FOCUSED
ON
CANADA’S
URBAN
MARKETS
CORPORATE PROFILE
RioCan is Canada’s largest real estate investment trust with a
total enterprise value of approximately $14.6 billion. RioCan owns
and manages Canada’s largest portfolio of shopping centres,
including ownership interests in 300 retail and mixed-use
properties, with 15 properties under active development. RioCan
has an aggregate net leasable area (NLA) of more than 46 million
square feet. Concentrated in Canada’s six major markets of
Toronto, Ottawa, Calgary, Edmonton, Montreal, and Vancouver,
RioCan is Canada’s pre-eminent real estate investment trust.
THE
CANADIAN
URBAN
MARKETS
RioCan creates spaces where we can all prosper. RioCan stays true to its founding principle of growth driven by
insight to deliver a steady or increased distribution to our Unitholders.
TABLE OF CONTENTS
IFC CORPORATE PROFILE
1 THE CANADIAN URBAN MARKETS
2 CEO'S LETTER TO UNITHOLDERS
6 FOCUSED ON TORONTO, A CANADIAN URBAN MARKET
10 FOCUSED ON CALGARY, A CANADIAN URBAN MARKET
12 FOCUSED ON OTTAWA, A CANADIAN URBAN MARKET
14 PROPERTY PORTFOLIO
24 MANAGEMENT’S DISCUSSION AND ANALYSIS
95 FINANCIALS
137 CORPORATE INFORMATION
0_1
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
THE
CANADIAN
URBAN
MARKETS
Vancouver
2.3 million
sq ft
Canada’s
western-most
major market
represents 2.3
million square
feet of leaseable
area under
management for
RioCan.
Greater Toronto
Area
19.3 million
sq ft
RioCan’s largest
market with
approximately 19
million square feet
representing 1/3
of the portfolio.
Ottawa/Hull
6.5 million
sq ft
RioCan’s second
largest market
representing 6.5
million square
feet and growing
with dynamic
projects like
Gloucester City
Centre.
Calgary
4.7 million
sq ft
RioCan’s largest
market in Western
Canada with 4.7
million square feet
of space under
management.
Edmonton
3.3 million
sq ft
A vital hub of
commerce and
energy, RioCan has
3.3 million square
feet of leasable area
under management.
Montreal
3.6 million
sq ft
One of Canada’s most
culturally vibrant markets
represents 3.6 million
square feet of leaseable
area for RioCan.
CEO’S LETTER TO UNITHOLDERS
FOCUSED
ON CANADA
EDWARD SONSHINE,
O.ONT., Q.C.
CHIEF EXECUTIVE OFFICER
RioCan — We Are Where You Want To Be
RioCan now, once again, has a dedicated focus on Canada,
where we began building the nation’s largest retail REIT
nearly twenty-five years ago. With a total enterprise value
of almost $15 billion, RioCan owns and manages Canada’s
foremost portfolio of shopping centres, and some of the
premier mixed-use locations in the country, such as RioCan
Yonge Eglinton Centre and the Yonge Sheppard Centre.
RioCan controls an aggregate net leasable area of more
than 46 million square feet focused in Canada’s six major
markets: Toronto, Ottawa, Calgary, Edmonton, Montreal,
and Vancouver. With annual rental revenue in excess of
$1.1 billion, RioCan is Canada’s pre-eminent real estate
investment trust.
2_3
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
Our “focused on Canada” strategy is derived from our
storied past. In the early 1990s, I envisioned the potential of
a Canadian REIT: a security that trades on a major exchange
and that invests in real estate directly, generating special tax
considerations for investors, coupled with growing
distributions over time. A REIT provides Unitholders a
method of investing in real estate while obtaining the
benefits of professional management, diversification of
properties and most importantly liquidity. Unitholders and
the investment community were enthusiastic about the
benefits of a REIT, and RioCan was listed on the Toronto
Stock Exchange in 1994.
Rags Davloor
President, Chief Operating Officer & Corporate Secretary
I draw on more than 20 years of real estate and capital markets
experience to implement RioCan’s strategic vision and oversee the
operational success of the Trust.
Growth Through Insight
With an initial portfolio of less than one million square feet,
RioCan’s portfolio varied in property type and location.
Instead of a focus on Canada’s six major markets, the early
portfolio had an array of properties in primary, secondary
and tertiary markets.
Over a decade ago, we forecast significant population
growth in Canada’s six major markets, so we targeted our
portfolio accordingly by disposing of assets in secondary
and tertiary markets while acquiring properties in the
primary markets. The powerful growth of annual rental
revenue generated in these six markets validates our
strategy. In 2004, these markets generated less than 60% of
RioCan’s annual rental revenue. Today, this number has
increased to more than 75% of our annual rental revenue,
and we anticipate achieving our 80% target within the next
few years as projects within our present urban development
portfolio are completed.
RioCan’s success is aligned with that of our tenants, so
management continuously assesses retail and demographic
trends to ensure that our properties are innovative and
leading-edge. That’s why RioCan properties are at the
forefront of how people want to shop, live and work in the
21 century. Indeed, RioCan provides solutions that both
address leading trends but also help define the
communities of which we are a part.
st
RioCan’s Urban Intensification – Creating Spaces
Where We Can All Prosper
Urban transformation involves much more than bricks and
mortar. Building better futures means seeing communities
for what they are, imagining what they can be, and
implementing a plan, sometimes with selected partners, to
get them there. This is how RioCan delivers for our tenants,
customers and unitholders alike.
Today, we are witnessing the continuing demographic shift
that RioCan anticipated—and planned for. Canada’s major
markets are in the midst of major transformation in terms of
population growth and density, as well as investment in
transit infrastructure. Accordingly, RioCan will add
substantial value by intensifying our properties in selected
locations that were acquired or developed years ago.
To facilitate a large influx of people living, shopping, and
working in densely populated areas, cities are upgrading
their transit infrastructure. Land intensification is being
mandated in the suburbs, especially in conjunction with
major transit infrastructure expansion. This shift towards
land use intensification is central to our expansion and
redevelopment strategies of creating mixed-use
communities, near public transit in areas with compelling
demographic trends.
Jonathan Gitlin
Senior Vice President, Investments & Residential
As a key figure in the growth of RioCan, I now lead the Trust’s efforts to
develop and implement our innovative residential and urban
intensification initiatives.
John Ballantyne
Senior Vice President, Asset Management
As one of RioCan’s longest serving executives, I lead the Trust’s asset
management division, helping ensure that RioCan’s strategic vision for
its properties are realized.
Jeff Ross
Senior Vice President, Leasing & Tenant Coordination
As a key executive I ensure that our strategic goals are met by finding
the right tenant for the right space, securing the success of our
properties.
RioCan’s development initiatives are central to our short-
term and long-term planning. All our decisions on property
acquisitions, development and management are based on
RioCan’s core competency: real estate. Our ability to scout
prize properties, from the standpoints of location,
demographic trends and income levels, allow us to
strategically acquire, operate, and develop jewels that will
shine brightly for tenants, residents, consumers and the
surrounding communities.
As a major owner of limited and costly land in highly
desirable urban cores and suburban transit ways, RioCan
intends to develop spaces that provide an optimal shopping
mix, often combining convenient and attractive living and,
on occasion, working opportunities.
RioCan has a long-term goal to develop more than 10,000
rental residential units in these high-demand markets
through its residential development initiative and already
has several buildings under construction with the first
occupancies expected towards the end of 2018. By forging
alliances and partnerships on larger projects such as The
Well featured in this report, RioCan mitigates some of the
risk in these capital-intensive developments.
RioCan has a proud history delivering rewarding
opportunities for our tenants and unitholders. Using our
combined decades of experience, RioCan delivers prosperity
for our stakeholders by making strategic decisions with
integrity. At RioCan, we help shape the future, but as
community stewards we have a responsibility to do it right,
to wisely cultivate growth, and in so doing, take our
stakeholders wherever they need to go.
2016: A Transformational Year
In 2009, RioCan capitalized on a historic opportunity and
expanded the portfolio into the United States, primarily in
densely populated centres in the north east, as well as in
major cities in Texas. Acting in a responsible and fiscally
disciplined manner, RioCan partnered with established
parties on these early acquisitions, as a means of widening
our scope of projects and mitigating risk. Once established,
we created our own operating platform in the United States.
We added value to the portfolio by increasing occupancy
and cash flow. Then, in 2016, RioCan capitalized on another
historically favourable opportunity: with property valuations
exceeding those in Canada and the significant rise in the
American dollar, RioCan sold its American stake for US $1.9
billion, realizing net proceeds of approximately $1.2 billion
Canadian.
4_5
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
Danny Kissoon
Senior Vice President, Operations
I am responsible for RioCan’s properties adhering to high standards,
assuring a safe environment for our tenants and shoppers alike.
Andrew Duncan
Senior Vice President, Developments
I help RioCan implement its vision for its new assets regarding design,
approvals, development, and ultimately construction.
Qi Tang
Senior Vice President, Finance & Acting Chief
Financial Officer
Using my extensive finance background, I assess RioCan’s forecasting,
budgeting, process re-engineering, and financial reporting to ensure
transparency and quality in our public reporting.
With a deep and experienced management team, an
entrepreneurial spirit, strong financial resources, and the
discipline to implement our vision, RioCan delivers on the
same key principle that has defined our REIT since
inception: maintaining or increasing our distributions to
Unitholders. Today, RioCan’s current financial strength
makes our distribution as secure and reliable as it has ever
been. Moreover, as our development projects move to
completion and generate revenue, and organic growth in our
portfolio is realized, it is our intention to resume regular
growth in our distributions.
I thank you—our Unitholders—for your ongoing support, and
I appreciate your continuing confidence in RioCan.
Ed Sonshine O.Ont., Q.C.
Chief Executive Officer
RioCan Real Estate Investment Trust
Our decision to divest in the United States this year was
both measured and prudent. In assessing whether to
proceed further in the United States, RioCan concluded
that the best opportunities for long-term growth were
based in Canada. Moreover, with improved valuations in the
U.S. markets, and a significant spread between the U.S. and
Canadian currencies, the timing was opportune to divest. As
a result, RioCan repatriated a significant amount of capital,
which enabled your REIT to reduce its leverage to a historic
low. Our decisions have proven sound: at the end of 2016
RioCan has the best balance sheet in our history. Our
leverage ratio was 39.7% as at December 31, 2016, which
provides the balance sheet strength and ample resources
necessary to execute RioCan’s urban development
initiatives.
Real Vision – Solid Ground
Since the inception of the Trust, RioCan has delivered on its
strategy to grow its portfolio across Canada. Today, our
approach is showcased with distinctive branding and
signage in bustling communities and a portfolio that is
strategically focused in Canada’s six major markets. To
assure success for our tenants, our centres must
successfully compete with ecommerce. Indeed, RioCan
centres offer consumers compelling experiences, including
leading movies and entertainment, a range of dining
options, dynamic social experiences, fitness and other
services. Additionally, consumers rely on RioCan properties
to provide a full array of leading retailers—and brands.
L
L
E
W
E
H
T
6_7
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
The Well Toronto, Ontario
Stretching down the western side of Spadina Avenue
from Wellington to Front, The Well is located within
comfortable walking distance to the entertainment
district, financial district and waterfront, making it a
central hub in one of Toronto’s most vibrant areas.
At The Well, RioCan and its partners are bringing homes,
flexible office space and retail shops together to create a
new and entirely unique community in the heart of the
city. With three million square feet of mixed-use space,
The Well will be a singular destination for working,
living, shopping, dining and entertainment. International
brands, authentic cuisine and entrepreneurial minds will
unite in one integrated, intimate place, making it easy to
live, work and play in harmony.
FOCUSED
ON
TORONTO,
A CANADIAN
URBAN
MARKET
E
C
A
L
P
e
8_9
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
ePlace Toronto, Ontario
RioCan’s ePlace at the northeast corner of Yonge and
Eglinton will be a signature destination in the thriving
commercial and residential community of Midtown
Toronto. It is surrounded by endless shopping, dining
and entertainment choices. ePlace includes two
residential towers, including what will be RioCan’s first
completed rental residential tower.
Intersecting Yonge and Eglinton, two of Toronto’s busiest
streets, this mixed-use residential and retail property
that is expected to be completed in 2018 and 2019 will
elevate the status of Midtown, while connecting it with
the city through unparalleled underground access to the
Yonge subway and the future Crosstown Eglinton LRT.
ePlace also enjoys direct access to RioCan’s recently
renovated Yonge Eglinton Centre. The two centres
combined offer more than 70 retailers including; Metro,
Indigo, Winners, LCBO and the largest Sephora in North
America and a VIP Cineplex.
FOCUSED
ON
TORONTO,
A CANADIAN
URBAN
MARKET
E
G
A
L
L
I
V
T
S
A
E
D
R
3
&
H
T
5
10_11
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
5th & 3rd East Village Calgary, Alberta
Located on 2.8 acres in Calgary's East Village, the
project features 180,000 square feet of retail space at
the base of a 600,000 square feet residential tower.
FOCUSED
ON
CALGARY,
A CANADIAN
URBAN
MARKET
Highlights include an 82,000 square foot Loblaws City
Market and Shoppers Drug Mart, and an additional
70,000 square feet of retail space at grade, with
convenient access to 300 dedicated parking spots.
Located in the East Village area of downtown Calgary,
the site features direct access to the LRT. Construction
at the site is expected to be completed in 2020. Of
note, the project is on one of downtown Calgary's few
full city blocks that is privately owned. The site is
being developed as a mixed-use project that will
include approximately 188,000 square feet of retail
space to be anchored by an 82,000 square foot
Loblaws City Market and Shoppers Drug Mart. Other
retailers include a liquor store and financial
service providers.
R
E
T
S
E
C
U
O
L
G
12_13 RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
Gloucester Ottawa, Ontario
Ottawa is growing, and RioCan is in the heart of the
action, building a striking 23 storey tower featuring
approximately 220 residential units.
This phase 1 project, on a 7-acre site, provides
convenient housing in Ottawa. The tower features
environmentally friendly geothermal heating and
cooling, and the potential to expand to 3
additional towers.
Plans and approvals have been received for phase 1 of
the Gloucester City Centre. Demolition is underway, and
construction is soon to commence. RioCan’s innovative
development features a 215,000 square foot, 23 storey
rental residential tower comprising approximately 220
units. Current plans include a geothermal energy system
for heating and cooling. Completion of the first phase is
scheduled for 2019. The site, near a light rapid transit
line, offers easy access to transit. There is room to grow,
with the potential for the development of three
additional residential towers, offering up to 840
residential units in all four towers.
FOCUSED
ON
OTTAWA,
A CANADIAN
URBAN
MARKET
CANADA
ALBERTA
As at December 31, 2016
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
100%
11,963
11,963
5008 5020 97th Street NW, Edmonton, AB
Brentwood Village, Calgary, AB
100%
100%
11,943
11,943
291,597
291,597 Safeway, London Drugs, Sears Whole Home,
Bed Bath & Beyond
East Hills, Calgary, AB
40%
136,350
340,876 Walmart, Sport Chek, Bed Bath & Beyond,
Edmonton Walmart Centre, Edmonton, AB
Glenmore Landing, Calgary, AB
Jasper Gates Shopping Centre
Edmonton, AB
Lethbridge Towne Square, Lethbridge, AB
Lethbridge Walmart Centre
Lethbridge, AB
Lowe’s Sunridge Centre, Calgary, AB
Market at Citadel Village, Edmonton, AB
Mayfield Common, Edmonton, AB
Mill Woods Town Centre, Edmonton, AB
North Edmonton Cineplex Centre
Edmonton, AB
Northgate Village Shopping Centre
Calgary, AB
127,509
370,382 Walmart, Golf Town, Totem Building Supplies*
Michaels, Marshalls, Cineplex, Costco*
72,992
145,983 Safeway
91,063
146,063 London Drugs, Safeway*
78,694
78,694 London Drugs
284,765
284,765 Walmart, Shoppers Drug Mart
213,100
213,100 Lowe's, Golf Town
50,678
207,487
234,426
50,678 Shoppers Drug Mart
414,973 Winners, Save-On-Foods, Value Village, JYSK
581,126 Safeway (Co-op), Canadian Tire, GoodLife Fitness
75,836
75,836 Cineplex
40%
50%
100%
100%
100%
100%
100%
50%
40%
100%
100%
277,181
404,271 Safeway, Gold's Gym, JYSK, Staples, Home
Depot*
RioCan Beacon Hill, Calgary, AB
50%
527,835
787,209 Canadian Tire, Winners, Best Buy, Sport Chek,
Home Depot*, Costco*
RioCan Centre Grande Prairie
Grande Prairie, AB
100%
279,983
379,983 Rona, Cineplex Odeon, London Drugs, Staples,
Michaels, Walmart*
RioCan Meadows, Edmonton, AB
100%
309,184
409,184 Home Depot, Staples, Winners, Best Buy,
Loblaws*
RioCan Shawnessy, Calgary, AB
100%
470,460
841,105 Lowe’s, Sport Chek, Best Buy, Winners,
Home Depot*, Walmart*, Co-op*, Canadian Tire*
RioCan Signal Hill Centre, Calgary, AB
100%
477,173
592,173 Lowe’s, Winners, Indigo, Michaels, Staples,
100%
138,654
138,654 Safeway
Loblaws*
Riverbend Square Shopping Centre
Edmonton, AB
Sage Hill, Calgary, AB
Southbank Centre, Calgary, AB
50%
75%
South Edmonton Common, Edmonton, AB
100%
138,164
108,910
430,418
276,327 Walmart, Loblaws City Market, London Drugs
381,227 Winners, Michaels, Home Depot*, Costco*
981,488 London Drugs, The Brick, Home Outfitters,
Old Navy, Home Depot*, Walmart*, Loblaws*,
Cineplex*, Staples*, Best Buy*
14
PROPERTY PORTFOLIO*Non-owned anchorRIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
As at December 31, 2016
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
South Trail Crossing, Calgary, AB
100%
311,684
311,684 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
Timberlea Landing, Fort McMurray, AB
100%
104,307
104,307 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
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
219,892
459,892 Lowe’s, Winners, PetSmart, Costco*, Rona*
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
173,107
173,107 Walmart, Save-On-Foods
189,435
189,435 Safeway, Staples
186,629
186,629 Walmart
197,389
197,389 Safeway, Staples, JYSK, World Gym
529,780
614,780 Walmart, Best Buy, Indigo, Home Depot*
133,869
133,869 T&T Supermarket
370,260
370,260 Save-On–Foods, The Bay, London Drugs,
Cineplex, Staples
RioCan Langley Centre, Langley, BC
100%
380,090
380,090 Chapters, HomeSense, Marshalls, Winners,
Michaels
Southwinds Crossing, Oliver, BC
100%
72,972
72,972 Canadian Tire, Buy-Low Foods
Strawberry Hill Shopping Centre, Surrey, BC
100%
337,935
337,935 Winners, PetSmart, Sport Chek, Home Depot,
Cineplex
Tillicum Centre, Victoria, BC
100%
471,378
471,378 Lowe’s, Cineplex, London Drugs, Winners,
Save-On–Foods
Vernon Square, Vernon, BC
100%
96,706
149,706 London Drugs, Safeway*
MANITOBA
Garden City, Winnipeg, MB
Kildonan Crossing Shopping Centre
Winnipeg, MB
30%
100%
86,123
379,681 Canadian Tire, Winners, Sears*
179,027
179,027 Safeway, PetSmart
15
PROPERTY PORTFOLIO*Non-owned anchorRIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
PROPERTY PORTFOLIO
NEW BRUNSWICK
As at December 31, 2016
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
Brookside Mall, Fredericton, NB
Corbett Centre, Fredericton, NB
Northumberland Square, Miramichi, NB
Quispamsis Town Centre, Quispamsis, NB
50%
100%
50%
100%
140,090
195,086
57,473
88,114
280,179 Sobeys
415,086 Winners, HomeSense, Home Depot*, Costco*
114,945 Winners, Giant Tiger
88,114 Shoppers Drug Mart, GoodLife Fitness
NEWFOUNDLAND
Shoppers on Topsail, St. John’s, NFLD
100%
29,690
29,690 Shoppers Drug Mart
Trinity Conception Square, Carbonear, NFLD
100%
182,155
182,155 Dominion, Walmart
ONTARIO
85 Bloor Street West, Toronto, ON
100%
1208 & 1216 Dundas Street East, Whitby, ON
100%
13,810
7,697
13,810
7,697
1650-1660 Carling Avenue, Ottawa, ON
1860 Bayview Avenue, Toronto, 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%
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
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%
100%
100%
142,188
142,188 Canadian Tire
70,112
70,112 Whole Foods, Shoppers Drug Mart
6,425
2,938
6,221
6,425
2,938
6,221
10,442
10,442 Pharma Plus
9,748
6,200
9,748
6,200
267,954
267,954 Walmart, Metro
22,496
2,067
28,823
12,515
14,200
8,434
8,818
25,000
81,004
70,724
22,496
2,067
57,646
12,515
14,200 CB2
8,434
8,818
25,000
81,004 Metro
70,724 Metro, Pharma Plus
376,579
376,579 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
5,683
16
*Non-owned anchorRIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
As at December 31, 2016
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
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
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%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
100%
Fallingbrook Shopping Centre, Orleans, ON
100%
100%
100%
Five Points Shopping Centre, Oshawa, ON
Flamborough Walmart Centre
Flamborough, ON
Flamborough Power Centre,
Flamborough, ON
Frontenac Mall, Kingston, ON
Galaxy Centre, Owen Sound, ON
4,973
4,835
5,584
17,047
20,269
8,856
5,190
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
306,649
726,451 Canadian Tire, Indigo, Winners, HomeSense,
Sport Chek, The Bay*
134,807
316,638 Sport Chek, Winners, Canadian Tire*, Loblaws*
72,859
72,859 No Frills
451,673
566,673 Walmart, Winners, Staples, Indigo, Cineplex,
Loblaws*
73,886
73,886 Zehrs
143,203
143,203 Metro
59,992
59,992 Giant Tiger, PartSource
213,077
213,077 Metro, Canadian Tire, Shoppers Drug Mart
63,781
63,781 HomeSense
70,406
70,406 No Frills
109,260
109,260 Cineplex, Shoppers Drug Mart
203,290
203,290 FreshCo (Sobeys), Canadian Tire, Sport Chek,
Bed, Bath & Beyond, Winners
94,140
70,100
97,885
94,140 Food Basics
70,100 Staples
97,885 Staples
176,090
176,090 Metro (Yummy Market)
81,504
163,008 No Frills
146,699
146,699 Loblaws, Pharma Plus
180,829
238,829 Cineplex, Best Buy, Loblaws*
8,322
97,145
397,736
300,292
8,322
97,145 Metro, Shoppers Drug Mart
397,736 Metro, LA Fitness, JYSK
300,292 Walmart, Rona, Staples
100%
194,724
194,724 Value Village
30%
100%
834,057
280,191 Food Basics, Value Village
91,563
91,563 No Frills, Cineplex
17
PROPERTY PORTFOLIO*Non-owned anchorRIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
As at December 31, 2016
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
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%
100%
100%
100%
80%
146,835
146,835 Lowe's
75,246
53,963
94,283
144,983
185,131
75,246 Giant Tiger
53,963 Your Independent Grocer, Pharma Plus
202,859 Walmart, Canadian Tire*, Zehrs*
144,983 GoodLife Fitness, Canadian Tire (Call centre)
359,354 Winners, HomeSense, Michaels, Bed Bath &
Beyond, Lowe's*
Green Lane Centre, Newmarket, ON
67%
106,817
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%
73,030
73,030 Food Basics
Costco*, Loblaws*
100%
100%
100%
100%
100%
75%
100%
100%
100%
100%
100%
100%
100%
50%
75%
50%
100%
100%
100%
5,269
5,269
312,993
312,993 Walmart, Winners, Staples
108,722
108,722 Zehrs
72,466
72,466
123,572
123,572 Metro
71,003
70,981
67,186
94,670 Metro, Pharma Plus
70,981 LA Fitness
67,186 Metro
143,815
143,815 Lowe’s
87,969
47,512
87,969 Shoppers Drug Mart
167,512 PetSmart, Costco*
286,336
386,336 Walmart, Chapters, Loblaws
158,688
200,402
158,688 FreshCo (Sobeys), Shoppers Drug Mart
481,804 Metro, The Brick, Sears Whole Home, LA Fitness,
Chapters, Michaels
120,363
160,484 Walmart
41,109
71,985
34,202
82,218 Shopify (office), Indigo (office)
71,985 Metro
34,202 Shoppers Drug Mart
658,244
658,244 Marshalls, HomeSense, Fortino’s, Canadian Tire,
Hudson’s Bay Company (office)
Lincoln Fields Shopping Centre, Ottawa, ON
100%
284,947
284,947 Walmart, Metro
London Plaza, London, ON
Markington Square, Scarborough, ON
Meadow Ridge Plaza, Ajax, ON
Meadowlands Power Centre, Ancaster, ON
Merivale Market, Ottawa, ON
Millcroft Shopping Centre, Burlington, ON
Mississauga Plaza, Mississauga, ON
New Liskeard Walmart Centre
New Liskeard, ON
100%
100%
100%
100%
75%
50%
100%
100%
122,183
122,183 Gold's Gym, Value Village
173,029
173,029 Metro, GoodLife Fitness
111,762
145,605
59,136
151,252
175,672
111,762 Sobeys, GoodLife Fitness
589,209 Best Buy, Sport Chek, Michaels, PetSmart,
Costco*, Home Depot*, Sobeys*, Staples*
78,848 Food Basics, Shoppers Drug Mart
354,736 Metro, Canadian Tire*
175,672 FreshCo (Sobeys), LA Fitness
110,522
155,278 Walmart, Canadian Tire*
18
PROPERTY PORTFOLIO*Non-owned anchorRIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
As at December 31, 2016
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
Niagara Falls Plaza, Niagara Falls, ON
Niagara Square, Niagara Falls, 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
100%
30%
100%
100%
100%
100%
50%
100%
60%
100%
100%
100%
100%
100%
100%
79,588
79,588 LA Fitness
120,582
401,941 Winners, JYSK, The Brick, Cineplex, Michaels
39,924
39,924 GoodLife Fitness
34,066
139,566 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
156,369
402,989 Empire Theatres, Food Basics, Toys R Us,
Lowe's*
454,623
552,623 Cineplex, Home Outfitters, Longo's, Home Depot*
635,367
756,412 Cineplex, Sears Whole Home, Staples, Winners,
HomeSense, Old Navy, Best Buy, Home Depot*
105,040
165,040 Chapters, PetSmart, Loblaws*
139,622
139,622 Metro
200,132
200,132 Your Independent Grocer, Winners
171,465
291,465 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%
403,797
669,193 Cineplex, Staples, Chapters, Sears Whole Home,
RioCan Centre Vaughan, Vaughan, ON
RioCan Centre Windsor, Windsor, ON
100%
100%
Winners, HomeSense, Costco*, Home Depot*
262,336
262,336 Walmart
239,420
349,420 Cineplex, Sears Whole Home, The Brick, Staples,
Costco*
RioCan Colossus Centre, Vaughan, ON
100%
528,088
658,088 HomeSense, Golf Town, Marshalls, Cineplex,
Costco*
RioCan Durham Centre, Ajax, ON
100%
891,867
1,272,867 Marshalls, Winners, Sport Chek, HomeSense,
Walmart, Cineplex, Canadian Tire, Home Depot*,
Loblaws*, Costco*
RioCan Elgin Mills Crossing
Richmond Hill, ON
100%
320,325
441,325 Costco, Michaels, Staples, Home Depot*
RioCan Fairgrounds, Orangeville, ON
100%
366,437
510,512 Walmart, Best Buy, Cineplex, Winners, Canadian
RioCan Georgian Mall, Barrie, ON
50%
243,855
Tire*, Home Depot*
604,224 Atmosphere, HomeSense, H&M, Victoria’s
Secret, The Bay, Sephora, Sears*
RioCan Grand Park, Mississauga, ON
RioCan Gravenhurst, Gravenhurst, ON
RioCan Hall, Toronto, ON
RioCan Leamington, Leamington, ON
RioCan Leaside Centre, Toronto, ON
RioCan Marketplace Toronto, Toronto, ON
RioCan Niagara Falls, Niagara Falls, ON
RioCan Oakville Place, Oakville, ON
100%
100%
100%
100%
100%
67%
100%
50%
118,681
118,681 Winners, Shoppers Drug Mart, Staples
149,548
149,548 Canadian Tire, Sobeys
227,326
227,326 Cineplex, Marshalls, GoodLife Fitness, Michaels
192,851
192,851 Walmart, Metro
133,035
133,035 Canadian Tire, PetSmart
114,298
447,438 Winners, Loblaws*, Home Depot*
295,164
231,129
393,739 Staples, Zehrs, Home Depot*
462,258 The Bay, Sears, H&M, Sephora, Pusateri’s,
Shoppers Drug Mart, Sport Chek
RioCan Orleans, Cumberland, ON
100%
182,251
297,251 Metro, JYSK, Staples, Home Depot*
19
PROPERTY PORTFOLIO*Non-owned anchorRIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
As at December 31, 2016
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
RioCan Renfrew Centre, Renfrew, ON
100%
53,099
127,099 No Frills*
RioCan Scarborough Centre, Scarborough, ON 100%
326,823
326,823 Costco, Staples, LA Fitness, Al’s Premium Food
Market
RioCan St. Laurent, Ottawa, ON
RioCan Thickson Ridge, Whitby, ON
100%
100%
308,031
308,031 Lowe’s, Metro, Food Basics, Winners
362,019
492,019 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
Sudbury Place, Sudbury , ON
Sunnybrook Plaza, Toronto, ON
Tanger Outlets Cookstown, Cookstown, ON
31%
8,749
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%
100%
100%
50%
49,290
98,579
230,967
230,967 Lowe’s, Marshalls, Michaels
226,415
356,415 Food Basics, Cineplex, Home Depot*
1,056,285
1,056,285 Cineplex, Indigo, Metro, Toys R Us, Winners
103,607
103,607 Food Basics
108,562
108,562 Sobeys, Pharma Plus
92,688
92,688 Metro, Shoppers Drug Mart
106,884
106,884 Food Basics, Shoppers Drug Mart
140,370
140,370 No Frills, Winners, HomeSense
104,514
104,514 Value Village
236,730
218,758
473,459 Winners, Shoppers Drug Mart
218,758 Food Basics, Shoppers Drug Mart, GoodLife
Fitness
9,551
15,208 Shoppers Drug Mart
17,020
17,020 Shoppers Drug Mart
17,024
17,024 Shoppers Drug Mart
696,897
696,897 Canadian Tire, Winners, Staples, Oceans, JYSK,
Giant Tiger
326,303
326,303 Lowe’s, Metro, Staples
20,884
89,690
121,514
189,739
20,884 Pharma Plus
89,690 Loblaws, Winners
150,608 Cineplex, Chapters
189,739 Zehrs, Home Hardware
294,255
294,255 Fortinos, JYSK, GoodLife Fitness
72,627
72,896
131,077
147,917
51,013
72,627 Metro, Shoppers Drug Mart
72,896 Sobeys, Shoppers Drug Mart
131,077 Metro, Michaels
203,661 Canadian Tire, Real Canadian Superstore*
51,013 Pharma Plus
154,914
309,828 Under Armour, Coach, Tommy Hilfiger, Nike,
Polo Ralph Lauren
Tanger Outlets Ottawa, Ottawa, ON
50%
158,289
316,577 Polo Ralph Lauren, Old Navy, Nike, Saks, Under
Armour, Coach, Marshalls
20
PROPERTY PORTFOLIO*Non-owned anchorRIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
As at December 31, 2016
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
The Stockyards, Toronto, ON
50%
246,146
492,291 Nations, Sport Chek, PetSmart, Winners,
HomeSense, Old Navy, Michaels
The Shops of Summerhill, Toronto, ON
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
West Side Place, Port Colborne, ON
Westgate Shopping Centre, Ottawa, ON
Wharncliffe Centre, London, ON
White Shield Plaza, Toronto, ON
Woodview Place, Burlington, ON
Yonge & Erskine Avenue, Toronto, ON
PRINCE EDWARD ISLAND
100%
50%
30%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
23,115
44,114
117,116
131,251
147,441
613,901
191,465
185,660
126,253
64,628
30,820
88,228 No Frills
390,385 No Frills, Winners, Sport Chek
131,251 Winners/HomeSense, GoodLife Fitness
147,441 Walmart
828,901 Cineplex, Metro, Winners, HomeSense, Staples,
Sport Chek, Michaels, Canadian Tire*, Home
Depot*
371,465 Michaels, Winners/HomeSense, Loblaws*
185,660 Metro, Shoppers Drug Mart
126,253 Canadian Tire, Metro
64,628 FreshCo (Sobeys)
127,270
127,270 Metro, Best Buy, HomeSense
69,857
39,788
93,123
69,857 FreshCo (Sobeys)
39,788
93,123 No Frills
165,660
165,660 Shoppers Drug Mart
60,744
148,770
145,401
60,744 No Frills
148,770 Lone Thai Grocery
145,401 Metro, Chapters
6,862
13,723
Charlottetown Mall, Charlottetown, PEI
100%
352,477
352,477 Loblaws, Sport Chek, Winners, H&M
QUEBEC
2335 Lapiniere Boulevard, Brossard, PQ
541 Saint-Joseph Boulevard
Gatineau, PQ
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
100%
100%
2,259
2,584
2,259
2,584
100%
5,015
5,015
100%
100%
100%
209,103
209,103 Super C, L’Aubainerie
67,815
67,815 Super C
129,589
129,589 Super C
100%
112,888
112,888 Super C
Centre Concorde, Laval, PQ
50%
31,649
63,298 IGA
21
PROPERTY PORTFOLIO*Non-owned anchorRIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
As at December 31, 2016
Ownership
RioCan’s
Interest Interests
Total Site
Property and Location
(%) NLA (sq. ft.) NLA (sq. ft.) Major or Anchor Tenants
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
Place La Prairie, La Prairie, PQ
RioCan La Gappe, Gatineau, PQ
Shoppers Drug Mart Repentigny
Repentigny, PQ
50%
37,553
75,106 IGA
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
50%
319,445
106,329
104,280
319,445 Cineplex, Winners
106,329 IGA
104,280 IGA
30,389
60,778 IGA
248,974
248,974 Provigo, Giant Tiger, Pharmaprix
87,434
452,857
252,450
48,870
78,761
81,367
87,434 Staples, JYSK, Gold’s Gym
452,857 Maxi
252,450 Maxi, Staples
48,870 L’Aubainerie
78,761 Walmart
162,733 Atmosphere, Tommy Hilfiger, Puma
50%
56,986
113,971 Atmosphere, Nike
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
100%
167,409
167,409 Maxi, Pharmaprix
19,003
19,003
421,886
483,784 Winners/HomeSense, Sports Experts,
Super C*, Shoppers Drug Mart*
204,759
108,346
181,001
300,007
363,181
393,628 Walmart, Canadian Tire*, Home Depot*
108,346 Adonis
181,001 Maxi, Winners
300,007 Walmart, Canadian Tire, Super C
363,181 Maxi, Winners, Staples, Guzzo Cinemas, JYSK,
Giant Tiger
35,467
70,934 IGA
371,392
371,392 Walmart, Winners, Michaels
17,050
17,050 Shoppers Drug Mart
Silver City Hull, Hull, PQ
100%
84,590
499,775 Cineplex, Rona*, Walmart*, Maxi*,
100%
166,930
254,430 Walmart, Staples, Canadian Tire*
Super C*, Winners*
100%
117,837
228,337 Staples, Canadian Tire*, Super C*
St. Hyacinthe Walmart Centre
Ste. Hyacinthe, PQ
Vaudreuil Shopping Centre
Vaudreuil-Dorion, PQ
SASKATCHEWAN
Parkland Mall, Yorkton, SA
100%
264,112
264,112 Canadian Tire, Save-On-Foods, Winners
22
PROPERTY PORTFOLIO*Non-owned anchorRIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
REAL ESTATE PORTFOLIO KEY FACTS as at December 31, 2016 (all metrics stated at RioCan's interest)
Net Leasable Area (“NLA”) (thousands of sq.ft.):
Income Producing Properties
Properties Under Development
Total
Number of Tenancies
Committed Occupancy
Retail
Office
Total
Geographic Diversification
Ontario
Alberta
Quebec
British Columbia
Eastern Canada
Manitoba/Saskatchewan
Anchor and National Tenants
Percentage of:
Annualized rental revenue
Total NLA
Top Ten Sources of Revenue by Property Tenant
Rank
Tenant
1
2
3
4
5
6
7
8
9
Loblaws/Shoppers Drug Mart (i)
Canadian Tire Corporation (ii)
Walmart
Cineplex/Galaxy Cinemas
Winners/HomeSense/Marshalls
Metro/Super C/Loeb/Food Basics
Cara/Prime Restaurants/St-Hubert
Lowe's
Sobeys/Safeway
10
Dollarama
Retail
41,294
3,761
45,055
Office
1,918
—
1,918
Percentage of
annualized rental
revenue
Income producing
properties
Properties under
development
Number of properties
66.1%
14.3%
8.5%
8.2%
1.9%
1.0%
100.0%
189
30
35
21
7
3
285
11
4
—
—
—
—
15
Total
43,212
3,761
46,973
6,206
95.7%
93.6%
95.6%
Total
200
34
35
21
7
3
300
85.2%
84.8%
Percentage of
annualized rental revenue
Weighted average
remaining
lease term (yrs)
4.8%
4.7%
4.2%
3.9%
3.7%
3.4%
1.9%
1.8%
1.6%
1.5%
31.5%
7.8
7.4
10.1
8.1
7.5
6.6
5.8
11.5
9.3
5.9
8.0
(i)
(ii)
Loblaws/Shoppers Drug Mart includes No Frills, Fortinos, Zehrs Markets, Joe Fresh and Maxi.
Canadian Tire Corporation includes Canadian Tire, PartSource, Mark’s, Sport Chek, Sports Experts, National Sports and Atmosphere.
Property Lease Expiries
NLA (thousands of sq. ft)
Average Expiring rent per square foot
Total
43,212
$17.59
2017
3,051
$19.77
2018
4,711
$18.67
2019
5,322
$18.84
2020
4,847
$17.73
2021
5,269
$17.92
RioCan
FINANCIAL REVIEW
MANAGEMENT’S DISCUSSION
AND ANALYSIS
TABLE OF CONTENTS
Management’s Discussion and Analysis
25 ABOUT THIS MANAGEMENT’S DISCUSSION
AND ANALYSIS
25 FORWARD-LOOKING INFORMATION
26 BUSINESS OVERVIEW, OUTLOOK
AND STRATEGY
29 SUSTAINABILITY
31 PRESENTATION OF FINANCIAL
INFORMATION AND NON-GAAP MEASURES
35 RESULTS OF OPERATIONS
35
36
37
40
41
43
Selected Annual Information
2016 Financial Highlights
Operating Income
Other Income (Loss)
Other Expenses
Funds from Operations (FFO) and
Operating Funds from Operations (OFFO)
Adjusted Funds from Operations (AFFO)
45
Occupancy and Leasing
47 OPERATIONS
47
54 ASSET PROFILE
Investment Property
54
Income Property Acquisitions During 2016
55
Income Property Dispositions During 2016
55
Capital Expenditures on Income Properties
56
Co-ownership Arrangements
57
Properties Under Development
60
Development Pipeline Summary
61
71
Mortgages and Loans Receivable
71 CAPITAL RESOURCES AND LIQUIDITY
Liquidity and Cash Management
71
Capital Management Framework
71
Capital Structure
72
Debt and Leverage Metrics
72
Credit Ratings
75
Credit Facility
Debentures Payable
Mortgages Payable and Lines of Credit
Hedging Activities
Canadian Debt Profile
Trust Units
Preferred Units
Guarantees
Liquidity
Distributions to Unitholders
76
76
77
78
79
80
81
81
81
83
85 QUARTERLY RESULTS AND TREND ANALYSIS
88 SIGNIFICANT ACCOUNTING POLICIES
AND ESTIMATES
89 FUTURE CHANGES IN
ACCOUNTING POLICIES
90 CONTROLS AND PROCEDURES
90 RELATED PARTY TRANSACTIONS
91 RISKS AND UNCERTAINTIES
24
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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 assess our results of operations and
financial condition for the three months and year ended December 31, 2016 ("Q4 2016" and "2016", respectively). This MD&A is
dated February 15, 2017 and should be read in conjunction with our annual consolidated financial statements and related notes
for the year ended December 31, 2016 ("2016 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 for 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 ("AIF"), 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 information in this MD&A refers to the results of our continuing Canadian operations only, all
amounts are in thousands of Canadian dollars and all percentage changes are calculated using whole numbers.
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 2016 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, sales and land transfer taxes; and credit ratings.
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.
Our U.S. subsidiary qualified as a REIT for U.S. income tax purposes up to May 25, 2016, subsequent to the closing date of the
sale of our U.S. property portfolio. For U.S. income tax purposes, the subsidiary distributed all of its U.S. taxable income and is
entitled to deduct such distributions against its taxable income. The subsidiary’s qualification as a REIT depends on the REIT’s
satisfaction of certain asset, income, organizational, distribution, unitholder ownership and other requirements up until May 25,
2016. Our U.S. subsidiary was subject to a 30% or 35% withholding tax on distributions of its U.S. taxable income to Canada.
We do not intend to distribute any withholding taxes paid or payable to our unitholders related to the disposition.
General economic conditions, including interest rate fluctuations, may also have an effect on RioCan’s results of operations.
Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking
information may include, but are not limited to: a stable retail environment; relatively 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. For a description of additional risks that could cause actual results to
materially differ from management’s current expectations, refer to 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.
25
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 $14.6 billion at December 31, 2016. RioCan owns and manages Canada’s largest portfolio of shopping centres
with ownership interests in a portfolio of 300 retail and mixed use properties, including 15 properties under development,
containing an aggregate net leasable area ("NLA") of 46,973,000 square feet.
RioCan's property portfolio includes grocery anchored, new format retail, urban retail, mixed use and non-grocery anchored
centres, of which 255 properties are 100% owned (250 income properties and 5 properties under development) and 45 are co-
owned through joint arrangements with co-owners (including 10 under development). RioCan’s primary joint arrangements are
with Allied Properties REIT (Allied); Canada Pension Plan Investment Board (CPPIB); Hudson's Bay Company (HBC); KingSett
Capital (KingSett); Tanger Factory Outlet Centres, Inc. (Tanger); and Trinity Development Group (Trinity).
Executive management update
During the year, our Chief Executive Officer, Edward Sonshine, amended his employment contract to reflect his agreement to not
retire or resign voluntarily before December 31, 2018. As part of this commitment, Mr. Sonshine agreed to use his best efforts to
provide the Trust with 12 months' notice of his intent to retire or resign.
Sale of U.S. assets
On May 24, 2016, RioCan completed the sale of its U.S. portfolio of 49 wholly owned investment properties to Blackstone Real
Estate Partners VIII ("Blackstone") for gross sales proceeds of US$1.9 billion. RioCan received cash proceeds of
approximately US$1.0 billion, which was net of outstanding U.S. mortgages repaid on completion of the sale transaction.
As a result of our exit from the U.S., our former U.S. geographic segment's financial results are reported as discontinued
operations. Unless otherwise noted, comparative income statement amounts have been restated to reflect this change. See
Strategy update - Sale of U.S. operations in this MD&A for further discussion of this transaction.
Unsecured credit facility
On June 1, 2016, the Trust entered into a 5-year $1.0 billion unsecured operating credit facility with six Canadian Schedule I
financial institutions, which replaced our secured operating lines. The new facility is expected to provide us with short-term
liquidity and enhanced flexibility for the Trust's operational and capital needs.
Property acquisitions and dispositions
CPPIB acquisition
On July 27, 2016, RioCan acquired CPPIB's interests in four income properties that were previously co-owned for an aggregate
purchase price of $352 million, representing a weighted average capitalization rate of 5.7%. As a result of this purchase, RioCan
now owns 100% of these assets, representing over 1,800,000 square feet of NLA. RioCan did not assume any additional debt
from CPPIB in connection with this acquisition.
The Well air rights disposition
During July 2016, RioCan, Allied Properties and DiamondCorp entered into a binding agreement to sell a portion of the residential
component of The Well to Tridel Builders Inc. and Woodbourne Canada Partners III (CA) LP for approximately $180 million,
subject to certain closing conditions. Closing of the transaction is anticipated to occur in early 2020. RioCan will remain a 50% co-
owner of one of the rental buildings representing approximately 400,000 square feet of residential rental density. Refer to
Properties Under Development - Urban Intensification section of this MD&A for further details.
Debenture issuance
On August 26, 2016, the Trust issued $250 million of Series X senior unsecured debentures, which mature on August 26, 2020
and carry a coupon rate of 2.185%. The interest on these debentures is payable semi-annually commencing February 26, 2017.
The net proceeds were used to fund our development program, for property acquisitions, to repay certain indebtedness and for
general trust purposes.
Target backfill
We continue to make significant progress re-leasing our vacant Target locations. To date, leases included in our backfill progress,
if all completed, will produce annualized base rental revenue of approximately $14.2 million versus $11.6 million being the total
base rental revenue lost through Target’s departure (at RioCan's proportionate share). Refer to Tenant Vacancies - Target
Leasing Update for further details.
Outlook
Canada's growth performance continues to remain mixed due to the effects of lower energy prices, despite the recent increase as
a result of an OPEC output cut, reduced oil sands production in Alberta, and the uncertainty in the global economy caused by
political uncertainty in Europe and the United States, offset somewhat by some indications of improving Canadian and U.S.
economies. It is anticipated that the Bank of Canada will continue to keep interest rates low for the foreseeable future. In contrast,
with the U.S. economy approaching near full employment levels and the impact of inflationary pressure from potential
expansionary policies from the new U.S. Presidential Administration, it is generally believed that the U.S. Federal Reserve will
continue to gradually raise interest rates in the near term.
26
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 75.5% of our portfolio net rental revenues are derived. In
addition to the competitive advantage provided by RioCan's significant scale and urban presence, our resiliency is aided by the
depth of our management team, our well diversified and stable portfolio, the portfolio potential for urban intensification, solid
tenant base, flexible capital structure and conservative borrowing practices.
We continue to expect to achieve organic growth over the long term. As the properties that were impacted by Target's departure
begin to stabilize, we anticipate positive effects to same property net operating income ("NOI"). However, this will be partially
offset by increased interest expenses as costs that were previously capitalized when the property was under redevelopment will
again be expensed.
In 2017, on a full year basis, we are expecting same property NOI to show positive growth assuming the current market
conditions prevail.
Macro Economic and Market Trends
Canadian dollar
The current uncertainty in the economic environment and anticipated rising interest rates in the U.S. may result in continued
downward pressure on the Canadian dollar. However, 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. Growth in profit will also depend on our tenants' ability to
manage import costs and pass through price increases.
Alberta economy
Low oil prices and the costly Fort McMurray wildfires made 2016 a very difficult year for the Alberta economy, putting it in
recession territory. It has the highest provincial unemployment rate in Canada and the largest projected budget deficit Albertans
have ever faced. The sharp economic contraction in Alberta also spread weakness across other sectors of the Canadian
economy. With a modest recovery in oil prices to around US$50 per barrel and the rebuilding efforts in Fort McMurray slowly
underway, our outlook for 2017 remains cautiously optimistic. Despite Alberta's attempts to diversify into non-energy dependent
sectors, the province's recovery will still largely depend on the price of oil. If oil prices remain at their current levels, the
headwinds will likely persist with potential to further impact retail and residential markets. If oil prices rise, we would anticipate a
slow and gradual recovery with slightly improved market conditions ahead. Notwithstanding the foregoing, according to Statistics
Canada, Alberta continues to lead the country in retail sales as measured on a per capita basis, although the effects of the
recession are causing the gap to narrow. Occupancy rates in our Alberta portfolio are approximately 98% and valuations for
RioCan's high quality, well-located assets in Alberta remain strong.
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 2017. In the fourth quarter of 2016, the Bank of Canada lowered its growth expectations through 2018.
The relatively low interest rate environment in Canada is positive for RioCan and should continue to provide interest savings as
higher interest debt is refinanced upon maturity. We will monitor the economy and real estate markets with a view to ensuring that
we continue to have adequate access to capital, either by way of equity, debt or strategic asset dispositions, to meet our business
requirements and to maximize financing opportunities as they become available.
E-commerce
We believe that we are well-positioned for e-commerce trends based upon the depth and breadth of our retail portfolio, especially
in urban markets.
There is no question that we see evidence today of the disruptive effects of e-commerce on the traditional brick-and-mortar
powerhouses, as giants like Walmart begin redirecting significant portions of their capital spending toward online sales
capabilities. At the same time, urban population growth is generally out-pacing the overall population growth and cities tend not
to be the traditional locations for most big box retail.
That being said, shopping centres will always have a place for consumers as they remain the most cost-effective way for a
retailer to distribute goods, and the most successful retailers in the future will be the ones that effectively execute a combined
online and brick-and-mortar strategy. These retailers will employ models that have been adapted to integrate sales in their
storefronts as well as catering to online sales, commonly referred to as 'omni channeling' to provide today's consumer with the
choice of how they want to shop. In the changing face of retail, national tenants are increasingly realizing that they must provide
this flexibility to their customers in order to remain relevant.
Grocery stores have historically been more resistant to online consumer spending, and in Canada, most online grocery orders
are filled at the store level rather than through a distribution warehouse. RioCan continues to pro actively bolster its portfolio
through a greater focus on national and grocery anchor tenants and an improved overall shopping experience.
27
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
While e-commerce may have an impact on the size, mix and possibly even the location of physical stores, we expect that
shopping centres are going to be a very important part of how retailers remain connected to their customers. For example, the
two largest demographic groups are the Baby Boomers in their retirement years and the Millennials, each having very different
spending habits than previous generations. The spending patterns of these two groups compound the effects of e-commerce by
changing the focus of retail to more service-oriented providers, such as food and beverage, entertainment, personal services and
fitness - or what we sometimes refer to as 'experiential retail'. Our recent residential strategy addresses these trends, in part, as
it not only re-purposes the existing retail, but also focuses the retail component on today’s changing retail landscape.
Canadian retail environment
We expect fundamentals in Canadian retail real estate to remain steady in 2017, particularly necessity-based retail services and
restaurants. The Canadian retail environment continues to work through the disruption caused by Target's departure from Canada
and other announced store closures that occurred over the past 24 months. These closures have created a more cautious
environment with retailers; however, the Canadian market still largely benefits from a sound retail tenant base that exhibits
financial strength.
Strategy
Sale of U.S. Operations
In May of 2016, we completed the sale of our U.S. portfolio of 49 retail properties located in the Northeastern U.S. and Texas at a
total sale price US$1.9 billion. RioCan received cash proceeds of approximately US$1.0 billion on closing, which was net of
approximately US$0.9 billion in mortgage debt. We have executed a strategy that has helped to reduce the dilutive effects of the
sale. The proceeds from the sale have enhanced our corporate liquidity to fund our Canadian growth strategy and development
pipeline as outlined above, and has also significantly deleveraged our balance sheet. We have simplified our business structure
this year and expect to improve our strategic advantage in Canada by allowing us to focus exclusively on our Canadian
operations.
Canadian focus
The successful sale of our U.S. portfolio in the second quarter of 2016 has provided us with enhanced liquidity and a stronger
balance sheet in order to focus on our Canadian growth strategy and development pipeline. With 285 income producing
properties in Canada offering approximately 43 million square feet of leasable space, our vision is to be the premier owner of
Canadian shopping centres in our six major markets in addition to building and managing a portfolio of high quality mixed use
urban assets with a substantial residential component.
Our Canadian growth strategy entails the following:
•
•
•
•
achieving organic growth by leveraging our existing strengths, such as our strong relationships with high quality tenants
and partners, our size, diversity and experience;
an investment strategy that promotes growth and learning by bringing in additional partners with expertise when needed
and an acquisitions/divestitures program focused on selectively growing our presence in the six major markets;
a disciplined development strategy for both commercial and mixed use, including a residential intensification program
that includes purpose built, transit-oriented projects seeking to capitalize on our development capabilities and the high
quality locational attributes of our land holdings; and lastly,
financial strength through prudent balance sheet management ensuring continued access to cost effective capital in
support of our investment and development strategies, such as our $1 billion unsecured credit facility providing the Trust
with unprecedented liquidity.
Development Program
Many of our properties are located on or near existing or new transit lines approved by municipalities. It offers a tremendous
opportunity to increase our portfolio value through redevelopment and intensification of existing properties. 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. The markets of Toronto, Calgary, and Ottawa are a principal focus of
our development and intensification efforts.
RioCan is committed to ensuring that the individual properties in the portfolio are utilized to their highest and best use over the
long term. While there are numerous ways to utilize the 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 within the existing portfolio, certain properties owned as part of our real estate joint
venture with HBC have the strong potential for intensification as urban mixed use properties.
We will continue to use a staggered approach in our development program to avoid unnecessary concentration of development
projects in a single period of time. This will allow us to balance our development risk exposure and effectively manage our capital
and personnel resources.
Residential Focus
RioCan will continue to build our team to carry forward the residential development initiative as such initiative evolves, drawing
from its existing areas of expertise. The current team is comprised of existing RioCan executives as well as third-party
consultants. As the initiative continues to grow, additional resources may be added to the platform to facilitate such growth,
including bringing in partners that have residential development and management expertise on a property-by-property basis.
28
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
There are numerous attributes that attracted RioCan to the multi-unit residential sector. The addition of residential density to
existing sites is expected to enhance the value of the underlying retail element of a 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. Residential is a sector that allows a steady income stream with a growth profile that will serve as a partial 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 us the unique opportunity to 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.
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. Given the
competitive nature of the acquisition market and limited supply of acquisitions that meet RioCan's criteria in selected markets, it is
not currently expected that acquisitions will be a significant growth driver in the near term. 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 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 in evaluating these acquisition
opportunities to ensure that they meet our investment criteria.
RioCan will continue to dispose 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.
Capital Management
RioCan is committed to prudent management of its balance sheet. 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.
To support growth, RioCan employs a three-fold capital strategy: to provide the capital necessary to fund growth; to maintain
sufficient flexibility to access capital in many forms, both public and private; and to 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.
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.
SUSTAINABILITY
Embedding Sustainability
At RioCan, sustainability is an integral component of our strategy to maximize the value of our assets in order to create long term,
reliable and increasing cash flow to our unitholders.
Our objective for sustainability is to be among leaders in embedding sustainability practices in our business model. To us,
embedding sustainability means that we enhance our business model and management approaches, considering sustainability in
developments, operations, investment activities and corporate functions.
Historically, we pursued a variety of sustainability initiatives at the corporate level and at the property level under Corporate Social
Responsibility. In 2016, we confirmed a company wide commitment to sustainability and developed an overall strategy and plan
for sustainability. We believe the term sustainability more accurately reflects the broader commitments we are making in building
a sustainable business model and systematically embedding people, community and environmental considerations in our
decision-making and performance evaluation. Embedding sustainability is our overall framework for bringing together our
sustainability initiatives and plans.
We recognize that sustainability is important to our employees, tenants, partners, investors and other diverse stakeholder groups.
Our commitment is to make measurable progress on our Embedding Sustainability mandate and to report on the progress we are
making to improve our sustainability performance.
29
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Our platform for sustainability focuses on three areas. To achieve the sustainability vision, we have centered on People,
Community and Environmental leadership.
People
People leadership focuses on our tenants, consumers, partners, employees and investors. Starting with a safe place to live, work
and shop at, we conduct business with integrity and transparency and strive to create mutually beneficial partnerships with our
stakeholder groups. Examples of our people commitments include:
•
•
Engage with our tenants, partners, employees and investors regularly to evaluate and evolve sustainability initiatives
Strive for diversity so that our management teams and employee base reflect the diverse communities where we
operate
• Use sustainability as a platform for employee development, engagement programs and recruitment
• Cooperate with tenants to meet joint sustainability goals
•
•
Educate our stakeholders how sustainability is creating value to the company
Engage our partners in contributing to our sustainability goals from the onset
Community
Community leadership builds on our history of investing in the communities where we operate and develop. Examples of our
community commitments include:
•
•
Be community stewards by proactively building relationships with and contributing to the communities in which we
operate
Support our Developments, Construction, Operations, Asset Management and Investment teams to create healthy,
resource-efficient and durable buildings by having clear guidelines and decision frameworks
• Continue to give back to our communities by investing in community initiatives that align with our values and
sustainability priorities
Environmental
Environmental leadership strives to minimize the environmental impacts of our properties and developments. Examples of our
environmental commitments include:
•
•
Support our properties in embedding sustainable practices by providing standards, guidelines and training
Invest in programs and equipment that enhance energy and water efficiency, indoor air quality and minimize waste to
landfill
Examine the viability of implementing renewable energy at new developments
Protect and enhance the natural environment, where feasible
These commitments frame our strategy and plan for sustainability at RioCan.
•
•
For each pillar, we have identified specific initiatives to be implemented. We are also defining specific performance measures to
track our progress on these initiatives.
Over the next year, we will focus on developing sustainability polices and standards, formalizing our governance structure,
communicating and educating stakeholders on our sustainability vision and plan, and preparing the organization to measure
sustainability. In 2016, we completed a GRESB (Global Real Estate Sustainability Benchmark) diagnostic internally to identify
specific areas of strength and areas for development. This diagnostic informed our overall Embedding Sustainability framework.
In 2017, to further reinforce our commitment to measuring sustainability performance, we are preparing to participate in GRESB.
In our 2017 MD&A, we will share the specific initiatives we will pursue and our approach to sustainability performance
measurement. We have also integrated sustainability into our corporate reporting.
Sustainability Governance
We have assembled a Sustainability Steering Committee comprised of cross functional Executive and Leadership team members
to oversee our sustainability strategy implementation and to drive performance improvements. Steering Committee members will
sponsor and provide guidance on sustainability initiatives within the organization and enable performance measurement. We
have also committed to hiring a full time resource to manage day-to-day sustainability strategy implementation.
30
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 2016 Annual Consolidated Financial Statements. In connection with the sale of our U.S. assets, the consolidated
statement of income results from our U.S. geographic segment are 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.
Non-GAAP Measures
In addition to reported IFRS measures, industry practice is to evaluate real estate entities giving consideration, in part, to certain
non-IFRS performance measures described below, such as funds from operations, net operating income and same store and
same property net operating income growth. Management believes that these measures are helpful to investors because they
are widely recognized measures of a REIT's performance and provide a relevant basis for comparison among real estate entities.
In addition to the IFRS results, we also use these measures internally to measure the operating performance of our investment
property portfolio. These measures are not in accordance with IFRS generally accepted accounting principles ("GAAP") and
have no standardized definition prescribed by IFRS and, as such, our computation of these non-GAAP performance measures
might not be comparable to similar measures reported by other issuers. Non-GAAP measures should not be considered as
alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of RioCan’s performance,
liquidity, cash flows and profitability. We supplement our IFRS measures with these non-GAAP measures to aid in assessing our
core performance and we report these additional measures so that investors may do the same. Management believes that the
supplementary non-GAAP measures described below provide readers with a more comprehensive understanding of
management's perspective on its operating performance.
The Real Property Association of Canada (REALpac) recently undertook a project to draft a white paper prescribing revised
definitions for certain non-GAAP financial measures of cash flow and operating performance commonly used by the Canadian
real estate industry. RioCan intends to review these guidelines once they are issued with a view to adopt, where appropriate, the
revised definitions for our first quarter 2017 reporting. Existing non-GAAP financial measures that could potentially be impacted
are Adjusted Funds From Operations (AFFO) and a new non-GAAP measure called Adjusted Cash Flow from Operations
(ACFO) could be introduced.
The following discussion describes the non-GAAP measures RioCan management currently uses in evaluating its operating
results. For greater clarity, each measure defined below includes the 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 Canadian real estate industry based on the
definition set forth by REALpac, which published a white paper describing the intended use of FFO last revised in April 2014. It is
RioCan's view that IFRS net income does not necessarily provide a complete measure of RioCan's recurring operating
performance. This is primarily because IFRS net income includes items such as fair value changes of investment property that
are subject to market conditions and capitalization rate fluctuations and gains and losses on the disposal of investment
properties, including associated transaction costs and taxes, which are not representative of a company's recurring operating
performance. For these reasons, RioCan has adopted REALpac's definition of FFO, which was created by the real estate
industry as a supplemental measure of recurring operating performance.
FFO is computed as IFRS consolidated net income attributable to RioCan common and preferred unitholders adjusted for items
such as, but not limited to, unrealized changes in the fair value of investment properties and transaction gains and losses on the
acquisition or disposal of investment properties (including related transactions costs and income taxes) calculated on a basis
consistent with IFRS.
FFO should not be construed as an alternative to net income or cash flows provided by or used in 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.
A reconciliation of FFO to IFRS net income 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 approximating the recurring operating performance generated through
the direct or indirect 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. OFFO is currently a key
internal measure of business performance that management uses to determine the level of employee variable incentive-based
compensation and certain long-term incentive based equity unit awards each year. While there is no standard industry-defined
measure of OFFO, management considers it a useful measure in helping readers further assess the Trust's core Investment
property operating performance in a manner similar to management.
In addition to the adjusting items in computing FFO as described above, OFFO adjusts for the following additional items:
•
certain costs, including interest and taxes, related to investment properties identified for future potential development
that are currently inactive that, in management’s view, form part of the capital cost of such projects;
31
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
•
demolition costs associated with backfilling vacant units on income producing properties that are not capitalized to the
carrying value of investment property under IFRS;
transaction gains and losses on the sale of residential inventory and marketable securities; and
other gains and losses resulting from corporate transaction activities, such as the repayment of long-term debt and
redemptions of preferred unit capital.
A reconciliation of net income to OFFO is presented under the Results of Operations section of this MD&A.
During 2016, RioCan's management undertook a review of its non-GAAP measures of financial performance. In an effort to
improve comparability to other Canadian real estate reporting issuers and reduce the number of non-GAAP measures, RioCan
will be transitioning toward FFO as its key measure of operating performance, and will no longer report OFFO effective January
1, 2017. Commencing with the first quarter of 2017, the Trust will be focusing on FFO as a key performance measure for
determining the level of employee incentive-based compensation.
Adjusted Funds From Operations (AFFO)
AFFO is another non-GAAP financial measure of operating performance widely used by the real estate industry in Canada as an
input in assessing a REIT's distribution payout ratio and for determining an appropriate level of sustainable common unitholder
distributions over the long run. While distributions can be analyzed in comparison to FFO, management believes that AFFO
makes a number of adjustments to FFO with the intention of providing a better measure of cash available for distribution.
As such, AFFO starts with the computation of FFO and adjusts for the same items described in computing OFFO, with the
exception of realized gains and losses on the disposition of marketable securities, which are included in FFO and AFFO, plus the
following adjustments:
•
•
•
includes a deduction for straight-line rent revenue;
adds back all non-cash unit-based compensation expenses; and
includes deductions for normalized capital expenditures, which include both third-party leasing commissions and capital
spending related to maintaining the physical condition and the existing earnings capacity of the Trust's income property
portfolio. See below for further description of normalized capital expenditures.
Effective January 1, 2017, the Trust intends to deduct internal leasing costs associated with income producing properties in the
determination of AFFO.
Gains and losses on marketable securities are included in AFFO as management considers such amounts when assessing the
Trust's cash available for distribution to common unitholders.
While there is no standard industry-defined measure of AFFO, management considers AFFO to be a useful supplementary
disclosure in addition to the cash flow measures determined under IFRS. 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.
A reconciliation of AFFO to net cash flow from operating activities is presented under Results of Operations.
Normalized capital expenditures
Normalized capital expenditures are an estimate made by management of the amount of ongoing capital investment required to
maintain the condition of the physical property and current rental revenues. Management considers a number of items in
estimating normalized capital expenditures relative to the growth in the age and size of the Trust's property portfolio. Such factors
include, but are not limited to, review and analysis of seven to ten years of historical capital spending, comparison of each
quarter's annualized actual spending activity to the annual budgeted capital expenditures as approved by our Board of Trustees
at the beginning of each year and management's expectations and/or plans for the properties.
Since actual capital expenditures can vary widely from quarter to quarter depending on a number of factors, management
believes that normalized capital expenditures are a more relevant input than actual capital expenditures in assessing a REIT's
distribution payout ratio and for determining an appropriate level of sustainable distributions over the long run. The number of
factors affecting the quarterly variations in actual capital expenditures include, but are not limited to, lease expiry profile, tenant
vacancies, age and location of the properties, general economic and market conditions, which impact the level of tenant
bankruptcies and acquisitions and dispositions. As part of formulating its estimate of normalized capital expenditures, the Trust
reviews its actual capital spending levels based on property performance and type of spend (e.g. HVAC, elevator, roof, parking
lot, electrical, etc.) to determine the amount of ongoing capital investment required to maintain the condition of the physical
property and current rental revenues. This review is done with representation and input from RioCan's cross-functional teams.
Short-term fluctuations in actual capital expenditures are analyzed to remove any expenditures that are determined to not
represent the level of ongoing maintenance capital investment. For example, during periods of adverse market conditions where
RioCan experiences a period of higher tenant turnover, short-term spikes in leasing, re-tenanting costs and landlord work would
not necessarily result in a material increase to the level of ongoing capital investment over the life cycle of a property, and
accordingly, are removed from the actual costs for the purpose of determining normalized capital expenditures. Property capital
expenditures that are generally expected to add to the overall earnings capacity of the property are considered revenue
enhancing capital expenditures by management and are also excluded in determining the normalized capital expenditures.
IFRS capital expenditures are further discussed and analyzed under the section Capital Expenditures on Income Properties.
32
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 International Financial Reporting Interpretation
Committee Issue 21, Levies (IFRIC 21) by matching the pro-rata expense over the period of property ownership with the actual
timing of tenant cost recoveries.
For the calculation of NOI, 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 for the calculation
of NOI. The amount of property taxes and operating costs that can be recovered from tenants is impacted by property vacancy
and fixed cost recovery tenancies.
Management believes that NOI is a meaningful supplementary measure of operating performance of the Trust's income
producing properties in addition to the most comparable IFRS measure, which we believe is operating income. The IFRS
measure of operating income also includes residential inventory gains and losses as well as property and asset management
fees earned from co-owners. While management considers its residential inventory and portfolio management activities part of
its business operations, and thus operating income, such revenues are not part of how we evaluate the operating performance of
our income producing properties. As such, we report NOI as a useful supplementary non-GAAP measure to report the operating
performance of our income producing properties.
NOI is an important measure of the income generated from the income producing properties 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 income producing 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. 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.
As part of our review of non-GAAP measures and our efforts to reduce the use of such measures as previously discussed, the
Trust will be increasingly focusing on same property NOI growth as its key measure of portfolio performance, and will no longer
report same store NOI growth effective January 1, 2017. While we acknowledge the usefulness of same store NOI growth as a
good indicator of operating performance, in our view, it is less effective and a relatively cumbersome calculation relative to same
property NOI as discussed below in the context of our considerable redevelopment program and tenant backfill initiatives where
space is significantly reconfigured.
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 at the reporting period date as the sum of RioCan's total debt measured on a
proportionate basis, common unit market capitalization and preferred unit market capitalization. This non-GAAP measure is used
by RioCan management and the industry as a measure of total value of the REIT based on the market price of debt and equity
instead of IFRS GAAP total assets.
RioCan’s Proportionate Share
Effective July 1, 2015, certain financial information previously presented in this MD&A as "RioCan's Interest" is disclosed in
accordance with IFRS. Debt metrics, such as those described below, are shown on both an IFRS and a RioCan proportionate
basis (as defined below). Unless otherwise indicated, comparative financial information has been updated to reflect the current
year's presentation.
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 include the results of both continuing and discontinued operations. 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 periods reported.
33
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
Adjusted EBITDA is a non-GAAP measure that is used by management 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 as an alternative to IFRS net income because it excludes
major non-cash items (including, but not limited to, depreciation and amortization expense, unit-based compensation costs and
fair value gains and losses on investment properties), interest costs, current and deferred tax expenses (recoveries), transaction
gains and losses on the disposition of investment properties and equity accounted investments, transaction costs and other items
that management considers either non-operating in nature or related to the capital cost of our investment properties. Realized
gains and losses on the disposition of marketable securities are included in Adjusted EBITDA for purposes of management
assessing the Trust's ongoing ability to satisfy its obligations and service its debt.
A reconciliation of Adjusted EBITDA to IFRS net income 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 by management in the computation of certain debt metrics, providing
information with respect to certain financial ratios that we use in measuring our debt profile, excluding debt-related to properties
under development. 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 arising on the disposition of residential inventory and marketable
securities, as well as certain costs related to currently inactive development projects that, in management’s view, form part of the
capital cost of such projects. Operating EBITDA is used as an input to our debt metrics and can be calculated on both a RioCan's
proportionate share basis and using IFRS reported amounts, depending on the basis of presentation. A reconciliation of
Operating EBITDA to IFRS net income is presented under Capital Resources and Liquidity - Debt and Leverage Metrics.
Debt to Adjusted EBITDA
Debt to adjusted EBITDA is a non-GAAP measure of our financial leverage calculated on a rolling twelve month basis and
defined as our quarterly average total debt (net of cash and cash equivalents) divided by Adjusted EBITDA. Debt to adjusted
EBITDA is calculated and presented in the Debt and Leverage Metrics section of this MD&A on both a RioCan's proportionate
share basis and using IFRS reported amounts.
Operating Debt to Operating EBITDA
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 quarterly average total debt (net of cash and cash equivalents) less a portion of such debt allocated to
properties under development divided by operating EBITDA. Operating debt to operating EBITDA is calculated and presented in
the Debt and Leverage Metrics section of this MD&A on both a RioCan's proportionate share basis and using IFRS reported
amounts.
Effective January 1, 2017, the Trust will be increasingly focusing on debt to adjusted EBITDA as part of its efforts to reduce the
number of reported non-GAAP measures and improve comparability to other Canadian real estate issuers.
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 the sum of total interest costs (including interest that has been capitalized) and scheduled
mortgage principal amortization. It measures our ability to meet our debt service obligations on a 12-month rolling basis. Debt
service coverage is calculated and presented in the Debt and Leverage Metrics section of this MD&A on both a RioCan's
proportionate share basis and using IFRS reported amounts.
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 costs (including interest that has been capitalized). It measures our ability to meet our
interest cost obligations on a 12-month rolling basis. Interest coverage is calculated and presented in the Debt and Leverage
Metrics section of this MD&A on both a RioCan's proportionate share basis and using IFRS reported amounts.
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 costs (including interest that has been capitalized) and distributions declared
and/or paid to common and preferred unitholders. It measures our ability to meet our interest and unitholder distribution
obligations on a 12-month rolling basis. Fixed charge coverage is calculated and presented in the Debt and Leverage Metrics
section of this MD&A on both a RioCan's proportionate share basis and using IFRS reported amounts.
34
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Selected Annual Information
(thousands of dollars, except where otherwise noted)
Revenue (i)
Net income from continuing operations
Net income
FFO (ii)
OFFO (ii)
AFFO (ii)
Total debt (iii)
Weighted average common units outstanding – diluted (in thousands)
Per unit basis (diluted)
Net income from continuing operations
Net income
FFO (ii)
OFFO (ii)
AFFO (ii)
Common unitholder distributions
Key Ratios
Same property NOI growth (decline) % (ii)
Common unitholder distributions paid as a percentage of AFFO (v)
Debt to total assets (iii) (vi)
Debt to total assets (RioCan's proportionate share) (ii) (vi)
Interest coverage (RioCan's proportionate share) (ii) (vi)
Debt to adjusted EBITDA (RioCan's proportionate share) (ii) (vi)
Operating debt to operating EBITDA (RioCan's proportionate share) (ii) (vi)
Weighted average contractual interest rate
Unencumbered assets to unsecured debt (ii) (iv)
% NOI expected to be generated from unencumbered assets (ii)
2016
1,133,332
683,151
830,838
547,879
545,498
501,183
5,653,592
325,665
2015
2014
1,087,736
1,025,003
417,566
142,437
622,364
556,680
500,976
7,413,370
319,983
447,715
663,965
506,785
517,414
463,556
6,443,565
308,672
$ 2.06
$ 1.26
$ 1.40
$ 2.51
$ 0.40
$ 2.10
$ 1.68
$ 1.94
$ 1.64
$ 1.68
$ 1.74
$ 1.68
$ 1.54
$ 1.57
$ 1.50
$ 1.41
$ 1.41
$ 1.41
0.5%
91.4%
39.7%
40.0%
3.36
8.10
7.74
3.54%
240%
49.5%
(1.8)%
90.4%
46.1%
46.3%
3.07
8.34
7.93
3.65%
166%
25.1%
1.6%
93.4%
43.7%
43.8%
2.89
8.09
7.67
4.04%
137%
19.9%
(i) Revenue is the sum of rental revenue, property and asset management fees and residential inventory sales.
(ii) Represents a non-GAAP measure. RioCan's method of calculating non-GAAP measures may differ from other reporting issuers' methods and
accordingly may not be comparable. For definitions and basis of presentation of RioCan's non-GAAP measures, refer to the section Presentation
of Financial Information and Non-GAAP Measures in this MD&A.
(iii) Debt to total assets is a non-GAAP measure and is calculated as total debt less cash and cash equivalents as of December 31 of each year,
divided by total assets, excluding cash and cash equivalents. Total debt is defined as the sum of mortgages payable, lines of credit and other bank
loans, mortgages on properties held for sale and debentures payable.
(iv) Unencumbered assets to unsecured debt is a non-GAAP measure and is defined as unencumbered assets divided by unsecured debt.
(v) Calculated on a trailing twelve month basis. For further discussion of the Trust's common unitholder distributions as a percentage of AFFO, refer
to the section Capital Resources and Liquidity in this MD&A.
(vi) Refer to the sections Capital Structure and Debt and Leverage Metrics in this MD&A for further details.
35
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
2016 Financial Highlights
Due to the sale of our U.S. property portfolio in the second quarter of 2016, our results are presented on both a continuing and
discontinued operations basis below.
Net income attributable to unitholders
(thousands of dollars, except per unit amounts)
Net income (loss) attributable to unitholders:
Continuing operations
Discontinued operations
Three months ended
December 31,
Year ended
December 31,
2016
2015
2016
2015
$
178,472
$
199,796
$
683,060
(14,013)
(377,837)
147,687
Net income (loss) attributable to unitholders
$
164,459 $
(178,041) $
830,747
Net income (loss) per unit attributable to unitholders (basic):
Continuing operations
Discontinued operations
$
0.54
$
(0.04)
Net income (loss) per unit attributable to unitholders (basic)
$
0.50 $
Net income (loss) per unit attributable to unitholders (diluted):
Continuing operations
Discontinued operations
$
0.54
$
(0.04)
Net income (loss) per unit attributable to unitholders (diluted)
$
0.50 $
0.61
(1.17)
(0.56)
0.61
(1.17)
(0.56)
$
$
$
$
2.06
0.45
2.51
2.06
0.45
2.51
$
$
$
$
$
$
416,892
(275,129)
141,763
1.26
(0.86)
0.40
1.26
(0.86)
0.40
Continuing Operations
2016
Net income from continuing operations attributable to unitholders for the year ended December 31, 2016 is $683 million
compared to $417 million during the same period in 2015, representing an increase of $266 million or 64%. Excluding a $274
million increase in fair value and the $88 million Target settlement received in 2015, net income from continuing operations
attributable to unitholders for the year ended December 31, 2016 is $500 million compared to $420 million in 2015, representing
an increase of $80 million or 19%.
The increase of $80 million is largely the net effect of the following:
•
•
•
•
•
•
•
•
•
$42 million of income primarily due to property acquisitions (net of dispositions), higher same property performance and
higher operating income from greenfield developments, net of lower lease cancellation fees;
$14 million in gains related to the sale of marketable securities;
$9.9 million in lower debt redemption costs;
$8.7 million in gross transaction gains mainly due to gains from the disposition of one investment property during 2016 and
the impact of a third quarter 2015 transaction loss upon transfer of certain assets and liabilities to form the RioCan-HBC joint
venture;
$7.2 million in interest savings arising mainly from the refinancing of debt at lower interest rates and lower average debt
outstanding;
$5.1 million in higher deferred tax recoveries, partly offset by
$3.5 million in lower property and management fees mainly related to lost management fees due to the purchase of
additional co-ownership interests during Q4 2015 and Q3 2016;
$2.5 million in lower income associated with our residential inventory sales; and
$2.4 million in higher leasing and general and administrative expenses.
For a discussion of fair value adjustments during the year ended December 31, 2016, refer to the Other income (loss) section of
this MD&A.
Q4 2016
Net income from continuing operations attributable to unitholders for the fourth quarter of 2016 is $178 million compared to $200
million during the same period in 2015, representing a decrease of $21 million. Excluding a $43 million increase in fair value and
the $88 million Target settlement received in the same period of 2015, net income from continuing operations attributable to
unitholders for the fourth quarter of 2016 is $134 million compared to $110 million in 2015, representing an increase of $24 million
or 22%.
The increase of $24 million is largely the net effect of the following:
•
•
$18 million of income primarily due to property acquisitions (net of dispositions) and increased same property performance,
net of lower lease cancellation fees;
$4.4 million in lower interest expense primarily due to interest savings on the refinancing of aggregate debt at lower effective
rates and less total debt outstanding;
36
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
•
•
•
•
•
$3.7 million in gains related to the sale of marketable securities;
$2.6 million in lower transaction costs due to the level of and timing of property acquisition and disposition activity in 2016
relative to 2015;
$4.4 million in higher deferred tax recoveries, partly offset by
$4.6 million in lower other income primarily due to a fourth quarter 2015 net transaction gain related to the transfer of certain
assets and liabilities to form the RioCan-HBC joint venture;
$2.5 million in lower income associated with our residential inventory sales due to cost adjustments;
$1.4 million in less property and asset management fees; and
$1.3 million in lower dividend income from marketable securities.
For the fourth quarter 2016 and 2015 consolidated statements of income refer to Quarterly Results and Trend Analysis section of
this MD&A. For a discussion of fair value adjustments during the quarter, refer to the Other income (loss) section of this MD&A.
Discontinued Operations
2016
Net income from discontinued operations attributable to unitholders is $148 million compared to a net loss of $275 million in 2015,
representing an increase of $423 million. This increase was primarily due to the inclusion in 2015 net income from discontinued
operations of a $147 million fair value loss mainly due to an increase in capitalization rates of our Northeast U.S. portfolio and a
$230 million deferred tax provision relating to the sale of the U.S. portfolio. Excluding these factors, income from discontinued
operations attributable to unitholders for the year ended December 31, 2016 decreased by $76 million.
This $76 million decrease is explained by the following: $123 million of reduced operating income due to operations ceasing in
May 2016 from the sale of our U.S. property portfolio, partly offset by higher transaction gains of $9.2 million due to our U.S.
asset sale (net of related transaction costs), lower interest costs and other expenses of $34 million, and reduced losses from
equity accounted joint ventures of $4.1 million.
Q4 2016
The net loss from discontinued operations attributable to unitholders is $14 million this quarter compared to $378 million in 2015,
representing a reduction in net loss of $364 million from the prior period, mainly due to the sale of our U.S. property portfolio. The
net loss during the quarter is the result of $2.5 million in additional professional fees in connection with the disposition of our U.S.
property portfolio and $11 million in higher current tax expense, which includes the impact of foreign exchange translation on
accrued taxes payable and an additional current tax provision.
Operating Income
The IFRS operating income for the quarter and year ended December 31, 2016 and 2015 are as follows:
(thousands of dollars)
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
Three months ended December 31,
Year ended December 31,
2016
2015
2016
2015
$
$
$
285,257
$
263,893 $
1,103,884
$
1,039,068
3,353
2,968
22,888
4,355
16,262
13,186
31,937
16,731
291,578
$
291,136 $
1,133,332
$
1,087,736
101,058
$
96,386 $
397,776
$
373,698
5,233
4,550
110,841
6,316
21,563
124,265
19,684
16,188
433,648
20,465
29,343
423,506
664,230
Operating income
$
180,737
$
166,871 $
699,684
$
2016
Operating income from continuing operations for the year ended December 31, 2016 is $700 million compared to $664 million
during the same period in 2015, representing an increase of $35 million or 5.3%. The increase of $35 million is primarily the net
effect of the following:
•
•
•
$43 million higher operating income due to acquisitions net of dispositions, particularly due to the acquisition of increased
ownership interests in thirty RioCan/Kimco and four CPPIB co-owned properties in 2016;
$2.7 million of same property operating income growth particularly as a result of progress on Target backfill and same store
growth, as further explained in the NOI section below; offset by
$7.0 million lower lease cancellation fees compared to 2015 largely due to a $4.8 million fee received from one tenant at
RioCan Centre Victoria during the first quarter of 2015 and $3.7 million in fees from two tenants at Yonge Eglinton Centre in
37
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
the third quarter of 2015;
$3.5 million in lower property and management fees; and
$2.5 million in lower residential inventory sales, net of cost of sales, due to less residential units sold during the year.
•
•
Q4 2016
Operating income from continuing operations for the year ended December 31, 2016 is $181 million compared to $167 million
during the same period in 2015, representing an increase of $14 million or 8.3%. The increase of $14 million is the net effect of
largely the following:
•
•
•
•
•
$11 million higher operating income connected with acquisitions net of dispositions, particularly due to the acquisition of
increased ownership interests in four CPPIB co-owned properties in 2016;
$3.3 million of same property operating income growth particularly as a result of progress on Target backfills and same store
growth;
$3.3 million in higher straight-line rent revenue; offset by,
$1.4 million in lower property and management fees; and
$2.5 million in lower residential inventory sales, net of cost of sales, due to less residential units sold during the year.
For the fourth quarter 2016 and 2015 consolidated statements of income refer to Quarterly Results and Trend Analysis section of
this MD&A.
Net Operating Income (NOI)
This NOI section is a sub-section of the MD&A related to IFRS operating income. The NOI for the quarter and year ended
December 31, 2016 and 2015 is as follows:
(thousands of dollars)
Operating income (i)
Adjusted for the following:
Residential inventory
Sales
Cost of sales
Property and asset management fees
Three months ended December 31,
Year ended December 31,
2016
2015
2016
2015
$
180,737
$
166,871
$
699,684
$
664,230
(3,353)
4,550
(2,968)
(22,888)
21,563
(4,355)
(16,262)
16,188
(13,186)
(31,937)
29,343
(16,731)
NOI
$
178,966
$
161,191
$
686,424
$
644,905
NOI as a percentage of rental revenue (excluding
the impact of lease cancellation fees)
Add: NOI of proportionate share of equity accounted
investments
RioCan-HBC JV
Other (ii)
62.7%
61.0%
62.1%
61.6%
3,191
176
2,858
279
12,271
933
5,531
1,054
NOI - RioCan's proportionate share
$
182,333
$
164,328
$
699,628
$
651,490
(i)
(ii)
In accordance with IFRS.
Includes NOI from RioCan's Canadian equity accounted investments in Dawson-Yonge LP, WhiteCastle New Urban Fund, LP, WhiteCastle New
Urban Fund 2, LP and WhiteCastle New Urban Fund 3, LP.
38
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Canadian Portfolio
Same store and same property NOI for the quarter and year ended December 31, 2016 and 2015 are as follows:
0.6%
(1.9%)
0.5%
nm
(93.3%)
42.8%
7.6%
(69.7%)
9.3%
5.3%
6.4%
nm
(11.5%)
7.4%
(thousands of dollars)
Same store (i)
Redevelopment and intensification (ii)
Same properties (iii)
Acquisitions (iv)
Dispositions (v)
Greenfield development (vi)
NOI before adjustments
Lease cancellation fees
Straight-line rent adjustment
NOI from properties under
development (vii)
Three months ended
December 31,
2016
2015
Increase
(decrease)
Year ended
December 31,
2016
2015
Increase
(decrease)
$
146,233
$
143,714
1.8% $
564,114
$
560,957
5,493
151,726
21,257
—
779
4,733
148,447
8,717
2,038
230
173,762
159,432
113
582
145
3,916
1,143
16.1%
2.2%
nm
(100.0%)
nm
9.0%
28.3%
nm
1,064
7.4%
24,862
588,976
76,317
1,192
5,594
672,079
3,052
7,263
4,030
25,332
586,289
16,264
17,901
3,918
624,372
10,062
6,643
3,828
NOI
$
178,966
$
161,191
11.0% $
686,424
$
644,905
Add: NOI of proportionate share of
equity accounted investments:
RioCan-HBC JV
Other (viii)
3,191
176
2,858
279
11.7%
(36.9%)
12,271
933
5,531
1,054
NOI - RioCan's proportionate share $
182,333
$
164,328
11.0% $
699,628
$
651,490
“nm” – not meaningful.
(i) Refer to the same store NOI definition in the Non-GAAP Measures section of this MD&A.
(ii) Redevelopment and intensification represents NOI from income producing properties or specific units within a property being re-positioned or
expanded.
(iii) Refer to the same property NOI definition in the Non-GAAP Measures section of this MD&A.
(iv) Acquisitions represent NOI from income producing properties purchased during the periods being compared.
(v) Dispositions represent NOI from income producing properties sold during the periods being compared.
(vi) Greenfield development represents NOI from greenfield properties as each individual unit is 100% income producing for two comparable periods.
(vii) NOI from properties under development represents NOI from properties acquired for re-development purposes.
(viii) Includes NOI from RioCan's Canadian equity accounted investments in Dawson Yonge LP, WhiteCastle New Urban Fund, LP, WhiteCastle New
Urban Fund 2, LP and WhiteCastle New Urban Fund 3, LP.
2016
Same store NOI grew by 0.6% or $3.2 million compared to the same period in 2015 as explained by the following aggregate
changes:
•
•
$25.4 million of higher NOI comprising $14.8 million from new leasing (including re-leased space due to bankruptcies
and lease cancellations), $6.4 million increased rent from renewals and rent steps, $3.5 million in percentage rent and a
decrease of $0.7 million in Target co-tenancy claims; partially offset by
$22.2 million of lower NOI resulting from vacancies (including the impact of previously agreed upon lease cancellations).
Same property NOI increased 0.5% or $2.7 million year to date primarily due to the reasons cited above as well as the timing of
redevelopment projects completed in 2015 and 2016.
NOI benefited from higher property acquisition activity, net of disposals, primarily due to the acquisition of the increased
ownership interests in thirty RioCan/Kimco and four CPPIB co-owned properties. In aggregate, acquisitions net of disposition
activity, generated an additional $43 million of NOI, excluding the impact of lost property management fees.
Lease cancellation fees decreased $7.0 million compared to 2015 largely due to a $4.8 million fee received from one tenant at
RioCan Centre Victoria during the first quarter of 2015 and $3.7 million in fees from two tenants at Yonge Eglinton Centre in the
third quarter of 2015.
Q4 2016
Same store NOI grew by 1.8% or $2.5 million compared to the same period in 2015 as explained by the following aggregate
changes:
•
$8.1 million of higher NOI comprising $4.2 million from new leasing (including re-leased space due to bankruptcies and
lease cancellations), $1.4 million increased rent from renewals and rent steps, $1.3 million increase in percentage rent
and a decrease of $1.2 million in Target co-tenancy claims; partially offset by
•
$5.6 million of lower NOI resulting from vacancies (including the impact of previously agreed upon lease cancellations)
39
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
The impact of Target co-tenancy losses on same store NOI was favourable this quarter due to the reduction in the number of
tenants that are entitled to rent abatement provisions as compared to prior periods.
Same property NOI increased 2.2% or $3.3 million this quarter primarily driven by the reasons cited above, as well as the
completion of other development properties, including a portion of Target backfill at three locations.
NOI continues to benefit from higher property acquisition activity, net of disposals, primarily due to the acquisition of the increased
ownership interests in thirty RioCan/Kimco as well as four CPPIB co-owned properties. In aggregate, acquisitions, net of
disposition activity, generated an additional $11 million of NOI, excluding the impact of lost property management fees.
Straight-line rent increased $3.3 million from the prior period primarily due to $2.2 million in adjustments recognized this quarter in
connection with certain 2015 property acquisitions and $1.5 million due to the write-off of Target unamortized rents in the fourth
quarter of 2015.
Other Income (Loss)
The components of other income (loss) are as follows:
Continuing Operations
(thousands of dollars)
Interest income
Income from equity accounted investments
Fair value gains (losses) on investment properties, net
Investment and other income
Other income
2016
Three months ended December 31,
Year ended December 31,
2016
1,657 $
4,521
44,371
6,762
2015
1,457 $
4,510
1,183
97,261
2016
5,744 $
9,972
182,888
33,268
57,311 $
104,411 $
231,872 $
2015
5,370
10,378
(91,548)
98,426
22,626
$
$
Income from equity accounted investments mainly includes our share of the income from the RioCan-HBC joint venture. For
further details on the 100% results of operations of the RioCan-HBC joint venture, refer to the section Co-ownerships
Arrangements in this MD&A.
During the three months and year ended December 31, 2016, we recognized fair value gains that were $43 million and $274
million higher than the comparative periods in 2015, respectively. For both the quarter and year of 2016, we recorded fair value
gains primarily driven by capitalization rate compression and higher stabilized net operating income on certain income producing
properties, the revaluation of interests in previously co-owned properties and valuation adjustments on specific development
properties. For the year ended December 31, 2015, the Trust recorded fair value losses which mainly reflected valuation
adjustments resulting from Target's exit from Canada and interior renovation costs at some of our enclosed malls.
Included in investment and other income for the three months and year ended December 31, 2016 is a $3.7 million and $14
million transaction gain on the sale of marketable securities and investment income of $3.1 million and $13 million, respectively.
Also in 2016, RioCan realized a $6.1 million transaction gain on the sale of one investment property. During 2015, other income
included $88 million of aggregate net cash proceeds relating to the Target settlement and $13 million of investment income, partly
offset by a transaction loss of $2.6 million.
For the fourth quarter 2016 and 2015 consolidated statements of income refer to Quarterly Results and Trend Analysis section of
this MD&A.
Discontinued Operations
(thousands of dollars)
Loss from an equity accounted investment
Other income
Fair value gains (losses) on investment property, net
Other income (loss)
2016
Three months ended December 31,
Year ended December 31,
$
$
2016
— $
—
—
2015
— $
—
(174,782)
2016
— $
66,404
16,899
— $
(174,782) $
83,303 $
2015
(4,145)
7,529
(147,060)
(143,676)
The loss from an equity accounted investment of $4.1 million related to a U.S. joint venture which was sold in July 2015.
Included in other income for the year ended December 31, 2016 is a $255 million realized foreign currency exchange gain
reclassified from other comprehensive income, partly offset by a $190 million portfolio discount in connection with the U.S. asset
sale.
The fair value losses of $175 million and $147 million for the three months and year ended December 31, 2015, respectively, are
mostly attributable to an increase in capitalization rates of our Northeast U.S. portfolio in 2015, as well as other property specific
adjustments.
40
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Other Expenses
Interest costs
Continuing Operations
The components of interest costs are as follows:
(thousands of dollars)
Total interest
Interest costs capitalized to investment property
Net interest
Percentage capitalized to investment properties
Three months ended December 31,
Year ended December 31,
$
$
2016
49,787
(6,323)
43,464
12.7%
$
$
2015
55,285
(7,432)
47,853
13.4%
$
$
2016
206,989
(27,462)
179,527
$
$
13.3%
2015
214,203
(27,431)
186,772
12.8%
Net interest costs from continuing operations decreased $4.4 million and $7.2 million for the three months and year ended
December 31, 2016, respectively, compared to the same periods in 2015. Interest costs have decreased over both periods mainly
due to interest savings on the refinancing of fixed rate mortgages, interest savings resulting from our cross currency swap program
and the reduction of overall leverage using net proceeds from the U.S. property portfolio sale. As at December 31, 2016, the
weighted average contractual interest rate of our total debt is 3.54% (December 31, 2015 - 3.65%).
Interest capitalized to investment properties for the year ended December 31, 2016 remained flat compared to 2015, primarily due
to higher redevelopment activity associated with the former Target properties being offset by lower portfolio weighted average
interest rates.
Interest is capitalized to properties under development at weighted average effective interest rates of 3.66% and 3.94% for the
three months and year ended December 31, 2016, respectively (December 31, 2015 – 4.14% and 4.23%, respectively).
For the fourth quarter 2016 and 2015 consolidated statements of income refer to Quarterly Results and Trend Analysis section of
this MD&A.
Discontinued Operations
Interest costs relating to discontinued operations decreased $13 million and $30 million for the three months and year ended
December 31, 2016, respectively, compared to the same periods in 2015 due to the repayment of all of our U.S. mortgages in
connection with our U.S. property portfolio sale in the second quarter of 2016.
General and Administrative
Continuing Operations
The components of general and administrative expenses are as follows:
Three months ended December 31,
Year ended December 31,
(thousands of dollars)
2016
2015
2016
Non-recoverable salaries and benefits
$
9,915
$
9,131
$
41,169
$
Capitalized to investment properties (i)
Leasing costs
Non-recoverable salaries and benefits, net
Unit-based compensation expense
Depreciation and amortization
Other general and administrative (ii)
(1,666)
(2,538)
5,711
2,286
1,078
4,925
(1,641)
(2,064)
5,426
1,615
1,073
6,740
(7,883)
(9,718)
23,568
6,745
4,386
17,521
Total general and administrative expense
$
14,000
$
14,854
$
52,220
$
2015
36,555
(6,942)
(8,407)
21,206
4,741
4,434
20,670
51,051
Total general and administrative expense as a
percentage of rental revenue
4.9%
5.6%
4.7%
4.9%
(i) Amounts capitalized to investment properties are comprised of salaries and benefits related to development and landlord work.
(ii) Other general and administrative primarily includes information technology costs, public company costs, travel, marketing, legal and professional fees.
2016
For the year ended December 31, 2016, general and administrative expenses increased $1.2 million or 2.3% primarily due to the
following: an increase of $2.4 million in net non-recoverable salaries and benefits, $2.0 million in higher unit-based compensation,
partially offset by a $3.1 million decrease in other general and administrative expenses.
Net non-recoverable salaries and benefits was higher compared to 2015 primarily due to certain employee termination costs as
well as general merit-based salary increases.
The increase in unit-based compensation expense compared to 2015 was mainly due to certain historical performance unit
awards subject to accelerated vesting in connection with our CEO's three-year employment commitment agreement entered into
during February 2016.
41
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
The decrease in other general and administrative costs mainly relate to a favourable outcome on certain tax filings that were
accrued in Q4 2015 and lower advertising and marketing costs during the year.
Q4 2016
For the three months ended December 31, 2016, general and administrative expenses decreased $0.9 million or 5.7% primarily
due to changes in the following costs: $1.8 million decrease mainly due to a favourable outcome related to certain tax filings in the
normal course, partly offset by $0.7 million in higher unit-based compensation expense.
The changes in unit-based compensation and other general and administrative expenses are mostly due to the same factors as
described above for 2016.
For the fourth quarter 2016 and 2015 consolidated statements of income refer to Quarterly Results and Trend Analysis section of
this MD&A.
Leasing Costs
Continuing Operations
Leasing costs are comprised of the payroll costs of our internal leasing department and related administration costs. For the three
months and year ended December 31, 2016, leasing costs increased $0.3 million and $1.2 million compared to the prior
comparative periods. The increase in leasing costs of our leasing and administrative operation is primarily due to employee
termination costs incurred during the year, general merit-based salary increases and the timing of prior year variable
compensation payments.
For the fourth quarter 2016 and 2015 consolidated statements of income refer to Quarterly Results and Trend Analysis section of
this MD&A.
Transaction and Other Costs
Continuing Operations
Transaction and other costs related to Canadian operations decreased $2.6 million and $0.9 million for the three months and year
ended December 31, 2016, respectively, due to the level of and timing of property acquisition and disposal activity in 2016
compared to 2015.
For the fourth quarter 2016 and 2015 consolidated statements of income refer to Quarterly Results and Trend Analysis section of
this MD&A.
Discontinued Operations
Transaction and other costs related to our discontinued operations decreased by $1.0 million and increased by $50 million for the
three months and year ended December 31, 2016, respectively. In connection with the closing of our U.S. property sale, RioCan
incurred transaction costs such as investment banking fees, legal fees, franchise and land transfer taxes, employee retention
amounts and other transaction costs. We do expect to incur some ongoing transaction-related professional fees and advisor costs
in connection with the U.S. property sale, which will be presented in our results from discontinued operations.
42
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Funds from Operations (FFO) and Operating Funds from Operations (OFFO)
The following table presents a reconciliation of IFRS net income attributable to unitholders to FFO and OFFO on both a
continuing and discontinued operations basis:
(thousands of dollars, except per unit amounts)
2016
2015
2016
2015
Net income from continuing operations attributable to unitholders
$ 178,472 $ 199,796 $ 683,060 $ 416,892
Three months ended
December 31,
Year ended
December 31,
Add back/(Deduct):
Fair value (gains) losses, net
Non-controlling interest relating to fair value losses
Fair value (gains) losses included in equity accounted investments
Deferred income tax expense (recovery)
Internal leasing costs
Transaction (gains) losses on investment properties, net (i)
Transaction costs (i)
Preferred trust unit redemption (ii)
Preferred unit distributions
Foreign exchange loss
FFO from continuing operations
(44,371)
(1,183)
(182,888)
91,548
—
(1,476)
(3,000)
2,663
—
1,978
—
43
468
1,350
2,340
(4,608)
4,574
—
(1,757)
(3,397)
—
—
91
846
(3,850)
10,931
(6,075)
8,165
(4,304)
(8,667)
—
674
676
1,290
9,750
2,632
8,459
—
(13,590)
131
$ 132,509 $ 199,383 $ 497,309 $ 518,462
Net income (loss) from discontinued operations attributable to unitholders $
(14,013) $ (377,837) $ 147,687 $ (275,129)
Add back/(Deduct):
Fair value (gains) losses, net
Fair value losses included in equity accounted investments
Deferred income tax expense (recovery)
Internal leasing costs
Accrued property tax expense (recovery) under IFRIC 21
Foreign exchange gain related to realty taxes (iii)
Transaction gains on sale of U.S. investment properties, net (iii)
Transaction costs on sale of U.S. investment properties (iii)
Current taxes on U.S. income properties sold
FFO from discontinued operations
FFO
FFO from continuing operations
Add back/(Deduct):
Costs not capitalized on non-active developments (iv):
Property operating costs
Interest costs
Demolition costs (v)
(Gain) loss on sale of residential inventory
Target settlement proceeds, net
Long-term debt redemption costs
Preferred trust unit redemption (ii)
Other transaction gains, net (vi)
OFFO from continuing operations
FFO from discontinued operations
Deduct: Transaction (gains) losses, net (vii)
OFFO from discontinued operations
OFFO
—
—
—
—
—
—
—
2,511
11,167
174,782
(16,899)
147,060
—
—
4,694
230,474
(230,675)
230,474
185
(8,297)
(1,176)
706
25,145
—
—
(65,116)
3,464
53,562
—
136,160
2,022
—
(1,176)
(7,529)
3,486
—
$
(335) $
21,595 $
50,570 $ 103,902
$ 132,174 $ 220,978 $ 547,879 $ 622,364
$ 132,509 $ 199,383 $ 497,309 $ 518,462
479
1,459
—
1,197
—
—
—
354
1,833
487
(1,285)
(88,267)
—
—
1,603
5,800
891
(74)
—
—
4,304
1,175
6,811
2,164
(2,594)
(88,267)
9,929
—
(3,582)
(421)
(12,596)
(3,380)
$ 132,062 $ 112,084 $ 497,237 $ 444,300
$
$
(335) $
21,595 $
50,570 $ 103,902
—
8,478
(2,309)
8,478
(335) $
30,073 $
48,261 $ 112,380
$ 131,727 $ 142,157 $ 545,498 $ 556,680
(i) Represents net transaction gains, losses and costs related to Canadian property acquisitions and dispositions during the period.
(ii) Represents the excess of par redemption value over the carrying value of our Series A preferred trust units redeemed on March 31, 2016.
(iii) Net transaction gains associated with discontinued operations represents the realized gains on disposal of U.S. investment properties and related
transaction costs.
(iv) To calculate OFFO, the Trust adjusts for certain costs not capitalized for IFRS, primarily associated with non-active excess density projects
43
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
identified for future potential development that, in management's view, forms part of the capital cost of these projects.
(v) Represents demolition costs associated with backfilling vacant units on income producing properties; in management's view, forms part of the
capital cost of these properties.
(vi) Current period amounts mainly represent realized transaction gains on the sale of marketable securities; comparative amounts primarily include
our share of transaction gains and losses included in equity accounted investments that have been excluded in the calculation of OFFO. Realized
gains and losses on the sale of marketable securities are included in FFO and AFFO.
(vii) Represents current tax expense related to the disposition of an equity accounted investment during 2015 included in net income from discontinued
operations on the consolidated income statement and gains related to the extinguishment of a U.S. mortgage and the unwind of a corresponding
interest rate swap.
FFO and OFFO Summary
(thousands of dollars, except
per unit amounts)
Three months ended December 31,
2016
2015
Increase
(Decrease)
Year ended December 31,
2016
2015
Increase
(Decrease)
FFO
Continuing operations
Discontinued operations
FFO
FFO per unit - basic
FFO per unit - diluted
OFFO
Continuing operations
Discontinued operations
OFFO
OFFO per unit - basic
OFFO per unit - diluted
OFFO Highlights
2016
$
$
$
$
$
$
$
$
132,509
(335)
132,174
0.40
0.40
132,062
(335)
131,727
0.40
0.40
$
$
$
$
$
$
$
$
199,383
(33.5%)
21,595
(101.6%)
220,978
0.69
0.69
(40.2%)
(41.0%)
(41.0%)
112,084
17.8%
30,073
(101.1%)
142,157
0.44
0.44
(7.3%)
(8.6%)
(8.6%)
$
$
$
$
$
$
$
$
497,309
50,570
547,879
1.68
1.68
497,237
48,261
545,498
1.68
1.68
$
$
$
$
$
$
$
$
518,462
103,902
622,364
1.95
1.94
(4.1%)
(51.3%)
(12.0%)
(13.6%)
(13.5%)
444,300
11.9%
112,380
(57.1%)
556,680
1.74
1.74
(2.0%)
(3.8%)
(3.7%)
OFFO for 2016 is $545 million compared to $557 million in 2015, representing a decrease of $11 million or approximately 2.0%.
On a basic per unit basis, OFFO is $1.68 compared to $1.74, representing a decrease of approximately 3.8%. The decline in
OFFO in the current quarter and for the full year is primarily related to the sale of our U.S. portfolio.
Continuing Operations
The $53 million increase in OFFO from continuing operations for the year was primarily due to higher NOI of $48 million (at
RioCan’s proportionate share) mainly as a result of acquisition activity net of dispositions, $4.9 million in lower Series A preferred
unit dividends and $5.8 million in lower interest costs (at RioCan's proportionate share), partly offset by lower property and asset
management fees of $3.5 million and higher general and administrative expenses of $1.2 million.
Discontinued Operations
The $64 million decrease in OFFO from discontinued operations in 2016 was mainly driven by lower NOI of $98 million partly
offset by $30 million of lower interest expense (both of which include the impact of foreign exchange) and $2.7 million in less
general and administrative expenses, all of which are mainly due to operations ceasing in May 2016 after the sale of our U.S.
property portfolio.
Q4 2016
OFFO for the fourth quarter of 2016 is $132 million compared to $142 million during the same period in 2015, representing a
decrease of $11 million or approximately 7.3%. Excluding $30 million in OFFO from discontinued operations from this decrease,
OFFO from continuing operations for the fourth quarter of 2016 is $132 million compared to $112 million in 2015, representing an
increase of $20 million or 18%. On a basic per unit basis, OFFO is $0.40 compared to $0.44, representing a decrease of
approximately 8.6%, primarily due to the sale of the U.S. portfolio.
OFFO from continuing operations increased $20 million in the fourth quarter, primarily due to higher NOI of $18 million (at
RioCan’s proportionate share) as a result of acquisition activity, net of dispositions, and higher same property performance; $1.6
million in lower Series A preferred unit dividends and $4.4 million in lower interest costs, partly offset by lower property and asset
management fees of $1.4 million; and less investment income from marketable securities of $1.3 million.
44
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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:
Three months ended December 31,
Year ended December 31,
(thousands of dollars, except per unit amounts)
2016
2015
2016
FFO (i)
Add back/(Deduct):
Costs not capitalized on non-active developments (ii):
Property operating costs
Interest costs
Demolition costs (iii)
Deduction of straight-line rents (iv)
Non-cash unit based compensation expense
Normalized capital expenditures:
Leasing commissions and tenant improvements (v)
Capital expenditures recoverable from tenants
Capital expenditures not recoverable from tenants
(Gain) loss on sale of residential inventory
Target settlement proceeds, net
Preferred trust unit redemption (vi)
Long-term debt redemption costs
Transaction (gains) losses, net (vii)
Other transaction (gains) losses, net (viii)
$
132,174 $
220,978 $
547,879 $
479
1,459
—
(4,187)
706
(6,250)
(3,750)
(2,500)
1,197
—
—
—
—
99
354
1,833
487
(1,285)
1,765
(6,250)
(3,750)
(2,500)
(1,285)
(88,267)
—
—
8,478
(1,932)
1,603
5,800
891
(9,995)
1,640
(25,000)
(15,000)
(10,000)
(74)
—
4,304
—
(2,309)
1,444
AFFO
$
119,427 $
128,626 $
501,183 $
2015
622,364
1,175
6,811
2,164
(9,328)
5,135
(25,000)
(15,000)
(10,000)
(2,594)
(88,267)
—
9,929
8,478
(4,891)
500,976
(i) A reconciliation of IFRS net income from continuing and discontinued operations attributable to unitholders to FFO is presented under the Funds
from Operations (FFO) and Operating Funds from Operations (OFFO) section of this MD&A.
(ii) To calculate AFFO, the Trust adjusts for certain costs not capitalized for IFRS, primarily associated with non-active excess density projects
identified for future potential development that, in management's view, forms part of the capital cost of these projects.
(iii) Represents demolition costs associated with backfilling vacant units on income producing properties; in management's view, forms part of the
capital cost of these properties.
Includes straight-line rents on RioCan's proportionate share basis from both continuing and discontinued operations.
(iv)
(v) Effective January 1, 2017, in computing AFFO, it is our intention to also deduct normalized internal leasing costs relating to leasing activities on
our income-producing properties.
(vi) Represents the excess of par redemption value over the carrying value of our Series A preferred trust units redeemed on March 31, 2016.
(vii) Represents current tax expense related to the disposition of an equity accounted investment during 2015 included in net income from discontinued
operations on the consolidated income statement and gains related to the extinguishment of a U.S. mortgage and the unwind of a corresponding
interest rate swap.
(viii) Represents our share of transaction gains and losses included in equity accounted investments and joint ventures that have been excluded in the
calculation of OFFO.
AFFO Summary
(thousands of dollars, except per
unit amounts)
AFFO
AFFO per unit - basic
AFFO per unit - diluted
Three months ended December 31,
2016
119,427
0.37
0.37
$
$
$
2015
128,626
0.40
0.40
$
$
$
AFFO Highlights
2016
Increase
(Decrease)
Year ended December 31,
(7.2%)
(8.5%)
(8.4%)
$
$
$
2016
501,183
1.54
1.54
2015
500,976
1.57
1.57
$
$
$
Increase
(Decrease)
—%
(1.8%)
(1.7%)
AFFO for the year ended December 31, 2016 is $501 million and has remained flat compared to the same period in 2015. On a
per unit basis (basic), AFFO is $1.54 compared to $1.57, representing a decrease of 1.8% due to higher units outstanding in
2016.
AFFO for the year was impacted by the following; a $65 million reduction caused by the sale of our U.S. property portfolio in May
2016, lower property and asset management fees of $3.5 million, and higher general and administrative expenses (excluding the
impact of unit based compensation) of $4.7 million, offset by the following: higher NOI (excluding the impact of straight line rent)
of $47 million at RioCan’s proportionate share as a result of acquisition activity (net of dispositions) and higher same property
performance, $14 million in gains realized on the sale of marketable securities, $5.8 million in lower interest costs at RioCan's
proportionate share and $4.9 million in lower Series A preferred unit distributions.
45
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Q4 2016
AFFO for the fourth quarter of 2016 is $119 million compared to $129 million during the same period in 2015, representing a
decrease of $9.2 million or approximately 7.2%. On a basic per unit basis (basic), AFFO is $0.37 compared to $0.40,
representing a decrease of 8.5%.
The decrease in AFFO was primarily due to a $30 million reduction caused by the sale of our U.S. property portfolio, lower
property and asset management fees of $1.4 million and less investment income from marketable securities of $1.3 million. This
was partly offset by higher NOI (excluding the impact of straight line rent) of $15 million at RioCan’s proportionate share as a
result of acquisition activity (net of dispositions) and higher same property performance, $3.7 million in realized gains on the sale
of marketable securities, $1.6 million in lower Series A preferred unit dividends and $4.4 million in lower interest costs.
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, except per unit amounts)
2016
2015
2016
2015
Three months ended
December 31,
Year ended
December 31,
Cash provided by operating activities from continuing and
discontinued operations
Adjustments for net changes in operating assets and liabilities
Share of net income in associates and joint ventures
Fair value (gains) losses included in equity accounted investments
Costs not capitalized on non-active developments:
Property operating costs
Interest costs
Demolition costs
Transaction costs
Depreciation and amortization - corporate assets
Preferred unit distributions
Normalized 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
Gain on sale of marketable securities
Internal leasing costs
Current taxes on U.S. income properties sale
Net (gain) loss on sale of residential inventory
Other transaction (gains) losses, net (i)
Target settlement proceeds, net
Long-term debt redemption costs
Foreign exchange loss
Other adjustments
AFFO
$
137,973 $
300,145 $
455,424 $
614,816
(80,245)
(156,069)
(12,676)
(30,998)
4,521
(1,476)
479
1,459
—
4,489
(1,078)
(1,757)
(6,250)
(3,750)
(2,500)
—
—
—
3,681
2,663
11,167
1,197
99
—
—
—
4,510
468
354
1,833
487
8,038
(1,114)
(3,397)
(6,250)
(3,750)
(2,500)
(43)
(8,297)
(1,176)
—
2,525
—
(1,285)
8,057
(88,267)
—
—
9,972
846
1,603
5,800
891
61,727
(4,398)
(8,667)
(25,000)
(15,000)
(10,000)
(91)
25,145
—
14,040
11,637
135,139
(74)
(885)
—
—
—
6,233
5,370
1,175
6,811
2,164
11,945
(4,655)
(13,590)
(25,000)
(15,000)
(10,000)
(674)
—
(1,176)
—
11,772
—
(2,594)
5,098
(88,267)
9,929
131
(836)
(492)
(1,467)
(857)
$
119,427 $
128,626 $
501,183 $
500,976
(i)
Includes gains and losses related to certain equity accounted investments, WhiteCastle Fund transactions, extinguishment of a U.S. mortgage and
the unwind of a corresponding interest rate swap.
46
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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 the
six Canadian major markets.
The following is our percentage of portfolio net rental revenue derived from the six Canadian major markets:
2016
2015
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Percentage of rental revenue (i)
75.5 %
75.6 %
75.7 %
75.0 %
74.8 %
74.4 %
74.4 %
73.6 %
(i) The six Canadian major markets include the following: Calgary, AB; Edmonton, AB; Montreal, QC; Ottawa, ON (includes Gatineau region); Toronto,
ON; and Vancouver, BC.
The slight 0.1% decline in percentage of portfolio net rental revenue for the six Canadian major markets from Q3 2016 to Q4
2016 is due to timing of tenant vacancies in major markets at each reporting period end as the percentage is calculated on an
annualized basis.
Net Leasable Area
(thousands of square feet, except
where otherwise noted)
NLA at 100% (i)
Income properties
Properties under development (ii)
NLA at RioCan's interest
Income properties
Properties under development (ii)
Q4
57,085
6,440
63,525
43,212
3,761
46,973
2016
Q3
Q2
Q1
Q4
2015
Q3
Q2
Q1
57,248
5,862
63,110
43,299
3,283
46,582
57,416
5,851
63,267
41,987
3,240
45,227
57,648
6,755
64,403
42,019
3,715
45,734
57,898
6,985
64,883
42,124
3,939
46,063
58,092
7,085
65,177
39,282
3,968
43,250
58,412
7,095
65,507
39,926
3,975
43,901
58,292
6,972
65,264
39,845
3,840
43,685
(i)
(ii)
Includes non-owned anchors.
Includes active and non-active projects in greenfield and urban intensification developments located in Canada.
Investment Properties NLA
As at December 31, 2016, NLA at RioCan's interest was 43,212,000 square feet compared to 42,124,000 square feet as at
December 31, 2015. The increase of 1,088,000 square feet of NLA was due to higher acquisitions, net of dispositions and NLA
from completed developments, partially offset by NLA transferred to properties under development during the year.
Acquisitions and Dispositions
During the year ended December 31, 2016, RioCan acquired approximately 1,809,000 additional square feet and disposed of
approximately 711,000 square feet in connection with certain investment properties located in Canada.
NLA Transfers
During the year ended December 31, 2016, NLA increased by 733,000 square feet due to completed development projects which
was offset by an NLA decrease of 743,000 square feet due to certain planned property redevelopments. Refer to Development
Activity in 2016 section in this MD&A for further discussion.
Occupancy and Leasing
The following table shows the current difference between our committed occupancy (tenants that have signed leases) and
economic occupancy (tenants that have commenced paying rent). The gap between committed occupancy and economic
occupancy is wider in Q4 2016 than the historical average. This is mainly due to a large square footage of committed occupancy
as of December 31, 2016 relating to Target backfill, a significant portion of which is expected to be in place by the end of 2017.
Please refer to the Target Leasing Update section of this MD&A for further details.
The historical portfolio committed and economic occupancy rates for our Canadian property operations are as follows:
(in percentages)
Committed
Economic
Committed Occupancy
2016
Q3
95.3
92.5
Q4
95.6
92.6
Q2
95.1
92.3
Q1
94.8
91.9
Q4
94.0
92.2
2015
Q3
93.2
91.6
Q2
93.1
91.9
Q1
96.7
95.3
RioCan’s overall portfolio committed occupancy rate is calculated as leased NLA divided by total portfolio NLA. During the
quarter, the committed occupancy rate increased 0.3% to 95.6% compared to September 30, 2016. Refer to New Leasing Activity
section in this MD&A for further details.
47
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Economic Occupancy
RioCan's economic occupancy rate of 92.6% represents the occupied NLA for which tenants are paying cash rents and is
calculated as leased NLA (excluding 1,270,000 square feet of leased NLA that is not yet generating cash rents) divided by total
portfolio NLA. We expect economic occupancy to increase during the next 12 months of operations as the former Target space
backfill leases commence paying rent.
As of the end of this quarter, we expect to generate approximately $22.4 million of annualized cash rental payments once all
tenants that have signed leases commence paying rent. This includes base rent and operating cost recoveries, but excludes
operating costs capitalized while a property is under redevelopment as part of the Target backfill process.
The estimated $22.4 million of annualized cash rental payments commencing include approximately $4.7 million annualized
straight-lined rents that we began recognizing revenue on in our reported 2016 operating results on a pro-rated basis reflecting
the tenant possession dates. The net incremental annualized gross IFRS rental revenue impact of the committed occupancy as
of December 31, 2016 is estimated at $17.7 million, which includes the incremental rental revenue impact of Target backfill as
discussed under Target Leasing Update.
A rent commencement timeline for the NLA on our properties that have been leased but are not currently open as at
December 31, 2016 is as follows:
(in thousands, except percentage amounts)
Annualized
Total
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q1
2018+
Square feet:
NLA commencing
Cumulative NLA commencing
% of NLA commencing
Cumulative % total
Average net cash rent:
Monthly cash rent commencing (i)
Cumulative monthly cash rent commencing
% of cash rent for NLA commencing
Cumulative % total cash rent commencing
Average net IFRS rent:
1,270
1,270
$
$
22,368 $ 1,864 $
22,368 $ 1,864 $
315
315
24.8%
24.8%
522
522
28.0%
28.0%
Monthly incremental IFRS rent commencing (ii) $
17,700 $ 1,475 $
208
289
604
22.8%
47.6%
476
998
25.5%
53.5%
242
846
19.1%
66.7%
186
1,032
14.6%
81.3%
$
386
$
190
$ 1,384
$ 1,574
20.7%
74.2%
10.2%
84.4%
$
$
$
$
238
1,270
18.7%
100.0%
290
1,864
15.6%
100.0%
290
1,475
19.6%
100.0%
$
$
$
$
Cumulative monthly incremental IFRS rent
commencing
% of IFRS rent for NLA commencing
Cumulative % total IFRS rent commencing
$
17,700 $ 1,475 $
208
408
616
$
$
379
$
190
995
$ 1,185
25.7%
67.5%
12.9%
80.4%
14.1%
14.1%
27.7%
41.8%
(i) Monthly cash rent commencing includes base rent and operating cost recoveries, but excludes operating costs capitalized while a property is
under redevelopment as part of the Target backfill process. It includes straight-line rents that have been recognized as rental revenues based on
tenant possession dates, which are typically earlier than the dates when the tenants start paying cash rents.
(ii) Based on monthly cash rent, net of straight-line rent revenue.
During 2016, management undertook a review of its financial and non-financial performance measures, including occupancy
metrics. As a result of this review and to achieve better alignment with how management assesses portfolio occupancy, we will
be transitioning toward a new measure called "in-place occupancy", effective January 1, 2017. In-place occupancy is similar to
economic occupancy; however, it also includes tenants that are in possession of their space and have straight-line rents included
in revenue under IFRS. This will provide greater alignment between our occupancy metric and IFRS revenue recognition.
Small Shop Occupancy
As at December 31, 2016, RioCan’s small shop committed occupancy rate was 93.0%. RioCan defines small shops as
commercial tenants with less than 10,000 square feet of NLA. The following is a breakdown of the Canadian portfolio committed
occupancy:
(in percentages)
Small Shop (<10,000 sqft)
Total
Q4
96.9
93.0
95.6
2016
Q3
96.7
92.6
95.3
Q2
96.4
92.6
95.1
Q1
96.1
92.1
94.8
Q4
95.0
92.0
94.0
2015
Q3
94.0
91.9
93.2
Q2
93.7
91.9
93.1
Q1
99.1
92.0
96.7
Committed occupancy for both major tenants and small shop tenants as of December 31, 2016 have improved over the
comparable periods, reflecting the growth in our leasing activities, particularly with respect to our Target backfill progress.
48
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Average In-Place Rent
The historical portfolio average in-place net rent for our Canadian properties is as follows:
Q4
2016
Q3
Q2
Q1
Q4
2015
Q3
Q2
Q1
Average net rent per square foot (i)
$ 17.59
$ 17.44
$ 17.28
$ 17.23
$ 17.11
$ 17.08
$ 17.02
$ 16.63
(i) Net rent is primarily contractual base rent pursuant to tenant leases.
Average in-place net rent slightly increased during the quarter primarily due to higher contractual rent steps and rent renewals on
certain tenant leases.
New Leasing Activity
RioCan’s new leasing activity is as follows:
(in thousands, except per
sqft amounts)
NLA at 100%
Full
Year
2,048
Q4
440
Q3
439
Q2
581
Q1
588
Full
Year
2,319
Q4
532
Q3
693
Q2
481
Q1
613
Average net rent per square foot (i)
$19.22
$20.01
$19.19
$21.86
$16.05
$18.99
$18.91
$16.23
$23.31
$18.81
2016
2015
(i) Net rent is primarily contractual base rent pursuant to tenant leases.
Renewal Leasing
A summary of our 2016 and 2015 renewal leasing activity for the Canadian property portfolios is as follows:
2016
2015
(in thousands, except per sqft
amounts)
Square feet renewed
Full
Year
4,255
Q4
1,309
Q3
857
Q2
1,120
Q1
969
Full
Year
Q4
Q3
Q2
Q1
4,607
1,001
1,300
1,117
1,189
Average net rent per square foot $ 19.14
$ 18.69
$ 19.76
$ 20.06
$ 18.12
$ 18.37
$ 18.19
$ 17.75
$ 18.07
$ 19.47
Increase in average net rent per
square foot (i)
Percentage increase in average
net rent per square foot
$ 1.08
$ 1.39
$ 1.22
$ 0.64
$ 1.05
$ 1.37
$ 0.71
$ 1.41
$ 1.57
$ 1.69
6.0%
8.1%
6.6%
3.3%
6.2%
8.1%
4.0%
8.6%
9.5%
9.5%
Retention rate
85.8% 84.0% 83.1% 91.6% 84.4% 85.7% 81.4% 89.8% 87.7% 83.5%
(i) Net rent is primarily contractual base rent pursuant to tenant leases.
Including anchor tenants, the components of renewal activity are as follows:
(in thousands, except per sqft
amounts)
Full
Year
Renewals at market rental rates:
2016
2015
Q4
Q3
Q2
Q1
Full
Year
Q4
Q3
Q2
Q1
Square feet renewed
2,659
760
591
813
494
2,959
806
662
704
787
Average net rent per square
foot (i)
Renewals at fixed rental rates:
$ 22.61
$ 23.08
$ 21.33
$ 22.43 $ 23.71
$ 20.82
$ 19.77
$ 20.62 $ 20.48
$ 22.37
Square feet renewed
1,596
549
265
307
475
1,648
195
638
413
402
Average net rent per square
foot
$ 13.35
$ 12.61
$ 16.25
$ 13.78 $ 12.31
$ 13.97
$ 11.67
$ 14.78 $ 13.97
$ 13.79
(i) Net rent is primarily contractual base rent pursuant to tenant leases.
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. In most cases, rental revenue continues to be paid 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 or lease terminations. For further details on the impact on the Target co-tenancy losses, refer to the Net
Operating Income - Canadian Portfolio section in this MD&A.
49
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
RioCan’s vacancy activity for the most recent eight quarters is as follows:
(in thousands, except
per sqft amounts)
Full
Year
Total vacancies (i)
100%
RioCan's interest
Vacated space re-leased
100%
RioCan's interest
(i) Excluding lease buyouts.
1,652
1,376
762
691
2016
2015
Q4
Q3
Q2
Q1
477
399
143
138
377
309
163
139
353
314
208
195
445
354
248
219
Full
Year
3,621
2,880
1,400
1,135
Q4
Q3
Q2
Q1
476
343
116
91
493
363
234
189
2,195
1,792
835
656
457
382
215
199
During the year ended December 31, 2016, RioCan experienced vacancies of approximately 1,652,000 square feet, of which
RioCan’s interest was 1,376,000 square feet. The average gross rent on RioCan’s ownership interest was $30.31 per square
foot. Approximately 762,000 square feet of space vacated in 2016 has been leased to new tenants, of which RioCan’s interest
was 691,000 square feet, at an average gross rent of $27.96 per square foot.
Target Leasing Update
A summary of our leasing progress-to-date is as follows:
Former Target Canada space
Disposition of County Fair Mall
Acquisition of Mega Centre Notre Dame
Acquisition of Gates of Fergus
Acquisition of Charlottetown Mall
Revised Former Target space
Backfill progress:
Leased space where tenants are open and paying rent
Leased space where tenants have taken possession
Committed space
Conditional agreements
Advanced discussions
Total backfill progress
Space currently being marketed (ii)
Total NLA upon completion of redevelopment
Potential GLA converted for landlord uses (common area, loading docks, etc.) (ii)
Space for demolition/potential redevelopment
Total (iii)
Square feet
at 100%
Square feet at
RioCan's
Interest
Average
annual base
rental revenue
at RioCan's
interest (i)
2,091,480
1,662,977
$10.9
(92,989)
(92,989)
—
—
—
58,042
47,989
53,903
(0.3)
0.5
0.3
0.2
1,998,491
1,729,922
$11.6
164,696
226,754
806,721
35,500
177,206
164,696
191,754
681,354
30,250
149,453
1,410,877
1,217,507
113,606
96,529
1,524,483
1,314,036
397,814
102,444
339,724
102,444
2,024,741
1,756,204
2.5
1.7
8.4
0.6
1.0
$14.2
n.a.
$14.2
n.a.
n.a.
“n.a.” – not applicable.
(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. Space currently being
marketed includes NLA at Flamborough Power Centre, which was grouped with Greenfield developments in Q4 2015.
(iii) Expansion space at RioCan Niagara Falls results in an additional 26,000 square feet of net leasable area at this property.
We continue to be proactive in holding discussions with potential retailers to backfill the vacant premises. 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, leases included in our backfill progress above will, if all are completed, produce net rental revenue of approximately
$14.2 million versus $11.6 million of the total base rental revenue lost through Target’s departure (at RioCan's proportionate
share).
The expected total cost of the redevelopment work pertaining to the deals currently included in our backfill progress is estimated
to be approximately $162 million (approximately $137 million at RioCan’s proportionate share, which is being funded, in part, by
our approximate $88 million in net settlement proceeds received from Target last year). The overall redevelopment costs will
evolve as additional tenants are secured, development plans are completed and construction costs finalized. Consistent with
50
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
properties under development, interest costs are capitalized during the Target backfill process prior to tenants taking possession
of a space using the same weighted average interest of 3.66% and 3.94% for the three months and year ended December 31,
2016, respectively (December 2015 - 4.14% and 4.23%, respectively). Once the tenants take possession, these interest costs
will be expensed.
As of December 31, 2016, 681,000 square feet at RioCan’s interests have been committed in addition to the leased space where
tenants have been open or have taken possession. The majority of the tenants under these committed leases will take
possession in the second half of 2017.
Included in our backfill progress-to-date are deals where we are in advanced stages of negotiation for leases totalling
approximately 149,000 square feet at RioCan's interest that are expected to be finalized in 2017. These leases are expected to
generate $1.0 million of base rental revenue per year on a full year basis, at RioCan's proportionate share.
There is also 97,000 square feet at RioCan's interest that is currently being marketed, but is not presently the subject of active
lease negotiations where redevelopment plans are being prepared.
The area that will be converted for landlord purposes including common area, loading docks and other uses represents 340,000
square feet at RioCan's interest, which is subject to change based on tenant demand. The remaining 102,000 square feet at
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.
Other Store Closures
During 2016, we received notice from Golf Town that Golf Town's U.S. parent filed for bankruptcy protection in the U.S. and they
disclaimed leases at three of our store locations. At the time of the tenant's filing we had 12 Golf Town stores under lease
(including the aforementioned three disclaimed leases) representing approximately 195,000 square feet of total NLA with an
average remaining lease term of 4 years (at RioCan’s proportionate share). We have reached an agreement for 9 of the 12
locations for Golf Town to remain as a tenant and one of the three vacated locations has been re-leased to another tenant.
Danier Leather also announced that it had made an assignment in bankruptcy pursuant to the Bankruptcy and Insolvency Act
(Canada) in March of 2016. RioCan had eight locations under lease representing approximately 27,000 square feet of total NLA,
at RioCan's interest, with an average remaining lease term of 3.63 years. We have re-leased seven of the eight vacated
locations.
We did experience a few other fashion tenant closures, the largest of which was Jones New York, where we had a total of five
locations under lease representing only 15,500 square feet of total NLA at RioCan's interest. Two of these locations have been
re-leased.
The store closings as discussed in this section are not expected to have a material effect on our investment property fair value
given that most of these vacancies have been re-leased and management is confident of re-leasing the remaining space.
In January 2017, Grafton Fraser, the company that owns Tip Top Tailors, was granted court protection under the Companies
Creditors Arrangement Act (CCAA). Currently, RioCan has 20 locations under lease representing approximately 92,000 square
feet of total NLA with an average remaining lease term of 3.3 years. The impact on RioCan's locations has yet to be determined.
Lease Expiries
Lease expiries for our 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)
43,212
2017
3,051
7.1%
2018
4,711
10.9%
2019
5,322
12.3%
2020
4,847
11.2%
Average net rent per occupied square foot
$
19.77
$
18.67
$
18.84
$
17.73
$
2021
5,269
12.2%
17.92
Lease expiries for the years ending
(i) Represents RioCan’s proportionate ownership share.
51
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
The components of our remaining lease expiries for 2017 are as follows:
(in thousands, except per sqft amounts)
2017 expiries at market rental rates:
Square feet expiring
Average net rent per sqft
2017 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
2,068
21.90
983
15.30
16.19
0.89
3,051
19.77
$
$
$
$
$
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 rent increases
Property Ownership by Geographic Area
2017
2018
2019
2020
$
7,855 $
6,527 $
6,188 $
4,356 $
2021
3,993
(in thousands of sqft)
As at December 31, 2016
Ontario
Alberta
Quebec
British Columbia
Eastern Canada
Manitoba/Saskatchewan
Income producing properties
Properties under development
Canadian investment properties
Six Canadian Major Markets
(in thousands of sqft)
As at December 31, 2016
Calgary
Edmonton
Montreal
Ottawa (i)
GTA (ii)
Vancouver (iii)
Income producing properties
Properties under development
Total
NLA at
RioCan's
Interest
27,379
5,678
5,025
3,556
1,045
529
43,212
3,761
46,973
NLA at
Partners'
Interest
3,440
1,197
Retailer
Owned
Anchors
5,043
1,966
273
—
198
201
5,309
2,362
7,671
864
378
220
93
8,564
317
8,881
Total Site
NLA
35,862
Percentage of
annualized gross
rental revenue
66.1%
Committed
occupancy
percentage
95.4%
8,841
6,162
3,934
1,463
823
57,085
6,440
63,525
14.3%
8.5%
8.2%
1.9%
1.0%
100.0%
—%
100.0%
98.0%
93.4%
96.8%
91.9%
96.1%
95.6%
—%
95.6%
NLA at
RioCan's
Interest
3,158
NLA at
Partners'
Interest
452
Retailer
Owned
Anchors
1,108
1,773
3,147
4,774
14,831
1,948
29,631
3,761
33,392
745
238
387
2,177
—
3,999
2,362
6,361
758
172
1,315
2,293
325
5,971
317
6,288
Total Site
NLA
4,718
3,276
3,557
6,476
19,301
2,273
39,601
6,440
46,041
(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, 2016, the percentage of gross revenue derived from the six major markets increased to 75.5% compared to
74.8% at December 31, 2015. The increase during 2016 is in line with management's strategy to acquire and develop properties
located in our six major markets and dispose of non-core lower growth assets.
As at December 31, 2016, the committed occupancy for our six major markets is 96.5% compared to 95.1% at December 31,
2015.
52
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Top 50 Tenants
We strive to reduce our 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, 2016, RioCan’s 50 largest tenants measured by annualized gross rental revenue have the following profile:
Rank
Tenant name
Annualized
rental
revenue
Number
of
locations
NLA
(in thousands of
sqft)
Percentage
of total NLA
Weighted average
remaining lease
term (years) (i)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
Loblaws/Shoppers Drug Mart (ii)
Canadian Tire Corporation (iii)
Walmart
Cineplex/Galaxy Cinemas
Winners/HomeSense/Marshalls
Metro/Super C/Loeb/Food Basics
Cara/Prime Restaurants/St-Hubert
Lowe's
Sobeys/Safeway
Dollarama
Staples/Business Depot
Bank Of Montreal
Reitmans/Penningtons/Smart Set/Addition Elle/Thyme Maternity
PetSmart
GoodLife Fitness
TD Bank
Michaels
Best Buy
Chapters/Indigo
Leon's/The Brick
Hudson's Bay Company
Bluenotes/Stitches/Suzy Shier/Urban Planet/West 49 (YM Inc.)
LA Fitness
Liquor Control Board of Ontario (LCBO)
Rexall Pharma Plus
The Bank of Nova Scotia
Sears
DSW/Town Shoes/The Shoe Company
Ardene
Tim Hortons/Burger King
Value Village
CIBC
Old Navy/The Gap/Banana Republic
London Drugs
Bed Bath & Beyond
Genuine Canadian Corp.
Bell/The Source
Sleep Country Canada
Jysk Linen
Overwaitea Foods
Subway
MTY Food Group
La Vie En Rose
Golf Town
Benix & Co Inc
Royal Bank of Canada
Moores
Brewers Retail
Bouclair
Pier 1 Imports
4.8%
4.7%
4.2%
3.9%
3.7%
3.4%
1.9%
1.8%
1.6%
1.5%
1.4%
1.2%
1.2%
1.2%
1.1%
1.1%
1.0%
0.9%
0.8%
0.8%
0.7%
0.6%
0.6%
0.6%
0.6%
0.6%
0.6%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.5%
0.4%
0.4%
0.4%
0.4%
0.4%
0.4%
0.4%
0.4%
0.4%
0.4%
0.4%
0.3%
0.3%
0.3%
0.3%
82
90
29
27
71
50
107
13
27
80
30
50
80
30
27
54
22
15
23
14
9
51
9
21
16
30
9
31
40
56
14
27
21
8
11
33
73
26
11
5
80
75
24
9
23
19
18
21
15
13
2,125
2,481
3,607
1,443
1,929
2,058
522
1,517
928
727
708
386
398
471
549
266
426
332
289
373
472
329
309
189
144
144
381
198
188
154
289
123
189
224
228
141
105
121
226
200
90
74
115
155
120
87
108
117
125
118
4.9%
5.7%
8.3%
3.3%
4.5%
4.8%
1.2%
3.5%
2.1%
1.7%
1.6%
0.9%
0.9%
1.1%
1.3%
0.6%
1.0%
0.8%
0.7%
0.9%
1.1%
0.8%
0.7%
0.4%
0.3%
0.3%
0.9%
0.5%
0.4%
0.4%
0.7%
0.3%
0.4%
0.5%
0.5%
0.3%
0.2%
0.3%
0.5%
0.5%
0.2%
0.2%
0.3%
0.4%
0.3%
0.2%
0.3%
0.3%
0.3%
0.3%
(i) Weighted average remaining lease term based on annualized gross rental revenue.
(ii)
Loblaws/Shoppers Drug Mart includes No Frills, Fortinos, Zehrs Markets, Joe Fresh and Maxi.
(iii) Canadian Tire Corporation includes Canadian Tire, PartSource, Mark’s, Sport Chek, Sports Experts, National Sports and Atmosphere.
56.1%
1,719
26,998
62.6%
53
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
7.8
7.4
10.1
8.1
7.5
6.6
5.8
11.5
9.3
5.9
4.9
7.8
4.5
5.9
9.9
6.4
6.5
3.7
2.3
5.5
11.4
4.4
10.7
9.3
9.5
4.2
4.1
5.1
5.8
6.6
4.1
4.2
4.0
10.1
8.2
7.3
5.0
5.3
9.0
9.1
5.2
6.1
7.2
4.1
7.6
4.5
4.4
3.7
4.2
4.0
7.2
MANAGEMENT’S DISCUSSION AND ANALYSIS
ASSET PROFILE
Investment Property
Refer to note 5 of the 2016 Annual Consolidated Financial Statements for the year ended December 31, 2016 for the change in
consolidated IFRS carrying values of our income properties.
Fair Valuation of Canadian Investment Properties
The net fair value increase for the Trust's investment properties for the year ended December 31, 2016 was $183 million. During
the year ended December 31, 2016, the weighted average capitalization rate of the Trust's investment portfolio decreased from
5.72% at December 31, 2015 to 5.64% due, in part, to capitalization rate compression for certain core properties located in
primary markets. In addition, the fair value of our investment properties increased due to the revaluation of interests acquired in
previously co-owned properties and the result of a positive valuation adjustments on specific development properties during the
period.
Valuation processes
Internal valuations
RioCan measures the vast majority of its investment properties, including co-owned properties, using valuations prepared by its
internal valuation team. 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 management. The internal valuation team's processes
and results are reviewed and approved by the Valuations Committee on a quarterly basis.
The Trust's Valuations Committee is responsible for approving any fair value changes to the investment properties and consists of
senior management of the Trust including the President & Chief Operating Officer, Chief Financial Officer, and other executive
members.
External valuations
Depending on the property asset type and location, management may opt to obtain independent third party valuations from firms
that employ experienced valuation professionals having the required qualifications in property appraisals for purposes of adopting
such appraised values in the case of land parcels or assessing the reasonableness of its internal investment property valuations.
During the year, the Trust obtained a total of 22 external property appraisals (including 13 vacant land parcels), which supported
an IFRS fair value of approximately $1.1 billion or 8% of the Trust's investment property portfolio as at December 31, 2016.
On a go-forward basis, the Trust intends to select approximately six investment properties for external appraisal on a quarterly
basis.
Capitalization Rates
The capitalization rate is based on the location and quality of the properties and takes into account market data at the valuation
date. The table below provides details of the average capitalization rate (weighted on stabilized NOI) by market category:
As at
Primary markets (i)
Secondary markets
Total average portfolio capitalization rate
Weighted average capitalization rate
December 31, 2016
December 31, 2015
5.36%
6.33%
5.64%
5.47%
6.32%
5.72%
(i)
Includes properties located in the six major Canadian markets of Calgary, Edmonton, Montreal, Ottawa, Vancouver and the Greater Toronto Area.
54
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Income Property Acquisitions During 2016
We did not acquire any income properties during the fourth quarter of 2016; however, during the year ended December 31, 2016,
we completed acquisitions of interests in a total of 17 income properties aggregating $595 million at a weighted average
capitalization rate of 5.7%, comprised of approximately 1,809,000 square feet. In connection with these acquisitions, RioCan
assumed mortgage financing of $48 million at a weighted average interest rate of 3.8%.
Property name and location
Quarter
acquired
Interest
acquired
Capitalization
rate
Purchase
price (i)
NLA at
RioCan’s
interest
(thousands
of sqft)
Average
in place
rent
%
leased
Average
remaining
lease term
(years) (ii)
RioCan’s
ending
interest
Chapman Mills Marketplace, Ottawa,
ON
CPPIB four-property portfolio (iv)
642 King Street West, Toronto, ON (iii)
Grant Crossing, Ottawa ON
Kimco four-property portfolio (v)
South Bank Centre, Okotoks, AB
Gloucester Phase II, Gloucester ON (iii)
Shops of Summerhill, Toronto, ON
RioCan Thickson Ridge, Whitby, ON
85 Bloor Street West, Toronto, ON
Huron Heights, London, ON
Total 2016 Acquisitions
Q3
Q3
Q3
Q3
Q3
Q2
Q2
Q2
Q2
Q1
Q1
25%
50%
50%
20%
50%
25%
20%
75%
50%
100%
50%
5.3% $ 36,200
113 $ 18.04
100%
5.7%
343,476
910
22.72
98.7%
n/a
5.4%
7.9%
5.9%
n/a
4.0%
6.7%
3.7%
6.6%
12,923
16,000
42,708
11,840
3,200
32,585
45,000
38,106
12,500
15
46
28.62
72.8%
19.40
100%
405
11.92
83.1%
37
16
23
186
14
44
19.70
21.37
49.33
17.40
101.38
19.11
98%
100%
100%
100%
100%
100%
5.7% $ 594,538
1,809 $ 20.21
4.4
4.7
0.4
5.7
3.1
7.4
4.6
17.3
7.3
9.7
4.9
100%
100%
50%
80%
100%
75%
100%
75%
100%
100%
100%
(i) RioCan's purchase price includes closing costs and other transaction costs in the case of asset acquisitions. These costs are expensed for
property acquisitions treated as IFRS business combinations.
(ii) Weighted average based on gross rental revenue.
(iii) The purchase price for this property was not determined using a capitalization rate.
(iv) The CPPIB four-property portfolio includes Grandview Corners (Surrey, BC), RioCan Beacon Hill (Calgary, AB), RioCan Meadows (Edmonton, AB)
and RioCan Centre Burloak (Oakville, ON). Also acquired with this portfolio was $8.5 million of associated lands, which have been recognized as
acquisitions of properties under development. The total acquisition price was $352 million.
(v) The Kimco four-property portfolio includes Charlottetown Mall (Charlottetown, PEI), Parkwood Place (Prince George, BC), Gates of Fergus
(Fergus, ON) and Hawkesbury Centre (Hawkesbury, ON).
During the year, we also acquired a 100% interest in the income producing buildings on the property located at 1860 Bayview
Avenue in Toronto, Ontario. The purchase price will be finalized within 14 months from the acquisition date based on capitalized
earnings at the settlement date according to a contractually agreed formula. 1860 Bayview Avenue is a 76,000 square foot
shopping centre anchored by Whole Foods and also includes Shoppers Drug Mart and TD Bank as tenants. The Whole Foods
anchor is scheduled to commence operations in April 2017.
Income Property Dispositions During 2016
As a further means of raising and recycling capital, the Trust evaluates the sale of selected assets as part of a process of actively
managing the portfolio and a means of increasing the portfolio weighting to the urban markets in Canada.
We did not dispose of any income properties during the fourth quarter of 2016. During the year ended December 31, 2016, we
disposed of interests in a total of nine income-producing properties totaling $126 million and representing a weighted average
capitalization rate of 6.1%. Our mortgage obligations related to these properties was $29 million.
Property name and location
Quarter
disposed
Capitalization
rate
RioCan’s
sales price
(thousands
of dollars)
Debt
associated
with property
(thousands)
GLA disposed of
at RioCan’s
interest
(thousands of sqft)
Ownership
interest
disposed of
by RioCan
12 Vodden Street, Brampton, ON
The Junction, Mission, BC
Centre Regional Chateauguay, PQ
Eastcourt Mall, Cornwall, ON
Northumberland Square, Miramichi, NB
Timiskaming Square, New Liskeard, ON
Nortown Centre, Chatham, ON
Peninsula Village, Surrey, BC
Halifax Walmart Centre, Halifax, NS
Total 2016 Dispositions
Q3
Q2
Q2
Q2
Q2
Q2
Q1
Q1
Q1
(i) Property disposed of primarily based on land value.
(i)
$
8,180
$
6.3%
8.0%
(i)
(i)
(i)
7.1%
4.9%
6.2%
34,025
15,625
7,900
2,500
1,100
6,393
39,125
11,040
—
—
13,278
—
—
—
—
13,654
2,427
6.1% $ 125,888
$
29,359
32
141
100
88
80
80
36
85
69
711
100%
50%
50%
50%
50%
50%
50%
50%
50%
55
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Capital Expenditures on Income Properties
Maintenance capital expenditures
Maintenance 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, lease expiry maturity profile, tenant
vacancies, the age and location of the income properties and general economic and market conditions, which impact the level of
tenant bankruptcies. As at December 31, 2016, the estimated weighted average age of our income property portfolio is
approximately 23 years (December 31, 2015 - approximately 22 years). Maintenance capital expenditures consist primarily of
third party leasing commissions, tenant improvements and certain recoverable and non-recoverable capital expenditures. Actual
maintenance capital expenditures can vary widely from period to period depending on a number of factors as noted above, as
well as the level of acquisition and disposition activity.
As a result, management believes that for the purpose of determining AFFO which, as discussed in the Non-GAAP Measures
section of this MD&A, is used as an input in assessing a REIT's distribution payout ratio and for determining an appropriate level
of sustainable common unitholder distributions, normalized capital expenditures are more relevant than using actual capital
expenditures. Refer to the Non-GAAP Measures section in this MD&A for details on how management estimates our normalized
capital expenditures used in the determination of AFFO. The later part of this MD&A section discusses the reasons for our 2016
actual maintenance capital expenditures being higher than the normalized capital expenditures.
Third-party leasing commissions and tenant improvements
Our portfolio requires ongoing investments of capital for costs related to tenant improvements, broker commissions on new and
renewal tenant leases and other third-party leasing costs. The amount and timing of capital outlays to fund tenant improvements
on our income property portfolio depend on several factors, which may include the lease maturity profile, unforeseen tenant
bankruptcies and the location of the income property.
Recoverable and non-recoverable capital expenditures
We also invest capital on a regular basis to physically maintain our 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.
The majority of such activities occur when weather conditions are favourable. As a result, these expenditures are generally 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 our unitholders. Revenue enhancing capital
expenditures are not included in the determination of AFFO.
Expenditures for third-party leasing commissions and tenant improvements, recoverable and non-recoverable, and revenue
enhancing capital expenditures pertaining to our income properties are as follows:
Continuing Operations
(thousands of dollars)
2016
2015
2016
2015
2016
2017
Three months ended
December 31,
Year ended
December 31,
Normalized Capital
Expenditures
Maintenance capital expenditures:
Leasing commissions and tenant
improvements
Recoverable from tenants
Non-recoverable
Revenue enhancing capital expenditures:
Office capital investment (i)
Other revenue-enhancing
$
$
$
$
13,853 $
7,807 $
33,677 $
21,626 $
25,000 $
9,287
1,504
8,141
7,303
18,920
11,746
14,438
11,520
15,000
10,000
24,644 $
23,251 $
64,343 $
47,584 $
50,000 $
26,500
16,000
10,000
52,500
1,485
828
1,053
473
6,538
5,168
2,313 $
1,526 $
26,957 $
24,777 $
11,706 $
76,049 $
4,770
2,238
7,008
54,592
(i)
Includes certain expenditures related to the office component of the RioCan Yonge Eglinton Centre that management believes have improved the
overall earnings capacity of this property, a portion of which is recoverable from the office tenants.
During the year ended December 31, 2016, our total capital expenditures on income properties were $76 million compared to $55
million for 2015. The $21 million increase was primarily due to the following:
•
higher leasing and tenant improvement expenditures as we increased occupancy over the year;
56
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
accelerated maintenance capital spending during 2016 on some of the facilities that lost the Target anchor in order to
increase occupancy back to their historic levels; and
higher revenue enhancing spend connected to our office capital investment and certain interior renovation costs at some of
the Trust's enclosed mall properties.
For the year ended December 31, 2016, our maintenance capital expenditures of $64 million, which exclude revenue enhancing
capital expenditures, are $14 million higher than our normalized capital expenditures of $50 million. This is mainly due to
accelerated maintenance capital spending during 2016 on some of our facilities that lost the Target anchor as well as higher than
normal leasing and tenant improvement expenditures, both of which were done to increase occupancy back to historical levels.
Management does not believe such spending represents an ongoing level of maintenance capital expenditures.
Discontinued Operations
Capital expenditures including leasing costs and tenant improvements for the year ended December 31, 2016 was $18 million
(December 31, 2015 - $13 million). Included in 2016 capital expenditures were approximately $6 million related to a sink-hole
repair at one of our U.S. properties and approximately $4 million in tenant allowances transferred to Blackstone in connection
with the U.S. portfolio sale.
Co-ownership Arrangements
Co-ownership activities represent real estate investments in which RioCan has joint control and either owns an undivided interest
in the assets and liabilities with its co-owners (joint operations) or ownership rights to the residual equity of the co-ownership (joint
ventures).
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 $341 million as at December 31, 2016 (December 31, 2015 - $358 million) on behalf of co-owners.
Selected Financial Information of Joint Operations (Proportionate Share)
(thousands of dollars)
As at December 31, 2016
Allied
Allied/Diamond (The Well)
Bayfield
CMHC Pension Fund
CPPIB (iv)
First Gulf
Kimco (v)
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%
—
50%
50%
40% - 50%
50%
50% - 81.25%
50% - 75%
3 $
86,780 $
7,287 $
1
5
1
3
1
—
3
1
2
4
10
11
131,881
103,967
41,841
239,060
80,210
—
347,013
169,174
97,065
179,314
397,984
179,524
42,319
45,785
20,021
19,639
33,821
—
96,225
88,807
14,314
12,712
185,616
66,653
Three months ended
December 31, 2016
Year ended
December 31, 2016
NOI (iii)
360 $
—
1,487
482
1,231
1,053
—
2,962
—
1,288
2,823
4,490
2,261
NOI (iii)
1,271
347
6,462
1,995
15,341
4,406
5,361
10,348
—
5,102
9,315
20,363
8,534
88,845
Total joint operations
45 $ 2,053,813 $
633,199 $
18,437 $
Includes properties under development and is based on the number of proportionately owned properties as at December 31, 2016.
(i)
(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.
(iv) On July 27, 2016, RioCan purchased CPPIB's interest in four properties thereby reducing the number of co-owned assets to three properties.
(v) On September 29, 2016, RioCan acquired Kimco's interest in the remaining four properties.
57
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Selected Financial Information of Joint Operations and Joint Ventures
Total Assets
(thousands of dollars)
As at December 31, 2016
Proportionately consolidated joint operations
Allied
Allied/Diamond (The Well)
Bayfield
CMHC Pension Fund
CPPIB
First Gulf
Kimco
KingSett
Income
properties
Residential
development
PUD (i)
inventory Other (ii)
Total
December 31,
2015
$
41,891 $
43,363 $
— $
1,526 $
86,780 $
—
128,800
100,114
36,329
131,229
79,771
—
2,576
5,402
99,958
—
—
257,628
82,226
—
—
—
—
—
—
—
3,081
1,277
110
7,873
439
—
7,159
15,756
620
3,416
8,005
6,409
131,881
103,967
41,841
239,060
80,210
—
347,013
169,174
97,065
179,314
397,984
179,524
45,236
100,657
108,179
40,499
592,057
81,094
243,623
297,022
113,293
94,982
184,429
478,669
143,383
Metropia/Bazis (iii)
2,511
102,493
48,414
Sun Life
Tanger
Trinity (iii)
Other
96,445
163,837
331,434
165,824
—
12,061
58,545
7,291
—
—
—
—
Total assets of proportionately consolidated
joint operations
Equity accounted joint ventures (iv):
$ 1,407,013 $ 542,715 $
48,414 $ 55,671 $ 2,053,813 $
2,523,123
HBC (RioCan-HBC JV)
$
231,203 $
— $
— $
1,053 $
232,256 $
200,872
Marketvest Corporation/Dale-Vest
Corporation (Dawson-Yonge LP)
8,840
Total assets of equity accounted joint ventures
240,043
—
—
—
—
98
8,938
8,538
1,151
241,194
209,410
$ 1,647,056 $ 542,715 $
48,414 $ 56,822 $ 2,295,007 $
2,732,533
(i)
The value of properties under development includes active development projects as well as the value of excess density where development is
currently non-active.
(ii) Primarily includes cash and cash equivalents, rents receivable and other operating expenditures recoverable from tenants.
(iii) Residential development inventory represents the Yonge Eglinton Northeast Corner e-condos with Metropia and Bazis Inc. and the December 31,
2015 amounts also include Stouffville townhome residential density (Minto and Trinity).
(iv) Includes the Trust's equity accounted joint arrangements only and excludes our equity accounted investment in the WhiteCastle Funds.
58
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Total NOI
(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,
2016
2015
$
1,271 $
347
6,462
1,995
15,341
4,406
5,361
10,348
—
5,102
9,315
20,363
8,534
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
$
$
88,845 $
147,289
12,271 $
—
495
12,766
5,531
1,167
499
7,197
$
101,611 $
154,486
(i) Represents the proportionate share of NOI related to all properties for which we owned a proportionate interest during the year.
(ii) Includes the Trust's equity accounted joint arrangements only and excludes our equity accounted investment in the WhiteCastle Funds.
RioCan-HBC JV
As at December 31, 2016, the Trust's ownership interest in RioCan-HBC JV was 11.6% (December 31, 2015 - 10.3%). The
following tables present the financial results of RioCan-HBC JV on a 100% basis:
Condensed Statements of Financial Position
(thousands of dollars)
As at
Current assets
Non-current assets
Current liabilities
Non-current liabilities (i)
Net assets
RioCan's share of net assets in RioCan-HBC JV (ii)
Includes mortgages payable and lines of credit.
(i)
(ii) Represents RioCan's proportionate share of net assets and other acquisition-related costs.
Condensed Statements of Income
(thousands of dollars)
Rental revenue
Operating expenses
Fair value losses
Interest expense
Net income
RioCan's share of net income in RioCan-HBC JV
(i) RioCan became a co-venturer in the RioCan-HBC JV on July 9, 2015.
December 31, 2016
December 31, 2015
$
$
$
9,067 $
1,980,330
10,675
546,114
1,432,608 $
167,581 $
1,985
1,947,903
4,417
549,732
1,395,739
143,785
Year ended December 31,
2016
$
131,653 $
10,643
(11,825)
15,999
93,186 $
10,391 $
$
$
2015 (i)
52,290
4,706
(7,554)
6,708
33,322
4,292
59
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 in greenfield developments and development properties held
for resale (each net of related mortgage debt and mezzanine financing to fund co-owners’ share of such developments) to no
more than 15% of total consolidated unitholders’ equity of the Trust, as determined under IFRS. As at December 31, 2016,
RioCan's investments in greenfield development and residential inventory as a percentage of consolidated unitholders' equity is
2.6% and, therefore, the Trust is in compliance with this restriction.
RioCan also has an unsecured operating credit facility with six Canadian Schedule I financial institutions. The unsecured
operating credit facility agreement requires the Trust to maintain certain financial covenants pursuant to the credit facility
agreement, one of which includes a more restrictive covenant as it pertains to the Trust's development activities. Refer to note 24
of the 2016 Annual Consolidated Financial Statements for further details.
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 (at RioCan's share) for greenfield development and urban intensification projects by geographic area as
at December 31, 2016 is as follows:
(in thousands of square feet)
Toronto
Suburban GTA
Alberta
Ottawa
NLA
1,720
1,061
759
221
Total
3,761
Refer to note 5 of the 2016 Annual Consolidated Financial Statements for the year ended December 31, 2016 for the change in
consolidated IFRS carrying value of the Trust's development properties.
Development Property Acquisitions and Dispositions
During 2016, RioCan completed acquisitions in four development properties for $10 million, these assets were acquired free and
clear of financing, and disposed of two parcels of excess land in Canada valued at $5.4 million.
Completed Developments in 2016
During the year ended December 31, 2016, RioCan transferred carrying value from properties under development to income
producing properties totalling $274 million pertaining to 733,000 square feet of completed greenfield development and expansion
and redevelopment projects.
60
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
A summary of RioCan’s 2016 transfers to income properties from development projects is as follows:
NLA at RioCan's Interest
2016
(thousands of square feet, unless
otherwise noted)
Property location
Brentwood Village, Calgary, AB
Charlottetown Mall, Charlottetown,
PEI
Corbett Centre, Fredericton, NB
East Hills, Calgary, AB
Flamborough Power Centre,
Hamilton, ON
Gates of Fergus, Fergus, ON
Herongate Mall, Ottawa, ON
Kennedy Commons, Toronto, ON
Lawrence Square, Toronto, ON
RioCan Colossus Centre, Vaughan,
ON
RioCan’s %
ownership
Total
100%
100%
100%
40%
100%
100%
75%
50%
100%
100%
3
44
25
57
8
32
2
5
62
114
Q4
—
25
25
—
—
—
2
—
—
6
RioCan Scarborough Centre II,
100%
116
116
Toronto, ON
Sage Hill Crossing, Calgary, AB
Shoppers City East, Ottawa, ON
South Hamilton Square, Hamilton,
ON
South Trail Crossing, Calgary, AB
Stratford Centre, Stratford, ON
1860 Bayview Avenue, Toronto, ON
50%
63%
100%
100%
100%
100%
51
22
51
49
16
76
21
13
—
—
16
—
Q3
3
19
—
35
—
16
—
—
11
108
—
14
—
16
—
—
38
Development Pipeline Summary
733
224
260
Q2
—
—
—
22
—
6
—
5
—
—
—
13
—
—
—
—
38
84
NLA at
100% Tenants transferred to IPP
Q1
—
—
—
—
8
10
—
—
51
—
—
3
9
35
49
—
—
3 Chatime
44 H&M, Urban Planet
25 Princess Auto
143 Sport Chek, Bed, Bath & Beyond,
Dollarama, Michaels, Marshalls
8 Investors Group
32 Giant Tiger, Dollarama
3 A&W
10 Visions Electronics
62 HomeSense, Marshalls, PetSmart
114 Bed, Bath & Beyond, Buy Buy Baby,
Staples, Chop
116 Costco
102 McDonald's, Liquor Max, Bulk Barn,
London Drugs, Bank of Nova Scotia
35 Shoppers Drug Mart, The Beer Store,
Expedia, Thai Express, Gabriel's
Pizza
51 Flying Squirrel
49 HomeSense, Marshalls
16 World Gym
76 Shoppers Drug Mart, TD Bank,
Whole Foods
165
889
The fair market value of properties under development, including properties under development held for sale, at December 31,
2016 is $916 million (December 31, 2015 - $872 million), which includes costs of $905 million (December 31, 2015 - $907 million)
and a cumulative fair value of $11 million (December 31, 2015 - reduction of $35 million).
As at December 31, 2016, RioCan’s greenfield development and urban intensification pipeline will, upon completion, represent
approximately 6,440,000 square feet (3,761,000 square feet at RioCan's interest), which includes approximately 811,000 square
feet that is already income producing.
The following tables represent the components of properties under development type and status:
(thousands of dollars)
As at December 31, 2016
Comprised of:
Greenfield Development
Urban Intensification
Expansion and Redevelopment
Excess Density and Other (i)
Active
Committed Non-committed
Non-active
Total
$
82,147
$
72,900
$
— $
263,127
218,056
—
151,863
6,684
—
—
—
120,731
$
563,330
$
231,447
$
120,731
$
155,047
414,990
224,740
120,731
915,508
(i) Non-active excess density and other includes earn-outs and early stage zoning, planning and consent costs related to residential initiatives.
Definitions
Greenfield Development - vacant land typically located in suburban markets that is being constructed or developed ‘from the
ground-up’ for future use as a rental property.
Urban Intensification - land use intensification at existing rental income property located in urban markets, which typically involves
increasing the rentable square footage of the property.
Expansion and Redevelopment - existing rental income property, or component thereof, that is being repositioned through
redevelopment, which typically increases NOI by adding to the overall rentable area of the property.
Excess Density and Other - vacant land acquired or identified for future development, if and when market demand exists.
61
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Active Committed - a property where a pro forma budget has been approved, all major planning issues have been resolved,
anchor tenant(s) have been secured and construction is about to start or has started.
Active Non-committed - a property where the development team is in the process of creating a 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 been identified as having future development potential, but is currently not in active development.
On an aggregate basis, the majority of greenfield development and urban intensification projects (including residential rental
development) are estimated to generate a weighted average NOI yield of approximately 5% to 6%, although certain properties
may fall outside of this range. For the year ended December 31, 2016, total costs incurred were approximately $243 million.
Capital expenditures for active projects in 2017 are estimated to be approximately $385 million. These costs will be reduced by
any potential proceeds received from conditional land and air right sales.
Projected Development Summary
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 pertaining to the retail portion of
the development and appropriate risk-adjusted returns. In the case of mixed use projects, construction of the rental residential
component will commence with no pre-leasing.
Development activity is expected to increase in the upcoming years due to development of mixed use properties featuring
residential components, demand from U.S.-based tenants entering the Canadian market and the demand from existing tenants,
especially in urban locations.
RioCan’s estimated development project square footage and future development costs are subject to change. Such changes may
be material to the Trust, as assumptions are updated regularly based on revised site plans, the cost tendering process and
continuing tenant negotiations. These assumptions, among other items, include the following: anchor tenants, the likelihood,
timing and amount of future sales of air rights and land dispositions, tenant rents, building sizes, project completion timelines,
availability and cost of construction financing, and project costs. Although the projected development expenditures below are
based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be
consistent with these projections and may, therefore, materially differ from management’s current expectations.
RioCan's projected development spending for active committed and active non-committed projects are as follows:
(thousands of dollars)
Greenfield Development
Urban Intensification
Expansion & Redevelopment
2017
2018
2019
2020+
Total
$
19,266
$
75,120
$
17,872
$ 113,564
$ 225,822
217,141
148,667
272,163
64,306
164,008
19,783
364,951
1,018,263
70,735
303,491
Sub-total
Less: Projected proceeds from dispositions (i)
$ 385,074
(34,724)
$ 411,589
—
$ 201,663
—
$ 549,250
(101,964)
$ 1,547,576
(136,688)
Projected development costs, net of dispositions
$ 350,350
$ 411,589
$ 201,663
$ 447,286
$ 1,410,888
Committed
Non-committed
Total
$ 293,681
$ 229,868
$
40,967 $
— $ 564,516
56,669
181,721
160,696
447,286
846,372
$ 350,350
$ 411,589
$ 201,663
$ 447,286
$ 1,410,888
(i) Projected proceeds from dispositions represents conditional land and air right sales, which management considers as reductions to its overall
development expenditures.
As at December 31, 2016, 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)
2017
2018
2019
2020+
2,498
3,942
6,440
2,150
8,590
1,549
2,212
3,761
1,544
5,305
294
81
375
—
375
50
—
50
816
866
143
235
378
536
914
—
534
534
27
561
1,062
1,362
2,424
165
2,589
(i) NLA of the development pipeline that is currently income producing.
62
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at December 31, 2016, the development pipeline NLA expected to be completed by year and by committed and non-
committed is as follows:
(thousands of square feet)
Committed
Non-committed
Total
Greenfield Development
2017
2018
2019
2020+
866
—
866
862
52
914
542
19
561
333
2,256
2,589
RioCan’s current greenfield development pipeline consists of three properties that are expected to add approximately 2,498,000
square feet (1,549,000 square feet at RioCan’s interest) of space upon completion over the next six years, excluding potential
condominium units, townhouses and air rights that will be sold. 655,000 square feet is already income producing (294,400 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 expected to be 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 the expiry of their original term. Development properties that we have
completed either independently or with co-owners during the last fifteen years contribute significantly to our existing growth.
A summary of RioCan’s greenfield development pipeline as at December 31, 2016 is as follows:
(thousands of
square feet)
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
Estimated square feet upon completion of the
development project
Anticipated date of
development completion
East Hills, Calgary,
AB
40%
CPPIB /
Lansdowne
/ Tristar
50%
KingSett
Walmart,
Cineplex,
Costco
(shadow
anchor)
Walmart,
Loblaws,
London
Drugs
886
160
291
435
380
52%
Q4 2017
2018
394
—
197
197
355
90%
Q4 2017
1,280
160
488
632
735
66%
100%
1,218
157
1,061
1,218
157
1,061
—
—
—
—
—
—
2019+
2,498
317
1,549
632
735
34%
(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.
Acquisition and development expenditures incurred to date
Estimated remaining construction
expenditures to complete
RioCan’s interest
RioCan’s
%
ownership
Estimated
project cost
(100%)
Amount
included in
IPP
Amount
included in
PUD
40% $ 338,401 $
36,044 $
59,156 $
95,200 $ 120,232 $ 215,432 $
49,187 $
73,781 $ 122,968
50%
121,466
44,051
6,377
—
16,613
50,428
16,613
46,681
—
97,109
16,613
12,179
12,179
24,358
—
—
—
Total
Partners’
interest
Total
RioCan’s
interest
Partners’
interest
Total
Windfield Farms, Oshawa, ON
100%
Fair Value Adjustments
Greenfield Developments –Non-
committed
Total Greenfield
Developments
459,867
223,476
223,476
80,095
82,146
162,241
166,913
329,154
61,366
85,960
147,326
—
—
—
59,020
13,880
59,020
13,880
72,900
72,900
—
—
—
59,020
164,456
13,880
—
— 164,456
—
—
72,900
164,456
— 164,456
$ 683,343 $
80,095 $ 155,046 $ 235,141 $ 166,913 $ 402,054 $ 225,822 $
85,960 $ 311,782
Sage Hill, Calgary,
AB
Greenfield
Developments –
Committed
Windfield Farms,
Oshawa, ON
Greenfield
Developments –
Non-committed
Total Greenfield
Developments
(thousands of dollars)
East Hills, Calgary, AB
Sage Hill, Calgary, AB
Fair Value Adjustments
Greenfield Developments –
Committed
A summary of 2016 highlights from RioCan’s Greenfield Development projects are as follows:
63
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
East Hills - Calgary, Alberta
This 148 acre site is currently being developed into an 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 opened in early 2016.
A deal was completed with Costco in the first quarter of 2016 to purchase approximately 14.8 acres of the site. Costco
commenced construction of a 160,000 square foot store in the second quarter of 2016 and opened in the third quarter of 2016.
Construction was completed on 135,000 square feet of retail space in the third quarter of 2016. Marshalls, Michaels, PetSmart,
Bed Bath & Beyond, Mark’s Work Wearhouse and Dollarama all commenced operations in the third quarter of 2016. Sport Chek
commenced operations in early October 2016.
Sage Hill - Calgary, Alberta
This 32-acre site is currently being developed into a 394,000 square foot new format retail centre. This site is anchored by a
153,000 square foot Walmart that opened in January 2015. A 45,000 square foot Loblaws City Market commenced operation in
January 2016. A 36,000 square foot London Drugs commenced operation in November 2016. The majority of tenants are
expected to be open in 2017.
Windfield Farms - Oshawa, Ontario
RioCan and Tribute Communities ("Tribute") have formed a co-ownership with the purpose of developing a residential project
containing approximately 551 townhome units on an approximate 31-acre portion of RioCan's Windfield Farms development
property. Tribute will provide development, construction, sales and marketing services to the co-ownership for the residential
component of the site. RioCan continues to explore various retail and mixed use development options for the remaining 85 acres
of the approximately 116 acres of developable land at the site, which is located in the eastern GTA adjacent to Highway 407
in Oshawa, Ontario.
All significant conditions with respect to the purchase price have been waived by Tribute for the residential portion of this project
and we expect to receive the remaining approvals during second quarter of 2017. Site work commenced during 2016.
Urban Intensification
A focus within our development growth strategy is urban development and intensification. Our current urban development pipeline
consists of eleven properties that, if all rezoning requests are granted as applied for, represents approximately 3,942,000 square
feet (2,212,000 square feet at RioCan’s interest) of space upon completion over the next six years, excluding condominium units
and air rights that have been sold and potential condominium units and air rights 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.
64
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
A summary of our urban development and intensification pipeline as at December 31, 2016 is as follows:
(thousands of square feet)
RioCan’s
%
ownership
Partners
Anchors
Total
estimated
development
RioCan’s
interest
Partners’
interests
Total
leasing
activity (i)
%
Leased
Current
development
(ii)
Potential
future
developments
Estimated square feet upon
completion of the
development project
Anticipated date of
development completion
491 College Street, Toronto, ON
50%
Allied
LCBO
Bathurst College Centre, Toronto,
ON
Fifth and Third East Village,
Calgary, AB
Gloucester -Residential, Ottawa,
ON
100%
100%
100%
King-Portland Centre, Toronto, ON
50%
Allied
Grocery
store
Loblaws
Shopify,
Indigo
Yonge Eglinton Northeast Corner,
Toronto, ON
50%
Metropia /
Bazis
TD
Bank
Urban Intensification –Committed
Brentwood Village -Residential,
Calgary, AB
College & Manning, Toronto, ON
Dupont Street, Toronto, ON
The Well, Toronto, ON
The Well -Residential Bldg 6,
Toronto, ON
Urban Intensification -
Non-committed
Total Urban Intensification
50%
50%
100%
40%
Boardwalk
Allied
Allied /
Diamond
50% Woodbourne
25
146
184
221
484
398
12
146
184
221
242
199
1,458
1,004
87
61
236
613
211
174
121
236
1,531
422
2,484
3,942
2018
2018
2020
2019
2019
2018 &
2019
13
—
—
—
242
199
454
87
60
—
918
211
7
98
28%
67%
105
57%
5
2%
278
57% (iii)
18
511
5% (iii)
35%
— —% (iv)
59
—
—
49%
0%
0%
— —% (iv)
2020
2020
2020
2020+
2022+
1,208
2,212
1,276
1,730
59
570
2%
14%
Leasing activity includes leasing that is conditional on receiving municipal approvals and meeting construction deadlines.
(i)
(ii) The current development date refers to the rent commencement date.
(iii) Excluding the residential components, the commercial space leased as at December 31, 2016 for King-Portland Centre and Yonge Eglinton
Northeast Corner are 75% and 31%, respectively.
(iv) These projects are primarily rental residential with either very minor retail components (based on square feet to be developed) or no retail,
therefore, there is minimal or no pre-leasing activity at this date.
The total estimated development square feet upon completion of our project at Yonge Eglinton Northeast Corner includes space
for offices, retail and residential rental apartments only (excludes residential condominiums). 341,000 square feet of the total
estimated 398,000 square foot development pertains to residential rental density, wherein leasing will not take place until
construction of the building is completed. As a result, total leased space on our mixed use projects, such as this one and the
King-Portland Centre, will be lower relative to our retail developments as there is no pre-leasing on the rental residential
components.
65
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
Fair Value Adjustments
Urban Intensification -
Non-committed
MANAGEMENT’S DISCUSSION AND ANALYSIS
Acquisition and development expenditures incurred to date
(thousands of dollars)
RioCan’s
%
ownership
Estimated
project cost
(100%)
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
491 College Street, Toronto, ON
50% $
21,876
$
45 $
6,701 $
6,746 $
6,149 $ 12,895 $
4,490 $
4,490 $
8,980
Bathurst College Centre, Toronto,
ON
100%
101,147
Fifth and Third East Village,
Calgary, AB
Gloucester -Residential, Ottawa,
ON
King-Portland Centre, Toronto,
ON
Yonge Eglinton Northeast
Corner, Toronto, ON
Fair Value Adjustments
Urban Intensification –
Committed
100%
136,024
—
—
52,848
52,848
42,648
42,648
100%
80,561
413
14,419
14,832
—
—
—
52,848
48,299
42,648
93,376
14,832
65,729
—
—
—
48,299
93,376
65,729
50%
251,071
24,140
26,790
50,930
47,451
98,381
76,344
76,344
152,688
50%
226,758
113
—
61,881
57,839
61,994
57,839
49,678
111,672
57,543
57,543
115,086
—
57,839
817,437
24,711
263,126
287,837
103,278
391,115
345,781
138,377
484,158
Brentwood Village -Residential,
Calgary, AB (ii)
College & Manning, Toronto, ON
50%
50%
66,673
55,406
—
8,915
Dupont Street, Toronto, ON
100%
126,763
The Well, Toronto, ON
40%
1,205,828 (i)
The Well -Residential Bldg 6,
Toronto, ON (ii)
50%
235,477
—
5,472
17,296
89,130
—
14,387
17,296
—
—
33,337
33,337
12,739
27,126
14,140
14,140
66,674
28,280
—
17,296
109,468
—
109,468
89,130
122,196
211,326
397,801
596,702
994,503
—
—
39,966
39,966
—
—
—
117,738
117,738
235,476
39,966
—
—
—
—
—
—
—
1,690,147
8,915
151,864
160,779
134,935
295,714
672,484
761,917
1,434,401
Total Urban Intensification
$2,507,584
$
33,626 $ 414,990 $ 448,616 $ 238,213 $ 686,829 $ 1,018,265 $900,294 $1,918,559
(i) Estimated project cost reflects the change in scope as a result of the sale of a portion of the residential component of The Well in July 2016.
Closing of this transaction is expected to occur in early 2020.
(ii) These rental residential development projects have not yet commenced construction, therefore, no costs have been incurred to date.
A summary of 2016 highlights from RioCan’s urban intensification projects is as follows:
491 College Street - Toronto, Ontario
RioCan and Allied purchased this site, located in downtown Toronto on a 50/50 joint venture basis for the purposes of relocating
the existing LCBO at 549 College 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 be meticulously restored. The LCBO will occupy the first floor and the
basement totaling 7,000 square feet of this 25,000 square foot development. Construction commenced in the summer of 2016
and is expected to be completed in the first quarter of 2018.
Bathurst College Centre - 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 a 146,000 square foot mixed use retail and office building anchored by a national grocery store. This project is
expected to be completed in 2018.
Fifth and Third East Village - Calgary, Alberta
This 2.8 acre site is located in the East Village area of downtown Calgary, Alberta. The site was first acquired in the second
quarter of 2013 as a 50/50 co-ownership with KingSett and RioCan purchased KingSett’s interest in the property in the second
quarter of 2015. Upon completion, this mixed use project will include approximately 184,000 square feet of retail space anchored
by an 86,000 square foot Loblaws City Market/Shoppers Drug Mart. Construction of this project commenced during the second
quarter of 2016 and the retail portion of this project is expected to be completed in 2020. RioCan has agreed in principle to grant
a closing extension to residential developer, Embassy BOSA Inc., up to 2023 for the sale of $30 million in air rights as it pertains
to the two residential towers to be erected upon the retail podium.
Gloucester Residential - Ottawa, Ontario
Demolition commenced in December 2016 and construction is scheduled to commence in April 2017 on a 216,000 square foot,
23-storey building that will contain 220 residential units at Silver City Gloucester in Ottawa. The project is expected to be
completed in 2019.
King-Portland Centre - Toronto, Ontario
This site is comprised of 602-606 & 620 King Street West, formerly owned exclusively by Allied, and adjacent properties
extending from King Street West to Adelaide Street West that Allied and RioCan each acquired a 50% undivided interest. The site
has frontage on King Street West, Portland Street and Adelaide Street West. Upon completion, the site will obtain a mixed use
office, retail and residential complex with approximately 454,000 square feet of gross floor area. This includes an additional
30,000 square feet pertains to offices at 642 King Street West, which will be redeveloped separately. Leases have been
completed with Shopify Inc. for 107,000 square feet and Indigo Books & Music for approximately 79,000 square feet of office
66
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
space at the property. Construction on this project began in the second quarter of 2016. The project is expected to be completed
in early 2019.
Yonge Eglinton Northeast Corner - Toronto, Ontario
Construction on this site began in April 2014 with the demolition of the TD Bank branch. The demolition of the remaining
residential apartment building was completed in the second quarter of 2015. The project will contain a 58-floor condominium
tower and a 36-floor residential rental tower, as well as 57,000 square feet of retail space featuring a flagship TD Bank branch.
The rental tower will have 458 units and the condominium will have 621 units, all of which have been pre-sold. Construction is in
progress and the project is expected to be completed toward the end of 2018, with leasing of the residential rental component to
take place through 2019.
Brentwood Village - Calgary, Alberta
Zoning approval was received in early October for a mixed use retail and residential building. The 11-storey building will contain
approximately 10,000 square feet of retail space and approximately 164,000 square feet of residential space comprising 165
units in total. RioCan and Boardwalk REIT intend to develop this project as joint venture partners. A firm deal to sell a 50%
interest in the project to Boardwalk REIT has been signed, with the deal expected to close in the second quarter of 2017.
College & Manning - Toronto, Ontario
This site is comprised of 551-555 College Street, formerly owned exclusively by Allied, and 547 and 549 College Street, which
were 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 121,000 square feet, including approximately 59,000 square feet that is currently income producing,
56,000 square feet of residential rental density and 6,000 square feet of retail space featuring 185 feet of frontage along College
Street. Construction will commence in 2018 upon completion of the LCBO relocation to 491 College Street.
740 Dupont Street - Toronto, Ontario
This 1.4 acre site, located on Dupont Street near Christie Avenue, is northwest of the downtown Toronto core. Notice was
received and the existing tenant will vacate on September 30, 2017, which will allow the property to be redeveloped into a mixed
use retail and residential property.
The site is expected to be developed into a 236,000 square foot, nine-storey mixed use urban retail and residential building that
will feature up to 85,000 square feet of retail space and 151,000 square feet of residential space. RioCan has a 100% ownership
interest in the site. We received zoning approvals in 2015 and expect to receive site plan approval during the third quarter of
2017. Construction will commence in the fourth quarter of 2017.
The Well - Toronto, Ontario
This 7.74 acre site is located on part of a large city block in Toronto 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. Official Plan approval has been received for over 3,000,000 square feet of mixed use density on the site.
Approximately 1,450,000 square feet of the density is expected to be residential which will include a mix of both condominiums
and rental apartments. A binding agreement to sell the residential component of The Well to Tridel and Woodbourne was
completed in the third quarter of 2016. The occupants of the buildings on the site vacated at the end of 2016. Construction will
begin in early 2017.
RioCan will remain a 50% co-owner of one of the rental buildings (Building 6) representing approximately 422,000 square feet of
the residential rental density.
67
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Expansion & Redevelopment
RioCan’s expansion and redevelopment project costs for 2017 are currently expected to be approximately $149 million. As at
December 31, 2016, RioCan’s expansion and redevelopment pipeline will, upon completion, comprise approximately 2,150,000
square feet, of which RioCan’s ownership interest will be approximately 1,544,000 square feet.
A summary of RioCan’s expansion and redevelopment projects are as follows:
(thousands of square
feet, thousands of
dollars)
As at December 31,
2016
Brentwood Village,
Calgary, AB
Burlington Mall,
Burlington, ON
Corbett Centre,
Fredericton, NB
Flamborough Power
RioCan’s
%
ownership
100%
50%
100%
Tenant(s)
Retail
Podium
Interior Mall
Renovation
NB Liquors,
Mr. Lube
Centre, Hamilton, ON
100% TBD
Herongate Mall, Ottawa,
ON
75%
GoodLife
Fitness
Parkland Mall, Yorkton,
SK
Place Greenfield Park,
GP, QC
Shoppers City East,
Ottawa, ON
Tanger Outlets - Ottawa,
Kanata, ON
The Stockyards,
Toronto, ON
100% Winners
JYSK,
Giant Tiger,
Dollarama
100%
63%
A&W, Tim
Hortons
50% Marshalls
50%
Pads D, M,
N
Longo's, LA
Fitness,
Interior Mall
Renovation,
Residential
Yonge Sheppard Centre,
Toronto, ON
50%
Properties with former
Target units(ii)
Fair Value Adjustments
Total Committed
Expansion and
Redevelopment
properties
Total Non-committed
Expansion and
Redevelopment
properties
Total
Estimated project cost
Project
NLA
NLA
RioCan's
Interest
RioCan’s
Interest
Partners’
Interest
Historical
costs(i)
Total
Development
expenditures
to date at
RioCan’s
interest
Total
costs
incurred
to date
Estimated
remaining
construction
expenditures
to complete
at RioCan's
interest
13
—
20
88
44
20
72
7
58
20
13 $
1,858 $
— $
1,858 $
9,616 $
740 $ 10,356 $
1,118
—
20
88
33
20
72
4
29
10
20,133
20,133
40,266
6,070
23,574
—
—
6,070
—
—
890
890
19,243
1,269
1,269
4,801
23,574
5,384
2,735
8,119
20,839
6,502
2,167
8,669
4,153
5,434
9,587
1,068
4,457
7,642
—
—
4,457
2,241
4,416
6,657
41
7,642
2,300
2,594
4,894
5,048
2,217
1,313
3,530
18,840
1,261
20,101
956
9,934
9,934
19,868
4,504
5,029
9,533
4,905
252
252
504
6,700
127
6,827
125
511
256
184,865
184,865
369,730
25,122
57,818
82,940
127,047
1,119
—
909
129,724
27,353
157,077
101,934
26,155
128,089
103,569
—
—
—
— (71,206)
— (71,206)
—
1,972
1,454
397,228
246,017
643,245
109,588
108,468
218,056
288,760
178
90
17,550
17,550
35,100
3,865
2,819
6,684
14,731
2,150
1,544 $ 414,778 $ 263,567 $ 678,345 $113,453 $
111,287 $ 224,740 $
303,491
(i) Historical costs represent 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.
A summary of 2016 highlights from our expansion and redevelopment projects is as follows:
Brentwood Village Shopping Centre - Calgary, Alberta
The four condo towers at Brentwood Village, known as University City, sit atop two retail podiums. The podium below towers 1
and 2 is fully leased and features a 5,700 square foot sushi restaurant, a daycare, and Anytime Fitness. The podium below
towers 3 and 4 remains unleased except for Chatime, who took occupancy in the fourth quarter of 2016. We anticipate the
remaining space will be leased and open by late 2017.
Burlington Mall - Burlington, Ontario
In addition to the reconfiguration and improvements scheduled to occur in the former Target premises, there will be an additional
investment made to renovate the balance of the centre. The scope of the renovation includes creation of a new mall link corridor
connecting the existing food court to the HomeSense corridor via the former SportChek premises, a full renovation of the food
court including washroom upgrades, replacement of all existing flooring, the addition of new skylights and lighting as well as
cosmetic upgrades to the existing common areas.
Corbett Centre - Fredericton, New Brunswick
Construction is nearing completion on this 459,000 square foot new format retail centre. The site is shadow anchored by Costco
and Home Depot and operate as part of the overall site. During the fourth quarter of 2016, Princess Auto received possession of
68
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
a 25,000 square foot PAD and construction was underway for a 14,000 square foot New Brunswick Liquor. The tenants are
expected to open in the second quarter of 2017.
Flamborough Power Centre, Flamborough, Ontario
An 8,000 square foot Investors Group commenced operations in Q3 2016. An additional 88,000 square feet can be developed at
the property.
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 150,000
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 2015. Construction on the final phase of the development began in the third quarter of 2016 and the tenants are
expected to open in 2017. Deals have been completed with a 30,000 square foot GoodLife Fitness and a 2,800 square foot A&W.
Parkland Mall - Yorkton, Saskatchewan
Parkland Mall is an enclosed shopping centre located in Yorkton, Saskatchewan. A deal has been completed with Save-On-
Foods to backfill a former grocery store premises at the mall. In addition, approximately ten interior mall units will be demolished
in order to construct a new 20,000 square foot Winners. Construction is nearing completion and Save-On-Foods and Winners
are expected to open during the second quarter of 2017.
Place Greenfield Park - Greenfield Park, Quebec
Deals have been completed with a 27,000 square foot JYSK, a 24,000 square foot Giant Tiger, and a 15,000 square foot
Dollarama to backfill the former 70,000 square foot Grand Marche premises. Construction is underway to reconfigure the unit and
tenants are expected to commence operations by the fourth quarter of 2017.
Shoppers City East - Ottawa, Ontario
This 19.4 acre site consisted of a 152,000 square foot neighborhood shopping when the property was acquired. Demolition of the
buildings commenced late in 2013 and was completed in 2016. The property is currently being redeveloped into a 207,000
square foot new format retail centre.
A conditional deal has been completed 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 164,000 square foot store in 2017.
Construction is nearing completion on the remainder of the site that consists of four buildings totaling 43,000 square feet of retail
space. A 15,000 square foot Shoppers Drug Mart commenced operations in May 2016. Three additional buildings totaling 28,000
square feet are expected to commence operations by mid 2017. Deals have been completed with numerous national tenants
including The Beer Store and Tim Hortons.
Tanger Outlets - Ottawa, Kanata, Ontario
Construction is nearing completion on a 25,000 square foot Marshall’s. The tenant is projected to open during the second quarter
of 2017. An additional 33,000 square feet can be developed in the current phase and the property also has an additional ten
acres that can be redeveloped.
Yonge Sheppard Centre - Toronto, Ontario
The redevelopment plan includes 295,000 square feet of residential rental units and 216,000 square feet of commercial space.
The site will be anchored by Longo’s, LA Fitness, Winners and Shoppers Drug Mart. Construction on the retail renovation began
during the first quarter of 2016 and is expected to be completed in 2019. The final site plan agreement is expected to be in place
by the second quarter of 2017. Construction is expected to begin in the second quarter of 2018 on a 35-storey, 359-unit
residential rental building. RioCan and KingSett each own 50% of the property.
Former Target Properties
To date, RioCan has agreements in place or in advanced discussions on 47 leases that, when completed, will replace
approximately 122% of the revenue lost from the major retailer's exit, not including the enhanced common area maintenance and
realty tax recoveries. Approximately one-third of the replacement rental revenue will be in place by the end of the first quarter of
2017, including the tenants in possession by the end of 2016, with the majority of the backfilled base rental revenue in place by
the end of the year.
The expected cost to complete the redevelopment work related to the 47 leases is currently estimated to be approximately $104
million at RioCan's interest. A substantial portion of the capital required for the redevelopment work was provided through the net
settlement proceeds of $88 million (at RioCan’s interest) with Target Corporation, Target’s parent company. Once the
redevelopment work is completed, these properties will then move out of the Trust's development portfolio and back into the
income producing portfolio and we will cease to capitalize interest costs on the properties.
The net result of this event is stronger shopping centres with better appeal, greater cash flow, enhanced diversification, and a
stronger rent growth profile than the portfolio had previously.
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.
69
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Residential Development
RioCan has currently identified nearly 50 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
develop approximately 10,000 rental residential units over the next decade. 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 11 mixed use projects. If all planning permission
requests - including those where approvals have been received and those where applications have been filed - are granted as
applied for, a total of 10,583,000 square feet of potential development is expected, which will include residential rental units held
for long-term rental income; condominiums for sale that will, in most cases, be developed by third party partners through the sale
of air rights; and 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 proximity, to major transit lines
such as the existing Toronto Transit Commission's 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. The
figures in the chart below represent the first planned phase of development with multiple phases.
A summary of our residential development projects is as follows:
Property
Location
RioCan Ownership %
(Partner)
Estimated square feet upon completion of the first
phase of the development project (at 100%)
Yonge Eglinton Northeast Corner (v)
Toronto, ON
50% (Metropia / Bazis)
College & Manning (iii) (v)
Dupont Street (v)
Yonge Sheppard Centre (iv) (v)
King-Portland Centre (iii) (v)
Tillicum Centre (ii) (v)
Markington Square (ii) (v)
Toronto, ON
Toronto, ON
Toronto, ON
Toronto, ON
Victoria, BC
Toronto, ON
Gloucester - Residential (ii) (v)
Gloucester, ON
Fifth & Third (v)
Brentwood Village (ii) (v)
The Well
Sunnybrook Plaza (ii) (v)
Southland Crossing (ii)
Queensway Cineplex (ii)
Calgary, AB
Calgary, AB
Toronto, ON
Toronto, ON
Calgary, AB
Toronto, ON
Mill Woods Town Centre (ii)
Edmonton, AB
Spring Farm Marketplace (ii)
RioCan Grand Park (ii)
Dufferin Plaza (ii)
Elmvale Acres (ii)
Westgate Shopping Centre (ii)
RioCan Scarborough Centre (ii)
RioCan Leaside Centre (ii)
Total
GTA, ON
GTA, ON
Toronto, ON
Ottawa, ON
Ottawa, ON
Toronto, ON
Toronto, ON
Commercial
Residential (i)
Total
56,000
6,000
85,000
216,000
301,000
18,000
2,000
—
184,000
10,000
774,000
57,000
151,000
295,000
116,000
275,000
357,000
216,000
650,000
164,000
830,000
63,000
236,000
511,000
417,000
293,000
359,000
216,000
834,000
174,000
50% (Allied)
100%
50% (KingSett)
50% (Allied)
100%
100%
100%
100%
100%
40% (Allied / Diamond)
1,532,000
1,454,000
2,986,000
100%
100%
50% (Talisker)
40% (Bayfield)
100%
100%
100%
100%
100%
100%
100%
43,000
20,000
12,000
20,000
25,000
17,000
61,000
29,000
19,000
600,000
132,000
308,000
175,000
216,000
188,000
233,000
268,000
578,000
143,000
159,000
188,000
230,000
351,000
195,000
228,000
208,000
258,000
285,000
639,000
172,000
178,000
788,000
362,000
3,388,000
7,195,000
10,583,000
(i) Residential gross leasable area (GLA) represents residential rental units that will produce long-term rental income, as well as condominium units
and/or air rights 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).
(ii) The Urban Intensification and Expansion & 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.
In addition to the estimated square feet indicated in the above table, RioCan intends to file applications on additional properties
during 2017 and beyond. 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 air rights sales, or may decide not to proceed with the
contemplated development.
70
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Residential Inventory
Residential development inventory are properties acquired or developed for which RioCan intends to dispose of all or part of such
properties in the ordinary course of business, rather than hold on a long term basis for capital appreciation or for rental income
purposes. 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 income and sales proceeds. As at December 31,
2016, the Trust's residential development inventory consists of 623 pre-sold condominium units at our Yonge Eglinton Northeast
Corner development with Metropia and Bazis Inc..
Transfers of investment properties into residential inventory are based on a change in use evidenced by management's strategic
intent, together with the commencement of development activities 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.
Presented below are the carrying amounts of the Trust's residential inventory by property:
(thousands of dollars)
As at
Condominium units at Yonge Eglinton Northeast Corner
Townhomes at Stouffville Residential Lands
Stouffville Residential Lands
December 31, 2016
December 31, 2015
$
$
48,414 $
—
48,414 $
37,290
7,986
45,276
This project is comprised of a pre-sold townhouse development consisting of 272 units. During 2016, the final 93 townhomes
were closed (18 during the fourth quarter of 2016) resulting in cumulative life-to-date operating income of $2.7 million recognized
on the sale of all townhomes, at RioCan's ownership.
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 greenfield developments and development properties held for resale to no more than 15% of the
book value of RioCan's total consolidated unitholders’ equity, and this limitation also applies to any mortgages receivable to fund
the co-owners’ share of such developments referred to as mezzanine financing. At December 31, 2016, RioCan was in
compliance with these restrictions.
Contractual mortgages and loans receivable as at December 31, 2016 and December 31, 2015 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%
5%
7%
Weighted
Average
Rate December 31, 2016 December 31, 2015
5.1% $
124,245
107,745
$
4.5%
5.0% $
10,272
118,017
$
5,013
129,258
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.
CAPITAL RESOURCES AND LIQUIDITY
Liquidity and Cash Management
RioCan maintains a committed revolving bank facility to provide financial liquidity. These can be drawn or 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
71
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 RioCan's 2016 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 2017, 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, utilization of its operating line, construction financing facilities, sale of non-core properties, and through public
offerings of unsecured debentures and common equity. If market conditions become challenging, the Trust could finance certain
assets currently unencumbered by debt or issue preferred units.
Capital Structure
As at December 31, 2016 and December 31, 2015, RioCan’s capital structure is as follows (includes both continuing and
discontinued operations):
(thousands of dollars)
IFRS
RioCan's proportionate share
As at
Capital:
December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015
Mortgages payable and lines of credit
$
3,405,568
$
4,164,669
$
3,481,026
$
4,229,926
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
—
—
2,248,024
5,653,592
144,755
7,865,133
1,224,667
23,968
2,000,066
7,413,370
265,451
7,660,588
—
—
2,248,024
5,729,050
144,755
7,865,133
$
$
$
13,663,480
14,173,760
54,366
$
$
$
15,339,409
15,996,491
83,318
$
$
$
13,738,938
14,249,875
55,463
$
$
$
Ratio of total debt to total assets
(net of cash and cash equivalents)
Ratio of floating rate debt to total debt
39.7%
13.8%
46.1%
14.0%
40.0%
14.3%
1,224,667
23,968
2,000,066
7,478,627
265,451
7,660,588
15,404,666
16,063,873
85,336
46.3%
14.4%
As at December 31, 2016, RioCan's ratio of floating rate debt to total debt remained relatively flat at 13.8% (14.0% as at
December 31, 2015), as a result of the Trust repaying a portion of floating rate debt with the net sales proceeds generated from
the U.S. asset sale, largely offset by higher operating credit facility draws associated with property acquisitions and development
costs. Also in connection with the Trust repaying debt during 2016, our overall debt leverage has been reduced from 46.3% as at
December 31, 2015 to 40.0% as at December 31, 2016, as determined on a RioCan proportionate share basis.
We expect our total debt to total asset ratio to fluctuate going forward between 38% to approximately 42%. Over the next 12 to 18
months, we expect this ratio to rise toward the higher end of the range, primarily as a result of funding of our development
program.
RioCan continues to utilize floating interest rate debt for the purpose of interest rate risk management and for the flexibility it
offers in the execution of investment transactions.
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 ratios measuring
interest coverage, debt service coverage, fixed charge coverage, debt to adjusted EBITDA, operating debt to operating EBITDA
and unencumbered assets to unsecured debt.
72
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Presented below are the Trust's key debt and leverage metrics presented on both an IFRS and RioCan's proportionate share
basis in comparison to our targeted ratios:
Interest coverage (i)
Debt service coverage (i)
Fixed charge coverage (i)
Debt to adjusted EBITDA (i)
Operating debt to operating EBITDA (i)
Common unitholder distributions as a percentage of
AFFO
Rolling 12 months ended
IFRS
RioCan's proportionate share
December 31, December 31, December 31, December 31,
2016
3.38
2.62
1.10
8.04
7.68
2015
3.06
2.36
1.10
8.35
7.94
2016
3.36
2.61
1.10
8.10
7.74
2015
3.07
2.37
1.11
8.34
7.93
Targeted
Ratios
>3.00x
>2.25x
>1.10x
<8.0x
<6.5x
<90%
91.4%
90.4%
91.4%
90.4%
(thousands of dollars)
As at
Unencumbered assets
Unsecured debt:
Unsecured debentures
Amounts drawn on unsecured operating facility
Total unsecured debt outstanding
Unencumbered assets to unsecured debt
>200%
% NOI expected to be generated from
unencumbered assets (ii)
> 50%
IFRS
December 31, December 31,
2016
2015
$ 6,625,322
$ 3,321,413
$ 2,250,000
$ 2,000,000
505,185
—
$ 2,755,185
$ 2,000,000
240%
166%
49.5%
25.1%
(i) Refer to section Non-GAAP Measures in this MD&A for further details. See tables below for calculation of adjusted and operating EBITDA for the
respective periods.
(ii) Ratio is calculated on a continuing operations basis. Given the substantial increase in the amount of our unencumbered assets due to
repayments of secured debt, as well as our conversion from secured credit facilities to an unsecured facility, we have introduced a target relating
to the percentage of the portfolio's NOI that is generated from unencumbered assets.
The interest and debt service coverage ratios calculated on an IFRS basis for the year ended December 31, 2016 have improved
compared to December 31, 2015 mainly due to lower interest and debt service costs as a result of the repayment of debt using
the net proceeds from the U.S. sale and interest savings from mortgage refinancings, partially offset by a decrease in adjusted
EBITDA mainly in connection with our U.S. property portfolio disposition.
The fixed charge coverage ratio calculated on an IFRS basis has remained flat for the year ended December 31, 2016 compared
to December 31, 2015. Although our interest costs have been reduced as discussed above, our common and preferred unitholder
distributions, in aggregate, have remained largely unchanged over the comparable twelve month period. The lower total fixed
charges (interests plus unitholder distributions) was mostly offset by the lower adjusted EBITDA over the comparable period,
leaving the fixed coverage ratio largely flat.
Debt to adjusted EBITDA has decreased to 8.04 for the year ended December 31, 2016 mainly as a result of lower average debt
outstanding more than offset by a decline in adjusted EBITDA during the year in connection with the U.S. portfolio sale. This ratio
is likely to improve over the next 12 to 18 months as gains on the sale of marketable securities, the annualized impact of
acquisitions and same property growth more than offset the loss of EBITDA from the U.S. property portfolio sale.
The unencumbered assets to unsecured debt increased from 166% as of December 31, 2015 to 240% as of December 31, 2016,
above our target ratio of 200%. The percentage NOI expected to be generated from unencumbered assets has also improved
from 25.1% as of December 31, 2015 to 49.5% as of December 31, 2016. The improvements are a result of the following:
•
•
•
the sale of our U.S. portfolio and repayment of related mortgages,
the utilization of U.S. net sales proceeds to pay down secured Canadian mortgages, and
the conversion from a secured credit facility to unsecured credit facility during June 2016, which enabled RioCan to
unencumber multiple investment properties that were previously designated as collateral for the former secured credit
facilities.
As part of its capital management strategy, it is RioCan’s objective to further improve its leverage, unencumbered assets and
coverage ratios. The Trust’s objective is to achieve the targeted ratios indicated in the above table over time. In particular, we
anticipate achieving our target of having 50% of NOI generated from unencumbered assets in 2017.
73
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following tables present a reconciliation of consolidated net income from continuing and discontinued operations attributable
to unitholders to Adjusted and Operating EBITDA:
Year ended December 31,
2016
2015
(thousands of dollars)
Continuing
Operations
Discontinued
Operations
Total
Continuing
Operations
Discontinued
Operations
Total
Net income (loss) attributable to unitholders
$
683,060 $
147,687 $ 830,747 $
416,892 $ (275,129) $ 141,763
IFRS
Add (deduct) the following items:
Income tax expenses (recovery):
Current
Deferred
—
135,139
135,139
(3,850)
(230,675)
(234,525)
Fair value (gains) losses on properties, net
(182,888)
(16,899)
(199,787)
Accrued property taxes under IFRIC 21
Foreign exchange gains related to realty taxes (i)
Leasing costs
Non-cash unit based compensation expense
—
—
10,931
1,640
26,321
(1,176)
706
—
26,321
(1,176)
11,637
1,640
—
1,290
91,548
—
—
9,750
4,741
8,478
230,474
147,060
—
(1,176)
2,022
6
8,478
231,764
238,608
—
(1,176)
11,772
4,747
Interest costs
Long-term debt redemption costs
Depreciation and amortization
Foreign exchange loss
Transaction (gains) losses on the sale of
investment properties, net (ii)
Target settlement proceeds, net
Transaction costs on investment properties
179,527
18,927
198,454
186,772
49,253
236,025
—
4,386
—
—
12
—
—
4,398
—
9,929
4,434
131
—
221
—
9,929
4,655
131
(6,075)
(65,116)
(71,191)
2,631
—
8,165
—
—
(88,267)
53,562
61,727
8,458
(7,528)
—
3,487
(4,897)
(88,267)
11,945
Adjusted EBITDA
$
694,896 $
68,488 $ 763,384 $
648,309 $
157,168 $ 805,477
Less: Other transaction gains (iii)
(12,670)
(1,288)
(13,958)
(5,974)
Addback: Costs related to properties under
development (iv)
Operating EBITDA
Debt and operating debt is calculated as follows:
Average debt outstanding
Less: average cash and cash equivalents
Debt, net of cash and cash equivalents
Less: debt related to properties under
development (v)
Operating debt
2,694
—
2,694
3,339
$
684,920 $
67,200 $ 752,120 $
645,674 $
157,168 $ 802,842
$ 6,200,515
(60,710)
6,139,805
(366,476)
$ 5,773,329
$ 6,788,647
(60,168)
6,728,479
(350,577)
$ 6,377,902
—
—
(5,974)
3,339
(i) Relates to the favourable impact of foreign exchange for the period based on the timing of U.S. realty tax payments.
Includes transaction gains and losses realized on the disposal of Canadian and U.S. investment properties.
(ii)
Includes residential inventory transaction gains, realized gains on the sale of marketable securities, the extinguishment of a U.S. mortgage and
(iii)
corresponding interest rate swap and gains and losses related to our equity accounted investments in the WhiteCastle Funds.
(iv) The Trust adjusts for certain costs not capitalized for IFRS on excess density projects identified for future potential development that, in
management's view, form part of the capital cost of these projects.
(v) Allocated based on the ratio of Debt to Total Assets and applied to properties under development.
74
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Year ended December 31,
(thousands of dollars)
RioCan's proportionate share
2016
2015
Continuing
Operations
Discontinued
Operations
Total
Continuing
Operations
Discontinued
Operations
Total
Net income (loss) attributable to unitholders
$
683,060 $
147,687 $ 830,747 $
416,892 $ (275,129) $ 141,763
Add (deduct) the following items:
Income tax expenses (recovery):
Current
Deferred
—
135,139
135,139
(3,850)
(230,675)
(234,525)
Fair value (gain) loss on investment property, net
(183,643)
(15,207)
(198,850)
Accrued property taxes under IFRIC 21
Foreign exchange gains related to realty taxes (i)
Leasing costs
Non-cash unit based compensation expense
—
—
10,931
1,640
26,321
(1,176)
706
—
26,321
(1,176)
11,637
1,640
—
1,290
91,546
—
—
9,750
4,741
8,478
230,474
153,106
—
(1,176)
2,022
6
8,478
231,764
244,652
—
(1,176)
11,772
4,747
Interest costs
Long-term debt redemption costs
Depreciation and amortization
Foreign exchange loss
Transaction (gains) losses on the sale of
investment properties, net (ii)
Target settlement proceeds, net
Transaction costs
Adjusted EBITDA
181,496
18,927
200,423
188,410
49,253
237,663
—
4,386
—
—
12
—
—
4,398
—
9,929
4,434
131
—
221
—
9,929
4,655
131
(6,075)
(65,116)
(71,191)
2,631
—
8,165
—
—
(88,267)
53,562
61,727
8,458
(7,528)
—
3,487
(4,897)
(88,267)
11,945
$
696,110 $
70,180 $ 766,290 $
649,945 $
163,214 $ 813,159
Adjust: Other transaction gains (iii)
(12,670)
(1,288)
(13,958)
(5,974)
Adjust: Items related to properties under
development (iv)
Operating EBITDA
Net debt and net operating debt is calculated as
follows:
Average debt outstanding
Less: average cash and cash equivalents
Net debt
Less: debt related to properties under
development (v)
Net operating debt
2,697
—
2,697
3,339
$
686,137 $
68,892 $ 755,029 $
647,310 $
163,214 $ 810,524
$ 6,271,581
(62,165)
6,209,416
(366,476)
$ 5,842,940
$ 6,841,991
(62,244)
6,779,747
(350,577)
$ 6,429,170
—
—
(5,974)
3,339
(i) Relates to the favourable impact of foreign exchange during the year based on the timing of U.S. realty tax payments.
(ii)
(iii)
Includes transaction gains and losses realized on the disposal of Canadian and U.S. investment properties.
Includes residential inventory transaction gains, realized gains on the sale of marketable securities, the extinguishment of a U.S. mortgage and
corresponding interest rate swap and gains and losses related to our equity accounted investments in the WhiteCastle Funds.
(iv) The Trust adjusts for certain costs not capitalized for IFRS on excess density projects identified for future potential development that, in
management's view, form part of the capital cost of these projects.
(v) Allocated based on the ratio of Debt to Total Assets and applied to properties under development.
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, 2016, S&P provided RioCan with an issuer credit rating of BBB with a Stable outlook. On December 2,
2016, S&P raised the ratings on RioCan's senior unsecured debentures (Debentures) from BBB- to BBB. 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, 2016, DBRS provided RioCan with a credit rating of BBB (high) relating to the Debentures with a Stable
trend. 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.
75
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Credit Facility
On June 1, 2016, the Trust entered into a new $1.0 billion unsecured operating credit facility (also referred to as "line of credit")
with six Canadian Schedule I financial institutions, which replaced five secured operating credit facilities. The new facility has an
interest rate based on a pricing grid depending on RioCan's credit rating and the type of borrowing utilized, with the current rates
for Canadian dollar Banker's Acceptances and US dollar LIBOR loans being 120 basis points over the underlying rate. The
facility has a five-year term to maturity and a one-year extension option. The unsecured operating credit facility agreement
requires the Trust to maintain certain financial covenants in accordance with the credit facility agreement. Refer to note 24 of the
2016 Annual Consolidated Financial Statements for additional details.
As at December 31, 2016, RioCan had cash advances and letters of credit outstanding of $505 million and $0.4 million,
respectively, and $494 million in cash available to be drawn from this credit facility.
Letters of Credit
The Trust has aggregate letter of credit facilities with certain Schedule I banks totaling $81 million. As at December 31, 2016, the
Trust’s outstanding letters of credit under these facilities was $29 million (December 31, 2015 - $29 million).
Debentures Payable
We have the following series of senior unsecured debentures outstanding as at December 31, 2016 in connection with our
Canadian continuing operations:
Series
P
S
Q
U
X
R
V
T
W
I
Maturity date
March 1, 2017
March 5, 2018
June 28, 2019
June 1, 2020
August 26, 2020
December 13, 2021
May 30, 2022
April 18, 2023
February 12, 2024
February 6, 2026
Coupon rate
3.800%
2.870%
3.850%
3.620%
2.185%
3.716%
3.746%
3.725%
3.287%
5.953%
Interest payment frequency
Semi-annual
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
250,000
200,000
300,000
100,000
2,250,000
$
$
As at December 31, 2016, RioCan had debentures outstanding totalling $2.2 billion, net of unamortized debt financing costs
(December 31, 2015 – $2.0 billion).
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,
2016
2015
2016
2015
$
2,250,000 $
2,000,000 $
2,000,000 $
1,865,990
—
—
—
—
—
—
2,250,000
(1,976)
2,000,000
66
250,000
—
—
2,250,000
(1,976)
475,000
(349,900)
8,910
2,000,000
66
$
2,248,024 $
2,000,066 $
2,248,024 $
2,000,066
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 debentures.
Issuance
On August 26, 2016, the Trust issued $250 million of Series X senior unsecured debentures, which mature on August 26, 2020
and carry a coupon rate of 2.185%. The interest on these debentures is payable semi-annually commencing February 26, 2017.
The net proceeds were used by RioCan to fund development, property acquisitions, repayment of certain indebtedness and other
general trust purposes.
Subsequent to December 31, 2016, the Trust issued $300 million of Series Y senior unsecured debentures, which mature on
October 3, 2022 and carry a coupon rate of 2.83%. The interest on these debentures is payable semi-annually commencing April
3, 2017. This series of debentures has the same covenants as the rest of the series of debentures and does not have the
additional covenants for Series I debentures, as noted earlier.
76
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Mortgages Payable and Lines of Credit
Canadian mortgages payable and lines of credit consist of the following and are presented net of unamortized financing costs:
As at
Line of credit
Construction lines and other bank loans
Mortgages payable
Mortgages on Canadian properties held for sale
Fixed rate mortgages
Floating rate mortgages, line of credit, construction lines and other bank loans
December 31, 2016 December 31, 2015
$
$
$
$
$
502,359 $
203,274
2,699,935
3,405,568 $
—
3,405,568 $
2,627,591 $
777,977
3,405,568 $
561,389
182,622
3,420,658
4,164,669
23,968
4,188,637
3,230,492
958,145
4,188,637
The weighted average contractual and effective rates for fixed and floating rate mortgages payable and lines of credit are as
follows:
As at December 31,
Fixed rate
Floating rate
Total
Contractual
2016
4.07%
1.81%
3.55%
2015
4.17%
1.79%
3.63%
Effective
2016
3.98%
1.81%
3.49%
2015
4.36%
1.79%
3.71%
For the three months and year ended December 31, 2016, RioCan's new mortgage borrowings and operating line draws for its
Canadian operations are as follows:
Three months ended December 31, 2016
Year ended December 31, 2016
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
(thousands of dollars, except other data)
New borrowings:
Fixed rate term mortgages
$
Floating rate term mortgages
Construction financing
Operating lines of credit and other
bank loans
New borrowings
Aggregate new borrowings:
Fixed rate debt
Floating rate debt
Aggregate new borrowings debt
—
—
10,032
228,892
$
238,924
$
$
—
238,924
238,924
—%
—%
2.20%
1.93%
1.94%
—%
1.94%
1.94%
— $
—
2.20
91,300
72,590
27,294
4.40
1,118,712
— $ 1,309,896
— $
91,300
4.31
1,218,596
— $ 1,309,896
2.98%
2.21%
2.23%
1.75%
1.87%
2.98%
1.78%
1.87%
5.85
2.09
1.84
2.41
—
5.85
2.39
—
77
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Changes in the carrying amount of the Canadian and U.S. mortgages payable and lines of credit resulted primarily from the
following:
(thousands of dollars)
2016
2015
2016
2015
Contractual obligations, beginning of period
$
3,346,731 $
4,661,538 $
5,398,642 $
4,576,115
Three months ended December 31,
Year ended December 31,
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 and other bank
loans
Principal repayments:
Scheduled amortization
Operating lines of credit and other bank loans
At maturity: Fixed rate term mortgages
Construction financing
Disposed on the sale of properties located in:
Canada
U.S.
Assumed on the acquisition of properties
Foreign currency translation (gain) loss
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, net of premiums and
discounts
Balance, end of period
Less: Mortgages associated with properties held for sale:
Canada
U.S.
—
—
—
10,032
9,900
14,262
—
10,248
91,300
—
72,590
27,294
343,776
268,094
—
43,140
228,892
461,296
1,118,712
817,296
(14,685)
(10,000)
(165,453)
—
—
—
—
—
(19,046)
(26,529)
(16,446)
(15,088)
—
—
262,802
55,705
3,395,517
5,398,642
(65,111)
(1,154,814)
(890,420)
(15,469)
(29,359)
(1,119,562)
62,697
(100,983)
3,395,517
(78,245)
(341,830)
(608,616)
(17,334)
(155,117)
—
286,986
264,377
5,398,642
16,658
31,626
16,658
31,626
(6,607)
(16,964)
(6,607)
(16,964)
$
3,405,568 $
5,413,304 $
3,405,568 $
5,413,304
—
—
23,968
1,224,667
—
—
$
3,405,568 $
4,164,669 $
3,405,568 $
23,968
1,224,667
4,164,669
At the outset of 2016, RioCan had $484 million of mortgage principal maturing in 2016 at a weighted average contractual interest
rate of 4.50%. For the year ended December 31, 2016, RioCan secured new term mortgage borrowings of $164 million at a
weighted average interest rate of 2.64% and a weighted average term of 4.2 years, which include two floating rate mortgages for
$73 million having a weighted average term of 2.09 years. For the year ended December 31, 2016, repayments of maturing
mortgage balances and scheduled amortization amounted to $956 million.
Hedging Activities
Interest rate risk
As at December 31, 2016, the outstanding notional amount of floating-to-fixed interest rate swaps was $683 million (December
31, 2015 – $993 million) and the term to maturity of these agreements ranges from April 2017 to October 2023. 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, 2016.
Refer to note 23 of the 2016 Annual Consolidated Financial Statements for the year ended December 31, 2016 for further details.
Foreign currency 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. As a result of the Trust's disposal of its U.S. property portfolio, repayment of U.S. denominated debt and
exit from its U.S. operations, RioCan has significantly reduced its foreign exchange risk.
For further details, refer to note 23 of the 2016 Annual Consolidated Financial Statements for the year ended December 31, 2016.
Cross currency interest rate swaps
On occasion, we will fund our Canadian assets by electing to draw on our unsecured credit facility in US dollars bearing interest
at US LIBOR when it is determined that the differential between Canadian and U.S. interest rates makes it economically
advantageous to do so.
78
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
During the year ended December 31, 2016, the Trust entered into cross currency interest rate swaps as part of its strategy to
hedge any U.S. dollar denominated borrowings from the Trust's unsecured operating credit facility. These have the economic
effect of converting floating rate U.S. dollar borrowings to floating rate Canadian dollar borrowings. These cash flow hedges are
short-term in nature and qualify for hedge accounting. These hedges are expected to be highly effective since all critical terms of
the hedged item and hedging instrument match. All such designated hedging relationships were effective as of the reporting date,
with a total U.S. dollar principal value of US$365 million.
Canadian Debt Profile
As at December 31, 2016, RioCan’s Aggregate Debt had a 3.42 year weighted average term to maturity (December 31, 2015 –
3.55 years) bearing interest at a weighted average contractual interest rate of 3.54% (December 31, 2015 – 3.65%). As at
December 31, 2016, 13.8% of the Trust’s Aggregate Debt is at floating interest rates compared to 14.0% at December 31, 2015.
We temporarily increased our debt levels during the first half of 2016 through increased use of floating rate operating lines to fund
the Kimco portfolio acquisition and the redemption of our Series A preferred units. Proceeds generated from the U.S. asset sale
and our Series X debentures were mostly used to repay operating lines of credit. This repayment activity during the period was
partly offset by higher operating credit facility draws associated with property acquisitions and development costs, resulting in a
slightly reduced weighting of floating rate debt in our overall portfolio from December 31, 2015.
RioCan's fixed and floating rate debt as a percentage of total Aggregate Debt and term to maturity are as follows:
As at December 31, 2016
Aggregate debt at:
Fixed rate debt
Floating rate debt
Aggregate debt
Aggregate debt
Percentage of total
RioCan's aggregate debt
Weighted average
term to maturity in years
$
$
4,875,615
777,977
5,653,592
86.2%
13.8%
100%
3.43
3.35
3.42
The weighted average contractual and effective rates for fixed and floating aggregate debt including mortgages payable, lines of
credit, debentures and the impact of hedging programs, where applicable, are as follows:
As at December 31,
Fixed rate
Floating rate
Total
Contractual
Effective
2016
3.81%
1.81%
3.54%
2015
3.90%
1.79%
3.65%
2016
3.77%
1.85%
3.50%
2015
3.92%
1.80%
3.71%
RioCan’s debt maturity profile and future repayments are as outlined below:
Contractual principal maturities and interest rates (i)
(thousands of dollars, except
percentage amounts)
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
As at December 31, 2016
Year ending December 31:
2017
2018
2019
2020
2021
Thereafter
$
702,743
4.18%
$
163,595
1.24% $
64,088 $
930,426
3.66% $
150,000
3.80% $
1,080,426
447,327
263,179
425,840
348,782
256,041
3.86%
4.38%
3.71%
4.42%
3.89%
50,000
39,679
22,590
505,185
—
2.13%
2.13%
2.38%
1.92%
—%
44,730
32,724
17,836
6,992
4,186
542,057
335,582
466,266
860,959
260,227
3.70%
4.11%
3.64%
2.95%
3.89%
250,000
350,000
400,000
250,000
850,000
2.87%
3.85%
2.72%
792,057
685,582
866,266
3.72%
1,110,959
3.84%
1,110,227
$ 2,443,912
4.07%
$
781,049
1.81% $
170,556 $ 3,395,517
3.55% $ 2,250,000
3.52% $
5,645,517
3.68%
3.44%
3.98%
3.22%
3.12%
3.85%
3.54%
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
Balance
(i) Amounts for 2017 also include due on demand facilities.
16,658
(8,583)
$
5,653,592
As at December 31, 2016, our mortgages payable and lines of credit including mortgages associated with properties held for sale
was $3.4 billion ($4.2 billion as at December 31, 2015). The majority of our mortgage debt 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 rates that could otherwise be obtained.
79
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Trust Units
As at December 31, 2016, there are 327 million common trust units outstanding, including exchangeable limited partnership units.
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 quarter and year ended December 31, 2016 and 2015, we issued common units as follows:
(number of units in thousands)
Units outstanding, beginning of period (i)
Units issued:
Distribution reinvestment plan
Unit option plan
Direct purchase plan
Exchangeable limited partnership units
Units outstanding, end of period (i)
Three months ended December 31,
Year ended December 31,
2016
325,845
2015
321,051
2016
322,483
551
202
17
—
1,420
—
12
—
2,399
1,671
36
26
326,615
322,483
326,615
2015
315,986
5,443
1,019
35
—
322,483
(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, 2016 – 1,164,010 LP
units, December 31, 2015 – 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 three months ended December 31, 2016, 0.6 million units were issued pursuant to our distribution reinvestment plan
("DRIP") resulting in $7.1 million in equity capital and representing a participation rate of 6.2%. During the same period in 2015,
the Trust issued 1.4 million units resulting in $35 million in equity capital, representing a participation rate of 30.6%. During the
first quarter of 2016, we eliminated our 3.1% discount on the distribution reinvestment plan, resulting in a decline in our DRIP
participation rate for the quarter. Refer to the Distributions to Unitholders section of this MD&A for further details on changes to
the Trust's distribution reinvestment plan.
During the year ended December 31, 2016, 2.4 million units were issued pursuant to our DRIP resulting in $61 million in equity
capital and representing a participation rate of 13.3%. During the same period in 2015, the Trust issued 5.4 million units resulting
in $143 million in equity capital, representing a participation rate of 31.5%.
As of February 15, 2017, there are 326.8 million common units issued and 8.3 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 Incentive Unit Option Plan (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.
As at December 31, 2016, 11.6 million unit options remain available for grant under the Plan (December 31, 2015 – 12.6 million
unit options). During the year ended December 31, 2016, 1.7 million units were issued pursuant to exercises of the incentive unit
options, compared to 1.0 million units issued during the same period in 2015.
Executive compensation plan
The Trust grants performance equity units (PEUs) under the PEU Plan with a three-year performance period for certain senior
executives. The PEUs will be subject to both internal and external measures consisting of both absolute and relative performance
over a three-year period, which upon vesting are cash settled.
RioCan 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.
During February 2016, we granted 0.2 million performance equity units (PEUs) under our PEU Plan at an IFRS fair value of $5.3
million, where PEUs will fully vest in February 2019 with one-third vested each year over the three-year period.
Normal course issuer bid
On October 18, 2016, RioCan announced the TSX approval of its notice of intention to make a normal course issuer bid (NCIB)
for a portion of its common trust units as appropriate opportunities arise from time to time. See note 13 in RioCan's 2016 Annual
Consolidated Financial Statements as at and for the year ended December 31, 2016 for further details.
80
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Preferred Units
On March 31, 2016, the Trust exercised its option to redeem all 5 million outstanding Series A preferred trust units at the cash
redemption price of $25.00 per Series A preferred trust unit, for total cash proceeds of $125 million paid on April 1, 2016. Unit
issue costs totaling $4.3 million were recorded as a charge to retained earnings upon redemption, representing the excess of par
redemption value over the carrying value of the preferred trust units.
Guarantees
As at December 31, 2016, the maximum exposure to loss resulting from the Trust's mortgage guarantees, on behalf of certain of
our co-owners' interests and mortgages assumed by purchasers on property dispositions, is approximately $428 million, with
expiries between 2017 and 2034 (December 31, 2015 - $457 million). The maximum exposure to credit risk relating to a
guarantee is the maximum risk of loss if there was a total default, without consideration of recoveries under recourse provisions
against the aforementioned parties. During the year ended December 31, 2016, we both disposed of and acquired interests in
certain properties which, on a net basis, reduced our maximum exposure to loss under guarantees.
As at December 31, 2016 and during 2016, 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 2016 Annual
Consolidated Financial Statements.
The parties on behalf of which RioCan has outstanding guarantees are as follows:
(thousands of dollars)
As at
Partners and co-owners
HBC
KingSett
Bayfield
Metropia and Bazis
Trinity
Kimco
Other
Assumption of mortgages by purchasers on property dispositions
Devimco
Other
Liquidity
December 31, 2016 December 31, 2015
124,082 $
126,916
83,750
63,230
39,679
22,614
—
7,555
33,750
39,474
22,900
52,537
45,382
36,738
340,910 $
357,697
56,574
30,252
427,736 $
58,035
40,966
456,698
$
$
$
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 operating line of credit, construction financing facilities, 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.
As at December 31, 2016, RioCan had the following sources of liquidity available:
•
•
•
•
$54 million of cash and cash equivalents,
$494 million of cash available under its undrawn operating line of credit,
$130 million of cash available under undrawn construction facilities, and
183 unencumbered Canadian properties with a fair value of $6.6 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.
AFFO for 2016 has remained flat compared to 2015 on a total AFFO basis. However, AFFO per unit decreased from $1.57 in
2015 to $1.54 in 2016 mainly as a result of an increase in weighted average trust units outstanding during 2016 due primarily to
our distribution reinvestment and unit option plans. This results in a ratio of distributions as a percentage of AFFO of 91.4% as
compared to 90.4% for the year ended December 31, 2015. Refer to "AFFO Highlights" section of this MD&A for the AFFO
change. 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. We continue to target a ratio at or below 90% over the long term, although there may be some fluctuations from
81
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
quarter to quarter.
RioCan’s liquidity profile is as follows:
(thousands of dollars)
As at
Cash and cash equivalents
Undrawn operating line 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, 2016 December 31, 2015
December 31, 2016 December 31, 2015
$
$
$
54,366
494,380
548,746
2,250,000
3,395,517
—
$
$
$
83,318
339,284
422,602
2,000,000
4,173,840
1,224,802
$
$
$
55,463
494,380
549,843
2,250,000
3,470,135
—
5,645,517
$
7,398,642
$
5,720,135
$
9.7%
48.8%
51.2%
5.7%
27.0%
73.0%
9.6%
48.2%
51.8%
85,336
339,284
424,620
2,000,000
4,238,544
1,224,802
7,463,346
5.7%
26.8%
73.2%
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, 2016 are as follows:
(thousands of dollars)
Contractual obligations:
2017
2018
2019
2020
2021
Thereafter
Total
Lines of credit and other bank loans
$ 163,595
$
— $ 39,679
$
— $ 505,185
$
— $ 708,459
Mortgages payable
Unsecured debentures
Lease commitments
766,831
150,000
3,751
542,057
250,000
3,708
295,903
350,000
3,606
466,266
400,000
3,342
355,774
250,000
3,005
260,227
2,687,058
850,000
2,250,000
26,473
43,885
Total
$ 1,084,177 $ 795,765 $ 689,188 $ 869,608 $ 1,113,964 $
1,136,700 $ 5,689,402
Estimated development expenditures:
Active developments (i)
350,350
411,589
201,663
—
— 549,250 (ii)
1,512,852
Total
$ 1,434,527 $ 1,207,354 $ 890,851 $ 869,608 $ 1,113,964 $
1,685,950 $ 7,202,254
(i) 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.
(ii) Represents forecasted development expenditures from 2020 and thereafter.
The Trust's contractual debt obligations and projected development expenditures can be funded by net proceeds from the sale of
non-core assets (including, but not limited to, excess land and potential air rights), existing cash on hand, our unsecured
operating line, construction lines, proceeds from mortgage refinancing and proceeds from the issuance of unsecured debentures
or equity units.
In addition, our debt strategy has resulted in an unencumbered asset pool with an approximate fair value of $6.6 billion as at
December 31, 2016, which can generate additional liquidity, if needed.
Unencumbered Assets
RioCan has the continued flexibility to generate additional funds in 2017 through upward refinancing of maturing loan balances.
As at December 31, 2016, our debt strategy has resulted in approximately 49.5% of annualized NOI being generated by
unencumbered assets, providing us with access to a pool of assets for obtaining additional secured debt (December 31, 2015 -
25.1%). Management expects this ratio to improve to over 50% in 2017. The fair value of the unencumbered investment
property assets as at December 31, 2016 is estimated at approximately $6.6 billion for 183 properties or 49.9% of the total fair
value of investment properties as compared to 119 properties with a fair value of $3.3 billion as at December 31, 2015.
82
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
The table below presents RioCan’s interest in assets at fair value that are available to finance and/or refinance for debt maturing
in 2017 and 2018:
(thousands of dollars)
Unencumbered assets (i)
Number of
Properties
Fair Value of Investment
Properties as at
Principal balance of debt maturing
December 31, 2016
2017
2018
Thereafter
183 $
6,625,322 $
— $
Encumbered assets with debt maturing in 2017
Encumbered assets with debt maturing in 2018
Encumbered assets with debt maturing thereafter
27
14
76
1,591,826
1,206,155
3,924,265
670,343
—
—
— $
—
438,387
—
—
—
— 1,591,205
Total
$
13,347,568 $
670,343 $
438,387 $ 1,591,205
(i) Substantially all of the Trust's unencumbered assets are income producing properties and 100% owned.
Considering the availability our credit facility, 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 in 2017 to meet our maturing debt obligations in 2017.
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. From time to time, RioCan
may retain some taxable income and net capital gains, when appropriate, in order to utilize the capital gains refund available to
mutual fund trusts without incurring any income taxes. Accordingly, no provision for current income taxes payable is required,
except for amounts incurred in our incorporated Canadian subsidiaries.
Our U.S. subsidiary qualified as a REIT for U.S. income tax purposes up to May 25, 2016, subsequent to the closing date of the
sale of our U.S. property portfolio. The subsidiary distributed all of its U.S. taxable income 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. Our U.S.
subsidiary was subject to a 30% or 35% withholding tax on distributions of its U.S. taxable income to Canada. We do not intend
to distribute any withholding taxes paid or payable to our unitholders, related to the disposition.
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.
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. For the year ended December 31, 2016, we expect the taxability of the Trust's
distributions to be higher than historical average, primarily due to the gains realized upon the sale of our U.S. property portfolio
during the year.
Our monthly distribution in 2016 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
$
$
2016
458,388
(60,782)
397,606
13.3%
$
$
2015
453,094
(142,715)
310,379
31.5%
In consideration of the funds received as a result of the sale of our U.S. portfolio, management determined that an additional
incentive for participants in the distribution reinvestment plan is currently not necessary. During the first quarter of 2016, we
eliminated our 3.1% discount on the distribution reinvestment plan, which resulted in a decline in our DRIP participation rate.
83
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
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
Adjustments for:
Other changes in working capital items
Adjusted operating cash flow
Deduct: Distributions declared to unitholders
Excess (Deficit) of adjusted operating cash flow over distributions to unitholders
Add back: Distributions reinvested through the distribution reinvestment plan
Excess (Deficit) of adjusted operating cash flow over distributions,
net of distribution reinvestment plan
2016
2015
$
455,424 $
614,816
(156,069)
299,355
458,388
(159,033)
67,857
(12,676)
602,140
453,094
149,046
142,715
$
(91,176) $
291,761
The $159 million deficit in adjusted operating cash flow over distributions to unitholders for the year ended December 31, 2016
was impacted unfavourably by income tax expenses and transaction costs in connection with the sale of our U.S. property
portfolio. The following table summarizes such costs associated with the disposal of our U.S. properties in the years ended
December 31, 2016 and 2015:
(thousands of dollars)
Year ended December 31,
Current income taxes
Transaction costs
2016
135,139 $
53,562
2015
8,478
3,868
188,701 $
12,346
$
$
Absent these U.S. taxes and transaction costs (which taxes and transaction costs, for greater certainty, were funded from the
proceeds of the sale of the U.S. property portfolio), RioCan would have generated approximately $30 million of cash flow in
excess of distributions to unitholders for the year ended December 31, 2016. Accordingly, we expect to maintain adequate cash
flows to fund future unitholder distributions.
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, 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 income in accordance with IFRS as the basis to establish the level of unitholders’ distributions as net
income includes, 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, capital expenditures for the property portfolio, preferred unitholder distributions and proceeds on the
sale of marketable securities.
84
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
QUARTERLY RESULTS AND TREND ANALYSIS
(millions of dollars, except per unit amounts)
2016
2015
As at and for the quarter ended (i)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$
$
$
$
$
$
$
$
$
Revenue
Net income (loss) attributable to unitholders
Net income from continuing operations
attributable to unitholders
NOI
FFO
OFFO
AFFO
Total assets
Total debt (ii)
Common unitholder distributions
DRIP participation rate
Weighted average common units outstanding
– diluted (in thousands)
Per unit basis (diluted)
Net income attributable to unitholders from
continuing operations
Net income (loss) attributable to unitholders
FFO
OFFO
AFFO
Common unitholder distributions
Net book value per unit (iii)
Closing market price per common unit
Key Performance Indicator Ratios
Same Property NOI growth (decline) %
Common unitholder distributions paid as a
percentage of AFFO
Debt to total assets
Debt to total assets
(RioCan's proportionate share)
Interest coverage
(RioCan's proportionate share)
Debt to Adjusted EBITDA
(RioCan's proportionate share)
$
292
164
178
179
132
132
119
$
282
248
254
174
140
131
127
$
276
271
143
166
133
135
122
284
147
108
167
143
148
133
$
291
$
(178)
200
205
221
142
129
264
144
113
201
140
140
126
$
263
$
270
86
59
198
135
136
123
89
45
206
127
138
123
14,174
14,056
13,469
15,856
15,996
15,255
15,104
15,083
5,654
115
6.2%
5,606
115
7.0%
5,112
115
9.1%
7,218
114
7,413
114
6,667
113
6,732
112
30.7%
30.1%
35.1%
29.8%
6,687
112
30.6%
326,639
326,658
325,811
323,812
322,195
320,672
319,485
317,805
0.54
0.50
0.40
0.40
0.37
0.35
24.08
26.63
2.2%
91.4%
39.7%
40.0%
3.36
8.10
$
$
$
$
$
$
$
$
0.77
0.75
0.43
0.40
0.39
0.35
23.89
27.22
2.0%
90.0%
39.6%
39.9%
3.23
8.07
$
$
$
$
$
$
$
$
0.43
0.83
0.41
0.41
0.37
0.35
$
$
$
$
$
$
0.31
0.43
0.44
0.46
0.41
0.35
$
$
$
$
$
$
0.61
(0.56)
0.69
0.44
0.40
0.35
$
$
$
$
$
$
0.34
0.44
0.44
0.44
0.39
0.35
$
$
$
$
$
$
0.18
0.26
0.42
0.43
0.38
0.35
23.59
$ 23.73
$ 23.76
$ 24.58
$ 24.19
29.33
$ 26.60
$ 23.69
$ 25.47
$ 26.77
$
$
$
$
$
$
$
$
0.1%
(2.2%)
(3.4%)
(2.4%)
(1.1%)
89.9%
89.2%
90.4%
91.6%
94.5%
37.7%
38.0%
45.4%
45.6%
46.1%
46.3%
43.6%
43.8%
44.3%
44.5%
3.11
8.17
3.11
8.46
3.07
8.34
3.00
8.28
3.00
8.19
0.13
0.27
0.40
0.43
0.39
0.35
24.39
28.97
0.1%
94.5%
44.1%
44.3%
2.93
8.14
3.96%
161%
Weighted average contractual interest rate
Unencumbered assets to unsecured debt (v)
3.54%
240%
3.63%
245%
3.91%
256%
3.60%
167%
3.65%
166%
3.87%
165%
3.94%
149%
(vi)
% NOI expected to be generated from
unencumbered assets (v) (vii)
Other
Number of employees
Residency of unitholders (iv)
– Canadian
– Non-resident
49.5%
46.3%
43.7%
26.7%
25.1%
n.a.
n.a.
n.a.
669
660
655
726
727
732
736
736
69.9%
30.1%
71.3%
28.7%
71.8%
28.2%
72.2%
27.8%
80.0%
20.0%
76.3%
23.7%
69.4%
30.6%
69.2%
30.8%
n.a. Not applicable. The Trust commenced reporting % NOI expected to be generated from unencumbered assets in Q4 2015.
(i) Refer to RioCan’s respective annual and interim MD&As issued for a discussion and analysis relating to those periods.
(ii) Total debt is defined as the sum of mortgages payable, lines of credit and other bank loans, mortgages on properties held for sale and debentures payable.
(iii) 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.
(iv) Estimates based on mailing addresses on record at the end of each reporting period.
(v) Represents a non-GAAP measure. RioCan's method of calculating non-GAAP measures may differ from other reporting issuers' methods and accordingly
may not be comparable. For definitions and basis of presentation of RioCan's non-GAAP measures, refer to the section Presentation of Financial Information
and Non-GAAP Measures in this MD&A.
(vi) Unencumbered assets to unsecured debt is defined as unencumbered assets divided by unsecured debt.
(vii) Ratio is calculated on a continuing operations basis.
85
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Our revenue and operating results are not materially impacted by seasonal factors. However, macroeconomic and market
trends, as described under the Outlook section of this MD&A, do have an influence on the demand for space, occupancy levels
and, consequently, our revenue and operating performance.
Overall, quarterly fluctuations in our revenue and operating results are mainly attributable to occupancy and same property
growth, acquisitions and dispositions, the sale of marketable securities, Target backfill progress and fair value gains and losses
on investment properties.
Revenue was relatively flat from Q1 2015 to Q3 2015. The increase in revenue in Q4 2015 was mainly the result of substantial
Kimco property acquisitions completed in that quarter. The revenue decline from Q1 2016 to Q2 2016 was mainly related to the
sale of our U.S. portfolio in late May 2016. The further decline in revenue in Q3 2016 was due to a full quarter effect of the sale
of the U.S. portfolio in late May 2016, partially offset by the CPPIB and Kimco portfolio acquisitions completed in Q3 2016. The
subsequent revenue increase in Q4 2016 was largely due to a full quarter effect of the CPPIB and Kimco portfolio acquisitions
completed in Q3 2016 and stronger same property growth in Q4 2016.
The above factors for quarterly revenue variations also affect the quarterly variations in net income, NOI, FFO, OFFO and AFFO.
In addition, the increase in net income from continuing operations attributable to unitholders from Q2 2015 to Q3 2015 was
primarily due to higher fair value loss in Q2 2015 resulting from property specific valuation adjustments relating to interior
renovation costs at some of our enclosed malls. The subsequent increase in net income from continuing operations attributable
to unitholders in Q4 2015 was primarily due to Target settlement income. The net income (loss) attributable to unitholders was a
loss in Q4 2015 mainly due to net loss from the U.S. discontinued operations resulting mainly from fair value loss due to an
increase in capitalization rates of the Northwest U.S. properties and higher deferred tax expense relating to the U.S. portfolio.
FFO over the same periods were relatively stable as fair value gains or losses were excluded in FFO but included in net income.
FFO increased in Q4 2015 primarily due to Target settlement income while OFFO for the same period was relatively stable as the
Target settlement income was excluded from OFFO.
Aggregate debt levels and overall leverage declined by approximately 7% in Q2 2016 mainly due to the sale of our U.S. portfolio
and the use of the net proceeds to lower our debt levels. The subsequent approximately 2% increase in debt levels in Q3 2016
was mainly attributable to Canadian acquisitions in Q3 2016 funded by debt. The overall trend of improvement in interest
coverage and debt to adjusted EBITDA from 2015 to 2016 was also primarily due to the sale of the U.S. portfolio and use of the
net proceeds to lower our debt levels, as well as interest savings from our mortgage refinancing during 2016.
The significant improvement in our unencumbered assets to unsecured debt and percentage of NOI expected to be generated
from unencumbered assets since Q2 2016 was mainly due to the sale of our U.S. portfolio and repayment of related mortgages,
utilization of net proceeds from the sale to pay down secured Canadian mortgages, and the conversion of a secured line of credit
facility to an unsecured credit facility.
In consideration of the funds received as a result of the sale of our U.S. portfolio, management determined that an additional
incentive for participants in the distribution reinvestment plan was no longer necessary. During the first quarter of 2016, we
eliminated the 3.1% discount on the distribution reinvestment plan, which resulted in a subsequent decline in the participation
rate. The distribution reinvestment plan's lower participation rate since Q2 2016 was the main reason causing the lower than
historical average quarterly increase in weighted average common units outstanding in Q3 2016 and Q4 2016.
86
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Unaudited Consolidated Statements of Income
(In thousands of Canadian dollars, except per unit amounts)
Three months ended December 31,
Revenue
Rental revenue
Residential inventory sales
Property and asset management fees
Operating costs
Rental operating costs
Recoverable under tenant leases
Non-recoverable costs
Residential inventory cost of sales
Operating income
Other income
Interest income
Income from equity accounted investments
Fair value gain on investment properties, net
Investment and other income
Other expenses
Interest costs
General and administrative
Leasing costs
Transaction and other costs
Income before income taxes
Deferred income tax expense (recovery)
Net income from continuing operations
Net loss from discontinued operations
Net income (loss)
Net income (loss) attributable to
Unitholders
Non-controlling interests
Net income (loss) per unit - basic:
From continuing operations
From discontinued operations
Net income per unit - basic
Net income (loss) per unit - diluted:
From continuing operations
From discontinued operations
Net income per unit - diluted
Weighted average number of units (in thousands):
Basic
Diluted
87
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
2016
2015
$
285,257
$
263,893
3,353
2,968
291,578
101,058
5,233
4,550
110,841
180,737
1,657
4,521
44,371
6,762
57,311
43,464
14,000
2,663
2,449
62,576
175,472
(3,000)
22,888
4,355
291,136
96,386
6,316
21,563
124,265
166,871
1,457
4,510
1,183
97,261
104,411
47,853
14,854
2,340
5,046
70,093
201,189
1,350
$
$
$
$
$
$
$
$
178,472
$
199,839
(14,013)
(377,837)
164,459 $ (177,998)
164,459 $ (178,041)
—
43
164,459 $ (177,998)
0.54
$
(0.04)
0.50 $
0.54
$
(0.04)
0.50 $
0.61
(1.17)
(0.56)
0.61
(1.17)
(0.56)
326,466
326,639
321,894
322,195
MANAGEMENT’S DISCUSSION AND ANALYSIS
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are described in note 3 of RioCan's audited 2016 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.
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. RioCan has
recently involved third party appraisers in its valuation process. For the year ended December 31, 2016, RioCan had 22
properties (including 13 land parcels) valued by experienced valuation professionals having the required qualifications in
property appraisals. Going forward, our current plan is to select a sample of investment properties (approximately six each
quarter) on a rotational basis for external appraisal. Refer to Asset Profile for a further discussion of fair values of investment
property.
• Unit based compensation expense is measured at fair value and expensed over the option vesting period, calculated using the
Black-Scholes Model for unit option valuation and the Monte-Carlo simulation pricing model for the performance equity unit
plan. For the year ended December 31, 2016, we recorded unit-based compensation expense of $6.7 million (December 31,
2015 - $4.7 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.
• 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, 2016 is $5.1 billion. The Trust reported a $5.1
billion fair value relating to these mortgages and debentures payable in note 22 to the 2016 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 2016 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
2016 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.
88
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 income.
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.
FUTURE CHANGES IN ACCOUNTING POLICIES
RioCan monitors the potential changes proposed by the IASB and analyzes the effect that changes in the standards may have on
RioCan’s operations. Standards issued, but not yet effective, up to the date of issuance of the consolidated financial statements
for the year ended December 31, 2016, 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. RioCan is currently assessing the impact of IFRS 9 and intends to
adopt the new standard on the required effective date.
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 of IFRS
16 and intends to adopt the new standard on the required effective date.
89
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
IAS 40, Investment Property (IAS 40)
During December 2016, the IASB issued an amendment to IAS 40 clarifying certain existing requirements. The amendment
requires that an asset be transferred to or from investment property only when there is a change in use. A change in use occurs
when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. In
isolation, a change in management’s intentions for the use of a property does not provide evidence of a change in use. These
amendments are effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. RioCan is
currently assessing the impact on the Trust's Consolidated Financial Statements and intends to adopt the amended standard on
the required effective date.
CONTROLS AND PROCEDURES
At December 31, 2016, 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.
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, 2016 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, 2016, 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 and Monitoring
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.
RioCan monitors its Canadian REIT status to ensure that we continue to qualify as a Canadian 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.
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". The impact of these proposed changes on our U.S. portfolio
sale is that it 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 Service to determine whether the Trust
can potentially benefit from the new tax legislation. There can be no assurance that we will benefit from any changes in the tax
legislation related to FIRPTA.
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.
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: 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).
90
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
Remuneration of the Trust’s key management during the year ended December 31, 2016 and 2015 is as follows:
Year ended December 31,
Compensation and benefits
Unit-based payments
Post-employment benefit costs
Trustees
Key Executives
2016
301 $
2,253
—
2015
2016
237 $
5,756 $
1,751
—
5,341
57
2,554 $
1,988 $
11,154 $
2015
5,497
2,751
88
8,336
$
$
During February 2016, RioCan's Chief Executive Officer, Edward Sonshine, agreed to amend his employment contract to reflect
his agreement to not retire or resign voluntarily before December 31, 2018. As part of this commitment, Mr. Sonshine agreed to
use his best efforts to provide the Trust with 12 months' notice of his intent to retire or resign.
For further details on related party transactions, refer to note 29 of our 2016 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 of Trust (the "Declaration") to further align the Declaration with evolving
governance best practices, as further described in RioCan's Management Information Circular dated April 4, 2016. 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.
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 in
greenfield developments and development properties held for resale (each net of related mortgage debt and mezzanine financing
to fund co-owners’ share of such developments) to no more than 15% of total consolidated unitholders’ equity of the Trust, as
determined under IFRS. 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. Further, RioCan uses a staggered approach in its development program to avoid unnecessary concentration of
development projects in a single period of time so as to manage our development risk exposure and properly allocate our capital
and personnel resources.
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.
91
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
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, a given geographical area suffers an economic decline, or the changing consumer/retail
trends that result in less demand for rental space, 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, 2016, RioCan
was in compliance with this restriction.
It is common practice for a major tenant, such as Canadian Tire or Loblaws/Shoppers Drug Mart, to lease space from other
landlords like RioCan in addition to owning real estate either within a controlled publicly traded REIT or within its own operating
entity. Past experience and industry practice has dictated that it is the strength of a location more than the ownership of the
property that drives the business decisions of RioCan’s tenants. Despite this, there may be instances where a tenant may forgo
the competitive advantage of RioCan’s property location in order to better utilize its own real estate, RioCan does not consider
the collective impact of risk to be significant.
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.
At December 31, 2016, RioCan had NLA, at its interest, of 46,973,000 square feet and a portfolio economic occupancy rate of
92.6%. Based on our current annualized portfolio weighted average rental revenue of approximately $24 per square foot, for
every fluctuation in occupancy by a differential of 1%, our operations would be impacted by approximately $11 million annually.
RioCan's aggregate rentals expiring over the next five years is $429 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 income would be impacted by approximately $4.3 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.
As at December 31, 2016, RioCan’s total indebtedness had a 3.42 year weighted average term to maturity bearing interest at a
weighted average contractual interest rate of 3.54% per annum.
92
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
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. As at December 31, 2016, 13.8% of our total debt was
at floating interest rates.
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, 2016, the carrying value of our floating rate debt, not subject to a hedging strategy, is
$778 million. A 50 basis point increase in market interest rates would result in a $3.9 million decrease in our net income.
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
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. 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.
93
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 the Trust's
taxable income to unitholders such that it will not be subject to tax. From time to time, RioCan may retain some taxable income
and net capital gains in order to utilize the capital gains refund available to mutual fund trusts without incurring any income taxes.
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 was 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.
Foreign Currency 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. As a result of the Trust's disposal of its U.S. property portfolio, repayment of U.S. denominated debt and
exit from its U.S. operations, RioCan has significantly reduced its foreign exchange risk.
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.
94
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
RioCan
AUDITED ANNUAL
CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2016 AND 2015
TABLE OF CONTENTS
Audited Annual
Consolidated Financial Statements
96 Management’s Responsibility for Financial Reporting
97
Independent Auditors’ Report
98 Consolidated Balance Sheets
99 Consolidated Statements of Income
100 Consolidated Statements of Comprehensive Income
101 Consolidated Statements of Changes in Equity
102 Consolidated Statements of Cash Flows
103 Notes to Consolidated Financial Statements
95
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016, 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 2016 and 2015 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 15, 2017
96
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015, and the consolidated statements of income, 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, 2016 and 2015, and its financial performance and its cash flows for the years then
ended in accordance with International Financial Reporting Standards.
Toronto, Canada
February 15, 2017
97
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars)
As at
Assets
Investment properties
Deferred tax assets
Equity accounted investments
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
The accompanying notes are an integral part of the consolidated financial statements.
Note
December 31, 2016
December 31, 2015
5
9
6
7
4
8
11
10
4
12
13
13
$
13,287,038
$
12,152,176
11,609
185,278
118,017
48,414
60,530
408,508
54,366
8,009
158,994
129,258
45,276
2,968,095
451,365
83,318
14,173,760
$
15,996,491
2,248,024
$
3,405,568
—
—
510,280
6,163,872
$
144,755
$
7,865,133
8,009,888
—
8,009,888
14,173,760
$
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
$
$
$
$
$
98
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of Canadian dollars, except per unit amounts)
Year ended December 31,
Revenue
Rental revenue
Residential inventory sales
Property and asset management fees
Operating costs
Rental operating costs
Recoverable under tenant leases
Non-recoverable costs
Residential inventory cost of sales
Operating income
Other income
Interest income
Income from equity accounted investments
Fair value gain (loss) on investment properties, net
Investment and other income
Other expenses
Interest costs
General and administrative
Leasing costs
Transaction and other costs
Long-term debt redemption costs
Income before income taxes
Deferred income tax expense (recovery)
Net income from continuing operations
Net income (loss) from discontinued operations
Net income
Net income attributable to
Unitholders
Non-controlling interests
Net income (loss) per unit - basic:
From continuing operations
From discontinued operations
Net income per unit - basic
Net income (loss) per unit - diluted:
From continuing operations
From discontinued operations
Net income 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
2016
2015
16
$
1,103,884
$
1,039,068
16,262
13,186
31,937
16,731
1,133,332
1,087,736
397,776
19,684
16,188
433,648
699,684
5,744
9,972
182,888
33,268
231,872
373,698
20,465
29,343
423,506
664,230
5,370
10,378
(91,548)
98,426
22,626
179,527
186,772
52,220
10,931
9,577
—
252,255
679,301
(3,850)
683,151
147,687
830,838
830,747
91
830,838
2.06
0.45
2.51
2.06
0.45
2.51
$
$
$
$
$
$
$
$
51,051
9,750
10,498
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
325,386
325,665
319,492
319,983
17
18
19
20
4
21
21
21
21
21
21
$
$
$
$
$
$
$
$
99
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of Canadian dollars)
Year ended December 31,
Net income
Other comprehensive income (loss):
Items that may be reclassified subsequently to income, net of tax:
Translation of foreign operations:
Unrealized gain (loss) during the year
Reclassified during the year to income
Interest rate swap agreements:
Unrealized gain (loss) during the year
Reclassified during the year to income
Unrealized gain on cross-currency interest rate swap agreements
Available-for-sale investment:
Unrealized gain during the year
Reclassified during the year to income
Items that are not to be reclassified to net income, net of tax:
Actuarial gain on pension plan
Other comprehensive income (loss), net of tax
Comprehensive income, net of tax
Comprehensive income, net of tax attributable to
Unitholders
Non-controlling interests
The accompanying notes are an integral part of the consolidated financial statements.
Note
2016
2015
$
830,838 $
142,437
13
13
13
13
13
13
13
13
(53,391)
(254,989)
214,200
(8,776)
16,125
(2,697)
74
51,408
(14,040)
(9,882)
—
—
14,105
—
693
(256,817)
574,021 $
535
210,182
352,619
573,930 $
351,945
91 $
674
$
$
$
100
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands of Canadian dollars)
Balance, December 31, 2014
Changes during the year
Net income
Other comprehensive income
Units issued
Unit-based compensation awards
Distributions to unitholders
Balance, December 31, 2015
Balance, December 31, 2015
Changes during the year
Net income
Other comprehensive loss
Units issued
Unit-based compensation awards
Unit redemptions
Preferred trust unit issue costs
Distributions to unitholders
Balance, December 31, 2016
Note
Preferred
equity
Common
trust units
Retained
earnings
Accumulated
OCI
$
265,451 $ 4,536,957 $
2,951,710 $
114,452 $
Total
unitholders’
equity
7,868,570 $
Non-
controlling
interests
Total
equity
298 $ 7,868,868
13
13
13
15
—
—
—
—
—
—
—
167,073
5,135
—
141,763
—
—
—
(466,684)
—
210,182
—
—
—
141,763
210,182
167,073
5,135
674
—
—
—
142,437
210,182
167,073
5,135
(466,684)
(190)
(466,874)
$
265,451 $ 4,709,165 $
2,626,789 $
324,634 $
7,926,039 $
782 $ 7,926,821
Note
Preferred
equity
Common
trust units
Retained
earnings
Accumulated
OCI
$
265,451 $ 4,709,165 $
2,626,789 $
324,634 $
Total
unitholders’
equity
7,926,039 $
Non-
controlling
interests
Total
equity
782 $ 7,926,821
—
—
—
—
(125,000)
4,304
—
—
—
100,334
1,640
—
—
—
13
13
13
13
13
15
830,747
—
—
—
—
(4,304)
(467,055)
—
(256,817)
—
—
—
—
—
830,747
(256,817)
100,334
1,640
(125,000)
—
(467,055)
91
—
—
—
830,838
(256,817)
100,334
1,640
(782)
(125,782)
—
(91)
—
(467,146)
$
144,755 $ 4,811,139 $
2,986,177 $
67,817 $
8,009,888 $
— $ 8,009,888
The accompanying notes are an integral part of the consolidated financial statements.
101
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
Year ended December 31,
Operating activities
Net income (loss) from:
Continuing operations
Discontinued operations
Net income
Items not affecting cash:
Depreciation and amortization
Amortization of straight-line rent
Unit-based compensation expense
Income from equity accounted investments
Fair value (gains) losses on investment properties, net
Deferred income taxes (recovery)
Transaction (gain) loss, net on disposition of:
Available-for-sale securities
Canadian investment properties
U.S. investment properties
Adjustments for other changes in working capital items
Net operating cash flow activities
Investing activities
Acquisitions of investment property, net of assumed debt
Construction expenditures on properties under development
Capital expenditures on income properties
Expenditures for leasing commissions and tenant installation costs
Proceeds from sale of investment properties
Earn-outs on investment properties
Contributions to associates and joint ventures
Distributions received from equity accounted investments
Proceeds on disposition of an equity accounted investment
Advances of mortgages and loans receivable
Repayments of mortgages and loans receivable
Purchases of available-for-sale securities, net of financing
Proceeds from sale of available-for-sale securities, net of selling costs
Net investing cash flow activities
Financing activities
Proceeds from mortgage financing, net of issue costs
Repayments of mortgage principal
Advances from bank credit lines, net of issue costs
Repayment of bank credit lines
Proceeds from issuance of debentures, net of issue costs
Repayment of unsecured debentures
Distributions to common trust unitholders, net of distributions reinvested
Distributions to preferred trust unitholders
Distributions paid to non-controlling interests
Return of capital to non-controlling interests
Proceeds received from issuance of common units, net
Redemption of preferred units
Net financing cash flow activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow information
Note
2016
2015
$
683,151
$
417,566
147,687
830,838
(275,129)
142,437
4,398
(8,006)
1,640
(9,972)
(199,787)
(234,525)
(14,040)
(6,075)
(65,116)
156,069
455,424
(556,203)
(249,429)
(46,780)
(47,593)
2,042,829
(7,022)
(26,750)
11,196
—
(3,894)
25,301
—
51,974
4,655
(9,328)
5,135
(6,233)
238,608
231,764
—
2,631
(7,529)
12,676
614,816
(732,635)
(187,062)
(34,705)
(33,208)
135,376
(2,034)
(3,108)
13,447
43,079
(24,255)
33,439
(12,749)
—
1,193,629
(804,415)
204,281
650,901
(1,599,076)
(704,195)
1,115,424
776,594
(1,154,814)
(341,830)
248,669
—
(397,143)
(8,667)
(91)
(782)
39,194
(125,000)
484,110
(349,900)
(309,614)
(13,590)
(190)
—
24,358
—
(1,678,005)
216,644
(28,952)
83,318
$
54,366
$
27,045
56,273
83,318
4
13
6
5
28
6
6
6
11
11
27
15
27
The accompanying notes are an integral part of the consolidated financial statements.
102
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 AND 2015
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. General Information
2. Basis of Preparation and Statement of Compliance
3. Significant Accounting Policies
4. Assets Held for Sale, Liabilities Associated with Assets Held
for Sale and Discontinued Operations
Mortgages and Loans Receivable
5. Investment Properties
6. Equity Accounted Investments
7.
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
104
104
106
114
116
120
121
121
122
122
123
124
124
126
127
128
17. Investment And Other Income (Loss)
18. Interest Costs
19. General and Administrative
20. Transaction and Other Costs
21. Net Income (Loss) per Unit
22. Fair Value Measurement
23. Risk Management
24. Capital Management
25. Operating Leases
26. Subsidiaries
27. Supplemental Cash Flow Information
28. Changes in Other Working Capital Items
29. Related Party Transactions
30. Employee Benefits
31. Segmented Information
32. Contingencies and Other Commitments
33. Events after the Balance Sheet Date
128
128
128
128
129
129
130
131
133
133
134
134
134
134
135
135
136
103
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
1. GENERAL 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) and Series C preferred trust units are listed on the Toronto Stock Exchange (TSX) under the
ticker symbols REI.UN and REI.PR.C, respectively.
These consolidated financial statements were authorized for issue by Board of Trustees on February 15, 2017.
2. BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE
(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).
(b) Basis of presentation
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. RioCan considers this presentation to be more relevant than a classified balance sheet
as the Trust considers its operating cycle to be longer than one year. The notes to the consolidated financial statements
distinguish between current and non-current assets and liabilities. Current assets and liabilities are those expected to be
recovered or settled within one year from the reporting period, and non-current assets and liabilities are those where the recovery
or settlement is expected to be greater than a year from the reporting period. The accounting policies set out below have been
applied consistently in all material respects. Any IFRS not effective for the current accounting year are described in note 3.
Certain comparative amounts have been reclassified to conform to the current year's presentation.
(c) 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 income
attributable to non-controlling interests is separately disclosed in the Trust's consolidated statements of income.
(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 income and consolidated
statements of comprehensive income.
104
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
(d) 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.
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 income.
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.
(e) 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 income 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.
105
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
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.
Change in accounting policy
IFRS 11, Joint Arrangements (IFRS 11)
On January 1, 2016, the Trust adopted an amendment with respect to IFRS 11, Joint Arrangements: Accounting for Acquisitions
of Interests in Joint Operations as issued by IASB in May 2014. 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 under IFRS 3 and other
standards, as well as disclose the relevant information specified in these standards for business combinations. This amendment
did not result in a material impact to these consolidated financial statements.
IAS 1, Presentation of Financial Statements (IAS 1)
On January 1, 2016, the Trust adopted an amendment to IAS 1 clarifying certain existing IAS 1 requirements as issued by the
IASB in December 2014. The amendments include the following: the materiality requirements in IAS 1; that specific line items in
the consolidated statements of income and comprehensive income 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 other
comprehensive income (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 income. The
amendments also clarify the requirements that apply when additional subtotals are presented in the consolidated balance sheets
and the consolidated statements of income and OCI. These amendments did not result in a material impact on these
consolidated financial statements.
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 significant processes, 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 income. 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 income. Goodwill is not amortized and must be tested for impairment at
least annually, or more frequently, if events or changes in circumstances indicate that impairment has occurred.
RioCan expenses transaction costs associated with business combinations in the period incurred.
When an acquisition does not meet the criteria for a business, it is accounted for as an acquisition of a group of assets and
liabilities, the cost of which includes transaction costs that are allocated to the assets and liabilities acquired based upon their
relative fair values. No goodwill is recognized for asset acquisitions.
(b) Fair value measurement
The Trust measures 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.
106
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
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 income 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
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 income.
(d) Residential inventory
Residential inventory is 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 is 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 is reviewed for impairment at each reporting period date. An impairment loss is recognized in net income
when the carrying value of the asset exceeds its net realizable value.
107
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
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.
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.
108
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
(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 statements of income.
(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
recognized in net income. 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 income, 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 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 income 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.
109
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
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 income.
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 income. 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 income.
(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 income. 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
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 income, the impairment loss is reversed through net income.
(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.
110
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
(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 relationship, the effective portion of
the gain or loss on the hedging instrument is recognized in OCI. The ineffective portion is recognized in net income.
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 income. 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 income.
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 income. The amounts,
or a portion thereof, previously recorded in OCI within equity are recognized in net income on the disposal or partial disposal of
the foreign operation.
(m) Comprehensive income
Comprehensive income comprises net income 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 income 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 income or OCI based
upon where the amounts initially arose. The Trust’s U.S. operations are qualifying U.S. REITs up to May 25, 2016 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 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. From time to time, RioCan may
retain some taxable income and net capital gains in order to utilize the capital gains refund available to mutual fund trusts
without incurring any income taxes. Accordingly, a provision for current income taxes payable is not required, except for
amounts incurred in its incorporated Canadian taxable subsidiaries.
The Trust’s U.S. subsidiary qualifies as a REIT for U.S. income tax purposes up to May 25, 2016. The subsidiary has
distributed all of its U.S. taxable income to Canada and is entitled to deduct such distributions for U.S. 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.
111
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
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 to 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.
(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 income, 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.
112
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
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 income 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 income. The comparative consolidated statement of income 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
non-callable investment grade fixed income securities), 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.
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
113
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
on or after January 1, 2018, with early application permitted. RioCan is currently assessing the impact of IFRS 9 and intends to
adopt the new standard on the required effective date.
IFRS 16, Leases (IFRS 16)
In January 2016, the IASB issued IFRS 16. 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 of IFRS
16 and intends to adopt the new standard on the required effective date.
IAS 40, Investment Property (IAS 40)
During December 2016, the IASB issued an amendment to IAS 40 clarifying certain existing requirements. The amendment
requires that an asset be transferred to or from investment property only when there is a change in use. A change in use occurs
when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. In
isolation, a change in management’s intentions for the use of a property does not provide evidence of a change in use. These
amendments are effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. RioCan is
currently assessing the impact on its consolidated financial statements and intends to adopt the amended standard on the
required effective date.
4. ASSETS HELD FOR SALE, LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE AND
DISCONTINUED OPERATIONS
Discontinued operations
On May 24, 2016, RioCan completed the sale of its U.S. portfolio of 49 retail properties located in the Northeastern U.S. and
Texas at a total sale price of US$1.9 billion. RioCan received cash proceeds of approximately US$1.0 billion on closing, net of
approximately US$0.9 billion in mortgage debt extinguishment. In connection with the sale, the Trust recorded a gain on
disposition of $65 million, including foreign currency exchange gain, which is included in other income from discontinued
operations on the consolidated statement of income.
The results of the Trust's discontinued operations are as follows:
Year ended December 31,
Rental revenue
Rental operating costs
Recoverable under tenant leases
Non-recoverable costs
Operating income
Other income (loss)
Loss from equity accounted investments
Fair value gains (losses) on investment property, net
Other income
Other expenses
Interest costs
General and administrative
Leasing costs
Transaction costs
Income (loss) before income taxes
Income taxes (recovery)
Current
Deferred
2016
$
98,704 $
2015
233,613
51,995
3,175
55,170
43,534
—
16,899
66,404
83,303
18,927
1,491
706
53,562
74,686
52,151
135,139
(230,675)
(95,536)
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
238,952
Net income (loss) from discontinued operations
$
147,687 $
(275,129)
114
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
Other income
In connection with the U.S. asset sale during May 2016, other income includes a $255 million realized foreign currency exchange
gain reclassified from other comprehensive income, partly offset by a $190 million portfolio discount in connection with the U.S.
asset sale.
Transaction costs
Also in connection with the U.S. property portfolio sale, transaction costs includes $54 million of costs directly related to the
Trust's exit from its U.S. operations, consisting of investment banking fees, legal fees, lender consent costs, franchise and land
transfer taxes, costs related to unwinding the Trust's net investment hedge, employee severance and other transaction closing
costs.
Income taxes
Prior to the sale of RioCan's U.S. property portfolio, the Trust's U.S. subsidiary qualified as a REIT for U.S. income tax
purposes. The subsidiary distributed all of its U.S. taxable income (if any) to Canada and was entitled to deduct such
distributions for U.S 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.
For the year ended December 31, 2016, RioCan recorded current income taxes of $135 million, primarily representing the
income taxes related to a realized gain on disposal of the Trust's U.S. income properties, since RioCan does not intend to
distribute any withholding taxes paid or payable to its unitholders.
During 2015, RioCan had recognized a deferred tax expense of $230 million primarily representing a taxable temporary
taxable difference calculated based on the difference between fair value accounting and tax cost basis of the Trust's U.S.
investment properties. For the year ended December 31, 2016, upon the transaction closing, the Trust also recorded a
recovery of deferred taxes mainly resulting from the reversal of the temporary difference between the IFRS carrying value and
the tax cost of the U.S. income properties.
Assets held for sale and liabilities associated with assets held for sale
Presented below are details of the Trust's assets and liabilities held for sale:
December 31, 2016
December 31, 2015
The change in the carrying value of the Trust's U.S. income properties is as follows:
As at
Assets
Income properties
Properties under development
Total assets held for sale
Liabilities
Mortgages payable
Net assets
U.S. income properties
Year ended December 31,
Balance, beginning of year
Acquisitions
Capital expenditures
Tenant installation costs
Fair value gain, net
Foreign currency translation gain (loss)
Straight-line rent
Other changes
Loss on disposition
Dispositions
Balance, end of year
Properties held for sale
$
$
$
25,341
35,189
60,530
$
$
—
60,530
$
2016
$
2,796,973 $
—
569
5,621
16,899
(186,720)
743
(1,414)
(189,873)
(2,442,798)
2,925,960
42,135
2,968,095
1,248,635
1,719,460
2015
2,392,285
53,698
4,551
13,983
(147,060)
476,755
2,142
619
—
—
$
— $
2,796,973
RioCan has one income property held for sale as at December 31, 2016 with a carrying value of $25 million. In addition, the Trust
has four land parcels held for sale with an aggregate carrying value of approximately $35 million.
115
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
Cash flows associated with discontinued operations
The net cash flows associated with discontinued operations are as follows:
Year ended December 31,
Net income (loss) from discontinued operations
$
Adjustments for non-cash items
Deferred income taxes
Fair value (gains) losses on investment properties, net
Net gain on sale of income properties and equity accounted investment
Adjustments for net changes in operating assets and liabilities
Net operating cash flow activities
Proceeds from the sale of income properties
Proceeds from sale of joint venture
Cash used in acquisitions of income properties
Other
Net investing cash flow activities
Proceeds from (Repayment of) mortgages payable
Repayment of parent REIT loan
Loan advances (to) from parent REIT
Net financing cash flow activities
Net change in cash
5. INVESTMENT PROPERTIES
As at December 31,
Income properties
Properties under development
Income properties
Year ended December 31,
Balance, beginning of year
Acquisitions
Dispositions
Capital expenditures
Leasing commissions and tenant installation costs
Transfers from properties under development
Transfers to properties under development
Fair value gains (losses), net
Straight-line rent (i)
Earn-out consideration
Other changes
Balance, end of year
Income properties
Properties held for sale
2016
147,687 $
(230,675)
(16,899)
(65,116)
110,083
(54,920)
1,951,312
—
—
(4,776)
1,946,536
(668,253)
(566,433)
(672,119)
(1,906,805)
2015
(275,129)
230,474
147,060
(7,529)
10,696
105,572
—
43,079
(53,698)
(18,347)
(28,966)
95,051
(272,932)
107,083
(70,798)
5,808
$
(15,189) $
$
$
$
$
$
$
2016
12,406,719
880,319
13,287,038
$
$
2015
11,322,109
830,067
12,152,176
2016
2015
11,451,096
$
10,861,112
594,538
(119,813)
52,899
48,261
274,140
(21,019)
134,692
7,263
7,380
2,623
12,432,060
12,406,719
25,341
12,432,060
$
$
$
962,432
(424,561)
37,484
24,363
230,646
(172,499)
(78,759)
6,737
2,370
1,771
11,451,096
11,322,109
128,987
11,451,096
(i)
Included in investment properties is $114 million of net rents receivable arising from the recognition of rental revenue on a straight-line basis over
the lease term (December 31, 2015 - $107 million).
116
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
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
Fair value gains (losses), net
Other
Balance, end of year
Properties under development
Properties held for sale
Acquisitions
2016
$
872,202
$
10,043
(5,436)
243,243
(274,140)
21,019
—
48,196
381
915,508
880,319
35,189
915,508
$
$
$
$
$
$
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
The following table summarizes the Trust's acquisitions of investment property for rental income and future development
opportunities:
As at December 31,
Investment properties acquired
Debt assumed
Difference between principal amount and fair value assumed of
mortgage financing
Total consideration, net of debt assumed
Income properties
Properties under development
2016
2015
2016
594,538 $
1,016,759 $
10,043 $
(48,416)
(296,265)
(757)
(12,018)
—
—
2015
25,301
—
—
545,365 $
708,476 $
10,043 $
25,301
$
$
On July 27, 2016, RioCan acquired Canada Pension Plan Investment Board's (CPPIB) 50% interests in four income properties
that were previously co-owned for an aggregate purchase price of $352 million, representing a weighted average capitalization
rate of 5.7%. RioCan did not assume any additional debt from CPPIB in connection with this acquisition.
Dispositions
The following table summarizes the Trust's dispositions of non-core properties as part of a process to recycle capital into future
developments and property acquisition opportunities:
As at December 31,
Investment properties disposed
Gain on disposition recorded in other income
Total consideration
Mortgages associated with investment property dispositions
Other (i)
Total consideration, net of related debt
Income properties
Properties under development
2016
2015
119,813 $
448,215 $
6,075
—
2016
5,436 $
—
125,888 $
448,215 $
5,436 $
(29,359)
(155,205)
—
(9,967)
—
—
96,529 $
283,043 $
5,436 $
$
$
$
2015
—
—
—
—
—
—
(i) Represents a sales price adjustment for the assumption of a land lease commitment.
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
finance lease obligation. The carrying amount of these properties is $274 million (December 31, 2015 - $280 million) and the
corresponding finance lease obligation is $19 million (December 31, 2015 - $20 million) and is included in accounts payable and
other liabilities.
117
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
Future minimum lease payments under these finance leases are as follows:
Within 12 months
2 to 5 years
Over 5 years
Total minimum lease payments
Less: Future interest costs
Present value of minimum lease payments
Valuation methodology
Fair value
December 31, 2016
December 31, 2015
$
$
$
2,232 $
8,461
15,057
25,750 $
7,097
18,653 $
2,232
8,811
16,938
27,981
8,130
19,851
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
Internal valuations
RioCan measures the vast majority of its investment properties, including co-owned properties, using valuations prepared by its
internal valuation team. 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 management. The internal valuation team's processes
and results are reviewed and approved by the Valuations Committee on a quarterly basis, in line with the Trust's quarterly
reporting dates.
The Trust's Valuations Committee is responsible for approving any fair value changes to the investment properties and consists of
senior management of the Trust including the President & Chief Operating Officer; Chief Financial Officer; and other executive
members.
External valuations
Depending on the property asset type and location, management may opt to obtain independent third party valuations from firms
that employ experienced valuation professionals having the required qualifications in property appraisals for purposes of adopting
such appraised values in the case of land parcels or assessing the reasonableness of its internal investment property valuations.
During the year, the Trust obtained a total of 22 external property appraisals (including 13 vacant land parcels), which supported
an IFRS fair value of approximately $1.1 billion or 8% of the Trust's investment property portfolio as at December 31, 2016.
The internal valuation team also verifies all major inputs used by the external valuator in preparing the valuation report, assesses
changes to fair value by comparing the current year fair value against the fair value determined in the prior year valuation report,
and holds discussions with the external valuator. Commencing January 1, 2017, the Trust intends to select approximately six
income properties for external appraisal on a quarterly basis.
Valuation techniques
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). The significant unobservable inputs are based on:
•
•
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 then
adjusted for non-recoverable capital expenditures as well as other costs inherent in achieving and maintaining SNOI.
The capitalization rate - is based on the location and quality of the properties and takes into account market data at the
valuation date.
118
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
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.
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 significant unobservable inputs are based on:
•
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 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.
The table below summarizes the classification, valuation approach and inter-relationship between the Level 3 key unobservable
inputs and fair value measurements for the Trust's investment properties:
Classification
Valuation
approach
Key
unobservable
input
Income producing properties /
Properties under development
Direct capitalization
income approach
Capitalization rate
Relationship between key unobservable inputs
and fair value measurement
There is an inverse relationship between the
capitalization rate and the fair value; in other words,
the higher the capitalization rate, the lower the
estimated value.
SNOI
Generally, an increase in SNOI will result in an
increase in the estimated fair value of the properties.
Properties under development -
undeveloped land
Comparable sales
approach
Market
comparison
Land value is in line with market trends.
As at December 31, 2016, the weighted average capitalization rate for the Trust's investment properties and Canadian properties
held for sale is 5.64% (December 31, 2015 - 5.72%).
Sensitivity analysis of changes in capitalization rates
The following table is a sensitivity applied to the portion of the Trust's investment properties and properties held for sale carrying
value that is measured using the direct capitalization approach and, therefore, is sensitive to changes in capitalization rates:
Capitalization rate sensitivity
Increase (decrease)
Weighted average
capitalization rate Fair value of 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%)
4.64%
4.89%
5.14%
5.39%
15,854,720
15,044,151
14,312,432
13,648,590
December 31, 2016
5.64% $
13,043,592 $
0.25%
0.50%
0.75%
1.00%
5.89%
6.14%
6.39%
6.64%
12,489,966
11,981,417
11,512,660
11,079,202
2,811,128
2,000,559
1,268,840
604,998
—
(553,626)
(1,062,175)
21.55 %
15.34 %
9.73 %
4.64 %
— %
(4.24)%
(8.14)%
(1,530,932)
(11.74)%
(1,964,390)
(15.06)%
33.07%
34.73%
36.39%
38.03%
39.66%
41.27%
42.88%
44.48%
46.07%
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 $130 million. A 1% decrease in SNOI would
result in a lower portfolio fair value of $130 million. A 1% increase in SNOI coupled with a 0.25% decrease in capitalization rates
would result in a higher portfolio fair value of $741 million. A 1% decrease in SNOI coupled with a 0.25% increase in capitalization
rates would result in a lower portfolio fair value of $679 million.
119
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
6. EQUITY ACCOUNTED INVESTMENTS
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:
Equity Investee
Dawson-Yonge LP
RioCan-HBC JV
WhiteCastle New Urban Fund, LP (WNUF)
WhiteCastle New Urban Fund 2, LP (WNUF 2)
WhiteCastle New Urban Fund 3, LP (WNUF 3)
Principal activity
December 31, 2016 December 31, 2015
Owns and operates an income
property
Owns and operates income
properties
Development and sale of residential
inventory
40.0%
11.6%
14.2%
19.3%
20.0%
40.0%
10.3%
14.2%
19.3%
20.0%
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 income (loss) from:
Continuing operations
Discontinued operations
Disposals
Distributions
Other
Balance, end of year
$
2016
158,994 $
26,750
9,972
—
—
(11,196)
758
$
185,278 $
2015
63,016
150,121
10,378
(4,145)
(43,079)
(13,447)
(3,850)
158,994
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,
2016
2015
Current assets
Non-current assets
Current liabilities
Non-current liabilities (i)
Net assets
RioCan-
HBC JV
Other
Total
RioCan-
HBC JV
Other
Total
$
9,067 $
105,298 $
114,365
$
1,985 $
93,927 $
95,912
1,980,330
22,100
2,002,430
1,947,903
21,200
1,969,103
10,675
546,114
4,586
52,291
15,261
598,405
4,417
549,732
5,719
34,970
10,136
584,702
$ 1,432,608 $
70,521 $ 1,503,129
$ 1,395,739 $
74,438 $ 1,470,177
Equity accounted investments
$
167,581 $
17,697 $
185,278
$
143,785 $
15,209 $
158,994
Year ended December 31,
2016
RioCan-
HBC JV
Other
Total
RioCan-
HBC JV
2015
Other
Revenue
Operating expenses
Fair value gains (losses)
Interest expense
Net income
Income (Loss) in equity accounted
investments
$
131,653 $
12,637 $
144,290
$
52,290 $
31,570 $
10,643
(11,825)
15,999
5,657
907
455
16,300
(10,918)
16,454
93,186 $
7,432 $
100,618
10,391 $ (419) (ii) $
9,972
$
$
4,706
(7,554)
6,708
5,362
743
464
$
$
33,322 $
26,487 $
59,809
4,292 $
6,086 $
10,378
Total
83,860
10,068
(6,811)
7,172
Includes mortgages payable and lines of credit.
(i)
(ii) Amount includes a $1.5 million annual priority profit allocation to the general partner of the investees.
120
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
7. MORTGAGES AND LOANS RECEIVABLE
As at December 31,
Current
Non-current
2016
28,263 $
89,754
2015
38,036
91,222
118,017 $
129,258
$
$
As at December 31, 2016, mortgages and loans receivable bear interest at a weighted average effective and contractual rate of
5.0% per annum (December 31, 2015 - 4.5%) and mature between 2017 and 2023.
Future repayments for the years ending December 31 are as follows:
Due on demand
2017
2018
2019
2020
Thereafter
$
14,020
14,243
24,116
5,169
55,219
5,250
$
118,017
8. RECEIVABLES AND OTHER ASSETS
As at
December 31, 2016
December 31, 2015
Current
Non-
current
Total
Current
Non-
current
Total
Prepaid expenses and other assets
$
332,387 $
10,376 $
342,763 $
322,574 $
22,266 $
344,840
Net contractual rents receivable
40,754
Management information system
Funds held in trust
Cross currency interest rate swaps
—
—
—
—
21,737
1,838
1,416
40,754
21,737
1,838
1,416
45,290
—
—
—
—
25,021
36,214
—
45,290
25,021
36,214
—
$
373,141 $
35,367 $
408,508 $
367,864 $
83,501 $
451,365
Prepaid expenses and other assets
Prepaid expenses and other assets primarily include available-for-sale investments, 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, 2016 included in other assets are $3.4 million of non-refundable sales commissions the Trust has paid with respect
to the sale of this inventory (December 31, 2015 - $3.5 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 income 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 $1.8 million as at December 31, 2016
(December 31, 2015 - $2.0 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 statements of income 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
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.
Cross currency interest rate swaps
During the year ended December 31, 2016, the Trust entered into cross currency interest rate swaps as part of its strategy to
hedge any U.S. dollar denominated borrowings from the Trust's unsecured operating credit facility. These have the economic
effect of converting floating rate U.S. dollar borrowings to floating rate Canadian dollar borrowings. These cash flow hedges are
short-term in nature and qualify for hedge accounting. These hedges are expected to be highly effective since all critical terms of
the hedged item and hedging instrument match. All such designated hedging relationships were effective as of the reporting date,
with a total U.S. dollar principal value of US$365 million.
121
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
9. INCOME TAXES
The Trust qualifies as a REIT for Canadian income tax purposes; therefore, it will be entitled to deduct distributions for income tax
purposes. The Trust expects to distribute its taxable income to unitholders such that it will not be subject to tax. From time to time,
RioCan may retain some taxable income and net capital gains in order to utilize the capital gains refund available to mutual fund
trusts without incurring any income taxes. Accordingly, no provision for Canadian current income tax payable is required, except
for amounts incurred in its incorporated Canadian subsidiaries.
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 generally 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, 2016, the Trust's Canadian corporate subsidiaries have recognized deferred income tax assets totalling
$12 million (December 31, 2015 - $8.0 million) on deductible temporary differences related to intangible assets, deferred pension
and loss carry forwards that expire over the next 18 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, net of deferred financing costs, consist of the following:
As at
Line of credit
Construction lines and other bank loans
Mortgages payable
Current
Non-current
December 31, 2016
December 31, 2015
502,359 $
203,274
2,699,935
3,405,568 $
930,426 $
2,475,142
3,405,568 $
561,389
182,622
3,420,658
4,164,669
1,176,912
2,987,757
4,164,669
$
$
$
$
Future repayments of mortgages payable and lines of credit by year of maturity are as follows:
Year
2017
2018
2019
2020
2021
Thereafter
Contractual obligations
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
Weighted average
contractual
interest rate
Scheduled
principal
amortization
Principal
maturities
Total
repayments
3.66% $
64,088 $
866,338 $
930,426
3.70%
4.11%
3.64%
2.95%
3.89%
44,730
32,724
17,836
6,992
4,186
497,327
302,858
448,430
853,967
256,041
542,057
335,582
466,266
860,959
260,227
3.55% $
170,556 $ 3,224,961 $ 3,395,517
16,658
(6,607)
$ 3,405,568
U.S. dollar-denominated mortgages payable and lines of credit associated with Canadian properties
As at December 31, 2016, all U.S. dollar-denominated mortgages and lines of credit associated with the Trust's Canadian
properties were repaid and have no outstanding balance (December 31, 2015 - US$327 million). During the first half of 2016, the
Trust repaid its U.S. dollar-denominated mortgages and lines of credit, primarily using cash proceeds from the sale of its U.S.
income property portfolio. The U.S. dollar-denominated mortgages and lines of credit associated with Canadian properties were
formerly designated as a net investment hedge of the Trust's U.S. operations.
Pledged investment properties
As at December 31, 2016, $6.8 billion of the aggregate carrying value of investment properties, properties held for sale and
residential inventory serves as security for RioCan's mortgages payable (December 31, 2015 - $9.0 billion).
122
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
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 lines of
credit and mortgages payable associated with properties located in Canada:
As at
Weighted average interest rates:
Effective
Contractual
(i) Mortgages maturing between 2017 and 2034.
Line of credit
December 31, 2016 (i)
December 31, 2015
3.49%
3.55%
3.71%
3.63%
On June 1, 2016, the Trust entered into a new $1.0 billion unsecured operating credit facility with six Canadian Schedule I
financial institutions, which replaced five secured operating credit facilities. The new facility has an interest rate based on a
pricing grid depending on RioCan's credit rating and the type of borrowing utilized, with the current rates for Canadian dollar
Banker's Acceptances and U.S. dollar LIBOR loans being 120 basis points over the underlying rate. The facility has a five-year
term to maturity and a one-year extension option. The unsecured operating credit facility agreement requires the Trust to
maintain certain financial covenants in accordance with the credit facility agreement. Refer to note 24 for additional details.
As at December 31, 2016, RioCan had cash advances and letters of credit outstanding of $505 million and $0.4 million,
respectively, and $494 million in cash available to be drawn from this credit facility.
11. DEBENTURES PAYABLE
Debentures payable consist of the following:
As at
Current
Non-current
December 31, 2016
December 31, 2015
$
$
150,000 $
2,098,024
2,248,024 $
—
2,000,066
2,000,066
As at December 31, 2016, total debentures payable bear interest at weighted average effective and contractual rates of 3.52%
and 3.52% (December 31, 2015 - 3.70% and 3.68%), respectively.
Issuance
On August 26, 2016, the Trust issued $250 million of Series X senior unsecured debentures, which mature on August 26, 2020
and carry a coupon rate of 2.185%. The interest on these debentures is payable semi-annually commencing February 26, 2017.
The Trust has the following series of senior unsecured debentures outstanding as at December 31, 2016:
$
2016
150,000 $
250,000
350,000
150,000
250,000
250,000
250,000
200,000
300,000
100,000
2015
150,000
250,000
350,000
150,000
—
250,000
250,000
200,000
300,000
100,000
$ 2,250,000 $ 2,000,000
Series
P
S
Q
U
X
R
V
T
W
I
Contractual obligations
Maturity date
March 1, 2017
March 5, 2018
June 28, 2019
June 1, 2020
August 26, 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%
2.19%
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
123
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
Future repayments are as follows:
Year ending December 31:
Contractual obligations
Unamortized debt financing costs
Covenants
2017
2018
2019
2020
2021
Thereafter
Weighted average
contractual interest rate
3.80% $
2.87%
3.85%
2.72%
3.72%
3.84%
$
Principal
maturities
150,000
250,000
350,000
400,000
250,000
850,000
2,250,000
(1,976)
2,248,024
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, 2016, 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, 2016
December 31, 2015
Current
Non-
current
Total
Current
Non-
current
Total
Property operating costs
$
59,491 $
20,686 $
80,177 $
103,908 $
21,011 $
124,919
Development and capital expenditures
Deferred revenue
Distributions to unitholders payable
Interest payable
Interest rate swap agreements
Unfunded employee future benefits
Finance lease obligation
Other trade payables and accruals
Income taxes payable
Contingent consideration
112,277
22,071
38,356
26,841
843
—
2,573
21,909
136,169
325
25
112,302
26,249
—
—
9,398
12,751
16,080
4,236
48,320
38,356
26,841
10,241
12,751
18,653
26,145
—
—
136,169
325
81,333
20,821
37,893
30,085
1,751
—
2,575
15,469
—
864
24,113
27,385
—
—
24,665
13,170
17,276
3,507
—
—
105,446
48,206
37,893
30,085
26,416
13,170
19,851
18,976
—
864
$
420,855 $
89,425 $
510,280 $
294,699 $
131,127 $
425,826
Income taxes payable relate to the realized gain on sale of the Trust's U.S. income property portfolio during May 2016. Refer to
note 4 for further discussion.
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), and 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.
124
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
The units issued and outstanding are as follows:
Year ended December 31,
Balance, beginning of year
Units issued:
Distribution reinvestment plan
Unit option exercises
Costs associated with unit option plan
Direct purchase plan
Exchangeable limited partnership units
Unit issue costs
Balance, end of year
2016
Units
$
322,483
4,709,165
2015
Units
315,986
$
4,536,957
2,399
1,671
—
36
26
—
60,782
38,242
1,640
959
358
(7)
5,443
1,019
—
35
—
—
142,715
23,701
5,135
932
—
(275)
326,615
4,811,139
322,483
4,709,165
Included in units outstanding as at December 31, 2016, are exchangeable limited partnership units totaling 1.2 million units
(December 31, 2015 - 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 October 18, 2016, 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 8,128,045 of its units, or approximately 2.5%
of its 325,121,826 outstanding units as at December 31, 2016, for cancellation over the next 12 months.
The number of units that can be purchased pursuant to the bid is subject to a current daily maximum of 120,555 units (which is
equal to 25% of 482,221, being the average daily trading volume from April 1, 2016 through to December 31, 2016), 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, 2016 and 2015, 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%.
On March 31, 2016, the Trust exercised its option to redeem all 5 million outstanding Series A preferred trust units at the cash
redemption price of $25.00 per Series A preferred trust unit, for total cash proceeds of $125 million paid on April 1, 2016. Unit
issue costs totaling $4.3 million were recorded as a charge to retained earnings upon redemption, representing the excess of par
redemption value over the carrying value of the preferred trust units.
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%.
125
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss) as at and for the years ended December 31, 2016 and 2015 consists of the
following amounts:
Cumulative
translation
gain on U.S.
foreign
operations (i)
Available-
for-sale
investments
Actuarial gain
(loss) on
pension
Interest
rate swap
agreements
Cross
currency
interest rate
swap
agreements
Total
As at December 31, 2015
Other comprehensive income (loss)
As at December 31, 2016
$
$
308,380 $
41,579 $
(1,690) $
(23,635) $
— $
324,634
(308,380)
37,368
693
13,428
— $
78,947 $
(997) $
(10,207) $
74
74 $
(256,817)
67,817
(i) On May 25, 2016, RioCan completed the sale of its U.S. income property portfolio and reclassified the cumulative translation gain on U.S. foreign
operations in accumulated other comprehensive income to net income from discontinued operations on the consolidated statement of income.
Refer to note 4 for details on the amount of realized gain related to the U.S. property sale.
14. UNIT-BASED COMPENSATION PLANS
Incentive unit option plan
The Trust provides long-term incentives to certain employees by granting options through the incentive unit option plan (the plan).
Riocan is authorized to issue up to a maximum of 22 million common unit options under the plan. As at December 31, 2016,
11.6 million common unit options remain available to be granted under the plan.
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, 2016 and 2015
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)
$
$
$
$
2016
2,194
2,159
25.79
0.5%
5.5%
14.9%
4.5
2015
1,834
1,453
29.20
0.6%
4.8%
14.8%
4.3
(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 for a period consistent with the expected option life.
(iv) Represents the expected option life based on the actual holding period of all transacted option awards between grant date and the date of activity.
The following summarizes the changes in options outstanding during the years ended December 31, 2016 and 2015:
Options
Outstanding, beginning of year
Granted
Exercised
Expired
Forfeited
Outstanding, end of year
Options exercisable at end of year
Average fair value per unit of options granted during the year
2016
2015
Units
(in thousands)
Weighted
average
exercise price
Units
(in thousands)
Weighted
average
exercise price
9,027 $
2,159
(1,671)
(332)
(775)
8,408 $
4,511 $
$
26.12
25.79
22.89
27.17
27.35
26.52
26.11
1.02
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
126
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
The following table summarizes our outstanding options and related exercise price ranges of units granted under the plan:
Exercise Price
Range ($/unit)
As at December 31,
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
Outstanding Options
Vested Options
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
2016
582
2,494
1,181
1,476
1,479
1,196
8,408
2015
1,447
1,140
1,489
1,790
1,785
1,376
9,027
2016
2015
2016
2015
2016
$20.02
$20.07
25.62
26.54
27.28
27.57
29.31
25.26
26.54
27.31
27.56
29.31
$26.52
$26.12
3.3
8.0
6.1
6.2
7.0
8.2
6.9
3.7
3.9
7.0
7.2
8.1
9.2
6.7
582
575
944
1,188
898
324
2015
1,447
1,140
865
959
565
—
2016
2015
$20.02
$20.07
25.10
26.54
27.27
27.58
29.31
25.26
26.54
27.28
27.59
—
4,511
4,976
$26.11
$24.63
Performance equity unit plan (PEU Plan)
The Trust grants performance equity units (PEUs) under the PEU Plan with a three-year performance period for certain senior
executives. The PEUs will be subject to both internal and external measures consisting of both absolute and relative performance
over a three-year period, which upon vesting are cash settled.
RioCan 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.
During February 2016, the Trust granted 0.2 million PEUs under its PEU Plan. Unit-based compensation expense and fair value
assumptions using the Monte-Carlo valuation model are as follows:
Year ended December 31,
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)
$
$
$
$
2016
5,325
165
32.27
0.5%
16.0%
9.3%
2015
3,766
111
33.93
0.5%
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.
15. DISTRIBUTIONS TO UNITHOLDERS
Total distributions declared to unitholders are as follows:
Year ended December 31,
2016
2015
Common Unitholders
Preferred Unitholders – Series A
Preferred Unitholders – Series C
Total Distributions Distributions per unit
Total Distributions Distributions per unit
$
$
458,388 $
1.4100 $
453,094 $
1,640
7,027
467,055
0.3281
1.1750
6,563
7,027
$
466,684
1.4100
1.3125
1.1750
On March 31, 2016, the Trust exercised its option to redeem all outstanding Series A preferred trust units. Refer to note 13 for
further details.
On January 13, 2017, RioCan declared a distribution payable of 11.75 cents per unit for the month of January 2017 to common
trust unitholders of record as at January 31, 2017. On February 15, 2017, RioCan also declared a distribution payable of 11.75
cents per unit for the month of February 2017 to common trust unitholders of record as at February 28, 2017.
127
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
16. RENTAL REVENUE
Year ended December 31,
Base rent
Realty tax recoveries
Common area maintenance recoveries
Percentage rent
Straight-line rent
Lease cancellation fees
17. INVESTMENT AND OTHER INCOME (LOSS)
Year ended December 31,
Income earned on available-for-sale securities
Transaction gains (losses), net
Target settlement proceeds, net
2016
$
706,407 $
219,685
157,936
9,541
7,263
3,052
2015
657,922
206,959
148,539
6,201
8,094
11,353
$
1,103,884 $
1,039,068
$
$
2016
13,173 $
20,095
—
33,268 $
2015
12,790
(2,631)
88,267
98,426
Net transaction gains and losses include realized gains and losses recorded upon the disposition of available-for-sale marketable
securities, certain investment properties and equity accounted investments.
On January 15, 2015, Target Corporation (Target) announced plans to discontinue its Canadian operations through its indirect
wholly owned subsidiary, Target Canada Co. 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 leases that were disclaimed pursuant to the
Companies’ Creditors Arrangement Act. Investment and other income includes $88 million in cash settlement proceeds received
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 COSTS
Year ended December 31,
Total interest
Less: Interest capitalized to properties under development
2016
206,989 $
27,462
179,527 $
2015
214,203
27,431
186,772
$
$
For the year ended December 31, 2016, interest was capitalized to properties under development at a weighted average effective
interest rate of 3.94% (December 31, 2015 - 4.23%).
19. GENERAL AND ADMINISTRATIVE
Year ended December 31,
Salaries and benefits
Unit-based compensation expense
Depreciation and amortization
Other general and administrative
$
$
2016
23,568 $
6,745
4,386
17,521
52,220 $
2015
21,206
4,741
4,434
20,670
51,051
Other general and administrative costs include information technology costs, public company costs, professional fees, travel
expenses, occupancy costs, donations, advertising, promotion and marketing costs.
20. TRANSACTION AND OTHER COSTS
For the year ended December 31, 2016, transaction and other costs includes primarily property acquisition and disposition costs
totalling $9.6 million (December 31, 2015 - $10.5 million).
128
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
21. NET INCOME (LOSS) PER UNIT
Net income per basic and diluted unit is calculated based on net income available to common unitholders divided by the weighted
average number of common trust units outstanding, taking into account the dilution effect of unit options and any difference
between redemption and carrying value on preferred unit redemptions.
Year ended December 31,
Net income attributable to unitholders
Less: Net income (loss) from discontinued operations
Net income attributable to unitholders from continuing operations
Less: Preferred unit redemption (ii)
Distributions to preferred unitholders
Net income attributable to common unitholders from continuing operations
Weighted average common units outstanding (in thousands):
Basic
Dilutive effect of common unit options (i)
Diluted
Net income (loss) per unit - basic:
Continuing operations
Discontinued operations
Net income (loss) per unit - diluted:
Continuing operations
Discontinued operations
2016
830,747 $
147,687
683,060 $
4,304
8,667
670,089 $
325,386
279
325,665
2.06 $
0.45
2.51 $
2.06 $
0.45
2.51 $
2015
141,763
(275,129)
416,892
—
13,590
403,302
319,492
491
319,983
1.26
(0.86)
0.40
1.26
(0.86)
0.40
$
$
$
$
$
$
$
(i) The calculation of diluted weighted average units outstanding excludes 4.4 million unit options for the year ended December 31, 2016
(December 31, 2015 - 5.1 million units), as the exercise price of these unit options was greater than the average market price of RioCan's common
trust units.
(ii) Represents the excess of par redemption value over the carrying value of the Trust's Series A preferred trust units redeemed on March 31, 2016.
22. FAIR VALUE MEASUREMENT
The fair value hierarchy of assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets is
as follows:
December 31, 2016
December 31, 2015
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Assets measured at fair value:
Cash and equivalents
$
54,366 $
— $
— $
83,318 $
Available-for-sale investments
299,987
5,665
—
300,553
Investment properties:
Income properties
Properties under development
Properties held for sale
Cross currency interest rate swaps
—
—
—
—
— 12,406,719
—
—
1,416
880,319
60,530
—
—
—
—
—
— $
—
—
—
— 11,322,109
—
830,067
— 2,968,095
—
—
Total assets measured at fair value
$
354,353 $
7,081 $13,347,568 $
383,871 $
— $15,120,271
Liabilities measured at fair value:
Interest rate swaps
—
10,241
Total liabilities measured at fair value
$
— $
10,241 $
—
— $
—
26,416
— $
26,416 $
—
—
For assets and liabilities measured at fair value as at December 31, 2016, there were no transfers between Level 1, Level 2 and
Level 3 assets and liabilities during the period. For changes in fair value measurements of investment properties and Canadian
properties held for sale included in Level 3 of the fair value hierarchy, refer to note 5 for details.
129
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
Fair value of financial instruments
The Trust's financial instruments and their carrying values on the consolidated balance sheets are as follows:
Available-for-sale investments
Receivables and other assets
Mortgages and loans receivable
Cross currency interest rate swaps
December 31, 2016
December 31, 2015
Carrying
value
Fair value
Carrying
value
Fair value
$
305,652 $
305,652 $
300,553 $
300,553
42,427
42,427
81,504
81,504
118,017
115,416
129,258
126,227
1,416
1,416
—
—
Mortgages payable, lines of credit and mortgages on properties held for sale
3,405,568
3,508,106
5,413,304
5,660,359
Debentures payable
Interest rate swap liabilities
Accounts payable and other liabilities
2,248,024
2,371,060
2,000,066
2,073,905
10,241
10,241
26,416
26,416
489,613
489,613
394,483
394,483
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
The fair value of mortgages and other loans receivable is determined by the discounted cash flow method using applicable inputs
such as prevailing interest rates, contractual rates and discounts. Fair value measurements of these instruments were estimated
using Level 3 inputs. The carrying values of short-term and variable rate loans generally approximate their fair values.
Mortgages payable, lines of credit, mortgages on properties held for sale and debentures payable
The fair values 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. The carrying values of short-term and variable rate debt generally approximate their fair values.
Cross currency interest rate swap liability
The fair values of the cross currency interest rate swaps reported in other liabilities represent estimates at a specific point in time
using financial models, based on both foreign exchange and interest rates that reflect current market conditions, the credit quality
of counterparties and interest rate curves.
Interest rate swap liability
The fair values 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, 2016, approximately 13.8%
(December 31, 2015 - 14.0%) 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 statements of income.
As at December 31, 2016, the outstanding notional amount of the floating-to-fixed interest rate swaps was $683 million
(December 31, 2015 - $993 million) and the term to maturity of these agreements ranges from April 2017 to October 2023.
130
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
The outstanding interest rate swaps by year of maturity are as follows:
Maturity
2017
2018
2019
2020
2021
Thereafter
Original principal amount Weighted average effective fixed interest rate
$
$
104,690
208,938
126,020
119,025
55,000
69,000
682,673
3.81%
3.60%
3.57%
2.88%
4.12%
2.82%
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, 2016, the fair value of the interest rate swaps are, in aggregate, a
net financial liability of $10 million (December 31, 2015 - $26 million).
As at December 31, 2016, the carrying value of the Trust's floating rate debt, not subject to a hedging strategy, is $778 million. As
at December 31, 2016, a 50 basis point increase in market interest rates would result in a $3.9 million decrease in the Trust's net
income.
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.
• 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. As a result of the Trust's disposal of its U.S. property portfolio, repayment of U.S. denominated debt and
exit from its U.S. operations, discussed further in note 4, RioCan has significantly reduced its foreign exchange risk.
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.
131
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
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, 2016. The Trust
intends, but is not contractually obligated, to distribute to its unitholders in each year an amount not less than the Trust’s income
for the year, as calculated in accordance with the Income Tax Act (Canada) (the Tax Act) after all permitted deductions under the
Tax Act have been taken. RioCan’s Trustees rely upon forward-looking cash flow information, including forecasts and budgets
and the future business prospects of RioCan, to establish the level of cash distributions.
The Trust’s debentures payable have covenants that are consistent with the Debt to Aggregate Assets ratio as discussed above,
maintenance of at least $1 billion of Adjusted Book Equity (defined in the indenture), and maintenance of at least an interest
coverage ratio (defined in the indenture) of 1.65 for a rolling twelve-month period.
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 December 31,
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
New unsecured operating credit facility
Note
10
4
11
2016
$
3,405,568
$
—
2,248,024
5,653,592
8,009,888
2015
4,164,669
1,248,635
2,000,066
7,413,370
7,926,039
$
13,663,480
$
15,339,409
39.7%
2.6%
2016
3.38
46.1%
2.9%
2015
3.06
The Trust is subject to certain key financial covenants pursuant to the agreement governing its unsecured operating credit facility,
which are calculated on a rolling twelve-month basis. As at and for the year ended December 31, 2016, the Trust is in
compliance with all applicable financial covenants.
The following table summarizes the Trust's performance relative to these key financial covenants:
Total indebtedness (i) (vi)
Secured indebtedness (ii) (vi)
Debt service coverage (iii) (vi)
Minimum unitholders' equity (in millions)
Ratio of unencumbered property assets to unsecured indebtedness (iv) (v) (vi)
Properties held for development as a percentage of consolidated gross book value of assets
Key covenant
December 31, 2016
< 60%
< 40%
> 1.5x
> $5,000
> 1.5x
< 15%
43.3%
21.0%
2.4 x
$8,010
2.0 x
6.6%
(i)
Total indebtedness consists of the contractual amounts outstanding on mortgages payable, lines of credit and other bank loans, debentures
payable, capital lease obligations, contingent liabilities and the maximum exposure to loss for all third-party debt where RioCan has provided a
financial guarantee.
(ii) Secured indebtedness includes mortgages payable, other bank loans and capital lease obligations, which are secured against investment
132
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
properties.
(iii) Debt service includes regular mortgage principal and interest payments, including interest capitalized on properties under development.
(iv) Unsecured indebtedness includes the contractual amounts outstanding of the unsecured line of credit, debentures and any third-party debt
amounts guaranteed by RioCan.
(v) Unencumbered property assets consist of properties that have not been pledged as security for debt. The unencumbered property asset to
unsecured indebtedness ratio is calculated as unencumbered assets divided by unsecured indebtedness.
(vi) These ratios include inputs from proportionately consolidated equity accounted investments.
25. OPERATING LEASES
Lease commitments – Trust as lessor
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, 2016
$
$
713,910
2,027,208
1,533,327
4,274,445
Contingent rent recognized in the consolidated statements of income for the year ended December 31, 2016 is $12 million
(December 31, 2015 - $9.2 million).
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 Realty Investments Partnership Eleven 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 Partner Trust
RC NA Property 1 LP
RC NA Property 2 LP
RC Northeast Partnership LP
RC/Dunhill Timber Creek Holdings LP
RC (RP) I LP
RioKim USA LP
RC NA Property 3 LP
133
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
Country
Canada
Canada
Canada
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.
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, 2016 and 2015
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 period paid in the current year
Distributions declared in current period paid in next year
Distributions paid
Proceeds from units issued under the distribution reinvestment plan
28. CHANGES IN OTHER WORKING CAPITAL ITEMS
Year ended December 31,
Receivable and other assets
Mortgage receivable interest
Residential development inventory
Accounts payable and other liabilities
Foreign exchange and other
Net change in non-cash operating items
29. RELATED PARTY TRANSACTIONS
2016
776 $
229,159
2015
3,286
264,208
(458,388) $
(453,094)
(37,893)
38,356
(457,925) $
60,782
(397,143) $
(37,128)
37,893
(452,329)
142,715
(309,614)
$
$
$
$
2016
2015
$
96,709 $
(41,512)
(4,914)
(3,138)
94,492
(27,080)
$
156,069 $
3,305
35,074
1,765
14,044
12,676
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: 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 year ended December 31, 2016 and 2015 is as follows:
Year ended December 31,
Compensation and benefits
Unit-based payments
Post-employment benefit costs
Trustees
Key Executives
2016
301 $
2,253
—
2015
2016
237 $
5,756 $
1,751
—
5,341
57
2,554 $
1,988 $
11,154 $
2015
5,497
2,751
88
8,336
$
$
During February 2016, RioCan's Chief Executive Officer, Edward Sonshine, agreed to amend his employment contract to reflect
his agreement to not retire or resign voluntarily before December 31, 2018. As part of this commitment, Mr. Sonshine agreed to
use his best efforts to provide the Trust with 12 months' notice of his intent to retire or resign.
30. EMPLOYEE BENEFITS
Plan characteristics
RioCan sponsors a defined contribution plan and three defined benefit plans that provide 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, 2016, RioCan's
contributions to the defined contribution plan was $1.0 million (December 31, 2015 - $0.9 million).
Defined benefit plans
RioCan's defined benefit pension plans, one of which is a registered plan and two of which 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.
134
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
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 was completed as at January 1, 2016, and the next valuation is scheduled
for January 1, 2019.
The fair value of the registered plan assets as at December 31, 2016 is $2.8 million (December 31, 2015 - $2.9 million). The
recognized pension obligation (net of plan assets) as at December 31, 2016 is $12.8 million (December 31, 2015 - $13.2 million).
Pension costs, net of recoveries, of $0.5 million were recorded in net income for the year ended December 31, 2016 (pension
costs for the year ended December 31, 2015 - $0.6 million).
The discount rate used was 3.8% (December 31, 2015 - 3.8%), the compensation growth rate was 4.0% (December 31, 2015 -
4.0%) and the expected long-term rate of return on assets was 3.8% (December 31, 2015 - 3.8%).
Actuarial gains and losses for the defined benefit plans are recognized in full in the period in which they occur in OCI. Such
actuarial gains and losses are also immediately recognized in retained earnings and are not reclassified to income in subsequent
periods.
31. SEGMENTED INFORMATION
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.
32. CONTINGENCIES AND OTHER COMMITMENTS
Guarantees
As at December 31, 2016, the estimated amount of third-party debt subject to RioCan guarantees, and therefore the maximum
exposure to credit risk, was approximately $428 million, consisting of guarantees totalling $341 million to partners and co-owners
(December 31, 2015 - $358 million). The remaining debt subject to RioCan guarantees of $87 million relates to the assumption of
mortgages by purchasers on property dispositions with expiry dates between 2017 and 2034 (December 31, 2015 - $99 million).
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.
The maximum exposure to credit risk relating to a guarantee is the maximum risk of loss if there was a total default by the co-
owner, without consideration of recoveries under recourse provisions against such co-owner's equity in the property or other
assets of the co-owner.
Letters of credit
The Trust has aggregate letter of credit facilities with certain Schedule I banks totaling $81 million. As at December 31, 2016, the
Trust’s outstanding letters of credit under these facilities was $29 million (December 31, 2015 - $29 million).
Lease commitments – Trust as lessee
The Trust as lessee is committed under long-term operating leases with various expiry dates to 2088. Future minimum lease
payments are as follows:
Within 12 months
2 to 5 years
Over 5 years
Total
Investment commitments
RioCan HBC Joint Venture
December 31, 2016
Land
Leases
Operating
Leases
Total
Commitments
$
$
903 $
615 $
3,275
7,226
1,925
4,191
11,404 $
6,731 $
1,518
5,200
11,417
18,135
As at December 31, 2016, RioCan has approximately $157 million of remaining unfunded investment commitments related to the
RioCan-HBC JV (December 31, 2015 - $178 million).
135
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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, 2016 and 2015
WhiteCastle New Urban Funds (WNUF)
As at December 31, 2016, the Trust has unfunded investment commitments of approximately $53 million relating to WNUF,
WNUF 2 and WNUF 3 (December 31, 2015 - $59 million). 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 WNUF 3.
Litigation
The Trust is involved with litigation and claims that 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
Debenture issuance
On January 16, 2017, the Trust issued $300 million of Series Y senior unsecured debentures, which mature on October 3, 2022
and carry a coupon rate of 2.83%. The interest on these debentures is payable semi-annually commencing April 3, 2017.
136
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2016
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 C REI.PR.C
ANNUAL MEETING
The 2017 Annual Meeting of RioCan REIT will be
held on June 8, 2017 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
BOARD OF TRUSTEES
1,2,3,4
Paul Godfrey, C.M., O.Ont.
(Chairman of Board of Trustees)
President and Chief Executive Officer
Postmedia Network Canada Corp.
Bonnie R. Brooks, C.M.
Chair, Liquor Control Board of Ontario
3,4
1,2
Clare R. Copeland
Vice-Chair, Falls Management Company
Dale H. Lastman
Chair and Partner, Goodmans LLP
2,3,4
Jane Marshall
Former Chief Operating Officer of
Choice Properties REIT
Sharon Sallows
Trustee, Chartwell Retirement Residences REIT
1,2,4
Edward Sonshine, O.Ont., Q.C.
Chief Executive Officer
RioCan Real Estate Investment Trust
3,4
Charles M. Winograd
President, Winograd Capital Inc.
1,2
Luc Vanneste
Chair of the Audit Committee,
RioCan Real Estate Investment Trust
1
2
3
4
member of the Audit Committee
member of the Human Resources & Compensation
Committee
member of the Nominating & Governance Committee
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
Assistant Vice President, Investor Relations &
Compliance
Tel: (416) 864-6483
Email: cgreen@riocan.com
CORPORATE INFORMATION
SENIOR MANAGEMENT
Edward Sonshine, O.Ont., Q.C.
Chief Executive Officer
Raghunath Davloor
President, Chief Operating Officer & Corporate
Secretary
Qi Tang
Senior Vice President, Finance & Acting Chief
Financial Officer
John Ballantyne
Senior Vice President, Asset Management
Andrew Duncan
Senior Vice President, Developments
Jonathan Gitlin
Senior Vice President, Investments & Residential
Danny Kissoon
Senior Vice President, Operations
Jeff Ross
Senior Vice President, Leasing & Tenant
Coordination
Terri Andrianopoulos
Vice President, Corporate Marketing
Moshe Batalion
Vice President, Leasing – Ontario
Stuart Baum
Vice President, Human Resources
Nigel Bunbury
Vice President, Financial Reporting & Controls
Stuart Craig
Vice President, Planning & Development
Roberto DeBarros
Vice President, Construction
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
Stephen Roberts
Vice President, Analytics
Tim Roos
Vice President, Operations
Jonathan Sonshine
Vice President, Asset Management
Jeffrey Stephenson
Vice President, Leasing
Naftali Sturm
Vice President, Real Estate Finance
Renato Vanin
Vice President, Information Technology
RIOCAN YONGE EGLINTON CENTRE
2300 Yonge Street
Suite 500
P.O. Box 2386
Toronto, Ontario
M4P IE4
416 866 3033
1 800 465 2733
416 866 3020
T
TF
F
W www.riocan.com