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ANNUAL REPORT 2019
Yonge Eglinton Centre
Yonge Eglinton Centre
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Welcome to RioCan, Canada’s
preeminent, major market real estate
investment trust (REIT).
RioCan is one of Canada’s largest real estate
investment trusts with a total enterprise value of
approximately $15.0 billion as of December 31,
2019. RioCan owns, manages and develops retail-
focused, increasingly mixed-use properties located
in prime, high-density transit-oriented areas where
Canadians shop, live and work. Our portfolio is
comprised of 220 properties with an aggregate
Net Leasable Area (NLA) of approximately
38.4 million square feet (at RioCan’s interest)
including office, residential rental and 14
development properties. Furthermore, we have
zoned density to accommodate 14.6 million square
feet of additional mixed-use urban properties.
To learn more about how we deliver real vision on
solid ground, visit www.riocan.com.
01
02
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Canada’s preeminent
major market, urban mixed-use
focused REIT.
90.1% and 52.4%
of total annualized rental revenue
from the six major markets and GTA.
Robust 29M sq. ft.
development pipeline
50.3% of which has zoning approvals.
04
Consistently strong balance sheet
and disciplined capital allocation.
05
26 years of driving success
and adding value through a highly
experienced, deep executive bench.
01
RioCan Annual Report 2019
Strategic Canadian
MAJOR MARKET
POSITIONING
I Z ED RE
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N U
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A
90.1%
6 MAJO R M A R K
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F
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E
*
S
T
E
Edmonton
12 assets
2.2M SF
6.6%*
Calgary
14 assets
3.4M SF
9.0%*
Vancouver
7 assets
1.8M SF
4.9%*
Montreal
19 assets
2.6M SF
4.7%*
Ottawa
35 assets
4.7M SF
12.5%*
Toronto
89 assets
16.4M SF
52.4%*
KEY METRICS
in Canada’s Six Major Markets
176
assets1
30.6%
increase in
avg. population
within 5 km of assets
since 20163
31.1M
SF 1
14.6M
SF zoned
for mixed-use
development
2.5%
SPNOI growth2
97.7%
committed
occupancy 1
Table of
CONTENTS
01
02
03
07
08
09
10
11
12
13
22
102
Corporate Profile
Strategic Canadian Major
Market Positioning
Letter from the CEO
Senior Management and
Balance Sheet Highlights
Yonge Sheppard Centre
Yonge Eglinton Centre, eCentral,
e8, e2, and 2323 Yonge Street
Sustainability
and Colossus Centre
Frontier
The Well and King Portland Centre
Property Portfolio
Management’s Discussion
and Analysis
Audited Annual Consolidated
Financial Statements
IBC
Corporate Information
Bathurst College Centre
Bathurst College Centre
On cover: Yonge Sheppard Centre
On cover: Yonge Sheppard Centre
02
1 Includes commercial income-producing properties only and excludes 14 active properties currently under development2 If completed properties under development are included, SPNOI increased by 3.7% when compared to 20183 Source: DemoStats – 2019 - Trends, ©2020 Environics Analytics* Percentage of annualized rental revenue O
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Delivering value today,
building for tomorrow
Dear Unitholders,
As RioCan completed its 26th year of operation,
I am proud to report on our progress to establish
RioCan as Canada’s preeminent, major market,
urban mixed-use focused REIT.
To that end, I am pleased that we have achieved
two of our very important milestones: deriving
90.1% of our annualized rental revenue from
Canada’s six major markets (Greater Toronto Area
(GTA), Ottawa, Montreal, Vancouver, Edmonton,
and Calgary), and 52.4% of our annualized rental
revenue from the GTA.
We are now in a position where we have
created an almost endless pipeline of value
creation opportunities while maintaining
and growing a solid revenue stream.
We have evolved our inherently value-rich
portfolio to consist primarily of necessity-based
retail and urban mixed-use properties positioned
in the transit corridors in some of Canada’s most
desirable, high-density locations. Our locations,
commercial tenant mix, and diversity of revenue
sources allow us to consistently produce a high
quality of income with sustainable growth,
resilient in the face of macroeconomic pressures.
In addition, our balance sheet provides the
flexibility, stability and financial strength
necessary to execute our growth strategy, access
low cost of debt and help insulate RioCan from
broader market volatility.
03
RioCan Annual Report 2019
I am also delighted to note that RioCan made significant strides in
its ongoing commitment to sustainability by, among other initiatives,
publishing our inaugural Sustainability Report and achieving a 77%
improvement in the Global Real Estate Sustainability Benchmark
(GRESB) Assessment over our 2017 score.
Leveraging dynamic consumer and
demographic trends to drive success
RioCan’s major market strategy is influenced by evolving consumer and
demographic trends that directly impact the commercial real estate
landscape. Changing consumer spending habits and the proliferation
of technology have resulted in the most dynamic retail environment
in history. It is easy to point to the growth of online shopping as an
influential catalyst; however, RioCan looks beyond the obvious changes
such as where people are transacting. We also analyze what they buy
and how they spend their income.
Our 26 years of experience provides a powerful competitive
edge as it enables RioCan to anticipate patterns before they
become trends, to identify influential shifts as they develop,
and to adapt our strategy accordingly.
Since the advent of the iPhone in 2007, average household spending
on communications, including connectivity, has increased by more than
60%, leaving close to a thousand dollars less per household per year
to spend on apparel and other expenses. Simultaneously, experiences
have become more important than physical goods, which is highlighted
by the increase in spending on restaurants, gyms and services. In
addition, time is now valued at a premium with consumers aiming to
save as much of it as possible, in some cases sourcing everything they
need in a single location – whether physical or virtual.
At the same time, the Canadian population is urbanizing with more
than 70% of the Canadian population living in a census metropolitan
area. Among Canada’s six major markets, the GTA is the fastest
growing, and Toronto is a leading city in population growth among the
central cities in all of North America.
In response to these consumer and demographic trends,
RioCan purposefully concentrated its portfolio in the highest
growth regions of Canada, with a focus on the GTA.
The success of this initiative is evident in the increase in population
density in the areas immediately surrounding RioCan’s properties; the
average population in the five-kilometre trade areas around RioCan’s
assets is more than 30% higher than it was in 2016.
MAJOR
MARKET
Asset Classification
% of NLA
Annualized Rental Revenue
Grocery Anchored Centre*
48.9%
42.6%
Open Air Centre*
27.4%
24.6%
Mixed-Use / Urban*
15.9%
23.7%
Enclosed Centre*
7.8%
9.1%
Successfully executed our
Major Market strategy
% of Annualized
Rental Revenue in
Major Markets
% of Annualized
Rental Revenue
in GTA
90.1%
69.4%
52.4%
29.0%
Peer
Average*
RioCan
2019
Peer
Average*
RioCan
2019
High occupancy and strong net
rent growth consistently delivering
high quality income*
Net rent PSF CAGR since 2015: + 3.7%
100%
95%
90%
$19.07
$19.75
$17.11
$17.59
$17.75
95.6%
96.6%
97.1%
97.2%
94.0%
2015
2016
2017
2018
2019
$20
$18
$16
$14
Committed Occupancy
Average Net Rent PSF
04
* Canadian commercial properties only* Percentage of total major market portfolio* Peers include First Capital Realty, SMART REIT, and CT REIT; based on company reports as of December 31, 2019* Peers include First Capital Realty and CT REIT; based on company reports as of December 31, 2019 RENT
BREAKDOWN
2019
74.5%*
of rent from
necessity-based &
service-oriented
tenants
Grocery/Pharmacy/
Liquor/Restaurants
28.2% (+4% since 2007)
Personal Services
22.0% (+6% since 2007)
Value Retailers
13.6%
Specialty Retailers
10.7%
Furniture/Home
9.6%
Department Stores /Apparel
8.4% (-8% since 2007)
Movie Theatres
4.4%
Entertainment / Hobby/
Electronics/ Books
3.1%
491 College Street
491 College Street
05
RioCan Annual Report 2019
In addition, RioCan strategically tailored its portfolio to serve the
growing number of consumers that wish to live, work, shop, and
play in high-quality, urban mixed-use properties located in the most
compelling major market transportation hubs. As these locations
are highly attractive to a growing consumer base, they are by proxy
compelling to the strongest tenants allowing RioCan to carefully
curate our tenant portfolio to include the most resilient of retailers.
As a result, 74.5% of our annualized net rental revenue is now derived
from necessity-based and service-oriented tenants, and just over 50% of
tenants are in the grocery, pharmacy, liquor, restaurant, or service sector.
In parallel, we have reduced our exposure to more internet-sensitive
tenants such as department stores and apparel to 8.4% of
our annualized net rental revenue.
Taking early action in response to strategic foresight has
produced a powerful, stable, and productive retail portfolio
designed to meet near- and long-term consumer needs.
With consistently high occupancy levels and a track record of delivering
a high quality of income, RioCan can confidently say it has one of the
strongest, best positioned portfolios in Canada.
The future is Urban Mixed-Use
We could have rested satisfied with the knowledge that we have
curated a major market retail portfolio capable of delivering stable and
continuous high-quality income.
However, we knew that by proactively identifying and
capitalizing on inherent value-add opportunities, our portfolio
could generate stronger Net Asset Value (NAV) growth and
deliver even higher returns for our unitholders.
We understood that the urbanization noted earlier, along with
increasing immigration and migration to the major markets and
aging residential rental stock would put pressure on the already
undersupplied purpose-built residential rental market. We anticipated
these factors would drive demand for mixed-use development
and a willingness to pay a premium for new, efficiently-designed
residential rental units, well-positioned near or on existing and new
transit lines, particularly when they are complimented by the strong
retail offering that RioCan, one of Canada’s largest and most
dynamic retail landlords, can provide.
To meet this demand, we initiated the process of obtaining zoning
approvals to convert our existing transit-oriented retail properties into
vibrant mixed-use communities more than 10 years ago.
* Annualized net rental revenue To execute our urban mixed-use development strategy,
RioCan Living™ tailors residential projects to consumers’
shifting requirements, including forward-thinking amenities,
shared workspaces, social spaces, modern technology,
state-of-the-art life safety systems, security, and access to
necessity-based retail and services.
RioCan Living’s first two residential rental projects, 466-unit eCentral™
in Toronto and 228-unit Frontier™ in Ottawa, commenced leasing
in late 2018 and, as of February 19, 2020, are leased 86% and 97%
respectively at very gratifying rents within their first year of opening.
The success of these projects further underscores the accuracy of
our instincts regarding the demand for quality, well-located residential
rental within mixed-use communities.
RioCan Living is actively changing the face of this expanding market
by having more purpose-built residential rental units currently under
construction than any other public REIT in the Canadian sector and, as a
result, we are on track to have Canada’s preeminent, newly constructed,
major market residential rental portfolio over the next five years.
Delivering long-term value and growth
Looking ahead, our tremendous 29.0 million square feet development
pipeline will continue to drive strong and sustainable NAV and cashflow
growth; it is urban mixed-use residential in profile and 50.3% of
it is already zoned. These attributes are perfectly suited to deliver
incremental income and healthy Funds From Operations (FFO) growth
as development projects are completed.
2019 was a transformational year for RioCan as we successfully
executed our strategy, achieving both our major market and GTA
targets, and delivering the strongest, leading major market portfolio
in Canada.
Our best-in-class portfolio, high quality of income,
experienced leadership team and robust balance sheet
position RioCan to dominate the fast growing, urban mixed-
use market, with the goal of delivering strong NAV and
unitholder returns.
TOTAL PIPELINE
by Zoning Status
6.5M SF
(22.5%)
7.9M SF
(27.2%)
29M SF
14.6M
SF
(50.3%)
Zoning approved
Future estimated density
Zoning application submitted
No significant fair value gains yet recognized
for excess density
Total Return to Unitholders Assuming
Distributions are Re-invested
$870
$466
$261
$460
$237
$195
$1,239
$779
$441
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
$100
$100
$100
1998
2001
2004
2007
2010
2013
2016
2019
RioCan
S&P/TSX Capped
REIT Index
S&P/TSX
Composite Index
We appreciate your invaluable trust and thank you for your continued
ePlace
ePlace
support and confidence in RioCan.
Edward Sonshine O.Ont., Q.C.
Chief Executive Officer
RioCan Real Estate Investment Trust
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Deep executive bench with unparalleled sector expertise
RioCan has a deep, cohesive executive management team with diverse skillsets and an unparalleled
understanding of the real estate industry. Twenty-six years of experience provides a powerful competitive
edge as it enables our team to anticipate patterns before they become trends, to identify influential
shifts as they develop and to adjust strategy accordingly.
Edward Sonshine O.Ont, Q.C.
Chief Executive Officer
Jonathan Gitlin
President & Chief Operating Officer
Qi Tang
Senior Vice President
& Chief Financial Officer
John Ballantyne
Senior Vice President, Asset Management
Andrew Duncan
Senior Vice President, Development
Oliver Harrison
Senior Vice President, Operations
Jeff Ross
Senior Vice President,
Leasing & Tenant Coordination
Jennifer Suess
Senior Vice President,
General Counsel & Corporate Secretary
Consistently strong balance sheet and
disciplined capital allocation
In 2019, RioCan continued to exercise sound capital management and
bolster its already robust balance sheet with strong debt to Adjusted
EBITDA, leverage and coverage ratios. Our laddered debt maturity
profile with mostly fixed-rate debt also enables RioCan to manage
interest rate risk effectively.
In addition to multiple sources of capital, RioCan benefits
from high liquidity and financial flexibility due to ample
credit facilities and an $8.9 billion unencumbered assets pool,
generating 58.5% of annualized Net Operating Income (NOI)*.
This financial strength enables RioCan to self-fund its development
program through a variety of accessible sources including:
• Net proceeds from dispositions
• Sales proceeds from air rights sales and condominium /
townhouse developments
• Strategic alliances
• Excess operating cashflows
07
RioCan Annual Report 2019
227%*
coverage over unsecured debt
(27%* above target)
$864.9M*
cash and cash equivalents
and undrawn lines of credit
6.4%*
floating interest rate
debt exposure (16.4%* FY 2018)
42.1%*
debt to total assets
* On a proportionate share basis A
B
C
Yonge Sheppard Centre office space
Yonge Sheppard Centre office space
Yonge Sheppard Centre retail
Yonge Sheppard Centre retail
Pivot residential rental
Pivot residential rental
C
A
A
Canada’s preeminent
MAJOR MARKET,
URBAN MIXED-USE
FOCUSED REIT
Pivot Interior
Pivot Interior
B
Yonge Sheppard Centre (YSC)
is a shining illustration of
RioCan’s ability to transform
an outdated but well-located
asset into a dynamic and
relevant urban mixed-use
community.
Newly redeveloped, YSC serves as an important
hub in this North Toronto neighbourhood,
where rapid population growth combined with
a lag in residential construction has resulted
in historically low vacancy rates and a strong
compounded annual market rent rate increase.
Along with direct access to the intersecting
subway lines of Yonge Street and Sheppard
Avenue, YSC’s 309,000 square feet of retail
and 399,000 square feet of office space allow
consumers to shop and work in one well-
connected development.
An integral component of the RioCan
Living residential portfolio, YSC also
includes Pivot™, a 36-storey residential
rental tower on track to service growing
demand with 361 luxury rental units
launching in Fall 2020.
Pivot residents will enjoy the breadth of YSC’s
retail and food service offering, which features
compelling tenants such as Longo’s, Winners,
Shoppers Drug Mart, LA Fitness and Cactus Club.
08
Dominating a
PRIME TRANSIT
INTERSECTION
IN TORONTO
Yonge Eglinton Centre
Yonge Eglinton Centre
ePlace
ePlace
2323 Yonge Street
2323 Yonge Street
A
B
C
B
C
A
Located just across the intersection from YEC, ePlace™, one of
RioCan’s newest urban mixed-use developments, features three
storeys of retail, two storeys of office and three residential towers.
Completed in 2019 and located in ePlace, 36-storey eCentral is a striking
addition to the midtown Toronto skyline featuring a distinct aluminum
exterior and 466 luxury residential rental units. eCentral is 86% leased at
very gratifying rents only one year after opening, and we are reaping the
benefits of exceptional property management through strong leasing
velocity. An additional two condominium buildings, e8 and e2, round out
the development.
2323 Yonge Street, a boutique office building with retail at its base, is
located at the same intersection and further bolsters RioCan’s position as
the dominant landlord in this provincially designated Urban Growth Centre.
In addition to taking advantage of improved operating efficiencies, cost
controls, and economies of scale, our team is exploring a range of revenue
growth opportunities resulting from the ownership of multiple closely
located properties at a prime intersection in Toronto. With office leases set
to expire over the next five years, sizeable rent growth opportunity exists.
Furthermore, the site has significant residential intensification potential,
which could further expand our RioCan Living portfolio.
The recently renovated
Yonge Eglinton Centre (YEC)
is a proven success story of
RioCan’s ability to drive value
from our existing transit-
oriented major market assets.
Yonge Eglinton Centre is one of midtown
Toronto’s busiest shopping centres with abundant
options for groceries, banking, shopping, dining,
and entertainment.
Located at the prime intersection of the
Yonge subway line and the future Eglinton
Crosstown Light Rail Transit, YEC caters to
more than five million annual visitors.
Since acquiring YEC in 2007, RioCan renovated
and refurbished the property, and carefully
curated its tenant mix to align with the changing
demographics and needs of its urban community,
delivering approximately $341.9 million in value
creation (a 102.7% increase) since acquisition.
$341.9M
+102.7% value creation since 2007
09
RioCan Annual Report 2019
Proving our commitment to sustainability
During 2019, RioCan successfully executed key sustainability milestones,
which included publishing our first Sustainability Report, formalizing
corporate commitments in our Sustainability Policy, and updating
our multiyear plan to execute on these commitments and continue
improving our sustainability performance year-over-year.
RioCan’s participation in the Global Real Estate Sustainability Benchmark
(GRESB) Assessment shows that we are indeed improving, with our 2019
score increasing 77% compared to 2017.
Notable sustainability innovations include using Enwave’s
Deep Lake Water Cooling system at The Well in Toronto,
which will help to decentralize energy supply and ease load
on the electricity grid.
Meanwhile, Frontier residential rental in Ottawa is using a high efficiency
geothermal system that reduces carbon emissions and saves on water
and electricity.
To learn more about RioCan’s ongoing commitment to
sustainability and to access related documents, please visit:
www.riocan.com/about/sustainability/
Capitalizing on inherent value and
DRIVING NAV GROWTH
Vaughan Metropolitan Centre Station
Vaughan Metropolitan Centre Station
Highway 407 Station
Highway 407 Station
Enwave tank location at The Well
Enwave tank location at The Well
Enwave at The Well
Enwave at The Well
Originally purchased in 1998, RioCan
Colossus Centre in Vaughan, Ontario,
is an excellent example of the value
inherent in RioCan’s portfolio.
Positioned in one of the fastest growing areas in
Canada at the important crossroads of Highway 7
and Weston Road, and close to the newly opened
Vaughan Metropolitan Centre transit station,
RioCan Colossus Centre is ripe for intensification
to service rapidly growing demand for mixed-use
properties in the area.
RioCan Colossus Centre
RioCan Colossus Centre
A diverse local community of residents and office
workers enjoy access to compelling tenants
such as Cineplex Colossus and leading retailers
including Sephora, Costco, HomeSense, and
PetSmart, as well as a range of personal services
and national restaurants. Although presently
boasting 98% occupancy in its 66 retail units, and
consistently delivering strong SPNOI growth, the
vast 60-acre site can deliver much more, through
rezoning to permit development of high-quality
mixed-use properties.
Future Colossus massing (concept only)
10
Blair Light Rail Transit Station
Blair Light Rail Transit Station
Frontier
Frontier
Phase 2 Construction
Phase 2 Construction
A
B
C
B
A
C
Evident success of our early zoning
strategy and a trophy in our transit-
oriented mixed-use portfolio is Frontier
in Ottawa, a 23-storey, 228-unit
residential rental tower conveniently
located next to the new Blair Light Rail
Transit station and RioCan’s Silver City
Gloucester Shopping Centre.
Home to necessity-based retail and services tenants such as
GoodLife Fitness, Cineplex, and Chapters, the Silver City Gloucester
development is already delivering strong, sustainable returns.
Frontier reached stabilization within a year of launching, with 97%
of the units leased at above proforma rents.
Based on the zoning in place, RioCan and its partner
Killam Apartment REIT can build a total of four residential
towers on the site with up to 840 units.
Given the evident success of Frontier, construction has commenced
on the second phase of residential rental development, with
occupancy expected in 2021.
Frontier
Frontier
THE OUTLOOK
IS URBAN
MIXED-USE
Powerful trends such as increased
immigration and urbanization drive
RioCan’s major market strategy with
effectively all of our pipeline consisting
of core assets located in fast-growing,
densely populated cities.
The lack of transit-oriented, urban mixed-use
buildings compatible with modern consumer
needs has shaped our pipeline, and with 50.3%
of it already zoned, RioCan is able to intensify
and extract significant value from both existing
and newly acquired assets.
~2,700
residential rental units
completed/under construction
+2,100
units expected
to be underway by 2021
11
RioCan Annual Report 2019
Construction at our most ambitious urban
mixed-use endeavour to date, The Well in
Toronto continues to progress on schedule.
The Well is a new, vibrant mixed-use community in Toronto’s downtown
West, that achieves what Toronto’s Design Review Panel has called
‘Enlightened Urbanism.’ Spread over seven and a half acres, the
neighbourhood borders Wellington, Spadina and Front Street in Toronto,
minutes away from Union Station. The development includes over
3.1 million square feet of office, retail, and residential space.
Visitors, employees, and residents will be drawn to its
robust retail mix, dynamic amenities, premium office space,
entertainment, and cultural events.
36 storeys of office space are already 84% pre-leased to dynamic and
high-growth tenants including more than 400,000 square feet that has
been leased by Shopify. Residential suites are spread throughout the six
buildings in a mix of luxury condominiums and premium purpose-built
rentals that enhance RioCan Living’s best-in-class residential portfolio. In
addition, a year-round open-air covered public promenade in the heart of
The Well will create a visually arresting feature and community gathering
place, and Wellington Market™ will become Toronto’s go-to location for
market fresh and artisan food, culinary exploration and experiences.
Completed in Fall 2019,
King Portland Centre
King Portland Centre
The Well construction site
The Well construction site
The Well (rendering)
The Well (rendering)
King Portland Centre unites
brick-and-beam style
with new construction to
compelling effect in Toronto’s
King West neighbourhood.
One of the first urban intensification projects
undertaken by RioCan and its partner Allied
Properties REIT, the transit-oriented, luxury mixed-
use property includes a newly built 14-storey
tower that houses ground level retail and targeted
LEED platinum corporate office space fully
leased by Shopify and Indigo. On the ground level,
15,000 square feet of retail space is fully leased
to restaurant and food services curated to suit a
dense, growing and desirable demographic.
The development also includes a 15-storey
condominium tower known as Kingly™, which
is fully sold and occupied, exceeding initial price
expectations. Furthermore, an existing 3-storey
commercial building with 55,000 square feet
of office space is fully leased with significant rent
upside potential. A testament to the complex’s
superb architecture, UrbanToronto recently
recognized King Portland Centre as one of
Toronto’s 15 most influential buildings of the 2010s.
12
Commercial Property
PORTFOLIO
(Income producing properties only)
ALBERTA
As at December 31, 2019
Property Name
Ownership
Interest
RioCan Interest
NLA (Sqft)
Total Site
NLA (Sqft)(1) Major Tenants(2)
17004 & 17008 107th Avenue North West
Edmonton, AB
100%
11,963
11,963
5008 5020 97th Street North West
Edmonton, AB
100%
11,943
11,943
Brentwood Village
Calgary, AB
East Hills
Calgary, AB
Edmonton Walmart Centre
Edmonton, AB
Glenmore Landing
Calgary, AB
Jasper Gates Shopping Centre
Edmonton, AB
Lethbridge Towne Square
Lethbridge, AB
Lethbridge Walmart Centre
Lethbridge, AB
Lowe’s Sunridge Centre
Calgary, AB
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
RioCan Beacon Hill
Calgary, AB
RioCan Meadows
Edmonton, AB
RioCan Shawnessy
Calgary, AB
RioCan Signal Hill Centre
Calgary, AB
Riverbend Square Shopping Centre
Edmonton, AB
Sage Hill Crossing
Calgary, AB
South Edmonton Common
Edmonton, AB
13
RioCan Annual Report 2019
100%
291,927
291,927
Bed Bath & Beyond, Buy Buy Baby, London Drugs, Safeway,
Ashley HomeStore
40%
161,826
404,564
Walmart, Cineplex, Sport Chek, Bed Bath & Beyond, Michaels, Marshalls,
Costco*
40%
127,856
319,640 Walmart, Golf Town, Totem Building Supplies*
50%
72,960
145,919 Safeway
100%
102,043
102,043 London Drugs, Safeway*
100%
76,651
76,651 Fit For Less
100%
284,731
284,731 Walmart, Shoppers Drug Mart
100%
213,100
213,100 Lowe’s, GoodLife Fitness, Golf Town
100%
50,669
50,669 Shoppers Drug Mart
100%
414,998
414,998 Winners, Save-on-Foods, JYSK, Value Village
100%
454,581
454,581 Safeway (Co-op), Canadian Tire, GoodLife Fitness, Shoppers Drug Mart
100%
75,836
75,836 Cineplex
100%
275,889
275,889 Safeway, Gold’s Gym, JYSK, Staples, Home Depot*
100%
527,815
527,815
Canadian Tire, Winners, The Brick, Best Buy, GoodLife Fitness, Sport Chek,
PetSmart, Michaels, Mark’s Work Wearhouse, Home Depot*, Costco*
100%
323,954
323,954 Home Depot, Staples, Winners, Best Buy, PetSmart, Loblaws*
100%
470,462
470,462
Lowe’s, Sport Chek, Winners, Staples, Michaels, Best Buy, Home Depot*,
Walmart*, Co-op*, Canadian Tire*
100%
477,154
477,154 Lowe’s, Winners, Marshalls, Indigo, Michaels, Staples, Loblaws*
100%
138,654
138,654 Safeway
100%
382,165
382,165 Walmart, Loblaws City Market, London Drugs, Liquor Depot
100%
430,418
430,418
London Drugs, The Brick, Home Outfitters, Michaels, Old Navy,
Home Depot*, Walmart*, Loblaws*, Cineplex*, Staples*, Best Buy*
Commercial Property Portfolio
ALBERTA
As at December 31, 2019
Property Name
South Trail Crossing
Calgary, AB
Southbank Centre
Calgary, AB
Southland Crossing Shopping Centre
Calgary, AB
Summerwood Shopping Centre
Edmonton, AB
Timberlea Landing
Fort McMurray, AB
BRITISH COLUMBIA
Abbotsford Power Centre
Abbotsford, BC
Chahko Mika Mall
Nelson, BC
Clearbrook Town Square
Abbottsford, BC
Grandview Corners
Surrey, BC
Impact Plaza
Surrey, BC
Parkwood Place
Prince George, BC
Ownership
Interest
RioCan Interest
NLA (Sqft)
Total Site
NLA (Sqft)(1) Major Tenants(2)
100%
311,684
311,684 Winners, HomeSense, Marshalls, Staples, Sport Chek
75%
108,910
145,213
Winners, GoodLife Fitness, Michaels, Save-On-Foods*,
Home Depot*, Costco*
100%
132,063
132,063 Value Village
100%
83,990
83,990 Save-On Foods, Shoppers Drug Mart
100%
104,307
104,307 Regional Municipality of Wood Buffalo
100%
219,892
219,892 Lowe’s Winners, PetSmart, Costco*, Rona*
100%
173,107
173,107 Walmart, Save-On-Foods
100%
189,552
189,552 Safeway, GoodLife Fitness, Staples
100%
527,572
527,572 Walmart, Best Buy, Indigo, The Brick, Home Depot*
100%
134,599
134,599 T&T Supermarket
100%
370,250
370,250 Save-On-Foods, Hudson’s Bay, London Drugs, Cineplex, Staples
RioCan Langley Centre
Langley, BC
100%
380,088
380,088
Leon’s, Winners, HomeSense, Chapters, Michaels, Marshalls, PetSmart,
Mark’s Work Wearhouse
Strawberry Hill Shopping Centre
Surrey, BC
MANITOBA
Garden City Shopping Centre
Winnipeg, MB
NEW BRUNSWICK
Corbett Centre
Fredericton, NB
NEWFOUNDLAND
Trinity Conception Square
Carbonear, NFLD
100%
337,846
337,846 Home Depot, Cineplex, Winners, PetSmart, Sport Chek
100%
366,844
366,844 Canadian Tire, Winners, Seafood City, Michaels, GoodLife Fitness
100%
237,287
237,287
Winners, Michaels, Bed Bath Beyond, Princess Auto, Home Depot*,
Costco*
100%
181,635
181,635 Walmart, Dominion, Rossy
14
Commercial Property Portfolio
ONTARIO
As at December 31, 2019
Property Name
1650-1660 Carling Avenue
Ottawa, ON
1860 Bayview Avenue
Toronto, ON
1910 Bank Street
Ottawa, ON
1946 Robertson Road
Nepean, ON
2323 Yonge Street
Toronto, ON
2422 Fairview Street
Burlington, ON
2453 Yonge Street
Toronto, ON
2939-2943 Bloor Street West
Toronto, ON
2950 Carling Avenue
Ottawa, ON
2955 Bloor Street West
Toronto, ON
2990 Eglinton Avenue East
Toronto, ON
404 Town Centre
Newmarket, ON
491 College Street
Toronto, ON
555-563 College Street
Toronto, ON
642 King Street West
Toronto, ON
649 Queen Street West
Toronto, ON
6666 Lundy’s Lane
Niagara Falls, ON
85 Bloor Street West
Toronto, ON
Ajax Marketplace
Ajax, ON
Albion Centre
Toronto, ON
Bathurst College Centre
Toronto, ON
Belleville Stream
Belleville, ON
BMO-1293 Bloor Street West
Toronto, ON
BMO-145 Woodbridge Avenue
Vaughan, ON
BMO-1556 Bank Street
Ottawa, ON
BMO-519 Brant Street
Burlington, ON
15
RioCan Annual Report 2019
Ownership
Interest
RioCan Interest
NLA (Sqft)
Total Site
NLA (Sqft)(1) Major Tenants(2)
100%
142,188
142,188 Canadian Tire
100%
70,294
70,294 Whole Foods, Shoppers Drug Mart
100%
100%
6,425
6,425
2,938
2,938
50%
33,684
67,367
100%
6,221
6,221
100%
13,723
13,723
100%
9,468
9,468
100%
10,442
10,442 Pharma Plus
100%
100%
9,748
9,748
6,200
6,200
100%
267,954
267,954 Walmart, Metro, National Gym Clothing, Shoppers Drug Mart
50%
50%
50%
12,231
24,461
26,960
53,920
12,312
24,624
100%
14,200
14,200 CB2
100%
8,434
8,434
100%
13,810
13,810 COS
100%
70,724
70,724 Metro, Pharma Plus
100%
376,129
376,129 Canadian Tire, No Frills
100%
140,654
140,654 Freshco, Winners, UHN, Uber
100%
89,237
89,237 Stream International
100%
100%
100%
100%
5,683
5,683
4,973
4,973
4,835
4,835
5,190
5,190
Commercial Property Portfolio
ONTARIO
As at December 31, 2019
Property Name
BMO-945 Smyth Road
Ottawa, ON
Burlington Centre
Burlington, ON
Cambrian Mall
Sault Ste. Marie, ON
Chapman Mills Marketplace
Ottawa, ON
Cherry Hill Centre
Fergus, ON
Clarkson Crossing
Mississauga, ON
Clarkson Village Shopping Centre
Mississauga, ON
Colborne Place
Brantford, ON
Coliseum Ottawa
Ottawa, ON
Dufferin Plaza
Toronto, ON
Dundas 427 Marketplace
Mississauga, ON
Eagles Landing
Vaughan, ON
Eastcourt Mall
Cornwall, ON
Elmvale Acres
Ottawa, ON
Empress Walk
Toronto, ON
Eplace
Toronto, ON
Fairlawn Plaza
Ottawa, ON
Fallingbrook Shopping Centre
Orleans, ON
Five Points Shopping Centre
Oshawa, ON
Frontenac Mall
Kingston, ON
Galaxy Centre
Owen Sound, ON
Garrard & Taunton
Whitby, ON
Georgian Mall
Barrie, ON
Glendale Marketplace
Pickering, ON
Ownership
Interest
RioCan Interest
NLA (Sqft)
Total Site
NLA (Sqft)(1) Major Tenants(2)
100%
8,532
8,532
50%
298,417
596,833
Canadian Tire, Winners, HomeSense, Indigo, Denninger’s, Sport Chek,
GoodLife Fitness, Hudson’s Bay*
100%
134,807
134,807 Winners, Shoppers Drug Mart, Canadian Tire*, Loblaws*
100%
451,673
451,673 Walmart, Winners, Staples, Indigo, Galaxy Cinemas (Cineplex), Loblaws*
100%
73,886
73,886 Zehr’s
100%
213,077
213,077 Metro, Canadian Tire, Shoppers Drug Mart
100%
63,835
63,835 HomeSense
100%
70,406
70,406 No Frills
100%
109,279
109,279 Cineplex, Shoppers Drug Mart
100%
70,100
70,100 Staples
100%
97,885
97,885 Staples, Bad Boy, Starsky Foods
100%
175,361
175,361 Yummy Market
50%
71,838
143,676 No Frills
100%
141,827
141,827 Loblaws, Pharma Plus
100%
179,456
179,456 Cineplex, Shoppers Drug Mart, Loblaws*
100%
19,813
19,813 TD Bank
100%
8,322
8,322
100%
97,232
97,232 Metro, Shoppers Drug Mart
100%
188,385
188,385 Metro, LA Fitness, JYSK, Value Village
30%
84,064
280,214 Food Basics, Value Village, Boys and Girls Club of Kingston
100%
91,563
91,563 No Frills, Galaxy Cinemas (Cineplex)
100%
146,835
146,835 Lowe’s
50%
244,103
488,205 Hudson’s Bay, Sport Chek, HomeSense, H&M, LL Bean
100%
53,963
53,963 Loblaws, Pharma Plus
16
Commercial Property Portfolio
ONTARIO
As at December 31, 2019
Property Name
Grant Crossing
Ottawa, ON
Green Lane Centre
Newmarket, ON
Halton Hills Shopping Plaza
Georgetown, ON
Hamilton Highbury Plaza
London, ON
Hamilton Walmart Centre
Hamilton, ON
Heart Lake Town Centre
Brampton, ON
Herongate Square
Ottawa, ON
Highbury Shopping Plaza
London, ON
Hunt Club Centre
Ottawa, ON
Hunt Club Centre II (Lowe’s)
Ottawa, ON
Huron Heights
London, ON
Ownership
Interest
RioCan Interest
NLA (Sqft)
Total Site
NLA (Sqft)(1) Major Tenants(2)
100%
237,405
237,405
Winners, HomeSense, Michaels, Bed Bath & Beyond, Value Village,
Lowe’s*
100%
160,225
160,225 Bed Bath & Beyond, Michaels, PetSmart, Costco*, Loblaws*
100%
73,030
73,030 Food Basics
100%
5,269
5,269
100%
325,289
325,289 Walmart, Winners, Staples, Canadian Tire*
100%
123,572
123,572 Metro
100%
139,939
139,939 Metro, GoodLife Fitness, PetSmart
100%
70,981
70,981 LA Fitness (dark)
100%
63,088
63,088 Metro
100%
143,815
143,815 Lowe’s
100%
87,969
87,969 Talize, Shoppers Drug Mart
Kanata Centrum Shopping Centre
Kanata, ON
100%
286,394
286,394 Walmart, Chapters, Loblaws
Kendalwood Park Plaza
Whitby, ON
Kennedy Commons
Toronto, ON
Keswick Marketplace
Keswick, ON
King Portland Centre
Toronto, ON
Lawrence Allen Centre
Toronto, ON
Lincoln Fields Shopping Centre
Ottawa, ON
Markington Square
Toronto, ON
Meadow Ridge Plaza
Ajax, ON
Meadowlands Power Centre
Ancaster, ON
Merivale Market
Ottawa, ON
Millcroft Shopping Centre
Burlington, ON
Mississauga Plaza
Mississauga, ON
17
RioCan Annual Report 2019
100%
158,688
158,688 FreshCo, Value Village, Shoppers Drug Mart
50%
195,601
391,202 Metro, The Brick, LA Fitness, Chapters, Michaels, Ashley HomeStore
75%
120,363
160,484 Walmart
50%
163,429
326,857 Shopify (office), Indigo (office)
100%
662,086
662,086
Fortino’s, Canadian Tire, Marshalls, HomeSense, PetSmart,
Hudson’s Bay Company (office)
100%
67,026
67,026 Metro, Pharma Plus
100%
173,181
173,181 Metro, GoodLife Fitness, City of Toronto
100%
111,762
111,762 Sobeys (dark), GoodLife Fitness
100%
145,605
145,605
Best Buy, Sport Chek, Michaels, Costco*, Home Depot*, Sobeys*,
Staples*
75%
59,136
78,848 Food Basics, Shoppers Drug Mart
50%
157,804
315,608 Metro, Movati Fitness, Value Village, Canadian Tire*
100%
175,672
175,672 FreshCo, Talize, LA Fitness
Commercial Property Portfolio
ONTARIO
As at December 31, 2019
Property Name
Oakville Place
Oakville, 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 Milton
Milton, ON
RioCan Centre Newmarket
Newmarket, ON
RioCan Centre Sudbury
Sudbury, ON
RioCan Centre Vaughan
Vaughan, ON
RioCan Colossus Centre
Vaughan, ON
RioCan Durham Centre
Ajax, ON
RioCan Elgin Mills Crossing
Richmond Hill, ON
RioCan Grand Park
Mississauga, ON
RioCan Hall
Toronto, ON
RioCan Leaside Centre
Toronto, ON
RioCan Marketplace
Toronto, ON
RioCan Merivale Place
Nepean, ON
RioCan Niagara Falls
Niagara Falls, ON
RioCan Orleans
Cumberland, ON
RioCan Scarborough Centre
Toronto, ON
RioCan St. Laurent
Ottawa, ON
Ownership
Interest
RioCan Interest
NLA (Sqft)
Total Site
NLA (Sqft)(1) Major Tenants(2)
50%
228,601
457,201
Hudson’s Bay, GoodLife Fitness, Buy Buy Baby, H&M, PetSmart,
Sport Chek, Shoppers Drug Mart
100%
42,455
42,455 Food Basics
50%
61,488
122,976 Cineplex
100%
244,589
244,589 Loblaws, Lowe’s, Mountain Equipment Co-op
100%
260,615
260,615 Food Basics, Movati Fitness, Landmark Cinemas, Toys R Us, Lowe’s*
100%
454,622
454,622 Cineplex, Home Outfitters, Longo’s, Home Depot*
100%
634,655
634,655
Cineplex, Staples, Winners, HomeSense, Michaels, Best Buy, The Brick,
Home Outfitters, Bed Bath & Beyond, Old Navy, Home Depot*
100%
171,465
171,465 Cineplex, LA Fitness, Home Depot*, Longos*
40%
26,688
66,721 Staples, Mark’s Work Wearhouse
100%
403,797
403,797 Cineplex, Staples, Chapters, Michaels, Winners, Costco*, Home Depot*
100%
262,336
262,336 Walmart
100%
570,574
570,574
Cineplex, Marshalls, Bed Bath & Beyond, HomeSense, Buy Buy Baby,
Staples, Golf Town, Costco*
100%
891,739
891,739
Walmart, Canadian Tire, Cineplex, Marshalls, Winners, HomeSense,
Sport Chek, Chapters, Michaels, Value Village, DSW, Home Depot*,
Loblaws*, Costco*
100%
320,348
320,348 Costco, Michaels, PetSmart, Staples, Home Depot*
100%
118,681
118,681 Winners, Shoppers Drug Mart, Staples
100%
227,326
227,326 Cineplex, Marshalls, Michaels, GoodLife Fitness
100%
133,035
133,035 Canadian Tire, PetSmart
67%
114,298
171,447 Winners, Loblaws*, Home Depot*
100%
200,177
200,177 Your Independent Grocer, Winners, Value Village
100%
71,582
71,582 Loblaws, Home Depot*
100%
182,251
182,251 Metro, JYSK, Staples, Home Depot*
100%
326,880
326,880 Costco, PetSmart, Staples, LA Fitness, Al Premium Food Market
100%
300,474
300,474 Adonis, Decathlon, Giant Tiger, Winners, Food Basics
18
Commercial Property Portfolio
ONTARIO
As at December 31, 2019
Property Name
RioCan Thickson Ridge
Whitby, ON
RioCan Warden
Toronto, ON
RioCan West Ridge
Orillia, ON
RioCentre Brampton
Brampton, ON
RioCentre Kanata
Ottawa, ON
RioCentre Newmarket
Newmarket, ON
RioCentre Oakville
Oakville, ON
RioCentre Thornhill
Thornhill, ON
Ownership
Interest
RioCan Interest
NLA (Sqft)
Total Site
NLA (Sqft)(1) Major Tenants(2)
100%
472,982
472,982
Winners, IKEA, JYSK, Bed Bath & Beyond, HomeSense, PetSmart,
Best Buy, Michaels, DSW, Golf Town, Buy Buy Baby, Home Depot*
100%
230,974
230,974 Lowe’s, Marshalls, Michaels
100%
157,035
157,035
Galaxy Cinemas (Cineplex), Sport Chek, Value Village, Home Depot*,
Food Basics*
100%
103,607
103,607 Food Basics
100%
108,562
108,562 Sobeys, Pharma Plus
100%
92,688
92,688 Metro, Shoppers Drug Mart
100%
106,884
106,884 Metro, Shoppers Drug Mart
100%
140,370
140,370 No Frills, Winners, HomeSense
Sandalwood Square Shopping Centre
Mississauga, ON
100%
91,701
91,701 Value Village
Shoppers City East
Ottawa, 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
100%
41,507
41,507 Shoppers Drug Mart
100%
692,019
692,019
Canadian Tire, Winners, Staples, Oceans, Medix School, JYSK, Bad Boy,
Giant Tiger, GoodLife Fitness, Kitchen Stuff Plus
100%
326,323
326,323 Lowe’s, Metro, LA Fitness, Staples
100%
20,884
20,884 Ambrosia
100%
89,419
89,419 Loblaws, Winners
100%
145,468
145,468 Cineplex, Chapters, GoodLife Fitness
Silver City Gloucester II (Frontier)
Gloucester, ON
South Cambridge Shopping Centre
Cambridge, ON
50%
2,570
5,140
100%
189,739
189,739 Zehr’s, Home Hardware
South Hamilton Square
Hamilton, ON
Southgate Shopping Centre
Ottawa, ON
Spring Farm Marketplace
Vaughan, ON
Stock Yards Village
Toronto, ON
Sunnybrook Plaza
Toronto, ON
Tanger Outlets Cookstown
Cookstown, ON
Tanger Outlets Ottawa
Ottawa, ON
19
RioCan Annual Report 2019
100%
298,527
298,527 Fortino’s, Flying Squirrel, JYSK, GoodLife Fitness
100%
72,627
72,627 Metro, Shoppers Drug Mart
100%
72,896
72,896 Sobeys, Shoppers Drug Mart
100%
509,839
509,839
Nations, Winners, Marshalls, Sport Chek, HomeSense, Michaels,
PetSmart
50%
15,458
30,916 Pharma Plus
50%
155,181
310,362 H&M, Under Armour, Coach, Tommy Hilfiger, Nike, Polo
50%
173,479
346,957
Polo, Old Navy, Nike, Saks Fifth Avenue, Under Armour, Coach,
Marshalls
Commercial Property Portfolio
ONTARIO
As at December 31, 2019
Property Name
The Shops of Summerhill
Toronto, ON
Timiskaming Square
New Liskeard, ON
Timmins Square
Timmins, ON
Trafalgar Ridge Shopping Centre
Oakville, ON
Trinity Common Brampton
Brampton, ON
Trinity Crossing
Ottawa, ON
University Plaza
Dundas, ON
Upper James Square
Hamilton, ON
Victoria Crossing
Toronto, ON
Viewmount Centre
Ottawa, ON
Walker Place
Burlington, ON
Westgate Shopping Centre
Ottawa, ON
White Shield Plaza
Toronto, ON
Woodview Place
Burlington, ON
Yonge Eglinton Centre
Toronto, ON
Yonge Sheppard Centre
Toronto, ON
Yorkville
Toronto, ON
Ownership
Interest
RioCan Interest
NLA (Sqft)
Total Site
NLA (Sqft)(1) Major Tenants(2)
75%
50%
23,115
30,820
44,470
88,940 Food Basics
30%
117,140
390,468 No Frills, Winners, Sport Chek, Urban Planet
100%
131,250
131,250 HomeSense, GoodLife Fitness
100%
618,303
618,303
Cineplex, Metro, Winners, Marshalls, HomeSense, Staples,
Sport Chek, Michaels, DSW, Canadian Tire*, Home Depot*
100%
191,465
191,465 Winners, Michaels, Value Village, Loblaws*
100%
185,788
185,788 Canadian Tire, Shoppers Drug Mart
100%
114,269
114,269 Winners, Mark’s Work Wearhouse
100%
76,698
76,698 FreshCo
100%
127,270
127,270 Metro, Best Buy, HomeSense
100%
69,844
69,844 FreshCo
100%
161,362
161,362 Shoppers Drug Mart
100%
148,766
148,766 Lone Thai Supermarket
100%
145,401
145,401 Food Basics, Bad Boy
100%
1,059,272
1,059,272 Cineplex, Indigo, Metro, Toys R Us, Winners
100%
619,085
619,085 Longo’s, LA Fitness, Winners, Shoppers Drug Mart, BMO (office)
50%
4,146
8,291
PRINCE EDWARD ISLAND
Charlottetown Mall
Charlottetown, PEI
50%
192,965
385,930
Cineplex, Loblaws, Sport Chek, Winners, West Royalty Fitness,
Urban Planet, H&M
QUEBEC
2335 Lapiniere Boulevard
Brossard, PQ
541 Saint-Joseph Boulevard
Gatineau, PQ
BMO-279 Rue St. Charles Ouest
Longueuil, PQ
100%
2,259
2,259
100%
2,584
2,584
100%
5,015
5,015
20
Commercial Property Portfolio
QUEBEC
As at December 31, 2019
Property Name
Centre Carnaval Lasalle
LaSalle, PQ
Centre Carnaval Pierrefonds
Pierrefonds, PQ
Centre Concorde
Laval, PQ
Centre Rene A. Robert Centre
Ste. Therese, PQ
Centre RioCan Kirkland
Kirkland, PQ
Centre Sicard
Ste. Therese, PQ
Centre St. Jean
St. Jean-sur-Richelieu, PQ
Centre St. Julie
Ste. Julie, PQ
Centre St. Martin
Laval, PQ
Galeries Laurentides
St-Antoine, PQ
Galeries Mille-Iles
Rosemere, PQ
Les Factories Tanger
St. Sauveur, PQ
Les Galeries Lachine
Montreal, PQ
Ownership
Interest
RioCan Interest
NLA (Sqft)
Total Site
NLA (Sqft)(1) Major Tenants(2)
50%
103,985
207,969 Super C
100%
129,472
129,472 Super C, Dollarama
50%
31,649
63,298 IGA
50%
37,513
75,025 IGA
100%
314,442
314,442 Cineplex, Winners
100%
106,329
106,329 IGA
100%
104,280
104,280 IGA
50%
30,389
60,778 IGA
100%
248,963
248,963 Provigo, Giant Tiger, World Gym
100%
131,853
131,853 Hydro Quebec
100%
252,450
252,450 Maxi, World Gym, Leon’s, Staples
50%
56,996
113,992 Tommy Hilfiger, Atmosphere
50%
83,692
167,383 Maxi, Rossy, Shoppers Drug Mart
Mega Centre Notre Dame / Desserte Ouest
Sainte-Dorothée, PQ
100%
508,667
508,667
Winners, L’Aubainerie, Skyzone, Sports Experts, Staples, JYSK,
Gold’s Gym, Shoppers Drug Mart*, Super C*
Place Carnaval Laval
Laval, PQ
Place La Prairie
La Prairie, PQ
RioCan Gatineau
Gatineau, PQ
RioCan Greenfield
Greenfield Park, PQ
RioCan La Gappe
Gatineau, PQ
Silver City Hull
Hull, PQ
100%
112,404
112,404 Adonis
50%
35,467
70,934 IGA
100%
300,007
300,007 Walmart, Canadian Tire, Super C
100%
352,297
352,297 Maxi, Winners, Staples, Guzzo Cinemas, JYSK, Giant Tiger
100%
372,757
372,757 Walmart, Winners, Michaels
100%
84,590
84,590 Cineplex, Rona*, Walmart*, Maxi*, Super C*, Winners*
Vaudreuil Shopping Centre
Vaudreuil-Dorian, PQ
100%
117,773
117,773 Staples, Canadian Tire*, Super C*
Notes:
1.
2.
Total site “Net Leasable Area” (NLA) includes RioCan’s and partners’ ownership interests and excludes NLA of non-owned anchors. Includes NLA which has a rent commencement date on or before
December 31, 2019.
*Non-owned anchor excluded from total site NLA.
21
RioCan Annual Report 2019
I
L
A
C
N
A
N
I
F
W
E
I
V
E
R
22
REAL ESTATE PORTFOLIO KEY FACTS as at December 31, 2019 (all metrics stated at RioCan's interest unless otherwise noted)
Net Leasable Area (NLA) (thousands of sq.ft.):
Income Producing Properties (i)
Properties Under Development (ii)
Total NLA
Retail
33,460
808
34,268
Office
2,260
520
2,780
Total Commercial
35,720
1,328
37,048
(i)
(ii)
Includes NLA which has a rent commencement date on or before December 31, 2019.
Includes the NLA only for active projects with detailed costs estimates, but excludes NLA for air rights sales, condominium/townhouse developments (residential inventory), and
residential rental properties. Includes completed commercial Properties Under Development NLA that have a rent commencement date after December 31, 2019.
Average Net Rent (commercial only)
Average Net Rent per Occupied Square Foot
Occupancy (commercial only)
Total Portfolio
Six Major Markets (i)
Greater Toronto Area (ii)
Committed Occupancy
In-Place Occupancy
Committed Occupancy
In-Place Occupancy
% of total annualized rental revenue
% of total NLA
Committed Occupancy
In-Place Occupancy
% of total annualized rental revenue
% of total NLA
$
Retail
19.92
$
Office
Total Commercial
17.22
$
19.75
Retail
97.2%
96.3%
97.8%
96.9%
82.6%
81.3%
98.4%
97.4%
45.3%
40.7%
Office
97.0%
96.3%
96.9%
96.1%
7.5%
5.7%
97.5%
96.7%
7.1%
5.1%
Total Commercial
97.2%
96.3%
97.7%
96.9%
90.1%
87.0%
98.3%
97.3%
52.4%
45.8%
The six Canadian major markets include Calgary, AB; Edmonton, AB; Montreal, QC; Ottawa, ON (includes Gatineau region); Greater Toronto Area (GTA), ON; and Vancouver, BC.
(i)
(ii) GTA extends north to Barrie, ON; west to Hamilton, ON; and east to Oshawa, ON.
Geographic Diversification
Greater Toronto Area
Ottawa
Calgary
Montreal
Edmonton
Vancouver
Total Six Major Markets
Total Secondary Markets
Total Portfolio
Income producing properties
Number of properties
NLA at RioCan's Interest
(thousands of sq.ft.)
Percentage of annualized
rental revenue
Income producing
properties
Properties under
development (i)
16,366
4,708
3,426
2,577
2,227
1,790
31,094
4,626
35,720
52.4%
12.5%
9.0%
4.7%
6.6%
4.9%
90.1%
9.9%
100.0%
89
35
14
19
12
7
176
30
206
10
1
3
—
—
—
14
—
14
Total
99
36
17
19
12
7
190
30
220
(i)
Given the multi-phase nature of certain development projects, a single investment property could have more than one project, as discussed in the Properties Under Development
section of this MD&A. Therefore, the number of projects should not be viewed as equivalent to number of properties under development.
Top Ten Sources of Revenue by Property Tenant (commercial only)
Rank
Tenant
1
2
3
4
5
6
7
8
9
10
Canadian Tire Corporation (i)
Loblaws/Shoppers Drug Mart (i)
The TJX Companies, Inc. (i)
Cineplex (i)
Metro/Jean Coutu (i)
Walmart
Montana's, Harvey's, Swiss Chalet, Kelseys (i)
Sobeys/Safeway
Dollarama
Lowe's
Percentage of
annualized rental revenue
Weighted average remaining
lease term (yrs)
4.8%
4.4%
4.2%
3.6%
2.6%
2.6%
1.6%
1.5%
1.5%
1.4%
28.2%
6.4
8.2
6.0
7.4
8.0
8.8
7.0
9.3
6.0
9.3
7.4
(i)
Includes various operating banners and key brands as indicated in the Tenant Profile section of this MD&A.
Property Lease Expiries and Contractual Rent Increases (commercial only)
NLA (thousands of sq.ft.)
Average expiring rent per square foot
Contractual rent increases (in thousands of dollars) (i)
Total
35,720
19.75
$
2020
2,646
21.86
8,606
$
$
2021
4,385
19.26
6,745
$
$
2022
3,636
21.22
6,004
$
$
2023
4,088
21.00
5,331
$
$
2024
4,669
21.74
4,040
$
$
(i)
Contractual rent increases are based on existing leases as of December 31, 2019 and are on a year-over-year incremental basis. The contractual rent increases are higher in 2020
as they reflect more market rent changes as a result of new leasing and renewals completed in 2019. 2021 contractual rent increases are additional increases over 2020 rent
increases, etc.
23
Management’s Discussion and Analysis
TABLE OF CONTENTS
About This Management’s
Discussion and Analysis
Forward-Looking Information
Business Overview, Outlook and Strategy
Sustainability
Presentation of Financial Information and
Non-GAAP Measures
Results of Operations
Selected Annual Information
2019 Financial Highlights
Operating Income
Net Operating Income (NOI)
Other Income
Other Expenses
Funds from Operations (FFO)
Adjusted Cashflow from Operations (ACFO)
Operations
Property Mix
Commercial (Retail and Office)
Residential Rental
Asset Profile
Investment Property
Income Property Acquisitions During 2019
Income Property Dispositions During 2019
Co-ownership Arrangements
Capital Expenditures on Income Properties
25
25
26
32
33
38
38
39
40
41
43
44
46
48
50
50
51
57
58
58
58
60
60
62
Properties Under Development
Residential Inventory
Mortgages and Loans Receivable
Capital Resources and Liquidity
Liquidity and Cash Management
Capital Management Framework
Credit Ratings
Capital Structure
Debt Metrics
Total Debt Profile
Debentures Payable
Mortgages Payable
Lines of Credit and Other Bank Loans
Liquidity
Guarantees
Hedging Activities
Trust Units
Distributions to Unitholders
Quarterly Results and Trend Analysis
Significant Accounting Policies and Estimates
Future Changes in Accounting Policies
Disclosure Controls and Procedures and Internal
Controls Over Financial Reporting
Related Party Transactions
Risks and Uncertainties
64
74
76
76
76
76
77
77
78
81
82
82
83
83
85
85
86
87
89
93
95
96
97
97
24
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, 2019 (Q4 2019 and 2019, respectively). This MD&A is
dated February 19, 2020 and should be read in conjunction with our annual audited consolidated financial statements and related
notes for the year ended December 31, 2019 (2019 Annual Consolidated Financial Statements). Unless the context indicates
otherwise, references to "RioCan", "the Trust", "we", "us" and "our" in this MD&A refer to RioCan Real Estate Investment Trust
and its consolidated operations. Unless otherwise specified, all amounts are based on financial statements prepared in
accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board
(IASB). These documents, as well as additional information relating to RioCan, including our most recently filed Annual
Information Form (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 operations only, amounts are in
thousands of Canadian dollars and 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 the Business Overview, Outlook, Strategy,
2019 Financial Highlights, Operations, Asset Profile, Properties Under Development and Capital Resources and Liquidity
sections, 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 the following 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 the Risks
and Uncertainties section 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: financial and
liquidity risks; 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; the relative illiquidity of real property; changes to rent control legislation; development risk associated with
construction commitments, project costs and related zoning and other permit approvals; risks related to the residential rental
business; access to debt and equity capital; interest rate and financing risk; credit ratings; joint ventures and partnerships; the
timing and ability of RioCan to sell certain properties; the valuations to be realized on property sales relative to current IFRS
values; the Trust's ability to utilize the capital gain refund mechanism; unexpected costs or liabilities related to acquisitions and
dispositions; environmental matters, including climate change; litigation; uninsured losses; reliance on key personnel; unitholder
liability; income, sales and land transfer taxes; and cyber security.
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 depended on the REIT’s
satisfaction of certain asset, income, organizational, distribution, unitholder ownership and other requirements up until May 25,
2016. We did not distribute any withholding taxes paid or payable to our unitholders related to the disposition. Should RioCan’s
U.S. subsidiary no longer qualify as a U.S. REIT for U.S. tax purposes prior to May 25, 2016, certain statements contained in this
MD&A may need to be modified.
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 historically low 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; the
availability of investment opportunities for growth in Canada; the timing and ability for RioCan to sell certain properties; the
valuations to be realized on property sales relative to current IFRS values; and the Trust's ability to utilize the capital gain refund
mechanism. For a description of additional risks that could cause actual results to materially differ from management’s current
expectations, refer to the Risks and Uncertainties section in this MD&A and the Risks and Uncertainties section 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 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS OVERVIEW, OUTLOOK AND STRATEGY
Business Overview
RioCan is an unincorporated “closed-end” trust governed by the laws of the Province of Ontario constituted pursuant to the
Declaration of Trust and is listed on the Toronto Stock Exchange (TSX) under the symbol REI.UN. RioCan is one of Canada’s
largest real estate investment trusts, with a total enterprise value of approximately $15.0 billion as at December 31, 2019.
RioCan owns, manages and develops retail-focused, increasingly mixed-use properties located in prime, high-density transit-
oriented areas where Canadians want to shop, live and work. RioCan's portfolio is comprised of 220 retail and mixed-use
properties with an aggregate net leasable area (NLA) of 38,402,000 square feet, including residential rental and 14 properties
under development as at December 31, 2019 (at RioCan's interest).
RioCan's property portfolio includes Mixed-Use/Urban, Grocery Anchored centres, Open Air centres and Enclosed centres,
comprised of 180 properties which are 100% owned (176 income properties and 4 properties under development) and 40
properties which are co-owned and governed by co-ownership agreements (including 10 properties under development).
RioCan’s primary co-ownership arrangements are with Allied Properties REIT (Allied); Canada Pension Plan Investment Board
(CPPIB); KingSett Capital (KingSett); Boardwalk REIT (Boardwalk); Killam Apartment REIT (Killam); Concert Properties
(Concert); Woodbourne Canada Partners (Woodbourne); and Tanger Factory Outlet Centres, Inc. (Tanger). In addition, the Trust
also owns partial interests in 13 properties through joint ventures with Hudson's Bay Company (HBC) and Marketvest
Corporation/Dale-Vest Corporation which are included in our equity accounted investments in the 2019 Annual Consolidated
Financial Statements.
Operating Results
2019
For the year ended December 31, 2019, RioCan reported net income per unit of $2.52 and FFO per unit of $1.87, an increase of
$0.02 FFO per unit over the comparable period in 2018 despite $35.6 million in lower realized marketable securities gains, $5.0
million in lower capitalized interest resulting from substantial development completions and $2.2 million in higher residential
inventory project marketing costs, as well as $0.5 billion of dispositions completed in 2019 and the full year effect of nearly $1.0
billion of dispositions completed in 2018. These dilutive factors were offset by strong same property NOI growth, NOI from
completed developments, higher residential inventory gains, strong leasing velocity within the residential rental operations,
transaction gains from equity accounted investments, lower G&A costs and the impact of 2018 unit buybacks.
Same property NOI for the year ended December 31, 2019 grew by 2.5% for RioCan's six major market commercial properties,
and by 2.1% for the overall commercial portfolio when compared to 2018. Same property NOI for secondary market commercial
properties decreased by 1.2% when compared to 2018, which lowered overall same property NOI growth. When completed
properties under development are included in same property NOI, same property NOI grew by 3.7% for the Trust's major market
commercial portfolio and by 3.3% for its overall commercial portfolio.
Committed and in-place occupancy for the overall portfolio improved by 10 and 20 basis points when compared to December 31,
2018, achieving 97.2% and 96.3% respectively, as of December 31, 2019. Committed and in-place occupancy for retail remains
strong at 97.2% and 96.3% as well. Major market retail committed and in-place occupancy was strong at 97.8% and 96.9%, while
retail committed and in-place occupancy in the GTA was even stronger and increased to 98.4% and 97.4%.
The strong renewal spread of 9.2% coupled with good rental rates on new leasing, pushed the Trust's overall blended leasing
spread to 9.4% for the year ended December 31, 2019. The Trust's major market commercial portfolio achieved stronger renewal
and blended leasing spreads of 9.9% and 9.7%, respectively, for the year ended December 31, 2019.
Residential rental leasing which commenced late in 2018, continued to make significant progress with strong velocity at the
Trust's first two purpose-built RioCan LivingTM properties. As of February 19, 2020, 401 units (86.1% of all units) have been
leased at the 466-unit eCentralTM property in Toronto, Ontario, at an average monthly rent of $3.90 per square foot for market rent
units, and 220 units (96.9% of all units) have been leased at the 228-unit FrontierTM property in Ottawa, Ontario at an average
monthly rent of $2.49 per square foot. Frontier achieved stabilization early in 2020 while eCentral is expected to reach
stabilization in the spring of 2020. During the year ended December 31, 2019, these two residential buildings have generated net
operating income of $2.4 million. Other than a small number of rental replacement units, none of RioCan's residential rental units
are rent controlled under the current legislation.
The Trust generated residential inventory gains of $36.3 million during the year from eCondosTM and KinglyTM in Toronto, Ontario
and from UC Towns (Windfield Farms Townhouse Phase One) in Oshawa, Ontario. The vast majority of purchasers across the
three projects are now in possession of their units.
Q4 2019
For the three months ended December 31, 2019, RioCan reported net income per unit of $0.48 and FFO per unit of $0.46, an
increase of $0.01 FFO per unit over the comparable period in 2018. Strong operational results as reflected in same property NOI
growth, gains from residential inventory sales, NOI from completed developments, together with lower G&A costs were partially
offset by lower realized gains on the sale of marketable securities, lower lease cancellation fees, higher marketing costs for
condominium and townhouse projects and lower capitalized interest due to development completions.
For RioCan's commercial operations, same property NOI grew by 2.8% for its major market properties and by 2.3% for the overall
commercial portfolio when compared to the same period in 2018. Same property NOI for its secondary market properties
decreased by 2.3% when compared to the same period in 2018. When completed properties under development are included in
26
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
same property NOI, same property NOI grew by 4.1% for the Trust's major market portfolio and by 3.5% for its overall commercial
portfolio.
For the quarter, the renewal leasing spread was 10.2%, significantly improved over the comparable period in 2018, and the
blended leasing spread was 8.2%.
During the quarter, the Trust generated residential inventory gains of $11.0 million from the aforementioned condominium and
townhouse projects and net operating income of $1.9 million from its first two residential rental towers at eCentral and Frontier.
Canadian Major Market Focus
As of December 31, 2019, the Trust achieved key strategic milestones by generating 90.1% and 52.4% of its total annualized
rental revenue from the six major markets and the Greater Toronto Area (GTA), respectively, surpassing its >90% and >50%
milestone targets. These two key metrics increased 470 and 560 basis points, respectively, over the past twelve months and 140
basis points and 290 basis points, respectively, in the fourth quarter.
The achievement of these two strategic milestones allows the Trust to further seize opportunities arising from the strong
population and economic growth in the six major markets, particularly in the GTA. RioCan expects to continue to improve the
quality of its portfolio and income, and to drive higher growth in same property NOI, FFO per unit and net asset value (NAV) per
unit.
Pursuant to the Trust's strategic secondary market asset disposition program, as of February 19, 2020, the Trust has closed, firm
and conditional deals and letters of intent, for 83 properties for aggregate sales proceeds of $1.6 billion, at a weighted average
capitalization rate of 6.88%. As of February 19, 2020, the Trust has closed deals for 81 properties for aggregate sales proceeds
of $1.6 billion at a weighted average capitalization rate of 6.78%. Approximately $58.9 million of mortgages were assumed by
purchasers on closing.
The capitalization rate of a strategic disposition referred to in this MD&A is calculated based on the in-place twelve-month-trailing
NOI of a property or a portfolio of properties when the related sale agreement becomes firm. The aggregate sales prices of these
properties are materially in line with the Trust's IFRS valuations.
The net proceeds from the dispositions have been used to pay down debt, fund the Trust’s development activities, fund
acquisitions and unit repurchases through RioCan’s Normal Course Issuer Bid (NCIB) program.
Strong Property Mix and Tenant Base
Mixed-Use / Urban and Grocery Anchored centres combined accounted for 60.6% and 62.9% of total NLA and annualized rental
revenues, respectively, as of December 31, 2019. This further highlights the quality of RioCan's portfolio and underlying income.
Enclosed centres accounted for less than 10% of the Trust's portfolio, whether measured on a NLA or annualized revenue basis.
The Trust has been reducing its tenant mix in department stores, apparel, entertainment and hobby retailers, while increasing its
tenant mix in the sectors that have demonstrated growth and resilience such as grocery, pharmacy, restaurants, personal
services, value retailers and specialty retailers. As of the year end, 74.5% of the Trust's total annualized rental revenue was
derived from necessity-based and service-oriented tenants, a 40 basis point increase over the prior quarter and a 170 basis point
increase over the 2018 year end.
Strategic Acquisitions
During the year ended December 31, 2019, the Trust completed acquisitions of 15 investment properties for an aggregate
purchase price of $915.6 million, excluding transaction costs of $25.6 million. The acquisitions are mostly purchases of partners'
non-managing interests in existing properties at attractive prices and comprised of income producing properties acquisitions of
$801.2 million and properties under development acquisitions of $114.4 million. These acquisitions added 1.8 million square feet
of income producing property and 1.4 million square feet of future density to the Trust's NLA.
Included in these acquisitions are the strategic purchases of the remaining non-managing 50% interest in Yonge Sheppard
Centre, the remaining non-managing 50% interest in eCentral and the 22,000 square foot retail component of ePlace, and a 50%
co-ownership interest in 2323 Yonge Street for an aggregate purchase price of $498.9 million, net of certain working capital
adjustments and before transaction costs. The Trust now owns 100% of two of its flagship assets, Yonge Sheppard Centre and
eCentral in Toronto, Ontario which adds 657,000 square feet of urban mixed-use NLA to its portfolio. Together with the 2323
Yonge Street acquisition, the Trust strengthened its dominant presence in the high demand Yonge Street corridor, expanded the
RioCan Living residential portfolio and accelerated RioCan’s major market and GTA presence.
Further details can be found in the Income Property Acquisitions During 2019 section of this MD&A.
Strategic Partnerships
As part of RioCan's strategy to leverage strategic partnerships to drive growth through its major market presence and
development pipeline while mitigating risk and maintaining a strong balance sheet, during the year ended December 31, 2019,
RioCan expanded its strong relationship with two existing well-respected residential partners to develop discrete portions of
vacant land into mixed-use properties.
In Q3 2019, the Trust sold, in two separate transactions, 50% interests in discrete portions of existing, operating shopping centres
for mixed-use development at Sandalwood Square in Mississauga, Ontario and Elmvale Acres Shopping Centre in Ottawa,
Ontario at $80.00 and $45.00 per buildable square foot to Boardwalk and Killam, respectively. By selling discrete portions of
each respective shopping centre, the operational aspects and net operating income of the shopping centres will not be impacted
materially. The Killam transaction is expected to close in mid-2020 once severance of the land is obtained and pertains only to
27
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
phase one of the planned five-phase mixed-use project. The Boardwalk transaction closed during the year. Combined, these two
projects will transform approximately 3.5 acres of vacant land into two residential towers with 638 residential rental units and
23,000 square feet of retail (at 100%), further demonstrating the Trust's ability to unlock the inherent value in its existing asset
base while better serving the communities in which it operates.
Development
RioCan's development program is a significant component of its growth strategy to unlock the intrinsic value of its existing
properties through redevelopment and intensification and will enable the Trust to deliver strong NAV growth to its unitholders. The
head start that RioCan has in its development program in terms of the extent of zoning approvals achieved and zoning
applications submitted, recent completion or near substantial completion of a number of large mixed-use projects, and the
experience and scale of our development team, gives us distinct competitive advantages.
Development pipeline
As of December 31, 2019, the Trust has identified an estimated 29.0 million square feet of development pipeline (at RioCan's
interest), of which 14.6 million square feet or 50.3% have zoning approval and an additional 6.5 million square feet or 22.5% have
zoning applications submitted. When compared to December 31, 2018, the net increase in the Trust's development pipeline was
2.8 million square feet, resulting from the identification of additional value creation opportunities among its existing assets and
acquisitions of partners' non-managing interests, net of 530,000 square feet of development completions during the year and the
sale of one large development project in a secondary market in British Columbia.
Almost all of the mixed-use residential projects are located in the six major markets and are typically located in the vicinity of
existing or planned substantive transit infrastructure with 67% of the development pipeline being located in the GTA. Residential
components represent 21.2 million square feet (at RioCan's interest) or 72.8% of the Trust's current estimated development
pipeline.
As of December 31, 2019, the Trust has recognized $266.0 million of cumulative fair value gains for its 4.2 million square feet of
active projects with detailed cost estimates. The Trust anticipates realizing substantial net value creation from its additional 16.7
million square feet of excess density that are either zoned or have zoning applications submitted, and an additional 7.9 million
square feet of future density. As of December 31, 2019, nominal fair value gains have been recognized relating to these
additional 24.6 million square feet of density.
Development Completions and Progress
For the year ended December 31, 2019, the Trust completed 530,000 square feet of developments including eCentral, Frontier
and 91,000 square feet of commercial space at Fifth and Third East Village in Calgary, Alberta. The Trust previously sold the air
rights above the commercial component of its mixed-use project at Fifth and Third East Village to a third party developer for the
construction of two residential towers. Closing of the first strata parcel of the air rights at this project is expected in early 2020.
Our purpose-built RioCan Living residential rental properties are key components of our mixed-use developments. Approximately
2,700 units, including the 694 units at eCentral and Frontier, are completed or are under construction with another 2,100 rental
units expected to be underway by 2021. Furthermore, the Trust has completed and sold over 900 condominium and townhouse
units at eCondos, Kingly and UC Towns and currently has another 2,100 condominium and townhouse units under development.
Refer to the Residential Inventory Section of this MD&A.
Construction at The Well continues to progress. The office component has now reached 14 of 36 storeys and approximately 84%
of the office space is pre-leased, an increase of 12% when compared to the prior quarter. Office tenants are expected to
commence taking possession in Q1 2021. Construction of the underground structure for the residential component, which RioCan
has sold the air rights to Tridel and Woodbourne, is also progressing well. The air rights sales are expected to close in
2020/2021. Construction of The Well Building 6, a 593-unit residential rental building, which is owned 50/50 with Woodbourne is
expected to commence in Q3 2020.
Residential Inventory
The Trust's first three condominium or townhouse projects (eCondos, Kingly and UC Towns) were completed as of year end and
as a result, most of the inventory gains have been recognized into income. Most recently, King Portland Centre, including the
condominium component Kingly, was ranked seventh of the 15 most influential and architecturally significant buildings of the past
decade in Toronto, Ontario by UrbanToronto for effectively combining brick and beam style with modern design.
As of the year end, the Trust has four outstanding residential inventory projects, all of which are progressing well in accordance
with the plan.
•
•
Sales of condominiums at the prestigious Yorkville project (11 YV) in Toronto, Ontario were launched on September 12, 2019
and are progressing well with 83.0% of the 593 units (at 100%) pre-sold as of February 19, 2020. Average prices are
expected to be above $1,700 per square foot, exceeding initial expectations. This project is expected to generate a value
creation percentage in the range of 15%-17% (at RioCan's interest) based on estimated IFRS project costs including, but not
limited to, land and capitalized interest during the development phase. Construction is expected to start in the Q2 2020 with
an anticipated first possession date of Q3 2024. In addition to the Kingly recognition by UrbanToronto, 11 YV recently won
several awards from the National Association of Home Builders including the National Sales & Marketing Council's Award of
Excellence for Multi-Family Community of the Year.
Sales for UC Tower (the first phase of the high rise condominium component at Windfield Farms) in Oshawa, Ontario are
also progressing well with 73.6% of the 503 units (at 100%) pre-sold as of February 19, 2020. This project, which is selling at
28
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
approximately $590 per square foot, is expected to generate a value creation percentage in the range of 17%-20% (at
RioCan's interest) based on estimated IFRS project costs including, but not limited to, land and capitalized interest during the
development phase. This project has an expected construction start date of Q2 2020 and an anticipated first possession
date of Q2 2022. Sales at UC Uptown (Windfield Farms Townhouse Phase Two), 153-unit three storey townhouse
development are expected to commence in the first quarter of 2020.
RioCan is also developing the first phase of the Windfield Farms Commercial component and has secured 96,000 square
feet of firm and conditional leases with strong national tenants, reflecting the strength of the Oshawa market.
•
Two properties, Dufferin Plaza and a vacant land parcel at Shoppers World Brampton were transferred from income
producing property to residential inventory in the fourth quarter. Both projects are located in the GTA and are transit
oriented. Dufferin Plaza, once redeveloped, will be a 449,000 square foot mixed-use property, consisting of approximately
550 units or 417,000 square feet of residential NLA and 32,000 square feet of commercial NLA. The project has received
Official Plan Approval. Phase One at Shoppers World Brampton consists of 450 residential units across two 25-storey towers
(one residential rental and one condominium) and a 20,000 square foot retail podium. This Phase One is part of a much
larger project with an estimated 4.5 million square feet of total mixed-use density. The City of Brampton has identified the
Shoppers World Brampton site as the city's uptown western anchor suitable for large scale mixed-use development.
Additional Capital Recycling
For the three months and year ended December 31, 2019, RioCan sold a portion of its marketable securities and realized a cash
gain on units sold of $7.2 million and $23.7 million (three months and year ended December 31, 2018 - $9.2 million and $59.2
million). The decrease in the realized cash gains on units sold was due to a decrease in the number of units sold during the
respective periods.
Capital Management
Debt Management
RioCan continues to exercise sound capital management and remains committed to a strong balance sheet. As of December 31,
2019 on a proportionate share basis, RioCan had 60.4% of its total debt as unsecured debt and an unencumbered asset pool of
$8.9 billion, which generates 58.5% of RioCan's annualized NOI and provides 227% coverage over its unsecured debt, well
above its 200% target. The Trust also had $864.9 million of liquidity in the form of cash and cash equivalents and undrawn lines
of credit.
During the year ended December 31, 2019, the Trust reduced its exposure to floating interest rates and extended the weighted
average term to maturity of its debt portfolio through various transactions detailed in the Capital Resources and Liquidity section
of this MD&A. As of December 31, 2019, the Trust's floating interest rate debt exposure was 6.4% as compared to 16.4% in
December 31, 2018 on a proportionate share basis.
Debt to Adjusted EBITDA at RioCan's proportionate share was 8.06x as of December 31, 2019. As of December 31, 2019,
RioCan's debt to total assets was at 42.1% on a proportionate share basis, unchanged from December 31, 2018.
Subsequent to the year end, the Trust closed its first Canada Mortgage and Housing Corporation ("CMHC") insured mortgage, a
$28.6 million loan (at RioCan's interest) for Frontier in Ottawa, which bears interest at an annual rate of 2.63% with a 10-year
term. The Trust also anticipates that its existing 11-year term, 2.58% interest, $150.0 million mortgage at eCentral in Toronto will
become CMHC insured upon stabilization in the spring of 2020, which will then reduce the contractual interest rate to 2.33%.
Maximizing CMHC insured mortgages is a key component of the Trust’s debt strategy as it provides access to a new source of
financing and lowers overall cost of debt.
RioCan has actively lowered its weighted average effective interest rates to 3.44% as of December 31, 2019 from 3.55% at
December 31, 2018, and extended the weighted average term to maturity to 3.69 years from 3.30 years. As a result of its strong
balance sheet and the quality of its real estate portfolio, RioCan is able to refinance its properties at favourable terms, as
demonstrated by a mortgage refinancing at a property in Vancouver, British Columbia for $106.0 million at 3.02% for a 10 year
term, subsequent to year end.
Equity Issue
On October 28, 2019, the Trust issued 8.9 million common trust units on a bought deal basis, at a price of $25.75 per unit for
gross proceeds of $230.1 million (inclusive of 1.2 million units issued pursuant to the exercise in full of the underwriters' over-
allotment option). The Trust applied the $220.2 million net proceeds from the equity raise to repay certain debt incurred to fund
the aforementioned strategic acquisitions, reducing leverage.
In connection with the purchase of Yonge Sheppard Centre, RioCan issued 3.8 million units with $100.0 million gross proceeds to
KingSett, with a one-year lock-up agreement commencing August 30, 2019 whereby KingSett has agreed that it will not, without
the prior consent of RioCan, sell or enter into an arrangement to sell the units within the one-year lock-up period.
Outlook
Canada's economy demonstrated resiliency for most of 2019 within the context of slowing global growth and ongoing trade
disputes. However, most recent economic data was mixed with some softness in consumer confidence, spending and business
investment. Despite the signing of modernized trade agreements and improved lending conditions, the geopolitical uncertainty,
persistent global trade issues and the most recent coronavirus outbreak have caused business investment to soften. Until these
uncertainties subside, business investment is expected to be somewhat subdued in 2020. In its January 2020 interest rate
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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announcement, the Bank of Canada (Bank) held its overnight rate steady at 1.75%, resisting the global push toward easing
monetary policy. However, the Bank's most recent rate statement was more dovish than other recent communications and, along
with a set of reduced growth forecasts, set the stage for a rate reduction should economic circumstances warrant it.
RioCan is well-positioned to withstand fluctuations in economic conditions through its low leverage, measured variable interest
rate debt exposure, and staggered portfolio of debt maturities. RioCan's supply of zoned development pipeline also positions it
well within the regulatory landscape with respect to zoning approvals, particularly in Ontario. Overall, RioCan's large size and
dominant position in Canada's six major markets from which 90.1% of its portfolio annualized rental revenues are derived, leaves
us well-positioned in the current economic and retail environment. The Trust's major market strategy, which is further discussed in
the Strategy section below, is expected to further improve the quality and growth profile of its portfolio in the ever changing retail
environment. In addition to the competitive advantage provided by RioCan's significant scale and major markets presence, its
strengths also include the depth of the management team, a well diversified portfolio, the portfolio's value creation potential
through its development program, solid and diversified tenant base, flexible capital structure (evidenced by the ability to raise
debt from a variety of sources and a large pool of unencumbered assets) and conservative borrowing practices.
RioCan expects continued NOI organic growth and NAV growth over the short and long term given its continuous improvement in
the overall quality and diversification of its portfolio and continued project deliveries from its robust development program. For
2020, the Trust expects to achieve same property NOI growth in excess of 3.0% assuming market conditions prevail, although
quarter to quarter results may vary.
Market Trends
Canadian Retail Environment
We expect fundamentals in Canadian retail real estate, particularly necessity-based and service-oriented retail, to remain steady.
As the retail landscape evolves, innovative responses to reorienting retail spaces in order to create value are evident in today’s
marketplace, despite store closure announcements from time to time. Canada enjoys one of the highest rates of population
growth profiles among OECD countries. This backdrop, together with the urbanization trend in major markets, creates great
opportunities for RioCan, which generates 90.1% and 52.4% of its total annualized rental revenue from the six major markets and
GTA, respectively.
More investors are becoming increasingly aware of the key fundamental differences between the Canadian and the U.S. retail
market, such as fundamentally lower retail space per capita in Canada, fewer tenants within each category, tighter controlled
municipal zoning bylaws which limit over-supply of retail space, higher distribution costs in Canada given its geographic diversity,
and more conservative lending practices by Canadian financial institutions which limit over-build and over-risk-taking. We expect
that the amount of retail space per capita in Canada will decline over time as the population grows with limited new retail
development as well as some rationalization of existing retail space into other uses. In addition, Canada’s sound retail tenant
base with solid financial strength will benefit the retail real estate market in Canada over the long term as tenants and landlords
continue to adapt and innovate to address the changing retail environment.
E-commerce
We believe that the depth and breadth of our retail portfolio, especially in Canada's six major markets, positions us well to
withstand the effects of e-commerce on the overall retail market, even though such effects cannot be ignored or marginalized.
We have been addressing the impact of e-commerce, in part, by evolving our tenant mix to consist primarily of necessity-based
and service-oriented tenants which we believe to be more resilient to the impact of e-commerce. Personal services, food and
restaurants, value retailing, as well as lifestyle and fitness offerings represent 74.5% of our annualized net rent revenues as of
December 31, 2019. Refer to the Tenant Profile section of this MD&A for an overview of our tenant mix. Moreover, over 60% of
our portfolio are Mixed-Use/Urban or Grocery Anchored shopping centres. Many of these properties are positioned in the transit
corridors of Canada’s highly desirable, high-density urban locations, which benefit from high pedestrian traffic flows. These strong
locations further mitigate potentially disruptive e-commerce effects given their convenient location adjacent to urban centres with
strong population growth.
Our residential strategy further addresses the e-commerce effects by re-purposing the existing retail portfolio and adding density
to existing retail sites to build in natural traffic for the retailers and by incorporating e-commerce friendly amenities into our
residential rental buildings such as concierge services, sufficient space for the receipt and storage of packages and, in some
cases, cold storage.
We believe that shopping centres will continue to provide a social community gathering place and will continue to provide retailers
with a cost-effective way of distributing goods and services given Canada's geographic dispersion, the relative high cost of "last-
mile" deliveries and high barriers to establishing distribution centres in urban settings. Many retailers effectively execute a
combined on-line and brick-and-mortar strategy, commonly referred to as 'omni channeling'. Tenants are increasingly employing
this strategy to provide their customers increased flexibility in their shopping choices while also adapting store sizes, layout and
product mix to better meet consumer demands in urban, more densely populated settings.
Development Environment
With population growth and a limited supply of land available for development, Canada’s six major markets, particularly the GTA
and Vancouver areas, have experienced a significant boom in housing development and construction over the last number of
years. As concerns over the affordability of single detached homes and household debt level grew, governments at various levels
introduced policies, mostly focused on demand and financing, such as foreign buyer taxes and a minimum qualifying rate, or
“stress test,” for uninsured mortgages, in an attempt to cool demand but did not seem to address the issue of the underlying
housing shortfall.
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In June 2019, the Ontario government introduced "Bill 108, More Homes, More Choice Act, 2019" which introduced change to the
land use planning and appeals process in an attempt to increase affordability and the housing supply. The 2019 Federal budget
also introduced measures designed to increase affordability and the supply of housing through various measures. It is
encouraging to see both levels of government have acknowledged the various housing supply challenges, but the impact of these
legislative changes is yet to be determined. The Trust's 14.6 million square feet of zoned density, therefore, remains a significant
competitive advantage to the Trust.
The increasing and persistently high level of development and construction activities over the last few years, as well as the
projected sustained bullish tone on future development by many industry players, have led to rising construction costs, increasing
development charges by municipalities, and a shortage of experienced labour, which tend to increase development risks.
RioCan is confident in its development program and the NAV growth potential such development will bring to its unitholders.
However, the Trust will remain vigilant in monitoring the market trends and will continue to prudently manage development risks
and adapt its development program to the changing marketing conditions. Refer to the Properties Under Development section of
this MD&A for a discussion of how the Trust prudently manages its development risks.
Alberta Economy
In 2019, the Alberta economy grew by a marginal 0.6%, below the national average. Government mandated cuts to oil production
in response to bloated inventories and record-high local price discounts a year ago weighed heavily on the energy sector as
investment in the sector fell. Legal challenges against the expansion of the Trans Mountain pipeline and more stringent federal
environmental assessment regulations enacted this year added to the energy sector’s woes. The ripple effect stalled other parts
of the economy including manufacturing, exports, housing and retail trade.
Notwithstanding the challenges of the Alberta economy, committed occupancy rates in our Alberta portfolio remain high at 97.5%
as of the year end. Nonetheless, the regional economy is sensitive to energy prices, and further volatility in oil prices will have the
potential to impact retail and residential markets.
Strategy
Canadian Major Market Focus
The major market strategy is a key initiative of the Trust. The Trust embarked on this strategy over a decade ago and accelerated
it over the last two years through its secondary market asset disposition program. As of the year end, the Trust has surpassed its
strategic milestones of generating more than 90% and 50% of its annualized rent revenues from the six major markets and GTA
by achieving 90.1% and 52.4% for the two metrics, respectively.
This strategy has strengthened and will further enhance the quality, growth profile and resilience of the Trust’s portfolio, which is
becoming more urban and mixed-use focused, located in prime, high density, transit oriented areas where Canadians want to
shop, live and work. This portfolio of major market properties with a diversified, strong national, necessity and service-oriented
tenant base sets the stage for strong rent growth and NAV growth for our unitholders.
Driving Organic Growth
RioCan drives strong organic growth by leveraging its existing strengths, such as its strong relationships with high quality tenants
and partners, its economies of scale, diversity and experience, carefully curating and evolving the tenant mix of its properties, and
improving the operating efficiency and cost structure of its portfolio. In addition, RioCan continually searches for ways to create
new sources of income from ancillary revenues, generate fee income from its joint venture arrangements and add NLA through
new pads and redevelopments.
Unlocking Intrinsic Value through Development
Over the past 26 years, the Trust has accumulated a robust portfolio of income producing properties with significant
redevelopment potential that are strategically situated on or near existing or government approved transit lines where we can
create additional NAV for our unitholders. We are focused on optimizing the value of our existing properties through our
development program, diversifying our portfolio into residential real estate, combining great retail experiences with residential to
create a premium residential tenant experience that will in turn drive traffic to our retail tenants which we believe will ultimately
drive future rent growth and deliver FFO and NAV growth to our unitholders. The development program will also decrease the
average age of the portfolio and over time, the Trust will benefit from lower capital expenditure requirements. The Trust will
continue to pursue a disciplined approach to our development program in major markets with a heavy focus on the GTA and to
meet the evolving needs of the communities we serve.
Strategic Acquisitions
Given the current competitive nature of the real estate market and limited supply of assets that meet RioCan's criteria in the major
markets, acquisition of income producing properties is not a significant growth driver for RioCan in the near term. However,
RioCan continues to seize opportunities to acquire partners' interests in existing co-owned properties in highly desirable areas
that are unavailable on the open market, such as a number of 2019 acquisitions outlined in the Income Property Acquisitions
During 2019 section of this MD&A. In addition, the Trust will evaluate and pursue opportunities to acquire selective sites suitable
for development such as property acquisitions completed for the Yorkville condominium project, or to assemble adjacent
properties surrounding existing development properties such as our property assembly along the Yonge Street corridor close to
our flagship Yonge Eglinton Centre and eCentral.
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Strong Balance Sheet
RioCan is committed to prudent management of its balance sheet and capital structure. The Trust maintains low leverage,
staggers its debt maturities and limits its variable rate debt so as to reduce interest rate and refinancing risk, maintains an optimal
mix of unsecured and secured debt that ensures continued financial flexibility and liquidity, balances between line of credit
utilization and unsecured debenture issuance, builds and maintains lender relationships and continues to utilize multiple sources
of capital. This disciplined approach allows RioCan to maintain the strong liquidity and financial strength needed to drive growth
and thrive in the ever changing market place.
SUSTAINABILITY
Embedding Sustainability
RioCan’s vision is to be among leaders in embedding sustainability practices in our business model and management approach.
Embedding sustainability means we consider sustainability in developments, operations, investment activities, and corporate
functions. It also means investing capital and considering costs and returns over the life cycle of every investment. For RioCan,
sustainability refers to the environmental, social and governance aspects that can materially affect the long-term value of a
company.
Sustainability is important for RioCan as it:
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increases property values, contributing to investor and community satisfaction;
drives appeal of our assets, helping to attract and retain tenants;
promotes resource efficiency, saving money and minimizing environmental degradation;
builds collaborative relationships with our tenants and employees, which accelerates the pace of positive change;
helps us manage risks and comply with ever-evolving regulations, enhancing our operations management and governance
practices; and
provides our employees with sustainability impact opportunities, which can lead to increased employee job satisfaction and
retention.
RioCan’s Sustainability Program is focused on three pillars; Environmental Leadership, Community Leadership and People
Leadership. These three pillars are supported by sound financial leadership.
For the past three years, we have been working diligently to formalize our sustainability commitments set out in our Sustainability
Policy. Our multi-year plan includes strategies to put these commitments into action and focuses on improving our sustainability
performance year over year. The Global Real Estate Sustainability Benchmark (GRESB) and standards such as the Sustainability
Accounting Standards Board (SASB) not only provide us with a framework to benchmark our organization-wide performance, but
also ensure transparency and continuous improvement.
RioCan’s culture has always revolved around strategic decision making, fostering mutually beneficial relationships, and shaping
the future through good community stewardship. What is relatively new is the formalization of RioCan’s commitment to integrate
sustainability factors into decision making at every stage and level of our business and to benchmark and report our performance
according to industry standards.
Key accomplishments this year include:
Sustainability Initiatives
• Conducted internal environmental inspections at all RioCan managed income producing properties (except for one acquired
in late December) with favourable results. RioCan is in material compliance with all applicable environmental laws,
regulations and guidelines.
• Recipient of Canada’s 2020 Clean50 Top Project Award for Sustainable Commercial Real Estate Development.
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Increased the number of properties achieving Building Owners and Managers Association Building Environmental Standards
(BOMA BEST) certifications to over 50 across Canada, representing 37.3% of NLA (at 100%).
Incorporated a high efficiency geothermal HVAC system in Frontier, our first operational RioCan Living building in Ottawa,
Ontario. This HVAC system is now operational which is expected to result in reduced carbon emissions, savings on water
and electricity consumption for tenants.
In partnership with Allied and service provider Enwave, the Trust has integrated a low-carbon, resilient deep lake water
cooling and heating system at The Well. It decentralizes energy supply and reduces load on the electricity grid not just for
this flagship development but also for surrounding neighbourhoods.
• Completed a nationwide LED retrofit program across our portfolio.
• Documented our Board skill-set matrix on ESG matters.
• Developed a Sustainability in Developments policy, plan and commitments to strategically integrate sustainability features
throughout the development cycle, incorporating energy codes, standards such as Leadership in Energy and Environment
Design (LEED) and Intentional Well Building Institutes Well Building Standards (WELL), energy and water efficiencies,
renewable energy, and community engagement.
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Initiated an employee-driven innovation program to continue to transform the way we do business using technology.
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• Completed our first tenant engagement survey of our new residential rental tenant base to better understand drivers of
engagement with RioCan rental properties. The survey was third party administered.
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Implemented the RioCan Impact Scorecard program, effective for 2020, to better integrate corporate performance with an
individual employee’s annual objectives in performance evaluation and bonus program. Each eligible employee is required to
include an ESG specific goal.
• Developed an internal ESG performance scorecard to manage annual sustainability priorities, initiatives and goals.
Reporting and Disclosures
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Improved GRESB Survey score from the previous year by 28.8%. Our GRESB score has improved by 76.7% from 2017. A
focused plan is in place to achieve continued sustainability performance improvements in key GRESB categories.
Published our inaugural Sustainability Report which was well received by our various stakeholder groups including investors,
tenants, partners, employees and peers.
Achieved the highest Public Disclosure score by GRESB, an A rating.
Achieved an ESG rating upgrade by Morgan Stanley Capital International (MSCI) and improved Institutional Shareholder
Services (ISS) E&S Score in Environmental and Social.
Sustainability Governance
RioCan's Sustainability Steering Committee is comprised of cross-functional executive and leadership team members that
oversee the sustainability strategy implementation and drive performance improvements. Steering Committee members sponsor
and provide guidance on sustainability initiatives within the organization and enable performance measurement. In addition,
RioCan has a dedicated environmental and sustainability team to manage day-to-day sustainability strategy implementation.
For RioCan's sustainability policy and additional information about its sustainability strategy and plan, visit RioCan's website
under Sustainability.
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 2019 Annual Consolidated Financial Statements. In connection with the sale of our U.S. assets in 2016, the net
income associated with our former U.S. geographic segment is presented as a single line in the consolidated statements of
income as discontinued operations. Beginning Q1 2019, the Trust ceased reporting discontinued operations from the disposition
of its U.S. portfolio and operations in 2016 separately from continuing operations on a prospective basis, due to minimal activity
and insignificant remaining assets and liabilities.
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 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 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. 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 recurring
operating performance.
FFO is computed as IFRS consolidated net income attributable to RioCan 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 transaction costs and income taxes) calculated on a basis consistent with IFRS.
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RioCan regards FFO as a key measure of operating performance and as a key measure for determining the level of employee
incentive based compensation. RioCan also uses FFO in assessing its distribution paying capacity.
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.
As noted in the 2018 Annual Report, the Trust adopted the new accounting standard IFRS 9 - Financial Instruments (IFRS 9) on
the required effective date of January 1, 2018. One impact of adopting IFRS 9 is that the unrealized gains or losses on
marketable securities are included in IFRS net income, whereas they were recorded in other comprehensive income in 2017 and
prior years consolidated financial statements. Based on the FFO definition currently set forth by REALPAC, the unrealized gains
or losses on marketable securities would be included in FFO, as a result of adopting IFRS 9. However, the Trust believes that
including such unrealized gains or losses on marketable securities in FFO does not represent the recurring operating
performance of the Trust. As a result, effective January 1, 2018 upon adoption of IFRS 9, RioCan’s method of calculating FFO is
in compliance with REALPAC’s definition of FFO except that RioCan excludes these unrealized gains or losses on marketable
securities in its calculation of FFO. For further clarity, RioCan continues to include realized gains or losses on marketable
securities in its calculation of FFO.
In February 2019, REALPAC issued a revision to the February 2018 definition of FFO, effective January 1, 2019, to include
adjustments relating to operational revenues and expenses from right-of-use (ROU) assets as a result of certain subleases and
leases that were classified as operating leases under IAS 17, Leases (IAS 17) and are classified as finance leases under IFRS
16, Leases (IFRS 16), such that the entire relevant lease receipt and/or lease payment continues to be reflected in FFO upon the
adoption of IFRS 16 on January 1, 2019. RioCan has adopted this additional REALPAC FFO adjustment on the effective date of
January 1, 2019.
RioCan’s method of calculating FFO may differ from other issuers' methods and, accordingly, may not be comparable to FFO
reported by other issuers. A reconciliation of IFRS net income to FFO can be found under the Results of Operations section in
this MD&A.
Adjusted Cashflow From Operations (ACFO)
ACFO is a non-GAAP financial measure of sustainable economic cash flow available for distributions based on the definition set
forth by REALPAC. RioCan adopted the REALPAC definition of ACFO effective January 1, 2017 and uses it as an input, together
with FFO, in assessing RioCan's distribution payout ratios. The adoption of the IFRS 9 effective January 1, 2018 did not have an
impact on ACFO with respect to unrealized gains or losses on marketable securities. As a result, the Trust’s calculation of ACFO
continues to be in accordance with REALPAC’s ACFO recommendations with the adoption of IFRS 9 on January 1, 2018.
In February 2019 REALPAC issued a revision to the February 2018 definition of ACFO, effective January 1, 2019, to include
adjustments relating to operational revenues and expenses from ROU assets as a result of certain subleases and leases that
were classified as operating leases under IAS 17 and are classified as finance leases under IFRS 16, such that the entire
relevant lease receipt and/or lease payment continues to be reflected in ACFO upon the adoption of IFRS 16 on January 1, 2019.
RioCan has adopted this additional REALPAC ACFO adjustment on the effective date of January 1, 2019.
ACFO is computed as cash provided by (used in) operating activities per the IFRS consolidated statement of cash flows plus, but
not limited to, the following adjustments:
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includes adjustments for certain working capital items that are not considered indicative of sustainable economic cash flow
available for distribution. Examples include, but are not limited to, working capital changes relating to the following:
residential inventory and developments, prepaid realty taxes and insurance, interest payable and receivable, sales and other
indirect taxes payable to or receivable from applicable governments, income taxes payable and receivable and transaction
cost accruals relating to acquisitions and dispositions;
includes cash distributions from equity accounted for investments;
adds back transaction-related income statement expenses associated with dispositions and acquisitions;
includes realized gains or losses on marketable securities;
adds back taxes relating to non-operating activities;
deducts 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 a
further description of normalized capital expenditures);
adds back internal leasing costs relating to development projects; and
includes adjustments relating to operational revenues and expenses from ROU assets as a result of certain subleases or
leases that are classified as finance leases under IFRS 16, effective January 1, 2019.
The REALPAC ACFO definition effectively includes working capital fluctuations relating to recurring operating activities in ACFO,
such as working capital changes relating to trade accounts receivable and trade accounts payable and accrued liabilities. This, in
management's view, introduces greater fluctuations in quarterly and twelve-month trailing ACFO. As a result, RioCan uses
ACFO, together with FFO, in assessing its distribution payout ratios.
ACFO should not be construed as an alternative to cash flows provided by or used in operating activities determined in
accordance with IFRS. RioCan’s method of calculating ACFO is in accordance with REALPAC’s recommendations, but may differ
from other issuers' methods and, accordingly, may not be comparable to ACFO reported by other issuers. A reconciliation of
IFRS cash flow from operating activities to ACFO is found in the Results of Operations section in this MD&A.
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RioCan does not report on the earnings metric, adjusted funds from operations (New AFFO), as introduced by REALPAC in
February 2017. RioCan management does not use the New AFFO as a measure of its recurring operating performance and
believes that the disclosure in the subsections "FFO", "ACFO" and "Net Operating Income (NOI)" included in the Results of
Operations section in this MD&A provide sufficient information for readers to compute the New AFFO. Management has,
therefore, opted not to report the New AFFO in order to reduce the number of non-GAAP measures reported in our MD&A.
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 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.
RioCan does not obtain support from independent sources for its normalized capital expenditures but relies on internal diligence
and expertise in arriving at this management estimate. RioCan’s long tenured management team has extensive experience in
commercial real estate and in-depth knowledge of the property portfolio. As a result, RioCan believes that management is best
suited to make the assessment of normalized capital expenditures without independent third party sources.
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.
Prior to 2018, the Trust formulated its normalized capital expenditures estimate based on analyzing historic average spending
and reviewing 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 was done with representation and input from RioCan's cross-functional
teams. Short-term fluctuations in actual capital expenditures were analyzed to remove any expenditures that are determined to
not represent the level of ongoing maintenance capital expenditures, such as increased capital expenditures incurred during
adverse market conditions. 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 estimate.
Given the Trust's announcement on October 2, 2017 to sell secondary market properties pursuant to its major market focus, the
Trust expects its normalized capital expenditures to decrease as the Trust's remaining properties, predominantly located in
Canada's six major markets, tend to have higher tenant retention and lower average age, resulting in lower average leasing and
maintenance capital expenditures on a per square foot basis relative to the Trust's secondary markets properties. The Trust also
expects its income producing NLA to decrease as it sells secondary market properties.
As a result, the Trust determined that it was no longer reasonable to use its historical average approach in estimating its 2018
normalized capital expenditures. Instead, the Trust adopted a more forward looking approach and used its 2018 maintenance
capital expenditure budget as its normalized capital expenditures for 2018, which amounted to $45.0 million per annum. The
Trust's actual maintenance capital expenditures amounted to $45.6 million for 2018, closely in line with its normalized
maintenance capital expenditures estimate of $45.0 million for 2018.
Using a similar approach to 2018, the Trust determined that $40.0 million was a reasonable estimate for its normalized capital
expenditures for 2019 as the Trust expected its income producing NLA to further decrease as it sold more of its secondary market
assets and the new NLA generated from new developments had limited capital expenditure requirements in the near term. The
Trust's 2019 actual maintenance capital expenditures amounted to $51.1 million, $11.1 million higher due to expenditures
primarily related to $3.5 million of expenditures on certain properties prior to dispositions, $4.8 million for completion of a
nationwide LED lighting retrofit program which is expected to pay back in less than two years, $4.6 million for expenditures
related to reconfigurations of large spaces caused by Sears related backfill activities and the timing of expenditures.
Given that certain of these expenditures in 2019 were specific to 2019 only, the Trust determines that $40.0 million remains a
reasonable normalized capital expenditures estimate for 2020, although quarterly fluctuations between the $10 million quarterly
normalized capital expenditures and actual spend are expected. This normalized capital expenditures estimate for 2020 does not
include capital expenditures for mixed-use residential projects given these are newly constructed buildings. IFRS capital
expenditures are further discussed and analyzed in the Capital Expenditures on Income Properties section in this MD&A.
FFO and ACFO Payout Ratios
FFO and ACFO payout ratios are supplementary non-GAAP measures of a REIT's distribution paying capacity. FFO and ACFO
payout ratios are computed on a rolling twelve month basis by dividing total common unitholder distributions paid (including
distributions paid under RioCan's distribution reinvestment program) by FFO and ACFO, respectively, over the same period.
RioCan’s method of calculating FFO and ACFO payout ratios may differ from other issuers’ methods and, accordingly, may not be
comparable to payout ratios reported by other issuers.
As previously discussed, the REALPAC ACFO definition includes net working capital increases and decreases relating to
operating activities, which tend to fluctuate period over period in the normal course of business. In management's view, this
35
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
tends to introduce greater fluctuations in ACFO calculations. As a result, RioCan management uses the FFO payout ratio in
addition to the ACFO payout ratio in assessing its distribution paying capacity, as FFO is not subject to such working capital
fluctuations.
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.
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 has included adjustments to NOI for certain subleases or leases that are classified as finance leases under IFRS 16
effective January 1, 2019, based on rationales similar to the adjustments in the REALPAC definitions of FFO and ACFO that were
released in February 2019. These adjustments relate to operational revenue and expenses from ROU assets as a result of
certain subleases and leases that were classified as operating leases under IAS 17 and are classified as finance leases under
IFRS 16, such that the entire relevant lease receipt and/or lease payment continues to be reflected in NOI upon the adoption of
IFRS 16, on January 1, 2019.
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 Property NOI
Same property NOI is a non-GAAP financial measure used by RioCan to assess the period over period performance of those
properties owned and operated by RioCan in both periods. In calculating same property NOI growth, NOI for the period is
adjusted to remove the impact of lease cancellation fees and straight-line rent revenue in order to highlight the 'cash impact' of
contractual rent increases embedded in the underlying lease agreements. Same property NOI also excludes NOI from a limited
number of properties undergoing significant de-leasing in preparation for redevelopment or intensification. As a result of the
above noted adjustments to NOI, same property NOI has included the similar adjustments to NOI for operational revenue and
expenses from ROU assets as a result of certain subleases or leases that are classified as finance leases under IFRS 16,
effective January 1, 2019. 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 same 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 book value of debt and market price
of equity instead of IFRS total assets.
RioCan’s Proportionate Share
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 the 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 provide a more meaningful measure of financial performance with
respect to the periods reported.
36
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, fair
value gains and losses on investment properties, and unrealized gains or losses on marketable securities (upon adoption of IFRS
9 which was effective January 1, 2018), 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). For greater
clarity, realized gains and losses on the disposition of marketable securities have been and will continue to be included in
Adjusted EBITDA for purposes of management assessing the Trust's ongoing ability to satisfy its obligations and service its debt
upon adoption of IFRS 9, which was effective January 1, 2018.
Management has also included adjustments for certain subleases or leases that are classified as finance leases under IFRS 16,
effective January 1, 2019, consistent with the adjustments in the REALPAC definitions of FFO and ACFO that were recently
released in February 2019. The adjustment relates to operational revenue and expenses from ROU assets as a result of certain
subleases and leases that were classified as operating leases under IAS 17 and are classified as finance leases under IFRS 16,
such that the principal portion of the relevant lease receipt and/or lease payment continues to be reflected in Adjusted EBITDA
upon the adoption of IFRS 16, on January 1, 2019.
A reconciliation of IFRS net income to Adjusted EBITDA and the debt metrics that utilize Adjusted EBITDA are presented in the
Capital Resources and Liquidity - Debt Metrics section of this MD&A.
Debt to Adjusted EBITDA
Debt to Adjusted EBITDA is a non-GAAP measure of our financial leverage calculated on a trailing twelve month basis and is
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 Metrics section of this MD&A on both a RioCan's proportionate share basis and
using IFRS reported amounts.
Debt Service Coverage
Debt service coverage is a non-GAAP measure calculated on a trailing 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 trailing twelve month basis. Debt service coverage
is calculated and presented in the Debt 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 calculated on a trailing 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 trailing twelve month basis. Interest coverage is calculated and presented in the Debt 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 calculated on a trailing 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 trailing twelve month
basis. Fixed charge coverage is calculated and presented in the Debt Metrics section of this MD&A on both a RioCan's
proportionate share basis and using IFRS reported amounts.
Percentage of NOI Generated from Unencumbered Assets
Percentage of NOI generated from unencumbered assets is a non-GAAP measure defined as the annualized in-place NOI from
unencumbered assets as of the end of a reporting period divided by total annualized NOI as of the end of the same reporting
period and is calculated and presented in the Liquidity section of this MD&A on both a RioCan's proportionate share basis and
using IFRS reported amounts. Unencumbered assets are investment properties that have not been pledged as security for debt.
Unencumbered Assets to Unsecured Debt
The unencumbered asset to unsecured indebtedness ratio is a non-GAAP measure calculated as the carrying value of all
investment properties that have not been pledged as security for debt divided by total unsecured indebtedness and is calculated
and presented in the Liquidity section of this MD&A on both a RioCan's proportionate share basis and using IFRS reported
amounts.
37
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Selected Annual Information
(thousands of dollars, except where otherwise noted)
Revenue
Net income from continuing operations
Net income
FFO (i)
ACFO (i)
Weighted average common units outstanding – diluted
(in thousands)
Per unit basis (diluted)
Net income from continuing operations
Net income
FFO (i)
Common unitholder distributions
Key Ratios
Same property NOI growth % - six major markets (i)
Same property NOI growth % - overall portfolio (i)
Payout ratios for the twelve months ended December 31:
FFO (i) (iv)
ACFO (i) (iv)
As at
Total assets
Total debt (ii)
Debt to total assets (i) (iii)
Debt to total assets (RioCan's proportionate share) (i) (iii)
Interest coverage (RioCan's proportionate share) (i) (v)
Debt to adjusted EBITDA (RioCan's proportionate share) (i) (v)
Weighted average contractual interest rate
Unencumbered assets to unsecured debt (RioCan's
proportionate share) (i) (vi)
% NOI generated from unencumbered assets (RioCan's
proportionate share) (i) (vi)
2019
1,326,325
775,834
775,834
575,845
525,339
307,779
2018
1,147,842
527,362
528,103
580,223
527,347
314,024
2017
1,155,219
708,265
715,286
584,597
588,462
326,929
$ 2.52
$ 2.52
$ 1.87
$ 1.44
$ 1.68
$ 1.68
$ 1.85
$ 1.44
$ 2.16
$ 2.18
$ 1.79
$ 1.41
2.5%
2.1%
76.9%
84.3%
2.6%
2.2%
77.9%
85.7%
2.2%
2.1%
78.8%
78.3%
December 31, 2019
December 31, 2018
December 31, 2017
15,188,326
6,390,818
14,003,765
5,874,033
14,376,578
5,931,965
41.7%
42.1%
3.50
8.06
3.34%
227%
58.5%
41.6%
42.1%
3.63
7.88
3.51%
231%
59.1%
41.0%
41.4%
3.84
7.57
3.37%
226%
56.7%
(i) 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 Non-GAAP Measures
section in this MD&A.
(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) Debt to total assets is a non-GAAP measure and is calculated as total debt less cash and cash equivalents, divided by total assets, excluding cash
and cash equivalents.
(iv) Calculated on a trailing twelve month basis. For further discussion of the Trust's FFO and ACFO payout ratios, refer to the FFO and ACFO
sections in this MD&A. Excluding a one-time special distribution of $29.2 million received during Q4 2017, the 2017 ACFO payout ratio would
have been 82.4%.
(v) Calculated on a trailing twelve month basis. Refer to the Debt Metrics section of this MD&A for further details.
(vi)
Information prior to January 1, 2018 was presented at RioCan's interest on an IFRS basis, not at RioCan's proportionate share.
Overall, despite $1.6 billion of secondary market asset dispositions completed by the Trust since October 2017, the Trust has
grown its revenues from 2017 to 2019 and grew its FFO per unit by 4.0% over the same period. The FFO payout ratio declined
over the same period as a result.
The Trust continued to grow and transform its portfolio as strategic acquisitions, development activities, and fair value growth of
its portfolio outpaced secondary market asset dispositions. In the meantime, the Trust continued to maintain a strong balance
sheet as reflected in its various debt metrics. Weighted average common units outstanding have declined over the three year
period as a result of units purchased and cancelled pursuant to the Trust's Normal Course Issuer Bids (NCIB) program.
Net income from continuing operations changes from 2017 to 2019 were impacted by the year-over-year change in the fair value
gains on investment properties and changes in unrealized fair value of marketable securities with the implementation of IFRS 9
effective January 1, 2018. Refer to the remaining sections of this MD&A for more detail on the Trust's key financial information.
38
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
2019 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
Three months ended
December 31
Year ended
December 31
(thousands of dollars, except per unit amounts)
2019
2018
2019
2018
Net income attributable to unitholders:
Continuing operations
Discontinued operations
$
150,786
$
149,959
$
775,834
—
(794)
—
Net income attributable to unitholders
$
150,786 $
149,165 $
775,834
Net income per unit attributable to unitholders (basic):
Continuing operations
Discontinued operations
$
0.48
$
—
Net income per unit attributable to unitholders (basic)
$
0.48 $
Net income per unit attributable to unitholders (diluted):
Continuing operations
Discontinued operations
$
0.48
$
—
Net income per unit attributable to unitholders (diluted)
$
0.48 $
0.49
—
0.49
0.49
—
0.49
$
$
$
$
2.52
—
2.52
2.52
—
2.52
$
$
$
$
$
$
527,362
741
528,103
1.68
—
1.68
1.68
—
1.68
Continuing Operations
Beginning Q1 2019, the Trust ceased separately reporting discontinued operations from the sale of its U.S. portfolio in 2016, due
to minimal activity and insignificant remaining assets and liabilities.
2019
Net income from continuing operations attributable to unitholders for the year ended December 31, 2019 is $775.8 million
compared to $527.4 million in 2018, representing an increase of $248.5 million. Excluding $229.3 million higher net fair value
gains on investment properties over the comparable period and a $27.1 million higher change in unrealized fair value included in
net income related to marketable securities, net income from continuing operations attributable to unitholders for the year ended
December 31, 2019 is $543.8 million compared to $551.8 million in 2018, representing a decrease of $8.0 million or 1.4%.
The decrease of $8.0 million is largely the net effect of the following:
•
•
•
•
•
•
•
•
•
•
$35.6 million in lower realized gains on marketable securities due to a fewer number of marketable securities sold;
$14.5 million increase in interest expense primarily due to lower capitalized interest resulting from development completions,
higher average debt balances resulting from timing of dispositions and acquisitions and higher average cost of debt;
$9.0 million in lower operating income from commercial operations primarily due to strategic secondary market property
dispositions, net of acquisitions, same property NOI growth, higher fee income and higher income from developments;
$2.8 million in higher income tax expense primarily deferred income tax expense;
$2.1 million in lower dividend income earned on marketable securities;
$1.1 million in lower income from our equity accounted investments primarily from net fair value losses; partially offset by,
$37.3 million increase in operating income from residential operations primarily due to gains on the sale of residential
inventory and lease up income from two new residential rental towers;
$9.2 million in lower general and administrative expenses primarily due to high severance costs incurred in 2018;
$5.5 million in higher interest income due to condominium interim occupancy fees attributable to interest, interest income on
finance leases upon the adoption of IFRS 16 on January 1, 2019 and higher average mortgages and loans receivable; and
$5.2 million in lower transaction costs primarily due to lower volume of dispositions in 2019 and approximately $2.2 million
higher residential inventory project marketing costs.
Q4 2019
Net income from continuing operations attributable to unitholders for the three months ended December 31, 2019 is $150.8
million compared to $150.0 million during the same period in 2018, representing an increase of $0.8 million. Excluding $6.0
million lower net fair value gains over the comparable period and a $6.6 million higher unrealized fair value increase for
marketable securities, net income from continuing operations attributable to unitholders for the three months ended December
31, 2019 is $134.9 million compared to $134.7 million in 2018, representing an increase of $0.2 million or 0.2%.
39
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
The increase of $0.2 million is largely the net effect of the following:
•
•
•
•
•
•
•
•
$11.5 million increase in operating income from residential operations primarily due to gains on the sale of residential
inventory and lease up income from the two new residential towers;
$1.6 million in higher interest income primarily due to condominium interim occupancy fees attributable to interest, interest
income on finance leases upon the adoption of IFRS 16 on January 1, 2019, and higher average loans receivable; and
$2.4 million in lower general and administrative expenses primarily due to high severance costs incurred in Q4 2018; partially
offset by,
$8.7 million in lower income from our equity accounted investments primarily from net fair value losses in Q4 2019;
$2.8 million increase in interest expense primarily due to lower capitalized interest resulting from development completions
and higher average debt balances resulting from timing of acquisitions and dispositions, offset by lower average cost of debt
and $1.3 million of IFRS debt modification gains from a debt maturity extension;
$1.9 million in lower realized gains on marketable securities due to fewer number of marketable securities sold;
$1.6 million in lower operating income from commercial operations primarily due to lower lease cancellation fees and
dispositions, net of acquisitions, same property NOI growth, and higher NOI from development completions; and
$0.3 million in lower dividend income earned on marketable securities.
Operating Income
The IFRS operating income for the three months and year ended December 31, 2019 and 2018 is as follows:
(thousands of dollars)
Revenue
Rental revenue
Residential inventory sales
Property management and other service fees
Operating costs
Rental operating costs
Recoverable under tenant leases
Non-recoverable costs
Residential inventory cost of sales
Operating income
Breakdown of operating income:
Commercial
Residential
Operating income
2019
Three months ended
December 31
Year ended
December 31
2019
2018
2019
2018
279,052 $
274,775 $
1,093,727 $
1,110,160
38,639
3,039
22,264
3,967
208,965
23,633
22,264
15,418
320,730 $
301,006 $
1,326,325 $
1,147,842
97,789 $
95,970 $
384,404 $
389,285
5,750
27,604
131,143
4,460
20,882
121,312
20,621
172,688
577,713
189,587 $
179,694 $
748,612 $
17,384
20,882
427,551
720,291
176,677 $
178,312 $
709,908 $
718,909
12,910
1,382
38,704
1,382
189,587 $
179,694 $
748,612 $
720,291
$
$
$
$
$
$
Operating income from continuing operations for the year ended December 31, 2019 is $748.6 million compared to $720.3 million
during the same period in 2018, representing an increase of $28.3 million or 3.9%. This increase consists of a $37.3 million
increase in operating income from residential operations partially offset by a $9.0 million decrease in operating income from
commercial operations.
The increase of $37.3 million from residential operations is due to the following:
•
•
$34.9 million residential inventory gains from eCondos, UC Towns and Kingly; and
$2.4 million net operating income during the lease up phase from eCentral and Frontier.
The decrease of $9.0 million from the commercial operations is largely the net effect of the following:
•
•
•
•
•
•
$32.6 million lower net operating income due to property dispositions, net of acquisitions;
$3.0 million lower operating income due to exclusion of operational lease revenues from ROU assets under IFRS 16; and
$1.1 million lower net operating income from properties under de-leasing for development; partially offset by,
$12.3 million same property net operating income growth;
$8.2 million higher property management and other service fee revenue;
$6.9 million higher income from developments completed that are not same property during the comparable periods; and
40
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
$0.3 million higher straight-line rent.
Q4 2019
Operating income from continuing operations for the three months ended December 31, 2019 is $189.6 million compared to
$179.7 million during the same period in 2018, representing an increase of $9.9 million or 5.5%. This increase consists of a $1.6
million decrease in operating income from commercial operations and a $11.5 million increase in operating income from
residential operations.
The decrease of $1.6 million from the commercial operations is largely the net effect of the following:
•
•
•
•
•
•
•
•
$2.5 million lower lease cancellation fees;
$1.6 million lower net operating income due to property dispositions, net of acquisitions;
$1.0 million lower straight-line rent;
$0.9 million lower property management and other service fee revenue;
$0.9 million lower operating income due to exclusion of operational lease revenues from ROU assets under IFRS 16; and
$0.5 million lower net operating income from properties under de-leasing for development; partially offset by,
$3.5 million same property operating income growth; and
$2.3 million higher income from development projects completed that are not same property during the comparable periods.
The increase of $11.5 million from residential operations is due to the following:
•
•
$9.7 million residential inventory gains from eCondos, Windfield Farms townhouses and Kingly; and
$1.9 million net operating income during the lease up phase from eCentral and Frontier.
Net Operating Income (NOI)
This NOI section is a sub-section of the MD&A related to IFRS operating income. The NOI for the three months and year ended
December 31, 2019 and 2018 is as follows:
(thousands of dollars)
Operating income (i)
Adjusted for the following:
Three months ended
December 31
Year ended
December 31
2019
2018
2019
2018
$
189,587
$
179,694
$
748,612
$
720,291
Property management and other service fees
(3,039)
(3,967)
(23,633)
(15,418)
Residential inventory
Sales
Cost of sales
Operational lease revenue and (expenses) from ROU assets (iii)
NOI
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:
Rental income (excluding straight-line rent)
Straight-line rent
Property operating costs
Operational lease revenue and (expenses) from ROU assets (iii)
Other (ii)
(38,639)
27,604
910
(22,264)
20,882
—
(208,965)
172,688
3,003
(22,264)
20,882
—
$
176,423
$
174,345
$
691,705
$
703,491
62.9%
63.0%
62.7%
63.1%
3,747
3,810
386
(608)
(126)
128
3,253
3,617
432
(676)
—
(3)
3,747
15,295
1,649
(2,595)
(506)
572
3,253
14,380
1,780
(2,983)
—
200
NOI of proportionate share of equity accounted investments
NOI - RioCan's proportionate share
$
$
3,590
180,013
$
$
3,370
177,715
$
$
14,415
706,120
$
$
13,377
716,868
(i)
(ii)
In accordance with IFRS.
Includes NOI from RioCan's equity accounted investments in Dawson Yonge LP, WhiteCastle New Urban Fund, LP, WhiteCastle New Urban Fund
2, LP, WhiteCastle New Urban Fund 3, LP and WhiteCastle New Urban Fund 4, LP.
(iii) The Trust has included adjustments to NOI and same property NOI for certain subleases or leases that are classified as finance leases under
IFRS 16 effective January 1, 2019. Refer to the Non-GAAP Measures section of this MD&A for further details.
NOI as a percentage of rental revenue (excluding the impact of lease cancellation fees) was stable for the three months but lower
for the year ended December 31, 2019 over the comparable periods. The changes in NOI margin over the comparable periods
were primarily due to lease up of residential operations during the year, properties under de-leasing for development and the
timing of costs and recoveries for commercial operations. Refer to the Same Property NOI section of this MD&A below for a more
detailed breakdown and analysis of NOI.
41
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table provides a breakdown of NOI by the commercial and residential portfolios.
(thousands of dollars)
NOI
Commercial
Residential (i)
Total NOI
(i) NOI during lease-up period.
2019
Three months ended
December 31
Year ended
December 31
2019
2018
2019
2018
$
$
174,548 $
174,345 $
689,278 $
703,491
1,875
—
2,427
—
176,423 $
174,345 $
691,705 $
703,491
Total NOI for the year ended December 31, 2019 decreased $11.8 million, consisting of a $14.2 million decrease in NOI from
commercial operations, partially offset by a $2.4 million residential lease-up NOI income from eCentral and Frontier.
The $14.2 million decrease in NOI from commercial operations was primarily because of a $32.6 million decrease as a result of
property dispositions (net of acquisitions), and $1.1 million lower NOI from properties under de-leasing for development, partially
offset by $12.3 million same property NOI growth, $6.9 million in higher NOI from completed developments, and $0.3 million
higher straight-line rent.
Q4 2019
Total NOI for the three months ended December 31, 2019 increased $2.1 million, consisting of a $0.2 million increase in NOI from
commercial operations and a $1.9 million increase in residential NOI from eCentral and Frontier, which are both in the lease-up
phase as discussed earlier in this MD&A.
The $0.2 million increase in NOI from commercial operations was primarily due to $3.5 million same property NOI growth and
$2.3 million in higher NOI from completed developments, partially offset by a $1.6 million decrease as a result of property
dispositions (net of acquisitions), $2.5 million in lower lease cancellation fees, $1.0 million lower straight-line rent, and $0.5 million
lower NOI from properties under de-leasing for development.
Same Property NOI
Same property NOI for the three months and year ended December 31, 2019 and 2018 is as follows:
(thousands of dollars)
Same property (i) (iii)
NOI from income producing properties:
Acquired (ii)
Disposed (ii)
NOI from completed properties under development
Properties under de-leasing for development
Lease cancellation fees
Straight-line rent adjustment
NOI from residential rental
NOI (iii)
Three months ended
December 31
Year ended
December 31
2019
2018
2019
2018
$
155,557 $
152,053 $
594,559 $
582,252
7,624
2,650
10,274
3,294
2,570
477
2,376
1,875
78
11,789
11,867
1,022
3,081
2,983
3,339
—
31,045
26,104
57,149
9,617
11,170
7,903
8,880
2,427
10,723
79,037
89,760
2,701
12,283
7,932
8,563
—
$
176,423 $
174,345 $
691,705 $
703,491
Add: NOI of proportionate share of equity accounted investments
RioCan-HBC JV:
Rental income (excluding straight-line rent)
Straight-line rent
Property operating costs
Operational lease revenue and (expenses) from ROU assets (iii)
Other (iv)
NOI of proportionate share of equity accounted investments
NOI - RioCan's proportionate share
Total straight-line rent - RioCan's proportionate share
3,747
3,810
386
(608)
(126)
128
3,253
3,617
432
(676)
—
(3)
15,295
1,649
(2,595)
(506)
572
14,380
1,780
(2,983)
—
200
$
$
$
3,590 $
3,370 $
14,415 $
13,377
180,013 $
177,715 $
706,120 $
716,868
2,762 $
3,771 $
10,529 $
10,343
(i) Represents a non-GAAP measure. Refer to the same property NOI in the Presentation of Financial Information and Non-GAAP Measures section
of this MD&A.
Includes properties acquired or disposed during the periods being compared.
(ii)
42
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
(iii) The Trust has included adjustments to NOI and same property NOI for certain subleases or leases that are classified as finance leases under
(iv)
IFRS 16 effective January 1, 2019. Refer to the Non-GAAP Measures section of this MD&A for further details.
Includes NOI from RioCan's Canadian equity accounted investments in Dawson Yonge LP, WhiteCastle New Urban Fund, LP, WhiteCastle New
Urban Fund 2, LP, WhiteCastle New Urban Fund 3, LP and WhiteCastle New Urban Fund 4, LP.
2019
Same property NOI for the year ended December 31, 2019 increased by 2.1% or $12.3 million compared to the same period in
2018, primarily due to new and renewal leasing rent growth, contractual rent increases, cost efficiency improvement and ancillary
revenue growth.
As a component of total same property NOI growth, same property NOI from RioCan's properties in Canada's six major markets
increased by 2.5% and same property NOI from its secondary market properties decreased by 1.2% for the year ended
December 31, 2019 when compared to the same period in 2018.
Including completed properties under development, same property NOI increased by 3.7% and 3.3% for its major market portfolio
and the Trust's overall commercial portfolio, respectively.
Q4 2019
Same property NOI for the three months ended December 31, 2019 increased by 2.3% or $3.5 million compared to the same
period in 2018, primarily due to new and renewal leasing rent growth, contractual rent increases, cost efficiency improvement and
ancillary revenue growth.
As a component of total same property NOI growth, same property NOI from RioCan's properties in the six major markets
increased by 2.8% and same property NOI from its secondary market properties decreased by 2.3% for the three months ended
December 31, 2019 when compared to the same period in 2018.
Including completed properties under development, same property NOI increased by 4.1% and 3.5% for its major market portfolio
and the Trust's overall commercial portfolio, respectively. The additional increase in same property NOI was mainly a result of
rent commencements at King Portland Centre and Bathurst College Centre. Such completed properties under development have
been owned by RioCan in both the current and comparative periods and are generating cash rents.
Other Income
The components of other income are as follows:
(thousands of dollars)
Interest income
Income (loss) from equity-accounted investments
Fair value gains on investment properties, net
Investment and other income (loss)
Other income
Three months ended
December 31
Year ended
December 31
2019
2018
2019
$
4,438 $
2,861 $
16,916 $
(2,816)
23,274
(53)
5,848
29,230
(3,020)
10,051
247,624
7,732
$
24,843 $
34,919 $
282,323 $
2018
11,452
11,174
18,304
20,316
61,246
Interest income for the year ended December 31, 2019 was $5.5 million higher than the same period in 2018, primarily consisting
of a $2.0 million increase due to the adoption of IFRS 16 on January 1, 2019 (previously part of rental revenues prior to IFRS 16)
and a $2.7 million increase due to condominium interim occupancy fees related to interest and $0.8 million higher interest income
primarily due to higher average mortgages and loans receivable.
Interest income for the three months ended December 31, 2019 was $1.6 million higher than the same period in 2018, consisting
of a $0.6 million increase due to the adoption of IFRS 16 on January 1, 2019 (previously part of rental revenues prior to IFRS 16),
$0.5 million increase due to condominium interim occupancy fees related to interest, and $0.5 million higher interest income due
to higher average mortgages and loans receivable.
Income from equity accounted investments includes our share of the income from the RioCan-HBC joint venture and other equity
accounted investments. For the year ended December 31, 2019, RioCan's share of FFO from equity accounted investments was
$18.4 million or $8.4 million higher than the comparative period, primarily due to transaction gains recognized in the first quarter
of 2019. For the three months ended December 31, 2019, RioCan's share of FFO from equity accounted investments was $2.8
million, or $0.2 million higher than the comparative period in the prior year. RioCan's share of FFO from the RioCan-HBC JV was
relatively stable for the three months and year ended December 31, 2019. For further details on the results of operations of the
RioCan-HBC joint venture, refer to the Co-ownerships Arrangements section of this MD&A.
For the year ended December 31, 2019, we recognized fair value gains on investment properties of $247.6 million, an increase of
$229.3 million when compared to the same period last year. This increase resulted primarily from capitalization rate reductions in
certain urban markets, higher stabilized net operating income on certain income properties, and updated valuation estimates on
specific development properties. During the three months ended December 31, 2019, $23.3 million fair value gains on investment
properties were recognized, a decrease of $6.0 million when compared to the same period last year.
Investment and other income primarily includes realized gains on the sale of marketable securities as well as related dividend
income, transaction gains (losses) on the sale of investment properties, and changes in unrealized fair value gains (losses) on
marketable securities.
43
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
During the year ended December 31, 2019, the decrease in investment and other income of $12.6 million over the comparable
period in 2018 was primarily due to $35.6 million in lower realized gains on the sale of marketable securities due to a lower
number of marketable securities sold, $2.1 million in lower income earned on marketable securities, a $2.0 million decrease in
primarily other income, partially offset by $27.1 million increase in unrealized fair value on marketable securities. During the three
months ended December 31, 2019, the increase in investment and other income of $3.0 million over the comparable period in
2018 was primarily due to a $6.6 million increase in unrealized fair value on marketable securities, offset by $1.9 million in lower
realized gains on the sale of marketable securities from a fewer number of marketable securities sold, $0.3 million in lower
income earned on marketable securities, and $1.4 million in lower transaction gains and other income.
Other Expenses
Interest Costs
The components of interest costs are as follows:
(thousands of dollars, except where otherwise noted)
Total interest
Interest costs capitalized (i)
Net interest
Percentage capitalized
Three months ended
December 31
Year ended
December 31
$
$
2019
54,238
(9,023)
45,215
16.6%
$
$
2018
52,639
(10,198)
42,441
$
$
2019
216,249
(33,469)
182,780
$
$
2018
206,743
(38,444)
168,299
19.4%
15.5%
18.6%
(i) Includes amounts capitalized to properties under development and residential inventory.
Total interest costs increased by $9.5 million for the year ended December 31, 2019 compared to the same period in 2018.
Excluding the $0.9 million increase due to adoption of IFRS 16 and $0.3 million net IFRS debt modification gain associated with
two debt maturity extensions, total interest expense increased by $8.9 million primarily due to higher average debt balances
resulting from the timing of acquisitions and dispositions and higher average cost of debt. Total interest costs increased by $1.6
million for the three months ended December 31, 2019 compared to the same period in 2018. Excluding the $0.2 million increase
due to adoption of IFRS 16 and $1.3 million IFRS debt modification gain associated with a debt maturity extension, total interest
expense increased by $2.6 million primarily due to higher average debt balances resulting from the timing of acquisitions and
dispositions. As at December 31, 2019, the weighted average effective interest rate of our total debt is 3.44% (December 31,
2018 - 3.55%).
Interest capitalized to property under development for the three months and year ended December 31, 2019 decreased $1.2
million and $5.0 million, respectively, from the same periods in 2018 primarily due to development completions resulting in
average lower development costs on the consolidated balance sheet. Interest was capitalized to properties under development
and residential inventory at weighted average effective interest rates of 3.45% and 3.51% for the three months and year ended
December 31, 2019, respectively (three months and year ended December 31, 2018 – 3.52% and 3.46%, respectively).
As a result of the changes in total interest costs and interest costs capitalized, net interest costs increased by $2.8 million and
$14.5 million, respectively, for the three months and year ended December 31, 2019 compared to the same periods in 2018.
44
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
General and Administrative (G&A)
The components of general and administrative expenses are as follows:
Three months ended
December 31
Year ended
December 31
(thousands of dollars, except where otherwise noted)
2019
2018
2019
2018
Non-recoverable salaries and benefits
$
10,570
$
12,573
$
40,885
$
47,766
Capitalized to development and residential inventory (i)
Internal leasing salaries and benefits
Non-recoverable salaries and benefits, net
Unit-based compensation expense
Depreciation and amortization
Other general and administrative (ii)
(2,438)
(2,204)
5,928
1,280
1,122
3,957
(2,081)
(2,255)
8,237
1,476
1,144
3,826
(9,812)
(8,762)
22,311
5,358
4,381
14,764
Total general and administrative expense
$
12,287
$
14,683
$
46,814
$
(9,202)
(9,352)
29,212
7,070
4,575
15,142
55,999
Total general and administrative expense as a percentage of rental
revenue
4.4%
5.3%
4.3%
5.0%
(i) Include salaries and benefits related to properties under development and residential inventory, as well as landlord work.
(ii) Primarily includes information technology costs, public company costs, travel, marketing, legal and professional fees, as well as trustee costs.
2019
For the year ended December 31, 2019, G&A expenses decreased $9.2 million or 16.4% primarily due to:
•
•
•
$6.9 million decrease in non-recoverable salaries and benefits primarily as a result of severance costs incurred in 2018;
$1.7 million decrease in unit-based compensation expense as a result of 2018 severance related charges and from changes
in grants outstanding; and
$0.4 million decrease in other general and administrative expenses mainly as a result of lower audit fees and information
technology costs, partially offset by higher mark-to-market adjustment for Trustee compensation costs.
Q4 2019
For the three months ended December 31, 2019, G&A expenses decreased $2.4 million or 16.3% primarily due to higher
severance costs in Q4 2018.
The $2.4 million and $9.2 million decrease for the three months and year ended December 31, 2019 led to the decrease in
general and administrative expense as a percentage of rental revenue over the comparable respective periods.
Internal Leasing Costs
Internal 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, 2019, internal leasing costs were relatively consistent with the prior year same
periods.
Transaction and Other Costs
Transaction and other costs decreased $1.6 million and $7.2 million for the three months and year ended December 31, 2019,
respectively, over the comparable period. The decreases in both respective periods are primarily due to lower volume of
dispositions in 2019. During the three months and year ended December 31, 2019, the Trust incurred $0.8 million and $3.4
million of marketing costs, respectively (three months and year ended December 31, 2018 - $0.2 million and $0.7 million,
respectively), relating mostly to various residential inventory projects such as Yorkville, UC Uptown and UC Tower. Such
marketing costs are expensed as incurred before sales revenues are recognized into income.
45
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Funds from Operations (FFO)
RioCan’s method of calculating FFO is in compliance with the REALPAC whitepaper issued in February 2019 except that
effective January 1, 2018, upon the adoption of IFRS 9, RioCan excludes unrealized fair value gains or losses on marketable
securities in its calculation of FFO and continues to include realized gains or losses on marketable securities in FFO. Refer to the
Non-GAAP Measures section of this MD&A for a more detailed discussion.
The following table presents a reconciliation of IFRS net income attributable to unitholders to FFO on both a continuing and
discontinued operations basis:
(thousands of dollars, except per unit amounts)
2019
2018
2019
2018
Net income from continuing operations attributable to unitholders
$ 150,786 $ 149,959 $ 775,834 $ 527,362
Three months ended
December 31
Year ended
December 31
Add back/(Deduct):
Fair value gains, net
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 on sale of investment properties
Change in unrealized fair value on marketable securities
Current income tax expense (recovery)
Operational lease revenue (expenses) from ROU assets (ii)
Operational lease revenue (expenses) from ROU assets in
equity accounted investments (ii)
FFO from continuing operations
(23,274)
(29,230)
(247,624)
(18,304)
5,605
(216)
3,017
(98)
2,595
7,395
(273)
570
(6)
(3,258)
(540)
2,862
54
4,655
13,965
—
—
—
8,330
2,064
11,309
1,066
7,989
15,637
(699)
1,963
(24)
(1,222)
(1,440)
11,294
(78)
17,760
42,767
—
—
—
$ 146,101 $ 138,467 $ 575,845 $ 578,139
Net income (loss) from discontinued operations attributable to unitholders $
— $
(794) $
— $
741
Add back/(Deduct):
Transaction costs (recoveries) on sale of U.S. investment properties (iii)
Current income tax expense on U.S. income properties sold
—
—
14
745
—
—
FFO from discontinued operations
$
— $
(35) $
— $
155
1,188
2,084
FFO
FFO per unit - basic
FFO per unit - diluted
Weighted average number of units - basic (in thousands)
Weighted average number of units - diluted (in thousands)
FFO payout ratio (iv)
$ 146,101 $ 138,432 $ 575,845 $ 580,223
$
$
0.46 $
0.46 $
0.45 $
0.45 $
1.87 $
1.87 $
314,953
315,080
306,225
306,295
307,683
307,779
76.9%
1.85
1.85
313,936
314,024
77.9%
(i) Represents net transaction gains or losses connected to certain investment properties during the period.
(ii)
In February 2019, REALPAC issued a revision to the February 2018 definition of FFO, effective January 1, 2019, to include adjustments relating to
operational revenue and expenses from ROU assets as a result of certain subleases and leases that were classified as operating leases under
IAS 17 and are classified as finance leases under IFRS 16, such that the entire relevant lease receipt and/or lease payment continues to be
reflected in FFO upon the adoption of IFRS 16 on January 1, 2019.
Includes transaction costs associated with the disposal of U.S. investment properties.
(iii)
(iv) Calculated on a twelve month trailing basis. For a definition of the Trust's common unitholder distributions as a percentage of FFO, refer to the
Non-GAAP Measures section of this MD&A.
46
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
FFO Highlights
2019
FFO of $575.8 million for the year ended December 31, 2019 decreased approximately $4.4 million or 0.8% when compared to
$580.2 million in the same period in 2018. On a diluted per unit basis, FFO of $1.87 increased $0.02 per unit or 1.3% when
compared to $1.85 in the same period in 2018.
Continuing Operations
FFO from continuing operations for the year ended December 31, 2019 decreased to $575.8 million from $578.1 million during
the same period in 2018, representing a decrease of $2.3 million or 0.4%. This decrease was primarily due to the net effect of the
following:
•
•
•
•
•
•
•
•
•
•
$35.6 million in lower realized gains on marketable securities due to a fewer number of marketable securities sold;
$13.6 million increase in interest expense excluding IFRS 16 impact, primarily due to lower capitalized interest resulting from
development completions, higher average debt balances resulting from timing of dispositions and acquisitions and higher
average cost of debt;
$6.0 million in lower operating income from commercial operations excluding IFRS 16 impact, primarily due to strategic
secondary market property dispositions, net of acquisitions, same property NOI growth, higher fee income and higher
income from developments;
$2.6 million higher other costs primarily due to marketing costs on new residential inventory projects;
$2.1 million in lower dividend income on marketable securities; and
$0.9 million in lower other income; partially offset by,
$37.3 million increase in operating income from residential operations primarily due to gains on the sale of residential
inventory and lease up income from two new residential rental towers;
$9.2 million in lower general and administrative expenses primarily due to higher severance costs incurred in 2018;
$8.4 million in higher income from equity-accounted investments, excluding fair value gains (losses), primarily due to a
transaction gain in Q1 2019; and
$3.5 million increase in interest revenue excluding IFRS 16 impact, primarily due to condominium interim occupancy fees
attributable to interest and higher average loans receivable.
Q4 2019
FFO of $146.1 million for the three months ended December 31, 2019 increased approximately $7.7 million or 5.5% when
compared to $138.4 million in the same period in 2018. On a diluted per unit basis, FFO of $0.46 increased $0.01 per unit or
2.59% when compared to $0.45 in the same period in 2018.
FFO from continuing operations for the three months ended December 31, 2019 increased to $146.1 million from $138.5 million
during the same period in 2018, representing an increase of $7.6 million or 5.5%. The $7.6 million increase in FFO from
continuing operations for the quarter was primarily due to the net effect of the following:
•
•
•
•
•
•
•
•
•
$11.5 million increase in operating income from residential operations primarily due to gains on the sale of residential
inventory and lease-up income from the two new residential towers;
$2.4 million in lower general and administrative expenses primarily due to higher severance costs incurred in Q4 2018; and
$1.0 million in higher interest income excluding IFRS 16 impact, primarily due to condominium interim occupancy fees
attributable to interest, and higher average loans receivable; partially offset by,
$2.5 million in higher interest expense excluding IFRS 16 impact, primarily due to lower capitalized interest resulting from
development completions and higher average debt balances resulting from timing of acquisitions and dispositions, offset by
lower average cost of debt and $1.3 million of IFRS debt modification gains from a debt maturity extension;
$1.9 million in lower realized gains on marketable securities due to a fewer number of marketable securities sold;
$1.5 million in lower other income;
$0.7 million in lower operating income from commercial operations excluding IFRS 16 impact, primarily due to strategic
secondary market property dispositions, net of acquisitions and same property NOI growth, higher NOI from development
completions and higher fee income;
$0.5 million in higher other costs primarily due to marketing costs on new residential inventory projects; and
$0.3 million in lower dividend income on marketable securities.
FFO Payout Ratio
RioCan continued to achieve its FFO payout ratio target of less than 80% and improved it by 1.0% from 77.9% for the year ended
December 31, 2018 to 76.9% for the year ended December 31, 2019.
47
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Adjusted Cashflow from Operations (ACFO)
RioCan’s method of calculating ACFO is in accordance with the REALPAC whitepaper issued in February 2019. The following
table presents a reconciliation of cash provided by operating activities to ACFO:
(thousands of dollars)
Three months ended
December 31
Year ended
December 31
2019
2018
2019
2018
Cash provided by operating activities
$
170,235 $
128,325 $
568,728 $
404,005
Add back/(Deduct):
Adjustments to working capital changes for ACFO (i)
Distributions received from equity accounted investments
Transaction costs on sale of investment properties
Normalized capital expenditures (ii):
Leasing commissions and tenant improvements
Maintenance capital expenditures recoverable from tenants
Maintenance capital expenditures not recoverable from tenants
Realized gain on disposition of marketable securities
Internal leasing costs related to development properties
Taxes related to non-operating activities (iii)
Operational lease revenue and expenses from ROU assets (iv)
(40,058)
2,712
2,595
(4,000)
(4,500)
(1,500)
7,215
557
(273)
570
1,065
1,846
4,669
(6,000)
(3,250)
(2,000)
9,161
528
745
—
(54,778)
16,382
7,989
(16,000)
(18,000)
(6,000)
23,667
2,087
(699)
1,963
78,736
9,180
17,915
(24,000)
(13,000)
(8,000)
59,239
2,084
1,188
—
ACFO
$
133,553 $
135,089 $
525,339 $
527,347
(i)
Includes working capital changes that, in management’s view and based on the REALPAC February 2019 whitepaper, are not indicative of
sustainable cash flow available for distribution. Examples include, but are not limited to, working capital changes relating to residential inventory
and developments, prepaid realty taxes and insurance, interest payable and interest receivable, sales and other indirect taxes payable to or
receivable from applicable governments, income taxes and transaction cost accruals relating to acquisitions and dispositions of investment
properties.
(ii) Normalized capital expenditures are management's estimate of ongoing capital investment required to maintain the condition of the physical
(iii)
(iv)
property and current rental revenues. Refer to the Non-GAAP Measures section of this MD&A for further discussion.
Includes income tax expenses (recoveries) associated with the sale of our U.S. portfolio, which have been deducted in determining cash provided
by (used in) operating activities from continuing and discontinued operations. This adjustment effectively excludes this item's impact in ACFO
based on the REALPAC February 2019 whitepaper.
In February 2019, REALPAC issued a revision to the February 2018 definition of ACFO, effective January 1, 2019, to include adjustments relating
to operational revenue and expenses from ROU assets from certain subleases and leases that were classified as operating leases under IAS 17,
and are classified as finance leases under IFRS 16, such that the entire relevant lease receipt and/or lease payment continues to be reflected in
ACFO upon the adoption of IFRS 16 on January 1, 2019.
The following table represents a breakdown of adjustments for working capital changes used in the calculation of ACFO. These
are working capital changes that, in management’s view and based on the REALPAC February 2019 whitepaper, are not
indicative of sustainable cash flow available for distribution:
(thousands of dollars)
Working capital changes related to:
Taxes relating to the U.S. portfolio (i)
Transaction related costs (ii)
Realty taxes and insurance
Residential inventory
Other (iii)
Three months ended
December 31
Year ended
December 31
2019
2018
2019
2018
$
251 $
(857) $
694 $
3,739
(36,273)
(13,557)
5,782
(1,694)
(31,422)
17,910
17,128
6,069
(5,965)
(68,085)
12,509
(136)
(11,367)
86
77,637
12,516
78,736
Adjustments to working capital changes for ACFO
$
(40,058) $
1,065 $
(54,778) $
Includes income tax payment (accrual) relating to the sale of our U.S. portfolio in May 2016.
(i)
(ii) Represents costs associated with dispositions and acquisitions.
(iii)
Includes working capital changes related to interest payable and interest receivable, sales and other indirect taxes payable to or receivable from
applicable governments.
48
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
As ACFO starts with cash provided by operating activities, the adjustments outlined neutralize the above working capital changes
to ACFO. The net impact to ACFO of working capital changes is determined as follows:
(thousands of dollars)
Three months ended
December 31
Year ended
December 31
2019
2018
2019
2018
Adjustments for other changes in working capital items as reported
on the consolidated statements of cash flows
Add: Adjustments to working capital changes for ACFO
Net working capital increase (decrease) included in ACFO
$
$
39,871 $
10,655 $
53,769 $
(79,468)
(40,058)
1,065
(54,778)
(187) $
11,720 $
(1,009) $
78,736
(732)
ACFO Highlights
2019
ACFO for the year ended December 31, 2019 is $525.3 million compared to $527.3 million for 2018, representing a decrease of
$2.0 million or approximately 0.4% primarily due to the following:
•
•
•
•
•
•
•
•
•
•
•
•
$35.6 million lower realized gains on marketable securities due to a fewer number of marketable securities sold;
$13.6 million higher interest expense excluding IFRS 16 impact, primarily due to lower capitalized interest resulting from
development completions, higher average debt balances resulting from timing of dispositions and acquisitions and higher
average cost of debt;
$6.3 million in lower operating income from commercial operations (net of straight-line rent and IFRS 16 effect) primarily due
to strategic secondary market property dispositions, net of acquisitions, same property NOI growth, higher fee income and
higher income from developments;
$3.4 million higher other costs and lower other income, including higher marketing costs on residential inventory projects;
$2.1 million lower income from discontinued operations;
$2.1 million in lower dividend income on marketable securities; and
$0.3 million in higher net working capital decrease relating to property operations; partially offset by,
$37.3 million increase in operating income from residential operations primarily due to gains on the sale of residential
inventory and lease up income from two new residential rental towers;
$8.6 million in lower general and administrative expenses (excluding non-cash depreciation and amortization, and non-cash
compensation costs) primarily from higher severance costs incurred in 2018;
$7.2 million increase in cash distributions received from equity accounted investments primarily due to a transaction gain in
Q1 2019;
$3.5 million higher interest revenue excluding IFRS 16 impact, primarily due to condominium interim occupancy fees
attributable to interest and higher average loans receivable; and
$5.0 million in lower normalized capital expenditures.
Q4 2019
ACFO for the three months ended December 31, 2019 is $133.6 million compared to $135.1 million in the same period in 2018,
representing a decrease of $1.5 million or approximately 1.1% primarily due to the following:
•
•
•
•
•
•
•
•
•
•
$11.9 million lower net working capital increase relating to property operations;
$2.5 million higher interest expense excluding IFRS 16 impact, primarily due to lower capitalized interest resulting from
development completions and higher average debt balances resulting from timing of acquisitions and dispositions, offset by
lower average cost of debt and $1.3 million of IFRS debt modification gains from a debt maturity extension;
$1.9 million lower realized gains on marketable securities due to a fewer number of marketable securities sold;
$2.0 million in higher other costs and lower other income, including higher marketing costs on residential inventory projects;
and
$0.3 million in lower dividend income on marketable securities; partially offset by,
$11.5 million increase in operating income from residential operations primarily due to gains on the sale of residential
inventory and lease up income from two new residential rental towers;
$2.6 million in lower general and administrative expenses primarily due to higher severance costs incurred in Q4 2018;
$1.3 million in lower normalized capital expenditures;
$1.0 million in higher interest income excluding IFRS 16 impact, primarily due to condominium interim occupancy fees
attributable to interest and higher average loans receivable; and
$0.9 million increase in cash distributions received from equity accounted investments.
49
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following tables present RioCan's ACFO payout ratio for the twelve months ended December 31, 2019 and 2018:
(thousands of dollars)
ACFO
Distributions paid
ACFO payout ratio
Net working capital increase (decrease)
included in ACFO
(thousands of dollars)
ACFO
Distributions paid
ACFO payout ratio
Net working capital increase (decrease)
included in ACFO
Twelve months ended
December 31, 2019
Q4 2019
Q3 2019
Q2 2019
Q1 2019
525,338 $
133,553 $
144,864 $
139,446 $
107,475
442,953
84.3%
113,285
110,224
109,598
109,846
(1,009) $
(187) $
14,584 $
6,808 $
(22,214)
Twelve months ended
December 31, 2018
Q4 2018
Q3 2018
Q2 2018
Q1 2018
527,347 $
135,089 $
127,988 $
139,910 $
124,360
452,170
85.7%
110,366
112,370
114,110
115,324
(732) $
11,720 $
(5,411) $
6,297 $
(13,338)
$
$
$
$
The ACFO payout ratio for the year ended December 31, 2019 is 84.3%, 1.4% lower than a year ago.
As previously discussed, the REALPAC ACFO definition includes net working capital fluctuations relating to recurring operating
activities. In RioCan management's view, this tends to introduce greater volatility in the ACFO payout ratio. Management,
therefore, also uses the FFO payout ratio in addition to the ACFO payout ratio in assessing its distribution paying capacity
because FFO is not subject to such working capital fluctuations.
OPERATIONS
Property Mix
The Trust operates a variety of income producing property formats or classes to best serve the communities in which they
operates. The Trust has identified the following four major categories of property classes:
Category
Description
Mixed-Use / Urban
Assets with more than one type of use (retail, office, residential i.e. mixed-use assets) located in major
markets and non mixed-use assets located in high density urban areas. Examples of these properties
include: Yonge Eglinton Centre and Yonge Sheppard Centre.
Grocery Anchored Centre Assets with a grocery anchor tenant or sites adjacent to shadow grocery anchors (i). Examples of these
properties include: Sage Hill Crossing and RioCan Scarborough Centre.
Open Air Centre
Assets with little or no enclosed component and do not have a grocery store anchor. Examples of these
properties include: Grandview Corners and RioCan Colossus Centre.
Enclosed
Assets with large enclosed shopping and common areas. Examples of these properties include:
Burlington Centre and Oakville Place.
(i) A shadow anchor is a retail store that generates a great deal of traffic and attracts business to a property of the Trust but the underlying property /
land for this retail store is not owned by the Trust.
RioCan's portfolio of properties as at December 31, 2019 consisted of the following:
At RioCan's Interest
(thousands of sq. ft., except where otherwise
noted)
Mixed-Use / Urban (i)
Grocery Anchored Centre
Open Air Centre
Enclosed
Total Portfolio (i)
Number of
income
producing
properties
30
95
70
11
206
Income
producing
properties NLA
% of NLA
% of annualized
rental revenue
5,153
16,783
10,935
3,314
36,185
14.2%
46.4%
30.2%
9.2%
100.0%
22.0%
40.9%
27.2%
9.9%
100.0%
(i) Mixed-Use / Urban includes approximately 0.5 million square feet of residential rental NLA and the corresponding annualized residential rental
revenue.
Mixed-Use / Urban and Grocery Anchored centres combined accounted for 60.6% and 62.9% of total NLA and annualized rental
revenue, respectively, as of December 31, 2019. This further highlights the quality of RioCan's portfolio and underlying income.
Both of these formats are attractive from a tenanting perspective, more resilient to changes in economic cycles and evolving retail
trends, and form a solid foundation for organic growth. Enclosed centres accounted for less than 10% of the Trust's portfolio,
whether measured on NLA or annualized rental revenue basis.
50
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Commercial (Retail and Office)
Annualized Rental Revenue from Six Major Markets and GTA
As at
Six Major Markets (i)
% of total annualized rental revenue
% of total NLA
GTA (ii)
% of total annualized rental revenue
% of total NLA
December 31, 2019
December 31, 2018
90.1%
87.0%
52.4%
45.8%
85.4%
81.7%
46.8%
41.9%
(i)
The six Canadian major markets include the following: Calgary, AB; Edmonton, AB; Montreal, QC; Ottawa, ON (includes Gatineau region); Greater
Toronto Area (GTA), ON; and Vancouver, BC.
(ii) The GTA extends north to Barrie, ON; west to Hamilton, ON; and east to Oshawa, ON.
The Trust has surpassed its strategic milestones of generating greater than 90% and 50% of total annualized rental revenue from
the six major markets and the GTA, having reached 90.1% and 52.4% respectively as of December 31, 2019. When compared
to the prior quarter, the percentage of total annualized rental revenue generated from the six major markets and the GTA
increased by 140 and 290 basis points, respectively. The increases resulted from same property NOI growth, continuing
dispositions of its secondary market assets, and strategic acquisitions and development completions in the major markets.
The percentage of annualized rental revenue from the six major markets and the GTA increased 470 and 560 basis points,
respectively, as of December 31, 2019 when compared to December 31, 2018. Similarly, these increases were primarily due to
2.5% same property NOI growth achieved for the Trust's six major market portfolio, $0.5 billion of secondary market asset
dispositions, 530,000 square feet of development completions, and $822.7 million of strategic acquisitions of income producing
properties.
NLA and Occupancy by Markets
The NLA for income producing properties, committed (tenants that have signed leases) and in-place (tenants that are in
possession of their space) occupancy rates for our commercial property portfolio at RioCan’s interest are as follows:
At RioCan’s Interest
As at December 31
Commercial Six Major Markets:
Greater Toronto Area (i)
Ottawa (ii)
Calgary
Montreal
Edmonton
Vancouver (iii)
Total Commercial Six Major Markets
Total Commercial Secondary Markets
Total Commercial
NLA for Income Producing
Properties
(thousands of sq.ft.)
Committed Occupancy
In-Place Occupancy
2019
2018
2019
2018
2019
2018
16,366
15,295
4,708
3,426
2,577
2,227
1,790
31,094
4,626
35,720
4,820
3,220
2,951
1,738
1,791
29,815
6,666
36,481
98.3%
98.2%
97.5%
92.6%
97.5%
99.6%
97.7%
93.6%
97.2%
98.0%
98.8%
98.8%
92.6%
98.0%
99.3%
97.7%
94.1%
97.1%
97.3%
98.0%
95.4%
92.4%
97.1%
99.4%
96.9%
92.4%
96.3%
96.9%
96.7%
98.3%
92.4%
97.0%
98.9%
96.7%
93.2%
96.1%
(i) Area extends north to Barrie, Ontario; west to Hamilton, Ontario; and east to Oshawa, Ontario.
(ii) Area extends from Nepean and Vanier to Gatineau, Quebec.
(iii) Area extends east to Abbotsford, British Columbia.
As at December 31, 2019, NLA at RioCan's interest was 35,720,000 square feet compared to 36,481,000 square feet as at
December 31, 2018. This decrease of 761,000 square feet of NLA from the prior year was primarily due to dispositions over the
comparable period pursuant to the acceleration of the major markets focus strategy, partially offset by strategic acquisitions and
development completions.
As at December 31, 2019, the gap between committed and in-place occupancies narrowed to 90 basis points from 100 basis
points as at December 31, 2018.
51
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Committed and in-place occupancy for the overall portfolio improved by 10 and 20 basis points when compared to December 31,
2018, achieving 97.2% and 96.3% respectively, as of December 31, 2019. The Trust made steady progress on disposing
secondary market assets which had lower than average occupancy levels and this had a positive effect on the overall portfolio
occupancy. Major market committed occupancy was unchanged from last year and major market in-place occupancy increased
by 20 basis points when compared to December 31, 2018 despite the impact of Bombay/Bowring, Payless Shoe and Bouclair
disclaiming their leases during 2019. Refer to the Store Closures section of this MD&A for leasing updates for disclaimed leases.
When compared to the previous quarter, committed occupancy was unchanged at 97.2% and in-place occupancy for the overall
portfolio decreased 20 basis points. The decrease is largely attributable to the leases recently disclaimed by Bouclair in late
December 2019. Similarly, refer to the Store Closures section of this MD&A for leasing updates for disclaimed leases.
Future Lease Commencements (Commercial Only)
Subsequent to Q4 2019, we expect to generate approximately $10.6 million of annualized net incremental rent under IFRS from
tenants that have signed leases but have not taken possession of the space as of December 31, 2019. This includes base rent,
operating cost recoveries and straight-line rent, but excludes operating costs capitalized while a property is under redevelopment.
An IFRS rent commencement timeline for the NLA on our properties (at RioCan's interest) that have been leased but are not
currently in possession as at December 31, 2019 is as follows:
(in thousands, except percentage amounts)
At RioCan's Interest
Square feet:
NLA commencing (i)
Cumulative NLA commencing (i)
% of NLA commencing
Cumulative % total
Average net incremental IFRS rent:
Annualized
Total
Q1 2020
Q2 2020
Q3 2020
Q4 2020+
314
314
257
257
81.8%
81.8%
44
301
14.1%
95.9%
8
309
2.5%
5
314
1.6%
98.4%
100.0%
Monthly net incremental IFRS rent commencing (ii)
$
10,596 $
Cumulative monthly net incremental IFRS rent commencing $
10,596 $
883 $
883 $
746
746
$
$
95
841
$
$
19
860
$
$
% of net incremental IFRS rent for NLA commencing
Cumulative % total net incremental IFRS rent commencing
84.5%
84.5%
10.7%
95.2%
2.2%
97.4%
23
883
2.6%
100.0%
Includes NLA expected to be completed from expansion and redevelopment projects.
(i)
(ii) Based on monthly IFRS rental revenue.
Average Net Rent (Commercial Only)
The portfolio weighted average net rent per occupied square foot for our income producing properties is as follows:
As at December 31
Average net rent per occupied square foot (i)
(i) Net rent is primarily contractual base rent pursuant to tenant leases.
$
2019
19.75 $
2018
19.07
The 3.6% increase in average net rent per occupied square foot from $19.07 as of December 31, 2018 to $19.75 as of
December 31, 2019 reflects the significant improvement in the quality of the Trust's portfolio as it disposes secondary market
assets, develops new assets and drives stronger same property NOI growth.
New Leasing Activity (Commercial Only)
(in thousands, except per sqft amounts)
New Leasing NLA at 100%
Average net rent per square foot (i)
Three months ended
December 31
2019
2018
485
359
Year ended
December 31
2019
1,614
$
29.03 $
25.61 $
25.56 $
2018
2,243
24.51
(i) Net rent is primarily contractual base rent pursuant to tenant leases. Includes new square footage that has not previously been tenanted and
existing square footage leased to a new tenant.
Average net rent per square foot on new leasing activity over a period is impacted by the types, sizes and locations of the spaces
available for new leasing over the comparable periods. The increase in average net rent per square foot for the three months and
year ended December 31, 2019 was primarily due to increasing our major market focus and completing new leases on our
development projects including new office leases signed on The Well in Q4 2019. Almost all of our development projects are
located in major markets.
52
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Renewal Leasing Activity (Commercial Only)
A summary of our 2019 and 2018 commercial renewal leasing activity is as follows:
(in thousands, except percentage and per sqft amounts)
Square feet renewed at market rental rates (at 100%)
Square feet renewed at fixed rental rates (at 100%)
Total square feet renewed (at 100%)
Average net rent per square foot (i)
Renewal leasing spread in average net rent (ii)
Renewal leasing spread percentage (iii)
Retention ratio
Three months ended
December 31
2019
2018
Year ended
December 31
2019
614
175
789
22.89
2.12
10.2%
89.9%
$
$
684
387
1,071
20.66
0.98
5.0%
91.2%
$
$
2,761
1,246
4,007
20.98
1.77
9.2%
89.4%
$
$
$
$
2018
3,210
2,256
5,466
18.27
0.47
2.6%
91.2%
(i) Net rent is primarily contractual base rent pursuant to tenant leases.
(ii) Represents increase in average net rent per square foot for renewal leasing.
(iii) Represents percentage increase in average net rent per square foot for renewal leasing.
During the year ended December 31, 2019, the renewal leasing spread was $1.77 or 9.2% mainly driven by a higher proportion
of leases renewed at market rental rates in major markets. The renewal spread in 2018 was negatively impacted by 18 lease
renewals with an anchor tenant located primarily in secondary markets. The renewal leasing spread of $2.12 or 10.2% for the
three months ended December 31, 2019 was also driven by strong growth in major markets and higher proportion of leases
renewed at market rents.
For major market properties, the Trust achieved a renewal leasing spread percentage of 10.6% and 9.9% for the three months
and year ended December 31, 2019, respectively.
Blended Leasing Spread (Commercial Only)
Blended leasing spread for both new and renewal leasing (i)
Three months ended
December 31
2019
8.2%
2018
10.7%
Year ended
December 31
2019
9.4%
2018
5.0%
(i)
The blended leasing spread is the weighted average net rent leasing spread for both renewal leasing as discussed in the previous section of this
MD&A and new leasing.
For new leasing, the spread is calculated based on the percentage change in net rent between new leases and the respective previous leases for
units that have been vacant for two years or less as of the respective comparable period end dates. In other words, the new leasing spread
excludes any space that has not previously been tenanted (such as a newly completed development) or has been vacant for longer than two
years. The new leasing spread used in the calculation of the blended renewal and new leasing spread for the 2018 comparable periods are
calculated only for properties that the Trust owned as of December 31, 2018. Given that nearly $1.0 billion of secondary market assets were
disposed during 2018, it is not meaningful to calculate the new leasing spread for properties the Trust no longer owns as of December 31, 2018.
For 2019 and onward, the quarterly new leasing spread is and will be calculated for properties owned by the Trust as of each quarter end date.
The annual new leasing spread will be the weighted average of quarterly new leasing spreads as reported over the four quarters of a year.
For the year ended December 31, 2019, the increase in the blended renewal and new leasing spread over 2018 was driven by
stronger renewal leasing spread as discussed earlier. For the three months ended December 31, 2019, the decrease in the
blended leasing spread over the 2018 comparative period was because the 2018 comparative period reported a stronger new
leasing spread as a result of the leasing of the former Sears space as well as timing and location of new leases completed.
For major market properties, the blended leasing spread for new and renewal leasing was 8.4% and 9.7% for the three months
and year ended December 31, 2019, respectively.
53
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Store Closures
RioCan has re-leased or is in the final stages of negotiating the re-leasing of the former Sears premises, which will generate
approximately 137% of the lost annual rental revenue on 266,000 square feet (at RioCan’s interest) or 81% of the vacated Sears
space. Replacement rent on the entire space is expected to exceed previous rent from Sears by $5.60 per square foot (a 65%
increase). We anticipate that the last of the replacement tenants will be in possession of their spaces by mid-2020.
Bombay/Bowring disclaimed all of its leases with RioCan in late 2018/early 2019 following its parent company's filing of notice of
intent under the Bankruptcy and Insolvency Act. Payless Shoe Source Canada Inc. filed for CCAA protection in February 2019
and disclaimed its leases but had continued to pay rent up to March 31, 2019. On a combined basis, these disclaimed leases
represent 174,413 square feet at RioCan’s interest or 0.5% of total commercial NLA as of December 31, 2019. RioCan has re-
leased 84% of the lost annual rental revenue on 119,208 square feet or 68% of the vacated Bombay/Bowring/Payless space. The
Trust expects to continue to lease the remaining space in the normal course. Therefore, the transitory impact of these closures is
expected to continue, albeit at a diminishing rate, for 2020. Same property NOI for the Trust's six major market and overall
commercial portfolio were each negatively impacted by approximately 80 basis points for the year ended December 31, 2019 due
to those store closures in 2019.
Bouclair disclaimed 7 of its 13 leases with RioCan in late 2019. These disclaimed leases represent 65,073 square feet at
RioCan’s interest or 0.2% of total commercial NLA as of December 31, 2019.
In February 2020, Pier 1 announced that it is closing all of its stores in Canada. There are a total of 12 Pier 1 locations in
RioCan’s portfolio representing 114,786 square feet at RioCan’s interest or 0.3% of total commercial NLA as of December 31,
2019. The Trust expects to re-lease this space in the normal course of business.
Lease Expiries (Commercial Only)
Lease expiries for the next five years are as follows:
(in thousands, except per sqft and percentage amounts)
For the years ending
At RioCan's interest
Square feet
Square feet expiring/Portfolio NLA
Total
IPP NLA
35,720
2020
2,646
7.4%
2021
4,385
12.3%
2022
3,636
10.2%
2023
4,088
11.4%
2024
4,669
13.1%
Average net rent per occupied square foot
$
21.86
$
19.26
$
21.22
$
21.00
$
21.74
Contractual Rent Increases (Commercial Only)
Certain of our leases provide periodic increases in rates during the lease terms which contribute to growth in same property NOI.
Contractual rent increases in each year for the next five years for our properties are as follows:
(thousands of dollars)
At RioCan's interest
Contractual rent increases
For the years ending
2020
2021
2022
2023
$
8,606 $
6,745 $
6,004 $
5,331 $
2024
4,040
Above contractual rent increases are based on existing leases as of December 31, 2019 and are on a year-over-year incremental
increase basis. The contractual rent increases are higher in 2020 as they reflect more market rent changes as a result of new
leasing and renewals completed in 2019. Contractual rent increases in 2021 as shown above are increases on a year-over-year
incremental basis over 2020 contractual rent increases, which tend to be lower than in 2020 as they reflect more of annual
inflationary rent increases. The above schedule is on a cash rent basis and takes into account the timing of contractual rent
increases year-over-year (in other words, not on an annualized basis but based on a year-over-year cash rent change basis).
54
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Tenant Profile (Retail Only)
As discussed under the Outlook section of this MD&A, RioCan is well aware that the Canadian retail environment has been
evolving, although the fundamentals remain solid. The Trust is adapting to the ever changing retail landscape and incorporates
future trends and growth patterns in its strategy and operations. The Trust has been increasing its major market focus while
evolving its tenant mix to better suit community needs, make its tenant mix more resilient to the impact of e-commerce, and
increase the growth profile of its portfolio. It has been reducing its tenant mix in department stores, apparel, entertainment and
hobby retailers, and increasing its tenant mix in the sectors that have demonstrated growth and resilience such as grocery,
pharmacy, restaurants, personal services, specialty retailers and value retailers.
As of December 31, 2019, RioCan's commercial tenant profile based on annualized net rental revenue, of which 74.5% is derived
from necessity-based and service-oriented tenants, is illustrated in the chart below. This represents a 40 basis point increase
over the prior quarter and a 170 basis point increase over the 2018 year end.
(i) All trademarks and registered trademarks in the chart above are the property of their respective owners.
55
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Top 30 Commercial Tenants
We strive to reduce our exposure to rental revenue risk in our portfolio through geographical diversification, staggered lease
maturities, investment in residential developments, growing our major market portfolio, diversifying revenue sources, 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, 2019, RioCan’s 30 largest tenants measured by annualized gross rental revenue have the following profile:
Rank Tenant name
1
2
3
4
5
Canadian Tire Corporation (ii)
Loblaws/Shoppers Drug Mart (iii)
The TJX Companies, Inc.(iv)
Cineplex (v)
Metro/Jean Coutu (vi)
6 Walmart
7
8
9
10
11
Montana's, Harvey's, Swiss Chalet, Kelseys (vii)
Sobeys/Safeway
Dollarama
Lowe's
Bank of Montreal
12 Michaels
13
Staples/Business Depot
14 GoodLife Fitness
15
16
17
18
19
20
21
22
23
24
25
26
27
28
TD Bank
PetSmart
Chapters Indigo
Reitmans (viii)
Best Buy
LA Fitness
DSW/The Shoe Company
Leon's/The Brick
Bed Bath & Beyond
The Bank Of Nova Scotia
The Bay/Home Outfitters (ix)
Value Village
Tim Hortons/Burger King/Popeyes
Liquor Control Board of Ontario (LCBO)
29 Old Navy
30
Canadian Imperial Bank of Commerce
Annualized
percentage
of total rental
revenue
Number
of
locations
NLA
(thousands of
sq. ft.)
Percentage
of total
IPP NLA
Weighted
average
remaining
lease term
(years) (i)
4.8%
4.4%
4.2%
3.6%
2.6%
2.6%
1.6%
1.5%
1.5%
1.4%
1.4%
1.4%
1.3%
1.3%
1.2%
1.1%
0.9%
0.8%
0.7%
0.7%
0.7%
0.6%
0.6%
0.6%
0.6%
0.6%
0.6%
0.6%
0.6%
0.5%
77
65
68
23
38
16
85
20
65
9
34
24
27
24
46
26
18
44
12
8
30
10
11
26
8
12
56
18
20
19
2,085
1,710
1,945
1,265
1,431
2,069
393
727
608
1,154
341
518
596
526
256
409
291
235
262
318
231
259
265
132
441
287
140
167
190
108
5.8%
4.8%
5.4%
3.5%
4.0%
5.8%
1.1%
2.0%
1.7%
3.2%
1.0%
1.5%
1.7%
1.5%
0.7%
1.1%
0.8%
0.7%
0.7%
0.9%
0.6%
0.7%
0.7%
0.4%
1.2%
0.8%
0.4%
0.5%
0.5%
0.3%
45.0%
939
19,359
54.0%
6.4
8.2
6.0
7.4
8.0
8.8
7.0
9.3
6.0
9.3
4.8
6.2
5.9
9.8
9.4
5.7
9.2
3.7
3.6
12.0
5.6
4.3
6.5
4.6
11.7
7.7
6.8
9.9
4.6
5.6
7.2
(i) Weighted average remaining lease term based on annualized gross rental revenue.
(ii) Canadian Tire Corporation includes Canadian Tire, PartSource, Mark’s, Sport Chek, Sports Experts, National Sports, Atmosphere and Party City.
(iii) Loblaws/Shoppers Drug Mart includes No Frills, Fortinos, Zehrs Markets, Joe Fresh, Dominion and Maxi.
(iv) The TJX Companies, Inc. includes Winners, HomeSense and Marshalls.
(v) Cineplex includes Galaxy Cinemas.
(vi) Metro/Jean Coutu includes Super C, Loeb, and Food Basics.
(vii) Recipe Unlimited (formerly Cara Operations Limited) includes Montana's, Harvey's, Swiss Chalet, Kelseys, The Keg, Milestones, East Side
Mario's among others.
(viii) Reitmans includes Penningtons, Smart Set, Addition Elle and Thyme Maternity.
(ix) Excludes RioCan's proportionate share of the equity-accounted investment in the RioCan-HBC Joint Venture which owns ten HBC wholly-owned
properties and HBC's 50% of the two properties that are 50/50 owned by RioCan and HBC.
56
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Residential Rental
RioCan Living is RioCan's residential brand which includes purpose-built residential rental buildings developed by RioCan near or
on Canada’s prominent transit corridors. The locations, designs, amenities, community-focused event programming and
professional management and access to strong retail offerings, all unique to RioCan Living, as well as the population growth in
Canada's major markets, are expected to further support demand for our residential rental projects, particularly as housing
affordability becomes a more predominant issue in the major markets.
The Trust currently has two completed projects and eight projects under active development, which will deliver a total of 2,700
rental units (at 100%). None of the Trust's residential units (other than the rental replacement units, which are rented at
prescribed rents) are subject to rent controls under the current rent control legislation. As of December 31, 2019, the Trust's first
two purpose-built residential rental projects are substantially complete and significant leasing progress has been made. For the
three months and year ended December 31, 2019, total residential rental portfolio generated $1.9 million and $2.4 million in net
operating income during the lease up phase, a significant increase in one quarter due to occupancy increases.
•
•
eCentral (Yonge Eglinton Northeast Corner, Toronto) - As of February 19, 2020, 401 units (86.1%) at the 466-unit
eCentral have been leased, including 351 market rent units and 50 rental replacement units, averaging $3.90 rent per
square foot per month for the market rent units. The Trust expects to achieve stabilization at eCentral by the spring of
2020. As of December 31, 2019, 376 units (80.7%) are occupied including 337 market rent units leased at an average
monthly rent of $3.90 per square foot and 39 rental replacement units leased at an average monthly rent of $1.79 per
square foot. The project includes a total of 65 rental replacement units.
Frontier (Gloucester, Ottawa) - As of February 19, 2020, 220 units (96.9%) at the 228-unit Phase One of Frontier have
been leased at an average monthly rent of $2.49 per square foot. As of December 31, 2019, 204 units (89.9%) are
occupied at an average monthly rent of $2.50 per square foot. This project has reached stabilization and we anticipate
to lease all of the units in the near term. Total units at this Phase One building includes one guest suite which is
excluded in the occupancy percentage calculation for the property.
Average monthly rent per square foot is calculated as monthly gross rents (excluding utilities which are paid by tenants) from
leased residential units divided by the total number of net leasable square feet for these leased residential units. It does not
include revenue from parking or other sources.
57
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
ASSET PROFILE
Investment Property
Refer to Note 4 of the 2019 Annual Consolidated Financial Statements for the change in consolidated IFRS carrying values of our
income properties.
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, the Senior Vice President & 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 2019, the Trust obtained a total of 32 external property appraisals (including appraisals for 8 vacant land parcels), which
supported an IFRS fair value of approximately $2.1 billion or 15% of the Trust's investment property portfolio as of December 31,
2019. Our mandate is to conduct an average of six external appraisals on investment properties on a quarterly basis or 24
investment properties a year, plus a selection of external land valuations, which is done every fourth quarter on our excess land
and greenfield sites.
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
Major markets (i)
Secondary markets
Total average portfolio capitalization rate (iii)
Weighted average capitalization rate (ii)
December 31, 2019
December 31, 2018
5.09%
7.23%
5.28%
5.21%
7.27%
5.49%
Includes properties located in the six major Canadian markets of Calgary, Edmonton, Montreal, Ottawa, Vancouver and the Greater Toronto Area.
(i)
(ii) Weighted average capitalization rates as of December 31, 2018 do not include residential rental property capitalization rates.
(iii) The change in the total average portfolio capitalization rate reflects the change in the relative weightings of the major market and secondary
market assets in the total portfolio.
The net fair value increase for the Trust's investment properties for the year ended December 31, 2019 was $247.6 million based
on the weighted average capitalization rate of the Trust's investment portfolio at 5.28%, which compressed by 21 basis points
from 5.49% at December 31, 2018. The fair value gains for Q4 2019 were primarily driven by higher stabilized net operating
income on certain income properties, updated valuation estimates on specific development properties and capitalization rate
reductions in certain urban market assets.
The 4 basis point decrease in the weighted average capitalization rate of secondary market assets when compared to
December 31, 2018 and 17 basis point decrease when compared to September 30, 2019 resulted primarily from changes in
composition of the secondary market assets, dispositions and the adjustment to capitalization rates of certain properties based on
market conditions.
Income Property Acquisitions During 2019
During the year ended December 31, 2019, the Trust acquired interests in a total of 15 income properties for an aggregate
purchase price of $822.7 million comprised of approximately 1.8 million square feet of income producing NLA. The acquisition
amount or square footage does not include the properties under development portion of the transactions, if any. These
acquisitions were mostly of our partners' non-managing interests in these properties at attractive prices. In connection with these
acquisitions, RioCan assumed debt financing of $194.2 million at a weighted average interest rate of 3.40% and other liabilities of
$13.7 million.
58
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Property name and location
Q4 2019
2939 Bloor Street West, Toronto, ON
Charlottetown Mall Pad, Charlottetown, PEI
Mayfield Common Shopping Centre, Edmonton, AB
Total Q4 2019 Acquisitions
Q3 2019
Jasper Gates, Edmonton, AB (ii)
Yonge Sheppard Centre, Toronto, ON (iii)
2323 Yonge Street, Toronto, ON (iv)
ePlace, Toronto, ON (v)
Erskine, Toronto, ON
Total Q3 2019 Acquisitions
Q2 2019
Stock Yards Village, Toronto, ON
2969 Bloor Street West, Toronto, ON
Mill Woods Town Centre, Edmonton, AB (vi)
Garden City Shopping Centre, Winnipeg, MB (vii)
Shoppers City East, Gloucester, ON
Total Q2 2019 Acquisitions
Q1 2019
Upper James Square, Hamilton, ON
Sage Hill Crossing, Calgary, AB
Total Q1 2019 Acquisitions
Total 2019 Acquisitions
Interest
acquired
by
RioCan
100.0%
50.0%
50.0%
100.0%
50.0%
50.0%
50.0%
50.0%
50.0%
100.0%
59.7%
70.0%
17.2%
Gross Purchase
price incl.
Transaction
Costs (i)
(thousands of
dollars)
Debt and
other
liabilities
assumed
(thousands
of dollars)
NLA
acquired
(thousands
of sq. ft.)
RioCan’s
ending
interest
Capitalization
rate
2.34% $
6,728
$
$
$
5.38%
7.00%
n/a
n/a
n/a
n/a
5.74%
1,210
56,038
63,976
$
8,911
$
279,311
28,322
118,588
3,144
—
—
—
—
—
81,226
—
—
—
100.0%
50.0%
100.0%
6
6
207
219
11
100.0%
314
100.0%
34
50.0%
155
100.0%
7
100.0%
$
438,276
$
81,226
521
6.06% $
92,071
$
3.40%
6.85%
7.00%
5.90%
2,129
66,894
49,044
3,794
—
—
33,410
33,929
—
255
100.0%
3
100.0%
272
254
100.0%
100.0%
7
100.0%
$
213,932
$
67,339
791
100.0%
50.0%
6.21% $
5.83%
$
$
36,010
70,477
106,487
822,671
$
$
$
14,193
45,120
59,313
100.0%
100.0%
114
188
302
207,878
1,833
(i) Purchase price includes transaction costs of $21.5 million in aggregate.
(ii) This property is adjacent to an existing owned site and was acquired for redevelopment purposes. No capitalization rate is thus provided.
(iii) The Trust acquired the remaining 50.0% interest in Yonge Sheppard Centre for net purchase price of $357.7 million before $14.4 million
transaction costs. The net purchase price is net of working capital adjustment of $19.2 million. Gross purchase price including transaction costs
and working capital adjustments was $391.3 million. The acquisition included both an income producing property and property under development
and was allocated as $279.3 million and $112.0 million, respectively. As the purchase price includes both the income producing and properties
under development portions, a capitalization rate was not provided for this transaction.
In connection with the transaction, RioCan issued $100.0 million of equity with a one-year lock-up agreement commencing August 30, 2019 and
assumed KingSett's share of property debt of $132.8 million, consisting of $67.5 million of mortgages relating to the income producing portion of
the property and a $65.3 million construction loan relating to the properties under development portion of the property. Subsequent to the
transaction closing, RioCan used a portion of the net proceeds from its $500.0 million Series AB senior unsecured debenture issuance completed
on August 12, 2019 to repay, without prepayment penalty, the entire $265.6 million of property debt for 100% of Yonge Sheppard Centre, including
both the mortgage and construction loan outstanding at the time of repayment.
(iv) 2323 Yonge Street is a 100% leased office building with market rent upside, street front retail, and significant residential intensification potential in
the block immediately north of the intersection of Yonge Street and Eglinton Avenue, adjacent to ePlace and RioCan's Yonge Eglinton Centre. As
the purchase price reflects the redevelopment potential, no capitalization rate is provided.
(v) RioCan acquired the remaining 50% co-ownership interest in the residential rental component, eCentral, the retail component and 70 commercial
parking stalls of the ePlace mixed-use development. The purchase price before transaction costs of $4.5 million was $114.1 million, determined
based on cost plus $10.0 million for eCentral and a pre-agreed 7.0% capitalization rate on stabilized Net Operating Income (NOI) for the retail
component. Upon closing, RioCan now owns 100% of these respective components. Pursuant to a purchase and sale agreement for eCentral, the
Trust has been entitled to 100% of eCentral's operating results since January 1, 2019. As the residential rental component of this project is in
lease up, the capitalization rate was not provided for this transaction.
(vi) The Trust acquired the remaining 59.7% interest in Mill Woods Town Centre for an aggregate purchase price of $71.7 million including transaction
costs and assumed a mortgage of $33.4 million. The acquisition included both income producing property and property under development related
assets and was allocated as $66.9 million and $4.8 million, respectively.
(vii) The Trust acquired the remaining 70.0% interest in Garden City Shopping Centre for an aggregate purchase price of $50.5 million including
transaction costs and assumed a mortgage of $33.9 million. The acquisition included both income producing property and property under
development related assets and was allocated as $49.0 million and $1.5 million, respectively.
59
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Income Property Dispositions During 2019
During the year ended December 31, 2019, the Trust disposed interests in 19 properties for sales proceeds aggregating $451.2
million. Details are provided in the table below. From October 2017 to December 31, 2019, as part of its acceleration of major
markets focus strategy, the Trust disposed interest in 81 properties for sales proceeds aggregating $1.6 billion.
Property name and location
Q4 2019
Place Newman, LaSalle, QC
Stratford Centre, Stratford, ON
RioCan Centre Grande Prairie, Grande
Prairie, AB
Two property portfolio, Montreal, QC (iii)
Sherwood Forest Mall, London, ON
Niagara Falls Plaza, Niagara Falls, ON
Total Q4 2019 Dispositions
Q3 2019
Innes Road Plaza, Ottawa, ON
Windsor Portfolio, Windsor, ON (iv)
Kildonan Crossing, Winnipeg, MB
Goderich Walmart Centre, Goderich, ON
RioCan Renfrew Centre, Renfrew, ON
Niagara Square, Niagara Falls, ON (v)
Total Q3 2019 Dispositions
Q2 2019
Charlottetown Mall, Charlottetown, PEI
Tanger Outlets Bromont, Montreal, QC
Total Q2 2019 Dispositions
Q1 2019
Shoppers on Topsail, St. John's, NL
Tillicum Centre, Victoria, BC
RioCan Gravenhurst, Gravenhurst, ON
Total Q1 2019 Dispositions
Total 2019 Dispositions
Ownership
interest disposed
of by RioCan
Capitalization
rate (i)
Sales proceeds
(thousands of
dollars)
Debt assumed
by purchaser(s)
(thousands of
dollars) (ii)
GLA disposed of
at RioCan’s interest
(thousands of sq. ft.)
100.0%
100.0%
100.0%
50.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
30.0%
50.0%
50.0%
100.0%
100.0%
100.0%
5.84% $
24,550
$
7.45%
16,717
8.49%
9.23%
8.44%
7.03%
54,745
18,248
33,450
17,000
$
164,710
$
6.57% $
13,900
$
10.47%
6.90%
7.04%
6.68%
10.19%
29,894
43,500
12,000
6,261
7,500
$
113,055
7.04% $
13.47%
$
23,750
4,450
28,200
$
$
$
7.65% $
5,850
$
6.41%
6.89%
109,975
29,400
$
145,225
7.51% $
451,190
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
181
134
280
188
219
80
1,082
48
279
179
94
58
60
718
178
81
259
30
476
150
656
2,715
Capitalization rate is based on in-place NOI calculated on a trailing 12 month basis when the related sale agreement becomes firm.
(i)
(ii) Excludes debt associated with property paid prior to or on closing.
(iii)
(iv) Windsor Portfolio includes two properties: RioCan Centre Windsor, Windsor, ON and Walker Town Centre, Windsor, ON. Capitalization rate
Includes two properties: Centre Carnaval LaSalle, LaSalle, QC and Les Galeries Lachine, Lachine, QC.
excludes NOI related to tenant rent commencing in November 2019.
(v) This disposition included both income producing property and property under development related assets. RioCan provided a vendor take-back
mortgage of $5.2 million related to this transaction.
Refer to the Business Overview section of this MD&A for information including firm, conditional dispositions and LOI's under
contract as of February 19, 2020.
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
60
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 $106.6 million as at December 31, 2019 on behalf of co-owners (December 31, 2018 - $251.2 million).
Selected Financial Information of Joint Operations (at RioCan's interest)
RioCan's
ownership
interest
Number of
investment
properties (i)
Assets (ii) Liabilities (ii)
4 $ 235,273 $
26,009 $
Three months ended
December 31, 2019
Year ended
December 31, 2019
(thousands of dollars)
As at December 31, 2019
Allied
Allied/Diamond (The Well) (iv)
Boardwalk
CMHC Pension Fund
CPPIB
First Gulf
Killam
KingSett
Metropia/CD (v)
Sun Life
Tanger
Trinity (vi)
Woodbourne
Other
50%
50%
50%
50%
40%
50%
50%
50%
50%
40%
50%
67% - 75%
50%
1
2
1
1
1
2
1
1
1
3
2
2
432,607
53,007
54,828
107,171
84,228
106,788
135,514
102,039
27,621
162,384
67,279
62,782
28,980
17,583
28,328
12,001
44,186
26,114
79,769
18,240
14,088
11,436
36,196
7,146
98,104
NOI (iii)
1,978 $
—
—
764
794
1,127
855
1,158
103
1,306
2,205
855
—
5,180
NOI (iii)
7,249
—
—
3,082
6,309
4,349
1,816
9,353
424
5,636
9,350
3,657
32
18,504
69,761
30% - 75%
18
325,253
40 $1,956,774 $
448,180 $
16,325 $
(i)
Includes both income properties and properties under development and is based on the number of proportionately owned properties as of
December 31, 2019.
(ii) Assets and liabilities are stated at RioCan's interest.
(iii) Represents RioCan's interest of NOI related to all properties for which we owned a proportionate interest during the period.
(iv) The Trust has a 50% interest in the commercial component (RioCan/Allied) and a 40% interest in the residential component (RioCan/Allied/
Diamond) of The Well project. The Well Residential Building 6 which the Trust owns 50/50 with another partner, Woodbourne, is included in the
Woodbourne category in the table above.
(v) RioCan also has a 15.6% interest in e2 Condos, a development adjacent to ePlace (northeast corner of Yonge Street and Eglinton Avenue)
together with Metropia and four others partners, which is carried at fair value and included in Other Assets and is therefore excluded from the table
above.
(vi) Subsequent to December 31, 2019, the Trust acquired the remaining one-third interest in RioCan Marketplace in Toronto, Ontario. Upon closing of
this transaction, there is one property remaining with Trinity.
Selected Financial Information of Joint Operations and Joint Ventures
Total Assets
(thousands of dollars)
As at December 31, 2019
Total assets of proportionately
consolidated joint operations
Equity accounted joint ventures (iv):
Income
properties
PUD (i)
Residential
inventory (ii)
Other (iii)
Total assets
Total assets as
at December
31, 2018
$
1,055,824 $
689,433 $
76,654 $
134,863 $
1,956,774 $
2,559,432
HBC (RioCan-HBC JV)
$
240,570 $
— $
— $
19,685 $
260,255 $
256,113
Marketvest Corporation/Dale-Vest
Corporation (Dawson-Yonge LP)
Total assets of equity accounted joint
ventures
9,578
250,148
—
—
—
—
201
9,779
9,540
19,886
270,034
265,653
Total joint arrangements
$
1,305,972 $
689,433 $
76,654 $
154,749 $
2,226,808 $
2,825,085
(i)
The value of properties under development includes active development projects as well as the value of development lands where development is
currently non-active.
(ii) Residential inventory is mainly comprised of the Yorkville development in a prestigious area of Toronto, Ontario with Metropia and CD.
(iii) Primarily includes finance lease receivable, cash and cash equivalents, rents receivable and other operating expenditures recoverable from
tenants.
(iv) Includes the Trust's equity accounted joint arrangements only and excludes our equity accounted investment in the WhiteCastle Funds.
61
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Total NOI
(thousands of dollars)
Total NOI of proportionately consolidated joint operations
Equity accounted joint ventures (i):
HBC (RioCan-HBC JV)
Marketvest Corporation/Dale-Vest Corporation (Dawson-
Yonge LP)
Total NOI of equity accounted joint ventures
Total joint arrangements
$
$
$
Three months ended
December 31
Year ended
December 31
2019
2018
2019
16,325 $
19,498 $
69,761 $
2018
75,694
3,462 $
3,373 $
13,843 $
13,177
124
3,586
122
3,495
514
14,357
19,911 $
22,993 $
84,118 $
503
13,680
89,374
(i)
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, 2019, the Trust's ownership interest in RioCan-HBC JV was 12.6% (December 31, 2018 - 12.5%). 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 December 31,
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 with maturities beyond twelve months.
(i)
(ii) Represents RioCan's proportionate share of net assets and other acquisition-related costs.
Condensed Statements of Income
$
$
$
2019
4,679 $
2,037,539
10,006
812,093
1,220,119 $
156,554 $
2018
4,621
2,028,739
362,726
418,151
1,252,483
158,629
(thousands of dollars)
Rental revenue
Operating expenses
Fair value gains (losses)
Interest expense
Net income (loss)
RioCan's share of net income (loss) in RioCan-HBC JV
RioCan's share of FFO in RioCan-HBC JV
Three months ended
December 31
Year ended
December 31
2019
2018
2019
2018
35,985 $
35,111 $
145,255 $
142,496
4,864
(45,739)
9,845
(24,463) $
(3,087) $
5,491
25,086
8,478
46,228 $
5,772 $
20,767
(67,772)
39,042
17,674 $
2,208 $
24,333
5,249
31,101
92,311
11,357
2,677 $
2,640 $
10,733 $
10,642
$
$
$
$
The changes in RioCan's share of net income in this JV over the comparable periods were primarily due to fair value changes
and increased interest expense.
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. These include, but are not limited to, lease expiry 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, 2019, the estimated weighted average age of our income property portfolio is
approximately 25 years (December 31, 2018 - approximately 24 years). Maintenance capital expenditures consist primarily of
tenant improvements, third-party leasing commissions 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, particularly given our major market strategy announcement in October
2017.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
As a result, management believes that for the purpose of determining ACFO 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, normalized capital expenditures are
more relevant than using actual capital expenditures. Refer to the Non-GAAP Measures section of this MD&A for details on how
management estimates its normalized capital expenditures used in the determination of ACFO.
Tenant improvements and external leasing commissions
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 ACFO.
Summary of Capital Expenditures
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:
(thousands of dollars)
Maintenance capital expenditures:
Tenant improvements and external leasing
commissions
Recoverable from tenants
Non-recoverable
Revenue enhancing capital expenditures
Three months ended
December 31
Year ended
December 31
Normalized capital
expenditures (i)
2019
2018
2019
2018
2019
2020
$
$
$
9,956 $
8,060 $
33,005 $
30,469 $
16,000 $
4,822
2,700
6,762
2,312
12,263
5,847
10,195
4,934
18,000
6,000
16,000
18,000
6,000
17,478 $
17,134 $
51,115 $
45,598 $
40,000 $
40,000
6,861
5,655
22,205
24,339 $
22,789 $
73,320 $
13,975
59,573
(i) Refer to the Non-GAAP Measures section in this MD&A for details on how management estimates its normalized capital expenditures.
For the three months ended December 31, 2019, our total capital expenditures on income properties were $24.3 million
compared to $22.8 million for the same period in 2018. The $1.6 million increase was primarily due to $1.9 million in higher tenant
improvements and $1.2 million in higher revenue enhancing capital expenditures, partially offset by $1.6 million in lower
recoverable and non-recoverable capital expenditures. Quarterly variations were primarily due to timing of expenditures.
For the year ended December 31, 2019, our total capital expenditures on income properties were $73.3 million compared to
$59.6 million for the same period in 2018. The $13.7 million increase was primarily due to $8.2 million in higher revenue
enhancing expenditures, $3.0 million in higher non-recoverable capital expenditures and $2.5 million in higher tenant
improvements.
RioCan's total maintenance capital expenditures for the year ended December 31, 2019 were $51.1 million, $11.1 million higher
than our normalized capital expenditures of $40.0 million for the year. This was primarily related to $3.5 million of expenditures on
certain properties prior to dispositions, $4.8 million for completion of a nationwide LED lighting retrofit program which is expected
to pay back in less than two years, $4.6 million for expenditures related to reconfigurations of large spaces caused by Sears
related backfill activities and the timing of expenditures. For 2020, we maintain our $40.0 million normalized maintenance capital
expenditure guidance given that some of the expenditures in 2019 were specific to 2019 only. Refer to the Non-GAAP Measures
section of this MD&A for details on how estimates of normalized capital expenditures are determined for 2019 and 2020.
63
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Properties Under Development
RioCan’s development program is an important component of its long-term growth strategy and is focused on well-located
properties in the six major markets in Canada. Often, these are properties that RioCan already owns and are located directly on,
or in proximity to, major transit lines such as the existing Toronto Transit Commission's subway lines or the Eglinton LRT line,
which is currently under construction. Development opportunities also arise from the fact that retail centres are generally built with
lot coverages of approximately 25% of the underlying lands and municipalities are supporting additional density particularly near
major infrastructure investments. Considering that RioCan already owns the land for its portfolio of mixed-use redevelopment
opportunities, these projects are expected to generate strong incremental returns and increase the Trust's net asset value.
The overall development environment in Canada is undergoing changes and development risks are becoming more prevalent.
Refer to the Outlook and Risks and Uncertainties sections of this MD&A for discussions about the development environment and
associated risks. Development risk management is essential to the Trust's successful implementation of its strategy. The Trust
strategically and prudently manages its development risks as follows:
• RioCan undertakes developments selectively based on opportunities in its portfolio and within the major markets it
focuses on.
• Development projects must be expected to generate appropriate risk-adjusted returns. The Trust will not commence
construction until it has third-party market studies of the rental markets in the development areas and, where a large
portion of the development has commercial space, the requisite leasing commitments pertaining to the commercial
portion of the mixed-use developments are required.
• RioCan’s well established and robust internal control framework ensures proper oversight over development approvals
and construction management.
• RioCan uses a staggered approach in its development program to avoid unnecessary concentration of development
projects in a single period of time to allocate risks and manage the Trust's capital. The staggered development approach
also enables proper allocation of personnel resources and ensures that the Trust’s experienced development team is at
the appropriate scale, resulting in no overhead pressure for RioCan to take on development activities.
• RioCan utilizes strategic co-ownerships to reduce capital requirements and mitigate risks.
• RioCan often already owns the assets under its development program which are income producing. This allows the
Trust to manage the timing of development starts, and if required, these assets can continue to generate income until
the appropriate time to commence development is reached.
• RioCan's development team utilizes a variety of cost mitigation strategies, such as working with experienced
construction managers early in the project design stage to ensure a project's constructibility and efficiency is maximized,
ensuring construction drawings are finalized to the furthest extent possible prior to commencing construction and
structuring construction management contracts such that the contracts are converted to fixed price contracts as soon as
all of the scope is defined thus limiting cost escalations.
•
The Trust's mixed-use residential development allows the Trust to access CMHC insured mortgages, which diversifies
the Trust's funding sources and provides lower cost of debt.
• RioCan's developments are across numerous geographic markets, thus permitting diversification of market dynamics.
The Trust categorizes the projects within its development program as follows:
Category
Description
Greenfield Development
Projects on vacant land typically located in suburban markets that are being constructed or developed
from the ground-up for future use as income producing properties (IPP or IPPs).
Urban Intensification
Projects at existing IPPs located in urban markets, which typically involve increasing the density or
square footage of the properties and are often mixed-use projects.
Expansion and
Redevelopment
Existing IPPs, or components thereof, that are being repositioned through redevelopment, which
typically increases NOI by adding to the rentable area of the properties.
In addition to the above development categories, the Trust also owns vacant lands and other properties that could be used for
future developments. Such vacant land and other properties are reported as “Development Lands and Other” under properties
under development (PUD) in the Estimated Project Costs section of this MD&A.
Management's current estimates and assumptions, as discussed throughout this Properties Under Development section of this
MD&A, are subject to change. Such changes may be material to the Trust. RioCan’s estimated NLA, estimated future
development costs and estimated proceeds from disposition are based on assumptions which are updated regularly based on
revised site plans, the cost tendering process and continuing tenant negotiations.
64
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
These assumptions, among other items, include the following: anchor tenants, estimated NLA and tenant mix among rental, air
rights sale, and condominiums/townhouses, 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 zoning approvals.
Although the estimated development expenditures are based upon what management believes are reasonable assumptions,
there can be no assurance that actual results will be consistent with these projections and development expenditures may,
therefore, materially differ from management's current estimates. In addition, there is no assurance that all of these developments
will be undertaken, and if they are, there is no assurance as to the mix of commercial and residential developments, the costs,
the phasing of the projects, or the development yields to be achieved.
Declaration of Trust and Financial Covenants
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 which funds the 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, 2019, RioCan's investments in greenfield development and residential inventory as a percentage of
consolidated unitholders' equity is 4.4% and, therefore, the Trust is in compliance with this restriction.
In addition, RioCan's revolving unsecured operating line of credit and non-revolving unsecured credit facilities agreements require
the Trust to maintain certain financial covenants, one of which includes a more restrictive covenant as it pertains to the Trust's
development activities. As of December 31, 2019, the Trust is in compliance with all financial covenants pursuant to the operating
line of credit and credit facilities agreements including the one relating to the Trust's development activities. Refer to Note 27 of
the 2019 Annual Consolidated Financial Statements for further details.
Development Pipeline
RioCan's development pipeline as at December 31, 2019 is estimated as follows:
(thousands of sq. ft.)
A. Active projects with detailed cost estimates
Greenfield Development (v)
Urban Intensification (vi)
Expansion & Redevelopment (vii)
Subtotal
B. Active projects with cost estimates in progress(viii)
Total Active Projects
C. Future estimated density(ix)
Total development pipeline
Number
of
Projects
(ii)
2
13
15
12
27
22
49
12
Total
440
3,818
4,258
161
440
3,575
4,015
161
4,419
4,176
16,716
15,532
21,135
19,708
7,913
7,733
61
29,048
27,441
Estimated Density (NLA) at RioCan's interest (i)
PUD
(iii)
Residential
Inventory
(iv)
Components of PUD
Commercial
Residential
Rental
Air Rights
Sale (x)
—
243
243
—
243
1,184
1,427
180
1,607
440
1,191
1,631
161
1,792
4,120
5,912
1,982
7,894
—
1,354
1,354
—
1,354
11,412
12,766
5,751
18,517
—
1,030
1,030
—
1,030
—
1,030
—
1,030
(i) Estimated density across the various components of the development pipeline is expressed as NLA, which represents approximately 90% of
Gross Floor Area (GFA) for residential rental and inventory developments. This conversion factor is an estimate, which is based on a number of
assumptions including but not limited to, site plan approval, final building design and floor plans as well as the mix of commercial and residential
space in a multi-use development project.
(ii) Given the range of development activities and the multi-phase nature of the development projects included in the total development pipeline, a
single investment property could have more than one project. Therefore, the number of projects shall not be viewed as equivalent to number of
properties under development.
(iii) PUD NLA includes NLA for air right sales in addition to commercial and residential rental NLA, but excludes NLA for condominiums and townhouse
projects which are reported separately as Residential Inventory.
(iv) Represents the density associated with the development of our residential condominiums and townhouse projects that are to be sold in the normal
course of business upon project completion, not to be held for long-term capital appreciation or rental income. As such, the costs associated with
this NLA are treated as residential inventory under IFRS and are thus not reported as PUD, even though this NLA forms part of RioCan’s
development program and is included in the above estimated development pipeline. Condominium and townhouse developments are discussed
under the Residential Inventory section of this MD&A.
(v) Greenfield Development projects include approximately 0.2 million square feet that are currently IPP.
(vi) Urban Intensification projects include approximately 0.3 million square feet that are currently IPP.
(vii) Expansion and Redevelopment projects include approximately 0.1 million square feet of vacant NLA which was primarily former Sears space prior
to its redevelopment.
(viii) Active projects with cost estimates in progress include approximately 2.5 million square feet that are currently IPP.
(ix) Future estimated density includes approximately 1.2 million square feet that are currently IPP.
(x) Under IFRS, costs associated with air rights sales, which include, but are not limited to, the costs of underlying structure and infrastructure
required for the closing of the air rights sales, are part of the costs of the properties under development. As a result, density related to air rights
sales is included as part of the PUD square footage.
65
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Approximately 4.3 million square feet of NLA out of the total estimated 29.0 million square feet development pipeline as of
December 31, 2019 is existing NLA which is currently income producing, resulting in net incremental density estimated at 24.7
million square feet as of December 31, 2019. When compared to the Trust's development pipeline as of December 31, 2018, the
change in the development pipeline square footage has increased by 2.8 million square feet despite development completions
during the comparable periods and sale of one large development project in a secondary market in British Columbia. The
increase resulted from addition of four new projects within its existing portfolio, as well as acquisitions of the remaining non-
managing interests in Mill Woods Town Centre, ePlace, and Yonge Sheppard Centre.
A key milestone of the development process is obtaining zoning approval. The following table details the Trust's development
pipeline (at RioCan's interest) by zoning status. As of the date of this MD&A, of total estimated NLA in the Trust's current
development pipeline, approximately 50.3% have zoning approvals and an additional 22.5% have zoning applications submitted.
Estimated Density (NLA) at RioCan's interest (i)
(thousands of sq. ft., unless
otherwise noted)
Number of
Projects
% of square
footage
zoned
Total
PUD (ii)
Residential
Inventory
(iii)
Components of PUD
Commercial
Residential
Rental
Air Rights
Sale
Zoning approved
Zoning applications submitted
Future estimated density
Total development pipeline
43
6
12
61
50.3% 14,594
13,167
22.5%
27.2%
6,541
7,913
6,541
7,733
100.0% 29,048
27,441
1,427
—
180
1,607
4,619
1,293
1,982
7,894
7,518
5,248
5,751
1,030
—
—
18,517
1,030
(i) Estimated density across the various components of the development pipeline is expressed as NLA, which represents approximately 90% of GFA
for residential rental and inventory developments. This conversion factor is an estimate, which is based on a number of assumptions including but
not limited to, site plan approval, final building design and floor plans as well as the mix of commercial and residential space in a multi-use
development project.
(ii) PUD NLA includes NLA for air right sales in addition to commercial and residential rental NLA, but excludes NLA for condominiums and townhouse
projects which are reported separately as Residential Inventory.
(iii) Represents the density associated with the development of our residential condominiums and townhouse projects that are to be sold in the normal
course of business upon project completion, not to be held for long-term capital appreciation or rental income. As such, the costs associated with
this NLA are treated as residential inventory under IFRS and are thus not reported as PUD, even though this NLA forms part of RioCan’s
development program and is included in the above estimated development pipeline. Condominium and townhouse developments are discussed
under the Residential Inventory section of this MD&A.
Zoned NLA increased by 3.4 million square feet when compared to December 31, 2018 primarily due to the three aforementioned
acquisitions and new zoning approvals obtained in 2019 on Jasper Gates in Edmonton, Alberta, Strawberry Hill in Surrey, British
Columbia, three GTA projects including Yorkville, Queensway and Dufferin Plaza and the addition of a portion of RioCan Durham
Centre in Ajax, Ontario to the development pipeline. These were partially offset by development completions during the year.
Zoned NLA increased by 1.2 million square feet when compared to Q3 2019 primarily due to the addition of Jasper Gates,
Strawberry Hill and a portion of RioCan Durham Centre.
Almost all of the mixed-use residential projects are located in the six major markets and are typically located in the vicinity of
existing or planned substantive transit infrastructure with 67% of the development pipeline being located in the GTA.
(thousands of sq. ft., unless otherwise noted)
Number of projects
NLA
% of total NLA
Estimated Density (NLA) at RioCan's Interest
Six Major Markets
Greater Toronto Area
Ottawa
Calgary
Montreal (i)
Edmonton
Vancouver
Total Six Major Markets
Other (i)
Total development pipeline
(i) Relates to other smaller redevelopment projects.
38
10
5
1
2
2
58
3
61
19,321
2,678
3,039
2
3,038
903
28,981
67
29,048
66.5%
9.2%
10.5%
—%
10.5%
3.1%
99.8%
0.2%
100.0%
66
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Annual Development Spending
Annual development expenditures, net of costs recovery and proceeds from air rights sales, are estimated in the $400 million to
$500 million range over the next two years. This annual development expenditure estimate includes costs applicable to both
active PUD projects with detailed cost estimates and residential inventory projects. This represents management’s estimates as
of December 31, 2019 and is subject to change due to potential changes in various underlying factors as noted earlier in this
MD&A.
Overall, the Trust targets to keep the total IFRS value of PUD and residential inventory on the consolidated balance sheet as a
percentage of consolidated gross book value of assets at no more than 10% (except for short-term fluctuations as large projects
are completed), despite the maximum of 15% permitted under the Trust's revolving unsecured operating line of credit and non-
revolving unsecured credit facilities agreements. As of December 31, 2019, this metric was 9.0%. Refer to Note 27 of the 2019
Annual Consolidated Financial Statements for additional details.
The Trust has been funding and will continue to fund its development pipeline primarily through proceeds from asset pruning
(strategic dispositions), sales proceeds from residential inventory developments or air rights sales, the sale of remaining
marketable securities, and strategic development partnerships, as well as excess operating cash flows after maintenance capital
expenditures and distributions have been paid.
Estimated PUD Project Costs
RioCan's share of estimated PUD project costs as of December 31, 2019 are summarized in the following table, which includes
estimated costs for the 27 active PUD projects with detailed cost estimates (Category A as shown in the Development Pipeline
table earlier), plus the current carrying costs of the development lands and other, net of projected proceeds from dispositions.
Costs relating to condominiums and townhouse developments are excluded in the following table as they are included in
Residential Inventory in the consolidated financial statements and in this MD&A.
(thousands of dollars or
thousands of sq. ft.)
Greenfield Development
Urban Intensification
Expansion & Redevelopment (iv)
Active projects with detailed cost
estimates
Development Lands and Other (ii)
Projected proceeds from dispositions (iii)
Total
Fair Value to Date
Number of
Projects
Total PUD
NLA (i)
Total
Estimated
Costs
At RioCan's Interest
Costs Incurred to Date
Completed
(IPP)
PUD
Total
Estimated
PUD Costs
to Complete
2
13
15
12
27
440 $
188,675 $
53,328 $
65,774 $
119,102 $
69,573
3,575
4,015
161
2,101,932
2,290,607
96,658
418,937
472,265
752,346
1,171,283
930,649
818,120
1,290,385
1,000,222
—
66,326
66,326
30,332
4,176 $ 2,387,265 $
472,265 $
884,446 $ 1,356,711 $ 1,030,554
—
—
265,367
(127,253)
—
—
265,367
265,367
—
—
—
(127,253)
$ 2,525,379 $
472,265 $ 1,149,813 $ 1,622,078 $
903,301
$
627,062 $ 1,260,382 $ 1,887,444
Total PUD NLA includes NLA from commercial, residential rental and air rights sales and excludes NLA from residential inventory.
(i)
(ii) Development lands and other includes excess land and other properties that could be used for future developments.
(iii) Represents conditional land and air right sales that the Trust intends to sell instead of holding for long-term income, which management considers
to be reductions to its overall development costs.
(iv) Expansion and Redevelopment projects tend to be shorter in duration and smaller in size compared to Greenfield and Urban Intensification
projects, and generally pertain to the redevelopment of individual unit(s) at a property. Once the redevelopment of the individual unit(s) has/have
been completed, the NLA and associated costs are transferred to IPP and no longer included in the development pipeline or development costs,
resulting in nil completed IPP in this table.
Total estimated project costs include the current carrying costs of development lands and other, net of estimated proceeds from
land and air rights dispositions. Total estimated project costs include land costs measured at fair value of the land or existing IPP
upon transfer to PUD, soft and hard construction costs, external leasing costs, tenant inducements, construction and
development management fees, and capitalized interest and other carrying costs, as well as capitalized development staff
compensation and other expenses.
Total estimated costs for active projects with detailed cost estimates as of December 31, 2019 increased by $499.9 million when
compared to December 31, 2018. This increase was primarily due to the addition of new active projects net of project
completions. During 2019, four projects were added to active projects with detailed cost estimates including Gloucester Phase
Two, Elmvale Acres and Westgate, all located in Ottawa, Ontario and Windfield Farms Commercial Phase One in Oshawa,
Ontario, in addition to acquisitions of the remaining 50% co-ownership interests in eCentral and Yonge Sheppard Centre.
67
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
The above total estimated development costs as at December 31, 2019 are further broken down by committed and non-
committed spending as follows:
At RioCan's Interest
Costs Incurred to Date
(thousands of dollars)
Committed (i)
Non-committed
Total
Total Estimated
Costs
Completed
(IPP)
PUD
Total
Estimated PUD
Costs to Complete
$
$
2,260,012 $
472,265 $
884,446 $
1,356,711 $
903,301
265,367
—
265,367
265,367
—
2,525,379 $
472,265 $
1,149,813 $
1,622,078 $
903,301
(i) A project is considered to be committed when all major planning issues have been resolved, anchor tenant(s) for the commercial components has/
have been secured, and/or construction is about to commence or has commenced. Although a non-committed project may have a completed
portion, the Trust is not committed to completing the remaining phase(s) of the project if it so decides in due course. Development Lands and
Other are included in non-committed projects.
Mixed-Use Residential Development
RioCan is committed to its residential development program. There is currently an acute rental housing shortage due to increased
demand from immigration and mortgage stress tests which to some extent limit home ownership. In addition, new supply of
rental housing has been slow to the market as the regulatory approval process is onerous and development time is lengthy.
RioCan targets to develop approximately 10,000 residential rental units over the next decade. RioCan has currently identified a
number of properties, as summarized in the following table, some of which are actively being developed and others that are
considered to be strong possible intensification opportunities. This summary does not include Greenfield and Urban
Intensification projects that have commercial components only.
68
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Locations
RioCan Ownership %
(Partner)
Total
NLA at
100%
Total PUD (ii)
Residential
Inventory
(iii) Commercial
Residential
Rental
Air Rights
Sale
Estimated Density (NLA) at RioCan's interest (i)
PUD Components
(thousands of sq. ft.)
A Active mixed-use residential projects
with detailed cost estimates (vi)
Urban Intensification
Brentwood Village (Brio) (iv)
Calgary, AB
50% (Boardwalk)
Dupont Street (Litho) (iv)
Toronto, ON
50% (Woodbourne)
Fifth and Third East Village (iv)
Calgary, AB
Gloucester (Frontier) Phase One (iv)
Gloucester, ON
King Portland Centre (iv)
Toronto, ON
100%
50% (Killam)
50% (Allied)
144
185
754
185
433
72
93
754
93
217
72
93
754
93
170
—
—
—
—
47
5
16
157
3
170
67
77
—
90
—
Yonge Eglinton Northeast Corner
(ePlace) (iv) (v)
Toronto, ON
The Well (iv)
Yonge Sheppard Centre Residential
(Pivot) (iv) (v)
College & Manning (Strada) (iv)
Toronto, ON
Toronto, ON
Toronto, ON
Gloucester - Phase Two (Latitude) (iv)
Gloucester, ON
Elmvale Acres - Phase One (Luma) (iv)
(x)
Ottawa, ON
Westgate - Phase One (Rhythm) (iv)
Ottawa, ON
50% residential
inventory (Metropia /
Bazis),
100% commercial &
residential rental
50% commercial
(Allied),
40% residential (Allied/
Diamond)
100%
50% (Allied)
50% (Killam)
100%
100%
The Well - (FourFifty The Well) (iv)
Toronto, ON
50% (Woodbourne)
Total active mixed-use residential projects with detailed
cost estimates - 13 projects (vi)
B Active mixed-use residential projects
with cost estimates in progress (vii)
Approved Zoning
Sunnybrook Plaza (iv)
Clarkson Village (iv)
Toronto, ON
50% (Concert)
Mississauga, ON
100%
Gloucester Future Phases (iv)
Gloucester, ON
50% (Killam)
Brentwood Village - Phase Two (iv)
Calgary, AB
Millwoods Town Centre (iv)
Edmonton, AB
Elmvale Acres Future Phases (iv)
Westgate Future Phases (iv)
Southland Crossing (iv)
Ottawa, ON
Ottawa, ON
Calgary, AB
Windfield Farms (iv) (ix)
Oshawa, ON
100%
100%
100%
100%
100%
100% of commercial,
50% of residential
(Tribute)
Markington Square (iv)
RioCan Durham Centre (iv)
Queensway (iv)
Dufferin Plaza (iv)
Yorkville (11 YV) (iv)
Toronto, ON
Ajax, ON
100%
100%
Toronto, ON
50% (Talisker)
Toronto, ON
Toronto, ON
100%
50% (CD Capital /
Metropia)
Strawberry Hill Shopping Centre (iv)
Surrey, BC
Jasper Gates Shopping Centre (iv)
Edmonton, AB
Zoning applications submitted
RioCan Grand Park
Mississauga, ON
RioCan Scarborough Centre
RioCan Leaside Centre
RioCan Hall
Sandalwood Square
Impact Plaza
Toronto, ON
Toronto, ON
Toronto, ON
Mississauga, ON
50% (Boardwalk)
Surrey, BC
100%
100%
100%
100%
100%
100%
100%
705
509
313
196
22
291
2,601
1,192
1,192
258
108
160
137
165
393
258
258
54
80
137
165
196
54
80
137
165
196
—
—
—
—
—
—
—
759
—
433
—
30
—
11
20
—
258
24
80
126
145
196
—
—
—
—
—
—
6,228
3,820
3,577
243
1,193
1,354
1,030
316
418
482
955
158
418
241
955
158
418
241
955
2,010
2,010
2,010
423
538
968
423
538
968
1,781
1,226
977
161
559
449
977
161
280
449
508
254
90
90
1,027
1,027
11,662 10,175
262
262
2,969
2,969
1,515
1,515
799
366
813
799
183
813
423
538
968
670
977
161
280
32
43
90
1,027
8,991
262
2,969
1,515
799
183
813
6,724
6,541
6,541
—
—
—
—
—
—
—
—
556
—
—
—
417
211
—
—
1,184
—
—
—
—
—
—
—
22
35
10
435
750
113
67
187
670
163
8
70
32
22
—
243
2,827
18
624
199
331
6
115
136
383
231
520
1,260
310
471
781
—
814
153
210
—
21
90
784
6,164
244
2,345
1,316
468
177
698
1,293
5,248
Total active mixed-use residential projects with cost
estimates in progress - 22 projects (vii)
18,386 16,716
15,532
1,184
4,120
11,412
Total active mixed-use residential projects - 35 projects
24,614 20,536
19,109
1,427
5,313
12,766
1,030
C Future estimated density - 12 projects (viii)
8,472
7,913
7,733
180
1,982
5,751
—
Total mixed-use residential developments - 47 projects
33,086 28,449
26,842
1,607
7,295
18,517
1,030
Mixed-use residential developments as a percentage of
total development pipeline
97.9% 97.8%
100.0%
92.4%
100.0%
100.0%
69
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
—
—
597
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
MANAGEMENT’S DISCUSSION AND ANALYSIS
(i) Estimated density across the various components of the development pipeline is expressed as NLA, which represents approximately 90% of GFA
for residential rental and inventory developments. This conversion factor is an estimate, which is based on a number of assumptions including but
not limited to, site plan approval, final building design and floor plans as well as the mix of commercial and residential space in a multi-use
development project.
(ii) PUD NLA includes NLA for air right sales in addition to commercial and residential rental NLA, but excludes NLA for condominiums and townhouse
projects which are reported separately as Residential Inventory.
(iii) Represents the density associated with the development of residential condominiums and townhouse projects.
(iv) As at the date of this MD&A, RioCan has obtained final zoning approvals for the development of these properties. The above table includes only
mixed-use residential development projects and thus does not include Greenfield Development and Expansion and Redevelopment projects that
do not have residential components. As a result, the Trust has more projects with zoning approvals than what is included in this table.
(v) During the three months ended September 30, 2019, RioCan acquired the remaining non-managing 50% interest in Pivot, the remaining 50% co-
ownership interest in eCentral, and the retail component and 70 commercial parking stalls of the ePlace mixed-use development. 100% of the
project costs in this table include the purchase price of the remaining 50% co-ownership interest. For further details of these transactions, refer to
the Income Property Acquisitions During 2019 section of this MD&A..
(vi) Active mixed-use residential projects with detailed cost estimates include approximately 0.3 million square feet that are currently IPP.
(vii) Active mixed-use projects with cost estimates in progress include approximately 2.5 million square feet that are currently IPP.
(viii) Future estimated density includes approximately 1.2 million square feet that is currently IPP.
(ix) Excludes Phase One of Windfield Farms Commercial which includes 0.1 million square feet of commercial space. Refer to the Greenfield
Development section of this MD&A for further details.
(x) During Q3 2019, RioCan entered into a firm agreement to sell to Killam Apartment Real Estate Investment Trust a 50% interest in an
approximately 1.45 acre discrete portion of Elmvale Acres which is expected to close mid-2020 once severance of the land is obtained.
Mixed-use residential projects account for approximately 97.9% or 28.4 million square feet of NLA of the Trust’s total estimated
development pipeline, of which 14.0 million square feet currently have zoning approvals, 6.5 million square feet currently have zoning
applications submitted and 7.9 million square feet represents sites with future density. In comparison to Q3 2019 mixed-use residential
projects increased 1.7 million square feet primarily due to the addition of four GTA projects during the period, namely RioCan Durham
Centre, RioCan Centre Newmarket, Victoria Crossing and White Shield Plaza. When compared to December 31, 2018, mixed-use
residential projects increased by 3.0 million square feet primarily due to the addition of the above-noted projects, as well as the
acquisitions of the remaining non-managing interests in eCentral and Yonge Sheppard Centre in Toronto, and Mill Woods Town
Centre in Edmonton.
Residential developments including rental, air rights sales, and residential inventory account for 72.8% or 21.2 million square feet
of the Trust's current development pipeline.
Properties under Development Continuity
The change in the IFRS consolidated net carrying amount is as follows:
(thousands of dollars)
Balance, beginning of period
Acquisitions
Dispositions
Development expenditures
Transfers PUD to IPP - cost
Transfers PUD to IPP - fair value (gains) losses
Transfers IPP to PUD
Transfers to residential inventory
Fair value gains (losses), net
Earn-out consideration
Balance, end of period
Development Property Acquisitions
Three months ended
December 31
Year ended
December 31
2019
2018
2019
2018
$
1,229,477
$
1,177,978
$
1,036,495
$
1,123,184
—
—
139,313
(92,302)
(2,574)
32,715
(32,301)
(14,627)
681
—
(11,600)
131,006
(263,014)
(17,037)
14,900
—
183
4,079
118,541
(38,141)
438,820
(347,575)
(10,830)
37,615
(32,301)
57,077
681
14,846
(19,448)
410,791
(550,925)
(4,567)
70,935
(5,014)
(7,386)
4,079
$
1,260,382
$
1,036,495
$
1,260,382
$
1,036,495
As previously discussed in the Income Property Acquisitions During 2019 section of this MD&A, on August 30, 2019, RioCan
acquired the remaining 50.0% ownership in Yonge Sheppard Centre in Toronto, Ontario, which included property under
development valued at $112.0 million and assumed debt of $65.3 million and other liabilities of $5.5 million related to properties
under development.
On June 6, 2019, the Trust acquired the remaining 70.0% ownership in Garden City Shopping Centre in Winnipeg, Manitoba, for
an aggregate purchase price of $50.5 million including transaction costs, $49.0 million of which was allocated to income
producing properties and $1.5 million to properties under development.
On May 23, 2019 the Trust acquired the remaining 59.7% interest in Mill Woods Town Centre in Edmonton, Alberta, for an
aggregate purchase price of $71.7 million, including transaction costs, $66.9 million of which was allocated to income producing
properties and $4.8 million to properties under development.
On March 29, 2019, RioCan acquired a 30.0% interest in excess lands in Niagara Falls, Ontario, for a purchase price, including
transaction costs of $0.3 million.
70
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Development Property Dispositions
On September 26, 2019, the Trust sold a 30% interest in excess lands in Niagara Falls, Ontario for sales proceeds of $0.3 million.
On July 24, 2019, the Trust sold a 50% interest in one parcel of development land located in Mississauga, Ontario for sales
proceeds of $14.9 million.
On February 19, 2019, the Trust sold one parcel of development land located in Ottawa, Ontario for sales proceeds of $23.0
million.
Completed Developments in 2019
During the year ended December 31, 2019, RioCan transferred $347.6 million in costs to income producing properties pertaining
to 530,000 square feet of completed development projects. A summary of RioCan’s NLA completed during the period is as
follows:
(thousands of sq. ft.)
Property location
Greenfield Development
East Hills
Total Greenfield Development
Urban Intensification
Bathurst College Centre
Yonge Eglinton Northeast Corner
(eCentral) (i)
Gloucester (Frontier) Phase One
Fifth and Third East Village
Total Urban Intensification
Expansion and Redevelopment
Garden City Shopping Centre (i)
RioCan West Ridge Place
Sage Hill Crossing
RioCan Thickson Ridge
Yonge Sheppard Centre Commercial
(ii)
RioCan St. Laurent
Oakville Place
Stock Yards Village (i)
RioCan Centre Windsor
Tanger Ottawa
Total Expansion and Redevelopment
Total Development Completion
NLA at RioCan's Interest
2019
RioCan’s %
ownership
Total
NLA
Q4
Q3
Q2
Q1
Tenants
40 %
100 %
100 %
50 %
100 %
100 %
100 %
100 %
100 %
11
11
13
76
90
91
270
18
18
4
6
100 %
19
100 %
105
50 %
100 %
100 %
50 %
51
4
23
1
249
530
9
9
—
—
—
91
91
—
—
—
—
18
—
—
—
—
—
18
118
2
2
—
—
—
—
—
5
—
—
—
—
—
44
—
—
—
49
51
—
—
—
38
90
—
— McDonald's, BSW Liquor, Willowbrae
Daycare
—
13 Winners
38 eCentral Residential Rental Tower
(Floors 14-36), The Burger's Priest
—
Gloucester Phase One - 228 residential
units
— Loblaws, TD Bank, Bank of Nova Scotia
128
51
—
—
—
—
1
13 Seafood City Supermarket, Bulk Barn
18 HomeSense
4 Mucho Burrito, Jugo Juice, Vietnamese
Restaurant
6 Urban Barn
— Fuzz Wax Bar, Reitmans, Dollarama
105
— Adonis, Decathlon
7
4
23
1
141
269
—
L.L. Bean, GoodLife, Buy Buy Baby,
PetSmart
— Pad D
— Giant Tiger
— Starbucks
41
92
(i) RioCan's % ownership as of December 31, 2019. The NLA transfered to IPP noted above reflects the NLA prior to the acquisitions of the
remaining 50.0% interest in Yonge Eglinton Northeast Corner, the remaining 70.0% interest in Garden City Shopping Centre and the remaining
50.0% interest in Stock Yards Village.
(ii) RioCan's % ownership as of December 31, 2019. During Q3 2019, RioCan acquired the remaining 50% interest in Yonge Sheppard Centre. The
transfer in Q2 reflects our 50% interest in the NLA and the transfer in Q4 represents our 100% interest in the property.
For 2020, the Trust estimates to complete 518,056 square feet of developments, which will lead to $375.0 million cost transfers
from PUD to IPP and $17.3 million incremental NOI upon project stabilization.
For 2021, the Trust estimates to complete 705,492 square feet of developments, which will lead to $517.7 million cost transfers
from PUD to IPP and $21.6 million incremental NOI upon project stabilization.
The cost transfers estimated above reflect gross IFRS costs net of air rights proceeds. They are not net of applicable interim or
fee income during the development period to arrive at net project costs, which RioCan uses in estimating a project's development
yield.
71
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Greenfield Development
As at December 31, 2019, RioCan currently has two active commercial greenfield development projects with detailed cost
estimates as follows:
RioCan's
%
Ownership
Total NLA Upon Project
Completion
Completed
PUD
Total
Total
Estimated
Costs
At RioCan's Interest
Costs incurred to date
Completed
PUD
Total
Estimated
PUD
Costs to
Complete
%
Commercial
Leased (i)
Anticipated
Date of
Development
Completion
40%
163
127
290 $ 111,434 $
53,328 $ 36,440 $ 89,768 $
21,666
100%
—
150
150
77,241
— 29,334
29,334
47,907
59%
64%
2022
2021
163
277
440 $ 188,675 $
53,328 $ 65,774 $119,102 $
69,573
$
56,379 $ 46,671 $103,050
(thousands of dollars or
thousands of sq. ft.)
East Hills, Calgary, AB
Windfield Farms
Commercial Phase One,
Oshawa, ON
Total Estimated PUD
Costs
Fair Value to date
(i) Leasing activity includes leasing that is conditional on receiving municipal approvals and meeting construction deadlines. The percentage of
commercial leasing activity is as at February 19, 2020.
Phase One of Windfield Farms Commercial was added to the greenfield development table in Q2 2019. Windfield Farms is a
multi-phase, mixed-use project that includes commercial and residential uses. Phase One of the commercial component of the
project has detailed cost estimates approved and is therefore included in the above table. Further details of the remaining
components of the Windfield Farms project are included in the Mixed-Use Residential Development and Residential Inventory
sections of this MD&A.
During Q4 2019, the Trust allocated fair value of the Windfield Farms commercial project between the above Phase One and
future phases. Therefore, when comparing the fair value as of December 31, 2019 in the above table to the same table as of the
previous quarter end, fair value of the Phase One project declined. However, on an aggregate basis, including the value of future
phases, which were valued by an independent appraiser, the fair value of the Windfield Farms commercial project was largely
stable quarter to quarter. The progress made on the site in 2019 has made the future phases more valuable.
As of the release date of this MD&A, approximately 266,000 square feet of the above greenfield development NLA has committed
leases, which includes tenants that have taken possession of the space, at a weighted average net rental rate of approximately
$21.36 per square foot.
Urban Intensification
A focus within our development growth strategy is urban intensification, which is the category for our residential mixed-use and
commercial development program. The Trust currently has 13 active urban intensification projects with detailed cost estimates
that will generate approximately 3.6 million square feet of NLA at RioCan’s interest of space upon completion over the next five
years, including air rights that have been or are expected to be sold. Excluding such air rights, these 13 active urban
intensification projects are expected to generate approximately 2.5 million square feet of estimated NLA. Our urban intensification
program currently is focused on properties located in densely populated areas in the urban cores of Toronto, Ottawa and Calgary.
72
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
A summary of our urban intensification projects with detailed cost estimates as at December 31, 2019 is as follows:
Total PUD NLA Upon Project
Completion
Costs incurred to date
At RioCan's Interest
(thousands of dollars
or thousands of sq. ft.)
RioCan’s
%
Ownership
Completed
PUD
Total
Total
Estimated
Costs
Completed
PUD
Total
Estimated
PUD Costs
to
Complete
%
Commercial
Leased (i)
Anticipated
Date of
Development
Completion
Brentwood Village
(Brio), Calgary, AB (v)
Dupont Street (Litho),
Toronto, ON (v)
Fifth and Third East
Village, Calgary, AB
(v)
Gloucester (Frontier)
Phase One, Ottawa,
ON (v)
Gloucester - Phase
Two (Latitude),
Ottawa, ON (iii) (v)
King Portland Centre,
Toronto, ON (v)
College & Manning
(Strada),Toronto, ON
(v)
The Well, Toronto, ON
(iv) (v) (vii)
The Well - (FourFifty
The Well), Toronto,
ON (v)
Yonge Eglinton
Northeast Corner
(ePlace), Toronto, ON
(v) (vi)
Yonge Sheppard
Centre Residential
(Pivot), Toronto, ON
(v) (vi)
Elmvale Acres - Phase
One (Luma), Ottawa,
ON (v) (viii)
Westgate - Phase One
(Rhythm), Ottawa, ON
(v)
Total Estimated
Costs (ii)
Fair Value to date
50 %
50 %
—
—
72
93
72 $
39,266 $
— $ 33,216 $
33,216 $
6,050
93
76,718
— 35,807
35,807
40,911
66%
73%
2020
2021
100 %
91
663
754
126,613
58,302
58,600
116,902
9,711
88%
2020
50 %
93
—
93
36,050
35,706
—
35,706
344
100%
2019
50 %
—
80
80
46,841
— 11,154
11,154
35,687
n/a
2021
50 %
170
—
170
91,014
90,405
—
90,405
609
100%
2019
50 %
27
27
54
40,634
9,123
15,791
24,914
15,720
91%
2021
50% of
commercial
40% of
residential
air rights
— 1,192
1,192
868,626
— 373,554
373,554
495,072
84%
2023
50 %
—
196
196
134,515
—
9,158
9,158
125,357
n/a
2023+
100 %
312
—
312
225,401
225,401
—
225,401
—
96%
2019
100 %
—
258
258
237,522
— 186,660
186,660
50,862
100 %
—
136
136
84,299
— 18,239
18,239
66,060
100 %
—
165
165
94,433
— 10,167
10,167
84,266
693
2,882
3,575 $ 2,101,932 $ 418,937 $752,346 $1,171,283 $ 930,649
$ 570,683 $859,547 $1,430,230
n/a
n/a
n/a
2020
2021
2022
(i) Leasing activity includes leasing that is conditional on receiving municipal approvals and meeting construction deadlines. Leasing shown in this
table is calculated as a percentage of commercial square footage only as there is typically no pre-leasing for residential rental square footage. The
percentage of commercial leasing activity is as at February 19, 2020.
(ii) Total Estimated Costs exclude fair value gains of $107.2 million for properties under development.
(iii) The estimated cost for Phase Two of the Gloucester project is higher than the Phase One (Frontier) mainly because of more underground parking
spaces at Phase Two and construction cost escalation as Phase One project costs were largely secured two to three years ago. As Phase Two is
expected to be completed by 2021, the rent from Phase Two is also expected to exceed the current market rent.
(iv) The total estimated PUD costs for The Well are net of approximately $61.0 million recoverable costs at RioCan's interest relating to matters such
as parking, parkland dedication, and an Enwave thermal energy tank based on the air rights sale agreement and other agreements in place.
However, the estimated PUD costs have not deducted approximately $75.6 million (at RioCan's interest) of estimated proceeds from the sale of
residential air rights at the project. Net of the estimated proceeds from the sale of residential air rights, the total estimated PUD costs for The Well
(at RioCan's interest) would be $793.0 million. As of February 19, 2020, over 94% of the hard costs have been tendered and 90% awarded.
(v) These projects are committed, representing projects where all planning issues have been resolved, anchor tenant(s) has or have been secured,
and/or construction is about to commence or has commenced.
(vi) During the three months ended September 30, 2019, RioCan acquired the remaining non-managing 50% interest in Pivot, the remaining 50% co-
ownership interest in eCentral, and the retail component and 70 commercial parking stalls of the ePlace mixed-use development. 100% of the
project costs in this table include the purchase price of the remaining 50% co-ownership interest. For further details of these transactions, refer to
the Income Property Acquisitions During 2019 section of this MD&A.
(vii) The 84% leased at The Well is based on committed leases, including extension rights, for office space only.
(viii) During the three months ended September 30, 2019, RioCan entered into a firm agreement to sell to Killam a 50% interest in an approximately
1.45 acre discrete portion of Elmvale Acres which is expected to close mid-2020 once severance of the land is obtained.
73
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
As of the release date of this MD&A, approximately 788,000 square feet of the above urban intensification NLA under
development has committed or in-place leases, which includes tenants that have taken possession of the space, at a weighted
average net rent rate of approximately $34.79 per square foot.
Expansion & Redevelopment
A summary of RioCan’s expansion and redevelopment projects as at December 31, 2019 is as follows:
(thousands of dollars or thousands of sq. ft.)
1910 Bank Street, Ottawa, ON
Burlington Centre, Burlington, ON
Five Points Mall, Oshawa, ON
RioCan West Ridge Place, Orillia, ON
Place St Jean, Saint-Jean-sur-Richelieu, QC
Tanger Outlets - Kanata, Kanata, ON
Yonge Sheppard Centre Commercial, Toronto, ON (iv)
1208 1216 Dundas Street East, Whitby ON
Properties with former Sears units (ii) - 4 projects
Total Estimated PUD Costs (i)
PUD Fair Value to date
RioCan's
%
Ownership
Total PUD
NLA Upon
Project
Completion
Total
Estimated
Costs
At RioCan's Interest
Costs Incurred to Date
Costs
Incurred to
Date
Historical
IPP Costs
(iii)
Total
Estimated PUD
Cost to
Complete
100%
50%
100%
100%
100%
50%
100%
100%
2 $
2,441 $
1,079 $
126 $
1,205 $
1,606
—
—
2,680
4
10
7
2
18
33
8
77
1,726
6,969
2,636
1,457
10,304
42,080
6,991
22,054
1,494
127
4,023
33,326
1,867
8,572
1,606
2,680
1,494
127
7,650
—
—
3,627
—
33,326
1,551
6,248
3,418
14,820
1,236
120
4,289
1,142
1,330
2,654
8,754
3,573
7,234
161 $
96,658 $
52,094 $
14,232 $
66,326 $
30,332
$
42,796
(i)
Total estimated PUD costs include carrying amounts transferred from IPP for redevelopment and exclude historical fair value losses of $23.5
million.
(ii) RioCan transferred carrying value associated with the spaces formerly occupied by Sears from IPP to PUD. The estimated PUD costs to complete
are based upon various scenarios with the objective of developing these assets, such that RioCan can attract new tenants, achieve higher rents
and improve the overall shopping centres.
(iii) Historical costs were costs of IPP prior to the transfer to PUD.
(iv) During the three months ended September 30, 2019, RioCan acquired the remaining 50% co-ownership interest from KingSett. Further details of
this transaction can be found in the Income Property Acquisitions During 2019 section of this MD&A. Prior to the second quarter of 2019, both the
residential rental and commercial portions of the project were included in the table above. The residential rental component, Yonge Sheppard
Centre Residential (Pivot) has been reclassified as an Urban Intensification project and included in that table effective second quarter of 2019.
The 331,000 square foot decrease in NLA during the year ended December 31, 2019 from the prior year end was primarily due to
the transfer of certain projects from PUD to IPP upon project completions.
Residential Inventory
Residential inventory is comprised of properties acquired or developed which RioCan intends to dispose all or part of 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 (i) property operating income earned during
the relatively short interim occupancy period, which will be included in net income, and (ii) sales proceeds.
For the three months and year ended December 31, 2019, the Trust recognized residential inventory gains of $11.0 million and
$36.3 million, respectively, from purchasers taking possession of units at eCondosTM in Toronto, Ontario and townhouses at UC
Towns at Windfield Farms in Oshawa, Ontario, which commenced in the second quarter of 2019 and units at KinglyTM in Toronto,
Ontario which commenced in the third quarter of 2019.
Substantially all inventory gains for the three projects have been recognized into net income as of the year end, with a few
townhouse units at UC Towns to be taken possession of in 2020.
As at December 31, 2019, the costs of residential inventory include the costs incurred on the following four condominium or
townhouse projects:
•
Yorkville (11 YV) - This is a 50/25/25 joint venture project amongst RioCan, Metropia and Capital Development in the
prestigious Toronto neighborhood of Yorkville, which consists of 593 luxury condominium units, retail uses and up to 81
residential rental replacement units. The project recently won several awards from the National Association of Home
Builders including the National Sales and Marketing Council's Award of Excellence for Multi-Family Community of the
Year. Sales of the condominiums units were launched on September 12, 2019 and are progressing well with 83.0% of
the 593 units sold as of February 19, 2020 (at 100%). Average prices are expected to be above $1,700 per square foot,
exceeding initial expectations. This project is expected to generate a value creation percentage in the range of
15%-17% (at RioCan's interest), including profit on the condominium sales and value creation from the retail and rental
replacement unit portions of the project. The estimated value creation percentage is based on estimated IFRS project
costs including, but not limited to, land and capitalized interest during the development phase. The project has obtained
final zoning approval in Q4 2019 and construction is expected to commence in Q2 2020 with an anticipated first
possession date in Q3 2024.
74
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
• Windfield Farms - This is a 50/50 joint venture project with Tribute Communities to develop a 31-acre residential
component of lands at the Windfield Farms site located in Oshawa, Ontario, which includes 513 townhouses to be
constructed in four phases and two phases of high rise condominiums. Possessions of the 166 pre-sold townhouses for
UC Towns commenced in Q2 2019. As of December 31, 2019, purchasers of 159 units have taken possession with
inventory gains of $11.9 million recorded during the year, out of total estimated gains of $12.5 million for the project, at
RioCan's interest.
Sales at UC Uptown, a 153-unit three storey townhouse development, are expected to commence in the first quarter of
2020.
UC Tower is a condominium project consisting of a 503-unit high rise condominium tower. Sales for UC Tower began in
Q4 2018 and are progressing well with 73.6% units pre-sold as of February 19, 2020 (at 100%). This project, which is
selling at approximately $590 per square foot, is expected to generate a value creation percentage in the range of
17%-20% (at RioCan's interest) based on estimated IFRS project costs including, but not limited to, land and capitalized
interest during the development phase. This project has an expected construction start date of Q2 2020 and an
anticipated first possession date of Q2 2022.
• Dufferin Plaza - The current retail property is situated on 3.8 acres of land at the intersection of Dufferin St. and Apex
Rd. in Toronto, Ontario in close proximity to Yorkdale Shopping Centre as well as major arterial roads, highways and
public transit. The Trust plans to redevelop the property as a mixed-use property with approximately 550 units or a
417,000 square feet condominium tower and 32,000 square feet of retail. As a result, $30.6 million of this property was
transferred to residential inventory from investment property during the three months ended December 31, 2019. The
project already has Official Plan approval.
•
Shoppers World Brampton Phase One - Shoppers World Brampton is a large shopping centre on a 53-acre site
located in Brampton, Ontario. It is located on Brampton’s regional intensification corridor just outside of downtown
Brampton. It currently has a large bus terminal and is designated as the end terminal for the new LRT line. The City of
Brampton has identified it as the city's uptown western anchor suitable for large scale mixed-used development.
RioCan has estimated the property to have 4.5 million square feet of future excess density, which will be developed
through multiple phases.
Phase One of the development is located on two acres of vacant land at the southwest corner of the property, consisting
of an estimated 450 residential units across two 25-storey towers (one residential rental and one condominium) and a
20,000 square foot retail podium. During the three months ended December 31, 2019, $1.7 million was transferred from
investment property to residential inventory for Phase One.
Refer to the Mixed-Use Residential Development section of this MD&A for a summary of the Residential Inventory NLA as
currently planned.
The following table shows changes in the aggregate carrying value of RioCan's residential inventory:
(thousands of dollars)
Three months ended
December 31
Year ended
December 31
2019
2018
2019
Balance, beginning of period
$
98,829 $
205,675 $
206,123 $
Acquisitions
Dispositions
Development expenditures
Transfers from investment properties
—
(26,366)
4,192
32,301
—
(19,828)
20,276
—
—
(164,378)
34,910
32,301
Balance, end of period (i)
$
108,956 $
206,123 $
108,956 $
2018
132,003
26,370
(19,828)
62,564
5,014
206,123
(i) Comprised of $73.8 million (December 31, 2018 - $69.3 million) for Yorkville, $30.6 million (December 31, 2018 - nil) for Dufferin Plaza, $2.8
million (December 31, 2018 - $21.7 million) for Windfield Farms, $1.7 million (December 31, 2018 - nil) for Shoppers World Brampton Phase One,
nil (December 31, 2018 - $28.3 million) for Kingly and nil (December 31, 2018 - $86.8 million) for eCondos. All purchasers at Kingly and eCondos
were in possession of their respective units as of December 31, 2019.
Development Yield and Incremental Value Creation
The Trust estimates incremental value creation upon project stabilization. This incremental value creation is estimated by using
the estimated future stabilized value (estimated annual stabilized NOI of a project divided by an assumed capitalization rate
applicable to the project upon stabilization under the prevailing market conditions), less total estimated net project costs. Net
project costs are defined as total estimated project costs net of estimated proceeds from dispositions including land and air rights
sales and net of applicable interim or fee income during the development period.
As previously disclosed in the Trust's MD&A for the three months ended September 30, 2019, the Trust expects to achieve a
blended development yield of 5.6% for the five urban intensification and greenfield projects namely, ePlace, King Portland Centre,
and Bathurst College Centre in Toronto, Ontario, Frontier in Ottawa, Ontario and Sage Hill Crossing in Calgary, Alberta.
The Trust estimates $204.2 million or 35.5% of incremental value creation for these projects' commercial and/or residential rental
components, and an additional $26.2 million of residential inventory gains on the sale of condominium units at two projects,
bringing the total incremental value creation for these five projects to $230.4 million. Of the $204.2 million estimated incremental
value creation for these projects' commercial and/or residential rental components, $203.2 million of value creation has been
75
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
recognized as of December 31, 2019, given that these projects have been complete and stabilized except for eCentral
stabilization which is expected in the spring of 2020. Of the $26.2 million estimated residential inventory gains, $25.8 million has
been recognized into income to date since Q4 2018.
As of December 31, 2019, the Trust has recognized $266.0 million of cumulative fair value gains for its 4.2 million square feet of
active projects with detailed cost estimates (refer to the Estimated PUD Project Costs section of this MD&A), excluding the value
reclassification between Windfield Farms Commercial Phase One and future phases. The $266.0 million of cumulative fair value
gains includes $163.9 million relating to ePlace, King Portland Centre and Frontier. Fair value gains relating to Bathurst College
Centre and Sage Hill are not included in the $266.0 million of cumulative fair value gains as the projects have been completely
transferred to income producing properties and their square footages are not included in the 4.2 million square feet of active
projects with detailed cost estimates.
The Trust anticipates realizing substantial net value creation from its additional 16.7 million square feet of excess density that are
either zoned or with zoning application submitted as well as 7.9 million square feet of future density. As of December 31, 2019,
nominal fair value gains or inventory gains have been recognized relating to these 24.6 million square feet of densities.
Mortgages and Loans Receivable
Contractual mortgages and loans receivable as at December 31, 2019 and December 31, 2018 are comprised of the following:
(thousands of dollars)
Mezzanine financing to co-owners
Vendor-take-back and other
Total
Contractual interest rates
Low
4.95%
5.00%
4.95%
High
7.00%
6.40%
7.00%
Weighted
average
interest rate December 31, 2019 December 31, 2018
146,680
6.39% $
155,399
$
5.36%
6.27% $
20,552
175,951
$
17,334
164,014
All of the $176.0 million of mortgages and loans receivable as at December 31, 2019 are carried at amortized cost.
RioCan’s Declaration of Trust 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 consolidated
unitholders’ equity. 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, 2019, RioCan was in compliance with these restrictions.
CAPITAL RESOURCES AND LIQUIDITY
Liquidity and Cash Management
RioCan maintains a committed revolving unsecured operating credit facility to provide financial liquidity which can be drawn or
repaid on short notice, reducing the need to hold liquid resources in cash and deposits. This minimizes costs arising from the
difference between borrowing and deposit rates, while reducing credit exposure.
Capital Management Framework
RioCan defines capital as the aggregate of common unitholder and preferred unitholders’ equity and debt. The Trust’s capital
management framework is designed to maintain a level of capital that:
•
•
•
•
•
complies with investment and debt restrictions pursuant to the Trust’s Declaration;
complies with debt covenants;
enables RioCan to achieve target credit ratings;
funds the Trust’s business strategies; and
builds long-term unitholder value.
The key elements of RioCan’s capital management framework are set out in the Trust’s Declaration, and/or approved by the
Trust’s Board, through the Board’s annual review of the strategic plan and budget, supplemented by periodic Board and related
committee meetings. Capital adequacy is monitored by management of the Trust by assessing performance against the approved
annual plan throughout the year, which is updated accordingly, and by monitoring adherence to investment and debt restrictions
contained in the Declaration and debt covenants (refer to Note 27 of RioCan's 2019 Annual Consolidated Financial Statements).
In selecting appropriate funding choices, RioCan’s objective is to manage its capital structure such that it diversifies its funding
sources while minimizing its funding costs and risks. 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 of credit, credit facilities, construction financing facilities, sale of marketable securities, sale of non-core properties
and secondary markets 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.
76
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 the highest credit quality (generally AAA) to
default payment (generally D). The addition of a rating outlook modifier, such as "Positive", "Negative", "Stable" or "Developing"
assesses the potential direction of a long-term credit rating over the intermediate term (typically six months to two years).
The following table summarizes RioCan’s credit ratings as at December 31, 2019:
Debt
Senior Unsecured Debentures
Senior Unsecured Debentures
Rating Agency
S&P
DBRS
Long-term credit rating
BBB
BBB (high)
Trend/Outlook
Stable
Stable
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.
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.
Capital Structure
RioCan’s capital structure is as follows:
(thousands of dollars)
IFRS
RioCan's proportionate share
As at
Capital:
Debentures payable
Mortgages payable
Lines of credit and other bank loans
Total debt
Common unit equity
Total capital
Total assets
Cash and cash equivalents
Ratio of total debt to total assets
(net of cash and cash equivalents)
Ratio of floating rate debt to total debt
December 31, 2019 December 31, 2018 December 31, 2019 December 31, 2018
$
$
$
$
$
2,891,648
$
2,742,633
$
2,891,648
$
2,412,451
1,086,719
6,390,818
8,305,211
14,696,029
15,188,326
93,516
41.7%
6.1%
$
$
$
$
2,218,270
913,130
5,874,033
7,666,390
13,540,423
14,003,765
74,698
41.6%
15.8%
$
$
$
$
2,514,178
1,106,105
6,511,931
8,305,211
14,817,142
15,317,298
96,564
42.1%
6.4%
$
$
$
$
2,742,633
2,286,836
958,187
5,987,656
7,666,390
13,654,046
14,117,865
77,188
42.1%
16.4%
The Trust's leverage ratio at RioCan's proportionate share remained consistent from December 31, 2018 at 42.1%, as
management continued to manage the issuance of debt and equity with the timing of acquisitions and dispositions.
The Trust reduced its floating interest rate debt exposure to 6.4% as at December 31, 2019 (December 31, 2018 - 16.4%), mainly
through the issuance of a $500.0 million unsecured senior debenture at a fixed rate in August 2019 and used a significant portion
of the net proceeds to pay down floating rate debt. Refer to the Debentures Payable section of this MD&A for details. During the
fourth quarter, the Trust used the net proceeds of $220.2 million from the public offering of common trust units on October 28,
2019 to repay certain floating rate debt incurred to fund the aforementioned strategic acquisitions. In addition, throughout the
year, various floating rate mortgages and construction lines of completed developments, were also converted to fixed rate
mortgages or hedged to fixed rates, as management actively reduced the Trust's floating rate exposure.
77
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Debt Metrics
RioCan’s debt metrics are tracked and disclosed on a quarterly basis to help facilitate financial statement users’ and stakeholders’
understanding of RioCan’s ability to service its debt and fixed charges. Presented below are the Trust's key debt metrics
presented on both an IFRS and RioCan's proportionate share basis in comparison to our targeted ratios:
Debt to Adjusted EBITDA (i)
Interest coverage (i)
Debt service coverage (i)
Fixed charge coverage (i)
Unencumbered assets
Unencumbered assets to unsecured debt
NOI generated from unencumbered assets (ii)
Unsecured debt to total debt
Rolling 12 months ended
IFRS
RioCan's proportionate share
December 31,
December 31,
December 31,
December 31,
2019
8.05
3.52
2.98
1.15
2018
7.76
3.68
3.09
1.16
2019
8.06
3.50
2.96
1.16
2018
7.88
3.63
3.05
1.15
$ 8,895,777
$ 7,966,491
$ 8,936,721
$ 7,970,296
226%
58.2%
61.6%
231%
59.1%
58.7%
227%
58.5%
60.4%
231%
59.1%
57.6%
Targeted
Ratios
<8.0x
>3.00x
>2.25x
>1.10x
>200%
>50.0%
60.0%
(i) Refer to the Non-GAAP Measures section of this MD&A for further details. See tables below for the calculation of Adjusted EBITDA for the
respective periods.
(ii) Ratio is calculated on a continuing operations basis.
The Trust's Debt to Adjusted EBITDA at RioCan's proportionate share increased from 7.88x for the rolling twelve months ended
December 31, 2018 to 8.06x for the rolling twelve months ended December 31, 2019. The increase was primarily due to timing of
acquisitions and dispositions, while Adjusted EBITDA has not yet fully reflected the benefit of the acquisitions and development
completions.
As previously noted, the net proceeds from the equity offering completed on October 28, 2019 were used to repay indebtedness
incurred in funding the aforementioned strategic acquisitions completed in Q3 2019.
Adjusted EBITDA increased by $10.7 million at RioCan's proportionate share over the rolling twelve months ended December 31,
2019 when compared to the rolling twelve months ended December 31, 2018, as the loss of Adjusted EBITDA from substantial
secondary market property dispositions and lower marketable securities gains was more than offset by same property NOI
growth, operating income from development completions including residential inventory gains, higher fee revenue, income from
acquisitions, higher Adjusted EBITDA from equity accounted investments and lower G&A expenses.
The interest coverage ratio at RioCan's proportionate share for the rolling twelve months ended December 31, 2019 remained
well above the RioCan target of 3.0x but declined modestly compared to December 31, 2018, mainly due to higher interest costs
from higher debt balances and higher effective interest rates over the comparable periods.
For similar reasons, debt service coverage at RioCan's proportionate share for the rolling twelve months ended December 31,
2019 declined modestly but remained well above the RioCan target of 2.25x when compared to December 31, 2018.
The fixed charge coverage ratio at RioCan's proportionate share for the rolling twelve months ended December 31, 2019 is
marginally higher compared to December 31, 2018, mainly due to higher Adjusted EBITDA, partially offset by higher interest
costs, net of lower distributions as a result of unit buybacks.
The Trust continued to grow its unencumbered asset pool at RioCan's proportionate share, increasing it from $8.0 billion as at
December 31, 2018 to $8.9 billion as at December 31, 2019, primarily due to the repayment of property level debt at Yonge
Sheppard Centre, one of RioCan's flagship properties in Toronto, Ontario. The percentage of NOI at RioCan's proportionate share
generated from unencumbered assets was 58.5% as of December 31, 2019, above the Trust's 50% target. The unencumbered
assets to unsecured debt ratio at RioCan's proportionate share was 227% as at December 31, 2019, above the Trust's 200%
target.
78
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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 EBITDA:
Twelve months ended
(thousands of dollars)
December 31, 2019
December 31, 2018
Continuing
Operations
Discontinued
Operations
Total
Continuing
Operations
Discontinued
Operations
Total
Net income attributable to unitholders
$
775,834 $
— $
775,834 $
527,362 $
741 $
528,103
IFRS
Add (deduct) the following items:
Income tax expenses (recovery):
Current
Deferred
(699)
2,064
Fair value (gains) on investment properties, net
(247,624)
Change in unrealized fair value on marketable
securities (i)
Internal leasing costs
Non-cash unit based compensation expense
Interest costs
Depreciation and amortization
Transaction (gains) losses on the sale of
investment properties, net (ii)
Transaction costs on investment properties
Operational lease revenue and expenses from
ROU assets (iii)
15,637
11,309
6,478
182,780
4,381
1,066
7,989
1,963
—
—
—
—
—
—
—
—
—
—
—
—
1,188
(699)
2,064
(247,624)
(1,440)
(18,304)
15,637
42,767
11,309
6,478
11,294
6,826
182,780
168,299
4,381
1,066
7,989
1,963
4,575
(78)
17,761
—
1,188
(1,440)
(18,304)
42,767
11,294
6,826
168,299
4,575
(78)
17,914
—
—
—
—
—
—
—
—
—
153
—
Adjusted EBITDA
$
761,178 $
— $
761,178 $
759,062 $
2,082 $
761,144
Debt, net of cash and cash equivalents is
calculated as follows:
Average debt outstanding
Less: average cash and cash equivalents
Debt, net of cash and cash equivalents
Debt to Adjusted EBITDA
$ 6,206,562
(75,705)
$ 6,130,857
8.05
$ 5,988,106
(80,999)
$ 5,907,107
7.76
(i) Adjustment is a result of adopting IFRS 9 on January 1, 2018 without prior period restatement. The fair value gains on marketable securities under
IFRS 9 include both the change in unrealized fair value and realized gains on sale of marketable securities. By adding back the change in
unrealized fair value on marketable securities, RioCan effectively continues to include realized gains or losses on the sale of marketable securities
in Adjusted EBITDA and excludes unrealized fair value gains (losses) on marketable securities in Adjusted EBITDA. Refer to the Non-GAAP
Measures section of this MD&A for more detailed discussion on Adjusted EBITDA and IFRS 9's impact on Adjusted EBITDA.
(ii) Includes transaction gains and losses realized on the disposal of Canadian and U.S. investment properties.
(iii) The Trust has also included adjustments for certain subleases or leases that are classified as finance leases under IFRS 16 effective January 1,
2019, consistent with the adjustments in the REALPAC definitions of FFO and ACFO that were recently released in February 2019. The
adjustment relates to operational revenue and expenses from ROU assets as a result of certain subleases and leases that were classified as
operating leases under IAS 17 and are classified as finance leases under IFRS 16, such that the principal portion of the relevant lease receipt and/
or lease payment continues to be reflected in Adjusted EBITDA upon the adoption of IFRS 16 on January 1, 2019.
79
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Twelve months ended
(thousands of dollars)
RioCan's proportionate share
December 31, 2019
December 31, 2018
Continuing
Operations
Discontinued
Operations
Total
Continuing
Operations
Discontinued
Operations
Total
Net income attributable to unitholders
$
775,834 $
— $
775,834 $
527,362 $
741 $
528,103
Add (deduct) the following items:
Income tax expense (recovery):
Current
Deferred
(699)
2,064
Fair value (gains) on investment property, net
(239,294)
Change in unrealized fair value on marketable
securities (i)
Internal leasing costs
Non-cash unit based compensation expense
Interest costs
Depreciation and amortization
Transaction (gains) losses on the sale of
investment properties, net (ii)
Transaction costs on investment properties
Operational lease revenue and expenses from
ROU assets (iii)
Adjusted EBITDA
Debt, net of cash and cash equivalents is
calculated as follows:
Average debt outstanding
Less: average cash and cash equivalents
Debt, net of cash and cash equivalents
Debt to Adjusted EBITDA
—
1,188
—
—
—
—
—
—
—
—
—
—
—
(699)
2,064
(239,294)
(1,440)
(19,526)
15,637
42,767
11,309
6,478
11,294
6,826
187,871
172,279
4,381
1,066
7,989
1,939
4,575
(78)
17,762
—
1,188
(1,440)
(19,526)
42,767
11,294
6,826
172,279
4,575
(78)
17,915
—
—
—
—
—
—
—
—
—
153
—
15,637
11,309
6,478
187,871
4,381
1,066
7,989
1,939
$
774,575 $
— $
774,575 $
761,821 $
2,082 $
763,903
$ 6,324,391
(78,599)
$ 6,245,792
8.06
$ 6,099,892
(84,034)
$ 6,015,858
7.88
(i) Adjustment is a result of adopting IFRS 9 on January 1, 2018 without prior period restatement. The fair value gains on marketable securities under
IFRS 9 include both the change in unrealized fair value and realized gains on sale of marketable securities. By adding back the change in
unrealized fair value on marketable securities, RioCan effectively continues to include realized gains or losses on the sale of marketable securities
in Adjusted EBITDA and excludes unrealized fair value gains (losses) on marketable securities in Adjusted EBITDA. Refer to the Non-GAAP
Measures section of this MD&A for more detailed discussion on Adjusted EBITDA and IFRS 9's impact on Adjusted EBITDA.
(ii) Includes transaction gains and losses realized on the disposal of Canadian and U.S. investment properties.
(iii) The Trust has also included adjustments for certain subleases or leases that are classified as finance leases under IFRS 16 effective January 1,
2019, consistent with the adjustments in the REALPAC definitions of FFO and ACFO that were recently released in February 2019. The
adjustment relates to operational revenue and expenses from ROU assets as a result of certain subleases and leases that were classified as
operating leases under IAS 17 and are classified as finance leases under IFRS 16, such that the principal portion of the relevant lease receipt and/
or lease payment continues to be reflected in Adjusted EBITDA upon the adoption of IFRS 16 on January 1, 2019.
.
80
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Total Debt Profile
RioCan's fixed and floating rate debt as a percentage of total debt and term to maturity are as follows:
(thousands of dollars)
As at December 31, 2019
Total debt
Percentage of
total RioCan's
aggregate debt
Weighted average
term to maturity in
years
Weighted average
contractual
interest rate
Weighted average
effective
interest rate
Total debt at:
Fixed rate
Floating rate
Total debt
(thousands of dollars)
As at December 31, 2018
Total debt at:
Fixed rate
Floating rate
Total debt
$
$
$
$
6,003,200
387,618
6,390,818
Total debt
4,945,718
928,315
5,874,033
93.9%
6.1%
100.0%
3.67
3.95
3.69
3.35%
3.14%
3.34%
3.46%
3.16%
3.44%
Percentage of
total RioCan's
aggregate debt
Weighted average
term to maturity in
years
Weighted average
contractual
interest rate
Weighted average
effective
interest rate
84.2%
15.8%
100.0%
3.42
2.64
3.30
3.54%
3.34%
3.51%
3.59%
3.34%
3.55%
The following table summarizes the activity in total debt for the year ended December 31, 2019:
(thousands of dollars)
Year ended December 31, 2019
Debentures
Mortgages
Payable
Lines of Credit
and Other Bank
Loans
Contractual obligations, beginning of year
$
2,750,000 $
2,211,800 $
Borrowings
Scheduled amortization
Repayments
Assumed on the acquisition of properties (i)
500,000
—
(350,000)
—
452,000
(39,369)
(408,266)
193,752
916,481 $
886,799
—
(778,396)
65,288
Contractual obligations, end of year
$
2,900,000 $
2,409,917 $
1,090,172 $
Total
5,878,281
1,838,799
(39,369)
(1,536,662)
259,040
6,400,089
Unamortized differential between contractual and
market interest rates on liabilities assumed at the
acquisition of properties and unamortized debt
modification losses
Unamortized debt financing costs, net of premiums and
discounts
Balance, end of year
—
6,338
614
6,952
(8,352)
(3,804)
(4,067)
(16,223)
$
2,891,648 $
2,412,451 $
1,086,719 $
6,390,818
(i) Contractual balance of debt assumed excludes a mark-to-market adjustment of $0.4 million on debt relating to one acquisition, which is included in
the unamortized differential between contractual and market interest rates on liabilities assumed at the acquisition of properties and unamortized
debt modification losses line item.
RioCan’s debt maturity profile and future repayments are as outlined below:
(thousands of dollars)
Year of debt maturity
2020
2021
2022
2023
2024
Thereafter
Contractual principal maturities and interest rates
Debentures
payable
Weighted
average
interest
rate
Mortgages
payable
Weighted
average
interest
rate
Lines of
credit
and other
bank loans
Weighted
average
interest
rate
Total
aggregate
debt
Weighted
average
interest
rate
$ 400,000
2.72% $ 503,891
3.64% $
30,120
2.63% $ 934,011
550,000
550,000
500,000
300,000
600,000
2.89%
3.25%
3.42%
3.29%
3.14%
349,893
178,205
293,072
241,776
843,080
4.38%
3.34%
3.48%
3.45%
3.49%
18,052
3.07%
917,945
—
—%
728,205
200,000
842,000
3.28%
993,072
3.29% 1,383,776
—
—% 1,443,080
$ 2,900,000
3.12% $ 2,409,917
3.63% $ 1,090,172
3.28% $ 6,400,089
3.21%
3.46%
3.27%
3.41%
3.32%
3.35%
3.34%
Unamortized differential between
contractual and market interest rates on
liabilities assumed at the acquisition of
properties and unamortized debt
modification losses
Unamortized debt financing costs, net of
premiums and discounts
—
6,338
614
6,952
(8,352)
(3,804)
(4,067)
(16,223)
Balance, end of year
$ 2,891,648
$ 2,412,451
$ 1,086,719
$ 6,390,818
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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Debentures Payable
The following series of senior unsecured debentures were outstanding as at December 31, 2019 and 2018:
(thousands of dollars)
Series
Maturity date
Coupon rate
Interest payment frequency
2019
2018
Q
U
X
Z
R
V
Y
T
AA
W
AB
I
Contractual obligations
June 28, 2019
June 1, 2020
August 26, 2020
April 9, 2021
December 13, 2021
May 30, 2022
October 3, 2022
April 18, 2023
September 29, 2023
February 12, 2024
February 12, 2025
February 6, 2026
Unamortized debt financing costs
Balance, end of year
3.85%
3.62%
2.19%
2.19%
3.72%
3.75%
2.83%
3.73%
3.21%
3.29%
2.58%
5.95%
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
$
— $
350,000
150,000
250,000
300,000
250,000
250,000
300,000
200,000
300,000
300,000
—
100,000
$ 2,900,000 $ 2,750,000
150,000
250,000
300,000
250,000
250,000
300,000
200,000
300,000
300,000
500,000
100,000
(8,352)
(7,367)
$ 2,891,648 $ 2,742,633
The unsecured debentures have covenants similar to our 60% debt to Aggregate Assets limit as set out in RioCan’s Declaration
of Trust, the maintenance of at least $1.0 billion in consolidated unitholders' equity 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 are $100 million in aggregate, 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 consolidated unitholders' equity and interest coverage ratio would be eliminated for this series of debentures.
Issuance
On August 12, 2019, RioCan issued $500.0 million of Series AB senior unsecured debentures. The debentures were issued at
par, carry a coupon rate of 2.576% per annum and will mature on February 12, 2025.
Redemption
On June 28, 2019, RioCan redeemed, in full, its $350.0 million 3.85% Series Q senior unsecured debentures in accordance with
their terms.
Mortgages Payable
Mortgages payable consist of the following:
(thousands of dollars)
As at
Fixed rate mortgages (i) (ii)
Floating rate mortgages (ii)
December 31, 2019 December 31, 2018
$
$
2,412,451 $
—
2,412,451 $
2,128,255
90,015
2,218,270
Includes hedged floating rate mortgages.
(i)
(ii) Amount outstanding includes total of $2.5 million in unamortized differential between contractual and market interest rates on liabilities assumed at
the acquisition of properties and unamortized debt modification losses, net of unamortized financing costs.
At the outset of 2019, RioCan had $310.2 million of mortgage principal maturing in 2019 at a weighted average contractual interest
rate of 4.21%. For the year ended December 31, 2019, RioCan completed new term mortgage borrowings of $452.0 million at a
weighted average interest rate of 3.14% and a weighted average term of 10 years, repaid $447.6 million of mortgage balances and
scheduled amortization and assumed $194.2 million of mortgage financing pursuant to the completion of acquisitions at a
weighted average interest rate of 3.40%.
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 for the Trust.
Upon closing of the acquisition of the remaining 50% interest in eCentral and retail component of ePlace in Toronto, Ontario in
September 2019, RioCan obtained $150.0 million of financing for the property at a fixed contractual interest rate of 2.58% for an
11-year term. Upon stabilization which is expected to occur in the spring of 2020, it is anticipated that the loan will become CMHC
insured at which time the contractual interest rate of such advance will be reduced to 2.33%. In addition, upon stabilization, a
second tranche of funding estimated to be approximately $40.0 million will be advanced at an interest rate to be determined at
such time.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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Subsequent to year end, the Trust closed on its first CMHC insured mortgage, a $28.6 million loan (at RioCan's interest) at its
Frontier property in Ottawa, bearing interest at an annual rate of 2.63%, with a 10-year term.
Lines of Credit and Other Bank Loans
Lines of credit and other bank loans consist of the following:
(thousands of dollars)
As at
Revolving unsecured operating line of credit (i)
Non-revolving unsecured credit facilities (i)
Construction lines and other bank loans
December 31, 2019 December 31, 2018
$
$
339,446 $
699,101
48,172
1,086,719 $
350,190
349,459
213,481
913,130
(i) Amount outstanding is net of a total of $3.5 million in unamortized financing costs and unamortized differential between contractual and market
interest rates on liabilities assumed at the acquisition of properties and unamortized debt modification losses.
Revolving Unsecured Operating Line of Credit
RioCan had a drawn balance of $342.0 million and $658.0 million of credit availability to be drawn from this revolving unsecured
operating line of credit at December 31, 2019. The weighted average contractual interest rate on amounts drawn under this
facility was 3.19% (December 31, 2018 - 3.41%).
During the second quarter, the Trust exercised its option to extend the maturity date on its operating line of credit to May 31,
2024. All other terms and conditions remained the same.
Non-revolving Unsecured Credit Facilities
The Trust has a $200 million non-revolving unsecured credit facility with two financial institutions (consisting of a Schedule I and a
Schedule III bank), with a maturity date of January 31, 2023 bearing interest at a rate of Bankers' Acceptances plus 110 basis
points per annum. On January 7, 2019, the Trust fixed the annual all-in interest rate for $125.0 million of this credit facility at
3.38% through an interest rate swap. The remaining $75.0 million of this credit facility was previously fixed at 3.125%.
The Trust also has a $150 million non-revolving unsecured credit facility with two financial institutions (consisting of a Schedule I
and a Schedule III bank), with an initial maturity date of December 27, 2019 and initial interest at a rate of Bankers' Acceptances
plus 100 basis points per annum. On February 7, 2019, the Trust extended the maturity date of this credit facility to June 27, 2024
and fixed the annual all-in interest rate at 3.43% through an interest rate swap. The Trust recorded a one-time IFRS debt
modification cost of $0.9 million as a result of this debt maturity extension.
On February 7, 2019, the Trust also entered into a $350.0 million five-year non-revolving unsecured credit facility with three
financial institutions (consisting of two Schedule I banks and one Schedule III bank). This credit facility matures on February 7,
2024 and, through an interest rate swap, bears an annual all-in fixed interest rate of 3.34%.
As of December 31, 2019, all of the Trust's non-revolving unsecured credit facilities are fully drawn.
Construction Lines of Credit and Other Bank Loans
In addition to the revolving unsecured operating line of credit and non-revolving unsecured credit facilities, the Trust has secured
credit facilities and other bank loans, which include variable rate non-revolving secured construction facilities for the funding of
certain development properties. At December 31, 2019, these secured facilities and other bank loans have an aggregate
maximum borrowing capacity of $106.5 million (December 31, 2018 - $311.4 million) and mature in 2020 and 2021, of which the
Trust had drawn $48.2 million (December 31, 2018 - $213.5 million). The weighted average contractual interest rate on the
aggregate amounts outstanding is 2.93% (December 31, 2018 - 3.36%).
On August 30, 2019, upon acquiring KingSett's 50% co-ownership interest in Yonge Sheppard Centre, the Trust repaid $130.6
million (at 100% ownership) of construction financing, using a portion of the proceeds from the issuance of the Series AB senior
unsecured debentures.
On September 26, 2019, approximately $145.7 million of construction financing for ePlace (at RioCan’s interest prior to the
closing of this transaction) at prevailing market rates of 3.19% was repaid. RioCan secured $150.0 million of financing for 100%
of eCentral and the retail component of ePlace at a fixed contractual interest rate of 2.58% for an 11-year term, which was
advanced upon the closing of ePlace as more fully described under the Mortgages Payable section of this MD&A.
Letter of Credit Facilities
The Trust has aggregate letter of credit facilities with certain Schedule I banks totaling $76.4 million (December 31, 2018 - $77.9
million). As at December 31, 2019, the Trust’s outstanding letters of credit under these facilities was $54.8 million (December 31,
2018 - $47.5 million).
Liquidity
Liquidity refers to the Trust having credit availability under committed credit facilities and/or generating sufficient amounts of cash
and cash 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 including tenant
improvements costs and long term unfunded contractual obligations, among other items.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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Cash on hand, borrowings under the revolving unsecured operating line of credit, non-revolving unsecured credit facilities,
construction financing facilities, debt and equity capital markets, secured financing and the potential sale of assets also provide
the necessary liquidity to fund ongoing and future capital expenditures and obligations.
As at December 31, 2019, RioCan had the following sources of liquidity available:
•
•
•
•
$93.5 million of cash and cash equivalents;
$658.0 million of cash available under its undrawn revolving unsecured operating line of credit;
$58.3 million of cash available under undrawn construction facilities to fund future construction commitments; and
151 unencumbered investment properties with a fair value of $8.9 billion.
RioCan’s liquidity profile is as follows:
(thousands of dollars, except where
otherwise noted)
As at
Cash and cash equivalents
Undrawn revolving unsecured
operating line of credit
Undrawn construction lines of credit
and other bank loans
Liquidity
Contractual debt:
Debentures payable
Mortgages payable
Lines of credit and other bank loans
Total contractual debt
Percentage of total contractual debt:
Liquidity
Unsecured debt
Secured debt
IFRS
RioCan's proportionate share
December 31, 2019
December 31, 2018
December 31, 2019
December 31, 2018
$
$
$
$
93,516
$
74,698
$
96,564
$
77,188
658,000
58,327
809,843
2,900,000
2,409,917
1,090,172
$
$
647,000
97,923
819,621
2,750,000
2,211,800
916,481
$
$
658,000
110,339
864,903
2,900,000
2,511,930
1,109,600
$
$
6,400,089
$
5,878,281
$
6,521,530
$
12.7%
61.6%
38.4%
13.9%
58.7%
41.3%
13.3%
60.4%
39.6%
647,000
97,923
822,111
2,750,000
2,280,391
961,548
5,991,939
13.7%
57.6%
42.4%
Our liquidity is impacted by contractual debt commitments and committed expenditures on active development projects. Our
contractual debt commitments and committed development expenditures for the next five years are as follows:
(thousands of dollars)
Contractual obligations:
2020
2021
2022
2023
2024
Thereafter
Total
Lines of credit and other bank loans
$
30,120 $
18,052 $
— $
200,000 $
842,000 $
— $ 1,090,172
Mortgages payable
Unsecured debentures
Lease liabilities (ii)
Other lease obligations
503,891
400,000
1,740
682
349,893
550,000
1,363
304
178,205
550,000
1,428
206
293,072
500,000
1,467
74
241,776
300,000
1,520
21
843,080
2,409,917
600,000
2,900,000
27,862
—
35,380
1,287
Total
$
936,433 $
919,612 $
729,839 $
994,613 $ 1,385,317 $ 1,470,942 $ 6,436,756
Active committed developments (i)
442,920
327,378
105,074
27,929
—
—
903,301
Total
$ 1,379,353 $ 1,246,990 $
834,913 $ 1,022,542 $ 1,385,317 $ 1,470,942 $ 7,340,057
(i)
Represents estimated development costs spending to complete properties under active development only when all major planning issues have
been resolved, anchor tenant(s) for the commercial components has/have been secured, and/or construction is about to commence or has
commenced. The costs of additional projects will be added to this schedule once a project becomes committed.
(ii) Represents the discounted minimum lease payments of lease liabilities under IFRS 16.
The Trust's contractual debt obligations and projected development expenditures can be funded by net proceeds from the sale of
non-core and secondary market assets (including, but not limited to, sale of excess land and potential air rights), existing cash on
hand, our revolving unsecured operating line of credit, proceeds from mortgage refinancing and proceeds from the issuance of
unsecured debentures or issuance of equity units. In addition, RioCan has undrawn construction facilities to fund future
construction commitments as it pertains to certain development projects and our unencumbered asset pool of $8.9 billion as at
December 31, 2019 can also allow us to support additional financing, if needed.
RioCan has also entered into purchase obligations to acquire certain interests from its partners as further described in Note 4 in
the consolidated financial statements.
RioCan, as a mutual fund trust, expects to make monthly distributions to unitholders with the cash generated from ongoing
operating activities. Our unitholder dividend reinvestment plan (“DRIP”) allows us to conserve liquidity by issuing additional units,
84
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
as opposed to paying cash distributions. Although RioCan suspended its DRIP effective November 1, 2017, RioCan can elect to
reinstate the DRIP in the future, should we decide that it is beneficial to do so.
Unencumbered Assets
The fair value of the unencumbered investment property assets as at December 31, 2019 is estimated at approximately $8.9
billion for 151 properties or 61.9% of the total fair value of investment properties as compared to 153 properties with a fair value
of $8.0 billion as at December 31, 2018. This has resulted in approximately 58.2% of the Trust's annualized NOI being generated
by unencumbered assets (December 31, 2018 - 59.1%), providing RioCan with access to a pool of assets for obtaining additional
secured debt.
The table below presents RioCan's unencumbered assets and unsecured debt:
(thousands of dollars, except where otherwise noted)
December 31,
December 31,
December 31,
December 31,
IFRS
RioCan's proportionate share
As at
Unencumbered assets
Unsecured debt:
Debentures
Amounts drawn on revolving unsecured operating line
of credit
Amounts drawn on non-revolving unsecured credit
facilities
Total unsecured debt outstanding
Unsecured debt to total debt
Unencumbered assets to unsecured debt
NOI generated from unencumbered assets (i)
2019
8,895,777
2,900,000
$
$
2018
7,966,491
2,750,000
$
$
2019
8,936,721
2,900,000
$
$
2018
7,970,296
2,750,000
$
$
342,000
353,000
342,000
353,000
700,000
350,000
700,000
350,000
$
3,942,000
$
3,453,000
$
3,942,000
$
3,453,000
61.6%
226%
58.2%
58.7%
231%
59.1%
60.4%
227%
58.5%
57.6%
231%
59.1%
(i) Refer to the Non-GAAP Measures section of this MD&A for further details.
Guarantees
As at December 31, 2019, the maximum exposure to loss resulting from the Trust's debt guarantees, on behalf of certain of our
co-owners' interests and mortgages assumed by purchasers on property dispositions, is $163.2 million (December 31, 2018 -
$309.2 million), with expiries between 2020 and 2025. 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 or the properties secured.
On September 27, 2019, Metropia and Bazis repaid their proportionate share of project level construction loans relating to the
ePlace development in Toronto, Ontario upon the sale of their combined 50% interest in the residential and retail components of
the project to RioCan based on a pre-agreement. The Trust no longer provides a guarantee on behalf of the former co-owners'
interest in the project and this was the primary reason for the $146.0 million decrease in guarantees as of December 31, 2019
when compared to the prior year end.
As at and for the year ended December 31, 2019, there have been no defaults by the primary obligors for debts on which we
have provided guarantees and no provision for expected losses on these guarantees has been recognized in our 2019 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 (RioCan-HBC JV)
Bayfield
Metropia and Bazis
Other
Assumption of mortgages by purchasers on property dispositions
Hedging Activities
Interest Rate Risk
December 31, 2019 December 31, 2018
$
$
$
42,349 $
26,709
—
37,497
106,555 $
56,644
163,199 $
43,523
63,230
119,454
24,984
251,191
58,029
309,220
As at December 31, 2019, the outstanding notional amount of floating-to-fixed interest rate swaps was $1.3 billion (December 31,
2018 – $764.4 million) and the term to maturity of these agreements ranges from April 2020 to November 2028. We assess the
effectiveness of the hedging relationship on a quarterly basis and have determined there is no ineffectiveness in the hedging of
85
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
interest rate exposures as at December 31, 2019. Refer to Note 26 of the 2019 Annual Consolidated Financial Statements for
further details.
Cross Currency Interest Rate Swaps
On occasion, we will fund our Canadian assets by electing to draw on our operating credit facility in U.S. dollars bearing interest
at U.S. LIBOR when it is determined that it is economically advantageous to do so. As at December 31, 2019, the Trust has no
cross currency interest rate swaps outstanding.
Trust Units
As at December 31, 2019, there are 317.7 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 three months and year ended December 31, 2019 and 2018, we issued common units as
follows:
(in thousands)
Units outstanding, beginning of period (i)
Units issued:
Private placement issued pursuant to an investment
property acquisition
Public offering
Unit-based compensation exercises, net of units
repurchased for settlement of unit exercises
Direct purchase plan
Exchangeable limited partnership units
Common trust units repurchased and cancelled
Units outstanding, end of period (i)
Three months ended
December 31
Year ended
December 31
2019
308,723
2018
307,314
2019
305,097
2018
323,734
—
8,935
49
3
—
—
317,710
—
—
178
6
—
(2,401)
305,097
3,810
8,935
833
15
—
(980)
317,710
—
—
268
21
31
(18,957)
305,097
(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, 2019 – 481,769 LP units,
December 31, 2018 – 481,769 LP units).
As of February 19, 2020, there are 317.7 million common units issued and 6.4 million unit options issued and outstanding under
the Trust’s incentive unit option plan.
As described previously, on August 30, 2019 in connection with the purchase of Yonge Sheppard Centre, RioCan issued 3.8
million units with $100.0 million gross proceeds to KingSett, with a one-year lock-up agreement commencing August 30, 2019
whereby KingSett has agreed that it will not, without the prior consent of RioCan, sell or enter into an arrangement to sell the
units within the one-year lock-up period.
Public Offering
On October 28, 2019, RioCan issued an aggregate of 8.9 million common trust units at a price of $25.75 per unit for aggregate
gross proceeds of $230.1 million (inclusive of 1.2 million units issued pursuant to the exercise in full of the underwriters' over-
allotment option). Unit issue costs associated with the offering, including commissions and other expenses, were approximately
$9.9 million. The Trust used the net proceeds of $220.2 million from the public offering of common trust units to repay certain
floating rate debt incurred to fund the aforementioned strategic acquisitions.
Distribution Reinvestment Plan ("DRIP")
Effective November 1, 2017 RioCan suspended its DRIP and unitholders that were enrolled in the DRIP receive cash distributions
commencing with any distribution declared in November 2017.
Senior Executive Restricted Equity Plan (Senior Executive REU Plan)
As at December 31, 2019, 178,800 Senior Executive REUs are outstanding (December 31, 2018 - 121,352), of which 56,833 are
vested (December 31, 2018 - 41,155).
On February 22, 2019, the Trust granted 70,224 REUs under its Senior Executive REU Plan. The grant date price was $25.28
per unit based on the five-day volume weighted average market price of RioCan's common trust units traded on the TSX prior to
the grant date, resulting in an aggregate fair value of $1.8 million.
The number of REUs granted shall vest one-third on each of the first, second and third anniversary of the grant date, provided
however that all vested REUs are only eligible for settlement upon the third anniversary of the grant date (Settlement Date).
Settlement of vested REUs is generally made within 30 days after the Settlement Date by the delivery of an equivalent number of
common trust units purchased on the secondary market, net of applicable withholding taxes.
Employee Restricted Equity Plan (Employee REU Plan)
As at December 31, 2019, 232,926 Employee REUs are unvested and outstanding (December 31, 2018 - 189,618).
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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On February 22, 2019, the Trust granted 93,829 REUs under its Employee REU Plan. The grant date price was $25.28 per unit
based on the five-day volume weighted average market price of RioCan's common trust units traded on the TSX prior to the grant
date, resulting in an aggregate fair value of $2.4 million.
The number of REUs granted shall vest fully on the Settlement Date, including distribution equivalents that have accumulated
during the vesting period. Settlement of vested REUs is generally made within 30 days after the Settlement Date by way of the
delivery of an equivalent number of common trust units purchased on the secondary market, net of applicable withholding taxes.
Performance Equity Unit Plan (PEU Plan)
As at December 31, 2019, 416,737 PEUs are unvested and outstanding (December 31, 2018 - 443,821).
During February 2019, the Trust granted 142,576 PEUs under its PEU Plan at a fair value of $22.84 per unit resulting in an
aggregate fair value of $3.3 million on grant date. These PEUs will fully vest in February 2022.
PEUs issued contain a multiplier factor and the final payout will vary based on certain performance targets over a three-year
period from the year of the award. For 2019, RioCan adopted two performance metrics for its PEU Plan, being a FFO per unit
target over the 2019 to 2021 three-year period and a relative total unitholder return (TUR) over the three-year period against its
peer group with a 75% and 25% weighting for its retail peers and other peers, respectively. Its peer group includes S&P/TSX
Capped REIT companies with a market capitalization above $1.0 billion (excluding RioCan) plus First Capital Realty Inc.
Incentive Unit Option Plan
As part of comprehensive changes to its executive compensation program, the Trust enhanced the design of its long-term
incentive program through its commitment to reduce the frequency of option grants. Effective January 1, 2017, subject to the
Board's discretion, the Trust reduced the frequency of unit option grants to a maximum of every other year. The unit option
program was not cancelled altogether to permit the Board to grant options as it determines in the best interest of the Trust.
During March 2019, the Trust granted 0.4 million unit options at an exercise price of $26.49 per unit to senior management
(December 31, 2018 - 0.7 million). An option's maximum term is 10 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.
As at December 31, 2019, 12.5 million unit options remain available for grant under the Plan (December 31, 2018 – 11.8 million
unit options).
Trustee Deferred Unit Plan (DU Plan)
As at December 31, 2019, there are 319,506 deferred units vested and outstanding (December 31, 2018 - 272,269). During the
year ended December 31, 2019, 57,936 units were granted and 26,892 units were exercised (December 31, 2018 - 61,347 units
granted and 30,384 units exercised).
Normal Course Issuer Bid
On October 16, 2018, RioCan received TSX approval of its notice of intention to renew its NCIB, to acquire up to a maximum of
30,579,868 of its units, or approximately 10% of the public float of 305,798,689 as of September 30, 2018, for cancellation over
the next 12 months, effective October 22, 2018. The number of units that can be purchased pursuant to the renewed NCIB is
subject to a current daily maximum of 178,116 units, subject to RioCan’s ability to make one block purchase of units per calendar
week that exceeds such limits.
On October 15, 2019, RioCan received TSX approval of its notice of intention to renew its NCIB, to acquire up to a maximum of
30,724,496 of its units, or approximately 10% of its outstanding units as at September 30, 2019, for cancellation over the next 12
months, effective October 22, 2019.
The number of units that can be purchased pursuant to the 2019/2020 NCIB is subject to a current daily maximum of 145,737
units (which is equal to 25% of 582,948, being the average daily trading volume from April 1, 2019 to September 30, 2019,
excluding RioCan's purchases on the TSX under its former NCIB), 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 primarily out of net proceeds from its asset
dispositions, available cash and undrawn credit facilities.
During the three months ended December 31, 2019, the Trust did not purchase and cancel any units.
During the year ended December 31, 2019, the Trust purchased and cancelled 1.0 million units at a weighted average price of
$25.51 per unit, for a total cost of $25.0 million. See Note 15 of the 2019 Annual Consolidated Financial Statements for further
details.
Since October 2017, RioCan has purchased and cancelled 23,866,516 units at a weighted average purchase price of $24.55 per
unit at a total cost of $586.2 million since the renewal.
Distributions to Unitholders
RioCan qualifies as a mutual fund trust and a “real estate investment trust” (“REIT Exemption”) 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.
87
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 for the REIT Exemption for Canadian income tax purposes, certain distributions ("taxable
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. Any remaining distributions, other
than taxable 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.
As announced on December 1, 2017, the Trust increased its annual distribution to unitholders by $0.03 per unit or 2.1% to $1.44
per unit effective January 1, 2018. Our monthly distribution during 2019 was $0.12 per unit.
Distributions declared to unitholders are as follows:
(thousands of dollars)
Three months ended
December 31
Year ended
December 31
2019
2018
2019
2018
Distributions declared to unitholders
$
114,364
$
110,100
$
444,462
$
450,743
RioCan suspended its DRIP effective November 1, 2017. If RioCan elects to reinstate the DRIP in the future, unitholders who
were enrolled in the DRIP at the time of its suspension and remain enrolled at the time of its reinstatement will automatically
resume participation in the DRIP. Distributions declared to unitholders increased for the three months ended December 31, 2019
when compared to the same period last year as RioCan issued 3.8 million common trust units on a private placement basis on
August 31, 2019 and 8.9 million common trust units in a public offering on October 28, 2019. For the year ended December 31,
2019, distributions declared declined when compared to the same period last year due to a lower number of units outstanding in
the first half of 2019 resulting from the repurchases and cancellation of units in 2018 and 2019 pursuant to the NCIB.
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)
2019
2018
2019
2018
Cash flows provided by operating activities
$
170,235 $
128,325 $
568,728 $
404,005
Three months ended
December 31
Year ended
December 31
Add / (deduct) the (increase) / decrease in non-cash
working capital items
Cash flows provided by operating activities, excluding non-
cash working capital items
Less: Distributions declared to unitholders
Excess
Add: Distributions reinvested through the distribution
reinvestment plan
(39,871)
(10,655)
(53,769)
79,468
130,364
(114,364)
16,000
117,670
(110,100)
7,570
514,959
(444,462)
70,497
—
—
—
483,473
(450,743)
32,730
—
32,730
Excess, net of distribution reinvestment plan
$
16,000 $
7,570 $
70,497 $
For the year ended December 31, 2019, cash flows provided by operating activities, excluding non-cash working capital items,
were higher than distributions declared to unitholders during the year by $70.5 million. 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 and residential inventory, impact of future acquisitions and dispositions, capital expenditures and leasing
expenditures related to our 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 (if any) and
proceeds on the sale of marketable securities.
88
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
QUARTERLY RESULTS AND TREND ANALYSIS
(millions of dollars, except per unit amounts)
2019
As at and for the quarter ended (i)
Q4
Revenue
Net income attributable to unitholders
Net income from continuing operations
attributable to unitholders
NOI (v)
FFO (v)
ACFO (v)
Total assets
Total debt (ii)
$
$
$
$
$
$
321
151
151
176
146
134
$
$
$
$
$
$
Q3
354
178
178
173
143
145
$
$
$
$
$
$
Q2
328
253
253
175
145
139
$
$
$
$
$
$
Q1
324
195
195
167
142
107
$
$
$
$
$
$
Q4
301
149
150
174
138
135
$
$
$
$
$
$
2018
Q3
279
130
129
177
147
128
$
$
$
$
$
$
Q2
278
111
111
174
145
140
$
$
$
$
$
$
Q1
290
137
137
179
149
124
$ 15,188
$ 15,169
$ 14,580
$ 14,119
$ 14,004
$ 14,146
$ 14,250
$ 14,433
$ 6,391
$ 6,613
$ 6,224
$ 5,932
$ 5,874
$ 6,019
$ 6,019
$ 6,097
Common unitholder distributions
$
114
$
111
$
110
$
110
$
110
$
112
$
113
$
DRIP participation rate
—%
—%
—%
—%
—%
—%
—%
115
—%
Weighted average common units outstanding –
diluted (in thousands)
Per unit basis (diluted)
Net income attributable to unitholders from
continuing operations
Net income attributable to unitholders
FFO (v)
Common unitholder distributions
Net book value per unit (iii)
315,080
306,280
304,636
305,046
306,295
311,687
316,329
321,988
$
$
$
$
0.48
0.48
0.46
0.36
$
$
$
$
0.58
0.58
0.47
0.36
$
$
$
$
0.83
0.83
0.48
0.36
$
$
$
$
0.64
0.64
0.47
0.36
$
$
$
$
0.49
0.49
0.45
0.36
$
$
$
$
0.41
0.41
0.47
0.36
$
$
$
$
0.35
0.35
0.46
0.36
$
$
$
$
0.43
0.43
0.46
0.36
$ 26.14
$ 26.01
$ 25.78
$ 25.34
$ 25.13
$ 25.02
$ 24.96
$ 24.94
Closing market price per common unit
$ 26.76
$ 26.38
$ 25.99
$ 26.47
$ 23.80
$ 24.68
$ 24.15
$ 23.64
Key Performance Indicator Ratios
Same Property NOI growth % (v)
FFO payout ratio (v)
ACFO payout ratio (v)
Debt to total assets (v)
Debt to total assets
(RioCan's proportionate share) (v)
Interest coverage
(RioCan's proportionate share) (v)
Debt to Adjusted EBITDA
(RioCan's proportionate share) (v)
2.3%
76.9%
84.3%
41.7%
2.1%
77.4%
83.5%
43.2%
2.2%
77.2%
86.7%
42.5%
1.4%
77.9%
87.5%
41.8%
2.1%
77.9%
85.7%
41.6%
1.6%
78.0%
79.0%
42.0%
2.1%
78.0%
76.7%
42.0%
2.6%
78.0%
77.5%
42.0%
42.1%
43.6%
42.9%
42.2%
42.1%
42.4%
42.4%
42.4%
3.50
8.06
3.48
8.07
3.52
7.92
3.55
7.94
3.63
7.88
3.72
7.79
3.78
7.74
3.85
7.63
Weighted average contractual interest rate
3.34%
3.36%
3.44%
3.50%
3.51%
3.46%
3.42%
3.39%
Unencumbered assets to unsecured debt
(RioCan's proportionate share) (v)
% NOI generated from unencumbered assets
(RioCan's proportionate share) (v)
227%
216%
225%
229%
231%
218%
222%
221%
58.5%
58.9%
58.5%
59.6%
59.1%
56.9%
58.7%
58.7%
Other
Number of employees
Residency of unitholders (iv)
– Canadian
– Non-resident
605
605
597
585
597
627
637
645
67.6%
32.4%
66.3%
33.7%
75.6%
24.4%
70.6%
29.4%
67.1%
32.9%
65.7%
34.3%
64.7%
35.3%
68.6%
31.4%
(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 unitholder mailing addresses on record at the end of each reporting period.
(v) For definitions and basis of presentation of RioCan's non-GAAP measures, refer to the Non-GAAP Measures section of this MD&A. Debt to total
assets is a non-GAAP measure and is calculated as total debt less cash and cash equivalents, divided by total assets, excluding cash and cash
equivalents.
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.
89
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Effective January 1, 2018, the Trust adopted IFRS 9 without restatement of prior periods. As a result, effective January 1, 2018
all realized and unrealized fair value gains (losses) on marketable securities are recorded in net income whereas previously,
unrealized fair value gains (losses) were recorded in Other Comprehensive Income (OCI) and reclassified to net income only on
derecognition or if there was evidence of a permanent decline in fair value. Net income attributable to unitholders and net income
from continuing operations attributable to unitholders are impacted by the adoption of IFRS 9. FFO and Adjusted EBITDA
exclude any impact of adopting IFRS 9 on marketable securities as more fully described in the Non-GAAP Measures section of
this MD&A.
RioCan accelerated its portfolio focus in Canada’s six major markets over the past two years through the sale of properties
located primarily in secondary markets across Canada. The sales proceeds were primarily used to repay debt, to fund the
repurchase and cancellation of the Trust’s units through the Trust’s NCIB program while maintaining its strong credit
fundamentals, and to fund developments. Refer to the Strategy section of this MD&A for further details.
In addition to the impact of IFRS 9 and property dispositions pursuant to its major market strategy, overall quarterly fluctuations in
our revenue and operating results are also attributable to occupancy and same property NOI growth, acquisitions and other
dispositions, the sale of marketable securities, Target backfill progress, and so on.
Revenue declined from Q1 2018 to Q2 2018 as the Trust executed on its strategic disposition program. Revenue in Q3 2018
increased marginally from Q2 2018 despite the Trusts strategic disposition program due to higher property and asset
management fees, higher percentage rent, straight line rent, and lease termination fees. Revenue in Q1 2019 increased from Q4
2018 and Q3 2018 primarily due to increasing residential inventory sales revenue. Revenue in Q2 2019 increased from Q1 2019
primarily from higher base rent and fee revenue, offset by lower common area maintenance recoveries due to timing and lower
residential inventory sales revenue. Revenue in Q3 2019 increased from Q2 2019 primarily from higher residential inventory
sales revenue and higher base rent and common area maintenance recoveries, offset by lower lease termination fees. Revenue
in Q4 2019 decreased from Q3 2019 primarily from lower residential inventory sales revenue and lower property management
and other service fees, partially offset by higher base rent and common area maintenance recoveries. The above factors for
quarterly revenue variations also affect the quarterly variations in net income, FFO, ACFO, and also NOI except for the effect of
residential inventory sales revenue and property management and other service fees.
Net income decreased from Q1 2018 to Q2 2018 as a result of fair market adjustments on investment properties and lower
revenues as noted above. In addition, the Trust incurred higher general and administration expenses mainly from severance and
mark to market adjustment to unit-based compensation expense. Net income increased from Q2 2018 to Q3 2018 mainly as a
result of fair market adjustments on investment properties, higher operating income and lower severance costs. Net income
increased from Q3 2018 to Q4 2018 mainly as a result of fair market gains on investment properties, partially offset by severance
costs and unrealized fair value losses on marketable securities. Net income increased from Q4 2018 to Q1 2019 mainly as a
result of higher fair market adjustments on investment properties. Net income increased from Q1 2019 to Q2 2019 mainly from
higher fee revenue, gains from residential inventory sales and higher fair market adjustments on investment properties, partially
offset by lower income from equity accounted investments. Net income decreased from Q2 2019 to Q3 2019 mainly from lower
fair market value gains on investment properties, partially offset by higher gains from residential inventory sales and higher fair
value gains on marketable securities. Net income decreased from Q3 2019 to Q4 2019 mainly from lower fair market value gains
on investment properties, lower gains from residential inventory sales, lower property management and service fees, and lower
fair value gains on marketable securities, partially offset by higher NOI.
The decrease in Q2 2018 FFO from Q1 2018 was primarily due to higher volume of property dispositions as the Trust continued
to execute on acceleration of its major market focus, as well as higher severance costs. The modest increase in Q3 2018 from
Q2 2018 was primarily due to higher operating income and lower severance costs. The decrease in Q4 2018 FFO from Q3 2018
was primarily due to lower realized gains on the sale of marketable securities, higher severance costs, and lower NOI from
continued dispositions of assets. The increase in Q1 2019 FFO from Q4 2018 was primarily due to higher residential inventory
gains, higher income from our equity accounted investments and same property NOI growth, partially offset by lower operating
income from continued dispositions of assets. The increase in Q2 2019 FFO from Q1 2019 was primarily due to higher fee
revenue and gains from residential inventory sales, partially offset by lower income from equity accounted investments and lower
realized gains from the sale of marketable securities. The decrease in Q3 2019 FFO from Q2 2019 was primarily due to lower
realized gains from the sale of marketable securities and lower lease cancellation fees, partially offset by higher gains from
residential inventory sales. The increase in Q4 2019 FFO from Q3 2019 was primarily due to higher realized gains from the sale
of marketable securities, partially offset by lower property management and other fee income and lower gains from residential
inventory sales.
Quarterly changes in ACFO were driven by similar factors as for FFO, except for the quarterly net working capital changes
included in ACFO. The increase in ACFO in Q2 2018 from Q1 2018 was primarily due to the inclusion of $6.3 million net working
capital increase, as opposed to a working capital decrease of $13.3 million in Q1 2018. Q3 2018 ACFO decreased when
compared to Q2 2018 mainly due to working capital changes, a $6.3 million increase in Q2 2018 compared to a $5.4 million
decrease in Q3 2018. Q4 2018 ACFO increased when compared to Q3 2018 mainly due to working capital increases of $11.7
million, partially offset by lower gains on the sale of marketable securities and higher severance costs. Q1 2019 ACFO
decreased when compared to Q4 2018 mainly due to net working capital decrease of $22.2 million in the quarter while Q4 2018
had a net working capital increase of $11.7 million. Q2 2019 ACFO increased when compared to Q1 2019 mainly due to higher
operating income and net working capital increase of $6.8 million in the quarter, offset by lower distributions from equity
accounted investments. Q3 2019 ACFO increased when compared to Q2 2019 mainly due to a higher net working capital
90
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
increase in the quarter. Q4 2019 ACFO decreased when compared to Q3 2019 mainly due to lower net working capital increase
in the quarter.
The increase in Debt to Adjusted EBITDA from Q2 2018 to Q1 2019 was a result of the combination of a decline in Adjusted
EBITDA primarily due to dispositions (net of acquisitions) and the growth in average debt due to NCIB and dispositions timing.
The decrease in Debt to Adjusted EBITDA from Q1 2019 to Q2 2019 was primarily due to higher Adjusted EBITDA. The increase
in Debt to Adjusted EBITDA from Q2 2019 to Q3 2019 was primarily due to lower Adjusted EBITDA and higher average debt. The
decrease in Debt to Adjusted EBITDA from Q3 2019 to Q4 2019 was primarily due to higher Adjusted EBITDA, partially offset by
higher average debt. Interest coverage declined in Q2 2018 to Q1 2019, primarily from lower Adjusted EBITDA as the Trust
continued to execute on its strategic disposition program despite strong same property NOI growth. Interest coverage declined
from Q1 2019 to Q2 2019, primarily from higher gross interest costs, partially offset by higher Adjusted EBITDA from higher fees
and gains from residential inventory sales. Interest coverage declined from Q2 2019 to Q3 2019, primarily from higher gross
interest costs. Interest coverage increased from Q3 2019 to Q4 2019, primarily from higher Adjusted EBITDA, partially offset by
higher gross interest costs.
Unencumbered assets to unsecured debt is presented at RioCan's proportionate share effective January 1, 2018. Unencumbered
assets to unsecured debt ratio declined modestly during Q1 2018 to Q3 2018, but remains well ahead of our 200% target. This
was mainly as a result of an increase in our unsecured debt outpacing the increase in our unencumbered assets on a relative
percentage basis. This trend was reversed in Q4 2018 and the ratio was back above the Q1 2018 level as the Trust increased its
unencumbered asset pool without increasing its unsecured debt during the quarter. The ratio declined slightly in Q1 2019 from Q4
2018 as the increase in unencumbered assets was offset by an increase in unsecured debt during the quarter. The ratio declined
in Q2 2019 from Q1 2019, as the increase in unencumbered assets were offset by a larger increase in unsecured debt. The ratio
decreased in Q3 2019 from Q2 2019, as the rate of the increase in unsecured debt exceeded the rate of the increase in
unencumbered assets. The ratio increased in Q4 2019 from Q3 2019, as unencumbered assets increased and unsecured debt
decreased.
The FFO payout ratio has decreased since Q1 2018 due to growth in FFO from same property NOI growth, development
completions and realized gains from the sale of marketable securities despite substantial dispositions completed over the period,
as well as a decrease in total distributions to unitholders as a result of lower number of units outstanding because of the Trust's
NCIB program. The increase in the ACFO payout ratio from Q3 2018 to Q4 2018 was mainly because a one-time special
distribution of $29.2 million received during Q4 2017 was no longer included in the payout ratio calculation for Q4 2018 given that
the ratio was calculated on a twelve months trailing basis. Excluding the $29.2 million one-time special distribution in Q4 2017,
the ACFO payout ratio would have been 83.2% for Q3 2018. The 1.8% increase in the ACFO payout ratio from Q4 2018 to Q1
2019 was primarily due to $8.9 million net working capital decrease over the comparable period. The 0.8% decrease in the ACFO
payout ratio from Q1 2019 to Q2 2019 was primarily due to $0.5 million net working capital increase and $4.5 million lower
distributions over the comparable period as a result of the Trust's NCIB program. The 3.2% decrease in the ACFO payout ratio
from Q2 2019 to Q3 2019 was primarily due to $20.0 million net working capital increase and $2.1 million lower distributions over
the comparable period as a result of the Trust's NCIB program. The 0.8% increase in the ACFO payout ratio from Q3 2019 to Q4
2019 was primarily due to lower ACFO in Q4 2019 as a result of a lower net working capital increase.
91
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Unaudited Consolidated Statements of Income
(thousands of dollars, except per unit amounts)
Three months ended December 31
Revenue
Rental revenue
Residential inventory sales
Property management and other service 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 (loss) from equity-accounted investments
Fair value gain on investment properties, net
Investment and other income (loss)
Other expenses
Interest costs
General and administrative
Internal leasing costs
Transaction and other costs
Income before income taxes
Current income tax recovery
Deferred income tax recovery
Net income from continuing operations
Net loss from discontinued operations
Net income
Net income attributable to:
Unitholders
Net income per unit:
Basic
Diluted
Weighted average number of units (in thousands):
Basic
Diluted
2019
2018
$
279,052
$
274,775
38,639
3,039
22,264
3,967
320,730
301,006
97,789
5,750
27,604
131,143
189,587
4,438
(2,816)
23,274
(53)
24,843
45,215
12,287
3,017
3,614
64,133
150,297
(273)
(216)
95,970
4,460
20,882
121,312
179,694
2,861
5,848
29,230
(3,020)
34,919
42,441
14,683
2,862
5,208
65,194
149,419
—
(540)
$
$
$
$
$
$
150,786
$
149,959
—
(794)
150,786 $
149,165
150,786 $
149,165
150,786 $
149,165
0.48 $
0.48 $
0.49
0.49
314,953
315,080
306,225
306,295
92
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are described in Note 3 of RioCan's 2019 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.
Adoption of New Accounting Standards
Effective January 1, 2019, the Trust adopted IFRS 16, Leases (IFRS 16), IASB Annual Improvements 2015-2017 Cycle (issued in
December 2017) and IFRIC 23, Uncertainty over Income Tax Treatment (IFRIC 23) as issued by the International Accounting
Standards Board (IASB). As a result, significant accounting policies, estimates and judgments most affected by the adoption of
the new pronouncements have been updated as indicated in Notes 3 and 36 of the 2019 Annual Consolidated Financial
Statements and further described below.
IFRS 16
The Trust adopted IFRS 16 on its effective date of January 1, 2019, retrospectively without restatement of prior period
comparatives. IFRS 16 replaces IAS 17, Leases (IAS 17). For lessees, the new standard brings most leases on balance sheet
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.
The Trust has investment properties located on land which is leased. Under IAS 17 some of these leases are accounted for as
operating leases and the related lease payments are expensed. Under IFRS 16, a ROU asset and a lease obligation liability was
recorded along with the corresponding financing charges. The ROU asset is accounted for as investment property, as these land
leases meet the definition of investment property under IAS 40, Investment Property (IAS 40).
The Trust is also the lessee of three land and building leases, which it has subdivided and subleased to retail tenants, that were
accounted for as investment properties under an IAS 40 election. Under IFRS 16, these are considered sublease arrangements,
which are classified by reference to the ROU asset arising from the head lease, rather than by reference to the underlying asset
as is the case under IAS 17. This resulted in the reclassification of certain subleases to finance leases on January 1, 2019. For
tenant subleases classified as a finance leases, the subdivided portion of the investment property was de-recognized and a
finance lease receivable recognized in its place. The lease cash receipts will be allocated between interest income and principal
reduction of the finance lease receivable.
On initial transition, RioCan as a lessee recorded additional lease liabilities of $17.0 million, increased the value of investment
properties by $17.0 million and reduced prepaid rent in receivables and other assets by $0.1 million. As a lessor, RioCan
recorded $32.7 million of finance lease receivables from sublease arrangements in receivables and other assets, de-recognized
$32.7 million from investment properties and reduced straight-line rent within investment properties by $0.8 million. The net
impact to opening retained earnings was a reduction of $0.8 million. Prior periods have not been restated. Refer to Note 36,
Transition to IFRS 16 of the 2019 Annual Consolidated Financial Statements for the impact on the opening consolidated balance
sheet as at January 1, 2019 and for accounting policies under IAS 17, which were applicable in prior periods.
IASB Annual Improvements 2015-2017 Cycle (Issued in December 2017)
In December 2017, the IASB issued amendments to four standards IFRS 3, Business Combinations (IFRS 3), IFRS 11, Joint
Arrangements (IFRS 11), IAS 12, Income Taxes (IAS 12), and IAS 23, Borrowing Costs (IAS 23). These amendments became
effective on January 1, 2019. The implementation of these standards did not have a significant impact on the Trust.
IAS 19, Employee Benefits (IAS 19) - Amendments
In February 2018, the IASB issued amendments to IAS 19, Employee Benefits. The amendments address the accounting when
a defined benefit plan amendment, curtailment or settlement occurs during the reporting period. The amendments became
effective on January 1, 2019, and are applied prospectively. The implementation of these amendments did not have a significant
impact on the Trust.
IFRIC 23, Uncertainty over Income Tax Treatment (IFRIC 23)
In June 2017, the IASB issued amendments as a clarification to requirements under IAS 12, Income Taxes. IFRIC 23 clarifies the
application of various recognition and measurement requirements when there is uncertainty over income tax treatments. The
amendments became effective on January 1, 2019. The amendments did not have a significant impact on the Trust’s
consolidated financial statements.
Significant Accounting Estimates
Our critical accounting judgments, estimates and assumptions relate to the following areas: fair value, the net realizable value of
residential inventory, the capitalization of costs to investment property, the determination of lease term and the type of lease
where we are the lessor, the recognition and valuation of deferred tax assets and liabilities, classification of disposal groups and
the determination of significant influence over equity investees. 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.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Fair Value
Fair value is the amount at which an item could be bought or sold in a current transaction between independent, knowledgeable
willing parties, as opposed to a forced or liquidation sale, in an arm’s length transaction under no compulsion to act.
Quoted market prices in active markets are the best evidence of fair value and are used as the basis for fair value measurement,
when available. When quoted market prices are not available, estimates of fair value are based on the best information available,
including prices for similar items and the results of other valuation techniques. Valuation techniques used would be consistent
with the objective of measuring fair value.
The techniques used to estimate future cash flows will vary from one situation to another depending on the circumstances
surrounding the asset or liability in question.
The Trust’s consolidated 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 stabilized NOI to yield a fair value. The
Trust uses an internal valuation process to estimate the fair value of certain 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 and meets certain thresholds, the direct
capitalization method is applied to capitalize the pro forma net operating income, stabilized with market allowances, from
which the costs to complete the development are deducted. RioCan has involved third party appraisers in its valuation
process. For the year ended December 31, 2019, RioCan had 32 properties including 8 land parcels (year ended
December 31, 2018 - 31 properties including 7 land parcels) valued by experienced valuation professionals having the
required qualifications in property appraisals. Going forward, our plan is to select a sample of investment properties
(approximately six each quarter) on a rotational basis for external appraisal. Refer to the Asset Profile section of this MD&A
for further discussion of fair values of investment property.
IFRS 9, Financial Instruments (IFRS 9) which was effective January 1, 2018 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 the classification of the financial instrument.
At least annually, RioCan reports in its annual consolidated financial statements the fair value of its mortgages payable 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, 2019
is $5.3 billion. The Trust reported a $5.4 billion fair value relating to these mortgages and debentures payable in Note 25 to
the 2019 Annual Consolidated Financial Statements.
Net Realizable Value of Residential Inventory
Residential inventory is stated at the lower of cost and net realizable value. In calculating the net realizable value of residential
inventory and assessing for impairment of condominium sales receivables, the Trust estimates the selling prices based on
prevailing market prices, estimated cost to complete and selling costs.
Capitalization of Costs to Investment Property
RioCan's accounting policies relating to investment properties are described in Note 3(c) to the 2019 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
2019 Annual Consolidated Financial Statements. Initial capitalization of costs requires management’s judgment in determining
when the project commences 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 - Determination of Lease Term
The Trust determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised, including purchase options. At commencement date, the Trust determines as lessee or
as lessor whether there is reasonable certainty that options to extend or cancel a lease will be exercised. To make this analysis,
the Trust takes into account the extension terms of the contract including whether the extension is likely to be below market rent,
the cost to cancel a lease and significant investments made on the property.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Leases - Classification, RioCan as 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. When RioCan has determined, based on an evaluation of terms and conditions of the lease
arrangements, that the Trust retains all of the significant risks and rewards of ownership of these properties it accounts for these
arrangements as operating leases.
Income Taxes
The Trust uses judgment to interpret income tax rules and regulations and to determine 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 income 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
Classification of assets or a disposal group as held for sale 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.
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, 2019, 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.
Interbank Offered Rate (IBOR) Reform
The IASB published Phase 1 of its amendments to IFRS 9, Financial Instruments and IAS 39, Financial Instruments: Recognition
and Measurement, as well as IFRS 7, Financial Instruments: Disclosures in September 2019, to provide relief from the potential
effects of the uncertainty arising from Interbank Offered Rate (IBOR) reform, focusing in particular on the period prior to
replacement of interbank offered rates. These amendments modify hedge accounting requirements, allowing the Trust to assume
that the interest rate benchmark on which the cash flows of the hedged item and the hedging instrument are based are not
altered as a result of IBOR reform, thereby allowing hedge accounting to continue. Mandatory application of the amendments
ends at the earlier of when the uncertainty regarding the timing and amount of interest rate benchmark-based cash flows is no
longer present and the discontinuation of the hedging relationship. Phase 2 of the IASB’s project on IBOR is underway and will
address transition to IBOR. The Phase 1 amendments are effective for the Trust's fiscal year beginning January 1, 2020, with
early adoption permitted. Phase 1 amendments are not expected to impact the Trust's consolidated financial statements upon
adoption. Disclosure of current hedging relationships is provided in Note 26 to the 2019 Annual Consolidated Financial
Statements.
Amendments to IFRS 3, Business Combinations (IFRS 3) - Definition of a Business
In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 to help entities determine whether an
acquired set of activities and assets is a business or not. The amendments clarify the minimum requirements for a business,
removed the assessment of whether market participants are capable of replacing any missing elements, added guidance to help
entities assess whether an acquired process is substantive, narrowed the definitions of a business and of outputs, and introduced
an optional fair value concentration test. The amendments are effective January 1, 2020, with early adoption permitted. The
amendments are applied prospectively to transactions or other events that occur on or after the date of first application, and are
not expected to have a significant impact on the Trust's consolidated financial statements.
Amendments to IAS 1, Presentation of Financial Statements (IAS 1) and IAS 8, Accounting Policies, Changes in
Accounting Estimates and Errors (IAS 8) - Definition of Material
In October 2018, the IASB issued amendments to IAS 1 and IAS 8 to align the definition of "material" across the standards and to
clarify certain aspects of the definition. The new definition states that, "Information is material if omitting, misstating or obscuring it
could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the
basis of those financial statements, which provide financial information about a specific reporting entity." These amendments are
effective January 1, 2020. The amendments to the definition of material are not expected to have a significant impact on the
Trust's consolidated financial statements.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
Amendment to IAS 1, Presentation of Financial Statements - Classification of Liabilities as Current or Non-Current
In January 2020, the IASB issued amendments to paragraphs 69-76 of IAS 1 to clarify the requirements for classifying liabilities
as current or non-current. The amendments specify that the conditions which exist at the end of a reporting period are those
which will be used to determine if a right to defer settlement of a liability exists. The amendments also clarify the situations that
are considered a settlement of a liability. The amendments are effective January 1, 2022, with early adoption permitted. The
amendments are to be applied retrospectively. Management is currently assessing the impact of this amendment.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER
FINANCIAL REPORTING
Disclosure Controls and Procedures (DCP)
The CEO and CFO of the Trust have designed or caused to be designed under their direct supervision the Trust’s DCP to provide
reasonable assurance that: i) material information relating to the Trust is made known to management by others, particularly
during the period in which the annual and interim filings are being prepared; and (ii) information required to be disclosed by the
Trust in its annual and interim fillings or other reports filed or submitted under securities legislation is recorded, processed,
summarized and reported within the time period specified in securities legislation. The CEO and CFO are assisted in this
responsibility by a Disclosure Committee, which is composed of RioCan senior management. The Disclosure Committee has
established disclosure controls and procedures so that it becomes aware of any material information affecting RioCan in order to
evaluate and communicate this information to management of the Trust, including the CEO and CFO, as appropriate and
determine the appropriateness and timing of any required disclosure. It was determined, as at December 31, 2019, that RioCan’s
DCP were adequate and effective.
Internal Controls over Financial Reporting (ICFR)
RioCan has established adequate ICFR 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 ICFR as at December 31, 2019 based 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 at December 31, 2019, RioCan’s ICFR were appropriately designed and were operating effectively based on
the criteria established in the Internal Control - Integrated Framework (2013).
There were no changes in the Trust’s ICFR during the three and twelve months ended December 31, 2019 that have materially
affected, or are reasonably likely to materially affect, the Trust’s ICFR.
Inherent Limitations
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 for the REIT Exemption 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 for the REIT Exemption,
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 REIT Exemption 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
Exemption qualification, including any significant legislation updates.
U.S. Income Tax Legislation
On December 18, 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.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
RioCan's related parties include the following persons and/or entities:
(a) associates, joint ventures, or entities which are controlled or significantly influenced by the Trust; and
(b) key management personnel including the Trustees and those persons having the authority and responsibility for planning,
directing and controlling the activities of RioCan, directly or indirectly.
The Trust’s key management personnel include each of the Trustees and the following individuals: Chief Executive Officer,
Edward Sonshine; President and Chief Operating Officer, Jonathan Gitlin; and Senior Vice President and Chief Financial Officer,
Qi Tang (collectively, the "Key Executives").
Remuneration of the Trust’s Trustees and Key Executives for the three months and years ended December 31, 2019 and
December 31, 2018 is as follows:
Three months ended
December 31
Year ended
December 31
Trustees
Key Executives
Trustees
Key Executives
(thousands of dollars)
2019
2018
2019
2018
2019
2018
2019
Compensation and benefits
Unit-based payments
Post-employment benefit costs
$
$
43 $
74 $
1,315 $
1,164 $
203 $
280 $
5,388 $
388
—
(9)
—
765
26
800
10
2,813
—
1,663
—
3,460
108
431 $
65 $
2,106 $
1,974 $
3,016 $
1,943 $
8,956 $
12,780
2018
8,188
4,551
41
On March 25, 2019, the Trust announced that Edward Sonshine has agreed to remain Chief Executive Officer of the Trust until
his retirement on March 31, 2021, subject to a potential one-year extension. On March 22, 2019, the Trust promoted Jonathan
Gitlin to President and Chief Operating Officer of RioCan effective immediately. He was previously promoted from Senior Vice
President, Investments & Residential to Chief Operating Officer on August 1, 2018.
For further details on related party transactions, refer to Note 31 of the 2019 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, Unitholders authorized and approved amendments made to the Trust’s Declaration of Trust to further align it
with evolving governance best practices. The rights granted in the amended Declaration of Trust are granted as contractual rights
afforded to Unitholders (rather than as statutory rights). Similar to other existing rights contained in the Declaration of Trust (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 CBCA. 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.
Ownership of Real Estate
Tenant Concentration
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 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 conduct credit
assessments for new tenants when considered appropriate 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 commercial leases with base terms between five and ten years, and by negotiating longer term
commercial leases with built-in minimum rent escalations where deemed appropriate.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
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. As of December 31, 2019, 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 similar to 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 this 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 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, 2019, RioCan had NLA, at its interest, of 35,720,000 square feet of income producing properties and a portfolio
economic in-place occupancy rate of 96.3%. Based on our current annualized portfolio weighted average rental revenue of
approximately $31 per square foot including CAM and tax recoveries, for every fluctuation in occupancy by a differential of 1%,
our operations would be impacted by approximately $10.9 million annually.
RioCan's aggregate net rental revenue from leases expiring over the next five years is $407 million based on current contractual
rental rates, excluding CAM and tax recoveries. If the leases associated with these expiring net rents are renewed upon maturity
at an aggregate rental rate differential of 100 basis points, our net income would be impacted by approximately $4.1 million
annually.
Some of our retail lease agreements include co-tenancy clauses which allow the tenant to pay a reduced rent amount and, in
certain instances, terminate the lease, if RioCan fails to maintain certain occupancy levels or retain certain anchor tenancies. In
addition, certain of our tenants have the ability to terminate their leases prior to the lease expiration date if their sales do not meet
agreed upon thresholds. If occupancy, tenancy or sales fall below certain thresholds, rents that we are entitled to receive from
tenants could be reduced.
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.
Ontario Rent Control Legislation
On November 15, 2018 the Ontario government amended legislation governing rent control rules for newly purpose-built rental
developments. The amended legislation provides that rent control exemptions will apply to all units first occupied as a residential
space after November 15, 2018. This is expected to encourage the supply of residential rental units in Ontario. However, there is
no assurance that future governments will not reintroduce rent control measures. Any reintroduction of rent control legislation in
the future could impact the Trust's certain mixed-use development projects' future NOI growth potential, and thus, there can be no
assurance that all of our proposed residential projects as described herein would be undertaken, and if so, with what mix of
residential and commercial development and at what costs. There could also be changes to the mix of condominium versus
residential rental units or air rights sales for certain projects.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Development Risk
As discussed in the Outlook section of this MD&A under Development Environment, after many years of development and
housing booms in Canada's major markets, there are a number of emerging factors that are affecting development risks that the
Trust faces. Such factors include, but are not limited to, rising construction costs and development charges and shortage of
experienced labour in certain construction related trades. The impact of these factors will be further assessed and observed in
terms of broader market reactions. These factors could impact certain of the Trust's mixed-use development projects' future NOI
growth potential, and profit margin or development yield potential. As a result, there can be no assurance that all of our proposed
residential projects as described herein will be undertaken, and if so, with what mix of residential and commercial development, at
what costs, and generating what profit margin or development yield. There could also be changes to the mix of condominium
versus residential rental units or air rights sales for certain projects.
Residential Rental Business Risk
RioCan 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, housing supply and housing demand. As a landlord in its properties that include rental apartments, RioCan
is subject to the risks inherent in the multi-unit residential rental business, including, but not limited to, fluctuations in occupancy
levels, individual credit risk, heightened reputation risk, tenant privacy concerns, potential changes to rent control regulations,
increases in operating costs including the costs of utilities and the imposition of new taxes or increased property taxes.
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, 2019, RioCan’s total indebtedness had a 3.69 year weighted average term to maturity bearing interest at a
weighted average contractual interest rate of 3.34% per annum.
Interest Rate and Financing Risk
The terms of RioCan's credit agreements require the Trust to comply with a number of customary financial and other covenants,
such as maintaining debt service coverage and leverage ratios, adequate insurance coverage and certain credit ratings. These
covenants may limit our flexibility in conducting our operations and breaches of these covenants could result in defaults under the
instruments governing the applicable indebtedness.
RioCan’s operations are also impacted by increases in 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, 2019, 6.4% of
our total debt was at floating interest rates on RioCan's proportionate basis.
From time to time, the Trust may enter into floating-for-fixed interest rate swaps as part of its strategy for managing interest rate
risk. As at December 31, 2019, the carrying value of our floating rate debt, not subject to a hedging strategy, is $0.4 billion. A 50
basis point increase in market interest rates would result in a $1.9 million decrease in our net income.
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.
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 in 2016 and the associated repayment of
U.S. denominated debt, RioCan has significantly reduced its foreign exchange risk.
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.
99
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
Other Risks
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.
Uninsured Losses
RioCan carries comprehensive general liability, environmental, fire, flood, extended coverage and rental loss insurance with
policy specifications, limits and deductibles customarily carried for similar properties. There are, however, certain types of risks
(including, but not limited to, environmental contamination or catastrophic events such as war or acts of terrorism) which are
either uninsurable, in whole or in part, or not insurable on an economically viable basis. Should an uninsured or underinsured loss
occur, the Trust could lose its investment in, and anticipated profits and cash flows from, one or more of its properties, and the
Trust would continue to be obliged to repay any recourse mortgage indebtedness on such properties.
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 our Chief Executive Officer, Edward Sonshine, our
President and Chief Operating Officer, Jonathan Gitlin and our Senior Vice President and Chief Financial Officer, Qi Tang 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 personnel 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.
100
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 for the REIT Exemption 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 for the REIT Exemption for income tax purposes, the consequences could be material and adverse.
No assurance can be given that the provisions of the Tax Act regarding mutual fund trusts and the REIT Exemption 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.
Cyber Security Risk
Cyber security has become an increasing area of focus as reliance on digital technologies to conduct business operations has
grown significantly. Cyber attacks can include but are not limited to intrusions into operating systems, cyber extortion, social
engineering fraud, theft of personal or other sensitive data and/or cause disruptions to normal operations. Such cyber attacks
could compromise the Trust's confidential information as well as that of the Trust's employees, tenants and third parties with
whom the Trust interacts and may result in negative consequences, including remediation costs, loss of revenue, additional
regulatory scrutiny, litigation and reputational damage.
As a result, the Trust has developed a cyber security risk management program focused across a spectrum of preventative
protective and detective measures. These measures include, but are not limited to, security awareness programs with
employees, regular vulnerability testing performed by both internal and by external parties, establishing and maintaining a robust
disaster recovery program, implementation of a formal incident response program and enhancing email security. The Trust
continues to evolve its security tactics and defenses in response to emerging threats. The Trust also follows certain protocols
when it engages software vendors concerning data security and access control.
Climate Change Risk
RioCan is exposed to climate change risk from natural disasters and severe weather, such as floods, ice storms, and wild fires
that may result in damage to our investment properties. Such damage may result in loss of NOI from an investment property
becoming non-operational, increase in costs to recover/repair properties from a natural disaster and inclement weather, and
increase in insurance costs to insure the property against natural disasters and severe weather events.
Responding to climate change involves reducing emissions of greenhouse gases in the atmosphere and adapting to the impacts
of extreme weather events. To reduce our overall energy use, we have invested in an LED retrofit program and select smart
technologies such as sensors. As part of adaptation plans, RioCan’s Crisis Management Program enables us to respond, resolve
and communicate climate related events. The program includes plans to provide first responders with guidelines to react and
respond to these events in a way that keeps tenants and customers safe.
101
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
Audited Annual Consolidated
Financial Statements
for the Years Ended
December 31, 2019 and 2018
TABLE OF CONTENTS
Management’s Responsibility for Financial Reporting
Independent Auditor’s Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
103
104
106
107
108
109
110
111
102
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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 annual
consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS).
The annual 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 consolidated 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, 2019, 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 auditor before such statements are approved by the Board of Trustees. Other
key responsibilities of the Audit Committee include selecting RioCan’s auditor, approving the consolidated financial statements
and MD&A, and monitoring RioCan’s existing systems of internal controls.
Ernst & Young LLP, the independent auditor appointed by the unitholders of RioCan upon the recommendation of the Board of
Trustees, has examined our 2019 and 2018 annual consolidated financial statements and has expressed their opinion upon the
completion of such examination in the following report to the unitholders. The auditor has full and free access to, and meets at
least quarterly with, the Audit Committee to discuss their audits and related matters.
(signed) Edward Sonshine
(signed) Qi Tang
Edward Sonshine, O.Ont., Q.C.
Qi Tang
Chief Executive Officer
Senior Vice President and Chief Financial Officer
Toronto, Canada
February 19, 2020
103
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
To the Unitholders of RioCan Real Estate Investment Trust
INDEPENDENT AUDITOR’S REPORT
Opinion
We have audited the consolidated financial statements of RioCan Real Estate Investment Trust and its subsidiaries (the Trust),
which comprise the consolidated balance sheets as at December 31, 2019 and 2018, and the consolidated statements of income,
consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of
cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant
accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Trust as at December 31, 2019 and 2018, and its consolidated financial performance and its consolidated
cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRSs).
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our
report. We are independent of the Trust in accordance with the ethical requirements that are relevant to our audit of the
consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Other information
Management is responsible for the other information. The other information comprises:
•
•
Management’s Discussion and Analysis
The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read
the other information, and in doing so, consider whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact in this
auditor's report. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will
perform on this other information, we conclude there is a material misstatement of other information, we are required to report
that fact to those charged with governance.
Responsibilities of management and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
IFRSs, 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.
In preparing the consolidated financial statements, management is responsible for assessing the Trust’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Trust or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Trust’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.
104
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
INDEPENDENT AUDITOR’S REPORT (continued)
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
•
•
•
•
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Trust’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant
doubt on the Trust’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if
such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Trust to cease to continue as a
going concern
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to
bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Mark Vrooman, CPA, CA.
Toronto, Canada
February 19, 2020
105
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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
Lines of credit and other bank loans
Accounts payable and other liabilities
Total liabilities
Equity
Unitholders' equity:
Common
Total equity
Total liabilities and equity
Note
December 31, 2019
December 31, 2018
4, 9
10
5
6
7
4
8, 9
13
12
11
9, 14
$
14,359,127
$
13,009,421
12,045
190,508
175,951
108,956
21,800
226,423
93,516
13,339
189,817
164,014
206,123
194,227
152,126
74,698
15,188,326
$
14,003,765
2,891,648
$
2,412,451
1,086,719
492,297
6,883,115
$
2,742,633
2,218,270
913,130
463,342
6,337,375
8,305,211
8,305,211
15,188,326
$
7,666,390
7,666,390
14,003,765
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
Approved on behalf of the Board of Trustees
(signed) Siim A. Vanaselja
Siim A. Vanaselja
Chair of Audit Committee
Trustee
(signed) Edward Sonshine
Edward Sonshine, O. Ont., Q.C.
Chief Executive Officer
Trustee
106
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of Canadian dollars, except per unit amounts)
Years ended December 31,
Revenue
Rental revenue
Residential inventory sales
Property management and other service 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 gains on investment properties, net
Investment and other income, net
Other expenses
Interest costs
General and administrative
Internal leasing costs
Transaction and other costs
Income before income taxes
Current income tax recovery
Deferred income tax expense (recovery)
Net income from continuing operations
Net income from discontinued operations
Net income
Net income attributable to:
Unitholders
Net income per unit:
Basic
Diluted
Weighted average number of units (in thousands):
Basic
Diluted
The accompanying notes are an integral part of the consolidated financial statements.
Note
2019
2018
18
18
18
20
5
4
19
21
22
23
24
24
24
24
$
1,093,727
$
1,110,160
208,965
23,633
22,264
15,418
1,326,325
1,147,842
384,404
20,621
172,688
577,713
748,612
16,916
10,051
247,624
7,732
282,323
182,780
46,814
11,309
12,833
253,736
777,199
(699)
2,064
775,834
—
775,834
775,834
775,834
2.52
2.52
$
$
$
$
$
$
389,285
17,384
20,882
427,551
720,291
11,452
11,174
18,304
20,316
61,246
168,299
55,999
11,294
20,023
255,615
525,922
—
(1,440)
527,362
741
528,103
528,103
528,103
1.68
1.68
307,683
307,779
313,936
314,024
$
$
$
$
$
$
107
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of Canadian dollars)
Years ended December 31,
Net income
Other comprehensive loss:
Items that may be reclassified subsequently to income, net of tax:
Interest rate swap agreements:
Unrealized loss during the year
Reclassified during the year to income
Other comprehensive loss from equity-accounted investments
Item that is not to be reclassified to income, net of tax:
Actuarial gain (loss) on pension plan
Other comprehensive loss, net of tax
Comprehensive income, net of tax
Comprehensive income, net of tax attributable to:
Unitholders
The accompanying notes are an integral part of the consolidated financial statements.
Note
2019
$
775,834 $
2018
528,103
15
15
15
15
$
$
(14,807)
2,821
(51)
(972)
(13,009)
(7,796)
2,099
(149)
864
(4,982)
762,825 $
523,121
762,825 $
523,121
108
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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109
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
Years ended December 31,
Operating activities
Net income 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 on investment properties, net
Deferred income tax expense (recovery)
Fair value gains on marketable securities
Transaction losses (gains), net on disposition of investment properties
Adjustments for changes in other working capital items
Cash provided by operating activities
Investing activities
Acquisitions of investment properties
Construction expenditures on properties under development
Capital expenditures on income properties:
Recoverable and non-recoverable costs
Tenant improvements and external leasing commissions
Proceeds from sale of investment properties
Earn-outs on investment properties
Contributions to equity-accounted investments
Distributions received from equity-accounted investments
Advances of mortgages and loans receivable
Repayments of mortgages and loans receivable
Investment in bonds, net of maturities
Proceeds from sale of marketable securities, net of selling costs
Lease payments received from finance lease
Cash provided by (used in) investing 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
Units repurchased under normal course issuer bid
Proceeds received from issuance of common units, net of issue costs
and units repurchased for settlement of unit compensation exercises
Repayment of finance lease liabilities
Cash provided by (used in) financing 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
The accompanying notes are an integral part of the consolidated financial statements.
Note
2019
2018
$
775,834
$
527,362
—
775,834
4,381
(8,880)
6,478
(10,051)
(247,624)
1,694
(8,030)
1,157
53,769
568,728
741
528,103
4,575
(8,563)
6,826
(11,174)
(18,304)
(1,440)
(16,472)
(78)
(79,468)
404,005
(563,063)
(463,766)
(63,181)
(362,359)
(30,884)
(42,436)
480,296
(1,311)
(6,975)
16,382
(45,587)
31,374
158
44,000
2,088
(25,541)
(34,032)
917,573
(930)
(11,533)
9,180
(45,964)
20,091
(2,880)
142,812
—
(579,724)
543,236
452,000
(447,637)
886,799
(778,396)
497,595
(350,000)
(442,953)
(24,996)
239,251
(1,849)
29,814
18,818
74,698
$
93,516
$
496,860
(586,511)
371,650
(363,140)
298,323
(250,000)
(452,170)
(461,814)
4,034
—
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4,473
70,225
74,698
22
18
15
5
4
19
19
30
5
5
19
13
13
29
29
110
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2019 and 2018
Audited - Canadian dollars, tabular amounts in millions, except per
unit amounts or unless otherwise noted
TABLE OF CONTENTS
1. General Information
112
19.
Investment and Other Income
2.
Basis of Preparation and Statement of Compliance
112
20.
Interest Income
3.
Significant Accounting Policies
4.
Investment Properties
114
124
21.
Interest Costs
22. General and Administrative
5.
Equity-accounted Investments and Joint Arrangements 130
23. Transaction and Other Costs
6. Mortgages and Loans Receivable
7.
Residential Inventory
8.
Receivables and Other Assets
9.
Leases
10.
Income Taxes
11. Lines of Credit and Other Bank Loans
12. Mortgages Payable
13. Debentures Payable
14. Accounts Payable and Other Liabilities
15. Unitholders’ Equity
16. Unit-based Compensation Plans
17. Distributions to Unitholders
18. Revenue
131
131
131
132
134
134
135
136
137
138
139
141
142
24. Net Income per Unit
25. Fair Value Measurement
26. Risk Management
27. Capital Management
28. Subsidiaries
29. Supplemental Cash Flow Information
30. Changes in Other Working Capital Items
31. Related Party Transactions
32. Employee Benefits
33. Segmented Information
34. Contingencies and Other Commitments
35. Events after the Balance Sheet Date
36. Transition to IFRS 16
143
143
143
143
143
144
144
145
147
149
150
150
150
151
151
151
152
152
111
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
1. GENERAL INFORMATION
RioCan Real Estate Investment Trust and its consolidated subsidiaries (collectively, the Trust or RioCan) own, develop and
operate one of Canada's largest portfolio of retail and increasingly mixed-use properties. 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 (Declaration) dated November 30, 1993, as most recently amended and restated on
June 17, 2015. 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) are listed on the Toronto Stock Exchange (TSX) under the ticker symbol REI.UN.
These consolidated financial statements of the Trust for the years ended December 31, 2019 and 2018 were authorized for issue
by the Board of Trustees on February 19, 2020.
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).
All dollar amounts discussed herein are in thousands of Canadian dollars, unless otherwise stated.
(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, except with respect to the adoption of IFRS 16, Leases, which has been applied on a
modified retrospective basis without restatement of comparatives. Any IFRS standards issued but not yet effective up to the date
of issuance of these consolidated financial statements are described in Note 3(x). 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 for 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, of other
comprehensive income (OCI) 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.
112
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
(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.
(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 during active development in accordance with the
accounting policy in Note 3(c). Management’s judgment is required in determining when a property is in active development,
which generally begins when a development commences and ceases when a development is substantially completed.
Leases - Determination of lease term
The Trust determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised, including purchase options. At commencement date, the Trust determines as lessee or
as lessor whether there is reasonable certainty that options to extend or cancel a lease will be exercised. To make this analysis,
the Trust takes into account the extension terms of the contract including whether the extension is likely to be below market rent,
the cost to cancel a lease and significant investments made on the property.
Leases - Classification, RioCan as 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. When RioCan has determined, based on an evaluation of terms and conditions of the lease
arrangements, that the Trust retains all of the significant risks and rewards of ownership of these properties it accounts for these
arrangements as operating leases.
Income taxes
The Trust uses judgment to interpret income tax rules and regulations and to determine 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 income 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
Classification of assets or a disposal group as held for sale 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.
113
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
Investment properties
Estimates and assumptions used in determining fair value of the Trust's investment properties include, but are not limited to,
capitalization rates, stabilized net operating income (including vacancy allowances, management fee and structural reserves) and
costs to complete, if applicable. The Trust examines the key assumptions at the end of each reporting period and updates these
assumptions based on recent leasing activity and external data available at the time. A change to any of these inputs may
significantly alter the fair value of an investment property.
Net realizable value of residential inventory
Residential inventory is stated at the lower of cost and net realizable value. In calculating the net realizable value of residential
inventory and assessing for impairment of condominium sales receivables, the Trust estimates the selling prices based on
prevailing market prices, estimated cost to complete and selling costs.
Financial instruments
The Trust uses estimates and assumptions that affect the carrying amounts of certain financial instruments, these are described
in Note 3(j). In addition, the Trust uses estimates and assumptions for determining the fair values of financial instruments for
disclosure purposes (Note 25).
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.
The accounting policies set out below have been applied consistently in all material respects, except with respect to the adoption
of IFRS 16, Leases (IFRS 16), which has been applied on a modified retrospective basis without restatement of comparatives.
Refer to Note 36 for the transitional impacts and significant accounting polices which apply to comparative information for 2018.
Any IFRS standards issued but not yet effective for the current accounting year are described in Note 3(y).
(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.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
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 a lease is classified as investment property, if it meets the definition of investment property. At
the inception of these leases, investment property is recognized at 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. Cost includes all amounts related to the acquisition (excluding transaction
costs related to a business combination as outlined in Note 3(a)) and improvements of the properties. All costs associated
with upgrading and extending the economic life of the existing facilities other than ordinary repairs and maintenance are
capitalized to investment property. Subsequent to initial recognition, income properties are recorded at fair value, in
accordance with International Accounting Standard IAS 40, Investment Property (IAS 40). 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. Gains or losses arising from differences between current period fair value and the sum of previously
measured fair value and capitalized costs as described above are recognized in net income in the period in which they arise.
(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, common
area maintenance costs, property taxes and borrowing costs on both specific and general debt (Development Carrying
Costs). Development Carrying Costs 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 the unit of the property can
operate in a manner intended by management, which may include that 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. Development Carrying Costs are 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.
Investment properties are derecognized on disposal or when no future economic benefits are expected from their use or disposal.
(d) Residential inventory
Residential inventory consists of 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. Net realizable value is
the estimated selling price in the ordinary course of business, less estimated selling costs and estimated development costs to
complete.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
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.
Transfers between residential inventory and investment property occur 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 based on management's intentions and there is
observable evidence of a change in use.
(e)
Investment properties classified as held for sale
Investment property is classified as held for sale when it is expected that the carrying amount will be recovered principally
through sale rather than from continuing use. To be classified as held for sale, the property must be available for immediate sale
in its present condition, subject only to terms that are usual and customary for sales of such property, and its sale must be highly
probable, generally within one year. Upon designation as held for sale, the investment property continues to be measured at fair
value and is presented separately on the consolidated balance sheets.
(f) Leases
A. As a lessee
(i) Right-of-use (ROU) assets
The Trust recognizes ROU assets at the commencement date of the lease (i.e., the date the underlying asset is available to the
Trust for use). As lessee, the Trust has used the practical expedient to combine lease and non-lease components for gross
leases. ROU assets for property leases are accounted for under IAS 40 and are carried at fair value.
(ii) Lease liabilities
At the commencement date of the lease, the Trust recognizes lease liabilities measured at the present value of lease payments to
be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments), variable
lease payments that depend on an index or a rate and amounts expected to be paid under residual value guarantees, less any
lease incentives receivable. The lease payments also include the exercise price of a purchase option reasonably certain to be
exercised by the Trust and payments of penalties for terminating a lease, if the lease term reflects the Trust exercising the option
to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expenses in the period in
which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Trust uses the incremental borrowing rate at the lease commencement
date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed
lease payments or a change in the assessment to purchase the underlying asset.
(iii) Short-term leases and leases of low-value assets
The Trust applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those
leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value. Lease
payments on short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis over the
lease term.
B. As a lessor
When the Trust acts as a lessor, it determines and classifies each lease as a finance lease or operating lease at the lease
commencement date.
When a lease transfers to the lessee substantially all the risk and rewards of ownership incidental to the ownership of the
underlying asset, the lease is classified as a finance lease; otherwise, the lease is classified as an operating lease. To make this
assessment, the Trust considers certain indicators including whether the lease is for the major part of the economic life of the
asset or the present value of lease payments is substantially all the fair value of the underlying asset.
When the Trust is an intermediate lessor, it accounts for its interests in the head lease and sublease separately. The Trust
assesses the sublease with reference to the ROU asset arising from the head lease.
If a lease arrangement contains lease and non-lease components, the Trust applies IFRS 15, Revenue from Contracts with
Customers to allocate the consideration to the various components of the contract.
(i) Finance lease receivables
At the commencement date of a finance lease, the Trust recognizes a finance lease receivable at the amount of its net
investment in the lease, which is measured at the present value of lease payments to be made over the lease term. The lease
payments include fixed payments (including in-substance fixed payments), variable lease payments that depend on an index or a
rate and amounts expected to be paid under residual value guarantees, less any lease incentives payable. The lease payments
also include the exercise price of a purchase option reasonably certain to be exercised by the lessee and payments of penalties
for terminating a lease, if the lease term reflects the lessee exercising the option to terminate. The variable lease payments that
do not depend on an index or a rate are recognized as rental revenue in the period on which the event or condition that triggers
the payment occurs.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
In calculating the present value of lease payments, the Trust uses the interest rate implicit in the lease, or in the case of a
sublease if the rate is not readily determinable, the discount rate used for the head lease. After the commencement date, the
amount of finance lease receivables is increased to reflect the accretion of interest and reduced for the lease payments received.
In addition, the finance lease receivable is derecognized and impairment is measured in accordance with the expected credit loss
model pursuant to IFRS 9, Financial Instruments (IFRS 9).
(g) Revenue
The following is a description of the principal activities from which the Trust generates its revenues, including the nature of
revenues, timing of satisfaction of performance obligations and significant payment terms.
The following specific recognition criteria must also be met before revenue is recognized:
(i) Rental revenue
The majority of the Trust's rental revenue is earned from its lease contracts with customers.
Base rent
The Trust classifies leases with its tenants as operating leases when it has not transferred substantially all of the risks and
rewards of ownership of its investment properties. 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 contract
where it is determined that the tenant fixturing has no benefit to RioCan beyond the existing tenancy.
Realty tax and insurance recoveries
Tenant reimbursements for real estate taxes and insurance incurred by the Trust relate specifically to the leased property
and are considered to be unavoidable costs directly related to the leased asset. The Trust recognizes realty tax and
insurance recoveries as they become due.
Straight-line rent
Certain lease contracts contain rent escalation clauses or provide for tenant occupancy during periods for which no rent is
due. Certain lease contracts or lease modifications may also include lease termination options and payments. RioCan
records the total rental income on a straight-line basis, inclusive of lease termination payments if it is reasonably certain the
tenant will exercise the lease termination option, over the full term of the lease contract or modified lease contract, 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.
Straight-line rent is recalculated and adjusted for modifications to existing tenant operating leases.
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.
Common area maintenance (CAM) services
The Trust has obligations pursuant to its lease contracts with tenants to provide CAM services in exchange for CAM
recoveries, which are considered non-lease components. These CAM services are delivered to tenants during the period in
which the tenants occupy the premises, and as such, CAM recoveries are recognized in revenue over time. The Trust
receives variable consideration for the CAM recoveries to the extent of costs incurred, and revenue is recognized on this
basis as this is the best estimate of amounts earned over the period these services are performed. Revenue is constrained
by actual costs incurred and any restrictions in the lease contracts. The Trust is obligated to continue to provide CAM
services over the remainder of the lease contract term and will recognize revenue based on actual cost incurred to fulfill the
CAM services.
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 date the tenant ceases to have the right to use the asset, if the lease termination payment was
not included in the straight-line rent noted above.
Parking revenue
Parking revenue consists of fees charged for short-term or transient use of a parking space. Revenue is recognized when
the parking space is used and the fee is collected. Parking revenue pursuant to a lease is included in base rent.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
(ii) Residential inventory
Revenue from contracts with customers for residential land sales, the sale of townhomes and residential condominium units
is recognized at the point in time when control over the property has been transferred, which is generally when possession
passes to the customer (i.e., the purchaser) since the customer then has the ability to direct the use and obtain substantially
all of the benefits of the respective property. Revenue is measured at the transaction price agreed to under the contract.
Funds received from the customer prior to the customer taking possession are recognized as deferred revenue (a contract
liability). Non-refundable sales commissions paid by the Trust prior to the customer taking possession are capitalized as
contract assets and expensed when the residential inventory revenue is recognized.
Directly attributable selling and disposition costs are expensed as incurred.
(iii) Property management and other service fees
RioCan has interests in various investment properties through joint arrangements and investments in associates. The Trust
provides property management services, construction and development services, finance arranging services and leasing
services to co-owners, partners and third parties for which it earns market-based fees.
Fees for property management services, construction and development services are generally recognized as revenue over
the period of performance of those services. Amounts are determined and revenue is recognized based on the agreed
transaction price in each contract.
Finance arranging and leasing service fees are recognized as revenue in the period in which the service is received by the
customer. Amounts are determined and revenue is recognized based on the agreed transaction price in each contract.
(h) Investment and other income and transaction and other costs
Transaction gains included in investment and other income, and transaction losses included in transaction and other costs on the
consolidated statements of income, are recognized on the settlement date or on the settlement of post transaction adjustments
and represent the excess proceeds of disposition relating to subsidiaries, investments or assets over their carrying values in the
case of transaction 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.
(i) 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 the
consolidated statements of income.
(j) Recognition and measurement of financial instruments
Financial assets include RioCan's contractual rents receivable, mortgages and loans receivable, cash and cash equivalents,
funds held in trust, marketable securities, derivative contracts and other accounts receivable. Financial liabilities include RioCan's
operating lines of credit, mortgages payable, debentures payable, accounts payable, customer deposit liabilities, and certain
other liabilities.
The Trust determines the classification of its financial assets and financial liabilities at initial recognition. The classification of
financial instruments depends on the purpose for which they were acquired or incurred. Financial instruments are initially
recorded at fair value and, in the case of financial assets or financial liabilities carried at amortized cost, adjusted for directly
attributable transaction costs.
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.
Financial assets and financial liabilities are recognized when the Trust becomes party to the contractual provisions of the
instrument. Financial assets are no longer recognized when the rights to receive cash flows from the assets have expired or are
assigned and all the risks and rewards of ownership have been transferred to a third party. Financial liabilities are no longer
recognized when the related obligation expires, or is discharged or cancelled.
The Trust's derivative instruments are recorded on the consolidated balance sheets at fair value. Changes in fair value of the
derivative instruments are recognized in net income, except for derivatives that are designated as effective hedges. Changes in
fair value for the effective portion of such hedging relationships is recognized in OCI. See Note 3(n) for further discussion
regarding hedge accounting policies.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
Financial Instruments
Financial assets
Cash and cash equivalents (i)
Marketable securities (ii)
Other investments (ii)
Receivables and other assets (iii)
Mortgages and loans receivable
Interest rate swap assets (iv)
Financial liabilities
Debentures payable
Mortgages payable
Lines of credit and other bank loans
Interest rate swap liabilities (iv)
Accounts payable and other liabilities (v)
IFRS 9 Classification
Amortized cost
FVTPL
FVTPL
Amortized cost
Amortized cost or FVTPL
FVTPL
Amortized cost
Amortized cost
Amortized cost
FVTPL
Amortized cost
(i) As at December 31, 2019, comprised of cash.
(ii)
(iii) Financial instruments in receivables and other assets that are classified as at amortized cost include net contractual rent receivable, amounts due
Included in receivables and other assets on the consolidated balance sheet.
(iv)
on condominium final closings and funds held in trust.
Interest rate swaps are derivative financial instruments that are recorded at fair value on the consolidated balance sheet as interest rate swap
assets or interest rate swap liabilities. The effective portion of the fair value gains (losses) is recorded in other comprehensive income as they are
designated in an effective cash flow hedging relationship.
(v) Financial instruments in accounts payable and other liabilities that are classified as at amortized cost include accounts payable related to property
operating costs, capital expenditures, leasing commissions, trade payables and accruals, and deposits received from customers on residential
inventory.
The amortized cost method referenced in the table above uses an effective interest rate that discounts estimated future cash
receipts or payments through the expected life of the financial asset or liability to the net carrying amount of the financial asset or
liability.
Financial assets
The Trust's financial assets are classified and measured on the basis of both the business model in which the assets are
managed and the contractual cash flow characteristics of the asset. Financial assets subsequent to initial recognition are
classified and measured based on three categories: (i) amortized cost, (ii) fair value through other comprehensive income
(FVOCI) with fair value gains or losses recycled to net income on derecognition for loans and receivables only, or (iii) fair value
through profit or loss (FVTPL).
(i) Financial assets at amortized cost
Financial assets are recorded at amortized cost when financial assets are held with the objective of collecting contractual cash
flows and those cash flows represent solely payments of principal and interest (SPPI) and are not designated as FVTPL. These
assets are measured at amortized cost subsequent to initial recognition using the effective interest method. The amortized cost
is reduced by impairment losses, if any. Interest income and impairment losses are recognized in profit or loss. Any gain or loss
on derecognition is recognized in profit or loss.
(ii) Financial assets at FVOCI
These financial assets are measured at fair value subsequent to initial recognition.
For debt instruments held with the objective of collecting contractual cash flows and selling financial assets, interest income is
calculated using the effective interest method and impairment is recognized in profit or loss. Other net fair value gains and losses
are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
For equity instruments not held for trading and where an election to present changes in the fair value subsequent to initial
recognition of such instruments in other comprehensive income is made, dividends are recognized in profit or loss, unless the
dividend clearly represents a recovery of part of the cost of the investment. Other net fair value gains and losses are recognized
in OCI and are never reclassified to profit or loss. Regular way transactions are recorded on a trade date basis.
The Trust does not have any financial assets classified as FVOCI.
(iii) Financial assets at FVTPL
These financial assets are neither held at amortized cost nor at FVOCI as they are managed and evaluated on a fair value basis.
These financial assets are measured at fair value subsequent to initial recognition. Net gains and losses, including any interest or
dividend income, are recognized in profit or loss unless they are derivative instruments designated in an effective hedging
relationship.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
Financial liabilities
Financial liabilities are initially measured at fair value and subsequent to initial recognition are classified and measured based on
two categories: (i) amortized cost or (ii) FVTPL.
(i) Financial liabilities at amortized cost
Financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense is
recognized in profit or loss. Any modification that results in the substantially different terms or in a 10% change in carrying value
is accounted for as an extinguishment or derecognition of the original financial liability and the recognition of a new financial
liability. Any gain or loss on derecognition is recognized in profit or loss.
(ii) Financial liabilities at FVTPL
A financial liability is classified as FVTPL if it is classified as held for trading, it is a derivative or designated as FVTPL on initial
recognition. Financial liabilities at FVTPL are subsequently measured at fair value and net gains and losses, including any
interest expenses, are recognized in profit or loss unless they are derivative instruments designated in an effective hedging
relationship.
(k) Impairment of financial assets
At each reporting date, each financial asset measured at amortized cost is assessed for impairment under an expected credit
loss (ECL) model. The Trust applies the simplified approach, which uses lifetime ECLs, for contractual rents receivable and the
general approach for mortgages and loans receivable, amounts due on condominium final closings and finance lease
receivables. Under the general approach, the ECL model uses a staged methodology that requires the recognition of credit
losses based on up to 12 months of expected losses for performing loans (Stage 1) and the recognition of lifetime expected
losses on performing loans that have experienced a significant increase in credit risk since origination (Stage 2). Stage 3
requires the recognition of lifetime losses for all credit-impaired assets. Mortgages and loans receivables, amounts due on
condominium final closings and finance lease receivables are classified as impaired when there is objective evidence that the full
carrying amount of the loans and receivables is not collectible.
ECLs for the mortgages and loans receivable, amounts due on condominium final closings, and finance lease receivables are
based on the difference in cash flows the Trust expects to receive and the contractual cash flows due in accordance with the
contract, discounted at the asset’s original effective interest rate. Any changes in impairment are recognized in net income. Once
these financial assets are identified as impaired, the Trust continues to recognize interest income based on the original effective
interest rate on the loan amount net of its related allowance. In the periods following the recognition of impairment, adjustments to
the allowance for these financial assets reflecting the time value of money are recognized and presented as interest income.
The Trust uses an accounts receivable aging provision matrix to measure the ECL for contractual rents receivable and applies
loss factors to aging categories greater than 60 days past due, including assessing the viability of retail tenants.
Mortgages and loans receivable, amounts due on condominium closings, finance lease receivables and contractual rents
receivable, 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.
(l) 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. 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; this is generally equal to the guarantee fee
received, 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 less amortization for the passage of time and (ii) the loss allowance
measured using an ECL model.
(m) 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.
(n) Hedges
From time to time, the Trust may enter into interest rate swaps to hedge its interest rate risks. 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 Trust's purposes of hedge accounting, interest rate swap hedges are classified as cash flow hedges.
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, the hedge
ratio 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
FOR THE YEARS ENDED DECEMBER 31, 2019 and 2018
in cash flows and are assessed on an ongoing basis to determine that there is a continuing economic relationship between the
hedged item and hedging instrument.
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 and accumulated in the cash flow hedge reserve within equity.
The ineffective portion is recognized in net income.
For continuing cash flow hedge arrangements, amounts accumulated in the cash flow hedge reserve are reclassified from the
cash flow hedge reserve as a reclassification adjustment in the same periods during which the hedged future cash flow affects
the consolidated statements of income. Hedge accounting ceases 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.
Amounts accumulated in the cash flow hedge reserve at that time remain in equity if the forecasted transaction is still expected to
occur and reclassified from OCI and into the consolidated statements of income in the period the forecasted transaction occurs.
When a forecast transaction is no longer expected to occur, the gain or loss accumulated in the cash flow hedge reserve is
immediately reclassified from OCI to the consolidated statements of income.
(o) Comprehensive income
Comprehensive income comprises net income and OCI, which generally would include changes in the fair value of the effective
portion of cash flow hedging instruments, actuarial gains and losses related to RioCan's defined benefit pension plans and other
comprehensive income of equity-accounted investments. The Trust reports consolidated statements of comprehensive income
comprising net income and OCI for the year.
(p) Income taxes
The Trust qualifies as a mutual fund trust and a “real estate investment trust” (REIT Exemption) 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. The Trust is therefore considered, in substance, tax
exempt and does not account for income taxes, except for amounts incurred in its incorporated Canadian taxable subsidiaries
that continue to be subject to income taxes. These taxable subsidiaries account for income taxes as follows:
(i) Current income taxes
Using tax rates enacted or substantively enacted at the reporting date, current tax is the expected current income taxes payable
or receivable on the taxable income or loss for the year related to the incorporated Canadian taxable subsidiaries.
(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 for the incorporated
Canadian taxable subsidiaries.
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:
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.
2.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply 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.
121
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
Deferred income tax assets and deferred income tax liabilities of the same taxable entity related to the same taxation authority
are offset.
(q) 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
(r)
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.
(s) Cash and cash equivalents
Cash and cash equivalents comprise cash and short-term investments with original maturities from the date of acquisition for
three months or less.
(t) 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.
(u) Foreign currency translation
These consolidated financial statements are presented in Canadian dollars, which is the functional and presentation currency of
the Trust.
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.
(v) 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.
(w) 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. Past service costs are recognized as an expense on a straight-line basis over the average period
122
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
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.
(x) Changes in accounting policies
IFRS 16, Leases (IFRS 16)
The Trust adopted IFRS 16 on its effective date of January 1, 2019, retrospectively with no restatement of comparative periods.
IFRS 16 replaces IAS 17, Leases (IAS 17). On initial transition, RioCan as a lessee recorded additional lease liabilities of $17.0
million, increased the value of investment properties by $17.0 million and reduced prepaid rent in receivables and other assets by
$0.1 million. As a lessor, RioCan recorded $32.7 million of finance lease receivables from sublease arrangements in receivables
and other assets, derecognized $32.7 million from investment properties and reduced straight-line rent within investment
properties by $0.8 million. The net impact to opening retained earnings was a reduction of $0.8 million. Prior periods have not
been restated. Refer to Note 36, Transition to IFRS 16, for the impact on the opening consolidated balance sheet as at January
1, 2019 and for accounting policies under IAS 17, which were applicable in prior periods.
IASB Annual Improvements 2015-2017 Cycle (issued in December 2017)
In December 2017, the IASB issued amendments to four standards IFRS 3, Business Combinations (IFRS 3), IFRS 11, Joint
Arrangements (IFRS 11), IAS 12, Income Taxes (IAS 12), and IAS 23, Borrowing Costs (IAS 23). These amendments became
effective on January 1, 2019. The implementation of these standards did not have a significant impact on the Trust.
IAS 19, Employee Benefits (IAS 19) - Amendments
In February 2018, the IASB issued amendments to IAS 19, Employee Benefits. The amendments address the accounting when
a defined benefit plan amendment, curtailment or settlement occurs during the reporting period. The amendments became
effective on January 1, 2019, and are applied prospectively. The implementation of these amendments did not have a significant
impact on the Trust.
IFRIC 23, Uncertainty over Income Tax Treatment (IFRIC 23)
In June 2017, the IASB issued amendments as a clarification to requirements under IAS 12, Income Taxes. IFRIC 23 clarifies the
application of various recognition and measurement requirements when there is uncertainty over income tax treatments. The
amendments became effective on January 1, 2019. The amendments did not have a significant impact on the Trust’s
consolidated financial statements.
(y) 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 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.
Interbank Offered Rate (IBOR) Reform
The IASB published Phase 1 of its amendments to IFRS 9, Financial Instruments and IAS 39, Financial Instruments: Recognition
and Measurement, as well as IFRS 7, Financial Instruments: Disclosures in September 2019, to provide relief from the potential
effects of the uncertainty arising from Interbank Offered Rate (IBOR) reform, focusing in particular on the period prior to
replacement of interbank offered rates. These amendments modify hedge accounting requirements, allowing the Trust to assume
that the interest rate benchmark on which the cash flows of the hedged item and the hedging instrument are based are not
altered as a result of IBOR reform, thereby allowing hedge accounting to continue. Mandatory application of the amendments
ends at the earlier of when the uncertainty regarding the timing and amount of interest rate benchmark-based cash flows is no
longer present and the discontinuation of the hedging relationship. Phase 2 of the IASB’s project on IBOR is underway and will
address transition to IBOR. The Phase 1 amendments are effective for the Trust's fiscal year beginning January 1, 2020, with
early adoption permitted. Phase 1 amendments are not expected to impact the Trust's consolidated financial statements upon
adoption. Disclosure of current hedging relationships is in Note 26.
Amendments to IFRS 3, Business Combinations (IFRS 3) - Definition of a Business
In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 to help entities determine whether an
acquired set of activities and assets is a business or not. The amendments clarify the minimum requirements for a business,
removed the assessment of whether market participants are capable of replacing any missing elements, added guidance to help
entities assess whether an acquired process is substantive, narrowed the definitions of a business and of outputs, and introduced
an optional fair value concentration test. The amendments are effective January 1, 2020, with early adoption permitted. The
amendments are applied prospectively to transactions or other events that occur on or after the date of first application, and are
not expected to have a significant impact on the Trust's consolidated financial statements.
123
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
Amendments to IAS 1, Presentation of Financial Statements (IAS 1) and IAS 8, Accounting Policies, Changes in Accounting
Estimates and Errors (IAS 8) - Definition of Material
In October 2018, the IASB issued amendments to IAS 1 and IAS 8 to align the definition of "material" across the standards and to
clarify certain aspects of the definition. The new definition states that, "Information is material if omitting, misstating or obscuring it
could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the
basis of those financial statements, which provide financial information about a specific reporting entity." These amendments are
effective January 1, 2020. The amendments to the definition of material are not expected to have a significant impact on the
Trust's consolidated financial statements.
Amendment to IAS 1, Presentation of Financial Statements - Classification of Liabilities as Current or Non-Current
In January 2020, the IASB issued amendments to paragraphs 69-76 of IAS 1 to clarify the requirements for classifying liabilities
as current or non-current. The amendments specify that the conditions which exist at the end of a reporting period are those
which will be used to determine if a right to defer settlement of a liability exists. The amendments also clarify the situations that
are considered a settlement of a liability. The amendments are effective January 1, 2022, with early adoption permitted. The
amendments are to be applied retrospectively. Management is currently assessing the impact of this amendment.
4. INVESTMENT PROPERTIES
As at
Income properties
Properties under development
Year ended December 31, 2019
Balance, beginning of year
Impact of change in accounting policy (iv)
Restated balance, beginning of year
Acquisitions
Dispositions
Development expenditures
Capital expenditures:
Recoverable and non-recoverable expenditures
Leasing commissions and tenant improvements
Transfers, net (i)
Transfers to residential inventory (ii)
Fair value gains, net
Straight-line rent (iii)
Transfers to finance lease receivables
Other changes
Earn-out consideration
Balance, end of year
Investment properties
Properties held for sale
December 31, 2019
December 31, 2018
$
$
13,120,545
1,238,582
14,359,127
$
$
Income properties
Properties under
development
$
12,167,153
$
1,036,495
$
(16,465)
12,150,688
822,671
(451,190)
—
39,460
50,691
320,790
—
190,547
8,880
(8,481)
(3,511)
—
—
1,036,495
118,541
(38,141)
438,820
—
—
(320,790)
(32,301)
57,077
—
—
—
681
$
$
$
13,120,545
13,120,545
—
13,120,545
$
$
$
1,260,382
1,238,582
21,800
1,260,382
$
$
$
12,021,303
988,118
13,009,421
Total (v)
13,203,648
(16,465)
13,187,183
941,212
(489,331)
438,820
39,460
50,691
—
(32,301)
247,624
8,880
(8,481)
(3,511)
681
14,380,927
14,359,127
21,800
14,380,927
(i) During the year ended December 31, 2019, transfers to income properties from properties under development totalled $358.4 million reflecting
completed developments. Transfers from income properties to properties under development totalled $37.6 million reflecting the commencement
of active development on certain income properties during the year.
(ii) During the year ended December 31, 2019, a portion of Dufferin Plaza and Shopper's World Brampton were transferred to residential inventory
(iii)
from investment property as appropriate evidence of a change in use was established.
Included in investment properties is $111.1 million of net rents receivable arising from the recognition of rental revenue on a straight-line basis over
the lease term (December 31, 2018 - $107.7 million).
(iv) Upon adoption of IFRS 16, certain tenant subleases were reclassified as finance lease receivables effective January 1, 2019. A portion of the
investment properties was derecognized and finance lease receivables were recognized in its place for $32.7 million. In addition, $17.0 million of
ROU assets were recognized as part of investment properties. Refer to Note 36.
Included in investment properties are eleven properties held as ROU assets, effective January 1, 2019 upon the adoption of IFRS 16, including
four leased properties that were previously recognized as investment property under an IAS 40 election and IAS 17. Refer to Note 9.
(v)
124
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
Year ended December 31, 2018
Balance, beginning of year
Acquisitions
Dispositions
Development expenditures
Capital expenditures:
Recoverable and non-recoverable expenditures
Leasing commissions and tenant improvements
Transfers, net (i)
Transfers to residential inventory (ii)
Fair value gains (losses), net
Straight-line rent (iii)
Other changes
Earn-out consideration
Balance, end of year
Investment properties
Properties held for sale
Income properties
$
12,447,238
$
Properties under
development
1,123,184
Total
$
13,570,422
105,223
(974,895)
—
24,905
44,173
484,557
—
25,690
8,563
1,699
—
$
$
$
12,167,153
12,021,303
145,850
12,167,153
$
$
$
14,846
(19,448)
410,791
—
—
(484,557)
(5,014)
(7,386)
—
—
4,079
1,036,495
988,118
48,377
1,036,495
$
$
$
120,069
(994,343)
410,791
24,905
44,173
—
(5,014)
18,304
8,563
1,699
4,079
13,203,648
13,009,421
194,227
13,203,648
(i) During the year ended December 31, 2018, transfers to income properties from properties under development totalled $555.5 million reflecting
completed developments. Transfers from income properties to properties under development totalled $70.9 million reflecting the commencement
of active development on certain income properties during the year.
(ii) During the year ended December 31, 2018, the current fair market value of certain office units located on the 2nd and 3rd floors of the Yonge-
Eglinton Northeast Corner development was transferred from investment property to inventory as they will not be leased to tenants as originally
contemplated, but rather are being marketed and sold as condominium units.
Included in investment properties is $107.7 million of net rents receivable arising from the recognition of rental revenue on a straight-line basis
over the lease term (December 31, 2017 - $108.2 million).
(iii)
Acquisitions
The following table summarizes the Trust's acquisitions of properties:
As at December 31,
Properties acquired during the year:
Investment properties
Residential inventory properties
Total consideration
Debt assumed
Other liabilities assumed
Income properties
Properties under development
and Residential inventory
2019
2018
2019
2018
$
822,671 $
105,223 $
118,541 $
—
822,671
(194,152)
(13,726)
—
105,223
(36,063)
—
—
118,541
(65,288)
(5,506)
14,846
26,370
41,216
—
—
Total consideration, net of liabilities assumed
$
614,793 $
69,160 $
47,747 $
41,216
Total consideration, net of liabilities assumed allocated to:
Investment properties (i)
Residential inventory properties
Total
614,793
—
69,160
—
47,747
—
$
614,793 $
69,160 $
47,747 $
14,846
26,370
41,216
(i)
Includes $100.0 million of equity issued to KingSett in connection with the acquisition of Yonge Sheppard Centre on August 30, 2019.
125
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
Investment properties acquisitions
Property name and location
Date
acquired
Interest
acquired
IPP
Purchase
price (i)
PUD
Purchase
price (i)
Debt and
other
liabilities
assumed
2939 Bloor Street West, Toronto, ON
October 2, 2019
100.0% $
6,728
$
— $
Charlottetown Mall Pad, Charlottetown, PEI
October 15, 2019
Mayfield Common Shopping Centre, Edmonton, AB
December 17, 2019
Total acquisitions for the three months ended December 31, 2019
50.0%
50.0%
1,210
56,038
$
63,976
Jasper Gates, Edmonton, AB
Yonge Sheppard Centre, Toronto, ON (ii)
2323 Yonge Street, Toronto, ON
ePlace, Toronto, ON (iii)
Erskine, Toronto, ON
August 19, 2019
100.0% $
8,911
August 30, 2019
September 26, 2019
September 26, 2019
September 26, 2019
50.0%
50.0%
50.0%
50.0%
279,311
28,322
118,588
3,144
—
—
— $
— $
$
$
—
—
—
—
—
112,009
152,020
—
—
—
—
—
—
Total acquisitions for the three months ended September 30, 2019
$ 438,276
$ 112,009
$
152,020
Stock Yards Village, Toronto, ON
2969 Bloor Street West, Toronto, ON
Mill Woods Town Centre, Edmonton, AB
Garden City Shopping Centre, Winnipeg, MB
Shoppers City East, Gloucester, ON
April 12, 2019
50.0% $
92,071
$
— $
April 30, 2019
100.0%
May 23, 2019
June 6, 2019
June 26, 2019
59.7%
70.0%
17.2%
2,129
66,894
49,044
3,794
—
4,773
1,466
—
—
—
33,410
33,929
—
Total acquisitions for the three months ended June 30, 2019
$ 213,932
Upper James Square, Hamilton, ON
Sage Hill Crossing, Calgary, AB
Excess lands, Niagara, ON
January 22, 2019
100.0% $
February 5, 2019
March 29, 2019
50.0%
30.0%
36,010
70,477
—
$
$
Total acquisitions for the three months ended March 31, 2019
$ 106,487
$
6,239
$
67,339
— $
—
293
293
$
$
14,193
45,120
—
59,313
278,672
Total acquisitions for the year ended December 31, 2019
$ 822,671
$ 118,541
(i) Purchase price includes transaction costs.
(ii) The Trust acquired the remaining 50.0% interest in Yonge Sheppard Centre for net purchase price of $357.7 million before $14.4 million
transaction costs. The net purchase price is net of working capital adjustment of $19.2 million. Gross purchase price including transaction costs
and working capital adjustments was $391.3 million.
In connection with the transaction, RioCan issued $100.0 million of equity with a one-year lock-up agreement commencing August 30, 2019 and
assumed KingSett's share of property debt of $132.8 million, consisting of $67.5 million mortgages relating to the income-producing portion of the
property and $65.3 million construction loan relating to the properties under development portion of the property. Subsequent to the transaction
closing, RioCan used a portion of the net proceeds from its $500.0 million Series AB senior unsecured debenture issuance completed on August
12, 2019 to repay, without prepayment penalty, the entire $265.6 million of property debt for 100% of Yonge Sheppard Centre, including both the
mortgage and construction loan outstanding at the time of repayment.
(iii) RioCan acquired the remaining 50% co-ownership interest in the residential rental component, eCentral, the retail component and 70 commercial
parking stalls of the ePlaceTM mixed-use development. The purchase price before transaction costs of $4.5 million was $114.1 million, determined
based on cost plus $10.0 million for eCentral and a pre-agreed 7.0% capitalization rate on stabilized net operating Income (SNOI) for the retail
component. Upon closing, RioCan now owns 100% of these respective components.
Purchase obligations
The Trust has agreed to purchase its partners' interest in the retail portion of the Yorkville project upon completion, currently
estimated to be during 2024, at a 6.0% capitalization rate.
On April 20, 2018, RioCan entered into an agreement to purchase from its partner the remaining one-third interest in RioCan
Marketplace in Toronto, Ontario, for a purchase price of $18.3 million, including a $11.5 million assumption of debt. On December
14, 2018, the agreement was amended to extend the closing date to the first quarter of 2020. On January 9, 2020, the Trust
acquired the remaining one-third interest in RioCan Marketplace as further discussed in Note 35.
RioCan has entered into an agreement to purchase a 50% co-ownership interest in a property in mid-town Toronto, for a
purchase price of $35.0 million excluding transaction costs. The closing date is expected in the first quarter of 2020.
126
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
Dispositions
The following table summarizes the Trust's dispositions of investment property:
As at December 31,
Total consideration
Mortgages associated with investment property dispositions
Vendor take-back mortgages receivable on dispositions
Total consideration, net of related debt
Income properties dispositions
Income properties
Properties under development
2019
2018
2019
451,190 $
974,895 $
38,141 $
—
(5,200)
(58,870)
(9,525)
—
—
2018
19,448
—
—
445,990 $
906,500 $
38,141 $
19,448
$
$
For the year ended December 31, 2019, the Trust disposed of the following properties:
Property name and location
Date disposed
Place Newman, LaSalle, QC
Stratford Centre, Stratford, ON
RioCan Centre Grande Prairie, Grande Prairie, AB
Two property portfolio, Montreal, QC (i)
Sherwood Forest Mall, London, ON
Niagara Falls Plaza, Niagara Falls, ON
October 9, 2019
November 7, 2019
November 12, 2019
December 2, 2019
December 11, 2019
December 18, 2019
Ownership
interest
disposed of
by RioCan
100% $
100%
100%
50%
100%
100%
RioCan’s
sales
proceeds
24,550
16,717
54,745
18,248
33,450
17,000
Total sales proceeds of dispositions for the three months ended December 31, 2019
$
164,710
Innes Road Plaza, Ottawa, ON
Windsor Portfolio, Windsor, ON (ii)
Kildonan Crossing, Winnipeg, MB
Goderich Walmart Centre, Goderich, ON
RioCan Renfrew Centre, Renfrew, ON
Niagara Square, Niagara Falls, ON (iii)
July 4, 2019
July 9, 2019
July 19, 2019
September 17, 2019
September 20, 2019
September 26, 2019
100% $
100%
100%
100%
100%
30%
13,900
29,894
43,500
12,000
6,261
7,500
Total sales proceeds of dispositions for the three months ended September 30, 2019
$
113,055
Charlottetown Mall, Charlottetown, PEI
Tanger Outlets Bromont, Montreal, QC
May 17, 2019
May 31, 2019
Total sales proceeds of dispositions for the three months ended June 30, 2019
Shoppers on Topsail, St. John's, NL
Tillicum Centre, Victoria, BC
RioCan Gravenhurst, Gravenhurst, ON
January 10, 2019
January 31, 2019
February 20, 2019
Total sales proceeds of dispositions for the three months ended March 31, 2019
Total sales proceeds of dispositions for the year ended December 31, 2019
50.0% $
50.0%
$
100.0% $
100.0%
100.0%
$
$
23,750
4,450
28,200
5,850
109,975
29,400
145,225
451,190
Includes two properties: Centre Carnaval LaSalle, LaSalle, QC and Les Galeries Lachine, Lachine, QC.
(i)
(ii) Windsor Portfolio includes two properties: RioCan Centre Windsor, Windsor, ON and Walker Town Centre, Windsor, ON.
(iii) This disposition included both income-producing property and property under development related assets. RioCan provided a vendor take-back
mortgage of $5.2 million related to this transaction.
For the year ended December 31, 2019, no debt was assumed by purchaser on disposition transactions.
Properties under development dispositions
During the three months ended September 30, 2019, the Trust sold a 50% interest one parcel of development land located in
Mississauga, Ontario for total estimated sales proceeds of $14.9 million, of which $3.7 million is receivable upon final approved
density for the development. Also, the Trust sold a 30% interest in excess lands in Niagara, Ontario, for sales proceeds of $0.3
million.
During the three months ended March 31, 2019, the Trust sold one parcel of development land located in Ottawa, Ontario for
sales proceeds of $23.0 million.
127
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
Properties held for sale
Presented below are details of the Trust's properties held for sale:
As at
Assets
Income properties
Properties under development
Total assets held for sale
December 31, 2019
December 31, 2018
$
$
— $
21,800
21,800
$
145,850
48,377
194,227
As at December 31, 2019, RioCan has two development properties held for sale with a carrying value of $21.8 million.
Valuation methodology
Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date (i.e, an exit price). Expectations about future improvements or modifications to be
made to the investment property to reflect its highest and best use may be considered in the valuation.
Investment properties and properties held for sale are carried at fair value, and the Trust uses significant unobservable inputs to
estimate fair value of these assets at each reporting date. See below for further description of inputs used by the Trust in
estimating the fair value of its properties. Significant unobservable inputs are classified as Level 3 inputs under IFRS. See Note
25 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
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, the Senior Vice President & Chief Financial
Officer, and other executive members.
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.
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.
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.
During the year, the Trust obtained a total of 32 external property appraisals (including 8 vacant land parcels), which supported
an IFRS fair value of approximately $2.1 billion, or 15% of the Trust's investment property portfolio (at 100% interest), as at
December 31, 2019. In 2020, 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 the following:
•
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, including leasing costs, inherent in achieving and
maintaining SNOI.
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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, 2019 and 2018
•
The capitalization rate is based on the location and quality of the properties and takes into account market data at the
valuation date.
Properties under development
Management uses an internal valuation process to estimate the fair value of properties under development that consist of
undeveloped land on a land value per acre basis using the particular attributes of the project with respect to zoning and pre-
development work performed on the site. Where a site is partially developed and meets certain thresholds, the direct
capitalization method is applied to capitalize the pro forma net operating income (NOI), stabilized with market allowances, from
which the costs to complete the development are deducted. The significant unobservable inputs are based on the following:
•
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 capitalization rate is based on the location and quality of the properties and takes into account market data at the
valuation date.
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
Capitalization rate
Income - producing properties/
Properties under development
Direct capitalization
income approach
SNOI
Properties under development -
undeveloped land
Comparable sales
approach
Market
comparison
Costs to complete
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.
Generally, an increase in SNOI will result in an
increase in the estimated fair value of the properties.
There is an inverse relationship between costs to
complete and fair value; in other words, the higher the
costs to complete, the lower the estimated value.
Land value is in line with market trends.
As at December 31, 2019, the weighted average capitalization rate for the Trust's investment properties and properties held for
sale is 5.28% (December 31, 2018 - 5.49%).
Sensitivity analysis of changes in stabilized net operating income (SNOI), capitalization rates and costs to complete
The following table is a sensitivity analysis 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 variance
(1.00%)
(0.75%)
(0.50%)
(0.25%)
December 31, 2019
0.25%
0.50%
0.75%
1.00%
4.28% $
4.53%
4.78%
5.03%
5.28%
5.53%
5.78%
6.03%
6.28%
3,451,827
2,430,398
1,526,680
722,560
—
(650,555)
(1,242,500)
(1,782,743)
(2,275,276)
In addition, a 1% increase in SNOI would result in a higher portfolio fair value of $137.6 million. A 1% decrease in SNOI would
result in a lower portfolio fair value of $136.6 million. A 1% increase in SNOI coupled with a 0.25% decrease in capitalization rates
would result in a higher portfolio fair value of $867.1 million. A 1% decrease in SNOI coupled with a 0.25% increase in
129
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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, 2019 and 2018
capitalization rates would result in a lower portfolio fair value of $781.7 million. A 1% increase in costs to complete would result in
a lower portfolio fair value of $3.9 million, and a 1% decrease in costs to complete would result in a higher portfolio fair value of
$3.9 million.
5. EQUITY-ACCOUNTED INVESTMENTS AND JOINT ARRANGEMENTS
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 1)
WhiteCastle New Urban Fund 2, LP (WNUF 2)
WhiteCastle New Urban Fund 3, LP (WNUF 3)
WhiteCastle New Urban Fund 4, LP (WNUF 4)
Principal activity
December 31, 2019
December 31, 2018
Owns and operates an income property
Owns and operates income properties
Development and sale of residential
inventory
40.0%
12.6%
14.2%
19.3%
20.0%
18.4%
40.0%
12.5%
14.2%
19.3%
20.0%
18.4%
The following table shows the changes in the aggregate carrying value of RioCan's investment in associates and joint ventures
for the year ended December 31, 2019:
Years ended December 31,
Balance, beginning of year
Contributions
Share of net income
Distributions
Other
Balance, end of year
$
$
2019
189,817 $
6,975
10,051
(16,382)
47
190,508 $
2018
176,256
11,533
11,174
(9,180)
34
189,817
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, 2019
December 31, 2018
Current assets
Non-current assets (i)
Current liabilities (ii)
Non-current liabilities (iii)
Net assets
Equity-accounted investments
RioCan-HBC JV
Other
Total
RioCan-HBC JV
Other
Total
$
$
$
4,679 $
279,822 $
284,501
$
4,621 $
221,388 $
226,009
2,037,539
10,006
812,093
23,944
88,225
43,278
2,061,483
2,028,739
98,231
855,371
362,726
418,151
23,427
20,163
72,884
2,052,166
382,889
491,035
1,220,119 $
172,263 $
1,392,382
156,554 $
33,954 $
190,508
$
$
1,252,483 $
151,768 $
1,404,251
158,629 $
31,188 $
189,817
Year ended December 31,
2019
2018
Revenue
Operating expenses
Fair value gains (losses)
Interest expense
Net income (loss)
Income (loss) from equity-accounted investments
RioCan-HBC JV
Other
Total
RioCan-HBC JV
Other
Total
$
$
$
145,255 $
56,989 $
202,244
$
142,496 $
3,424 $
145,920
20,767
(67,772)
39,042
9,157
547
425
17,674 $
47,954 $
2,208 $
7,843 $
29,924
(67,225)
39,467
65,628
10,051
24,333
5,249
31,101
8,033
1,267
436
$
$
92,311 $
11,357 $
(3,778) $
(183) $
32,366
6,516
31,537
88,533
11,174
(i) Non-current assets include 10 investment properties and two finance lease receivables. During the year, RioCan-HBC JV obtained total of eight
external valuations for investment properties, which supported an IFRS fair value of $1.6 billion, or 76.3% of the JV's investment property portfolio.
(ii) As at December 31, 2019, total current liabilities includes $77.0 million of mortgages payable and other loans.
(iii)
Includes mortgages payable and lines of credit with maturities beyond twelve months.
Joint operations
RioCan has co-ownership interests in investment properties, where it has joint control and owns an undivided interest in the
assets and liabilities with the co-owners, representing joint operations under IFRS 11. As at December 31, 2019, the Trust had
40 such joint operations, of which one is considered individually significant: The Well, located in Toronto, Canada, 50% ownership
interest.
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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, 2019 and 2018
6. MORTGAGES AND LOANS RECEIVABLE
As at December 31,
Current
Non-current
Mortgages and loans receivable measured at amortized cost
$
$
2019
9,818 $
166,133
175,951 $
2018
7,418
156,596
164,014
As at December 31, 2019, mortgages and loans receivable bear interest at a weighted average effective and contractual rate of
6.3% per annum (December 31, 2018 - 6.4%) and mature between 2020 and 2028.
Future repayments of mortgages and loans receivables by year of maturity are as follows:
2020
2021
2022
2023
2024
Thereafter
$
$
7. RESIDENTIAL INVENTORY
Residential inventory consists of assets that are developed by RioCan for sale in the ordinary course of business.
The following table shows the changes in the aggregate carrying value of RioCan's residential inventory:
Years ended December 31,
Balance, beginning of year
Acquisitions (i)
Dispositions
Development expenditures
Transfers from investment properties (ii)
Balance, end of year
$
$
2019
206,123 $
—
(164,378)
34,910
32,301
108,956 $
9,818
57,001
7,525
24,449
—
77,158
175,951
2018
132,003
26,370
(19,828)
62,564
5,014
206,123
(i)
For the year ended December 31, 2018, represents the cost of properties acquired and located in the Yorkville area in Toronto, Ontario, with the
intention of rezoning and developing a high-rise residential condominium building.
(ii) During the year ended December 31, 2019, a portion of Dufferin Plaza and Shopper's World Brampton were transferred to residential inventory
from investment property as appropriate evidence of a change in use was established.
During the year ended December 31, 2018, the fair market value of certain office units located on the 2nd and 3rd floors of the Yonge-Eglinton
Northeast Corner development were transferred from investment property to inventory as they will not be leased to tenants as originally
contemplated, but were marketed and sold as condominium units.
8. RECEIVABLES AND OTHER ASSETS
The following table details the Trust's receivables and other assets as at December 31, 2019 and December 31, 2018:
As at December 31,
2019
Non-
current
Current
Total
Current
2018
Non-
current
Total
Prepaid expenses and other assets
$
51,006 $
25,218 $
76,224 $
85,336 $
18,294 $
103,630
Net contractual rents receivable
Finance lease receivable (i)
Amounts due on condominium final closings
Funds held in trust
Interest rate swaps agreements
33,048
2,717
45,405
8,816
328
—
36,402
—
20,872
2,611
33,048
39,119
45,405
29,688
2,939
17,043
—
17,863
7,642
—
—
—
—
1,660
4,288
17,043
—
17,863
9,302
4,288
$
141,320 $
85,103 $
226,423 $
127,884 $
24,242 $
152,126
(i) Refer to Note 2 and Note 9 for further details.
Prepaid expenses and other assets
Prepaid expenses and other assets primarily include marketable securities, other investments, prepaid property taxes, office
furniture and equipment, and management information system.
RioCan pays certain upfront non-refundable selling commissions with respect to the sale of residential inventory. As at
December 31, 2019, included in other assets are $0.5 million of non-refundable sales commissions the Trust has paid with
131
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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, 2019 and 2018
respect to the sale of condominium units and townhouses (December 31, 2018 - $4.2 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.
Selling commissions (contract costs)
The following table shows the change in selling commissions:
Years ended December 31,
Balance, beginning of year
Additions
Selling commissions expensed during the year
Balance, end of year
$
$
2019
4,216 $
3,902
(7,596)
522 $
2018
3,806
989
(579)
4,216
During the year ended December 31, 2019, $3.9 million of additions in selling commissions related to condominium and
townhouse sales and $7.6 million of selling commissions were expensed as buyers took possession of their respective residential
inventory units.
Contractual rents receivable
Contractual rents receivable, including common area maintenance, realty tax, and insurance recoveries, are presented net of an
allowance for doubtful accounts of $1.4 million as at December 31, 2019 (December 31, 2018 - $1.1 million). RioCan determines
its allowance for doubtful accounts using the simplified lifetime ECL model for contractual rents receivable. The Trust uses an
accounts receivable aging provision matrix to assess the ECL and applies loss factors to aging buckets greater than 60 days past
due.
Funds held in trust
Funds held in trust include property-specific deposits held by the Trust's solicitors in the name of the Trust. These funds will be
released upon funding the construction of the residential inventory projects or upon closing of such projects. Funds held in trust
may also relate to certain funds held in escrow pursuant to agreements of purchase and sale, which are to be used for the
acquisition of investment properties.
9. LEASES
A. As lessee
Real estate leases
Included in investment properties are eleven properties held as ROU assets, effective January 1, 2019 upon the adoption of IFRS
16, including four leased properties that were previously recognized as investment property under an IAS 40 election and IAS 17.
These ROU assets are initially measured at an amount equal to the lease liability and subsequently measured at fair value.
In accordance with IFRS, the Trust has recognized ROU assets in investment properties arising from leases of land and/or
buildings as lessee, and recorded a related lease liability.
The real estate lease may be a lease for a portion of a property (including access roads and parking lots) or the entire property
(including land and building). The carrying value of total investment properties related to these leases, including the portions
relating to RioCan's leasehold building interests, other property or related property interests, and excluding sublease finance
lease receivables (see below RioCan as lessor - finance lease receivable) is $500.4 million. The corresponding lease liability in
accounts payable and other liabilities is $35.4 million.
At December 31, 2018, the Trust had elected under IAS 40 and IAS 17 to recognize four leased properties as investment
properties and finance leases. The carrying value of the investment property inclusive of related leasehold building interests and
other property or related property interests was $259.7 million and the corresponding lease liability was $20.1 million.
Future lease payments under these leases are as follows:
Within twelve months
Two to five years
Over five years
Total future lease payments (inclusive of renewal options) (i)
Less: Future interest costs
Present value of lease payments (inclusive of renewal options)
December 31, 2019
3,577
12,374
66,141
82,092
46,712
35,380
$
$
$
(i) Includes all renewal options at current fixed payment amounts, excludes variable rent payments (percentage rent) on two properties.
132
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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, 2019 and 2018
The following are the amounts recognized in net income:
Interest expense on lease liabilities
Income from subleasing ROU assets (i)
Office equipment lease payments
December 31, 2019
$
(2,003)
22,180
(1,308)
(i) Includes variable lease payments and excludes finance lease interest income, disclosed below as lessor.
During the year ended December 31, 2019, the Trust had total cash outflows for leases, including office equipment lease
payments and variable lease payments, of $6.1 million.
B. As lessor
Finance lease receivable
RioCan has real estate subleases that are classified as finance leases upon the adoption of IFRS 16 effective January 1, 2019,
and that are included in receivables and other assets on the consolidated balance sheet.
The following table shows the change in finance lease receivables during the year:
Years ended December 31,
Balance, beginning of year
Adjustment on adoption of IFRS 16
Balance as at Jan 1, 2019
New sublease arrangements classified as finance leases
Repayments of finance lease receivables
Balance, end of year
$
$
$
2019
—
32,726
32,726
8,481
(2,088)
39,119
Future minimum lease payments under these finance leases for the first five years and remaining thereafter are as follows:
As at December 31,
2020
2021
2022
2023
2024
Thereafter
Total minimum lease payments
Less: Future interest income
Present value of minimum lease payments
Lease commitments
$
$
$
2019
4,895
4,922
5,025
5,100
5,251
26,564
51,757
12,638
39,119
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 December 31,
2020
2021
2022
2023
2024
Thereafter
Total
$
$
2019
679,192
608,167
538,365
459,587
374,461
1,418,830
4,078,602
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
Supplemental lease disclosures in addition to Note 18 regarding income from lease contracts in which the Trust is a lessor is as
follows:
Variable lease payments (i)
Interest income from finance subleases
December 31, 2019
$
6,536
1,954
(i) Variable lease payments include percentage rent and contractual rent credits, for tenant operating and finance leases, and subleases.
10. INCOME TAXES
The Trust qualifies for the REIT Exemption 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 taxes
payable is required, except for amounts incurred in its incorporated Canadian subsidiaries.
Where an entity does not qualify for the REIT Exemption 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, 2019, the Trust's Canadian corporate subsidiaries have recognized deferred income tax assets totalling
$12.0 million (December 31, 2018 - $13.3 million) on deductible temporary differences related to intangible assets, deferred
pension, deferred compensation and loss carryforwards that expire over the next 17 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.
11. LINES OF CREDIT AND OTHER BANK LOANS
The Trust's revolving unsecured operating line of credit and secured construction lines and other bank loans, net of deferred
financing costs, are as follows:
As at December 31,
Revolving unsecured operating line of credit
Non-revolving unsecured credit facilities
Construction lines and other bank loans
Current
Non-current
$
$
$
$
2019
339,446 $
699,101
48,172
1,086,719 $
30,120 $
1,056,599
1,086,719 $
2018
350,190
349,459
213,481
913,130
363,394
549,736
913,130
Revolving unsecured operating line of credit
RioCan had a drawn balance of $342.0 million and $658.0 million of credit availability to be drawn from this revolving unsecured
operating line of credit at December 31, 2019. The weighted average contractual interest rate on amounts drawn under this
facility was 3.19% (December 31, 2018 - 3.41%).
During the year ended December 31, 2019 the Trust exercised its option to extend the maturity date on its operating line of credit
to May 31, 2024. All other terms and conditions remained the same.
Non-revolving unsecured credit facilities
The Trust has a $200 million non-revolving unsecured credit facility with two financial institutions (consisting of a Schedule I and a
Schedule III bank), maturing January 31, 2023, and bearing interest at a rate of Bankers' Acceptances plus 110 basis points per
annum. On January 7, 2019, the Trust fixed the annual all-in interest rate for $125.0 million of this credit facility at 3.38% through
an interest rate swap. The remaining $75.0 million of this credit facility was previously fixed at 3.125%.
The Trust also has a $150 million non-revolving unsecured credit facility with two financial institutions (consisting of a Schedule I
and a Schedule III bank), with an initial maturity date of December 27, 2019 and an initial interest rate of Bankers' Acceptances
plus 100 basis points per annum. On February 7, 2019, the Trust extended the maturity date of this credit facility to June 27, 2024
and fixed the annual all-in interest rate at 3.43% through an interest rate swap.
On February 7, 2019, the Trust also entered into a $350.0 million five-year non-revolving unsecured credit facility with three
financial institutions (consisting of two Schedule I banks and one Schedule III bank). This credit facility matures on February 7,
2024 and, through an interest rate swap, bears an annual all-in fixed interest rate of 3.34%.
As of December 31, 2019, all of the Trust's non-revolving unsecured credit facilities are fully drawn.
134
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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, 2019 and 2018
The non-revolving unsecured credit facility agreements require the Trust to maintain certain financial covenants similar to those of
RioCan's $1 billion revolving unsecured operating line of credit. Refer to Note 27 for additional details.
Construction lines of credit and other bank loans
In addition to the revolving unsecured operating line of credit and non-revolving unsecured credit facilities, the Trust has secured
credit facilities and other bank loans, which include variable rate non-revolving secured construction facilities for the funding of
certain development properties. As at December 31, 2019, these secured facilities and other bank loans have an aggregate
maximum borrowing capacity of $106.5 million (December 31, 2018 - $311.4 million) and mature in 2020 and 2021, of which the
Trust had drawn $48.2 million (December 31, 2018 - $213.5 million). The weighted average contractual interest rate on amounts
outstanding is 2.93% (December 31, 2018 - 3.36%).
On August 30, 2019, upon acquiring KingSett's 50% co-ownership interest in Yonge Sheppard Centre, the Trust repaid $130.6
million (at 100% ownership) of construction financing.
On September 26, 2019, approximately$145.7 million of construction financing for ePlace (at RioCan’s interest in the co-owned
project) was repaid.
12. MORTGAGES PAYABLE
Mortgages payable, net of deferred financing costs, consist of the following:
As at December 31,
Current
Non-current
$
$
2019
503,891 $
1,908,560
2,412,451 $
2018
310,217
1,908,053
2,218,270
Future repayments of mortgages payable by year of maturity are as follows:
Year
2020
2021
2022
2023
2024
Thereafter
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
3.64% $
34,053 $
469,838 $
4.38%
3.34%
3.48%
3.45%
3.49%
24,808
21,215
19,183
13,415
34,268
325,085
156,990
273,889
228,361
808,812
503,891
349,893
178,205
293,072
241,776
843,080
3.63% $
146,942 $
2,262,975 $
2,409,917
6,338
(3,804)
2,412,451
$
As at December 31, 2019, total mortgages payable bear interest at weighted average contractual rate of 3.63% and a weighted
average effective rate of 3.67% (December 31, 2018 - 3.84% and 3.83%, respectively), which are maturing between 2019 and
2034.
During the year ended December 31, 2019, RioCan completed new term mortgage borrowings of $452.0 million at a weighted
average interest rate of 3.14% and a weighted average term of 10 years. During the year ended December 31, 2019, repayments
of mortgage balances and scheduled amortization amounted to $447.6 million, and $194.2 million of mortgage financing was
assumed pursuant to completed acquisitions at a weighted average interest rate of 3.40%.
Pledged properties
As at December 31, 2019, $5.6 billion of the aggregate carrying value of investment properties, properties held for sale,
residential inventory and certain other assets serves as security for RioCan's mortgages payable (December 31, 2018 - $5.4
billion).
135
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
13. DEBENTURES PAYABLE
As at December 31,
Current
Non-current
$
$
2019
400,000 $
2,491,648
2,891,648 $
2018
350,000
2,392,633
2,742,633
As at December 31, 2019, total debentures payable bear interest at weighted average contractual rates of 3.12% and a weighted
average effective rate of 3.31% (December 31, 2018 - 3.31% and 3.40%, respectively).
Issuance and redemption activity
On August 12, 2019, RioCan issued $500.0 million of Series AB senior unsecured debentures. The debentures were issued at
par, carry a coupon rate of 2.576% per annum and will mature on February 12, 2025.
On June 28, 2019, RioCan redeemed, in full, its $350.0 million 3.85% Series Q senior unsecured debentures in accordance with
their terms.
The Trust has the following series of senior unsecured debentures outstanding as at December 31 :
Series
Q
U
X
Z
R
V
Y
T
AA
W
AB
I
Contractual obligations
Maturity date
June 28, 2019
June 1, 2020
August 26, 2020
April 9, 2021
December 13, 2021
May 30, 2022
October 3, 2022
April 18, 2023
September 29, 2023
February 12, 2024
February 12, 2025
February 6, 2026
Future repayments are as follows:
Years ending December 31:
Contractual obligations
Unamortized debt financing costs
Covenant compliance
Coupon rate
3.85%
3.62%
2.19%
2.19%
3.72%
3.75%
2.83%
3.73%
3.21%
3.29%
2.58%
5.95%
Interest payment frequency
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
2019
— $
150,000
250,000
300,000
250,000
250,000
300,000
200,000
300,000
300,000
500,000
100,000
2,900,000 $
$
$
2020
2021
2022
2023
2024
Thereafter
Weighted average
contractual interest rate
2.72% $
2.89%
3.25%
3.42%
3.29%
3.14%
$
2018
350,000
150,000
250,000
300,000
250,000
250,000
300,000
200,000
300,000
300,000
—
100,000
2,750,000
Principal
maturities
400,000
550,000
550,000
500,000
300,000
600,000
2,900,000
(8,352)
2,891,648
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, 2019, the Trust was in compliance with its covenants pursuant to the Trust's Declaration and debenture
indentures.
136
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
14. ACCOUNTS PAYABLE AND OTHER LIABILITIES
As at
December 31, 2019
December 31, 2018
Current
Non-
current
Total
Current
Non-
current
Total
Property operating costs (i)
$
57,754 $
30,734 $
88,488 $
56,171 $
27,054 $
83,225
Capital expenditures and leasing commissions:
Properties under development
Income properties
Deferred revenue
Unitholder distributions payable
Interest payable
Lease liability (ii)
Income taxes payable
Unfunded employee future benefits
Unit-based plans payable
Contingent consideration
Interest rate swap agreements
Other trade payables and accruals
175,074
132,876
36,160
30,609
38,121
28,902
1,740
13,838
—
—
4,521
285
19,557
—
—
—
21,897
—
—
33,640
—
14,969
8,560
—
18,134
—
175,074
166,497
132,876
144,325
36,160
52,506
38,121
28,902
35,380
13,838
14,969
8,560
4,521
18,419
19,557
18,400
64,533
36,612
23,187
1,534
14,532
—
4,917
5,151
25
18,674
—
—
—
1,578
—
—
18,530
—
13,879
6,461
—
7,779
166,497
144,325
18,400
66,111
36,612
23,187
20,064
14,532
13,879
11,378
5,151
7,804
—
18,674
$ 364,363 $ 127,934 $ 492,297 $ 388,061 $
75,281 $ 463,342
(i)
(ii)
Includes amounts billed in advance for common area maintenance, realty taxes and insurance recoveries.
Includes additional lease liabilities on transition of IFRS 16, effective January 1, 2019. Refer to Note 2, Note 9 and Note 36 for further details.
Deferred revenue
Deferred revenue consists of the following:
As at
Deposits received on residential inventory sales (contract liabilities)
Other deferred revenue (i)
December 31, 2019
December 31, 2018
$
$
21,897 $
30,609
52,506 $
39,780
26,331
66,111
(i)
Includes prepaid rental income from tenants to be recognized over time.
Deposits received from customers on residential inventory sales (contract liabilities)
The following table shows the change in deposits received from customers (contract liabilities):
As at
Balance, beginning of year
Amounts deferred from new contracts with customers during the year
Recognized as revenue during the year
Balance, end of year
December 31, 2019
December 31, 2018
$
$
39,780 $
25,414
(43,297)
21,897 $
41,926
3,445
(5,591)
39,780
During the year ended December 31, 2019, $43.3 million of deposits received from customers on condominium and townhouse
sales (contract liabilities) were recognized in revenue upon the purchasers taking possession of units (December 31, 2018 - $5.6
million).
Income taxes payable
Income taxes payable relates primarily to the realized gain on sale of the Trust's gain on sale of the Trust's U.S income property
portfolio during May 2016.
137
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
15. 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. The units issued and outstanding are as follows:
Year ended December 31
Balance, beginning of year
Units issued:
2019
2018
Units
305,097
$
4,484,827
Units
323,734
$
4,757,071
Private placement issued pursuant to an investment property
acquisition (i)
Public offering, net of issuance costs
Unit-based compensation exercises, net of units repurchased
for settlement of unit exercises
Direct purchase plan
Exchangeable limited partnership units
Common trust units repurchased and cancelled
3,810
8,935
833
15
—
(980)
100,000
220,188
23,085
397
—
(14,400)
Balance, end of year
317,710
4,814,097
—
—
268
21
31
—
—
5,105
515
730
(18,957)
305,097
(278,594)
4,484,827
(i) On August 30, 2019, in connection with the purchase of Yonge Sheppard Centre, RioCan issued 3,809,523 units with $100.0 million gross
proceeds to KingSett, with a one-year lock-up agreement commencing August 30, 2019 whereby KingSett has agreed that it will not, without the
prior consent of RioCan, sell or enter into an arrangement to sell the units within the one-year lock-up period. Refer to Note 4 for further details.
Included in units outstanding as at December 31, 2019 are exchangeable limited partnership units totalling 0.5 million units
(December 31, 2018 - 0.5 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.
Public offering
On October 28, 2019, RioCan issued an aggregate of 8.9 million common trust units at a price of $25.75 per unit for aggregate
gross proceeds of $230.1 million (inclusive of 1.2 million units issued pursuant to the exercise in full of the underwriters' over-
allotment option). Unit issue costs associated with the offering were approximately $9.9 million.
Normal course issuer bid (NCIB)
On October 16, 2018, RioCan received TSX approval of its notice of intention to renew its NCIB, to acquire up to a maximum of
30,579,868 of its units, or approximately 10% of the public float of 305,798,689 as of September 30, 2018, for cancellation over
the next 12 months, effective October 22, 2018. The number of units that can be purchased pursuant to the renewed NCIB is
subject to a current daily maximum of 178,116 units, subject to RioCan’s ability to make one block purchase of units per calendar
week that exceeds such limits.
On October 15, 2019, RioCan received TSX approval of its notice of intention to renew its NCIB (the "2019/2020 NCIB"), to
acquire up to a maximum of 30,724,496 of its units, or approximately 10% of its outstanding units as at September 30, 2019, for
cancellation over the next 12 months, effective October 22, 2019.
The number of units that can be purchased pursuant to the 2019/2020 NCIB is subject to a current daily maximum of 145,737
units (which is equal to 25% of 582,948, being the average daily trading volume from April 1, 2019 to September 30, 2019,
excluding RioCan's purchases on the TSX under its former NCIB), 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 primarily out of net proceeds from its asset
dispositions, available cash and undrawn credit facilities.
During the year ended December 31, 2019, the Trust acquired and cancelled 979,638 units at a weighted average purchase price
of $25.51 per unit, for a total cost of $25.0 million. The excess of the purchase price over the carrying amount of the units
purchased, representing the unit price increases over the weighted average historical unit issuance price, was recorded as a
reduction to retained earnings amounting to $10.6 million.
Contributed surplus
RioCan and its consolidated subsidiaries introduced restricted equity plans (REU Plans) and a performance equity plan (PEU
Plan) in 2017 as described in Note 16. The awards issued under these plans are settled by the delivery of common trust units
purchased on the secondary market, net of applicable withholdings. The fair values of these equity-settled awards are
recognized as an expense over the vesting period with a corresponding increase to contributed surplus, which is presented as a
separate component of total unitholders' equity.
138
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
For the year ended December 31, 2019, RioCan recorded $6.5 million in unit-based compensation costs and $0.4 million of
deferred tax recovery, respectively (December 31, 2018 - $6.8 million and nil, respectively).
Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss) as at and for the year ended December 31, 2019 consists of the following
amounts:
As at January 1, 2019
Other comprehensive loss
As at December 31, 2019
Actuarial loss on
pension plan (i)
Interest rate
swap agreements
(hedge reserve)
Equity accounted
Investments
$
$
(1,117) $
(972)
(2,089) $
(3,003) $
(11,986)
(14,989) $
(149) $
(51)
(200) $
Total
(4,269)
(13,009)
(17,278)
(i) Amounts presented are net of deferred taxes of $0.7 million (December 31, 2018 - $0.4 million).
16. UNIT-BASED COMPENSATION PLANS
Restricted Equity Unit Plans (REU Plans)
Senior Executive REU Plan
As at December 31, 2019, 178,800 Senior Executive REUs are outstanding (December 31, 2018 - 121,352), of which 56,833 are
vested (December 31, 2018 - 41,155). The Senior Executive REU Plan provides for the allotment of REUs to the Chief Executive
Officer (CEO), President and Chief Operating Officer, and Senior Vice President & Chief Financial Officer of the Trust, and such
other officers or executive employees of the Trust that are determined by the CEO and approved by RioCan's Human Resources
and Compensation Committee. Each REU notionally represents the value of one unit of the Trust on the date of grant. Unit
distributions paid during the period from grant date until settlement date will be credited to each REU participant in the form of
additional REUs.
The number of REUs granted shall vest one-third on each of the first, second and third anniversary of the grant date, provided
however that all vested REUs are only eligible for settlement upon the third anniversary of the grant date (the Settlement Date).
Settlement of vested REUs is generally made within 30 days after the Settlement Date by the delivery of an equivalent number of
common trust units purchased on the secondary market, net of applicable withholdings.
On February 22, 2019, the Trust granted 70,224 REUs under its Senior Executive REU Plan. The grant date price was $25.28
per unit based on the five-day volume weighted average market price of RioCan's common trust units traded on the TSX prior to
the grant date, resulting in an aggregate fair value of $1.8 million.
Employee REU Plan
As at December 31, 2019, 232,926 Employee REUs are unvested and outstanding (December 31, 2018 - 189,618). The
Employee REU Plan provides for the allotment of REUs to certain senior level employees of the Trust that do not participate in
the Senior Executive REU Plan. Each REU notionally represents the value of one unit of the Trust on the date of grant. Unit
distributions paid during the period from grant date until settlement date will be credited to each REU participant in the form of
additional REUs.
The number of REUs granted shall vest fully on the third anniversary of the grant date (the Settlement Date), including distribution
equivalents that have accumulated during the vesting period. Settlement of vested REUs is generally made within 30 days after
the Settlement Date by the delivery of an equivalent number of common trust units purchased on the secondary market, net of
applicable withholdings.
On February 22, 2019, the Trust granted 93,829 REUs under its Employee REU Plan. The grant date price was $25.28 per unit
based on the five-day volume weighted average market price of RioCan's common trust units traded on the TSX prior to the grant
date, resulting in an aggregate fair value of $2.4 million.
Performance Equity Unit Plan (PEU Plan)
As at December 31, 2019, 416,737 PEUs are unvested and outstanding (December 31, 2018 - 443,821). PEUs are awarded to
certain officers and senior management of the Trust, subject to Board approval. Each PEU notionally represents the value of one
unit of the Trust on the date of grant. PEUs issued contain a multiplier factor and the final number of PEUs that will vest may
range from 0% to 200% of the initial number awarded based on certain three year performance targets of each grant year. Unit
distributions paid during the period from grant date until settlement date will be credited to each PEU participant in the form of
additional PEUs.
The PEUs vest on the Financial Statement Approval Date immediately following the last year in the three-year performance
period and are generally settled within 30 days after the vesting date by the delivery of an equivalent number of common trust
units to be acquired on the secondary market, net of applicable withholdings.
139
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
During February 2019, the Trust granted 142,576 PEUs under its PEU Plan at a fair value of $3.3 million. The grant date fair
value assumptions using the Monte-Carlo valuation model are as follows:
As at
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)
Initial total unitholder return (iii)
$
$
December 31, 2019
3,266
143
22.84
1.8%
12.4%
6.1%
(i) Derived using the yield on Government of Canada benchmark bonds with an average term similar to the PEU vesting period.
(ii) Expected unit price volatility is calculated based on the average of the actual daily closing price of RioCan's trust units measured over a three-year
historical period up to the grant date.
(iii) PEUs are subject to certain internal and external measures of performance. The PEUs will vest based on the following performance metrics: half
are subject to an internal cumulative funds from operations (FFO) growth performance hurdle and half are subject to a relative TUR performance
hurdle where vesting is dependent upon RioCan's total unitholder return (TUR) performance relative to a comparative group of peer companies.
The initial TUR performance has incorporated actual historical TUR performance for RioCan and each entity in the comparator group over the
period from January 1, 2019 to February 22, 2019.
Incentive unit option plan
The Trust provides long-term incentives to certain employees by granting options through the incentive unit option plan (Plan).
RioCan is authorized to issue up to a maximum of 22 million common unit options under the Plan. As at December 31, 2019,
12.5 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. An option’s maximum term is 10 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.
As part of comprehensive changes to its executive compensation program, the Trust enhanced the design of its long-term
incentive program through its commitment to reduce the frequency of option grants. Effective January 1, 2017, subject to the
Board's discretion, the Trust reduced the frequency of unit option grants to a maximum of every other year. The unit option
program was not cancelled altogether to permit the Board to grant options as it determines in the best interest of the Trust.
During March 2019, the Trust granted 0.4 million unit options at an exercise price of $26.49 per unit to senior management
(December 31, 2018 - 0.7 million).
The weighted average assumptions used in the calculation of the units granted for the years ended December 31, 2019 and 2018
using the Black-Scholes option valuation model are as follows:
Years 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)
$
$
$
$
2019
404
400
26.49
1.5%
5.5%
13.9%
5.6
2018
657
650
24.00
2.1%
6.1%
14.6%
5.6
(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 historical 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.
140
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
Unvested unit options granted prior to January 1, 2019, which remain outstanding under the existing plan, will continue to be
expensed over the vesting period over which all specified vesting conditions are satisfied. The following summarizes the
changes in unit options outstanding during the period:
Options
Outstanding, beginning of year
Granted
Exercised
Expired
Forfeited and/or cancelled
Outstanding, end of year
Options exercisable at end of year
Average fair value per unit of options granted during the year
2019
2018
Units
(in thousands)
Weighted
average
exercise price
Units
(in thousands)
Weighted
average
exercise price
7,910 $
400
(833)
(568)
(542)
6,367 $
5,221 $
$
26.53
26.49
23.92
27.89
26.98
26.71
27.00
1.01
7,775 $
650
(238)
—
(277)
7,910 $
6,251 $
$
26.47
24.00
17.94
—
26.27
26.53
26.75
1.01
The following table summarizes our outstanding options and related exercise price ranges of units granted under the plan:
Outstanding Options
Vested Options
Number of common
units issuable
(in thousands)
Weighted average
exercise price per
common unit
Weighted average
remaining life
(years)
Number of common
units issuable
(in thousands)
Weighted average
exercise price per
common unit
2019
606
1,959
905
1,078
1,033
786
6,367
2018
945
2,136
1,140
1,339
1,304
1,046
7,910
2019
2018
2019
2018
$23.98
$23.07
25.82
26.54
27.24
27.59
29.31
25.58
26.54
27.28
27.58
29.31
$26.71
$26.53
7.5
6.2
3.3
3.0
3.8
5.2
4.9
6.5
5.3
3.8
3.7
4.5
5.1
4.8
2019
193
1,231
905
1,073
1,033
786
5,221
2018
345
1,361
1,140
1,316
1,304
785
2019
2018
$23.94
$21.46
25.62
26.54
27.24
27.59
29.31
25.47
26.54
27.28
27.58
29.31
6,251
$27.00
$26.75
Exercise price range
($/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
Trustee Unit Plan
Deferred Unit Plan
The Deferred Unit Plan was introduced in 2014 for non-employee Trustees of the Trust (Trustees). Trustees may be awarded
deferred units, each of which is economically equivalent to one unit, from time to time at the discretion of the Board of Trustees
upon recommendation from management, subject to a maximum annual grant not to exceed that number of deferred units that is
$150,000 divided by the average market price of a unit on the award date. Trustees may also elect to receive up to 100% of his or
her annual retainer and meeting fees for a calendar year otherwise payable in cash in the form of deferred units. Trustees have
up to two years after ceasing to be a Trustee to redeem units. The maximum number of units reserved for issuance under the
Deferred Unit Plan at any time is 750,000.
As at December 31, 2019, there are 319,506 deferred units vested and outstanding (December 31, 2018 - 272,269). During the
year ended December 31, 2019, 57,936 units were granted and 26,892 units were exercised (December 31, 2018 - 61,347 units
granted and 30,384 units exercised).
17. DISTRIBUTIONS TO UNITHOLDERS
Total distributions declared to unitholders are as follows:
Year ended December 31,
Common unitholders
Total distributions Distributions per unit
Total distributions Distributions per unit
$
444,462 $
1.4400 $
450,743 $
1.4400
2019
2018
On January 15, 2020, RioCan declared a distribution payable of 12.00 cents per unit for the month of January 2020, which was
paid on February 7, 2020 to common trust unitholders of record as at January 31, 2020.
141
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
18. REVENUE
Rental revenue
Years ended December 31,
Base rent
Realty tax and insurance recoveries
Common area maintenance recoveries
Percentage rent
Straight-line rent
Lease cancellation fees
Parking revenue
Rental revenue
$
$
2019
684,383 $
217,984
164,921
6,719
8,880
7,903
2,937
2018
695,187
227,772
158,361
8,853
8,563
7,932
3,492
1,093,727 $
1,110,160
The following tables provide additional disclosure of the Trust`s various revenue streams.
Revenue from contracts with customers
Revenue from contracts with customers includes common area maintenance recoveries and parking revenue that are included in
rental revenue:
Years ended December 31,
Residential inventory sales
Common area maintenance recoveries
Property management and other service fees
Parking revenue
Revenue from contracts with customers
Property management and other service fees
Property management and other service fees consist of the following:
Years ended December 31,
Property management fees (i)
Construction and development fees (i)
Leasing fees (ii)
Financing arrangement fees (ii)
Other (iii)
Property management and other service fees
$
$
$
$
2019
208,965 $
164,921
23,633
2,937
400,456 $
2019
4,728 $
10,431
672
5,423
2,379
23,633 $
2018
22,264
158,361
15,418
3,492
199,535
2018
4,383
5,392
1,007
1,195
3,441
15,418
(i) Recognized over time.
(ii) Recognized at a point in time.
(iii) $0.2 million is recognized over time and $2.2 million is recognized at a point in time for the year ended December 31, 2019 (December 31, 2018 -
$0.7 million and $2.8 million, respectively).
Residential inventory sales
The following table identifies estimated revenue from residential inventory sales to be recognized in future periods at the point in
time when purchasers take possession of their respective residential units based on condominium and townhouse pre-sold as of
December 31, 2019:
As at
Within one year
More than one year
Total
December 31, 2019
December 31, 2018
$
$
396 $
327,111
327,507 $
199,894
5,226
205,120
142
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
19. INVESTMENT AND OTHER INCOME
Years ended December 31,
Income earned on marketable securities
Fair value gains on marketable securities
Transaction gains (losses) and other income (losses)
$
$
2019
859 $
8,030
(1,157)
7,732 $
2018
2,998
16,472
846
20,316
The following table breaks down the fair value gains (losses) on marketable securities for the years ended December 31, 2019
and 2018:
Year ended December 31,
Realized gains on sale of marketable securities during the year
Change in unrealized fair value on marketable securities during the year
Fair value gains on marketable securities during the year
20. INTEREST INCOME
Years ended December 31,
Interest income measured at amortized cost
Interest income measured at fair value through profit or loss
Other interest income (i)
$
$
$
$
2019
23,667 $
(15,637)
8,030 $
2019
11,032 $
—
5,884
16,916 $
2018
59,239
(42,767)
16,472
2018
9,624
1,315
513
11,452
(i)
Includes interest from finance subleases of $2.0 million for the year ended December 31, 2019, upon the adoption of IFRS 16 on January 1, 2019.
21. INTEREST COSTS
Years ended December 31,
Total interest (i)
Less: Interest capitalized
$
$
2019
216,249 $
(33,469)
182,780 $
2018
206,743
(38,444)
168,299
(i)
Includes interest from lease liabilities of $2.0 million for the year ended December 31, 2019.
For the year ended December 31, 2019, interest was capitalized to properties under development and residential inventory at a
weighted average effective interest rate of 3.51%, respectively (year ended December 31, 2018 - 3.46%, respectively).
22. GENERAL AND ADMINISTRATIVE
Years ended December 31,
Salaries and benefits
Unit-based compensation expense
Depreciation and amortization
Other general and administrative
$
$
2019
22,311 $
5,358
4,381
14,764
46,814 $
2018
29,212
7,070
4,575
15,142
55,999
Other general and administrative costs include information technology costs, public company costs, professional fees, travel
expenses, occupancy costs, donations, advertising, promotion and marketing costs.
23. TRANSACTION AND OTHER COSTS
For the year ended December 31, 2019, transaction and other costs primarily include property acquisition and disposition costs
totalling $12.8 million (December 31, 2018 - $20.0 million).
143
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
24. NET INCOME 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.
Years ended December 31,
Net income attributable to unitholders
Less: Net income from discontinued operations
Net income attributable to unitholders from continuing operations
Weighted average common units outstanding
(in thousands):
Basic
Dilutive effect of common unit options (i)
Diluted
Net income per unit (basic):
Continuing operations
Discontinued operations
Net income per unit (diluted):
Continuing operations
Discontinued operations
$
$
$
$
$
$
2019
775,834 $
—
775,834 $
307,683
96
307,779
2.52 $
—
2.52 $
2.52 $
—
2.52 $
2018
528,103
741
527,362
313,936
88
314,024
1.68
—
1.68
1.68
—
1.68
(i) The calculation of diluted weighted average units outstanding excludes 4.6 million unit options for the year ended December 31, 2019
(December 31, 2018 - 7.6 million units), as the exercise price of these unit options was greater than the average market price of RioCan's common
trust units.
25. 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:
As at
Assets measured at fair value:
Marketable securities
Other investments
Investment properties:
Income properties
Properties under development
Properties held for sale
Interest rate swaps
December 31, 2019
December 31, 2018
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$
18,123 $
— $
— $
54,092 $
— $
—
—
—
—
—
5,693
2,236
— 13,120,545
— 1,238,582
—
2,939
21,800
—
—
—
—
—
—
5,555
—
1,835
— 12,021,303
—
—
4,288
988,118
194,227
—
Total assets measured at fair value
Liabilities measured at fair value:
Interest rate swaps
Total liabilities measured at fair value
$
$
18,123 $
8,632 $ 14,383,163 $
54,092 $
9,843 $ 13,205,483
—
18,419
— $
18,419 $
—
— $
—
— $
7,804
7,804 $
—
—
For assets and liabilities measured at fair value as at December 31, 2019, there were no transfers between Level 1, Level 2 and
Level 3 during the year. For changes in fair value measurements of investment properties and properties held for sale included in
Level 3 of the fair value hierarchy, refer to Note 4 for details on the changes in beginning and ending balances.
144
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
Fair value of financial instruments
The following presents the carrying values and fair values of the Trust's financial instruments, excluding those classified as at
amortized cost whose carrying value reasonably approximates their fair value and lease liabilities:
As at
Financial assets:
Marketable securities
Other investments
Finance lease receivables
Mortgages and loans receivable
Interest rate swap assets
Financial liabilities:
Mortgages payable (i)
Debentures payable
Lines of credit and other bank loans
Interest rate swap liabilities
(i)
Includes liabilities held for sale.
December 31, 2019
December 31, 2018
Carrying value
Fair value
Carrying value
Fair value
$
18,123 $
18,123 $
54,092 $
7,929
39,119
175,951
2,939
7,929
39,119
175,635
2,939
7,390
—
164,014
4,288
$
2,412,451 $
2,450,273 $
2,218,270 $
2,891,648
1,086,719
18,419
2,943,585
1,086,719
18,419
2,742,633
913,130
7,804
54,092
7,390
—
163,488
4,288
2,241,987
2,744,140
913,130
7,804
The fair values of the Trust's financial instruments were determined as follows:
Finance lease receivables
The fair value of finance lease receivables is determined by the discounted cash flow method using applicable inputs such as
prevailing discount rates. Fair value measurements of these instruments were estimated using Level 3 inputs.
Mortgages and loans receivable
The fair value of mortgages and loans receivable is determined by the discounted cash flow method using applicable inputs such
as prevailing interest rates, contractual rates and discounts and considers the fair value of the underlying collateral. 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 and other bank loans, mortgages on properties held for sale, 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.
Interest rate swaps
The fair values of the interest rate swaps reported in receivables and other assets and accounts payable and other liabilities on
the consolidated balance sheet 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.
26. RISK MANAGEMENT
The main risks arising from the Trust's financial instruments are interest rate risk, liquidity risk and credit risk. 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, 2019, approximately 6.1%
(December 31, 2018 - 15.8%) of the Trust's debt is financed at variable rates (including mortgage debt related to properties held
for sale, if applicable, and excluding debt that has been hedged to fixed rates), exposing the Trust to interest rate risk.
145
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
From time to time, the Trust may enter into floating-for-fixed interest rate swaps as part of its strategy for managing interest rate
risk. Hedge effectiveness is determined at the inception of the hedge relationship, and through quarterly effectiveness
assessments to ensure that an economic relationship exists between hedged item and hedging instrument. The hedge ratio is set
at a ratio of 1:1 for the specific portions of floating rate debt that have been designated as the hedged item.The Trust enters into
hedge relationships where the critical terms of the hedging instrument match with the terms of the hedged item; as a result, the
Trust does not expect any sources of hedge ineffectiveness, except from changes in credit risk of the Trust and the counterparty.
The Trust has applied hedge accounting and recorded the changes in fair value for the effective portion of these derivatives in
OCI accumulated in the cash flow hedge reserve in equity from the date of hedge designation. Accumulated amounts are
reclassified from OCI to net income in the periods where the forecasted cash flows impact net income. For any interest rate
swaps for which the Trust does not apply hedge accounting, the change in fair value of the swap contracts is recognized in net
income.
As at December 31, 2019, the outstanding notional amount of the floating-for-fixed interest rate swaps is $1.3 billion (December
31, 2018 - $764.4 million) and the term to maturity of these agreements ranges from April 2020 to November 2028.
The outstanding interest rate swaps by year of maturity are as follows:
Maturity
2020
2021
2022
2023
2024
Thereafter
Notional outstanding principal amount Weighted average effective fixed interest rate
$
$
119,404
45,909
57,600
400,470
527,808
156,000
1,307,191
2.78%
4.12%
2.86%
3.42%
3.35%
3.52%
The Trust assessed the effectiveness of its hedging relationships and determined all such designated hedging relationships were
effective as at December 31, 2019. As at December 31, 2019, the fair value of the interest rate swaps is, in aggregate, a net
financial liability of approximately $15.5 million (December 31, 2018 - net financial liability of approximately $3.5 million).
As at December 31, 2019, the carrying value of the Trust's floating rate debt that is not subject to a hedging strategy is $387.6
million and a 50 basis point increase in market interest rates would result in an annualized decrease of $1.9 million in the Trust's
net income.
The amounts relating to items designated as hedging instruments and hedge ineffectiveness were as follows:
2019
Nominal
amount of
hedging
instrument
Carry amount of the hedging
instrument
Assets
Liabilities
Interest
rate risk
$1,307,191
$2,939
$18,419
Line item in the
consolidated
balance sheet
Receivables
and other
assets (assets),
Accounts
payable and
other liabilities
(liabilities)
Fair value
gain (loss)
recognized
in OCI
Hedge
ineffectiveness
recognized in
profit or loss
Amounts
reclassified from
the hedge
reserve to
profit or loss
Line item in
profit or loss
affected by
reclassification
$(14,807)
—
$2,821
Interest costs
2018
Nominal
amount of
hedging
instrument
Carry amount of the hedging
instrument
Assets
Liabilities
Interest
rate risk
$764,426
$4,288
$7,804
Line item in the
consolidated
balance sheet
Receivables
and other
assets (assets),
Accounts
payable and
other liabilities
(liabilities)
Fair value
gain (loss)
recognized
in OCI
Hedge
ineffectiveness
recognized in
profit or loss
Amounts
reclassified from
the hedge
reserve to
profit or loss
Line item in
profit or loss
affected by
reclassification
$(7,796)
—
$2,099
Interest costs
146
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
The amounts at the reporting date relating to items designated as hedged items were as follows:
2019
2018
Fair value gain
(loss) used for
calculating hedge
ineffectiveness
Gain (loss) in
cash flow hedge
reserve for
continuing
hedges
Gain (loss) in
cash flow hedge
reserve for
continuing
hedges
Fair value gain
(loss) used for
calculating hedge
ineffectiveness
Gain (loss) in
cash flow hedge
reserve for
continuing
hedges
Gain (loss) in
cash flow hedge
reserve for
continuing
hedges
$(14,807)
$(14,989)
—
$(7,796)
$(3,003)
—
Interest rate risk
Variable rate mortgages
and lines of credit and the
bank loans
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, actively renewing expiring credit arrangements, utilizing undrawn
operating lines of credit, maintaining a large number of assets unencumbered by debt and issuing equity when considered
appropriate.
• For the current and non-current scheduled repayments of mortgages, floating rate debt and funds drawn against the Trust's
operating line of credit, refer to Notes 11 and 12 for details.
• For current and non-current scheduled repayments of debentures, refer to Note 13 for details.
The Trust expects to continue financing future acquisitions, development and debt obligations through existing cash balances,
internally generated cash flows, mortgages, credit facilities, issuance of unsecured debentures, the sale of non-core assets, sales
proceeds from residential inventory or air rights sales, the sale of marketable securities, strategic development partnerships and
the issuance of equity when considered appropriate.
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, typically through co-ownership arrangements, default on the repayment of their mortgages to the Trust.
• Third-party defaults on the repayment of debt whereby RioCan has provided guarantees, including guarantees by RioCan on
behalf of its co-owners and on behalf of purchasers who assumed mortgages on property dispositions.
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, ensuring a considerable portion of the Trust’s revenue is earned
from national and anchor tenants and conducting credit assessments for new tenants.
Credit risk relating to mortgages and loans receivable and third-party guarantees is mitigated through recourse against such
parties and/or the underlying real estate. These financial instruments are considered to have low credit risk. The Trust monitors
the debt service ability of the properties underlying the mortgages and loans receivable and third-party guarantees to assess for
changes in credit risk. Credit risk relating to finance lease receivables is mitigated through recourse against such parties and/or
re-recognition of the forfeited leased unit as investment property.
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 and loans receivable.
The maximum exposure to credit risk on financial assets on the consolidated balance sheet is their carrying values. For the
maximum exposure to credit risk on third-party guarantees, refer to Note 34.
27. 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, and enables the Trust to achieve target credit ratings, implement its business strategies
and build 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.
147
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
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, 2019. 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,
Debentures payable
Mortgages payable
Lines of credit and other bank loans
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
Note
13
12
11
2019
$
2,891,648
$
2,412,451
1,086,719
6,390,818
8,305,211
2018
2,742,633
2,218,270
913,130
5,874,033
7,666,390
$
14,696,029
$
13,540,423
41.7%
4.4%
2019
3.52
41.6%
5.3%
2018
3.68
Revolving unsecured operating line of credit and non-revolving unsecured credit facilities
The Trust is subject to certain key financial covenants pursuant to the agreement governing its unsecured operating credit
facilities, which are calculated on a rolling twelve-month basis. As at and for the twelve months ended December 31, 2019, 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, 2019
< 60%
< 40%
> 1.5x
> $5,000
> 1.5x
< 15%
44.0%
17.1%
2.7x
$8,305
2.0x
9.0%
(i)
Total indebtedness consists of the contractual amounts outstanding on mortgages payable, lines of credit and other bank loans, debentures
payable, lease liabilities, 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, secured construction lines and other bank loans and lease liabilities, which are secured
against investment properties.
148
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
(iii) Debt service coverage includes regular mortgage principal and interest payments, including interest capitalized on properties under development.
(iv) Unsecured indebtedness includes the contractual amounts outstanding of the revolving unsecured operating line of credit, non-revolving
unsecured credit facilities, debentures, contingent liabilities 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 assets to
unsecured indebtedness ratio is calculated as unencumbered assets divided by unsecured indebtedness.
(vi) These ratios include inputs from proportionately consolidated equity-accounted investments.
28. 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 Realty Investments Partnership Twelve LP
RioCan Realty Investments Partnership Thirteen LP
RioCan Realty Investments Partnership Fourteen LP
RioCan Realty Investments Partnership Fifteen LP
RioCan Realty Investments Partnership Sixteen LP
RioCan (GH) Limited Partnership
RioCan Property Services Trust
RioCan White Shield Limited Partnership
RioCan (GTA Marketplace) LP
RioCan Realty Investments Partnership Seventeen LP
RioCan Realty Investments Partnership Eighteen LP
RioCan Realty Investments Partnership Twenty LP
RioCan Realty Investments Partnership Twenty-One LP
RioCan Realty Investments Partnership Twenty-Two LP
RC Preferred Interest Trust
RC NA Property 4 LP
RC NA Property 5 LP
RioCan Realty Investments Partnership Twenty-Three LP
RioCan Realty Investments Partnership Twenty-Four LP
RioCan Realty Investments Partnership Twenty-Five LP
RioCan Realty Investments Partnership Twenty-Six LP
RioCan Realty Investments Partnership Twenty-Seven LP
RioCan Realty Investments Partnership Twenty-Eight LP
RC Elmvale Acres LP
RC Westgate LP
RC Lincoln Fields LP
RC Strawberry Hills LP
RC Yonge Roehampton LP
RC Dufferin LP
RC Mill Woods LP
149
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
Country
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
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, 2019 and 2018
The Trust has investments in certain joint ventures that are structured using entities that separate the investor and the investee.
As a result, the Trust only has rights to and is liable for the net assets of the investee for these joint ventures.
Refer to Note 5 for the financial information of RioCan-HBC JV, Dawson-Yonge LP, WhiteCastle New Urban Fund, LP (WNUF 1),
WhiteCastle New Urban Fund 2, LP (WNUF 2), WhiteCastle New Urban Fund 3, LP (WNUF 3), WhiteCastle New Urban Fund 4,
LP (WNUF 4), which are the Trust's six associates and joint ventures that are accounted for using the equity method as at
December 31, 2019.
29. SUPPLEMENTAL CASH FLOW INFORMATION
Interest received
Interest paid
Distributions paid:
Distributions declared during the year
Distributions declared in the prior year paid in the current year
Distributions declared in current year paid in the next year
Distributions paid
$
$
$
2019
20,163 $
210,534
(444,462) $
(36,612)
38,121
(442,953) $
The following provides a reconciliation of liabilities arising from financing activities:
Year ended December 31, 2019
Balance, beginning of year
Proceeds/advances
Repayments
Non-cash changes:
Deferred financing costs and premiums and discounts
Contractual principal assumed (disposed) on acquisition/
disposition, net
Mortgages payable
Lines of credit and
other bank loans
$
2,218,270 $
913,130 $
452,000
(447,637)
(3,934)
193,752
886,799
(778,396)
(102)
65,288
2018
3,096
210,991
(450,743)
(38,039)
36,612
(452,170)
Debentures
2,742,633
497,595
(350,000)
1,420
—
Balance, end of year
$
2,412,451 $
1,086,719 $
2,891,648
30. CHANGES IN OTHER WORKING CAPITAL ITEMS
Years ended December 31,
Receivable and other assets
Mortgage receivable interest
Residential inventory
Accounts payable and other liabilities
Other
Net change in other working capital items
$
$
2019
(67,602) $
7,477
129,468
(12,376)
(3,198)
53,769 $
2018
(15,491)
(6,894)
(69,106)
14,399
(2,376)
(79,468)
31. RELATED PARTY TRANSACTIONS
RioCan's related parties include the following persons and/or entities:
(a) associates, joint ventures, or entities that are controlled or significantly influenced by the Trust; and
(b) key management personnel including the Trustees and those persons having the authority and responsibility for planning,
directing and controlling the activities of RioCan.
Activity and transactions with associates and joint ventures are disclosed in Note 5.
Key management personnel are defined by the Trust as 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 each of the Trustees and the following individuals: Chief Executive Officer,
Edward Sonshine; President and Chief Operating Officer, Jonathan Gitlin; and Senior Vice President and Chief Financial Officer,
Qi Tang (collectively, the "Key Executives").
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
Remuneration of the Trust’s Trustees and Key Executives during the year ended December 31, 2019 and 2018 is as follows:
Years ended December 31,
Compensation and benefits
Unit-based payments
Post-employment benefit costs
32. EMPLOYEE BENEFITS
Plan characteristics
Trustees
Key Executives
2019
203 $
2,813
—
2018
280 $
1,663
—
2019
5,388 $
3,460
108
2018
8,188
4,551
41
3,016 $
1,943 $
8,956 $
12,780
$
$
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, 2019, RioCan's
contributions to the defined contribution plan were $2.6 million (December 31, 2018 - $2.7 million).
Defined benefit plan
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.
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, 2019, and the next valuation is scheduled
for January 1, 2022.
The fair value of the registered plan assets as at December 31, 2019 is $3.7 million (December 31, 2018 - $3.4 million). The
recognized pension obligation (net of plan assets) as at December 31, 2019 is $15.0 million (December 31, 2018 - $13.9 million).
Pension costs, net of recoveries, of $0.4 million were recorded in net income for the year ended December 31, 2019 (pension
costs for the year ended December 31, 2018 - $0.5 million).
The discount rate used was 3.0% (December 31, 2018 - 3.6%), the compensation growth rate was 4.0% (December 31, 2018 -
4.0%) and the expected long-term rate of return on assets was 3.0% (December 31, 2018 - 3.6%).
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.
33. 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.
34. CONTINGENCIES AND OTHER COMMITMENTS
Third-party guarantees
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.
As at December 31, 2019, the maximum exposure to credit loss as a result of debt guaranteed by RioCan is $163.2 million
(December 31, 2018 - $309.2 million), which expires between 2020 and 2025, and which includes guarantees of $106.6 million
(December 31, 2018 - $251.2 million) on behalf of co-owners. Debt guaranteed by RioCan that relates to the assumption of
mortgages on property dispositions is $56.6 million (December 31, 2018 - $58.0 million). There have been no defaults by the
primary obligors for debts on which the Trust has provided its guarantees and no provision for expected losses on these
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
guarantees has been recognized in the consolidated financial statements.
Expiry of guarantees by year is as follows:
2020
2021
2022
2023
2024
2025
Total
Letters of credit
$
$
30,022
70,853
57,849
2,642
—
1,833
163,199
The Trust has aggregate letter of credit facilities with certain Schedule I banks totalling $76.4 million (December 31, 2018 -
$77.9 million). As at December 31, 2019, the Trust’s outstanding letters of credit under these facilities were $54.8 million
(December 31, 2018 - $47.5 million).
Investment commitments
RioCan-HBC Joint Venture
As at December 31, 2019, RioCan has approximately $140.5 million of remaining unfunded investment commitments related to
the RioCan-HBC JV (December 31, 2018 - $142.7 million). The remaining contribution commitments are expected to be
completed by November 25, 2020.
WhiteCastle New Urban Funds (WNUF)
As at December 31, 2019, the Trust has total unfunded investment commitments of $74.8 million relating to WNUF 1, WNUF 2,
WNUF 3 and WNUF 4 (December 31, 2018 - $79.6 million). Amounts to be funded are callable by the general partner at any
point prior to the expiration of the limited partnership agreements, subject to certain extension term provisions, which are June
17, 2020 for WNUF 1; February 28, 2022 for WNUF 2; May 1, 2025 for WNUF 3; and September 15, 2027 for WNUF 4.
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.
35. EVENTS AFTER THE BALANCE SHEET DATE
Acquisitions and dispositions
On January 9, 2020, the Trust acquired the remaining one-third interest in RioCan Marketplace in Toronto, Ontario, for a
purchase price of $19.0 million, including transaction costs and assumed a mortgage payable of $11.5 million.
On January 31, 2020, the Trust acquired one property located in Toronto, Ontario, for a purchase price of $4.7 million, including
transaction costs.
36. TRANSITION TO IFRS 16
IFRS 16, Leases (IFRS 16)
The Trust has adopted IFRS 16 retrospectively without restatement to prior period comparatives. The cumulative effect of initial
application is recognized in retained earnings at January 1, 2019.
A. RioCan as a lessee
As a lessee, under IAS 17, leases were classified as operating or finance leases based on the Trust's assessment of whether the
lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Trust. Under
IFRS 16, the Trust recognizes a right-of-use (ROU) asset and lease liability for most leases. The Trust will recognize interest
expense on lease liabilities and amortization expense for ROU assets or fair value gains/losses in the case of ROU assets
categorized as investment property, instead of rent expense.
i) Leases classified as operating leases under IAS 17
On adoption of IFRS 16, the Trust recognized lease liabilities in relation to leases that had previously been classified as operating
leases under the principles of IAS 17. These liabilities are measured at the present value of the remaining lease payments,
discounted using the lessee's incremental borrowing rate as of January 1, 2019. The weighted average lessee's incremental
borrowing rate applied to the lease liabilities on January 1, 2019 was 5.46%.
The associated ROU assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or
accrued lease payments relating to that lease recognized in the consolidated balance sheet immediately before January 1, 2019.
There were no onerous lease contracts that would have required an adjustment to the ROU asset at January 1, 2019.
152
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
The Trust used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases
under IAS 17:
•
•
•
applied the exemption not to recognize ROU assets and liabilities for leases with less than 12 months of lease term or
leases of low value assets;
excluded initial direct costs from measuring the ROU assets at the date of initial application; and
used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
On transition to IFRS 16, the Trust also elected to apply the practical expedient to grandfather the assessment of which
transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not
identified as leases under IAS 17 and International Financial Reporting Interpretations Committee interpretation IFRIC 4 were not
reassessed for whether there is a lease. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered
into or changed on or after January 1, 2019.
ii) Leases previously classified as finance leases under IAS 17
For leases previously classified as finance leases, the Trust recognized the carrying amount of the lease asset and lease liability
immediately before transition as the carrying amount of the ROU asset and the lease liability at January 1, 2019, the date of initial
application. The measurement principles of IFRS 16 are only applied after that date.
B. RioCan as a lessor
RioCan is not required to make any adjustments on transition to IFRS 16 for leases in which it acts as a lessor, except in a
sublease arrangement. The Trust accounted for its leases in accordance with IFRS 16 from January 1, 2019.
The Trust is the lessee of three land and building leases that have historically been accounted for as investment properties under
an election previously available pursuant to IAS 40, which it has subdivided and subleased to retail tenants. Under IFRS 16,
these are considered sublease arrangements, which are classified by reference to the ROU asset arising from the head lease,
rather than by reference to the underlying asset as is the case under IAS 17. The Trust determined that certain tenant subleases
are finance leases under IFRS 16, and has accounted for these subleases as new finance leases entered into on January 1,
2019. The Trust recognizes interest income on the net investment in the lease (finance lease receivable) instead of rent revenue,
and has ceased recording fair value changes for the portion of investment property that has been derecognized to finance lease
receivables.
C. Impact to opening balance sheet
The following table summarizes the impact of adopting IFRS 16, on January 1, 2019.
Investment properties
Receivables and other assets
Other assets
Total assets
Accounts payable and other liabilities
Other liabilities
Lease liabilities recognized as at January 1, 2019
Total unitholders' equity
As previously
reported
Adjustments
As restated
13,009,421 $
(16,465) $
12,992,956
152,126
842,218
32,643
—
184,769
842,218
14,003,765 $
16,178 $
14,019,943
463,342 $
17,013 $
5,874,033
—
6,337,375 $
17,013 $
480,355
5,874,033
6,354,388
7,666,390 $
(835) $
7,665,555
$
$
$
$
$
On initial transition, RioCan as a lessee recorded additional lease liabilities of $17.0 million, increased the value of investment
properties by $17.0 million and reduced prepaid rent in receivables and other assets by $0.1 million. As a lessor, RioCan
recorded $32.7 million of finance lease receivables from sublease arrangements in receivables and other assets, derecognized
$32.7 million from investment properties and reduced straight-line rent within investment properties by $0.8 million. The net
impact to opening retained earnings was a reduction of $0.8 million.
153
RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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, 2019 and 2018
Operating lease commitment as at December 31, 2018 as disclosed in Note 35 in 2018 Annual
Financial Statements
Operating lease renewal options not included in non-cancellable operating lease commitments as at
December 31, 2018
Discounted using the incremental borrowing rate as at January 1, 2019
Add:
Finance lease liabilities under IAS 17 at December 31, 2018
Changes in fixed rent payments
Less:
Office equipment leases
Lease liabilities recognized as at January 1, 2019
Current lease liabilities
Non-current lease liabilities
January 1, 2019
11,403
49,403
(43,412)
20,064
559
(941)
37,076
1,944
35,132
37,076
$
$
$
Accounting policies for leases under IAS 17, Leases
The following accounting policies apply to comparative information for 2018 in the Trust's consolidated financial statements,
where significant differences existed under IAS 17 as it did not restate prior periods on adoption of IFRS 16.
Investment properties
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. Certain land and/or building leases held under an operating lease, however, are classified as
investment property when the definition of an investment property is met and the Trust elects to account for these as finance
leases. At the inception of these leases, the 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.
Lease classification - RioCan as lessee
In instances where the Trust is the lessee of a leased asset, the lease is classified with reference to fair value and economic life
of the underlying asset.
Tenant sub-lease arrangements - Classification
Tenant sub-lease arrangements are classified with reference to fair value and economic life of the underlying asset. Based on this
criteria, most tenant sub-leases are classified as operating leases.
Rental revenue - Straight-line rent
Certain lease contracts 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 contract, 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.
Rental revenue - 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.
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RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2019
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Corporate
INFORMATION
Senior Management
Board of Trustees
Auditors
Ernst & Young LLP
Transfer Agent and Registrar
AST Trust Company (Canada)
P.O. Box 700, Station B
Montreal, Quebec H3B 3K3
Answerline: 1 (800) 387-0825
Fax: 1 (888) 249-6189 or (514) 985-8843
Website: www.astfinancial.com/ca-en
Email: inquiries@astfinancial.com
Stock Exchange Listing
The Toronto Stock Exchange
Trading Symbols: Common Units – REI.UN
Annual and Special Meeting
RioCan’s 2020 Annual and Special Meeting will be
held on Tuesday, June 2, 2020 at 10:00 a.m. (Eastern
Daylight Time). The meeting will be conducted as
a “virtual” meeting via an online platform. Further
information about the virtual meeting will be
provided in the management information circular for
the meeting and at www.riocan.com. All unitholders
are invited and encouraged to attend.
Vous pouvez trouver 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
Paul Godfrey, C.M., O.Ont.3,4
(Chairman of Board of Trustees)
Executive Chairman
Postmedia Network Canada Corp.
Bonnie R. Brooks, C.M.3,4
President & CEO of Chico’s FAS (CHS: NYSE)
Board Member, Rogers Communications Inc.
Former CEO & President, Hudson’s Bay Company
Richard Dansereau1,2*
Corporate Director, Stonehenge Partners
Dale H. Lastman, C.M.
Chair & Partner, Goodmans LLP
Jane Marshall2,3,4*
Trustee, Plaza Retail REIT
Former COO, Choice Properties REIT
Sharon Sallows1,2,4
Trustee, Chartwell Retirement Residences REIT
Director, Home Capital Group Inc.
Edward Sonshine O.Ont., Q.C.
Chief Executive Officer,
RioCan Real Estate Investment Trust
Siim A. Vanaselja1*,2
Director & Chair of the Board of TransCanada Corporation
Director, Great-West Lifeco Inc.
Director, Power Financial Corporation
Charles M. Winograd3*,4
President, Winograd Capital Inc.
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
Investor Contact
Kim Lee
Vice President, Investor Relations
Tel: (416) 646-8326
Email: klee@riocan.com
Edward Sonshine O.Ont., Q.C.
Chief Executive Officer
Jonathan Gitlin
President & Chief Operating Officer
Qi Tang
Senior Vice President & Chief Financial Officer
John Ballantyne
Senior Vice President, Asset Management
Andrew Duncan
Senior Vice President, Development
Oliver Harrison
Senior Vice President, Operations
Jeff Ross
Senior Vice President, Leasing & Tenant Construction
Jennifer Suess
Senior Vice President, General Counsel
& Corporate Secretary
Terri Andrianopoulos
Vice President, Marketing & Communications
David Bain
Vice President, Tenant Construction
Moshe Batalion
Vice President, Leasing
Stuart Craig
Vice President, Development
Roberto DeBarros
Vice President, Construction
Ryan Donkers
Vice President, Investments
Anushka Grant
Vice President, Innovation & Sustainability
George Ho
Vice President, Information Technology
Kim Lee
Vice President, Investor Relations
Sandra Levy
Vice President, Human Resources
Pradeepa Nadarajah
Vice President, Property Accounting
Paran Namasivayam
Vice President, Recovery Accounting
Stephen Roberts
Vice President, Analytics
Tim Roos
Vice President, Operations -
Eastern Canada & Northern Ontario
Renee Simms
Vice President, Insurance
Franca Smith
Vice President, Finance
Jonathan Sonshine
Vice President, Asset Management
Jeffery Stephenson
Vice President, Operations - GTA & Central Ontario
Naftali Sturm
Vice President, Real Estate Finance
Kimberly Valliere
Vice President, Development Construction
Kim Wingerak
Vice President, Operations - Western Canada
Jason Wong
Vice President, Corporate Tax
Ashtar Zubair
Vice President, Enclosed Leasing
1 Member of the Audit Committee2 Member of the Human Resources & Compensation Committee3 Member of the Nominating & Governance Committee4 Member of the Investment Committee* Committee Chair RIOCAN YONGE EGLINTON CENTRE
2300 Yonge Street | Suite 500 | P.O. Box 2386 | Toronto, Ontario | M4P 1E4