre including retail, residential rental units and potentially
condominium units. Metropia and Bazis Inc. will contribute equity of up to $10 million, with the remainder of the project to be
funded by RioCan. RioCan has the option to acquire a 100% interest in the retail and residential rental units, as well as a 50%
interest in the condominium units, at any time. Metropia and Bazis Inc. have the option to require RioCan to acquire a 100%
interest in the retail and residential rental units, as well as a 50% interest in the condominium units, at any time between the first
and second anniversary of the date of acquisition of the properties to be redeveloped. The initial acquisitions of redevelopment
sites were completed during the second quarter of 2015, aggregating $23 million.
Development Property Dispositions During 2015
During the three months and year ended December 31, 2015, we disposed of one parcel of excess land in Canada valued at $7
million.
Development Property Dispositions Completed Subsequent to December 31, 2015
As at the date of this report, RioCan has not completed any development property dispositions subsequent to December 31,
2015.
Development Property Dispositions Under Contract and Being Marketed
RioCan has the disposition of one land parcel in Canada under firm contract where conditions have been waived for sales
proceeds of approximately $5 million. This land parcel is free and clear of financing.
RioCan has dispositions of land parcels in Canada under conditional contracts where conditions have not yet been waived for
total sales proceeds of approximately $21 million. These land parcels are free and clear of financing. While efforts will be made to
complete the transactions, no assurance can be given.
We are also in the process of marketing for sale land parcels in Canada with an aggregate fair value as at December 31, 2015
calculated in accordance with IFRS of approximately $42 million. These land parcels are free and clear of financing. RioCan is
under no obligation to proceed with the proposed dispositions.
Development Activity in 2015
During the year ended December 31, 2015, RioCan transferred from properties under development to income producing
properties $231 million in costs pertaining to 381,000 square feet of completed greenfield development or expansion and
redevelopment projects. During 2015, RioCan transferred 18 disclaimed Target stores from income producing properties to
properties under development.
During the three months ended December 31, 2015, RioCan transferred from properties under development to income producing
properties $33 million in costs pertaining to 63,000 square feet of completed greenfield development or expansion and
redevelopment projects.
65
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
A summary of RioCan’s 2015 transfers to income properties from development projects is as follows:
NLA (in thousands of square feet) at RioCan’s Interest
2015
Property location
RioCan’s
%
ownership
Brentwood Village, Calgary, AB (i)
50%
Total
12
Herongate Mall, Ottawa, ON
Centre St Martin, Laval, QC
75%
100%
17
39
Sage Hill Crossing, Calgary, AB
50%
109
Corbett Centre, Fredericton, NB
Mill Woods Town Centre, Edmonton,
AB
Parkland Mall, Yorkton, SK
RioCan Scarborough Centre II,
Toronto, ON
West Ridge Place, Orillia, ON
Yonge Eglinton Centre, Toronto, ON
East Hills, Calgary, AB
Oakville Place, Oakville, ON (ii)
RioCan Hall, Toronto, ON
Tanger Outlets Ottawa, Ottawa, ON
Burlington Mall, Burlington, ON
100%
40%
100%
100%
100%
100%
40%
100%
100%
50%
50%
5
4
31
6
16
43
24
14
29
14
18
381
Fourth
quarter
Third
quarter
Second
quarter
First
quarter
NLA at
100% Tenants transferred to IPP
—
—
—
31
—
—
—
—
—
—
—
—
—
14
18
63
—
—
—
—
—
—
—
—
—
—
24
14
29
—
—
67
—
—
—
—
5
4
31
6
16
43
—
—
—
—
—
12
17
39
78
—
—
—
—
—
—
—
—
—
—
—
24 Kim Vy Restaurant, Sinjo
Restaurant, Anytime
Fitness, University
Daycare
23 Dollarama, PetSmart
39 Giant Tiger Retail &
Office
217 Walmart, Loblaws, Tim
Hortons, RBC, H&R Block
5 Sleep Country
10 Lenscrafters, Cellicon
31 Save On Foods
6 Mucho Burrito, Popeyes,
Dentist
16 Fit4Less
43 Winners, Cineplex VIP
61 TD Bank, Bulk Barn,
Sleep Country
14 Pusateri's
29 Michaels
28 Saks Off Fifth
37 Shoppers Drug Mart,
Sport Chek
105
146
583
(i) At the time of transfer of NLA from development property to income property, RioCan owned a 50% interest in Brentwood Village. On March 31,
2015, we acquired the remaining 50% interest in the property and now own a 100% interest.
(ii) At the time of transfer of NLA from development property to income property, we owned a 100% interest in Oakville Place. On July 6, 2015,
RioCan transfered a 50% interest in this property to a newly formed joint venture with HBC.
Development Pipeline Summary
The fair market value of properties under development, including properties under development held for sale, at December 31,
2015 is $872 million (December 31, 2014 - $706 million), which includes costs of $907 million (December 31, 2014 - $718 million)
and a cumulative fair value reduction of $35 million (December 31, 2014 - reduction of $12 million).
As at December 31, 2015, RioCan’s greenfield development and urban intensification pipeline will, upon completion, comprise
approximately 6,985,000 square feet, which includes approximately 485,000 square feet which is already income producing.
RioCan’s ownership interest will be approximately 3,939,000 square feet.
The following tables represent the components of properties under development type and status as of:
(thousands of dollars)
As at December 31, 2015
Comprised of:
Greenfield Development
Urban Intensification
Expansion and Redevelopment
Excess Density and Other (i)
(i)
Including earnouts of $2 million.
Definitions
Active
Committed Non-committed
Non-active
Total
$
107,161
$
63,680
$
— $
175,248
266,291
—
138,221
19,657
—
—
—
101,944
$
548,700
$
221,558
$
101,944
$
170,841
313,469
285,948
101,944
872,202
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.
66
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 aggregate basis, the majority of the greenfield development and urban intensification projects (including residential rental
development) are estimated to generate weighted average NOI yield of approximately 5.4%. For the year ended December 31,
2015, total costs incurred were approximately $187 million. Capital expenditures for active projects for 2016 are estimated to be
approximately $184 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 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.
Estimated Spending Summary by Development Category – Active Projects
(thousands of dollars)
Greenfield Development
Urban Intensification
Expansion & Redevelopment
2016
2017
2018
2019+
Total
$
27,707
$
28,844
$
10,142
$ 212,081
$ 278,774
59,542
96,672
103,381
150,417
146,700
103,977
661,019
9,754
970,642
360,820
Total RioCan share of Construction Expenditures (i)
$ 183,921
$ 282,642
$ 260,819
$ 882,854
$ 1,610,236
(i)
Includes project costs funded by RioCan construction loans and is net of potential land sales.
As at December 31, 2015, the development pipeline NLA expected to be completed by year is as follows:
(thousands of square feet)
Greenfield Development
Urban Intensification
Sub-total
Expansion & Redevelopment
Total
NLA - RioCan%
NLA - 100% NLA - RioCan%
IPP(i)
2016
2017
2018
2019+
2,716
4,269
6,985
2,669
9,654
1,766
2,173
3,939
1,862
5,801
206
54
260
—
260
185
76
261
421
682
61
15
76
873
949
108
575
683
346
1,029
1,206
1,453
2,659
222
2,881
(i) NLA of the development pipeline that is currently income producing.
As at December 31, 2015, the development pipeline NLA expected to be completed by year by committed and non-committed is
as follows:
Committed
Non-committed
Total
Greenfield Development
2016
675
7
682
2017
2018
2019+
872
77
949
690
339
1,029
559
2,322
2,881
RioCan’s current greenfield development pipeline consists of four properties that are expected to add approximately 2,716,000
square feet (1,766,000 square feet at RioCan’s interest) of space upon completion over the next six years. 378,000 square feet
is already income producing (205,500 square feet at RioCan's interest). 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 our organic growth strategy over time. Our development program is focused on well-located urban and
suburban land in the six major 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 we have completed with our co-owners during the last fifteen years contribute significantly to
our existing growth.
67
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
A summary of RioCan’s greenfield development pipeline as at December 31, 2015 is as follows:
(thousands of
square feet)
RioCan’s
%
ownership
East Hills, Calgary,
AB
Flamborough
Power Centre,
Hamilton, ON
40%
100%
Partners
Anchors
CPPIB /
Lansdowne
/ Tristar
Walmart,
Cineplex
Estimated square feet upon completion of the
development project
Anticipated date of
development completion
Total
estimated
development
Retailer
owned
anchors
(i)
RioCan’s
interest
Partners’
interests
Total
leasing
activity
(ii)
%
Leased
Current
development
(iii)
Potential
future
developments
886
160
290
436
365
50%
Q3 2016
2018
222
—
222
—
73
33%
Q2 2016
2019
Sage Hill, Calgary,
AB
Greenfield
Developments –
Committed
Windfield Farms,
Oshawa, ON
Greenfield
Developments –
Non-committed
Total Greenfield
Developments
50%
KingSett
Walmart,
Loblaws,
London
Drugs
394
—
197
197
332
84%
Q4 2016
1,502
160
709
633
770
57%
100%
1,214
157
1,057
1,214
157
1,057
—
—
—
—
—
—
2019 (iv)
2,716
317
1,766
633
770
32%
(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 current development date refers to the rent commencement date.
(iv) Currently, the end date for future development is not yet determinable.
(thousands of dollars)
RioCan’s interest
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
Acquisition and development expenditures incurred to date
Estimated remaining construction
expenditures to complete
East Hills, Calgary, AB
40% $ 335,384 $
13,337 $
72,437 $
85,774 $ 107,708 $ 193,482 $
56,761 $
85,141 $ 141,902
100%
50%
70,308
115,437
23,213
23,163
—
17,596
11,405
5,723
40,809
34,568
5,723
—
32,029
—
40,809
66,597
5,723
29,499
24,420
—
—
24,420
—
29,499
48,840
—
Flamborough Power Centre,
Hamilton, ON
Sage Hill, Calgary, AB
Fair value adjustments
Greenfield Developments –
Committed
Windfield Farms, Oshawa, ON
100%
Fair value adjustments
Greenfield Developments –Non-
committed
Total Greenfield
Developments
521,129
223,476
223,476
59,713
107,161
166,874
139,737
306,611
110,680
109,561
220,241
—
—
—
55,381
55,381
8,299
8,299
63,680
63,680
—
—
—
55,381
168,095
8,299
—
— 168,095
—
—
63,680
168,095
— 168,095
$ 744,605 $
59,713 $ 170,841 $ 230,554 $ 139,737 $ 370,291 $ 278,775 $ 109,561 $ 388,336
(i) Proceeds from sales to shadow anchors and land parcel sales reduce projected cost.
A summary of 2015 highlights from RioCan’s Greenfield Development projects are as follows:
East Hills - Calgary, Alberta
This 148 acre site is currently being developed into a 886,000 square foot regional new format retail centre. The site is anchored
by a 130,000 square foot Walmart that opened in March 2014. An additional 67,000 square feet of retail space was constructed
in 2015. The majority of the tenants in this phase took possession in Q3 and Q4 2015 and will be open by the end of Q1 2016.
A conditional deal has been completed with Costco to purchase approximately 14.8 acres of the site and the transaction is
expected to close in Q1 2016. It is anticipated that Costco will commence construction of a 160,000 square foot store in Q2 2016
and commence operations in Q3 2016.
Construction has begun on an additional 134,000 square feet of retail space. This phase is expected to be completed by Q3
2016. Tenants include Marshalls, Michaels, PetSmart, Bed Bath & Beyond, Sport Chek, Mark’s Work Wearhouse and Dollarama.
Flamborough Power Centre - Flamborough, Ontario
This 25-acre site is currently being developed into a 222,000 square foot new format retail centre. An 8,000 square foot building
has been leased to Investors Group, which is expected to commence operations in Q2 2016. An additional 87,000 square feet of
retail space is available to be developed at the property,
Target disclaimed their lease in Q2 2015. Their former unit comprising 116,000 square feet is expected to be reconfigured to
accommodate three new large format tenants of approximately 20,000 square feet each.
68
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Sage Hill - Calgary, Alberta
This 32-acre site is currently being developed into a 394,000 square foot new format retail centre. The site is anchored by a
153,000 square foot Walmart that opened in January 2015. The balance of the centre is under construction with a 45,000 square
foot Loblaws and several other tenants totalling 17,000 square feet that took possession in Q4 2015. The remainder of the
tenants at the site, including a 36,000 square foot London Drugs, are expected to take possession by Q4 2016.
Windfield Farms - Oshawa, Ontario
This 160 acre site is currently being developed into a 1,214,000 square foot regional new format retail centre.
Urban Intensification
A focus within our development growth strategy is urban development and intensification. Our current urban development pipeline
consists of nine properties that, if all rezoning requests are granted as applied for, are expected to add approximately 4,269,000
square feet (2,173,000 square feet at RioCan’s interest) of space upon completion over the next six years, excluding
condominium units that will be sold. Our urban development program currently is focused on properties located in densely
populated areas in the urban cores of Toronto and Calgary.
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 and preferably, near transit lines, we can seek to obtain
additional density, retail or residential, on its existing property portfolio and, as the land is already owned, it anticipates achieving
strong returns on new construction and increasing net asset value. 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 our 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.
A summary of our urban intensification pipeline as at December 31, 2015 is 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
(iii)
Potential
future
developments
(thousands of square
feet)
1860 Bayview
Avenue, Toronto,
ON
Bathurst Street &
College Street,
Toronto, ON
CPA Lands, Calgary,
AB
100%
100%
100%
Whole
Foods
Grocery
store
Loblaws
NE Yonge Eglinton,
Toronto, ON (iv)
50%
Metropia /
Bazis
TD
Bank
Urban Intensification
–Committed
491 College Street,
Toronto, ON
College &
Manning,Toronto,
ON
Dupont Street,
Toronto, ON
The Well, Toronto,
ON (iv)
King & Portland,
Toronto, ON
Urban Intensification
-
Non-committed
Total Urban
Intensification
50%
Allied
LCBO
50%
Allied
100%
40%
50%
Allied /
Diamond
Allied
76
146
188
460
870
30
122
188
2,614
445
3,399
4,269
—
—
—
—
—
—
—
—
—
—
—
—
76
146
188
—
—
—
70
92%
2017
58
40%
2018
104
55%
2019
230
230
18
4%
2018
640
230
250
29%
15
61
188
15
61
—
1,046
1,568
223
223
1,533
1,867
2,173
2,097
7
23%
2017
59
—
—
48
114
364
49%
2020
2020
—
—
11%
2018
3%
9%
2020 (v)
(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 current development date refers to the rent commencement date.
(iv)
Includes amounts for offices, retail and residential apartments only (excludes residential condominiums). 460,000 square feet of this 904,000
square foot development pertains to residential rental development which is not pre-leased at this time, resulting in a low lease rate.
(v) Currently, the end date for future development is not yet determinable.
69
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Acquisition and development expenditures incurred to date
(thousands of dollars)
RioCan’s
%
ownership
Estimated
project
cost
(100%) (i)
RioCan’s interest
Amount
included in
IPP
Amount
included in
PUD
Estimated remaining construction
expenditures to complete
Total
Partners’
interest
Total
RioCan’s
interest
Partners’
interest
Total
1860 Bayview Avenue, Toronto, ON
100% $
56,693 $
— $
53,239 $ 53,239 $
— $ 53,239 $
3,454 $
— $
3,454
Bathurst Street & College Street,
Toronto, ON
CPA Lands, Calgary, AB
NE Yonge Eglinton, Toronto, ON
Fair value adjustments
Urban Intensification – Committed
491 College Street, Toronto, ON
College & Manning,Toronto, ON
100%
100%
50%
50%
50%
109,739
124,347
226,758
517,537
18,127
52,548
Dupont Street, Toronto, ON
100%
100,810
The Well, Toronto, ON
King & Portland, Toronto, ON
Fair value adjustments
Urban Intensification - Non-
committed
40%
50%
1,575,321
222,112
10,478
—
—
—
113
113
—
8,623
—
869
36,007
34,566
48,509
2,927
36,007
34,566
— 36,007
73,732
— 34,566
89,781
—
—
73,732
89,781
48,622
47,302
95,924
65,417
65,417
130,834
2,927
2,927
175,248
175,361
47,302
222,663
232,384
65,417
297,801
4,595
5,197
15,920
82,222
16,989
13,297
4,595
4,261
8,856
4,635
4,635
13,820
12,432
26,252
13,148
13,148
15,920
— 15,920
84,891
—
9,270
26,296
84,891
83,091
115,522
198,613
550,683
826,025
1,376,708
27,467
24,845
52,312
84,900
84,900
169,800
13,297
— 13,297
—
—
—
1,968,918
19,970
138,220
158,190
157,060
315,250
738,257
928,708
1,666,965
Total Urban Intensification
$2,486,455 $
20,083 $ 313,468 $ 333,551 $ 204,362 $537,913 $ 970,641 $ 994,125 $1,964,766
(i) Estimated project costs are reduced by proceeds from sales to shadow anchors and exclude costs associated with potential condominium
residential units.
A summary of 2015 highlights from RioCan’s urban intensification projects 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. Shoppers Drug Mart and TD Bank took possession of their premises in Q3 2015.
Whole Foods is expected to open in 2017.
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 146,000 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 four storey commercial building at 410-444 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. Site plan approval is
expected to be finalized in Q1 2016.
We currently have completed leases with a grocery anchor and a financial institution. Construction is expected to begin in early
2016 with tenants opening in 2018.
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 property will be developed as a mixed use project that will be anchored by an
82,000 square foot Loblaws. The site is zoned for the proposed development and we have submitted for a development permit,
which was approved by the Calgary Planning Commission in Q4 2015. Development of this site is anticipated to commence in
2016. RioCan has 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 this development site.
NE Yonge and Eglinton - Toronto, Ontario
Construction on this site began in April 2014. The demolition of the TD Bank branch took place in Q4 2014 and the demolition of
the remaining residential apartment building was completed in Q2 2015. The project will contain a 58 floor condominium tower
and a 36 floor residential rental tower as well as 64,000 square feet of retail and commercial space featuring a flagship TD Bank
branch. The rental tower will have 461 units and the condominium will have 621 units, all of which have been pre-sold. The
project is expected to be completed by 2018. The site is zoned for the proposed development.
491 College Street - Toronto, Ontario
The site currently houses a 10,000 square foot, three storey building in downtown Toronto’s “Little Italy”. RioCan and Allied
purchased this site for the purposes of relocating the existing LCBO at 549 College Street (at Manning Street) in order to allow for
that site’s redevelopment. 491 College Street is considered a heritage building and, as such, the facade will remain and will be
meticulously restored. The LCBO will occupy the first floor and the basement totalling 7,000 square feet while the two floors
above will be comprised of 17,000 square feet. Both commercial and residential uses are permitted above the LCBO. The site
plan approval submission was made in May 2015. Our variances were approved at the Committee of Adjustments in November
2015. Site plan approval is expected to be received in April 2016.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 property, Allied and RioCan have formed a 50/50
co-ownership to create a mixed use development including office, retail and residential space. Upon completion, the
development shall be 122,000 square feet, including approximately 59,000 square feet that is currently income producing, 57,000
square feet of residential rental density and 6,000 square feet of retail space, featuring 185 feet of frontage on College Street.
This site was successfully re-zoned for the proposed development during July 2014. Site plan approval is expected to be
received in Q1 2016.
Dupont Street - Toronto, Ontario
This 1.4 acre site, located on Dupont Street near Christie Avenue, is northwest of the downtown core of Toronto. The site is
expected to be developed into 188,000 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 received zoning approvals in
Q4 2015.
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 1,611,000 square feet of retail and office space, 1,003,000 square feet of residential
rental units and 482,000 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%. The official plan amendment and
rezoning application amendment was filed in February 2014. The official plan amendment was approved at council in June 2015
and we expect to have zoning approvals in place by the Q2 2016. It should be noted that we are exploring strategic options,
including bringing in a partner on the residential component.
King Street & Portland Street - Toronto, Ontario
This site is comprised of 602-606 and 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 co-ownership
to create one property, with frontage on King Street West, Portland Street and Adelaide Street West. Upon completion, the site
will contain a mixed use office, retail and residential complex with approximately 445,000 square feet of gross floor area. A
rezoning application was filed in August 2013. RioCan received zoning approvals at council in July 2015. The site plan
application was submitted on July 15, 2015 and we expect to have approvals in place by the Q2 2016.
Expansion & Redevelopment
RioCan’s expansion and redevelopment project costs for 2016 are currently expected to be approximately $97 million. As at
December 31, 2015, RioCan’s expansion and redevelopment pipeline will, upon completion, comprise approximately 2,668,000
square feet, of which RioCan’s ownership interest will be approximately 1,862,000 square feet.
71
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Highlights of RioCan’s expansion and redevelopment projects are as follows:
(thousands of square
feet, thousands of
dollars)
As at December 31,
2015
Brentwood Village,
Calgary, AB
Burlington Mall,
Burlington, ON
Corbett Centre,
Fredericton, NB
Herongate Mall, Ottawa,
ON
Kennedy Commons,
Toronto, ON
Parkland Mall, Yorkton,
SK
RioCan Centre Victoria,
Whitby, ON
Estimated project cost
RioCan’s
%
ownership
Project
NLA
NLA
RioCan's
Interest
Tenant(s)
RioCan’s
Interest
Partners’
Interest
Total
Historical
costs(i)
Development
expenditures
to date at
RioCan’s
interest
Total
Costs
Incurred
to date
Estimated
remaining
construction
expenditures
to complete
at RioCan's
interest
100%
Retail
Podium
50%
Interior Mall
renovation
100%
75%
50%
Princess
Auto
GoodLife
Fitness
Vision
Electronics
100% Winners
15
—
32
44
16
20
50% TBD
177
15 $
2,334 $
— $
2,334 $
4,576 $
180 $
4,756 $
2,154
—
32
33
8
20
89
8,573
8,573
17,146
7,555
—
7,555
—
—
149
149
8,424
1,661
1,661
5,894
6,125
2,042
8,167
4,576
2,920
7,496
3,205
1,731
1,731
3,462
800
999
1,799
732
2,949
—
2,949
2,241
366
2,607
2,583
17,984
17,984
35,968
9,004
2,090
11,094
15,894
RioCan Colossus
Centre, Vaughan, ON
100%
Shoppers City East,
Ottawa, ON
63%
Bed Bath &
Beyond, Buy
Buy Baby,
Staples
Shoppers
Drug Mart,
The Beer
Store
114
114
29,812
—
29,812
17,381
8,586
25,967
21,226
40
25
9,440
5,592
15,032
18,487
6,938
25,425
2,502
South Trail Crossing,
Calgary, AB
100%
HomeSense,
Marshalls
The Stockyards, Toronto,
ON
50%
TBD Pads
D, M, N
49
20
49
10
3,244
—
3,244
13,300
1,125
14,425
2,119
252
252
504
6,700
34
6,734
218
Yonge Sheppard Centre,
Toronto, ON
50%
Longos, LA
Fitness,
Interior Mall
retrofit,
Residential
Properties with former
Target units (ii), (iii)
Fair Value Adjustments
Total Committed
Expansion and
Redevelopment
properties
Total Non-committed
Expansion and
Redevelopment
properties
Total
555
277
177,746
177,746
355,492
25,122
13,347
38,469
164,399
1,314
—
980
118,559
37,598
156,157
135,042
11,749
146,791
106,810
—
—
— (21,083)
— (21,083)
—
2,396
1,652
386,304
251,518
637,822
216,146
50,144
266,290
336,160
272
210
29,545
9,872
39,417
14,770
4,885
19,655
24,660
2,668
1,862 $ 415,849 $261,390 $ 677,239 $230,916 $
55,029 $ 285,945 $
360,820
(i) Historical Costs - carrying amounts transferred from IPP for former anchors targeted for redevelopment.
(ii) RioCan transferred carrying value associated with the disclaimed spaces formerly occupied by Target from income producing properties to
properties under development. The estimated remaining construction expenditures are based upon various scenarios related to the former Target
space with the objective of developing these assets, such that RioCan can attract new tenants, achieve higher rents and improve the overall
shopping centre.
(iii) As at December 31, 2015, development expenditures of $12 million at RioCan's proportionate share were comprised of $6 million of direct costs
and $6 million comprised of capitalized interest, common area maintenance, realty tax and utilities.
A summary of the 2015 highlights from our expansion and redevelopment projects are as follows:
Brentwood Village - Calgary, Alberta
Approximately 50,000 square feet of retail space was demolished in 2011 and the parcel of land was sold to a residential
developer who subsequently constructed two condominium towers. The residential towers include retail podiums that are owned
and leased by RioCan. We acquired the first phase of the retail podium in Q1 2014 and the second phase in Q4 2015. Tenants
will begin operating in the new retail area in 2016.
Burlington Mall - Burlington, Ontario
During 2015, RioCan reconfigured a portion of the mall to facilitate larger Shoppers Drug Mart and Sport Check spaces totalling
37,000 square feet. Target disclaimed their lease in Q3 2015. The former Target space (122,000 square feet) will be
reconfigured to accommodate four large format tenants of approximately 20,000 square feet each, and additional small CRU
space aggregating approximately 10,000 square feet. Construction is expected to begin Q4 2016 and tenants are expected to
commence operations in Q4 2017 and Q1 2018. RioCan has leased 23,000 square feet to Denninger's Fresh Foods of the World
72
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
and negotiations are substantially complete with two additional national tenants for two of the three remaining large format
premises.
Corbett Centre - Fredericton, New Brunswick
This 26 acre site, acquired by way of a 66-year long-term lease, is currently being developed into a 471,000 square foot new
format retail centre. The site is anchored by Home Depot, which owns its own store and operates as part of the overall site. A
Costco, which also owns its own store, commenced operations in the Q3 2011. A 19,000 square foot Homesense commenced
operations in Q3 2014 and a 5,000 square foot Sleep Country commenced operations in Q2 2015. A deal has been completed
for a new 25,000 square foot Princess Auto. Construction is expected to begin in Q2 2016 and the tenant is expected to open in
Q2 2017.
Herongate Mall - Ottawa, Ontario
This 16 acre site consisted of a 196,000 square foot enclosed mall when the property was acquired in 2011. The majority of the
original building was demolished in two stages in 2012 and 2013 and the property is currently being redeveloped into a 148,000
square foot new format retail centre. The site is anchored by a 42,000 square foot Food Basics. A 12,000 square foot Pharma
Plus commenced operations in April 2013. A 12,000 square foot Petsmart and a 10,000 square foot Dollarama commenced
operations in Q1 2015. A deal has been completed with a 25,000 square foot Goodlife Fitness. Construction will begin on the
extension of this building in Q2 2016.
Kennedy Commons - Scarborough, Ontario
A lease buy-out was completed with AMC Theatres in late 2012 which allowed us to redevelop this portion of the site. The AMC
Theatre has been demolished and a newly constructed 45,000 square foot LA Fitness and a 23,000 square foot Michael’s
commenced operations in 2014. Sleep Country commenced operations in Q2 2015.
Parkland Mall - Yorkton, Saskatchewan
Parkland Mall is an enclosed shopping centre located in Yorkton, Saskatchewan. Save-On-Foods took possession of 31,000
square feet of space in Q2 2015 to backfill a former grocery store. In addition, approximately ten interior mall units will be
demolished in order to construct a new 20,000 square foot Winners, which is expected to open in early 2017.
RioCan Centre Victoria - Whitby, Ontario
Phase I of site is currently being developed into a 177,000 square foot new format retail centre as a joint venture with The Wynn
Group. A 99,000 square foot Rona store ceased operations in 2013 but continued to pay rent until a lease buyout was completed
in Q1 2015 which allows us to redevelop this portion of the site. Negotiations are underway with several national tenants. RioCan
has a 50% ownership interest in this portion of the site.
Phase II of the site consists of 11 acres and it will be developed into a 115,000 square foot new format retail centre. A portion of
the site totalling 37 acres was sold to Metrolinx in the fourth quarter of 2010. RioCan has a 100% ownership interest in this
portion of the site.
RioCan Colossus Centre - Vaughan, Ontario
A lease buyout was completed with Rona in Q3 2013 allowing the Trust to redevelop this portion of the site. Leases have been
completed with a 28,000 square foot Bed Bath & Beyond, a 22,000 square foot Buy Buy Baby, a 22,000 square foot Bauer, a
20,000 square foot Staples, a 10,000 square foot Party City and a 5,500 square foot Chop Steakhouse. Construction of
approximately 114,000 square feet began during Q3 2015 and the initial tenants are expected to commence operations in Q4
2016.
Shoppers City East - Ottawa, Ontario
This 19.4 acre site consists of a 152,000 square foot neighborhood shopping when the property was acquired. Demolition of the
buildings commenced late in 2013 and will be completed in 2016. The property will be redeveloped into a 201,000 square foot
new format retail centre.
A conditional deal has been entered into with Costco to purchase approximately 14.7 acres of the site. Providing that conditions
are waived, it is anticipated that Costco will commence construction of a 161,000 square foot store in 2016 that will commence
operations during 2017.
A 15,000 square foot deal has been completed with Shoppers Drug Mart and construction began on this building in Q3 2015. The
tenant is expected to commence operations late in Q3 2016. The remaining tenants are expected to commence operations by
the end of Q1 2017.
South Trail Crossing - Calgary, Alberta
A lease buyout was completed with Calgary Co-op (49,000 square feet) in Q2 2015 . Leases have been completed with
Marshalls and Homesense to backfill the entire unit. Construction began during the Q3 2015 and the tenants are expected to
commence operations in Q2 2016.
The Stockyards - Toronto, Ontario
Target disclaimed their lease in Q2 2015. RioCan has completed a lease agreement with Nations Fresh Foods to occupy the
entire 153,000 square feet that was previously occupied by Target Canada. Construction is expected to begin in Q2 2016 and
the tenant is expected to take possession of their unit in late 2016 and open during 2017. In addition, there are three pads
totaling approximately 20,000 square feet remaining in properties under development. A 6,000 square foot daycare centre is
expected to commence operations in Q3 2017.
73
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Sheppard Centre - Toronto, Ontario
This 6.18 acre site is comprised of a mixed-use retail and office centre. The retail portion is currently undergoing renovation, of
which 54,000 square feet has been leased to Longo’s grocery store and 50,000 square feet has been leased to LA Fitness. The
site's redevelopment plan includes development of 339,000 square feet of residential rental space. The ownership structure of
the property is RioCan 50% and KingSett 50%. A rezoning application was filed in 2013 and we received zoning approvals in
June 2015. The final site plan agreement is expected to be in place by Q1 2016.
Tanger Outlets Ottawa - Kanata, Ontario
Saks Off Fifth, a 28,000 square foot tenant representing the final tenant of the 299,000 square foot phase one development, took
possession in Q4 2015 and is expected to commence operations in Q1 2016.
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.
Residential Development
RioCan has currently identified 46 properties that it considers to be strong possible intensification opportunities, all of which are in
the six major markets and are typically located in the vicinity of substantive transit infrastructure. RioCan’s objective is to obtain the
appropriate zoning and approval for approximately 18,000 residential 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 all of these developments will be undertaken, and if they are,
on what terms.
As at the date of this report, RioCan has obtained planning approvals for 7 mixed use projects. In total, RioCan has filed
applications for 21 mixed use projects which, if all planning permission requests are granted as applied for, is expected to
comprise a total of 13,613,000 square feet, which will include residential rental units held for long-term rental income,
condominiums for sale and incremental commercial gross leasable area. The mix between condominiums and rental residential
may change over time depending on market conditions. 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 its development capabilities. The figures
in the chart below and those noted herein are at 100% interest. In some cases, RioCan has co-owners and, therefore, does not
hold a 100% interest.
Property
Location
Application
Submission
Date
RioCan Ownership %
(Partner)
Estimated square feet upon completion of the
development project (at 100%)
Northeast & Yonge Eglinton (v)
Toronto, ON
January 2012
50% (Metropia / Bazis)
College & Manning (iii) (v)
Toronto, ON
September 2013
50% (Allied)
740 Dupont Street (v)
Toronto, ON
July 2014
100%
Sheppard Centre (iv) (v)
Toronto, ON
May 2013
50% (KingSett)
King & Portland (iii) (v)
Toronto, ON
August 2013
50% (Allied)
Commercial
Residential (i)
Total
64,000
6,000
86,000
216,000
267,000
904,000
57,000
102,000
339,000
118,000
968,000
63,000
188,000
555,000
385,000
The Well
Toronto, ON
February 2014
40% (Allied / Diamond)
1,611,000
1,485,000
3,096,000
Sunnybrook Plaza (ii)
Toronto, ON
December 2014
Tillicum (ii) (v)
Victoria, BC
February 2009
2955 Bloor Street West (ii)
Toronto, ON
August 2015
Markington Square (ii)
Toronto, ON
October 2015
RioCan Grand Park (ii)
GTA, ON
August 2015
Brentwood Village (ii)
Calgary, AB
October 2015
Dufferin Plaza (ii)
Toronto, ON
November 2015
Southland Crossing (ii)
Calgary, AB
November 2015
RioCan Scarborough Centre (ii)
Toronto, ON
November 2015
100%
100%
100%
100%
100%
100%
100%
100%
100%
Silver City Gloucester (ii) (v)
Gloucester, ON December 2015
80% (Trinity)
Elmvale Acres (ii)
Ottawa, ON
December 2015
100%
Queensway Cineplex (ii)
Toronto, ON
December 2015
50% (Talisker)
Westgate Shopping Centre (ii)
Ottawa, ON
December 2015
100%
Mill Woods Town Centre (ii)
Edmonton, AB December 2015
40% (Bayfield)
Spring Farm Marketplace (ii)
GTA, ON
January 2016
100%
Total
23,000
18,000
8,000
20,000
9,000
13,000
63,000
29,000
349,000
275,000
67,000
415,000
259,000
184,000
603,000
784,000
372,000
293,000
75,000
435,000
268,000
197,000
666,000
813,000
600,000
2,520,000
3,120,000
12,000
31,000
28,000
19,000
—
25,000
787,000
130,000
467,000
144,000
251,000
225,000
799,000
161,000
495,000
163,000
251,000
250,000
3,148,000
10,465,000
13,613,000
(i) Residential gross leaseable area (GLA) represents residential rental units that will produce long-term rental income as well as condominium units
that will be sold (where applicable). The costs associated with the residential rental units are included in the Urban Intensification and Expansion &
Redevelopment tables in the Properties Under Development section of this MD&A (where applicable).
74
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
(ii) The urban intensification and expansion and redevelopment tables currently do not include potential residential density contemplated for this property,
but will be updated to include residential density as the development plan is finalized.
(iii) GLA excludes the square footage that is currently generating income.
(iv) Commercial square footage to be developed at Sheppard Centre represents redevelopment of existing enclosed mall retail space.
(v) As at the date of this report, RioCan has obtained planning approvals for the development of this site.
RioCan intends to file applications on 12 additional properties during 2016. If all application requests are granted as applied for,
these proposed redevelopments are expected to produce approximately 4,418,000 square feet, of which 3,888,000 square feet is
expected to be residential. This would permit RioCan to have an interest in approximately 4,300 additional 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. Depending on market conditions, management may change the allocation between residential rental
development and condominium development, or may decide not to proceed with the contemplated development.
Residential Inventory
Residential development inventory 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, 2015, the Trust
has $45 million of residential development inventory comprising of the following three assets ($80 million as at December 31,
2014 comprising of five assets); Stouffville residential lands, Stouffville, Ontario - residential homes (Minto Group Inc. and Trinity),
Northeast Yonge Eglinton, Toronto, Ontario - condominium units for sale (Metropia and Bazis Inc.) and CPA Lands, Calgary,
Alberta - Air rights.
Stouffville Residential Lands
This project comprises a townhouse development project consisting of 272 units. All units have been pre-sold of which 179 units
have closed as at December 31, 2015. The remainder of these townhome sales are expected to close in Q1 2016.
Northeast Yonge Eglinton
This project comprises a condominium development project consisting of 602 units, all of which have been pre-sold as at
December 31, 2015.
CPA Lands
RioCan has 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. 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 and to provide approximately $40 million in cost reimbursement for infrastructure works.
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, as defined in the Properties Under Development section in this MD&A. 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, 2015, RioCan was in compliance with these
restrictions.
Contractual mortgages and loans receivable as at December 31, 2015 and December 31, 2014 are comprised of the following:
(thousands of dollars)
Mezzanine financing to co-owners
Vendor-take-back and other
Total
Contractual rates
Low
High
0%
4%
0%
7%
4%
7%
Weighted
Average
Rate December 31, 2015 December 31, 2014
4.5% $
125,601
124,245
4.0%
4.5% $
129,258
136,190
10,589
5,013
$
$
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.
75
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
CAPITAL RESOURCES AND LIQUIDITY
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 Unitholder 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 related
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 (refer to note 24 of the 2015 Annual Consolidated 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 2016, RioCan expects to be able to satisfy all of its financing
requirements through the use of some or all of the following: 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.
Capital Structure
As at December 31, 2015 and December 31, 2014, RioCan’s capital structure is as follows:
(thousands of dollars)
As at December 31,
Capital:
IFRS
2015
RioCan's proportionate share
2014
2015
2014
Mortgages payable and lines of credit
$
4,164,669
$
4,566,096
$
4,229,926
$
4,605,242
Mortgages on properties held for sale:
U.S. (disposal group)
Canada
Debentures payable
Total debt
Preferred unit equity
Common unit equity
Total capital
Total assets
Cash and equivalents
1,224,667
23,968
2,000,066
7,413,370
265,451
7,660,588
—
20,968
1,856,501
6,443,565
265,451
7,603,119
1,224,667
23,968
2,000,066
7,478,627
265,451
7,660,588
$
$
$
15,339,409
15,996,491
83,318
$
$
$
14,312,135
14,677,677
56,273
$
$
$
15,404,666
16,063,873
85,336
$
$
$
Ratio of Total debt, net of cash, to Total
assets, net of cash (i)
Ratio of floating rate debt to total debt
46.1%
14.0%
43.7%
7.7%
46.3%
14.4%
—
20,968
1,856,501
6,482,711
265,451
7,603,119
14,351,281
14,721,054
59,606
43.8%
7.8%
(i) Including preferred units as debt, our ratio of total debt to assets (net of cash) would be 47.8% for 2015 (2014 - 45.6%).
As at December 31, 2015, RioCan's ratio of floating rate debt to total debt increased to 14.0% (7.7% as at December 31, 2014),
primarily as a result of the Kimco property acquisitions which were funded through the use of floating rate facilities, as well as the
effect of foreign exchange translation on our U.S. denominated floating rate debt. RioCan has utilized floating interest rate debt
for the purpose of interest rate risk management and for flexibility it offers in the execution of investment transactions.
We have temporarily increased our debt levels through the use of operating lines of credit to fund transactions such as the Kimco
portfolio acquisition completed during late 2015. It is also our intention to use short-term credit facilities to fund the upcoming
redemption of our Series A preferred units on March 31, 2016. The proceeds generated from the anticipated U.S. asset sale will
be utilized, in part, to repay these temporary borrowings in order to return our leverage to more normal operating levels.
76
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Debt and Leverage Metrics
RioCan’s debt and leverage metrics 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 interest
coverage ratio, debt service coverage ratio, fixed charge coverage ratio, net debt to adjusted EBITDA ratio, net operating debt to
operating EBITDA, and unencumbered assets to unsecured debt.
Rolling 12 months ended
IFRS
RioCan's proportionate share
Targeted
Ratios
>3.00x
>2.25x
>1.1x
n/a
<6.5x
<90%
Interest coverage ratio (i)
Debt service coverage ratio (i)
Fixed charge coverage ratio (i)
Net debt to Adjusted EBITDA ratio (i)
Net operating debt to Operating EBITDA (i)
Distributions as a percentage of AFFO
(thousands of dollars)
As at
Unencumbered Canadian assets
Unsecured debentures
% NOI generated from unencumbered assets (iii)
Unencumbered Canadian assets to Unsecured debt (ii)
>200%
December 31, December 31, December 31, December 31,
2014
2014
2015
2015
3.06
2.36
1.10
8.35
7.94
2.92
2.23
1.09
8.05
7.55
90.4%
94.5%
3.10
2.39
1.12
8.34
7.93
90.4%
IFRS
2.89
2.20
1.08
8.09
7.67
94.5%
December 31, December 31,
2014
2015
$ 3,321,413
$ 2,553,661
$ 2,000,000
$ 1,865,990
25.1%
166%
19.9%
137%
(i) Refer to section Non-GAAP Measures in this MD&A for further details.
(ii) Unencumbered assets to unsecured debt is defined as unencumbered assets divided by unsecured debentures payable.
(iii) Ratio is calculated on a continuing operations basis.
The interest coverage and debt service coverage ratios continued to improve compared to December 31, 2014 primarily reflecting
the favourable foreign exchange impact of a strengthening U.S. dollar on earnings from discontinued operations over the prior
year.
Net debt to adjusted EBITDA and net operating debt to operating EBITDA have both increased to 8.35 and 7.94 for the year
ended December 31, 2015, respectively, as result of higher average debt outstanding during the period. Refer to "net debt and
net operating debt" in tables below for further details. As of December 31, 2015, our leverage ratio peaked at 46.1% largely due
to the approximate $510 million Kimco portfolio acquisition funded entirely with short-term debt ($774 million purchase price net
of in-place mortgages). RioCan intends to repay this debt using a portion of the anticipated proceeds from the U.S. portfolio sale
to return the leverage ratio to a projected 39% following closing and repayment of certain debt.
As at December 31, 2015, unencumbered assets to unsecured debt increased to 166%, as compared to 137% as at December
31, 2014, due to an increase in unencumbered assets of $768 million and was partially offset by an increase of $134 million in
higher unsecured debentures. The increase in unencumbered assets was primarily due to the repayment of maturing mortgages
and higher acquisition of unencumbered assets during the year.
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.
77
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following tables presents a reconciliation of consolidated net earnings from continuing and discontinued operations
attributable to unitholders to Adjusted and Operating EBITDA:
Year ended December 31,
2015
2014
(thousands of dollars)
Continuing
Operations
Discontinued
Operations
Total
Continuing
Operations
Discontinued
Operations
Total
Net earnings attributable to unitholders
$
416,892 $
(275,129) $
141,763 $
447,008 $
216,250 $
663,258
IFRS
Add (deduct) the following items:
Income tax expenses:
Current
Deferred
Fair value (gains) losses on investment
property, net
Foreign exchange gain related to realty
taxes (i)
Leasing costs
Non-cash unit based compensation
expense
Interest expense
Expense for early redemption of
debentures
Depreciation and amortization
Foreign exchange loss
Transaction (gains) losses, net (ii)
Target settlement proceeds, net
Transaction costs
Adjusted EBITDA
Adjust: Other transaction gains (iii)
Adjust: Items related to properties under
development
Operating EBITDA
—
1,290
8,478
8,478
230,474
231,764
—
50
—
—
—
50
91,548
147,060
238,608
(34,423)
(113,009)
(147,432)
—
9,750
4,741
186,772
9,929
4,434
—
2,631
(88,267)
8,458
(1,176)
2,022
(1,176)
11,772
—
8,693
—
2,248
—
10,941
6
4,747
49,253
236,025
4,075
194,073
—
4,075
40,827
234,900
—
221
131
(7,528)
—
3,487
9,929
4,655
131
(4,897)
(88,267)
11,945
805,477 $
(5,974)
3,337
802,840 $
—
4,019
—
—
—
2,385
—
22
176
—
—
368
—
4,041
176
—
—
2,753
625,880 $
146,882 $
772,762
(91)
3,498
—
—
(91)
3,498
629,287 $
146,882 $
776,169
$
648,178 $
157,299 $
(5,974)
3,337
—
—
$
645,541 $
157,299 $
Net debt and net operating debt is calculated as follows:
Average debt outstanding
Less: average cash on hand
Net debt
Less: debt related to properties under development (iv)
Net Operating Debt
$ 6,788,647
(60,168)
6,728,479
(350,577)
$ 6,377,902
$ 6,220,717
(42,462)
6,178,255
(294,665)
$ 5,883,590
(i) Relates to the favourable impact of foreign exchange during the year based on the timing of U.S. realty tax payments.
(ii)
Includes primarily a foreign exchange transaction gain realized upon the disposal of our investment in a U.S. joint venture during the year, partly
offset by other transaction losses.
Includes gross proceeds from the sale of residential inventory, net of direct cost of sales, WhiteCastle Funds transaction gains and $1.5 million
previously written off straight-line rents related to Target recovered through the settlement proceeds.
(iii)
(iv) Allocated based on the ratio of Debt to Total Assets.
78
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year ended December 31,
2015
2014
(thousands of dollars)
Continuing
Operations
Discontinued
Operations
Total
Continuing
Operations
Discontinued
Operations
Total
Net earnings attributable to unitholders
$
416,892 $
(275,129) $
141,763 $
447,008 $
216,250 $
663,258
RioCan's proportionate share
Add (deduct) the following items:
Income tax expenses:
Current
Deferred
Fair value (gains) losses on investment
property, net
Accrued property taxes under IFRIC 21 (i)
Leasing costs
Non-cash unit based compensation
expense
Interest expense
Expense for early redemption of
debentures
Depreciation and amortization
Foreign exchange loss
Transaction (gains) losses, net (ii)
Target settlement proceeds, net
Transaction costs
Adjusted EBITDA
Adjust: Other transaction gains (iii)
Adjust: Items related to properties under
development
Operating EBITDA
—
1,290
91,546
—
9,750
4,741
188,410
9,929
4,434
—
2,631
(88,267)
8,458
8,478
8,478
230,474
231,764
—
50
—
—
—
50
153,106
244,652
(34,230)
(122,573)
(156,803)
(1,176)
2,022
(1,176)
11,772
6
4,747
49,253
237,663
—
221
131
(7,528)
—
3,487
9,929
4,655
131
(4,897)
(88,267)
11,945
813,159 $
(5,974)
3,339
810,524 $
—
8,693
4,075
194,262
—
4,019
—
—
—
2,385
—
2,248
—
10,941
—
4,075
41,930
236,192
—
22
176
—
—
368
—
4,041
176
—
—
2,753
626,262 $
138,421 $
764,683
(91)
3,498
—
—
(91)
3,498
629,669 $
138,421 $
768,090
$
649,814 $
163,345 $
(5,974)
3,339
—
—
$
647,179 $
163,345 $
Net debt and net operating debt is calculated as follows:
Average debt outstanding
Less: average cash on hand
Net debt
Less: debt related to properties under development (iv)
Net Operating Debt
$ 6,841,991
(62,244)
6,779,747
(350,577)
$ 6,429,170
$ 6,252,813
(44,824)
6,207,989
(294,665)
$ 5,913,324
(i) Relates to the favourable impact of foreign exchange during the year based on the timing of U.S. realty tax payments.
(ii)
Includes primarily a foreign exchange transaction gain realized upon the disposal of our investment in a U.S. joint venture during the year, partly
offset by other transaction losses.
Includes gross proceeds from the sale of residential inventory, net of direct cost of sales, WhiteCastle Funds transaction gains and $1.5 million
previously written off straight-line rents related to Target recovered through the settlement proceeds.
(iii)
(iv) Allocated based on the ratio of Debt to Total Assets.
Credit Ratings
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).
As at December 31, 2015, 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, 2015, 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, 2015, we have five revolving lines of credit in place with Canadian Schedule I financial institutions, having an
aggregate capacity of $934 million (December 31, 2014 – $718 million). These operating lines provide additional liquidity and
79
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
flexibility in support of our continuing operations.
The following table summarizes the details of our Canadian operating lines of credit as at December 31, 2015:
(thousands of dollars)
Amounts drawn
Facility
maximum loan
amount
Cash
advances
Letters
of credit
Available
to be
drawn
Interest rates
1 (i) (ii) $ 450,000
$
215,461 $
9,557 $
2 (i) (ii)
130,000
95,000
19,679
3 (i) (ii)
185,000
165,826
4 (i) (ii)
75,000
60,000
5 (iii)
93,717
27,074
—
—
—
224,982 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance rate plus 1.25% per annum; US$ advances – US
$ Base Rate plus 0.25% per annum or US$ LIBOR plus
1.25% per annum
15,321 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance rate plus 1.25% per annum; US$ advances – US
$ Base Rate plus 0.25% per annum or US$ LIBOR plus
1.25% per annum
17,338 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance rate plus 1.25% per annum ; US$ advances – US
$ Base Rate plus 0.25% per annum or US$ LIBOR plus
1.25% per annum
15,000 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance rate plus 1.25% per annum; US$ advances – US
$ Base Rate plus 0.25% per annum or US$ LIBOR plus
1.25% per annum
66,643 CDN$ advances – prime plus 0.25% per annum or Bankers’
Acceptance rate plus 1.25% per annum; US$ advances – US
$ Base Rate plus 0.25% per annum or US$ LIBOR plus
1.25% per annum
$ 933,717
$
563,361 $
29,236 $
339,284
Maturity
April to
November 2016
June 2017
December 2016
June 2017
December 2016
(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.
(iii) Line of credit has an aggregate borrowing capacity of $67.5 million in either US or Canadian dollars.During January 2016, we amended the
terms of two existing operating lines to temporarily increase the Trust's borrowing capacity by $300 million to a total of $1.2
billion. The additional operating line capacity was used to fund the Kimco property acquisitions and is anticipated to be used
to redeem the Series A preferred units at the end of March 2016.
Debentures Payable
We have the following series of senior unsecured debentures outstanding as at December 31, 2015 in connection with our
Canadian continuing operations:
Series
P
S
Q
U
R
V
T
W
I
Maturity date
March 1, 2017
March 5, 2018
June 28, 2019
June 1, 2020
December 13, 2021
May 30, 2022
April 18, 2023
February 12, 2024
February 6, 2026
Coupon rate
3.80%
2.87%
3.85%
3.62%
3.72%
3.75%
3.73%
3.29%
5.95%
Interest payment frequency
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Principal amount
150,000
250,000
350,000
150,000
250,000
250,000
200,000
300,000
100,000
2,000,000
$
$
As at December 31, 2015, RioCan had debentures outstanding totalling $2.0 billion, net of unamortized debt financing costs
(December 31, 2014 – $1.9 billion).
The debentures have covenants relating to our 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.
Issuances
• On February 12, 2015, we issued $300 million of Series W senior unsecured debentures, which mature on February 12,
2024 and carry a coupon of 3.287%.
• On April 2, 2015, we issued an additional $175 million of its 3.85% Series Q senior unsecured debentures with an effective
rate to maturity of 2.04%, due June 28, 2019.
80
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Redemptions
• On March 9, 2015, RioCan redeemed its US$100 million 4.10% Series N senior unsecured debentures due September 21,
2015 (the Series N Debentures).
• On March 11, 2015, RioCan redeemed its $225 million 4.499% Series O Debentures due January 21, 2016.
Refer to note 11 of the 2015 Annual Consolidated Financial Statements for further details.
Changes in the carrying amount of debentures resulted primarily from the following:
(thousands of dollars)
Balance, beginning of period
Issuances
Repayments
Foreign currency translation
Contractual obligations
Unamortized debt financing costs
Balance, end of period
Three months ended
December 31,
Year ended
December 31,
2015
2,000,000 $
2014
1,861,451 $
2015
1,865,990 $
$
—
—
—
—
—
4,540
475,000
(349,900)
8,910
2014
1,456,401
400,000
—
9,590
2,000,000
1,865,991
2,000,000
1,865,991
66
$
2,000,066 $
(9,490)
1,856,501 $
66
(9,490)
2,000,066 $
1,856,501
Mortgages Payable and Lines of Credit
Canadian mortgages payable and lines of credit (including mortgages on Canadian properties held for sale) consist of the
following:
As at
Mortgages payable and lines of credit (i)
Mortgages on Canadian properties held for sale
Fixed rate mortgages
Floating rate mortgages
Floating rate operating lines
Construction financing and other floating rate facilities
December 31, 2015 December 31, 2014
4,566,096
4,164,669 $
$
23,968
4,188,637 $
20,968
4,587,064
3,230,492 $
4,089,755
214,134
561,389
182,622
260,285
120,681
116,343
4,188,637 $
4,587,064
$
$
$
(i) Included in mortgages payable and lines of credit as at December 31, 2014 are carrying amounts of mortgages on U.S. properties.
The weighted average contractual and effective rates for fixed and floating rate mortgages payable and lines of credit (including
mortgages on Canadian properties held for sale) are as follows:
As at December 31,
Fixed rate
Floating rate
Total
Contractual
Effective
2015
4.17%
1.79%
3.63%
2014 (i)
4.50%
1.95%
4.34%
2015
4.36%
1.79%
3.71%
2014 (i)
4.61%
1.96%
4.46%
(i) Includes weighted average interest rates related to mortgages associated with U.S. properties.
81
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
During the three months and year ended December 31, 2015, RioCan had new mortgage borrowings and operating line draws for
both its Canadian and U.S. operations as follows:
Three months ended December 31, 2015
Year ended December 31, 2015
(thousands of dollars, except other data)
New borrowings:
Fixed rate term mortgages – Canada
$
Fixed rate term mortgages – U.S.
Construction financing
Operating lines of credit
Other bank loans
New borrowings
Aggregate new borrowings debt at:
Fixed rate debt
Floating rate debt
Aggregate new borrowings debt
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
9,900
14,262
10,248
461,296
—
$
495,706
$
$
24,162
471,544
495,706
2.46%
3.25%
2.79%
2.09%
—
2.14%
2.93%
2.11%
2.14%
4.90 $
343,776
2.90
1.28
0.81
—
268,094
43,140
767,296
50,000
— $ 1,472,306
3.72 $
611,870
0.82
860,436
— $ 1,472,306
2.86%
3.46%
2.60%
2.03%
1.25%
2.48%
3.12%
2.02%
2.48%
5.57
6.10
1.49
0.85
—
—
5.80
0.83
—
Changes in the carrying amount of the Canadian and U.S. mortgages payable and lines of credit resulted primarily from the
following:
Three months ended
December 31,
Year ended
December 31,
(thousands of dollars)
Contractual obligations, beginning of period
New Borrowings:
Fixed rate term mortgages – Canada
Fixed rate term mortgages – U.S.
Floating rate term mortgages – Canada
Construction lines
Advances on operating line of credit
Other bank loans
Principal repayments:
Scheduled amortization
Operating lines of credit
At maturity: Fixed rate term mortgages
Floating rate term mortgage
Construction financing
Disposed on the sale of properties
Assumed on the acquisition of properties
Foreign currency translation
Contractual obligations, end of period
Unamortized differential between contractual and market interest
rates on liabilities assumed at the acquisition of properties
Unamortized debt financing costs
Balance, end of period
Less: Mortgages associated with U.S. properties held for sale
2015
4,661,538 $
$
2014
2014
4,574,305 $ 4,576,115 $ 4,499,278
2015
9,900
14,262
—
10,248
461,296
—
(19,046)
(26,529)
(16,446)
—
(15,088)
—
262,802
55,705
98,450
—
—
16,343
62,027
—
(20,742)
(111,933)
(95,867)
—
—
—
1,836
51,696
343,776
268,094
—
43,140
767,296
50,000
(78,245)
(341,830)
(608,616)
—
(17,334)
(155,117)
286,986
264,377
161,774
91,493
3,845
19,803
231,003
100,000
(82,933)
(276,038)
(222,899)
(55,534)
(48,700)
—
48,092
106,931
5,398,642
4,576,115
5,398,642
4,576,115
31,626
25,064
31,626
25,064
(16,964)
5,413,304 $
1,224,667
4,188,637 $
$
$
(16,964)
(14,115)
(14,115)
4,587,064 $ 5,413,304 $ 4,587,064
—
1,224,667
4,587,064 $ 4,188,637 $ 4,587,064
—
At the outset of 2015, RioCan had $618 million of mortgage principal maturing in 2015 at a weighted average contractual interest
rate of 4.55%. For the year ended December 31, 2015, RioCan secured new term mortgage borrowings of $612 million at a
weighted average interest rate of 3.12% and an average term of 5.8 years. For 2015, repayments of maturing mortgage balances
and scheduled amortization amounted to $687 million.
82
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Hedging Activities
Interest rate risk
As at December 31, 2015, the outstanding notional amount of the floating-to-fixed interest rate swaps was $993 million
(December 31, 2014 – $797 million) and the term to maturity of these agreements ranges from February 2016 to August 2022.
We assess the effectiveness of the hedging relationship on a quarterly basis and have determined there is no ineffectiveness in
the hedging of its interest rate exposure as at December 31, 2015.
Refer to note 23 of the 2015 Annual Consolidated Financial Statements for further details.
Foreign currency risk
Our primary exposure to foreign currency risk is related to our net investment in the U.S. For further details, refer note 23 to the
2015 Annual Consolidated Financial Statements.
Canadian Debt Profile
As at December 31, 2015, RioCan’s Canadian Aggregate Debt had a 3.55 year weighted average term to maturity (December 31,
2014 – 3.95 years) bearing interest at a weighted average contractual interest rate of 3.65% (December 31, 2014 – 4.04%). As
at December 31, 2015, 15.5% of the Trust’s Canadian Aggregate Debt is at floating interest rates compared to 7.7% at
December 31, 2014.
RioCan's Canadian fixed and floating rate debt as a percentage of total Aggregate Debt and term to maturity are as follows:
As at December 31, 2015
Aggregate debt at:
Fixed rate debt
Floating rate debt
Aggregate debt
Aggregate debt
$
$
5,230,558
958,145
6,188,703
Percentage of
total RioCan's
aggregate debt
Weighted average
term to maturity in
years
84.5%
15.5%
100%
3.91
1.58
3.55
We have temporarily increased our debt levels through the use of operating lines of credit to fund transactions such as the Kimco
portfolio acquisition completed during 2015. It is also our intention to use such credit facilities to fund the upcoming redemption of
our Series A preferred units on March 31, 2016. The proceeds generated from the anticipated U.S. asset sale will be used, in
part, to repay these temporary borrowings in order to return our leverage to more normal operating levels.
The weighted average contractual and effective rates for Canadian fixed and floating aggregate debt including mortgages
payable, mortgages on Canadian properties held for sale, lines of credit and debentures are as follows:
As at December 31,
Fixed rate
Floating rate
Total
Contractual
Effective
2015
3.90%
1.79%
3.65%
2014
4.21%
1.97%
4.04%
2015
3.92%
1.80%
3.71%
2014
4.36%
1.97%
4.18%
RioCan’s Canadian debt maturity profile and future repayments are as outlined below:
Contractual principal maturities and interest rates (i)
(thousands of dollars,
except percentage
amounts)
As at December 31, 2015
Year ending December 31:
2016
2017
2018
2019
2020
Thereafter
Fixed rate
Floating rate
Mortgages
payable
Weighted
average
interest
rate
Mortgages
payable,
bank loans
and lines of
credit
Weighted
average
interest
rate
Scheduled
principal
amortization
Total
mortgages
payable,
bank loans
and lines of
credit
Weighted
average
interest
rate
Debentures
payable
Weighted
average
interest
rate
Total
mortgages,
bank loans,
lines of
credit and
debentures
payable
Weighted
average
interest
rate
$
565,602
4.57%
$
549,530
1.77% $
61,780 $ 1,176,912
3.18% $
—
—% $ 1,176,912
723,813
507,584
268,348
434,386
516,846
4.13%
3.77%
4.21%
3.94%
4.46%
173,080
—
237,856
—
—
2.12%
—%
1.59%
—%
—%
49,094
34,854
26,782
16,686
945,987
542,438
532,986
451,072
3.75%
3.77%
3.07%
3.94%
150,000
250,000
350,000
150,000
3.80%
1,095,987
2.87%
792,438
3.85%
882,986
3.62%
601,072
7,599
524,445
4.46%
1,100,000
3.81%
1,624,445
$ 3,016,579
4.17%
$
960,466
1.79% $
196,795 $ 4,173,840
3.63% $ 2,000,000
3.68% $ 6,173,840
3.18%
3.76%
3.49%
3.38%
3.86%
4.02%
3.65%
Unamortized differential between contractual and market interest rates on liabilities assumed
at the acquisition of properties
Unamortized debt financing costs
Balance
(i) Amounts for 2016 also include due on demand facilities.
22,050
(7,187)
$ 6,188,703
83
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at December 31, 2015, our mortgages payable, lines of credit and mortgages associated with Canadian properties held for
sale was $4.2 billion ($4.6 billion as at December 31, 2014). The vast majority of our Canadian mortgage indebtedness provides
recourse to the assets of the Trust, as opposed to only having recourse to the specific property charged. We follow this policy as
it generally results in lower interest costs than would otherwise be obtained.
Trust Units
As at December 31, 2015, there are 322 million common trust units outstanding. All common units outstanding have equal rights
and privileges and entitle the holder to one vote for each unit at all meetings of Unitholders. During the three months and year
ended December 31, 2015 and 2014, we issued common 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
Three months ended December 31,
Year ended December 31,
2015
321,051
—
1,420
12
—
2014
307,465
4,800
2,468
19
1,234
2015
315,986
—
5,443
35
1,019
2014
304,075
4,800
4,738
42
2,331
Units outstanding, end of period (i)
322,483
315,986
322,483
315,986
(i)
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, 2015 – 1,137,871 LP
units, December 31, 2014 – 1,137,871 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.
During the year ended December 31, 2015, 5.4 million units were issued pursuant to the Trust’s distribution reinvestment plan
compared to 4.7 million units during the same period in 2014. For 2015, we generated $143 million (2014 - $122 million) through
our common unit DRIP program, representing a DRIP participation rate of 31.5% compared to 28.1% in 2014. The generation of
this additional capital supports our growth strategy and provides liquidity in support of RioCan’s development program, where
there has been a substantial increase in activity since 2014 on multiple projects. Our objective is for this increased level of activity
to continue for 2016 and for several years thereafter, with an increased focus on urban retail and mixed-use developments
including a residential component.
As of February 17, 2016, there are 324 million common units issued and 9.0 million unit options issued and outstanding under the
Trust’s incentive unit option plan.
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 provides 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 our units on the date prior to the day the option was granted.
During 2015, our Unitholders approved an increase to the number of authorized unit options available for grant under RioCan's
incentive unit option plan of 10.6 million. The Unitholders also approved a modification to the unit option plan that set the
maximum aggregate number of unit options issuable thereunder (for purposes of satisfying the exercise of currently outstanding
options together with future grants, and no longer capturing unit options previously granted and exercised or cancelled) to 22
million. Accordingly, as at December 31, 2015, we are authorized to issue up to a maximum of 22 million unit options. As at
December 31, 2015, 22.0 million units remain available for grant under the Plan (December 31, 2014 – 3.3 million units).
During the year ended December 31, 2015, 1.0 million units were issued pursuant to exercises of the incentive unit options,
compared to 2.3 million units exercised during the same period in 2014.
New executive compensation plan
In February 2015, the Trust granted performance equity units (PEUs) under the performance equity unit plan (PEU Plan) with a
3-year performance period effective January 1, 2015 for senior executives. The implementation of the new PEU Plan will reduce
the proportion of long-term incentives granted through unit options through replacement with an equivalent value of PEUs. PEUs
will be subject to both internal and external measures consisting of both absolute and relative performance. Subject to
performance, PEUs granted during February 2015 vest in February 2018, and are cash settled.
The Trust accounts for this plan under the fair value method of accounting which uses the Monte-Carlo simulation pricing model
to determine the fair value of market-based awards. The Monte-Carlo simulation pricing model uses the same input assumptions
as the Black-Scholes model; however, it allows for the incorporation of the market-based performance hurdles that must be met
before the PEU vests in the holder. Pursuant to IFRS, compensation costs related to awards with a market-based condition are
recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided and all
performance conditions have been satisfied.
84
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Trustees' restricted equity unit plan
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 our 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.
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.
For the year ended December 31, 2015, the Trustees' restricted equity unit plan expense was $0.4 million (2014 - $0.8 million)
and was recorded in general and administrative expenses on the consolidated statement of earnings.
Trustees' deferred equity unit plan
On May 28, 2014, the Board of Trustees approved the adoption of a deferred unit plan for our non-employee Trustees
(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.
For the year ended December 31, 2015, the Trustees' deferred equity unit plan expense was $1.3 million (2014 - $1.2 million)
and was recorded in general and administrative expenses on the consolidated statement of earnings.
Normal course issuer bid
On August 5, 2015, 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. Refer to note 13 in our 2015 Annual Consolidated
Financial Statements for further details.
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. We believe that preferred units provide us with further enhanced ability to more actively
pursue value enhancing opportunities and acquisitions by providing greater flexibility in raising capital. In addition, the preferred
units potentially provide us with an opportunity to reduce our cost of capital.
In the first quarter of 2011, the Trust issued 5 million 5.25% Preferred Units, Series A (Series A Units) at a price of $25 per unit for
aggregate gross proceeds of $125 million. Also, on November 20, 2011, we 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 an
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.
During February 2016, we announced that the Trust will be exercising its option to redeem all 5 million outstanding Series A
preferred units on March 31, 2016 for total redemption proceeds of $125 million or $25 per Series A Unit.
Guarantees
As at December 31, 2015, the estimated amount of debt subject to guarantees and, therefore, the maximum exposure to credit
risk is approximately $296 million with expiries between 2016 and 2034 (December 31, 2014 - $470 million). During 2015, we
acquired Kimco's interest in a portfolio of 23 properties, which reduced our maximum exposure to loss under guarantee contracts
by $119 million.
As at December 31, 2015 and during 2015 there have been no defaults by the primary obligors for debts on which we have
provided guarantees and, as a result, no contingent loss on these guarantees has been recognized in our consolidated financial
statements.
85
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
The parties on behalf of which RioCan has outstanding guarantees are as follows:
(thousands 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
December 31, 2015 December 31, 2014
$
$
$
$
45,382 $
52,537
99,112
197,031 $
— $
58,035
15,366
25,600
296,032 $
164,326
60,952
84,376
309,654
34,507
65,830
44,873
14,748
469,612
Liquidity
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, construction financing 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, 2015 RioCan had:
•
•
•
•
•
$83 million of cash;
$339 million of cash available under undrawn bank lines of credit;
$167 million of cash available under undrawn construction facilities;
Indebtedness, net of cash, was 46.1% of total assets, net of cash, based on fair value (47.8% including our outstanding
preferred unit capital as debt); and
119 unencumbered Canadian properties with a fair value of $3.3 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, refer to Distributions to
Unitholders section in this MD&A for further discussion.
RioCan’s liquidity profile is as follows:
(thousands of dollars)
As at
Cash and equivalents
Undrawn lines of credit
Liquidity
Contractual debt:
Debentures payable
Mortgages payable, mortgages on
Canadian properties held for sale
and lines of credit
U.S. properties held for sale
Total contractual debt
Percentage of total contractual debt:
Liquidity
Unsecured debt
Secured debt
$
$
$
$
IFRS
RioCan's proportionate share
December 31, 2015 December 31, 2014
$
56,273
83,318
$
$
339,284
422,602
2,000,000
4,173,840
1,224,802
565,000
621,273
1,865,990
4,575,775
—
$
$
$
December 31, 2015 December 31, 2014
$
59,606
85,336
339,284
424,620
2,000,000
$
$
4,238,544
1,224,802
565,000
624,606
1,865,990
4,615,565
—
7,398,642
$
6,441,765
$
7,463,346
$
6,481,555
5.7%
27.0%
73.0%
9.6%
29.0%
71.0%
5.7%
26.8%
73.2%
9.6%
28.8%
71.2%
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
Our liquidity is impacted by contractual debt commitments and forecasted development expenditures on active projects. Our
contractual debt commitments and development expenditures at December 31, 2015 are as follows:
(thousands of dollars)
Contractual obligations:
Mortgages payable and
lines of credit (i)
Unsecured debentures
Lease commitments
2016
2017
2018
2019
2020
Thereafter
Total
1,176,912
—
4,228
945,987
150,000
3,931
542,438
250,000
4,089
532,986
350,000
3,888
451,072
150,000
3,549
524,445
1,100,000
26,382
4,173,840
2,000,000
46,067
Total
$ 1,181,140 $ 1,099,918 $
796,527 $
886,874 $
604,621 $
1,650,827 $
6,219,907
Estimated development
expenditures:
Active developments (ii)
183,921
282,642
260,819
—
—
882,854 (iii)
1,610,236
Total
$ 1,365,061 $ 1,382,560 $
1,057,346 $
886,874 $
604,621 $
2,533,681 $
7,830,143
(i) Excludes mortgages associated with U.S. properties held for sale.
(ii) Represents our estimated costs to complete properties both currently under development and planned future developments. These costs will only
be committed once leases are signed and/or construction activities are underway.
(iii) Represents forecasted development expenditures from years 2019 to 2021.
The Trust's contractual debt obligations and estimated development expenditures can be funded by net proceeds from the sale of
non-core assets, existing cash or operating lines, the issuance of unsecured debentures and equity units, or construction
financing.
In addition, our debt strategy has resulted in an unencumbered asset pool with an approximate fair value of $3.3 billion as at
December 31, 2015, which can generate additional liquidity, if needed. Also, a portion of the anticipated net proceeds from the
sale of our U.S. portfolio will be used to repay operating lines and other debt obligations to further strengthen our balance sheet
by reducing overall debt leverage to approximately 39% following the disposal and repayment of certain debt obligations, on a pro
forma basis, as compared to 46.1% at December 31, 2015.
Unencumbered Canadian Assets
As at December 31, 2015, our debt strategy has resulted in approximately 25.1% of Canadian NOI being generated by
unencumbered assets, providing us with access to a pool of assets for obtaining additional secured debt. The fair value of the
unencumbered income property assets as at December 31, 2015 is estimated at approximately $3.0 billion, comprising 107
properties, or 20.8% of the fair value of income properties as compared to 89 properties with a fair value of $2.5 billion as at
December 31, 2014. In addition to the unencumbered income property assets, we have 12 unencumbered properties under
development with a fair value of $335 million as at December 31, 2015, bringing the total fair value of unencumbered assets to
approximately $3.3 billion.
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 2016 and 2017:
(thousands of dollars)
Unencumbered income property assets
Unencumbered development property assets
Unencumbered assets
Encumbered assets with debt maturing in 2016
Encumbered assets with debt maturing in 2017
Total
Number of
Properties
Fair Value of Income
Properties as at
December 31, 2015
107 $
12
119
27
28
2,986,174 $
335,239
3,321,413
1,143,544
1,593,753
Principal balance of debt maturing
2016
— $
—
—
484,986
—
2017
—
—
—
—
677,194
677,194
$
6,058,710 $
484,986 $
RioCan has the continued flexibility to generate additional funds in 2016 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, 2015, RioCan had
119 properties that were unencumbered with a fair value of approximately $3.3 billion.
Considering our current levels of cash, the anticipated closing of the U.S. sale, undrawn credit facilities, unencumbered asset
pool, relatively low leverage and demonstrated historical access to debt capital markets, we expect that all maturities will be
refinanced or repaid in the normal course of business, and as such, do not anticipate that we will be required to sell assets (other
than the U.S. portfolio) and/or issue equity to meet our maturing debt obligations in 2016.
Distributions to Unitholders
RioCan qualifies as a mutual fund trust and a REIT for Canadian income tax purposes. We expect to distribute all of our taxable
income to unitholders and are 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 our incorporated Canadian subsidiaries.
87
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
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. income tax payable is required. Our U.S. subsidiary is subject to a 30% or 35% withholding tax on distributions
to Canada. Any withholding taxes paid are recorded as distributions or current income tax expense, depending on whether the
withholding tax is passed onto unitholders or deducted for Canadian tax purposes.
Any withholding tax related to the sale of our U.S. portfolio is intended to be deducted for Canadian tax purposes. We
consolidate certain wholly owned incorporated entities that are subject to tax. The tax disclosures, expense and deferred tax
balances relate only to these entities.
If we 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 we 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.
We expect to distribute to our unitholders in each year an amount not less than our taxable income for the year, as calculated in
accordance with the Income Tax Act (Canada) after all permitted deductions have been taken.
From year to year, the taxability of the Trust's distributions may fluctuate depending upon the timing of recognition of certain gains
and losses based on the activities of the Trust.
Our monthly distribution in 2015 was $0.1175 per unit representing $1.41 per unit on an annualized basis. Distributions to
Unitholders are as follows:
(thousands of dollars, except when otherwise noted)
Year ended December 31,
Distributions declared to Unitholders
Distributions reinvested through the distribution reinvestment plan
Distributions to common Unitholders, net of distribution reinvestment plan
Distribution reinvestment plan participation rate
$
$
2015
453,094
(142,715)
310,379
31.5%
$
$
2014
433,274
(121,564)
311,710
28.1%
Difference between 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 our
distribution reinvestment plan, is as follows:
(thousands of dollars)
Year ended December 31,
Cash flows provided by operating activities
Adjust for:
Changes in non-cash operating items
Adjusted operating cash flow (i)
Deduct: Distributions paid to Unitholders
2015
609,255 $
$
3,507
612,762
452,329
160,433
142,715
303,148 $
2014
501,694
(815)
500,879
433,100
67,779
121,564
189,343
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
$
(i) The year ended December 31, 2015 includes an expense for early redemption of debenture of $9.9 million.
In determining the annual level of distributions to Unitholders, we consider 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 during the current period and on a rolling twelve
month basis.
Additionally, in establishing the level of cash distributions to Unitholders we consider 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.
Distributions to Unitholders are expected to continue to be funded by cash flows generated from our 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.
A portion of the funds generated from the U.S. sale will be used to repay the debt that was incurred with the acquisition of
Kimco's interest in 23 of our co-owned properties, which has effectively replaced a significant portion of the income from the U.S.
88
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
portfolio. The remaining funds will be used to further strengthen our balance sheet by repaying debt immediately following the
U.S. portfolio sale and reinvesting in our Canadian operations as required. Accordingly, we expect to maintain adequate cash
flows to fund our Unitholder distributions.
SELECTED QUARTERLY INFORMATION
(millions of dollars, except per unit
amounts)
As at and for the quarter ended
Total revenue (ii)
Net earnings (loss) (iii)
Net earnings (loss) per unit:
– Basic
– Diluted
OFFO
OFFO per Unit
Total assets
Total mortgages payable,
mortgages payable held for sale
and debentures payable
Total common unitholder
distributions
Total common unitholder
distributions per unit
DRIP participation rate
2015 (i)
2014 (i)
$
Q4
429
(178)
$
(0.56)
(0.56)
142
0.44
Q3
321
145
0.44
0.44
140
0.44
Q2
Q1
$
322
$
331
$
86
90
0.26
0.26
136
0.43
0.27
0.27
138
0.44
$
$
Q4
316
173
0.54
0.54
130
0.42
$
Q3
307
162
0.51
0.51
134
0.43
Q2
303
159
0.51
0.50
127
0.42
Q1
307
172
0.55
0.55
127
0.42
15,996
7,413
15,255
6,667
15,104
6,732
15,083
6,687
14,677
6,444
14,392
6,438
13,945
6,170
13,784
6,094
116
113
112
112
110
109
108
108
$ 0.3525
$ 0.3525
$ 0.3525
$ 0.3525
$ 0.3525
$ 0.3525
$ 0.3525
$ 0.3525
30.1%
35.1%
29.8%
30.6%
29.0%
28.8%
25.6%
27.8%
Net book value per unit (iv)
$ 23.76
$ 24.58
$ 24.19
$ 24.39
$ 24.06
$ 23.71
$ 23.39
$ 23.28
Non-resident ownership of units (v)
– Canadian
– Non-resident
80.0%
20.0%
76.3%
23.7%
69.4%
30.6%
69.2%
30.8%
72.1%
27.9%
74.9%
25.1%
75.0%
25.0%
74.1%
25.9%
(i) 2015 and 2014 selected quarterly information shown has not been restated to exclude results from discontinued operations in respect of the Trust
having entered an agreement to sell its U.S. retail portfolio to Blackstone.
Includes rental revenue, property and asset management fees, interest income and other income.
(ii)
(iii) Refer to RioCan’s respective annual and interim MD&As issued for a discussion and analysis relating to those periods.
(iv) A non-GAAP measurement. Calculated by RioCan as common unitholders’ equity divided by the number of units outstanding at the end of the
reporting 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.
(v) Estimates based on mailing addresses on record at the end of each reporting period.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are described in note 3 of RioCan's audited 2015 Annual Consolidated Financial Statements.
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.
Our critical accounting judgments, estimates and assumptions relate to the following areas: fair value, the recognition and
valuation of deferred tax assets and liabilities, capitalization of costs to investment property, determination of significant influence
over equity investees, classification of disposal groups and discontinued operations and the determination of the type of lease
where we are the lessor. Our critical accounting policies and estimates have been reviewed and approved by our Audit
Committee, in consultation with senior management, as part of their review and approval of our significant accounting policies
and judgments.
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.
89
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
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. Refer to Asset
Profile for a further discussion of fair values of investment property and sensitivity analysis.
• Unit based compensation expense is measured at fair value and expensed over the option vesting period, calculated using the
Black-Scholes Model for option valuation. For the year ended December 31, 2015, we recorded unit-based compensation
expense of $4.7 million (year ended December 31, 2014 - $4.1 million).
• IAS 39, Financial Instruments: Recognition and Measurement establishes the standard for recognizing and measuring financial
assets, financial liabilities and non-financial derivatives. 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, 2015, the consideration for real estate acquisitions includes $296 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.
• 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, 2015 is $7.4 billion. The Trust reported a $7.7
billion fair value relating to these mortgages and debentures payable in note 22 to the 2015 Annual Consolidated Financial
Statements.
Capitalization of costs to investment property
RioCan's accounting policies relating to investment properties are described in note 3(c) to the 2015 Annual Consolidated
Financial Statements. 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 costs for properties under development are capitalized in accordance with the accounting policy in note 3(c) to the
2015 annual Consolidated Financial Statements. 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 common area maintenance, property taxes and borrowing costs on both specific
and general debt.
Leases - RioCan as a lessor
We make judgments in determining whether certain leases, in particular tenant leases where we are the lessor, are either
operating or finance leases. RioCan has determined, based on an evaluation of terms and conditions of the lease arrangements,
that the Trust retains all the significant risks and rewards of ownership of these properties and accounts for these arrangements
as operating leases.
Income taxes
The Trust uses judgment to interpret tax rules and regulations and determining the appropriate rates and amounts in recording
current and deferred income taxes, giving consideration to timing and probability. Actual income taxes could significantly vary
from these estimates as a result of future events, including changes in income tax law or the outcome of reviews by tax
authorities and related appeals. To the extent that the final tax outcome is different from the amounts that were initially recorded,
such difference will impact the income tax provision in the period in which such determination is made.
The recognition of deferred income tax assets and liabilities also requires significant judgment as the recognition is dependent on
RioCan's projection of future taxable profits and tax rates that are expected to be in effect in the period the asset will be realized
or the liability settled. Any changes to this projection will result in changes in the amount of deferred tax assets and liabilities on
the consolidated balance sheets and the deferred tax expense in the consolidated statements of earnings.
Classification of assets and liabilities as held for sale and discontinued operations
Classification of assets or a disposal group as held for sale and discontinued operations requires judgment on whether the
carrying amount will be recovered principally through a sale transaction rather than through continuing use and whether the sale
is highly probable.
Significant influence
When determining the appropriate basis of accounting for RioCan's investees, we make 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.
90
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 2015 Annual Consolidated
Financial Statements for the year ended December 31, 2015, are described below. This description is of standards and
interpretations issued, which we reasonably expect to be applicable at a future date. We intend to adopt these standards when
they become effective.
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, 2018, 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 establishes
principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to
users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows. This
new standard also includes new general hedge accounting guidance, which will align hedge accounting more closely with risk
management. It does not completely change the types of hedging relationships or the requirement to measure and recognize
ineffectiveness; however, it will allow more hedging strategies that are used for risk management to qualify for hedge accounting
and introduce more judgment to assess the effectiveness of a hedging relationship.
IFRS 9 also introduces an expected loss impairment model for all financial assets not measured at fair value through profit or loss
that requires recognition of expected credit losses rather than incurred losses as applied under the current standard.
IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. The Trust is
currently assessing the potential impact of this standard on its consolidated financial statements.
IFRS 11, Joint Arrangements (IFRS 11)
In May 2014, the IASB issued Amendments to IFRS 11, Joint Arrangements: Accounting for Acquisitions of Interests in Joint
Operations. The amendments provide guidance on how to account for the acquisition of an interest in a joint operation in which
the activities constitute a business combination as defined in IFRS 3. Acquirers of such interests are to apply the relevant
principals on business combination accounting in IFRS 3 and other standards, as well as disclosing the relevant information
specified in these standards for business combinations. The amendments to IFRS 11 is effective for annual periods beginning on
or after January 1, 2016 and should be applied prospectively. The Trust does not expect this amendment to significantly impact
the consolidated financial statements.
IFRS 16, Leases (IFRS 16)
In January 2016, the IASB issued IFRS 16, Leases. The new standard brings most leases on-balance sheet for lessees under a
single model, eliminating the distinction between operating and finance leases. Lessor accounting, however, remains largely
unchanged and the distinction between operating and finance leases is retained. This standard would be effective for the Trust's
annual periods beginning after January 1, 2019 with earlier adoption permitted. We are currently assessing the impact on our
consolidated financial statements.
IAS 1, Presentation of Financial Statements (IAS 1)
During December 2014, the IASB issued an amendment to IAS 1 clarifying certain existing IAS 1 requirements. The amendments
include the following: the materiality requirements in IAS 1; that specific line items in the consolidated statements of earnings and
OCI and the consolidated balance sheets may be disaggregated; that entities have flexibility as to the order in which they present
the notes to financial statements; that the share of OCI of associates and joint ventures accounted for using the equity method be
presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified
to earnings. The amendments also clarify the requirements that apply when additional subtotals are presented in the consolidated
balance sheets and the consolidated statement of earnings and OCI. These amendments are effective for annual periods
beginning on or after January 1, 2016, with earlier adoption permitted. These amendments are not expected to have any
significant impact on our consolidated financial statements.
CONTROLS AND PROCEDURES
At December 31, 2015, the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) of the Trust, together 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 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.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 has 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, 2015 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, 2015, 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).
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 REIT Status
RioCan 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 our Canadian source revenues must be derived from rental
revenue, capital gains and fee income from properties in which we have an interest.
Pursuant to legislation enacted June 26, 2013, with retroactive effect to January 1, 2011, the basket for the holding of non-
qualifying assets is 10%, and the qualifying revenue threshold is 90% for purposes of the 95% REIT revenue test.
The Trust does not believe that the recent changes in legislation discussed above, which are generally less restrictive than the
original tax legislation, will impair its ability to continue to qualify as a REIT.
U.S. Income Tax Legislation
On December 18th, 2015, the House of Representatives passed new tax legislation known as the PATH Act, which makes
significant changes to the U.S. federal income tax rules on foreign investment in U.S. real property (the Foreign Investment in
Real Property Act or "FIRPTA") by certain "qualified shareholders". We are currently reviewing the impact of these proposed
changes on our U.S. portfolio sale, which may have the potential to reduce a qualifying foreign investor's withholding tax rate
from 35% to 30% and other potential tax reductions. We are awaiting additional guidance from the Internal Revenue Agency to
determine whether the Trust can benefit from the new tax legislation.
REIT Qualification Monitoring
A key activity of RioCan is the monitoring processes to ensure that RioCan continues to qualify as a Canadian and U.S. REIT.
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.
RELATED PARTY TRANSACTIONS
In the ordinary course of business, we may enter into transactions with entities whose directors or trustees are also RioCan
trustees and/or part of RioCan's senior management. All 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 related party transactions for financial statement purposes. For further details on related party transactions, refer to
note 29 of the 2015 Annual Consolidated Financial Statements.
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.
On June 17, 2015, RioCan amended its Declaration to further align the Declaration with evolving governance best practices, as
further described in RioCan's Management Information Circular dated April 20, 2015. The rights granted in the amended
Declaration are granted as contractual rights afforded to Unitholders (rather than as statutory rights). Similar to other existing
rights contained in the Declaration (i.e. the take-over bid provisions and conflict of interest provisions), making these rights and
remedies and certain procedures available by contract is structurally different from the manner in which the equivalent rights and
remedies or procedures (including the procedure for enforcing such remedies) are made available to shareholders of a
corporation, who benefit from those rights and remedies or procedures by the corporate statute that governs the corporation,
such as the Canada Business Corporations Act. As such, there is no certainty how these rights, remedies or procedures may be
treated by the courts in the non-corporate context or that a Unitholder will be able to enforce the rights and remedies in the
manner contemplated by the proposed amendments. Furthermore, how the courts will treat these rights, remedies and
procedures will be in the discretion of the court, and the courts may choose to not accept jurisdiction to consider any claim
contemplated in the proposed provisions.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
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 home buyers, 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 major 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, we 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 our
revenue is earned from national and anchor tenants. RioCan attempts to lease to credit worthy 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, 2015, 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 our 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.
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 us to maintain our existing
occupancy levels of our properties. It is possible that we 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.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
At December 31, 2015, RioCan had NLA, at its interest, of 46,063,000 square feet and a portfolio occupancy rate of 92.2%.
Based on our current annualized portfolio weighted average rental revenue of approximately $28 per square foot, for every
fluctuation in occupancy by a differential of 1%, our operations would be impacted by approximately $13 million annually.
RioCan's aggregate rentals expiring over the next five years is $411 million based on current contractual rental rates. If the leases
associated with these expiring rents are renewed upon maturity at an aggregate rental rate differential of 100 basis points, our net
earnings would be impacted by approximately $4.1 million annually.
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 our 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 we are 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, 2015, RioCan’s total indebtedness had a 3.8 year weighted average term to maturity bearing interest at a
weighted average contractual interest rate of 3.75% 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 our flexibility in conducting our 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. We seek to reduce our 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, 2015, 14.0% of our total debt was at
floating interest rates (including both Canadian and U.S. mortgages held for sale).
From time to time, the Trust may enter into floating-for-fixed interest rate swaps as part of its strategy for managing certain
interest rate risks. As at December 31, 2015, the carrying value of our floating rate debt, not subject to a hedging strategy, is
$957 million. A 50 basis point increase in market interest rates would result in a $4.8 million decrease in our net earnings.
Joint Ventures and Co-ownerships
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 our 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,
our 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 we may be required to take actions that are in the interest of the partners collectively, but not in RioCan's
sole best interests. Accordingly, we may not be able to favourably resolve issues with respect to such decisions, or we could
become engaged in a dispute with any of them that might affect our 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 our 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 we would realize sale proceeds of less than the current book value of our 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
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
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 our 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. We maintain 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 our 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 our success and oversee the execution of RioCan's
strategy. Our ability to retain our 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 we 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 our financial condition and cash flow.
We rely on the services of key personnel on our executive team, including its Chief Executive Officer, Edward Sonshine, our
President and Chief Operating Officer, Raghunath Davloor and our Executive Vice President, Chief Financial Officer and
Corporate Secretary, Cynthia Devine and the loss of their services could have an adverse effect on RioCan. We mitigate key
personnel risk through succession planning, but do not maintain key person insurance.
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. From year to year, there is a risk that the taxable
allocation to unitholders can change depending upon the Trust's activities.
Investment in the U.S. and Currency Risk
As at December 31, 2015, our U.S. dollar-denominated net assets are $1.6 billion; therefore a 1% change in the value of the U.S.
dollar will result in a gain or loss through OCI of approximately $11 million. We have decided to increase our U.S. net investment
hedge in order to reduce exposure to fluctuations in the Canadian/U.S. foreign exchange rate on our U.S. investment. To date,
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
we have increased our U.S. dollar denominated borrowings by US$258 million and repaid outstanding Canadian debt using the
proceeds from the U.S. borrowings converted to Canadian dollars at an average exchange rate of 1.3921, which was established
using a series of short-term forward derivative contracts, of which US$166 million in notional is outstanding at December 31,
2015. We have designated the US$258 million of additional U.S. borrowings as part of our existing net foreign investment hedge
and will repay such debt using a portion of the U.S. sale proceeds received on closing. In addition to the in-place U.S. property
specific mortgages, we have hedged an additional US$585 million or approximately 84% of the anticipated gross U.S. sale
proceeds to be received on transaction closing.
We intend to successfully complete the sale of our U.S. business before the end of April 2016, however, we continue to carefully
monitor all closing steps and conditions. There are no assurances that can be made that the necessary steps and conditions will
be satisfied.
Credit Ratings
Real or anticipated changes in credit ratings on our 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 we can access the debenture or preferred unit market, as
applicable.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RioCan
AUDITED ANNUAL
CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2015 AND 2014
TABLE OF CONTENTS
Audited Annual
Consolidated Financial Statements
98 Management’s Responsibility for Financial Reporting
99
Independent Auditors’ Report
100 Consolidated Balance Sheets
101 Consolidated Statements of Earnings
102 Consolidated Statements of Comprehensive Income
103 Consolidated Statements of Changes in Equity
104 Consolidated Statements of Cash Flows
105 Notes to Consolidated Financial Statements
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
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, 2015, our Chief Executive Officer and 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 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 2015 and 2014 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.
Cynthia Devine, FCPA, FCA
Chief Executive Officer
Executive Vice President, Chief Financial Officer and Corporate Secretary
Toronto, Canada
February 17, 2016
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
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, 2015 and 2014, and the consolidated statements of earnings,
comprehensive income, changes in equity, and cash flows for the years then ended, 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, 2015 and 2014, and its financial performance and its cash flows for the years then
ended in accordance with International Financial Reporting Standards.
Toronto, Canada
February 17, 2016
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars)
As at
Assets
Investment properties
Deferred tax assets
Investments in associates and joint ventures
Mortgages and loans receivable
Residential inventory
Assets held for sale
Receivables and other assets
Cash and cash equivalents
Total assets
Liabilities
Debentures payable
Mortgages payable and lines of credit
Deferred tax liabilities
Liabilities associated with assets held for sale
Accounts payable and other liabilities
Total liabilities
Equity
Unitholders' equity:
Preferred
Common
Total unitholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
Note
December 31, 2015
December 31, 2014
5
9
6
7
4
8
11
10
9
4
12
13
13
$
12,152,176
$
13,770,763
8,009
158,994
129,258
45,276
2,968,095
451,365
83,318
15,996,491
2,000,066
4,164,669
230,474
1,248,635
425,826
$
$
8,069,670
$
265,451
$
7,660,588
7,926,039
782
7,926,821
15,996,491
$
9,059
63,016
136,190
80,350
188,933
373,093
56,273
14,677,677
1,856,501
4,566,096
—
20,968
365,244
6,808,809
265,451
7,603,119
7,868,570
298
7,868,868
14,677,677
$
$
$
$
$
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
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands of Canadian dollars, except per unit amounts)
Year ended December 31,
Revenue
Rental income
Residential inventory sales
Property and asset management fees
Direct costs
Property operating costs
Recoverable under tenant leases
Non-recoverable from tenants
Residential inventory cost of sales
Operating earnings
Other revenue
Share of net earnings in associates and joint ventures
Interest
Other income
Fair value gains (losses) on investment properties, net
Expenses
Interest
General and administrative
Transaction and other costs
Leasing costs
Expense for early redemption of debentures
Earnings before income taxes from continuing operations
Deferred income tax expense
Net earnings from continuing operations
Earnings (loss) from discontinued operations, net of tax
Net earnings
Net earnings attributable to:
Common and preferred unitholders
Non-controlling interests
Net earnings per unit - basic:
From continuing operations
From discontinued operations
Net earnings per unit - basic
Net earnings per unit - diluted:
From continuing operations
From discontinued operations
Net earnings per unit - diluted
Weighted average number of units (in thousands):
Basic
Diluted
The accompanying notes are an integral part of the consolidated financial statements.
Note
2015
2014
16
$
1,039,068
$
1,009,422
31,937
16,731
—
15,581
1,087,736
1,025,003
373,698
20,465
29,343
423,506
664,230
10,378
5,370
98,426
(91,548)
22,626
186,772
51,051
10,498
9,750
9,929
268,000
418,856
1,290
417,566
(275,129)
142,437
141,763
674
142,437
1.26
(0.86)
0.40
1.26
(0.86)
0.40
$
$
$
$
$
$
$
$
354,951
14,583
—
369,534
655,469
729
7,854
5,944
34,423
48,950
194,073
48,950
4,938
8,693
—
256,654
447,765
50
447,715
216,250
663,965
663,258
707
663,965
1.41
0.70
2.11
1.40
0.70
2.10
319,492
319,983
307,910
308,672
6
17
5
18
19
20
11
9
4
21
21
21
21
21
21
$
$
$
$
$
$
$
$
101
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of Canadian dollars)
Year ended December 31,
Net earnings
Other comprehensive income:
Items that may be reclassified subsequently to net earnings, net of tax:
Translation of foreign operations:
Unrealized gain during the year
Reclassified during the year to earnings
Unrealized loss on interest rate swap agreements
Unrealized gain on available-for-sale investment
Items that are not to be reclassified to net earnings, net of tax:
Actuarial gain (loss) on pension plan
Other comprehensive income, net of tax
Comprehensive income, net of tax
Comprehensive income, net of tax attributable to:
Common and preferred unitholders
Non-controlling interests
The accompanying notes are an integral part of the consolidated financial statements.
Note
$
2015
142,437 $
2014
663,965
13
13
13
13
13
$
$
$
214,200
(8,776)
(9,882)
14,105
77,663
—
(7,408)
27,247
535
210,182
352,619 $
(1,785)
95,717
759,682
351,945 $
674 $
758,975
707
102
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands of Canadian dollars)
Total Equity, December 31, 2013
$ 4,238,936 $
6,825,780 $ (4,090,464) $
Note
Common
Trust Units
Cumulative
Earnings
Cumulative
Unitholders
Distribution
Accumulated
OCI
Total
Common
Equity
18,735 $ 6,992,987 $ 265,451 $
Total
Preferred
Equity
Non-
Controlling
Interests
Total
11,297 $ 7,269,735
Changes during the year
Net earnings
Other comprehensive income
Unit issue proceeds, net
Value associated with unit based compensation
Distributions to unitholders
Change in ownership interest
Total Equity, December 31, 2014
Changes during the year
Net earnings
Other comprehensive income
Unit issue proceeds, net
Value associated with unit based compensation
Distributions to unitholders
Total Equity, December 31, 2015
13
13
13
15
13
13
13
15
—
—
292,570
5,451
—
—
663,258
—
—
—
—
—
—
—
—
—
(446,864)
—
—
95,717
—
—
—
—
663,258
95,717
292,570
5,451
(446,864)
—
—
—
—
—
—
—
707
663,965
—
—
—
—
95,717
292,570
5,451
(446,864)
(11,706)
(11,706)
$ 4,536,957 $
7,489,038 $ (4,537,328) $
114,452 $ 7,603,119 $ 265,451 $
298 $ 7,868,868
—
—
167,073
5,135
—
141,763
—
—
—
—
—
—
—
—
(466,684)
—
210,182
—
—
—
141,763
210,182
167,073
5,135
(466,684)
—
—
—
—
—
674
—
—
—
142,437
210,182
167,073
5,135
(190)
(466,874)
$ 4,709,165 $
7,630,801 $ (5,004,012) $
324,634 $ 7,660,588 $ 265,451 $
782 $ 7,926,821
The accompanying notes are an integral part of the consolidated financial statements.
103
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
Year ended December 31,
Cash flows provided by (used in):
Operating activities
Net earnings (loss) from:
Continuing operations
Discontinued operations
Net earnings
Items not affecting cash:
Depreciation and amortization
Recognition of rents on a straight-line basis
Incentive unit option compensation expense
Share of net earnings in associates and joint ventures
Fair value (gains) losses on investment properties, net
Deferred income taxes from discontinued operations
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 on income properties
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 related to available-for-sale investments, net of financing
Cash flows used in investing activities
Financing activities
Mortgages payable
Borrowings
Repayments
Advances on lines of credit
Repayment of lines of credit
Issue of debentures payable, net
Repayment of debentures payable
Acquisition of non-controlling interests
Common unit distributions paid, net of distributions reinvested
Distributions paid on preferred units
Proceeds from issue of common units, net
Cash flows provided by financing activities
Net increase 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
2015
2014
13
5
9
28
$
417,566
$
447,715
(275,129)
142,437
216,250
663,965
4,655
(9,328)
5,135
(6,233)
238,608
230,474
3,507
609,255
(732,635)
(187,062)
(34,705)
(33,208)
135,376
(3,108)
13,447
43,079
(24,255)
33,439
(12,749)
4,041
(9,235)
4,075
(12,905)
(147,432)
—
(815)
501,694
(191,349)
(230,681)
(30,026)
(29,902)
54,352
(3,328)
1,036
—
(54,452)
59,538
(95,534)
(802,381)
(520,346)
653,536
(704,195)
777,296
(341,830)
484,110
(349,900)
—
(309,614)
(13,590)
24,358
220,171
27,045
56,273
83,318
248,400
(410,620)
231,003
(276,038)
399,272
—
(2,236)
(311,536)
(13,590)
171,006
35,661
17,009
39,264
56,273
$
11
11
27
15
$
27
104
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
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, 2015 AND 2014
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:
TABLE OF CONTENTS
Notes to Consolidated Financial Statements
1. Trust Information
2. Basis of Preparation
3. Significant Accounting Policies
4. Assets and Liabilities Associated with Assets Held
for Sale and Discontinued Operations
5. Investment Properties
6. Investment in Associates and Joint Ventures
7. Mortgages and Loans Receivable
8. Receivables and Other Assets
9. Income Taxes
10. Mortgages Payable and Lines of Credit
11. Debentures Payable
12. Accounts Payable and Other Liabilities
13. Unitholders’ Equity
14. Unit-based Compensation Plans
15. Distributions to Unitholders
16. Rental Revenue
106
106
107
117
119
122
124
124
124
125
127
128
129
130
132
133
17. Other Income
18. Interest Expense
19. General and Administrative
20. Transaction and Other Costs
21. Net Earnings per Unit
22. Fair Value Measurement
23. Risk Management
24. Capital Management
25. Operating Leases
26. Subsidiaries
27. Supplemental Cash Flow Information
28. Net Change in Non-Cash Operating Items
29. Related Party Transactions
30. Employee Benefits
31. Segmented Information
32. Contingencies and Other Commitments
33. Events After the Balance Sheet Date
133
133
133
133
134
134
135
137
138
139
139
140
140
140
142
143
143
C_C
105
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
1. Trust Information
RioCan Real Estate Investment Trust and its subsidiaries (the Trust or RioCan) own, develop and operate Canada's largest
portfolio of shopping centres. The parent trust, RioCan Real Estate Investment Trust, 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 17, 2015 (the Declaration). The Trust’s corporate
headquarters and registered head office are located at the RioCan Yonge Eglinton Centre, 2300 Yonge Street, Toronto, Ontario,
Canada.
RioCan's common trust units (units), Series A and C preferred trust units are listed on the Toronto Stock Exchange (TSX) under
the ticker symbols REI.UN, REI.PR.A and REI.PR.C, respectively.
These consolidated financial statements were authorized for issue by the Board of Trustees on February 17, 2016.
2. Basis of Preparation
(a) 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 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 accounting policies set out below have been applied consistently in all material
respects. Any IFRS not effective for the current accounting period are described in note 3. The notes to the consolidated financial
statements distinguish between current and non-current assets and liabilities.
(b) Principles of consolidation
These consolidated financial statements include the accounts of the parent trust, RioCan Real Estate Investment Trust and its
subsidiaries, after elimination of intercompany transactions, balances, revenues and expenses.
(i) Subsidiaries
Subsidiaries are entities over which the Trust has control. Control is achieved when RioCan is exposed, or has rights, to
variable returns from its involvement with the investee and has the ability to affect those returns through its power over the
investee. Power may be determined on the basis of voting rights or, in the case of structured entities, other contractual
arrangements. The Trust reassesses whether or not it controls an investee based on current facts and circumstances.
All subsidiaries are consolidated from the date 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 consolidated subsidiary, the non-controlling equity
interest is presented as a separate component of total equity on the consolidated balance sheets. The net earnings
attributable to non-controlling interests are separately disclosed in the Trust's consolidated statements of earnings.
(ii) Associates and joint ventures
Associates are entities over which RioCan has significant influence but not control or joint control, generally accompanying
an ownership between 20% to 50% of the voting rights, although other factors such as the ability to impact key operating
decisions could also indicate significant influence.
Joint ventures are entities over which the Trust has joint control and 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 using the equity method. Under the equity method, the
investment is initially recorded at cost and adjusted by RioCan's share of the post-acquisition results of operations and
changes in the net assets 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) Significant judgments
The preparation of RioCan's consolidated financial statements requires management to make significant judgments that affect the
carrying amounts of assets and liabilities, and the reported amounts of revenues and expenses. In the process of applying
RioCan's accounting policies, management was required to apply judgment in the areas discussed below.
106
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
Investment properties
RioCan's accounting policies relating to investment properties are described in note 3(c). 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 common area
maintenance, property taxes and borrowing costs on both specific and general debt.
Leases - RioCan as a lessor
The Trust makes judgments in determining whether certain leases, in particular tenant leases where the Trust is the lessor, are
either operating or finance leases. RioCan has determined, based on an evaluation of terms and conditions of the lease
arrangements, that the Trust retains all the significant risks and rewards of ownership of these properties and accounts for these
arrangements as operating leases.
Income taxes
The Trust uses judgment to interpret tax rules and regulations and determining the appropriate rates and amounts in recording
current and deferred income taxes, giving consideration to timing and probability. Actual income taxes could significantly vary
from these estimates as a result of future events, including changes in income tax law or the outcome of reviews by tax
authorities and related appeals. To the extent that the final tax outcome is different from the amounts that were initially recorded,
such difference will impact the income tax provision in the period in which such determination is made.
The recognition of deferred income tax assets and liabilities also requires significant judgment as the recognition is dependent on
RioCan's projection of future taxable profits and tax rates that are expected to be in effect in the period the asset will be realized
or the liability settled. Any changes to this projection will result in changes in the amount of deferred tax assets and liabilities on
the consolidated balance sheets and the deferred tax expense in the consolidated statements of earnings.
Classification of assets and liabilities as held for sale and discontinued operations
Classification of assets or a disposal group as held for sale and discontinued operations requires judgment on whether the
carrying amount will be recovered principally through a sale transaction rather than through continuing use and whether the sale
is highly probable.
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.
(d) Use of estimates and assumptions
The preparation of RioCan's consolidated financial statements requires management to make estimates and assumptions that
have a significant risk of causing a material adjustment to the reported amounts of assets, liabilities, net earnings and related
disclosures over the following reporting period. Estimates made by management are based on events and circumstances that
existed at the consolidated balance sheet date. Accordingly, actual results may differ from these estimates.
Investment properties
Estimates and assumptions used in determining fair value of the Trust's investment properties include capitalization rates and
stabilized net operating income (which is influenced by vacancy rates) used in the direct capitalization income approach. A
change to any of these inputs could significantly alter the fair value of an investment property.
Unit-based compensation
RioCan uses estimates and assumptions 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 and
performance equity unit awards 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. The valuation method used to measure the fair value for each performance equity
unit awarded by RioCan is the Monte Carlo simulation model, which requires the use of similar input assumptions.
3. Significant Accounting Policies
The significant accounting policies (and any changes thereto) used in the preparation of these consolidated financial statements
are summarized below. These accounting policies conform, in all material respects, to IFRS.
107
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
Change in accounting policy
IAS 40, Investment Property (IAS 40)
On January 1, 2015, the Trust adopted an amendment with respect to the description of ancillary services in IAS 40, which
differentiates between investment property and owner-occupied property (i.e., property, plant and equipment). The amendment is
applied prospectively and clarifies that IFRS 3, Business Combinations, and not the description of ancillary services in IAS 40, is
used to determine if the transaction is the purchase of an asset or a business combination. This amendment did not result in a
material impact to the consolidated financial statements.
IFRS 8, Operating Segments (IFRS 8)
During May 2015, RioCan adopted an amendment that clarifies that an entity must disclose the judgements made by
management in applying the aggregation criteria in IFRS 8, including a brief description of operating segments that have been
aggregated and the economic characteristics used to assess whether the segments are similar; and the reconciliation of segment
assets to total assets is only required to be disclosed if a measure of segment assets is reported to the chief operating decision
maker, similar to the required disclosure for segment liabilities. This amendment required retrospective application and did not
result in a material impact to the consolidated financial statements.
Change in accounting presentation
Sale of U.S. Operations
On December 17, 2015, RioCan entered into an agreement to sell its U.S. portfolio of 49 investment properties to Blackstone
Real Estate Partners VIII (Blackstone) for a total sale price of US$1.9 billion. The sale is expected to close on April 30, 2016,
subject to certain customary closing conditions. The comparative consolidated statements of earnings and cash flows have been
restated to reflect the classification of the U.S. business as discontinued operations.
All other notes to the consolidated financial statements include amounts for continuing operations, unless otherwise indicated.
Additional disclosures are provided in note 4. Certain other 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 thousand, unless
otherwise indicated.
Prior to January 1, 2015, investment properties held for sale and held for resale assets were reported as part of investment
properties on the face of the consolidated balance sheets at the reporting period date. Investment properties held for sale,
residential development inventory (formerly, properties held for resale) and mortgages on properties held for sale, have been
separately presented on the face of the consolidated balance sheets with no impact on net earnings, total assets, total liabilities
or total equity. Comparative amounts have been reclassified to conform to the current year's presentation.
Operating Earnings
During the year, RioCan changed its presentation of certain items on the income statement in an effort to better reflect the nature
of the Trust's business operations. Effective January 1, 2015, RioCan classifies gross sales of its residential inventory in total
revenue and the direct costs of residential inventory sales in direct costs on the face of the consolidated income statement.
Effective January 1, 2015, property and asset management fees have been reclassified to total revenue. The net gains from the
Trust's residential inventory sales and property and asset management fees were formerly reported in other income below
operating earnings. All comparative amounts have been reclassified to conform to the current year's presentation.
Effective January 1, 2015, the Trust has changed its presentation of all tabular amounts in the consolidated financial statements
from being rounded to the nearest million to rounded to the nearest thousand, unless otherwise indicated.
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
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.
108
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
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 certain financial instruments, such as derivatives, and non-financial assets, such as investment properties, at
fair value at each consolidated 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. Fair value is determined by
incorporating all factors that market participants would consider in setting a price acting in their economic best interests, including
commonly accepted valuation approaches. 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.
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 consolidated 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 reassessing 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.
(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 the 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
109
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
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 consolidated balance sheet date with fair value
adjustments recognized in net earnings.
(d) Residential inventory
Residential inventory 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. Residential inventory 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 and development
costs to complete.
Residential inventory 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. RioCan's residential inventory also includes air rights.
Transfers into residential inventory are based on a change in use evidenced by the commencement of development expenditures
with a view to sell, at which point an investment property would be transferred to inventory. Transfers from inventory to
investment property are based on a change in use evidenced by management's commitment to use a property for rental
purposes or the commencement of an operating lease to another party.
(e) 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.
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. Percentage rents are recognized once the specified threshold has been achieved in accordance with each
tenant lease.
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.
(ii) Residential inventory
Income earned from the sale of residential inventory 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) income and costs can be reliably
measured; c) the purchaser has made a substantial commitment demonstrating its intent to honour its obligation; and d)
collection of any additional consideration is reasonably assured.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
Income from residential land sales, the sale of homes and residential condominium projects is recorded at the time that the
risks and rewards of ownership have been transferred and collectibility of all proceeds is reasonably assured, which is
generally when possession or title passes to the purchaser upon closing, all material conditions of the sales contract have
been met and a significant cash down payment or appropriate security is received.
Directly attributable selling and disposition costs are expensed as incurred.
(iii) Property and asset management fees
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.
(iv) Interest income
Revenue is recognized as interest accrues using the effective interest method.
(v) Other income
Transaction gains and losses
Transaction gains and losses are recognized on the settlement date and represent the excess proceeds of disposition
relating to subsidiaries, investments or assets over their carrying values in the case of gains and the excess carrying value of
assets over proceeds of disposition in the case of transaction losses. Transaction gains and losses may also arise from the
settlement of liabilities for more or less than their carrying values.
Available-for-sale investments
Other income also includes dividends and/or distributions arising on available-for-sale investments, which are recorded when
the Trust's right to receive payment has been established, which is generally when the dividends and/or distributions are
declared payable.
(f) Unit-based compensation
RioCan and its subsidiaries issue unit-based equity-settled awards to certain employees. The cost of these unit-based payments
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.
RioCan has unit-based cash-settled compensation plans for independent trustees and certain employees. The cost of these unit-
based payments is measured at fair value and expensed over the vesting period with the recognition of a corresponding liability.
The liability is remeasured at fair value at each reporting period date with the vested changes in fair value recorded in
consolidated statement of earnings.
(g) 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 derivative contracts. Financial liabilities include RioCan's secured operating
lines of credit, mortgages payable, debentures payable and accounts payable and certain other 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 certain other liabilities are estimated
based on discounted future cash flows using discount rates that reflect current market conditions for instruments with similar
terms and risks.
(h) 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, held-to-
maturity, loans and receivables, available-for-sale or other liabilities.
(i) Held-for-trading
Financial assets and financial liabilities classified as held-for-trading are measured at fair value with gains and losses
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
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 cash flow hedges, 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). See note 2(l) for further discussion of hedge accounting policies.
(ii) Held-to-maturity, loans and receivables
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 derecognized 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, mortgages payable and
mortgages payable associated with assets held for sale; and (c) debentures payable.
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.
(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.
(i)
Impairment of financial assets
The Trust assesses at each consolidated 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 consolidated 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.
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
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
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.
(j) 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 consolidated balance sheet date.
(k) 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.
(l) Hedges
From time to time, the Trust may enter into foreign currency contracts and interest rate swaps to hedge its foreign currency risks
and interest rate risks, respectively. Such derivative financial instruments are initially recognized at fair value on the date on
which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial
assets when the fair value is positive and as financial liabilities when the fair value is negative.
For the purpose of hedge accounting, hedges are classified as fair value hedges, cash flow hedges or hedges of a foreign
currency exposure related to the net investment in a foreign operation.
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 fair value or
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.
Cash flow hedges
A cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a
recognized asset or liability or a highly probable forecast transaction. In a cash flow hedging relationships, the effective portion of
the gain or loss on the hedging instrument is recognized in OCI. The ineffective portion is recognized in net earnings.
Hedge accounting ceases when the Trust revokes the hedging relationship, when the hedging instrument expires, or is sold,
terminated or exercised without replacement or rollover (as part of the hedging strategy), or when it no longer qualifies for hedge
accounting. Any gain or loss recognized in OCI and accumulated in equity at that time remains in equity until the forecast
transaction is ultimately recognized in the consolidated statements of earnings. When a forecast transaction is no longer
expected to occur, the gain or loss accumulated in equity is immediately recognized in the consolidated statements of earnings.
Net investment hedges
In hedging a foreign currency exposure of a net investment in a foreign operation, 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, or a portion thereof, previously recorded in OCI in equity are recognized in net earnings on the disposal, or partial
disposal of the foreign operation.
(m) 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 consolidated statements of comprehensive income
comprising net earnings and OCI for the year.
(n) Income taxes
Upon qualifying as a real estate investment trust (REIT) for Canadian income tax purposes in 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 U.S. operations are qualifying U.S. REITs and are not subject to U.S.
corporate income taxes. The Trust is subject to 30% or 35% withholding taxes on its distributions to Canada. The Trust
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
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 taxes
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. The Trust is
subject to a 30% or 35% withholding tax on distributions to Canada. Any withholding taxes paid are recorded as
distributions or income tax expense, depending on whether the tax is passed on to unitholders.
(ii) Deferred income taxes
Deferred income taxes are provided using the liability method for temporary differences at the consolidated balance sheet
dates 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 joint
arrangements, where RioCan is able to control the timing of the reversal of the temporary difference and it is
probable that the temporary difference 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 carryforward of unused tax credits
and unused tax losses, can be utilized except:
2.
1. Where the deferred income tax asset relating to the deductible temporary difference 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 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 consolidated balance sheet dates 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.
(o) Equipment and leasehold improvements
Equipment and leasehold improvements 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:
Computer hardware
Furniture and equipment
Management information systems
Leasehold improvements
(p) Intangible assets
3 to 5 years
5 years
5 to 10 years
Lease term plus first renewal, if renewal is reasonably assured
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.
(q) Cash and cash equivalents
Cash and cash equivalents comprise cash and short-term investments with original maturities of three months or less.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
(r) Provisions
Provisions are recognized when the Trust has a present obligation (legal or constructive) as a result of a past event, when 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.
(s) 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 the Canadian dollars are translated at the rate of
exchange at the consolidated balance sheet dates. Revenue and expenses are translated at average rates for the year, unless
exchange rates fluctuated significantly during the year, in which case the exchange rates at the dates of the transaction are used.
Gains or losses on translating a foreign operation are included in OCI as a component of equity.
Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the date of the
transactions. Foreign currency denominated monetary assets and liabilities are translated using the prevailing rate of exchange at
the consolidated balance sheet dates. Gains and losses on translation of monetary items are recognized in the consolidated
statements of earnings in general and administrative expenses, except for those related to monetary liabilities qualifying as
hedges of the Trust’s investment in foreign operations or certain intercompany loans to a foreign operation for which settlement is
neither planned nor likely to occur in the foreseeable future, which are included in OCI as a component of equity.
(t) Non-current assets held for sale and discontinued operations
Non-current assets (and disposal groups) are classified as held for sale if their carrying amounts will be recovered principally
through a sale transaction rather than through continuing use. This condition is satisfied when the asset is available for immediate
sale in its present condition, management is committed to the sale, and it is highly probable to occur within one year.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount
and fair value less costs to sell and are presented separately from other assets on the Trust's consolidated balance sheets.
These measurement requirements do not apply to non-current assets, including the Trust's properties held for sale, that are
accounted for in accordance with the fair value model in IAS 40. Comparative information is not adjusted to reflect the held for
sale classification in the consolidated balance sheet for the latest period presented.
A disposal group is classified as a discontinued operation if it meets the following conditions: (i) it is a component that can be
distinguished operationally and financially from the rest of the Trust's operations and (ii) it represents either a separate major line
of business or geographic area or is part of a single coordinated plan to dispose of a separate major line of business or
geographical area of operations. Disposal groups classified as discontinued operations are presented separately from continuing
operations in the consolidated statements of earnings. The comparative consolidated statement of earnings is presented as if the
operation had been discontinued from the start of the comparative year.
(u) Employee future benefits
The Trust operates a defined contribution pension plan and three defined benefit pension plans for certain employees.
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 OCI, in full, in the period in which they occur 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.
The Trust expenses its required contributions to the defined contribution pension plan.
(v) 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.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
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, 2018, 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 11, Joint Arrangements (IFRS 11)
In May 2014, the IASB issued Amendments to IFRS 11, Joint Arrangements: Accounting for Acquisitions of Interests in Joint
Operations. The amendments provide guidance on how to account for the acquisition of an interest in a joint operation in which
the activities constitute a business combination as defined in IFRS 3. Acquirers of such interests are to apply the relevant
principals on business combination accounting in IFRS 3 and other standards, as well as disclosing the relevant information
specified in these standards for business combinations. The amendments to IFRS 11 is effective for annual periods beginning on
or after January 1, 2016 and should be applied prospectively. The Trust does not expect this amendment to significantly impact
the consolidated financial statements.
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 establishes
principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to
users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows. This
new standard also includes new general hedge accounting guidance, which will align hedge accounting more closely with risk
management. It does not completely change the types of hedging relationships or the requirement to measure and recognize
ineffectiveness; however, it will allow more hedging strategies that are used for risk management to qualify for hedge accounting
and introduce more judgment to assess the effectiveness of a hedging relationship.
IFRS 9 also introduces an expected loss impairment model for all financial assets not measured at fair value through profit or loss
that requires recognition of expected credit losses rather than incurred losses as applied under the current standard.
IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. The Trust is
currently assessing the potential impact of this standard on its consolidated financial statements.
IFRS 16, Leases (IFRS 16)
In January 2016, the IASB issued IFRS 16, Leases. The new standard brings most leases on-balance sheet for lessees under a
single model, eliminating the distinction between operating and finance leases. Lessor accounting, however, remains largely
unchanged and the distinction between operating and finance leases is retained. This standard would be effective for the Trust's
annual periods beginning after January 1, 2019 with earlier adoption permitted. RioCan is currently assessing the impact on the
Trust's consolidated financial statements.
IAS 1, Presentation of Financial Statements (IAS 1)
During December 2014, the IASB issued an amendment to IAS 1 clarifying certain existing IAS 1 requirements. The amendments
include the following: the materiality requirements in IAS 1; that specific line items in the consolidated statements of earnings and
OCI and the consolidated balance sheets may be disaggregated; that entities have flexibility as to the order in which they present
the notes to financial statements; that the share of OCI of associates and joint ventures accounted for using the equity method be
presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified
to earnings. The amendments also clarify the requirements that apply when additional subtotals are presented in the consolidated
balance sheets and the consolidated statement of earnings and OCI. These amendments are effective for annual periods
beginning on or after January 1, 2016, with earlier adoption permitted. These amendments are not expected to have any
significant impact on our consolidated financial statements.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
4. Assets and Liabilities Associated with Assets Held for Sale and Discontinued Operations
Effective December 17, 2015, RioCan's investment properties and mortgages payable associated with its U.S. operations were
reclassified to a disposal group held for sale in the consolidated balance sheet. Presented below are details of the Trust's assets
and liabilities held for sale by geographic location:
As at
Assets
Income properties:
U.S.
Canada
Properties under development:
Canada
Total assets held for sale
Liabilities
Mortgages payable:
U.S.
Canada
Total liabilities held for sale
Net assets
U.S.
Canada
U.S. properties held for sale
December 31, 2015
December 31, 2014
$
$
$
$
$
$
2,796,973
$
128,987
2,925,960
42,135
2,968,095
$
1,224,667
23,968
1,248,635
1,572,306
147,154
$
$
$
$
—
132,066
132,066
56,867
188,933
—
20,968
20,968
—
167,965
The change in the carrying value of the Trust's U.S. income properties is as follows:
Year ended December 31,
Balance, beginning of year
Acquisitions
Capital expenditures
Tenant installation costs
Fair value losses, net
Foreign currency translation gain
Straight-line rent
Other changes
Balance, end of year
2015
$
2,392,285
53,698
4,551
13,983
(147,060)
476,755
2,142
619
$
2,796,973
As at December 31, 2015 the weighted average capitalization rates for U.S. properties held for sale was 6.50%.
Sensitivity analysis of changes in capitalization rates
The following table is a sensitivity applied to the portion of the Trust's U.S. properties held for sale carrying value that is measured
using the direct capitalization approach and, therefore, sensitive to changes in capitalization rates:
Capitalization rate sensitivity
Increase (decrease)
Weighted average
capitalization rate
Fair value of
investment properties
Fair value
variance % change
(1.00%)
(0.75%)
(0.50%)
(0.25%)
December 31, 2015
0.25%
0.50%
0.75%
1.00%
5.50% $
5.75% $
6.00% $
6.25% $
6.50% $
6.75% $
7.00% $
7.25% $
7.50% $
3,305,509 $
3,161,791 $
3,030,050 $
2,908,848 $
2,796,973 $
2,693,378 $
2,597,186 $
508,536
364,818
233,077
111,875
—
(103,595)
(199,787)
18.18 %
13.04 %
8.33 %
4.00 %
— %
(3.70)%
(7.14)%
2,507,628 $
(289,345)
(10.34)%
2,424,040 $
(372,933)
(13.33)%
117
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
Mortgages on U.S. properties held for sale
As at December 31, 2015, mortgages on U.S. properties held for sale bear interest at weighted average effective and contractual
rates of 4.43% and 4.25% per annum, respectively, and mature between 2016 and 2025.
Canadian properties held for sale
In connection with the Kimco joint arrangement dissolution discussed in note 5, RioCan has seven investment properties held for
sale as at December 31, 2015, with an aggregate fair value of $129 million and related mortgages with a carrying value of $24
million. In addition, the Trust has five land parcels held for sale with a carrying value of $42 million.
Subsequent to December 31, 2015, two additional investment properties were classified as held for sale with an aggregate
carrying value of $46 million.
Discontinued operations
The Trust's U.S. operations represented its former U.S. geographic segment until December 17, 2015. With the U.S. segment
being reclassified as discontinued operations, it is no longer presented in RioCan's segmented information in note 31. The results
of the U.S. discontinued operations are presented below:
Year ended December 31,
Rental revenue
Property operating costs
Recoverable under tenant leases
Non-recoverable from tenants
Operating earnings
Other revenue
Share of net earnings (losses) in equity accounted joint ventures
Fair value gains (losses) on investment property, net
Other
Expenses
Interest
General and administrative
Leasing costs
Transaction and other costs
Earnings (loss) before income taxes from discontinued operations
Income tax expense:
Current
Deferred
Net earnings (loss) from discontinued operations
Deferred income taxes
Note
$
2015
233,613 $
2014
194,619
60,551
6,272
66,823
166,790
(4,145)
(147,060)
7,529
(143,676)
49,253
4,148
2,022
3,868
59,291
(36,177) $
8,478
230,474
(275,129) $
51,164
4,798
55,962
138,657
12,176
113,009
—
125,185
41,127
3,716
2,248
501
47,592
216,250
—
—
216,250
6
5
$
$
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. The Trust is subject to
withholdings tax at 30% to 35% on distributions to Canada. Any withholding taxes paid are recorded as distributions or current
income tax expense, depending on whether the withholding tax is passed onto unitholders or deducted for Canadian tax
purposes.
As at December 31, 2015, RioCan has recognized a deferred income tax liability of $230 million (2014 - nil), primarily
representing a taxable temporary difference calculated based on the difference between fair value accounting and tax cost basis
of the Trust's U.S. investment properties. Previously, RioCan expected to flow-out any withholding tax paid to unitholders as
foreign tax paid. Based upon the intended sale of our U.S. asset portfolio, however, RioCan has determined that it does not
intend to fully distribute the withholding taxes to unitholders and as such has recorded a deferred tax liability.
As RioCan does not intend to fully distribute the withholding taxes in connection with the U.S. asset sale to unitholders, the
deferred income tax liability is measured based on the Trust's expected U.S. withholding obligation as of December 31, 2015.
Other comprehensive income
As at December 31, 2015, the Trust has recorded $308 million in unrealized cumulative foreign exchange translation gains
related to its discontinued operations in the statements of accumulated other comprehensive income. For further details on the
118
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
components of accumulated OCI, refer to note 13.
Cash flows associated with discontinued operations
The net cash flows associated with discontinued operations are as follows:
Year ended December 31,
Operating
Investing
Financing
Net cash inflow (outflow)
5. Investment Properties
Income properties
As at December 31,
Income properties
Properties under development
Year ended December 31,
Balance, beginning of year
Acquisitions
Dispositions (i)
Capital expenditures
Tenant installation costs
Transfers from properties under development
Transfers to properties under development
Fair value gains (losses), net:
Continuing operations
Discontinued operations
Foreign currency translation gain
Straight-line rent (ii)
Other changes
Balance, end of year
Investment properties
U.S. properties held for sale
Canadian properties held for sale
2015
105,572
$
(28,966)
(70,798)
5,808
$
2014
84,901
(50,155)
(46,571)
(11,825
2015
11,322,109
830,067
12,152,176
$
$
2014
13,121,331
649,432
13,770,763
2015
2014
13,253,397
$
12,432,812
1,016,759
(424,561)
42,035
38,346
230,646
(172,499)
(78,759)
(147,060)
480,896
8,879
(10)
14,248,069
11,322,109
2,796,973
128,987
180,397
(52,524)
28,150
30,437
362,467
(74,988)
27,456
113,009
192,315
12,806
1,060
$
$
13,253,397
13,121,331
—
132,066
14,248,069
$
13,253,397
$
$
$
$
$
$
$
$
Note
4
4
(i)
(ii)
Includes $448 million of income property dispositions, reduced by a $13 million enclosed mall interior renovation commitment by the Trust as part
of an agreement on the formation of a new joint venture and a $10 million sales price adjustment relating to a land lease commitment.
Included in investment properties is $126 million of net rents receivable arising from the recognition of rental revenue on a straight-line basis over
the lease term (December 31, 2014 - $111 million).
119
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
Properties under development
Year ended December 31,
Balance, beginning of year
Acquisitions
Dispositions
Development expenditures
Completion of properties under development
Transfers from income properties
Transfers from residential inventory (i)
Fair value gains (losses), net
Other
Balance, end of year
Properties under development
Canadian properties held for sale
Note
2015
$
706,299
$
25,301
(6,700)
187,293
(230,646)
172,499
31,309
(12,789)
(364)
872,202
830,067
42,135
872,202
$
$
$
$
$
$
4
2014
582,498
171,545
(1,828)
236,366
(362,467)
74,988
—
6,967
(1,770)
706,299
649,432
56,867
706,299
(i)
In 2011, RioCan acquired its Toronto Sheppard Centre investment property with the intent of constructing condominium units on the excess
density portion. During 2015, management decided to change its original plans to now build multi-residential rental units. As such, a portion of the
carrying value of this property has been transferred to properties under development.
Acquisitions
The following table summarizes the Trust's acquisitions of investment property for rental income and future development and
redevelopment opportunities:
As at December 31,
Investment properties acquired (i)
Debt assumed
Difference between principal amount and fair value assumed of
mortgage financing
Total consideration, net of debt assumed
Income properties
Properties under development
2015
1,016,759 $
(296,265)
2014
180,097 $
(16,411)
(12,018)
708,476 $
(1,770)
161,916 $
$
$
2015
25,301 $
—
—
25,301 $
2014
172,425
(23,690)
—
148,735
(i) Includes certain additional capitalized costs pursuant to the acquisition method of accounting that forms part of the initial carrying value of
investment properties acquired.
Acquisition of Kimco properties
During the year ended December 31, 2015, RioCan and Kimco announced their intent to unwind their Canadian joint
arrangement. In connection with the dissolution of their joint operations, RioCan acquired Kimco's interests in 23 income
properties at an aggregate purchase price of $774 million, together with the assumption of Kimco's share of existing in place debt
totalling $263 million.
Other acquisitions
In addition, RioCan acquired 26 income properties and three development properties for a total purchase price of $248 million
during the year. The Trust also assumed debt of $24 million in connection with these investment property acquisitions.
During January 2016, RioCan completed the acquisition of one Canadian property at a purchase price of $37 million.
Dispositions
As at December 31,
Investment properties disposed
Mortgages associated with investment property dispositions
Other (i)
Total consideration, net of related debt
(i) Represents a sales price adjustment for the assumption of a land lease commitment.
RioCan - Hudson's Bay Company (HBC) Joint Venture
Income properties
2015
448,215 $
(155,205)
(9,967)
283,043 $
$
$
2014
52,524
—
—
52,524
In connection with the formation of this joint venture, RioCan contributed a 50% interest in two income properties (one of which is
held under a land lease as described below) for proceeds totalling $289 million, net of a sales price adjustment of $10 million, and
120
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
transferred $142 million of related mortgages payable in return for an initial 13.4% equity interest in the joint venture. See note 6
for further details.
Other disposals
In addition, the Trust disposed of seven income properties for total sales proceeds of $149 million during the year ended
December 31, 2015. Mortgages associated with these properties of $13 million were assumed by the purchasers.
Subsequent to December 31, 2015, RioCan completed the dispositions of two Canadian properties at a sales price of $46 million.
Properties held under lease
Included in investment properties are three properties that are subject to land operating leases with third parties. Two of the land
leases expire in 2029 and do not include buy-out options, whereas the final land lease expires in 2020 and carries a buy-out
option.
In accordance with IFRS, the Trust has elected to recognize these operating leases as investment properties and record a related
lease obligation. The carrying amount of these properties is $280 million (December 31, 2014 – $429 million) and the
corresponding lease obligation is $20 million (December 31, 2014 – $14 million) and is included in accounts payable and other
liabilities. During the year, a 50% interest in one property held under a land lease with a carrying value of $164 million was
disposed in connection with the formation of a new joint venture between RioCan and HBC.
Valuation methodology
Fair value
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 (i.e. an exit price). Expectations about future improvements or modifications to be
made to the investment property to reflect its highest and best use may be considered in the valuation.
Investment properties and properties held for sale are carried at fair value and the Trust uses significant unobservable inputs to
estimate fair value of these assets at each reporting date. See below for further description of inputs used by the Trust in
estimating the fair value of its properties. Significant unobservable inputs are classified as level 3 inputs under IFRS. See note
22 for further details.
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.
Valuation processes and techniques
RioCan's internal valuation team is responsible for determining the fair value of investment properties each reporting period,
including co-owned properties. This team consists of individuals who are knowledgeable and have specialized industry
experience in real estate valuations and report directly to a senior member of the Trust's executive management.
Income properties
The internal valuation team 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). SNOI is based on budgeted rents and expenses and supported by the terms of any existing lease, other contracts or
external evidence such as current market rents for similar properties, adjusted to incorporate allowances for estimated vacancy
rates, management fees and structural reserves for capital expenditures based on current and expected future market conditions
after expiry of any current lease and expected maintenance costs. The resulting capitalized value is further adjusted, where
appropriate, for costs to stabilize the income and non-recoverable capital expenditures.
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.
The capitalization rate is based on the location and quality of the properties and takes into account market data at the valuation
date.
Properties under development
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.
121
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
Pro forma SNOI is based on the location, type and quality of the properties and supported by the terms of actual or anticipated
future leases, other contracts or external evidence such as current market rents for similar properties, adjusted for estimated
vacancy rates based on expected future market conditions and estimated maintenance costs, which are consistent with internal
budgets, based on management's experience and knowledge of the market conditions.
Costs to complete are derived from internal budgets based on management's experience and knowledge of the market
conditions.
The table below summarizes the classification, valuation approach and inter-relationship between the key unobservable inputs
and fair value measurements for the Trust's investment properties:
Classification
Income producing properties /
Properties under development
Valuation
approach
Direct capitalization
income approach
Properties under development -
undeveloped land
Comparable sales
approach
Relationship between key unobservable
inputs and fair value measurement
Key
unobservable
input
Capitalization rate There is an inverse relationship between the
capitalization rate and the fair value; in other
words, the higher the capitalization rate, the
lower the estimated value.
Generally, an increase in SNOI will result in an
increase in the estimated fair value of the
properties.
Land value is in line with market trends.
SNOI
Market
comparison
As at December 31, 2015 the weighted average capitalization rates for the Trust's investment properties and Canadian properties
held for sale is 5.72% (December 31, 2014 - 5.77%).
Sensitivity analysis of changes in capitalization rates
The following table is a sensitivity applied to the portion of the Trust's investment property and Canadian properties held for sale
carrying value that is measured using the direct capitalization approach and, therefore, sensitive to changes in capitalization
rates:
Capitalization rate sensitivity
Increase (decrease)
Weighted average
capitalization rate
Fair value of
investment properties
Fair value
variance % change
Ratio of debt, net of
cash, to total assets,
net of cash
(1.00%)
(0.75%)
(0.50%)
(0.25%)
December 31, 2015
0.25%
0.50%
0.75%
1.00%
4.72% $
4.97% $
5.22% $
5.47% $
5.72% $
5.97% $
6.22% $
6.47% $
6.72% $
14,402,839 $
2,517,985
13,678,350 $
1,793,496
13,023,257 $
1,138,403
12,428,044 $
543,190
12,323,298 $
11,387,169 $
10,929,486 $
—
(497,685)
(955,368)
21.19 %
15.09 %
9.58 %
4.57 %
— %
(4.19)%
(8.04)%
10,507,172 $
(1,377,682)
(11.59)%
10,116,280 $
(1,768,574)
(14.88)%
39.77%
41.40%
42.99%
44.54%
46.06%
47.55%
49.00%
50.43%
51.82%
Sensitivity analysis of changes in SNOI and capitalization rates
In addition, a 1% increase in SNOI would result in a higher portfolio fair value of $119 million. A 1% decrease in SNOI would
result in a lower portfolio fair value of $119 million. A 1% increase in SNOI coupled with a 0.25% decrease in capitalization rates
would result in a higher portfolio fair value of $667 million. A 1% decrease in SNOI coupled with a 0.25% increase in capitalization
rates would result in a lower portfolio fair value of $612 million.
6. Investment in Associates and Joint Ventures
The Trust has certain equity method accounted investments in associates and joint ventures. The following table details the
Trust's ownership interest in each equity investee:
Entity
Dawson-Yonge LP
RioCan-HBC LP
WhiteCastle New Urban Fund, LP (WNUF)
WhiteCastle New Urban Fund 2, LP (WNUF 2)
WhiteCastle New Urban Fund 3, LP (WNUF 3)
Principal activity
Owns and operates an income property
Owns and operates income properties
Development and sale of residential
inventory
RioKim Montgomery JV LP (Montgomery)
Owns and operates an income property
December 31, 2015 December 31, 2014
40.0%
40.0%
10.3%
14.2%
19.3%
20.0%
—%
—%
14.2%
19.3%
—%
80.0%
122
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
The following table shows the changes in the aggregate carrying value of RioCan's investment in associates and joint ventures:
Year ended December 31,
Balance, beginning of year
Contributions
Share of net earnings (loss) from:
Continuing operations
Discontinued operations
Disposals
Distributions
Other
Balance, end of year
HBC
2015
63,016 $
150,121
10,378
(4,145)
(43,079)
(13,447)
(3,850)
158,994 $
$
$
2014
36,225
3,562
729
12,176
—
(1,035)
11,359
63,016
During the year, RioCan formed a new joint venture with HBC (herein, "RioCan-HBC JV") focused on real estate growth
opportunities in Canada. As part of the agreement, RioCan committed to contribute $325 million in assets in three separate
tranches, equating to an eventual ownership interest of approximately 20%.
On July 9, 2015, the first tranche of the transaction was completed resulting in the Trust contributing $147 million of net assets in
exchange for an initial 13.4% ownership interest in the RioCan-HBC JV. On November 25, 2015, HBC indirectly contributed an
additional $331 million of net assets, comprising of three ground-leased properties and one mortgage, diluting the Trust's
ownership interest in the RioCan-HBC JV to 10.3% as at December 31, 2015.
The remaining two tranches of RioCan’s contributions comprise of $53 million in tenant allowances, and $125 million in cash to
be used to fund future property acquisitions to increase the value and diversify the tenant base of the RioCan-HBC JV. The
remaining contribution commitments will be completed by the third anniversary of the closing date of July 9, 2015.
Montgomery
In July 2015, RioCan sold its 80% interest in Montgomery JV to Kimco Realty Corp. (Kimco) for total cash consideration of $43
million (US$35 million).
WNUF 3
On May 1, 2015, RioCan committed up to $44 million in capital contributions in consideration for a 20% limited partner interest in
WNUF 3. Amounts to be funded are callable by the general partner at any point prior to the expiration of the investment period of
May 1, 2020. As at December 31, 2015, RioCan has contributed cash of $1.7 million to the fund.
Financial results of equity accounted investees
The following tables present the financial results of RioCan's equity accounted investees on a 100% basis:
As at December 31,
Current assets
Non-current assets
Current liabilities
Non-current liabilities (i)
Net assets
Investments in equity accounted joint ventures and
associates
Year ended December 31,
Rental revenue
Operating expenses
Fair value gains (losses)
Interest expense
Net earnings
Share of net earnings in equity accounted joint ventures
and associates
(i)
Includes mortgages payable and lines of credit.
$
$
$
$
$
$
RioCan-HBC JV
Other
Total
2015
1,985 $
93,927 $
95,912
$
1,947,903
4,417
549,732
21,200
5,719
34,970
1,969,103
10,136
584,702
1,395,739 $
74,438 $
1,470,177
143,785 $
15,209 $
158,994
RioCan-HBC JV
Other
2015
52,290 $
31,570 $
4,706
(7,554)
6,708
5,362
743
464
33,322 $
26,487 $
Total
83,860
10,068
(6,811)
7,172
59,809
4,292 $
6,086 $
10,378
$
$
$
$
$
2014
Total
16,572
225,217
16,003
90,550
135,236
63,016
2014
Total
1,633
489
1,165
484
1,825
729
123
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
7. Mortgages and Loans Receivable
As at December 31,
Current
Non-current
2015
38,036
91,222
129,258
$
$
2014
44,865
91,325
136,190
$
$
As at December 31, 2015, mortgages and loans receivable bear interest at a weighted average effective and contractual rate of
4.5% per annum (weighted average effective and contractual rate of 3.9% as at December 31, 2014) and mature between 2016
and 2020.
Future repayments for the years ending December 31 are as follows:
Due on demand
2016
2017
2018
2019
2020
$
18,713
19,323
14,221
21,819
5,169
50,013
$
129,258
8. Receivables and Other Assets
As at
December 31, 2015
Current
Non-
current
Total
Current
December 31, 2014
Non-
current
Total
Prepaid expenses and other assets
$
322,574 $
22,266 $
344,840 $
254,783 $
19,298 $
274,081
Net contractual rents receivable
Management information system
Funds held in trust
45,290
—
—
—
25,021
36,214
$
367,864 $
83,501 $
45,290
25,021
36,214
451,365 $
52,405
—
—
—
26,511
20,096
52,405
26,511
20,096
307,188 $
65,905 $
373,093
Prepaid expenses and other assets
Prepaid expenses and other assets primarily include available-for-sale marketable securities, property taxes, office furniture and
equipment.
RioCan pays certain upfront non-refundable selling commissions with respect to the sale of residential condominium units. As at
December 31, 2015, included in other assets are $6.8 million of non-refundable sales commissions the Trust has paid with
respect to the sale of this inventory (December 31, 2014 - $7.4 million), where it is probable that future economic benefits will flow
to the Trust. 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.
Contractual rents receivable
Contractual rents receivable are presented net of an allowance for doubtful accounts of $2.0 million as at December 31, 2015
(December 31, 2014 - $1.7 million). RioCan determines its allowance for doubtful accounts on an individual tenant basis and
reduces the carrying value of the receivable to the expected recoverable amount giving consideration to the tenant's payment
history, credit worthiness, lease term, account status and other factors. Any subsequent recoveries of rent receivables previously
recorded as doubtful accounts are recognized in the consolidated statement of earnings during the period of settlement.
Funds held in trust
Funds held in trust are property specific segregated funds that are contractually required by certain mortgage lenders. To support
unsecured mortgage financing, lenders will sometimes require that certain property expenses be funded by monthly property
cash flows. The reserves accumulate over time and, in some cases, are used by the lender to fund certain property expenses,
such as realty taxes, insurance premiums, leasing commissions, repairs and maintenance, tenant construction allowances and
landlord construction costs.
9. Income Taxes
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.
124
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
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.
As at December 31, 2015, the Trust's Canadian corporate subsidiaries have recognized deferred income tax assets totalling $8.0
million (2014 - $9.1 million) on deductible temporary differences related to intangible assets, deferred pension and loss
carryforwards that expire over the next 17 to 20 years. These deferred tax assets have been recognized only to the extent that it
is probable that the temporary differences will reverse in the foreseeable future and there is sufficient taxable income available
against which the temporary differences can be utilized.
10. Mortgages Payable and Lines of Credit
Mortgages payable and lines of credit and mortgages on Canadian properties held for sale consist of the following:
As at
Mortgages payable and lines of credit
Mortgages on Canadian properties held for sale
Current
Non-current
December 31, 2015
December 31, 2014
$
$
$
$
4,164,669 $
23,968
4,188,637 $
1,176,912 $
3,011,725
4,188,637 $
4,566,096
20,968
4,587,064
794,728
3,792,336
4,587,064
Future repayments of mortgages payable, lines of credit and mortgages on Canadian properties held for sale, by year of maturity
are as follows:
Year
2016
2017
2018
2019
2020
Thereafter
Contractual obligations
Weighted
average
contractual
interest rate
Scheduled
principal
amortization
Principal
maturities
Total
repayments
3.18% $
61,780 $ 1,115,132 $ 1,176,912
3.75%
3.77%
3.07%
3.94%
4.46%
49,094
34,854
26,782
16,686
7,599
896,893
507,584
506,204
434,386
516,846
945,987
542,438
532,986
451,072
524,445
3.63% $
196,795 $ 3,977,045 $ 4,173,840
Unamortized differential between contractual and market interest rates on liabilities assumed at the acquisition of
properties
Unamortized debt financing costs, net of premiums and discounts
22,050
(7,253)
$ 4,188,637
U.S. dollar-denominated mortgages payable and lines of credit associated with Canadian properties
As at December 31, 2015, U.S. dollar-denominated mortgages and lines of credit associated with Canadian properties amounted
to US$327 million (December 31, 2014 – US$414 million and US$838 million in mortgages associated with Canadian and U.S.
properties, respectively). The U.S. dollar-denominated mortgages and lines of credit associated with Canadian properties are
designated as a net investment hedge of the Trust's U.S. operations. See note 23 for further details.
Pledged investment properties
As at December 31, 2015, $9.0 billion of the aggregate carrying value of investment properties, Canadian properties held for sale
and residential inventory, serves as security for RioCan's mortgages payable and floating rate credit facilities (December 31, 2014
- $11.3 billion).
125
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
Weighted average effective and contractual interest rates
The following table summarizes the details of the Trust's weighted average effective and contractual interest rates on mortgages
associated with properties located in Canada and U.S. and lines of credit:
As at December 31,
Weighted average interest rates
Effective
Contractual
Canada
U.S.
2015 (i)
2014
2015 (ii)
2014
Total
2015
3.71%
3.63%
4.21%
4.13%
—
—
4.59%
4.56%
3.71%
3.63%
2014
4.46%
4.34%
(i) Mortgages maturing between 2016 and 2034.
(ii) As at December 31, 2015, mortgages associated with U.S. properties were classified as held for sale. See note 4 for details.
Summary of lines of credit
As at December 31, 2015, RioCan has five revolving lines of credit in place with five Canadian Schedule I financial institutions
with an aggregate capacity of $934 million (December 31, 2014 - $718 million), of which $339 million remains undrawn.
The following table summarizes the details of the Trust’s secured lines of credit as at December 31, 2015:
Amounts drawn
Facility
maximum loan
amount
Cash
advances
Letters of
credit
Available
to be
drawn
Interest rates
1 (i) (ii)
$ 450,000
$ 215,461
$
9,557
2 (i) (ii)
130,000
95,000
19,679
3 (i) (ii)
185,000
165,826
4 (i) (ii)
75,000
60,000
5 (iii)
93,717
27,074
—
—
—
$ 224,982 CDN$ advances – prime plus 0.25% per annum or
Bankers’ Acceptance rate plus 1.25% per annum; US$
advances – US$ Base Rate plus 0.25% per annum or US
$ LIBOR plus 1.25% per annum
15,321 CDN$ advances – prime plus 0.25% per annum or
Bankers’ Acceptance rate plus 1.25% per annum; US$
advances – US$ Base Rate plus 0.25% per annum or US
$ LIBOR plus 1.25% per annum
17,338 CDN$ advances – prime plus 0.25% per annum or
Bankers’ Acceptance rate plus 1.25% per annum ; US$
advances – US$ Base Rate plus 0.25% per annum or US
$ LIBOR plus 1.25% per annum
15,000 CDN$ advances – prime plus 0.25% per annum or
Bankers’ Acceptance rate plus 1.25% per annum; US$
advances – US$ Base Rate plus 0.25% per annum or US
$ LIBOR plus 1.25% per annum
66,643 CDN$ advances – prime plus 0.25% per annum or
Bankers’ Acceptance rate plus 1.25% per annum; US$
advances – US$ Base Rate plus 0.25% per annum or US
$ LIBOR plus 1.25% per annum
$ 933,717
$ 563,361
$ 29,236
$ 339,284
Maturity
April to
November 2016
June 2017
December 2016
June 2017
December 2016
(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.
(iii) Line of credit has an aggregate borrowing capacity of $67.5 million in either US or Canadian dollars.
In January 2016, the Trust amended the terms of two existing operating lines to temporarily increase the Trust's borrowing
capacity by $300 million to a total of $1.2 billion. The additional operating line capacity was used to fund the Kimco property
acquisitions and is anticipated to be used to redeem the Series A preferred units at the end of March 2016.
Net current liabilities
As at
Cash and cash equivalents
Receivables and other assets
Mortgages and loans receivable
Current assets
Accounts payable and other liabilities
Debentures payable
Net current assets before the under noted
Mortgages payable and lines of credit
Net current liabilities
Note
December 31, 2015
December 31, 2014
8
7
12
11
$
$
83,318 $
367,864
38,036
489,218
292,124
—
197,094
1,176,912
(979,818) $
56,273
307,188
44,865
408,326
278,897
115,990
13,439
794,728
(781,289)
126
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
11. Debentures Payable
Debentures payable consist of the following:
As at
Current
Non-current
December 31, 2015
December 31, 2014
$
$
— $
2,000,066
2,000,066 $
115,990
1,740,511
1,856,501
As at December 31, 2015, total debentures payable bear interest at weighted average effective and contractual rates of 3.80%
and 3.68%, respectively. As at December 31, 2014, total debentures payable bear interest at weighted average effective and
contractual rates of 4.11% and 3.86%, respectively.
Issuances
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 of 3.287%. A portion of the net proceeds were used 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.
On April 2, 2015, the Trust issued an additional $175 million of Series Q senior unsecured debentures (the Additional
Debentures). The Additional Debentures carry a coupon of 3.85% and will mature on June 28, 2019. The Additional Debentures
were sold at a price of $107.312 per $100 principal amount plus accrued interest, with an effective yield of 2.04% if held to
maturity.
Redemptions
On March 9, 2015, RioCan redeemed its US$100 million 4.10% Series N senior unsecured debentures due September 21, 2015
(the Series N Debentures), in full, 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. The Trust recorded an early extinguishment
charge of $2.3 million (US$1.8 million).
On March 11, 2015, RioCan redeemed its $225 million 4.499% Series O Debentures due January 21, 2016, in full, 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. The Trust recorded an early extinguishment charge of $7.6 million, which includes a write-off of the related
unamortized deferred financing costs.
The Trust has the following series of senior unsecured debentures outstanding as at December 31, 2015:
$
2015
2014
116,000
225,000
150,000
250,000
175,000
150,000
250,000
250,000
200,000
—
100,000
$ 2,000,000 $ 1,866,000
— $
—
150,000
250,000
350,000
150,000
250,000
250,000
200,000
300,000
100,000
Series
N (i)
O
P
S
Q
U
R
V
T
W
I
Contractual obligations
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 12, 2024
February 6, 2026
(i) US dollar-denominated $100 million debenture.
Coupon rate
4.10%
4.50%
3.80%
2.87%
3.85%
3.62%
3.72%
3.75%
3.73%
3.29%
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
Semi-annual
127
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
Future repayments are as follows:
Year ending December 31:
Contractual obligations
Unamortized debt financing costs
Covenants
2017
2018
2019
2020
Thereafter
Weighted average
contractual
interest rate
3.80% $
2.87%
3.85%
3.62%
3.81%
Principal
maturities
150,000
250,000
350,000
150,000
1,100,000
2,000,000
66
$
2,000,066
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 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. As at and during the year ended
December 31, 2015, the Trust was in compliance with these covenants pursuant to the Trust's Declaration and debenture
indentures.
12. Accounts Payable and Other Liabilities
As at
December 31, 2015
Current
Non-
current
December 31, 2014
Total
Current
Non-
current
Total
Property operating costs
$
103,908 $
21,011 $
124,919 $
85,284 $
17,567 $
102,851
Development and capital expenditures
Deferred revenue
Distributions to unitholders payable
Interest on mortgages and debentures
payable
Interest rate swap agreements
Unfunded employee future benefits
Finance lease obligation
Other trade payables and accruals
Contingent consideration
81,333
20,821
37,893
30,085
1,751
—
—
15,469
864
24,113
27,385
—
—
24,665
13,170
19,851
3,507
—
$
292,124 $
133,702 $
105,446
48,206
37,893
30,085
26,416
13,170
19,851
18,976
864
425,826 $
92,610
20,581
37,128
30,837
—
—
—
11,682
775
—
23,027
—
—
15,989
12,953
14,036
2,775
—
92,610
43,608
37,128
30,837
15,989
12,953
14,036
14,457
775
278,897 $
86,347 $
365,244
128
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
13. Unitholders' Equity
Common trust units
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 upon 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:
Year ended December 31,
Balance, beginning of year
Units issued:
Public offerings
Distribution reinvestment plan
Direct purchase plan
Unit option plan
Value associated with unit options granted
Unit issue costs
Balance, end of year
2015
Units
$
315,986
4,536,957
2014
Units
304,075
$
4,238,936
—
5,443
35
1,019
—
—
—
142,715
932
23,701
5,135
(275)
4,800
4,738
42
2,331
—
—
126,000
121,564
1,119
49,433
5,451
(5,546)
322,483
4,709,165
315,986
4,536,957
Included in units outstanding as at December 31, 2015, are exchangeable limited partnership units totaling 1.1 million units
(December 31, 2014 - 1.1 million 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. 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.
Normal Course Issuer Bid
On August 5, 2015, 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 7,970,466 of its units, or approximately 2.5%
of its issued and outstanding units as at July 31, 2015, for cancellation over the 12 months commencing on or about August 7,
2015 until August 6, 2016. No units were purchased by RioCan pursuant to its previous NCIB, which expired August 6, 2015.
The number of units that can be purchased pursuant to the bid is subject to a current daily maximum of 126,326 units (which is
equal to 25% of 505,305, being the average daily trading volume from February 2, 2015 through to July 31, 2015), subject to
RioCan’s ability to make one block purchase of units per calendar week that exceeds such limits. RioCan intends to fund the
purchases out of its available cash and undrawn credit facilities.
During the years ended December 31, 2015 and 2014, RioCan did not purchase for cancellation any of its units under its NCIB.
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%.
129
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
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 years ended December 31, 2015 and 2014 consists of the
following amounts:
Unrealized gain (loss)
Interest
rate swap
agreements
Cumulative
translation gain
on U.S. foreign
operations
Available-
for-sale
investments
Actuarial gain
(loss) on
pension
As at December 31, 2014
Other comprehensive income (loss)
As at December 31, 2015
$
$
(13,753) $
102,956 $
27,474 $
(2,225) $
(9,882)
205,424
14,105
535
(23,635) $
308,380 $
41,579 $
(1,690) $
Total
114,452
210,182
324,634
14. Unit-based Compensation Plans
Incentive unit option plan
During 2015, our Unitholders approved an increase to the number of authorized unit options available for grant under RioCan's
incentive unit option plan of 10.6 million. The Unitholders also approved a modification to the unit option plan that set the
maximum aggregate number of unit options issuable thereunder (for purposes of satisfying the exercise of currently outstanding
options together with future grants, and no longer capturing unit options previously granted and exercised or cancelled) to 22
million. Accordingly, as at December 31, 2015, we are authorized to issue up to a maximum of 22 million unit options.
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 vest at 25% per annum commencing on the first anniversary of the grant date, and become
fully vested after four years.
The Trust accounts for this plan by estimating the fair value of each tranche of an award at the grant date and subsequently
recognizing the compensation expense over the vesting period.
The weighted average assumptions utilized in the calculation of units granted for the years ended December 31, 2015 and 2014
using the Black-Scholes option valuation model are as follows:
Year ended December 31,
Fair value of unit options granted
Unit options granted (in thousands)
Unit option exercise price
Expected risk free interest rate (i)
Expected distribution yield (ii)
Expected unit price volatility (iii)
Expected option life (years) (iv)
$
$
$
$
2015
1,834
1,453
29.20
0.6%
4.8%
14.8%
4.3
2014
6,983
2,171
27.29
2.0%
5.2%
23.5%
5.5 - 7
(i) Determined using the yield on Government of Canada benchmark bonds with an average maturity period similar to the expected option life.
(ii) Based on the annual distribution yield on the date of grant.
(iii) Estimated by considering historic average unit price volatility.
(iv) Estimated based upon expected holding period of options between the grant and exercise dates.
130
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
The following summarizes the changes in options outstanding during the years ended December 31, 2015 and 2014:
Options
Outstanding, beginning of year
Granted
Exercised
Forfeited or cancelled
Outstanding, end of year
Options exercisable at end of year
Average fair value per unit of options granted during the year
2015
2014
Units (in
thousands)
Weighted
average
exercise
price
Units (in
thousands)
Weighted
average
exercise
price
8,782 $
1,453
(1,019)
(189)
9,027 $
4,976 $
$
25.30
29.20
23.25
27.28
26.12
24.63
1.26
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
The following table summarizes our outstanding options and related exercise price ranges of units granted under the plan:
As at December 31, 2015
Outstanding Options
Vested Options
Exercise Price
Range ($/unit)
12.15 to 24.93
24.94 to 26.53
26.54
26.55 to 27.50
27.51 to 27.69
27.70 to 30.00
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
1,447
1,140
1,489
1,790
1,785
1,376
9,027
$20.07
25.26
26.54
27.31
27.56
29.31
$26.12
3.7
3.9
7.0
7.2
8.1
9.2
6.7
1,447
1,140
865
959
565
—
4,976
$20.07
25.26
26.54
27.28
27.59
—
$24.63
As at December 31, 2014
Outstanding Options
Vested Options
Exercise Price
Range ($/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
New executive compensation plan
In February 2015, the Trust granted performance equity units (PEUs) under the performance equity unit plan (PEU Plan) with a
3-year performance period effective January 1, 2015 for senior executives. The implementation of the new PEU Plan will reduce
the proportion of long-term incentives granted through unit options through replacement with an equivalent value of PEUs. PEUs
will be subject to both internal and external measures consisting of both absolute and relative performance. Subject to
performance, PEUs granted during February 2015 vest in February 2018, and are cash settled.
The Trust accounts for this plan under the fair value method of accounting which uses the Monte-Carlo simulation pricing model
to determine the fair value of market-based awards. The Monte-Carlo simulation pricing model uses the same input assumptions
as the Black-Scholes model; however, it allows for the incorporation of the market-based performance hurdles that must be met
before the PEU vests in the holder. Pursuant to IFRS, compensation costs related to awards with a market-based condition are
recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided and all
performance conditions have been satisfied.
131
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
During February 2015, the Trust granted 0.1 million PEUs under its PEU Plan. Unit-based compensation expense and fair value
assumptions using the Monte-Carlo valuation model are as follows:
Fair value of PEUs granted
PEUs granted (in thousands)
Grant date fair value per unit
Expected risk-free interest rate (i)
Expected unit price volatility (ii)
Expected total unitholder return (iii)
$
$
3,766
111
33.93
0.45%
14.0%
11.4%
(i) Determined using the yield on Government of Canada benchmark bonds with an average maturity period similar to the PEU vesting period.
(ii) Estimated by considering historic average unit price volatility.
(iii) PEUs are subject to total unitholder return (TUR) performance hurdles where vesting is dependent upon RioCan's TUR performance relative to
certain internal and external measures, which includes the following: a) one-third of PEU grants are subject to a relative performance against a
comparative group of peer companies; b) one-third of PEU grants are subject to an absolute out performance hurdle against certain market
indices; and one-third of PEU grants are subject to an internal Operating FFO growth performance hurdle.
Trustees' restricted equity unit plan
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.
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.
For the year ended December 31, 2015, the Trustees' restricted equity unit plan expense was $0.4 million (year ended December
31, 2014 - $0.8 million) and was recorded in general and administrative expenses on the consolidated statement of earnings.
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.
For the year ended December 31, 2015, the Trustees' deferred equity unit plan expense was $1.3 million (year ended December
31, 2014 - $1.2 million) and was recorded in general and administrative expenses on the consolidated statement of earnings.
15. Distributions to Unitholders
RioCan 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 Income Tax Act
(Canada) after all permitted deductions under this Act have been taken.
Total distributions declared to unitholders are as follows:
Year ended December 31,
2015
2014
Common Unitholders
Preferred Unitholders – Series A
Preferred Unitholders – Series C
Total Distributions Distributions per unit
Total Distributions Distributions per unit
$
$
453,094 $
6,563
7,027
466,684
1.4100 $
1.3125
1.1750
433,274 $
6,563
7,027
$
446,864
1.4100
1.3125
1.1750
On February 5, 2016, RioCan paid a distribution of 11.75 cents per unit for the month of January 2016 to common unitholders of
record as at January 29, 2016.
132
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
16. Rental Revenue
Year ended December 31,
Base rent
Straight-line rent
Common area maintenance recoveries
Realty tax recoveries
Percentage rent
Lease cancellation fees
17. Other Income
Year ended December 31,
Income earned on available-for-sale investments
Transaction losses, net
Target settlement proceeds, net
Target Canada Co. (Target Canada)
2015
657,922 $
8,094
148,539
206,959
6,201
11,353
1,039,068 $
2015
12,790 $
(2,631)
88,267
98,426 $
2014
646,405
7,588
145,171
200,055
5,088
5,115
1,009,422
2014
5,944
—
—
5,944
$
$
$
$
On January 15, 2015, Target Corporation (Target) announced plans to discontinue its Canadian operations through its indirect
wholly owned subsidiary, Target Canada. At the time of this announcement RioCan had 26 locations under lease with Target
Canada. During the year, Target Canada disclaimed 19 properties owned by RioCan and ceased paying rent at these locations.
All but one of these leases were guaranteed through an indemnity arrangement with Target for the remaining term of each lease.
The one location not covered by the Target indemnity remains a leasehold obligation of Walmart Canada through a pre-existing
covenant and Walmart Canada has assumed payment of the annual rent obligation. Seven leases of the twenty-six have been
assigned to new tenants who assumed payment of the rental obligations, thereunder, as of the closing date of the respective
assignments.
During December 2015, RioCan entered into a binding agreement with Target Corp., the U.S. parent of Target Canada Co.,
concluding the terms of settlement relating to the 18 leases that were disclaimed pursuant to the Companies’ Creditors
Arrangement Act. Other income includes $88 million in settlement proceeds received in cash relating to the release of Target
Corp. from the indemnity agreements, which is net of $3.5 million of outstanding rents receivable as of the disclaim date and
other costs of settlement.
18. Interest Expense
Interest expense consists of the following:
Year ended December 31,
Total interest
Less: Interest capitalized to properties under development
2015
214,203 $
27,431
186,772 $
2014
226,473
32,400
194,073
$
$
For the year ended December 31, 2015, interest was capitalized to properties under development at a weighted average effective
interest rate of 4.2% (2014 – 4.5%).
19. General and Administrative
Year ended December 31,
Salaries and benefits
Unit-based compensation expense
Depreciation and amortization
Other general and administrative
$
$
2015
21,206 $
4,741
4,434
20,670
51,051 $
2014
21,925
4,075
4,019
18,931
48,950
Other general and administrative costs include information technology, public company, professional, travel, occupancy,
donations, advertising, promotion and marketing costs.
20. Transaction and Other Costs
For the year ended December 31, 2015, transaction and other costs include property disposition and demolition costs totalling $10.5
million (year ended December 31, 2014 - $4.9 million), mainly related to the disposition of a Quebec property portfolio and land
transfer taxes incurred in connection with RioCan's acquisition of Kimco properties.
133
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
21. Net Earnings per Unit
Net earnings per unit and weighted average common units outstanding are calculated as follows:
Year ended December 31,
Net earnings attributable to common and preferred unitholders
Continuing operations
Discontinued operations
Less: Distributions to preferred unitholders
Net earnings attributable to common unitholders
Weighted average common units outstanding (in thousands):
Basic
Dilutive effect of common unit options (i)
Diluted
Net earnings per unit - basic:
From continuing operations
From discontinued operations
Total
Net earnings per unit - diluted:
From continuing operations
From discontinued operations
Total
2015
2014
$
$
$
$
$
$
416,892 $
(275,129)
141,763
13,590
128,173 $
319,492
491
319,983
1.26 $
(0.86)
0.40 $
1.26 $
(0.86)
0.40 $
447,008
216,250
663,258
13,590
649,668
307,910
762
308,672
1.41
0.70
2.11
1.40
0.70
2.10
(i) The calculation of diluted weighted average units outstanding excludes options of 5.1 million and 5.3 million units for the years ended December 31,
2015 and 2014, respectively, as the exercise price of these options was greater than the average market price of RioCan's common units.
22. Fair Value Measurement
The fair value hierarchy of assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheet is
as follows:
Assets measured at fair value:
Cash and equivalents
Available-for-sale investments
Investment properties:
Income properties
Properties under development
Properties held for sale:
Canada
U.S.
Total assets measured at fair value
Liabilities measured at fair value:
Interest rate swap liability
December 31, 2015
December 31, 2014
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$
83,318 $
300,553
— $
—
— $
56,273 $
—
229,645
— $
—
—
—
—
—
—
—
$
383,871 $
— 11,322,109
—
—
830,067
171,122
— 2,796,973
— $15,120,271 $
—
—
—
—
— 13,121,331
—
—
—
649,432
188,933
—
285,918 $
— $13,959,696
Total liabilities measured at fair value
$
— $
26,218 $
—
26,218
—
— $
—
15,989
— $
15,989 $
—
—
The three levels of the fair value hierarchy are described in note 3(b). For assets and liabilities measured at fair value as at
December 31, 2015 and 2014, there were no transfers between Level 1, Level 2 and Level 3 assets and liabilities during the year.
For changes in fair value measurements of investment properties and Canadian properties held for sale included in Level 3 of the
fair value hierarchy, see note 5 for details. For U.S. properties held for sale, see note 4 for details.
134
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
Fair value of financial instruments
The Trust's financial instruments and their carrying values as at December 31, 2015 and 2014 on the consolidated balance
sheets are as follows:
2015
2014
Carrying
value
Fair
value
Carrying
value
Fair
value
Receivables and other assets
Mortgages and loans receivable
$ 451,365 $ 451,365 $ 373,093 $ 373,093
128,139
136,190
129,258
126,227
Mortgages payable, lines of credit and mortgages on properties held for sale
5,413,304
5,660,359
4,587,064
4,845,580
Debentures payable
Interest rate swap liability
Accounts payable and other liabilities
2,000,066
2,073,905
1,856,501
1,925,975
26,218
26,218
15,989
15,989
394,483
394,483
345,706
345,706
The fair values of the Trust's financial instruments were determined as follows:
Receivables, other assets, accounts payable and other liabilities
These instruments' carrying amounts approximate fair values due to their short-term nature.
Mortgages and other loans receivable, mortgages payable, lines of credit, mortgages on properties held for sale and debentures
payable
The fair value of these instruments are estimates made at a specific point in time, based on relevant market information. These
estimates are based on quoted market prices for the same or similar issues or on the current rates offered to the Trust for similar
financial instruments subject to similar risk and maturities. Fair value measurements of these instruments were estimated using
Level 2 inputs.
Interest rate swap liability
The fair value of the interest rate swaps reported in other liabilities represent estimates at a specific point in time using financial
models, based on interest rates that reflect current market conditions, the credit quality of counterparties and interest rate curves.
23. Risk Management
The main risks arising from the Trust's financial instruments are interest rate, liquidity, credit and foreign exchange risks. The
Trust's approach to managing these risks is summarized below:
Interest rate risk
The Trust is exposed to interest rate risk on its borrowings and could be adversely affected if it were unable to obtain cost-
effective financing. The majority of the Trust's debt is financed at fixed rates with maturities staggered over a number of years,
thereby mitigating its exposure to changes in interest rates and financing risks. As at December 31, 2015, approximately 14.0%
(December 31, 2014 - 7.7%) of the Trust's debt (including mortgages held for sale) is financed at variable rates, exposing the
Trust to changes in interest rate risk.
From time to time, the Trust may enter into floating-for-fixed interest rate swaps as part of its strategy for managing certain
interest rate risks. The Trust has applied hedge accounting and recorded the changes in fair value for the effective portion of the
derivative in OCI from the date of designation. For any interest rate swaps for which the Trust does not apply hedge accounting,
the change in fair value is recognized in the consolidated statement of earnings.
As at December 31, 2015, the outstanding notional amount of the floating-to-fixed interest rate swaps was $993 million
(December 31, 2014 – $797 million) and the term to maturity of these agreements ranges from February 2016 to August 2022.
The Trust assesses the effectiveness of the hedging relationship on a quarterly basis and has determined there is no
ineffectiveness in the hedging of its interest rate exposure. As an effective hedge, unrealized gains or losses on the interest rate
swap agreements are recognized in OCI. As at December 31, 2015, the fair value of the interest rate swaps are, in aggregate, a
net financial liability of $26 million (December 31, 2014 – $16 million).
135
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
The following table summarizes the details of the interest rate swaps that are outstanding as at December 31, 2015:
Transaction date
April 2011 (i)
December 2011
March 2014 (ii)
September 2012
September 2012
September 2012
November 2012
September 2012
May 2013
May 2013
March 2014 (iii)
September 2012
September 2014
September 2012
November 2013
February 2014
September 2014 (iv)
March 2015
July 2015
December 2015
December 2010
November 2013
May 2011
September 2011
December 2011
July 2015
Original principal
amount (v)
Effective fixed
interest rate
$
20,033
32,500
76,362
21,200
27,200
45,000
13,000
16,350
58,300
16,500
69,420
26,430
73,000
22,975
110,500
13,420
83,998
65,000
16,125
33,000
15,500
25,000
2,000
23,000
30,000
57,600
5.24%
3.36%
3.61%
3.78%
3.74%
4.08%
3.08%
3.77%
2.98%
3.07%
3.44%
4.26%
3.89%
3.78%
2.16%
3.40%
2.00%
2.34%
2.41%
2.46%
5.03%
3.99%
4.89%
4.04%
4.13%
2.86%
Maturity date
February 2016
December 2016
December 2016
April 2017
May 2017
November 2017
November 2017
May 2018
May 2018
May 2018
July 2018
October 2018
November 2018
December 2018
February 2019
March 2019
September 2019
April 2020
September 2020
November 2020
December 2020
December 2020
May 2021
September 2021
December 2021
August 2022
(i) US dollar-denominated $14 million mortgage assumed upon property acquisition.
(ii) US dollar-denominated $55 million mortgage.
(iii) US dollar-denominated $50 million mortgage.
(iv) US dollar-denominated $61 million mortgage.
(v) All amounts shown in Canadian dollar equivalents.
$
993,413
As at December 31, 2015, the carrying value of the Trust's floating rate debt, not subject to a hedging strategy, is $957 million. As
at December 31, 2015, a 50 basis point increase in market interest rates would result in a $4.8 million decrease in the Trust's net
earnings.
Liquidity risk
Liquidity risk is the risk that the Trust will not meet its financial obligations as they become due. The Trust mitigates its liquidity
risk by staggering the maturity dates of its long-term debt, limiting the use of floating rate debt, actively renewing expiring credit
arrangements, utilizing undrawn lines of credit; and issuing equity when considered appropriate.
• For the schedule of future repayments of mortgages, floating rate debt and cash advances drawn against the Trust's lines of
credit, see note 10 for further details.
• For the schedule of future repayments of debentures, see note 11 for further details.
The Trust expects to continue financing future acquisitions, development and debt obligations through existing cash balances,
internally generated cash flows, mortgages, operating facilities, issuance of equity, unsecured debentures, and the sale of non-
core assets.
Credit risk
Credit risk arises from the possibility that:
• Tenants experience financial difficulty and are unable to fulfill their lease commitments or tenants fail to occupy and pay rent in
accordance with existing lease agreements, some of which are conditional.
136
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
• Borrowers default on the repayment of their mortgages to the Trust.
• Third-party defaults on the repayment of debt whereby RioCan has provided lender guarantees.
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.
Foreign exchange risk
Foreign exchange risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in
foreign exchange rates. The Trust is exposed to both transaction and translation risk from changes in foreign exchange rates
primarily relating to its net investment in its U.S. operations and, to a lesser extent, its monetary assets and liabilities
denominated in this currency.
The Trust manages its foreign currency risk by hedging its exposure to fluctuations on the translation into US dollars by borrowing
debt in US dollars and by using foreign currency forwards.
As at December 31, 2015, mortgages payable and lines of credit totaling US$327 million have been designated as part of the
Trust's net investment hedge of its U.S. operations. During January 2016, RioCan increased its U.S. net investment hedge in
order to further reduce its exposure to fluctuations in the Canadian/U.S. foreign exchange rate. As of the date hereof, the Trust
has increased its U.S. dollar denominated borrowings by US$258 million and repaid outstanding Canadian debt using the
proceeds of these U.S. borrowings converted at an average exchange rate of 1.3921, which was established using a series of
short-term forward contracts. As at December 31, 2015, three such contracts remain outstanding having a notional value of US
$166 million with maturity dates in January 2016.
As at December 31, 2015, the Trust’s U.S. dollar-denominated net assets are $1.6 billion; therefore a 1% change in the value of
the U.S. dollar will result in a gain or loss through OCI of approximately $11 million.
24. Capital Management
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, implements 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);
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;
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;
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; 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 each of the above noted restrictions as at and for the year ended December 31, 2015. 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.
137
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
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.
The following table highlights RioCan's Ratio of Debt to Total Assets (net of cash), Basket Ratio and Interest coverage ratio in
accordance with the Declaration:
As at
Mortgages payable and lines of credit
Liabilities associated with assets held for sale
Debentures payable
Total Debt
Unitholders’ equity
Total capital
Ratio of debt, net of cash, to total assets, net of cash
Basket Ratio
Year ended December 31,
Interest coverage ratio
25. Operating Leases
Lease commitments – Trust as lessor
$
Note December 31, 2015 December 31, 2014
4,566,096
10
4
11
1,856,501
4,164,669
1,248,635
2,000,066
20,968
$
7,413,370
7,926,039
6,443,565
7,868,570
$
15,339,409
$
14,312,135
46.1%
2.9%
2015
3.06
43.7%
3.5%
2014
2.92
The Trust as lessor has entered into leases on its property portfolio. The leases typically have lease terms between five and
twenty 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 lease payments under non-cancellable operating leases in the aggregate and for each of the following periods
are as follows:
As at
Within twelve months
Two to five years
Over five years
Total
December 31, 2015
$
$
801,272
2,302,039
1,711,223
4,814,534
Contingent rents recognized in the consolidated statements of earnings for the year ended December 31, 2015 is $9.2 million
(2014 - $8.3 million). Included in the total future minimum lease payments of $4.8 billion is $836 million of future rents related to
U.S. properties held for sale, for each of the following periods: within twelve months $133 million; within two to five years $380
million; and over five years $323 million.
138
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
26. Subsidiaries
The subsidiaries listed below are wholly owned and reflect significant entities of the Trust:
Name
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
RioCan (GTA Marketplace) LP
RioCan East Village LP
RC REIT Limited Partnership Trust
RioCan Holdings USA LLC
RC Northeast Partnership LP
RC/Dunhill Timber Creek Holdings LP
RC RioCan LP
RC Sterling II LP
RC/Riocan LCV Arbor Holdings LP
RioCan America Management LP
RioCan USA Subsidiary Inc.
RC (RP) I LP
RC/Dunhill Louetta Holdings LP
RioKim USA LP
27. Supplemental Cash Flow Information
Year ended December 31,
Interest received
Interest paid
Distributions paid:
Distributions declared during the year
Distributions declared in the prior year paid in current year
Distributions declared in current year paid in next year
Distributions paid
Proceeds from units issued under distributions reinvestment plan
2015
3,286 $
264,208
(453,094) $
(37,128)
37,893
(452,329) $
142,715
(309,614) $
$
$
$
$
139
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
Country
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
2014
9,238
264,612
(433,274)
(36,954)
37,128
(433,100)
121,564
(311,536)
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
28. Net Change in Non-Cash Operating Items
Year ended December 31,
Accounts receivable
Mortgage receivable interest
Prepaid expenses and other assets
Accounts payable and other liabilities
Other
Net change in non-cash operating items
2015
13,815 $
3,305
(2,855)
(10,966)
208
3,507 $
2014
(16,376)
9,240
(17,248)
19,795
3,774
(815)
$
$
29. Related Party Transactions
Key management personnel are those individuals that have the authority and responsibility for planning, directing and controlling
the Trust's activities, directly or indirectly.
The Trust’s key management personnel include the Trustees and the following individuals: the Chief Executive Officer, Edward
Sonshine; President and Chief Operating Officer, Raghunath Davloor; and Chief Financial Officer and Corporate Secretary,
Cynthia Devine (collectively, the Key Executives).
Remuneration of the Trust’s key management during the years was as follows:
Year ended December 31,
Compensation and benefits
Unit-based payments
Post-employment benefit costs
Trustees
Key Executives
2015
237 $
1,751
—
1,988 $
2014
512 $
2,056
—
2,568 $
2015
5,497 $
2,751
88
8,336 $
2014 (i)
7,099
1,697
(227)
8,569
$
$
(i)
Includes remuneration of Frederic Waks, former President and Chief Operating Officer of the Trust.
Unit-based payments for Trustees are made pursuant to equity unit plans as described in note 14.
30. Employee Benefits
Plan characteristics
RioCan sponsors a defined contribution plan and three defined benefit plans, that provides pension and certain post-employment
benefits to eligible employees. Plan members are not required, nor are they permitted, to contribute to these plans. The defined
benefit plans are closed to new members and any new employees are generally eligible to join the defined contribution pension
plan. All plans are administered by separate funds that are legally segregated from RioCan.
Defined contribution plan
The Trust's defined contribution pension plans provide pension benefits based on accumulated RioCan contributions. RioCan's
contributions are based on a percentage of an employee’s annual earnings. For the year ended December 31, 2015, RioCan's
contributions to the defined contribution plan was $0.9 million (2014 - $0.9 million).
Defined benefit plans
RioCan's defined benefit pension plans, one of which is a registered plan and two are supplemental unregistered plans, provide
pension benefits mostly based on years of credited service, the average of the highest five years of earnings and the age of the
member at retirement.
The Trust measures its benefit obligations and pension assets as at December 31 each year. All plans are valued using the
projected unit-credit method. The Trust funds its registered defined benefit pension plans in accordance with actuarially
determined amounts required to satisfy employee benefit obligations under current pension regulations. The most recent funding
actuarial valuation for the Trust's defined benefit plans were completed as at January 1, 2013, and the subsequent valuation was
completed as at January 1, 2016.
Risks
In general, defined benefit pension plans expose the Trust to risks such as investment performance, reductions in discount rates
used to value the obligations, increased longevity of the plan members and future inflation levels impacting future compensation
increases. By having closed the defined benefit pension plans and migrating to a defined contribution pension plan, the volatility
associated with future service costs should reduce over time.
140
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
The following table presents RioCan's defined benefit pension plans' assets and liabilities as at December 31, 2015 and 2014.
As at
Amounts recognized in the consolidated balance sheets
Fair value of plan assets
Present value of defined benefit pension obligation
Net defined benefit pension obligation
2015
2014
$
$
2,934 $
16,104
(13,170) $
3,064
16,017
(12,953)
The following table presents an analysis of the movement in the consolidated balance sheets related to RioCan's defined benefit
pension plans' for the years ended December 31, 2015 and 2014.
2015
2014
Change in the fair value of plan assets
Opening
Interest income
Employer contributions
Benefit payments from plan
Remeasurements
Return on plan assets (excluding interest income)
Closing fair value of plan assets
Change in present value of defined benefit pension obligation
Opening
Service costs
Interest expense
Benefit payments from plan
Benefit payments from employer
Remeasurements
Actuarial losses from financial assumptions
Actuarial losses (gain) losses from experience adjustments
Closing present value of defined benefit pension obligation
Pension benefit expense
The following table presents the composition of the Trust's pension benefit expense:
Year ended December 31,
Current service costs
Net interest expense
Defined benefit pension expense
Defined contribution pension expense
Total pension expense
Remeasurements of employee benefit plans
The following table presents the composition of the Trust's remeasurement recorded in OCI:
Year ended December 31,
Actuarial losses (gain):
Changes in financial assumptions
Experience changes
Return on plan assets (excluding interest income)
141
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
$
$
$
$
$
$
$
$
3,064 $
123
209
(457)
(5)
2,934 $
2,979
151
233
(277)
(22)
3,064
16,017 $
13,488
259
612
(457)
(26)
(17)
613
(303)
(26)
231
(532)
16,104 $
2,015
247
16,017
2015
259 $
489
748
915
1,663 $
2015
231 $
(532)
5
(296) $
2014
(17)
462
445
865
1,310
2014
2,015
247
22
2,284
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
Investment policy, strategies and risk management
Defined benefit pension plan assets are invested prudently in order to meet the Trust's pension obligations. Therefore, RioCan's
investment strategy is to achieve diversification of risks and returns in a fashion that minimizes the likelihood of an overall
reduction in total fund value and maximizes the opportunity for gains over the entire portfolio.
The Trust has outsourced the responsibility of investing existing and new plans' assets in accordance with RioCan's Statement of
Investment Policies and Procedures (SIPP) to third party investment managers. The Trust's senior management reviews the
SIPP and the performance of the plans' assets on a periodic basis.
RioCan's defined benefit pension plans' assets are primarily comprised of cash (Level 1) and equity securities in a private fund
investment, where quoted market prices are typically unobservable (Level 2). These plan assets are valued by an independent
valuator.
Defined benefit future contributions
The following payments are expected contributions to the defined benefit plans in future years:
Year
2016
2017
2018 to 2025
Total expected payments
Significant assumptions
Expected payments
per year
$
$
55
128
6,372
6,555
RioCan's significant assumptions used in calculating the defined benefit pension benefit obligation are as follows:
As at
Discount rate
Rate of increase in future compensation
Life expectancy for a member at the age of 65
Sensitivity analysis
December 31, 2015
December 31, 2014
3.8%
4.0%
21.4
3.9%
4.0%
21.4
Assumptions adopted can have a significant effect on the obligations for defined benefit pension plans. The impact to the Trust's
pension obligation in the following table has been determined assuming all other significant assumptions are held constant. The
sensitivity analysis may not be representative of an actual change in the defined benefit obligation as it is unlikely that changes in
assumptions would occur in isolation of one another.
As at
Discount rate
Impact of 50bps increase
Impact of 50bps decrease
Rate of increase in future compensation
December 31, 2015 December 31, 2014
$
(1,109) $
1,235
n/a
(1,105)
1,233
n/a
The terms of the Trust's defined benefit plans includes a defined maximum benefit payment to all plan members, which limits
RioCan's exposure to increases in plan members' future compensation. As such, there is no impact to RioCan's pension benefit
obligation from a change in the future compensation assumption.
31. Segmented Information
On December 17, 2015, RioCan entered into an agreement to sell its U.S. portfolio of investment properties to Blackstone and is
expected to close before the end of April 2016, subject to certain closing conditions. In accordance with IFRS, RioCan has
reclassified its U.S. geographical segment as discontinued operations, see note 4 for details.
RioCan primarily owns, develops, manages and operates grocery-anchored retail centres and mixed-use developments located
in Canada. In measuring the performance of its retail centres, the Trust does not distinguish or group its operations on a
geographical or any other basis and, accordingly has a single reportable segment. Management has applied judgment by
aggregating its operating segments into one reportable segment for disclosure purposes. Such judgment considers the nature of
property operations, tenant mix and an expectation that operating segments within a reportable segment have similar long-term
economic characteristics.
The Trust's Chief Executive Officer is the chief operating decision maker and regularly reviews RioCan's operations and
performance on an individual property basis. RioCan does not have any single major tenant or a significant group of tenants.
142
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
32. Contingencies and Other Commitments
Guarantees
As at December 31, 2015, the estimated amount of third-party debt subject to RioCan guarantees, and therefore the maximum
exposure to credit risk, was approximately $296 million consisting of guarantees totalling $197 million (2014 – $309 million) to
partners and co-owners. The remaining debt subject to RioCan guarantees of $99 million (2014 – $161 million) relates to the
assumption of mortgages by purchasers on property dispositions with expiry dates between 2016 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.
Lease commitments – Trust as lessee
The Trust as lessee is committed under long-term operating leases with various expiry dates to 2029. Future minimum lease
payments are as follows:
Within 12 months
2 to 5 years
Over 5 years
Total
December 31, 2015
Land
Leases
Operating
Leases
Total
Commitments
3,179 $
1,050 $
12,740
21,594
2,717
4,787
37,513 $
8,554 $
4,229
15,457
26,381
46,067
$
$
As discussed in note 5, the above noted are operating leases and the related lease obligation has been recognized in
accordance with IFRS.
Investment commitments
As described in note 4, the Trust has a $178 million remaining investment commitment related to the RioCan-HBC JV.
As at December 31, 2015, the Trust has unfunded investment commitments of approximately $59 million relating to WNUF,
WNUF 2 and WNUF 3. Amounts to be funded are callable by the general partner at any point prior to the expiration of the
investment period of February 28, 2018 for WNUF and WNUF 2 and May 1, 2020 for WNFU3.
RioCan has one income property disposition in Canada under firm contract where conditions have been waived that, if
completed, would represent a disposition of approximately $11 million.
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.
33. Events After the Balance Sheet Date
During February 2016, RioCan announced that the Trust will be exercising its option to redeem all 5 million outstanding Series
A Units on March 31, 2016, for total redemption proceeds of $125 million or $25 per Series A Unit.
143
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2015
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 2016 Annual Meeting of RioCan REIT
will be held on June 1, 2016 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
Edward Sonshine, O.Ont., Q.C.
Chief Executive Officer
Raghunath Davloor
President and Chief Operating Officer
Cynthia Devine
Executive Vice President, Chief Financial Officer
& Corporate Secretary
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
Jeff Ross
Senior Vice President, Leasing
Terri Andrianopoulos
Vice President, Corporate Marketing
Moshe Batalion
Vice President, Leasing – Ontario
Stuart Baum
Vice President, Human Resources
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
Jane Marshall 3,4
Former Chief Operating Officer
of Choice Properties REIT
Sharon Sallows 1,2,4
Trustee Chartwell Retirement
Residences REIT
Edward Sonshine, O.Ont., Q.C.
Chief Executive Officer,
RioCan Real Estate Investment Trust
Charles M. Winograd 3,4
President, Winograd Capital Inc.
Nigel Bunbury
Vice President, Financial Reporting & Controls
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
Stuart Craig
Vice President, Planning & Development
Roberto DeBarros
Vice President, Construction
Andrew Duncan
Vice President, Development Engineering
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
Stephen Roberts
Vice President, Analytics
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