ANNUAL
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Table of
CONTENTS
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03
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20
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Corporate Profile
Letter from the CEO
Letter from the President & COO
Senior Leadership Team
Environmental, Social and Governance
Development in Action
Financial Review
Key Performance Indicators
Financial Performance
Management’s Discussion and Analysis
Audited Annual Consolidated Financial Statements
About RioCan
RioCan is one of Canada’s largest real estate investment
trusts. 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.
As of December 31, 2020, our portfolio is comprised of 223
properties with an aggregate net leasable area of approximately
38.3 million square feet (at RioCan’s interest) including office,
residential rental and 14 development properties.
To learn more about us, please visit www.riocan.com.
KEY METRICS
$1.60
FUNDS FROM
OPERATIONS PER UNIT
$1.6B
IN AVAILABLE
LIQUIDITY
$8.7B
UNENCUMBERED
ASSETS
01
RioCan Annual Report 2020 Shoppes on Queen | Toronto
Strategic Canadian
MAJOR MARKET POSITIONING
I Z ED RE
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90%
6 MAJO R M A R K
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EDMONTON
12 assets1
2.2M SF
6.7%*
CALGARY
16 assets1
3.6M SF
10.4%*
VANCOUVER
7 assets1
1.8M SF
4.7%*
MONTREAL
19 assets1
2.4M SF
4.1%*
OTTAWA
35 assets1
4.8M SF
12.8%*
GREATER
TORONTO AREA
91 assets1
17.1M SF
51.3%*
Within 5 km of RioCan Centres:
201,326
Average Population2
$117,918
Average Household Income2
1.2M+
immigrants expected
to come to Canada
over next three years 3
~30%
of Canada’s immigrants
expected to make
Toronto home
2020 HIGHLIGHTS
95.7%
Committed
Occupancy
94.2%
Q4 Rent Collection
as of February 10, 2021
529,000 SF
Development
Completions
1,209,000 SF
New Leasing
3,641,000 SF
Lease Renewals
5.0%
Blended
Leasing Spread
at 100%
RioCan Annual Report 2020
02
02
RioCan Annual Report 2020 * Percentage of annualized rental revenue1 Income producing properties at RioCan’s Interest2 Source: DemoStats - 2020 - Trends, ©2020 Environics Analytics3 Source: Government of CanadaThis Annual Report should be read in conjunction with RioCan’s “Forward Looking Information” as listed on page 20 in the Financial Review section of this Annual Report. Dear Unitholders,
As I write this letter, the last in my role as Chief Executive
At the same time, I am humbled by the impact of the
Officer, I reflect over the past 27 years since RioCan launched
unprecedented events of 2020 driven by the global pandemic.
as one of the first real estate investment trusts in Canada.
We have endured adversity in RioCan’s history, but we have
The word that comes to mind is “pride”, accompanied by large
never navigated such a profound challenge to the landscape in
doses of gratitude and humility.
which we operate. In fact, the circumstances led to a reduction
in our distributions to Unitholders for the first time ever in
I’m proud of how RioCan has evolved over the years, continually
RioCan’s history.
adapting within an ever-changing real estate environment to
become what it is today – a pre-eminent REIT, with a leading
The RioCan that you see today cannot be replicated.
portfolio of high-quality assets predominantly located in Canada’s
It is the product of nearly three decades of acquisitions,
six largest markets. I’m proud of the people at RioCan; it is our
adaptability and development focused on creating one
shared entrepreneurial spirit, willingness to keep learning and ability
of the best portfolios in the country.
to think ahead and create opportunities that fuels our unwavering
commitment to growth and value creation.
From this solid foundation, RioCan is securely and strategically
positioned to capitalize on the attractive growth opportunities
I am indebted to the team for always responsibly managing the
that are inherent in our portfolio and create value for all our
business, honouring our covenant to Unitholders, and to put it
stakeholders for years to come.
bluntly, making me look good. It is this winning combination of a
best-in-class portfolio and an unbeatable team that has stood the
test of time and delivered results, and I am extremely grateful.
03 RioCan Annual Report 2020
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PROPERTY MIX
by Revenue*
2020
2019
Grocery Anchored Centre
42.0%
40.9%
Open Air Centre
27.1%
27.2%
Mixed-Use/ Urban1
21.4%
22.0%
Enclosed Centre
9.5%
(-0.4%)
9.9%
(-0.1%)
(-0.6%)
(+1.1%)
TENANT MIX
by Revenue*
16.9%
Grocery/Pharmacy/Liquor
(+1.1% vs. 2019)
11.8%
Essential Personal
Services
10.2%
Other Personal
Services
6.9%
Quick Service
Restaurants
5.8%
Sit-down Restaurants
2.8%
Entertainment/Books/
Electronics/ Hobby
13.8%
Value Retailers
11.5%
Specialty
Retailers
9.2%
Furniture
& Home
6.9%
Apparel
(-1.3% vs. 2019)
4.0%
Movie Theatres
(-0.4% vs. 2019)
0.2%
Department
Stores1
* Percentage of annualized rental revenue
1 Mixed-Use /Urban includes approximately 0.8 million square feet of residential
rental NLA and the corresponding annualized residential rental revenue.
Benefiting from a Resilient Portfolio
Our centres proved to be critical throughout 2020 as Canadians
turned to safe and convenient locations to gather their essential
With a watchful eye on market drivers and in anticipation of
items throughout the pandemic, and they will continue to be
emerging trends, we initiated our major market strategy more
strong anchors of our portfolio in the future.
than a decade ago, curating our portfolio to serve Canada’s most
populated urban and surrounding suburban areas.
Our operations and leasing teams leverage their deep
relationships to optimize our merchandising profile to ensure
Since exiting the US market and completing our secondary
market disposition program, RioCan’s portfolio is predominantly
RioCan has a resilient and defensive mix of tenants
concentrated where the majority of Canadians live.
that keep in lockstep with the new realities of consumer
Ninety per cent of our annualized revenue is generated from the
retain and attract other strong tenants.
country’s six main metropolitan areas. This includes 51.3% from
Greater Toronto, Canada’s centre of commerce and largest and
Focused on stability and high-quality income, RioCan has
spending patterns, drive repeat visits and, in turn,
fastest growing region.
established a solid tenant base of necessity-based and value-
oriented goods and services, such as grocery and pharmacy
We have also successfully transitioned our portfolio for greater
stores and specialty retailers.
accessibility and decreased our exposure to enclosed centres,
which now represent only 9.5% of our annualized rental revenue
At the same time, we are reducing our exposure to declining retail
and the majority of which are not your typical fashion mall but
concepts. For example, apparel now only represent 6.9% of our
rather community centres.
annualized rental revenue compared to 8.2% last year and down
Conveniently located, RioCan’s retail centres are
recognized as community beacons.
by more than 50% since 2007.
Tailoring our tenant base so that consumers have everything they
need available to them in one place has led to RioCan’s stronger
and more diversified tenant mix.
04
RioCan Annual Report 2020 * Percentage of annualized rental revenue1 Excludes Home Outfitters (included in Home and Furniture), Saks Off 5th (included in Value Retailers) and Lawrence Allen Centres’ HBC Office We have a roster of tenants with strong covenants and solid business
fundamentals, well-positioned to pay rent and ride out challenging
economic conditions.
RENT COLLECTION
by Tenant Type*
Given the widespread impact of the pandemic, we assessed the
strength of our tenant base relative to usage type and ability to pay
rent and estimated that 78.8% of annualized net rent is derived from
what we characterize as “strong” or “stable” tenants, many of which
are considered as essential. We believe this group of tenants provides
a high level of collectability as demonstrated in Q4 2020 when we
collected 98.1% of the rent due from this group.
Our strong foundation of tenants was a key component to
maintaining our high occupancy rate of 95.7% during the
pandemic this past year.
Driving an Exciting Development Pipeline
I am also proud of the robust development program that we
have established. While our portfolio of income producing
properties provides us with an income stream, our development
pipeline will further diversify our revenues and serve to fuel net
asset value growth.
We have long recognized the development potential inherent in our
existing portfolio. RioCan has built a best-in-class development team
and invested considerable funds and time in the lengthy zoning process
to enable the transformation of our existing transit-oriented retail
properties into world-class, mixed-used communities. With foresight,
RioCan has gained a clear head start with a deep and advanced
pipeline representing approximately 42 M square feet of development
potential of which more than a third is already zoned and another
18.4% have zoning submissions awaiting approval.
Over the last two years alone, we have constructed over
1 million square feet of residential space, including four
residential rental buildings that combine great retail
destinations with forward thinking residential experiences
as part of our RioCan LivingTM program.
And we’re not done. Among our other exciting projects, our
development team is hard at work developing an entire town at our
Windfields Farm site in Oshawa, planning a complete community in
Vaughan and with our partners Allied Properties REIT and Diamond
Corp., completing an urban neighbourhood at The Well™ in
downtown Toronto.
RioCan is at the cusp of leveraging the enormous potential of our
pipeline. I look forward to watching RioCan’s vision come to life as
the team embarks on this next phase of growth building urban and
suburban communities all over Canada.
05
61.1%
17.7%
21.2%
78.8% STRONG & STABLE TENANTS
98.1%
Q4 cash rent
collection1
81.4%
Q4 cash rent
collection1
Strong Tenants
National office and essential / necessity / value and
specialty retail tenants with strong rent paying ability,
and includes residential tenants
Stable Tenants
Tenants with strong or medium consumer offering
combined with good or strong rent paying ability, respectively
Potentially Vulnerable Tenants
Tenants significantly impacted by the pandemic and uses
or tenants that were of concern prior to the pandemic
TOTAL PIPELINE
by Zoning Status
TOTAL ZONING
ENTITLEMENT
21.8M SF
14.1M SF
(33.8%)
36 PROJECTS
7.7M SF
(18.4%)
7 PROJECTS
41.8M
SF
20.0M SF
(47.8%)
15 PROJECTS
Zoning Approved
Future Estimated Density
Zoning Application Submitted
No significant fair value gains yet recognized
for excess density
RioCan Annual Report 2020 * Based on percentage of annualized net rent1 Includes tenant direct cash collection as of February 10, 2021 relating to Q4 2020 billed gross rents. The CECRA program ended in September 2020 therefore there was no CECRA government funding during the fourth quarter.% = Percentage of square footageSF = Estimated density (NLA) at RioCan’s interest Maintaining Ample Liquidity and a Prudent Capital
Allocation Strategy
While no industry was immune to the impact of the pandemic, the
commercial real estate sector was particularly challenged this past year
given mandatory closures and capacity restrictions. 2020 will long be
remembered as the most difficult year for many retailers. Despite a
pronounced second wave, an end to these conditions is in sight with
vaccines approved for administration. As the economy will take some
time to rebound from this all-encompassing downturn, we expect that the
next 12 months will remain volatile and challenging for many of our tenants.
Given a protracted period of uncertainty in the face of enhanced closures
mandated in a number of provinces, a more conservative payout ratio is
important. While RioCan’s ample liquidity and solid business fundamentals
provide us the financial capacity to ride out this storm, our prudent decision
The Well TM Development Progress | Toronto
to reduce our distributions, effective with our January 2021 distribution,
will better serve RioCan and our Unitholders for the longer term.
It provides us the opportunity to optimize our capital allocation towards
initiatives that generate a higher return and drive growth in net asset
value as we increasingly expand our portfolio of mixed-use assets.
Moving Forward with an Industry-Leading
Management Team
Looking ahead to my new position as non-Executive Chairman
effective April 1, 2021, I am excited to see Jonathan Gitlin come
into the role of Chief Executive Officer.
His integrity, decisiveness, credibility and unwavering focus on sustainable
growth make him exceptionally suited to lead RioCan. Having spent the last
16 years with Jonathan, I have great confidence in his ability to capitalize
on opportunities to surface the embedded value in our portfolio and take
RioCan through its next phase of growth and success.
I would like to thank the entire RioCan team, who delivered meaningful
support and progress for our tenants, our communities and each other and
prioritized the health and safety of all our stakeholders in 2020.
Throughout our nearly three-decade history, I have admired the
commitment of our workforce to do the right thing, and this
dedication has never been more evident as we worked together to
overcome the challenges of this past year.
Thank you to all of our Unitholders. Your support over the past 27 years has
been humbling and I am grateful for the honour you have bestowed on me
to lead RioCan throughout its history to date. And, as always, thank you for
your continued confidence in the future of RioCan.
Future Estimated Density
Future Colossus Massing Concept | Vaughan
Edward Sonshine O,Ont., Q.C.
Chief Executive Officer | RioCan Real Estate Investment Trust
Windfields Farm Rendering | Oshawa
06
RioCan Annual Report 2020 ePlaceTM | Toronto
Curbside Collect offers designated areas for
customers to easily pick-up items from participating
stores at RioCan centres in a contactless way.
Letter from the
PRESIDENT & COO
RioCan’s history is a story of successful transition
and this will not stop as we seek to drive sustainable,
profitable growth in 2021.
Fellow Unitholders,
No doubt, current mandated and enhanced closures will prolong
tensions within the retail landscape. With the availability of
2020 was a momentous year for RioCan.
vaccines, we believe that these conditions are not enduring.
During the most challenging period of
RioCan’s well-located sites are well-suited to absorb the impacts
RioCan’s history, we nimbly adapted
of the pandemic and we will continue to leverage our adaptable
to the pandemic circumstances,
major market properties to remain in demand and to strengthen
balanced supporting our tenants with the
our position. This includes consistently reshaping our portfolio to
health of our business and further
maintain a resilient tenant base with strong covenants that are
advanced our mixed-used residential
emblematic of our overall portfolio.
development strategy.
At the same time, we made meaningful progress and delivered
optimize the value of our properties as well as diversify our
on key objectives for our sustainability strategy. Importantly, while
income stream with more residential uses.
prioritizing the safety and well-being of our people, tenants and the
communities we serve, the entire RioCan team rallied together to
We will continue to leverage our well-located spaces
remain true to RioCan’s commitment to create Unitholder value.
to tap into emerging trends and find innovative ways
We will build and evolve mixed-used developments to
When we set out to transform our strategy to focus on urban,
as offering additional means for retailers to manage
mixed-use and transit-oriented assets, it was to further cement
last mile costs and logistics, creating micro-fulfilment
our leadership position. The pandemic especially validated the
centres and providing exceptional community care
relevance of our strategy, as our well-located spaces continued
centres for space constrained hospitals.
to integrate new and relevant commercial uses, such
to drive leasing activity and leasing spreads throughout this
tumultuous year.
Consistent with RioCan’s long-standing principles, we will
address changing market dynamics in a thoughtful, responsible
While the general environment restricted social and in-person
manner that prioritizes the long-term well-being of the business
interaction, the events of 2020 truly highlighted the important role
and our Unitholders. With our experienced team, proven strategy
that physical spaces play in our lives and the role that RioCan plays
and solid balance sheet, we are well positioned to do that.
as a leader in the Canadian real estate landscape.
07
RioCan Annual Report 2020 TOP RANKED REAL
ESTATE FIRM
One of the Best 50
Corporate Citizens in Canada
by Corporate Knights
Greater Toronto’s
TOP 100 EMPLOYERS
Mediacorp Canada Inc. - Greater Toronto’s Top Employers
ESG RATING UPGRADE
by Morgan Stanley Capital
International (MSCI)
RioCan employees
Leading the Way with Environment, Social and
Governance Best Practices
Driving the Next Chapter of RioCan’s History
I’d like to express my gratitude and appreciation for the
We launched RioCan’s sustainability strategy in
confidence demonstrated by Ed, our Board of Trustees and
2016 with a goal to be among the leaders integrating
the RioCan team in my ability to lead RioCan into a new era
Environment, Social and Governance (ESG) best
as its Chief Executive Officer, effective April 1, 2021.
practices across the business by 2020. Sustainability is
a way of thinking at RioCan, and I am delighted to say
I’ve had the distinct advantage and privilege of working closely
that we achieved our objective this past year.
with Ed, not only this past year as we navigated through the
pandemic but also throughout my 16-year career at RioCan. Ed is
While maintaining the security of our income became a top
a pioneer of the REIT industry who built a strong foundation for
priority amid the pandemic, our commitment to ESG did not
RioCan that will serve us for years to come. To many in the real
diminish. We progressed our initiatives and achieved high ESG
estate industry, Ed is an icon. I am lucky to have him as a role model
accolades on several fronts. Among our 2020 accomplishments,
and mentor, and to be able to call him a friend. I look forward to
we improved our GRESB Real Estate assessment score by 97%
continuing to benefit from his experience as he assumes the role
since our first submission in 2017 to achieve a score of 85 and
of Non-Executive Chairman of RioCan.
a 5-star rating.
2020 presented new challenges and we continue to operate
We also received an ‘A’ rating, the highest GRESB score for
in a volatile environment undergoing change. However, we see
public disclosure, with RioCan ranking first among our Canadian
opportunities for true innovation and transformation. The dedication
retail peers. We were the first Canadian REIT to launch a Green
of the RioCan team across Canada to manage the events of the
Bond Framework and, during the year, we issued two Green
past year has proven the strength of our culture and its capacity
Bonds that raised $850 million in capital to build our future in
to adapt to the changing real estate landscape. I am extremely
an environmentally sustainable way. Following the inclusion
passionate about real estate and can’t wait to execute on our
of environmental and social competencies in our board skills
vision with the best team in the business.
matrix, we launched the roll-out of ESG specific goals in our
employee performance review process.
I am honoured to assume the role of Chief Executive
Officer, and look forward to working with our team,
We will continue to learn and grow. We are committed to
tenants, partners and communities to build on our success
embedding a strong corporate culture and sustainability into
and drive the next chapter of RioCan’s ongoing story.
all facets of our business model to enhance our organization
and assets and deliver long-term Unitholder value.
Jonathan Gitlin
President & COO | RioCan Real Estate Investment Trust
08
RioCan Annual Report 2020 SENIOR LEADERSHIP TEAM
Building the RioCan of the Future
RioCan has a deep executive management team with diverse
ENVIRONMENT, SOCIAL
AND GOVERNANCE
Embedding Best Practices in Everything We Do
skillsets and an unparalleled understanding of the real estate
RioCan has three pillars of sustainability: Environment,
industry. Recognized for its visionary leadership and adaptability
Community and People. Our goal is to lead the way in embedding
within an ever-changing real estate environment, the long-tenured
sustainability practices in our business model – and we are
team works closely to anticipate market dynamics and trends and
proud to have made significant progress and achievements
adjust RioCan strategies to take advantage of them.
this year. From our strategic decisions to our interactions – with
employees, tenants, partners, those in our supply chain and the
communities where we operate and develop – sustainability has
truly become a way of thinking and operating at RioCan.
JONATHAN GITLIN
Chief Executive Officer
(effective April 1, 2021)
QI TANG
Senior Vice President
& Chief Financial Officer
ANDREW DUNCAN
Senior Vice President, Development
JOHN BALLANTYNE
Senior Vice President,
Asset Management
OLIVER HARRISON
Senior Vice President, Operations
JEFF ROSS
Senior Vice President,
Leasing & Tenant Construction
JENNIFER SUESS
Senior Vice President, General Counsel
& Corporate Secretary
09
5 STAR RATING
2020 GRESB Real Estate Assessment
1ST AMONG CANADIAN PEERS
GRESB Public Disclosure Assessment
1ST CANADIAN REIT
to launch a Green Bond Framework
and issued two Green Bonds
RIOCAN DIVERSITY, EQUITY
& INCLUSION COUNCIL
is established & DEI officers are appointed
90+ BOMA
BEST CERTIFIED SITES
(representing ~50%* of GLA)
Supporting our Communities and People
We know the important role that we play in the communities
where we invest, operate and develop properties. The pandemic
fortified RioCan’s deep commitment to good corporate
citizenship and we rallied together to support and give back to
our communities across the country.
Building a strong corporate culture has always been a
key priority for RioCan.
Despite shifting to work remotely to comply with stay-at-home
orders throughout 2020, we implemented a number of exciting
initiatives through our Social Distance Committee to keep
RioCan employees connected to the business and each other.
RioCan Annual Report 2020* at 100% for commercial 1ST AMONG CANADIAN PEERS
1ST CANADIAN REIT
90+ BOMA
BEST CERTIFIED SITES
RioCan Cares
Established formal program to work with charities and hospitals
to provide assistance where needed.
Thank You, Healthcare Workers
Celebrated frontline healthcare workers, from providing priority
line access and discounts at participating retailers to facilitating
food deliveries.
Community Care
Partnered with the Gift of Giving Back at RioCan’s Burlington Centre
collecting more than 25,000 pounds of food for those in need.
Keeping the
Community Spirit
Through Art
Created gallery at RioCan’s
Georgian Mall to display
artwork submitted by local
children that celebrated
“everything that makes
them smile in the face
of adversity”.
RioCan National
Holiday Initiative
RioCan employees received
$25 to give back to a local
charity, such as Providence
Healthcare, Children’s Book
Bank and Toy Mountain.
10
Lunchbox
Challenge
Teamed up with development
and construction partners
to deliver 1,200 lunches at
nine RioCan development
sites across Canada to
recognize the hard work of
local construction crews and
support local restaurants
and tenants.
RioYoga
Hosted Friday afternoon
virtual yoga sessions for
RioCan employees to take
a deep breathe, stretch
and get their Zen on.
RioCan Annual Report 2020
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Unlocking Intrinsic Value through Development
RioCan’s adaptable portfolio is ideally suited to meet the evolving needs of the communities we serve and
create significant value for Unitholders through urban, transit-oriented mixed-use development. We are confident
that community spaces will inevitably resume as consumers’ desire for social interactions ramp back up in a
stabilized environment.
With 2,995 residential rental units in different phases of development, including construction, as of December 31, 2020,
RioCan Living is prepared to meet the demand for high-quality residential housing through our robust pipeline.
In 2021 alone, we have five exciting projects in process of leasing up or nearing completion and readying for launch.
BRIO TM
Calgary, Alberta
PIVOT TM
Toronto, Ontario
Located in the heart of Calgary’s Brentwood Village, BRIO
The newest RioCan Living addition, PIVOT, is conveniently
offers its residences RioCan’s Brentwood Village Shopping
located in one of Toronto’s most bustling intersections with
Centre right next door as well as easy access to transit,
direct access to the TTC’s Yonge Subway line via RioCan’s
parks and community amenities.
Yonge Sheppard Centre and close proximity to Highway 401.
163 UNITS
12-storey building
59.3% LEASED
as of February 10, 2021
361 UNITS
36-storey building
10.8% LEASED
as of February 10, 2021
Launched in
MARCH 2020
Rents averaging
$2.54 PER SQ. FT.
as of February 10, 2021
Launched in
OCTOBER 2020
Rents averaging*
$3.61 PER SQ. FT.
as of February 10, 2021
11
RioCan Annual Report 202050% Partner — Boardwalk REIT* For market rent units
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Litho takes inspiration from its surrounding neighbourhood
of former factories, railyards and printing presses at the
intersection of Dupont and Christie with the convenience of
retail on the ground floor and just minutes from the TTC’s
Christie Station.
210 UNITS
9-storey building
Anticipated completion
Q3 2021
~28K SQ. FT.
of ground level retail space,
including desirable grocery market Farm Boy
Following on the success of the first phase at RioCan’s
Frontier development in the Gloucester, Ottawa, Latitude
is just steps away from a grocery store and other essential
services at RioCan’s Silver City Goucestor Centre as well
as the Blair LRT station.
209 UNITS
20-storey building
Anticipated completion
Q4 2021
OVER 475 REGISTRANTS
as of February 10, 2021, despite leasing targeted
to commence fourth quarter 2021
Strada is near it all in Toronto’s Little Italy neighbourhood
where greenspace, quaint parkettes and piazze
intermingle with markets, cafes and boutiques, and the
rest of the city is all in reach via the TTC’s streetcar.
61 UNITS
8-storey building
Anticipated completion
Q3 2021
~6K SQ. FT.
of ground level retail space
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RioCan Annual Report 202050% Partner — Woodbourne50% Partner — Killam REIT50% Partner — Allied Properties REIT
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RioCan Annual Report 2020
TABLE OF CONTENTS
Key Performance Indicators
Financial Performance
Management's Discussion and Analysis
Introduction
About this Management's Discussion and Analysis
Forward-Looking Information
Business Overview and Strategy
Business Environment and Outlook
COVID-19 Pandemic
Market Trends
Outlook
Environmental, Social and Governance (ESG)
Priorities and Progress
Property Portfolio Overview
Property Operations - Total Portfolio
Property Operations - Commercial
Property Operations - Residential
Capital Expenditures on Income Properties
Results of Operations
Summary of Selected Financial Information
Rental Revenue
Net Operating Income (NOI)
Operating Income
Other Income (Loss)
Other Expenses
Net Income (Loss) Attributable to Unitholders
Funds from Operations (FFO)
Adjusted Cashflow from Operations (ACFO)
Property Valuations
Acquisitions and Dispositions
Joint Arrangements
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26
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28
28
30
35
36
37
37
38
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41
42
43
44
45
46
48
50
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Development Program
Properties Under Development
Residential Inventory
Mortgages and Loans Receivable
Capital Resources and Liquidity
Capital Management Framework
Total Capital
Debt Metrics
Credit Ratings
Total Debt Profile
Debentures Payable
Mortgages Payable
Lines of Credit and Other Bank Loans
Liquidity
Unencumbered Assets
Guarantees
Hedging Activities
Equity
Trust Units
Distributions to Unitholders
Related Party Transactions
Selected Quarterly Results and Trend Analysis
Non-GAAP Measures
Accounting Policies and Estimates
Adoption of New Accounting Standards
Critical Accounting Judgements and Estimates
Future Changes in Accounting Policies
Disclosure Controls and Procedures and Internal
Controls Over Financial Reporting
Risks and Uncertainties
55
55
66
68
68
68
68
69
70
71
71
72
73
73
75
75
76
76
76
77
79
80
82
86
86
86
88
88
89
RioCan Annual Report 2020 14
KEY PERFORMANCE INDICATORS
(Numbers are in thousands of dollars, except where otherwise noted)
FINANCIAL
Rental Revenue
Q4 2020
Year 2020
$276,422
$1,090,732
Q4 2019
$279,052
-0.9%
Year 2019 $1,093,727 -0.3%
Operating Income
Q4 2020
Year 2020
$173,594
$680,283
Q4 2019
$189,587
-8.4%
Year 2019 $748,612
-9.1%
Same Property NOI (i)
Q4 2020
Year 2020
$152,125
$572,518
Q4 2019
$165,112
-7.9%
Year 2019 $612,612
-6.5%
FFO Per Unit - Diluted (i)
Q4 2020
$0.39
Year 2020
$1.60
Q4 2019
$0.46
-15.2%
Year 2019 $1.87
-14.4%
FFO Payout Ratio (i)
ACFO Payout Ratio (i)
Year 2020
Year 2020
90.2%
98.9%
Q4 2019
76.9%
+13.3% Year 2019 84.3%
+14.6%
15 RioCan Annual Report 2020
Rental revenue was relatively stable for the year, despite
the COVID-19 pandemic. Higher base rent from the
lease-up of the four RioCan LivingTM properties was
largely offset by lower common area maintenance
recoveries
from operating costs savings
achieved and wage subsidy benefits transferred to
tenants. Percentage rent was down in the year, while
parking revenue was down in the quarter and year, both
due to the pandemic.
resulting
The decrease in operating income for the quarter and
year was primarily due to a $9.0 million and $42.5 million
provision for rent abatements and bad debts as a result
of the COVID-19 pandemic, respectively, and lower
timing of
residential
condominium closings, partially offset by higher
operating income from the lease-up of the first four
purpose-built RioCan Living residential rental towers.
inventory gains due
the
to
Same Property NOI (SPNOI) decreased for the quarter
and year primarily due to the pandemic, particularly the
resulting provision for rent abatements and bad debts.
Excluding
for rent
the pandemic related provision
abatements and bad debts, SPNOI decreased by 2.6%
and 0.2% for the quarter and year, respectively. The
latter metrics, however, still incorporate certain other
effects of the pandemic on RioCan operations such as
on occupancy.
The decrease in FFO per unit for the quarter and year
was primarily due to a $9.0 million and $42.5 million
pandemic related provision for rent abatements and bad
debts, respectively, lower residential inventory gains and
lower realized gains on marketable securities, and
higher units outstanding resulting from 2019 equity
issues, partially offset by higher NOI from residential
lease-up, higher other income and, for the year, lower
general and administrative costs.
FFO and ACFO payout ratios increased due to lower
FFO and ACFO resulting from the pandemic and higher
total distributions driven by higher Units outstanding
relative to last year as a result of a private placement in
August 2019 and an equity offering in October 2019. The
reduction in the distribution from $1.44 to $0.96 on an
annualized basis, effective January 2021, is expected to
result in much lower FFO and ACFO payout ratios in
2021.
KEY PERFORMANCE INDICATORS
(Numbers are in thousands of dollars, except where otherwise noted)
Liquidity (ii)
Year 2020
Unencumbered Assets (i)(ii)(iv)
Year 2020
$1,576,689
$8,727,354
Year 2019 $864,903
+82.3% Year 2019 $8,936,721 -2.3%
RioCan nearly doubled its liquidity as of the year end
over the prior year end, partly due to the $500 million
green bond issued in December 2020. RioCan's large
unencumbered asset pool of $8.7 billion represented
60.3% of its investment properties as of the year end,
generated 58.9% of
its NOI and provided 2.15x
coverage over unsecured debt. On January 15, 2021,
RioCan redeemed in full the Series R unsecured
debenture due December 13, 2021 for $256.8 million.
Debt to Total Assets (i)(ii)(iv) Debt to Adjusted EBITDA (i)(ii)
Year 2020
Year 2020
45.0%
9.47x
Year 2019 42.1%
+2.9%
Year 2019 8.06x
+17.5%
levels resulting
Debt to total assets increased primarily due to higher
timing of development
from
debt
completions relative to development spend and the
impacts of
the Trust's property
the pandemic on
operations, dispositions and property valuations.
Debt to Adjusted EBITDA increased primarily due to the
aforementioned higher debt levels and lower Adjusted
EBITDA due to similar factors driving the changes in
operating income.
DEVELOPMENT
Development Spending (iii)
Q4 2020
Year 2020
$141,400
$493,400
Q4 2019
$143,500
-1.5%
Year 2019 $473,700
+4.2%
Development NLA Completions (sq ft)
Q4 2020
Year 2020
320,000
529,000
Q4 2019
118,000
+171.2% Year 2019 530,000
-0.2%
Zoning Entitlements
(sq ft)
Total Development as %
of Total Gross Book
Value (iv)
Year 2020
Year 2020
21,815,000
10.3%
Year 2019 21,135,000 +3.2%
Year 2019 9.0%
+1.3%
Development spending for the year was in line with
expectations and was before netting $57.1 million of
proceeds from air rights sales closed during the year,
which will serve to reduce development costs and
enhance development yield. The overall pace of
RioCan's construction projects was not significantly
impacted by the pandemic. Development spend for 2021
is estimated to be in the range of $500 million, net of
expected cost recoveries and air rights sales.
total 529,000 square
feet of development
The
completions for the year included 330,000 square feet of
purpose-built rental space at BrioTM and PivotTM, the two
latest additions to the growing RioCan Living portfolio,
and 199,000 square feet of commercial space consisting
mostly of grocery anchored space at mixed-use
developments such as 5th & THIRDTM and Windfields
Farm. Pivot and
the commercial component of
Windfields Farm were completed in Q4 2020.
in
the
largest
The Trust's pipeline of zoning entitlements, which
includes approved zoning and zoning submissions, is
one of
industry. New zoning
the
entitlements during the year led to the increase year-
over-year despite substantial development completions.
Total development accounted for 10.3% of RioCan's total
gross book value of assets, well under the 15% limit
permitted under various credit facilities. The increase in
this ratio was driven by timing of development spending
and completions, and fair value write-downs as a result
of the pandemic.
RioCan Annual Report 2020 16
KEY PERFORMANCE INDICATORS
(Numbers are in thousands of dollars, except where otherwise noted)
LEASING - COMMERCIAL
Committed Occupancy (iv)
In-Place Occupancy (iv)
Year 2020
Year 2020
95.7%
94.9%
Year 2019 97.2%
-1.5%
Year 2019 96.3%
-1.4%
New Leasing NLA at 100% (sq ft)
Q4 2020
359,000
Year 2020
1,209,000
Q4 2019
485,000
-26.0%
Year 2019 1,614,000 -25.1%
Renewal Leasing NLA at 100% (sq ft)
Q4 2020
Year 2020
1,226,000
3,641,000
Q4 2019
789,000
+55.4%
Year 2019 4,007,000 -9.1%
New Leasing Spread
Q4 2020
5.1%
Year 2020
7.9%
Q4 2019
2.1%
+3.0%
Year 2019 10.0%
-2.1%
Renewal Leasing Spread
Q4 2020
3.6%
Year 2020
4.4%
Q4 2019
10.2%
-6.6%
Year 2019 9.2%
-4.8%
Blended Leasing Spread
Q4 2020
3.8%
Year 2020
5.0%
Q4 2019
8.2%
-4.4%
Year 2019 9.4%
-4.4%
Committed and In-Place Occupancy remained strong
despite declines as a result of the pandemic. Retail
committed and in-place occupancy held well at 96.1%
and 95.1%, respectively, as of the year end with
committed occupancy increasing by 10 basis points
relative to the prior quarter despite the challenges
presented by the second wave of the pandemic. The
total commercial portfolio occupancy was affected by an
office occupancy decline in Q4 2020 when a large office
tenant consolidated its office space and did not renew
nearly 100,000 square feet of space.
Despite the pandemic, the Trust maintained strong
leasing activity with solid leasing spreads in the quarter
and year. Given the Trust's well-positioned portfolio and
strategic leasing initiatives, new leases in the year were
completed with strong covenant tenants ranging from
essential, value and specialty retailers to government
and medical office uses.
The Trust renewed substantial square feet of leases in
the quarter and year, despite the challenges presented
by the pandemic, with relatively steady retention ratios of
85.8%
the year.
Approximately two-thirds of the renewals were market
rental rates renewals and one-third were at preset fixed
rental rates, resulting in solid renewal leasing spread as
discussed later in this section.
the quarter and 86.7%
for
for
The 7.9% new leasing spread for the overall commercial
portfolio in the year was driven by new leasing spread of
8.3% for major markets. The Trust achieved new leases
at $43.90 net rent per square feet in the quarter and
$32.05 net rent per square feet in the year, well above
the portfolio average net rent of $19.80 per square foot.
The renewal leasing spread for the overall commercial
portfolio was driven by the major markets renewal
spread of 4.4% for the quarter and 5.0% for the year.
The renewal leasing spread in a given period is partly
determined by the characteristics (such as location,
type, size) of the space available for renewals.
The blended leasing spread for the major markets
portfolio was similar to the overall commercial portfolio,
at 3.9% and 5.6%, respectively for the quarter and year.
Given the unprecedented challenges presented by the
pandemic, the 5.0% blended leasing spread and the
total square feet of new and renewed leases completed
in the year was considerable.
(i) These represent non-GAAP measures. RioCan's method of calculating non-GAAP measures may differ from other reporting issuers' methods and
accordingly may not be comparable. For definitions and the basis of presentation of RioCan's non-GAAP measures, refer to the Non-GAAP
Measures section in this MD&A.
(ii) At RioCan's proportionate share.
(iii) Includes costs incurred for various properties under development and for residential inventory in respective reporting periods.
(iv) Information presented as at December 31 for the years then ended.
17 RioCan Annual Report 2020
FINANCIAL PERFORMANCE
Operating
2020
•
•
•
•
•
•
•
•
•
FFO per unit was $1.60, in line with the RioCan guidance but a decrease of $0.27 per unit over the prior year, impacted
mainly by a $42.5 million pandemic related provision for rent abatements and bad debts, $20.8 million lower residential
inventory gains due to timing, and 10.0 million higher weighted average Units outstanding due to the private placement
and equity issue in 2019.
Reported a net loss of $64.8 million as compared to net income of $775.8 million in the prior year as the Trust wrote
down 3.7% or $526.8 million of fair value of investment properties in 2020 as a result of the pandemic, compared to fair
value gains of $247.6 million in the pre-pandemic 2019.
Same property NOI for the overall commercial portfolio decreased by 6.5% mainly due to the pandemic related provision
and by 0.2% if the pandemic related provision is excluded. The latter still included certain other effects of the pandemic
on property operations such as on occupancy.
Committed and in-place occupancy at RioCan commercial properties held up well and ended the year at 95.7% and
94.9%, respectively. One large office tenant consolidated its office space and reduced its existing leased space by
100,000 square feet at one Toronto location, which negatively impacted the two metrics.
Completed 4.9 million square feet (at 100%) of new leasing and lease renewals. The blended leasing rate on income
producing properties was 5.0%, with a solid retention ratio of 86.7% on lease renewals. New leasing spread was 7.9%
for the overall income producing portfolio and 8.3% for major markets income producing properties. Most new leases
were completed with strong covenant tenants ranging from essential, value and specialty retailers to government and
medical office uses.
Annualized rental revenue from Grocery Anchored, Mixed-Use / Urban and Open Air centres was 90.5% with Grocery
Anchored Centres up 110 basis points to 42.0% and Enclosed centres down 40 basis points to 9.5% when compared to
the prior year end, reflecting the ongoing evolution of the Trust's property mix as it adapts to the ever-changing retail
landscape.
Grocery/pharmacy/liquor tenants increased by 110 basis points to 16.9% of annualized retail rent revenue, while apparel
tenants decreased by 130 basis points to 6.9% and movie theatres decreased by 40 basis points to 4.0% as RioCan
continues to shift its tenant mix towards essential goods and services, value retail, and specialty retail.
RioCan has four RioCan Living purpose built residential rental buildings in lease-up as of the year end, totalling 1,218
units. They generated $8.2 million NOI in the year, an increase of $5.8 million from the prior year. Residential rental
accounted for approximately 1.6% of the Trust's annualized rental revenues as of December 31, 2020.
As of February 10, 2021, FrontierTM in Ottawa was stabilized with 97.8% leased at an average monthly rent of $2.52 per
square foot. Despite being launched in the midst of the COVID-19 pandemic in late March, and in Calgary, which has
also been impacted by the prolonged oil crisis, Brio was 59.3% leased as of the same date. Meanwhile, eCentralTM in
Toronto was 86.3% leased at an average monthly rent of $3.85 per square foot for market rent units. First occupancy at
the 361-unit Pivot in Toronto took place in December 2020 and the building was 10.8% leased at an average monthly
rent of $3.61 per square foot for market rent units.
Q4 2020
•
•
•
As of February 10, 2021, the Trust collected 94.2% of this quarter's billed gross rents in cash (without receipt of any
government funding for the quarter), slightly higher than its cash collection for Q3 2020 which it reported in late October
2020. Approximately 25% of the Trust's tenants were closed as of December 31, 2020 given the store closures
reinstated with the onset of the second wave of the pandemic during the quarter, compared with virtually all tenants
open as of September 30, 2020. Residential cash collection was 98.2% for the quarter.
Based on annualized net rent, as of December 31, 2020, approximately 78.8% of the Trust's tenants are classified as
"strong" or "stable" and 98.1% of this quarter's gross rents billed to these tenants have been collected in cash.
As of February 10, 2021, the Trust has collected 91.7% of the billed January gross rents in cash while approximately
23% of the Trust's tenants are closed given the more extensive and restrictive closures mandated in certain provinces.
• While the length and extent of such mandated closures are difficult to predict, the strength of the Trust's tenant base
offers significant downside protection. Furthermore, RioCan holds approximately $28.6 million of security deposits and
approximately $4.6 million in letters of credit from a number of tenants which can serve to offset rents owed on a tenant-
by-tenant basis in the event of unresolved tenant defaults.
•
•
FFO per unit was $0.39, a decrease of $0.02 per unit from Q3 2020. Excluding the $11.4 million inventory gains mainly
from the sale of 50% interest in the inventory project at Dufferin Plaza in the prior quarter, FFO per unit increased in this
quarter primarily due to a lower pandemic related provision and stable property performance.
Same property NOI for the overall commercial portfolio decreased by 7.9% from Q4 2019 mainly due to the pandemic
related provision and by 2.6% excluding the pandemic related provision.
RioCan Annual Report 2020 18
FINANCIAL PERFORMANCE
•
•
Retail committed occupancy increased by 10 basis points during the quarter despite the circumstances, reflecting the
strength of lease renewals and new leases completed during the quarter.
New and renewed leases totaled 1.6 million square feet (100%) at a blended leasing spread of 3.8% for income
producing properties and a solid retention ratio of 85.8% on lease renewals. Average net rent per square foot for new
leases was $43.90, mainly driven by new leases in development properties, well above the portfolio average of $19.80.
Investing
•
Despite a less active transaction market since the onset of the pandemic, the Trust completed $193.1 million of
dispositions during the year including $66.3 million of income producing assets at a weighted average capitalization rate
of 6.31% based on in-place NOI and $126.8 million of development properties with no in-place NOI.
•
•
•
•
•
•
Including firm and conditional deals in place as of the year end such as the $150.8 million sale of a 50% non-managing
interest in eCentral and in the commercial component of ePlace, which closed subsequent to the year end, as well as
new deals entered into post the year end, the Trust closed or entered into firm or conditional deals since the beginning
of 2020 totaling $482.6 million. This consisted of $240.9 million of income producing properties at a weighted average
capitalization rate of 5.53% based on in-place NOI and $241.8 million of development properties with no in-place NOI.
The Trust completed 330,000 square feet of residential rental developments at Brio and Pivot, and 199,000 square feet
of mostly grocery-anchored space at mixed-use developments, totaling 529,000 square feet during the year.
In addition to the 1,218 residential rental units already in lease-up, the Trust will have an additional 2,995 residential
rental units in different phases of development by 2022, including construction. Purpose-built RioCan Living residential
rental properties, as well as condominium and townhouse projects, remain a cornerstone of RioCan's development
program and growth strategy despite the short-term impact of the pandemic.
The three condominium or townhouse projects under construction are well on track, including the prestigious Yorkville
condominium project 11 YV in Toronto, and the U.C. UptownsTM townhouse project and U.C. TowerTM condominium
project at its Windfields Farm development in Oshawa, Ontario. Combined, these projects include 1,242 units and are
on average 98% pre-sold as of February 10, 2021. Expected project completion dates are Q2 2022 for U.C. Uptowns,
Q1 2023 for U.C. Tower and Fall 2024 for 11 YV with estimated inventory gains at $5.0 million to $5.5 million, $14.0
million to $16.0 million, and $68.0 million to $73.0 million, respectively. Furthermore, the Trust has seven other active
condominium or townhouse projects in various stages of development, totaling an estimated 3,730 units, which are
scheduled to be completed in phases between 2024 and 2027.
The office tower at The Well has reached the final 36th storey and top off is expected in March 2021. With nearly 1.0
million square feet or 85% of the office tower pre-leased, the project is on track for the initial tenant possession in 2021.
West of the office tower, the podium level is taking shape for the 592-unit residential rental building to be built by RioCan
and its partner Woodbourne Canada Partners, and the above grade construction is now revealing the multi-level galleria
and its distinctive curving path.
Development spending was $493.4 million for the year before netting the $57.1 million of air rights sales proceeds. As
of December 31, 2020, properties under development and residential inventory accounted for 10.3% of the Trust's
consolidated gross book value of assets, well under the 15% limit permitted under its credit facilities agreements.
Financing
•
•
•
•
•
As of December 31, 2020, liquidity stood at $1.6 billion in the form of cash and cash equivalents and undrawn lines of
credit on a proportionate share basis, partly as a result of the $500 million senior unsecured debentures issued at par on
December 14, 2020, carrying a coupon rate of 1.974% per annum, maturing on June 15, 2026 and representing the
Trust's second green bond issuance.
Unencumbered assets totaled $8.7 billion as of the year end on a proportionate share basis, which will enable the Trust
to obtain additional mortgages to bolster liquidity, if required, and preserve credit availability under its revolving
unsecured line of credit while maintaining compliance with debt covenants.
Debt to Adjusted EBITDA was at 9.47x and debt to total assets was at 45.0% as of December 31, 2020, both on a
proportionate share basis. The increase in the two metrics relative to the previous quarter were primarily due to the
pandemic's impacts on the Trust's property operations and valuations over the three quarters in 2020 and the timing of
development spending and completions. While the Trust's long-term goal remains to lower these two metrics to its target
ranges, it expects them to marginally increase in the near term during the pandemic particularly given that debt to
Adjusted EBITDA is calculated on a twelve-month trailing basis.
On December 3, 2020, the Trust announced a one-third reduction to its monthly distribution to Unitholders from $0.12
per unit to $0.08 per unit, or from $1.44 to $0.96 on an annual basis, effective for the Trust's January 2021 distribution.
This will allow the Trust to have much lower payout ratios and also use the estimated $152.0 million annual cash flow
savings to fund value creation initiatives such as its mixed-use developments, unit buybacks, and debt repayments.
Subsequent to year end, on January 15, 2021, RioCan redeemed, in full, its $250.0 million, 3.716% Series R unsecured
debenture due December 13, 2021, in accordance with its terms, at a total redemption price of $256.8 million, plus
accrued and unpaid interest of $0.8 million, up to but excluding, the redemption date.
19 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
INTRODUCTION
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, 2020 ("Q4 2020" and "2020", respectively). This MD&A is
dated February 10, 2021 and should be read in conjunction with our annual audited consolidated financial statements and related
notes for the year ended December 31, 2020 (2020 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.
In addition to reported IFRS measures, industry practice is to evaluate real estate entities giving consideration, in part, to certain
non-IFRS performance measures, such as Funds from Operations, Net Operating Income, Same Property Net Operating Income
Growth, and Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization. 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 and related per-unit amounts 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 provide useful information to both management and investors in
measuring the financial performance and financial condition of the Trust. Refer to the Non-GAAP Measures section of this MD&A
for reasons and definitions of various non-GAAP measures presented or referred to in this MD&A.
Unless otherwise specified, 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 Key Performance Indicators, Financial
Performance, Business Overview and Strategy, Business Environment and Outlook, Property Portfolio Overview, Results of
Operations, Acquisitions and Dispositions, Development Program, Capital Resources and Liquidity and the Equity 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; regulatory risk including changes to rent control legislation; development risk
associated with construction commitments, project costs and timing, related zoning and other permit approvals and pace of lease-
up or pre-sale; 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; climate change; litigation; uninsured
losses; reliance on key personnel; Unitholder liability; income, sales and land transfer taxes; and cyber security.
Given the current level of uncertainties arising from the COVID-19 pandemic, there can be no assurance regarding the impact of
COVID-19 on the business, operations, and financial performance of RioCan and its tenants, as well as on consumer behaviors
and the economy in general. General risks and uncertainties related to the COVID-19 pandemic also include, but are not limited
to, the length, spread and severity of the pandemic; the timing of the roll out and efficacy of the vaccines, the nature and length of
RioCan Annual Report 2020 20
MANAGEMENT’S DISCUSSION AND ANALYSIS
the restrictive measures, implemented or to be implemented by the various levels of government in Canada; RioCan's tenants'
ability to pay rents as required under their leases; the availability of various support programs that are or may be offered by the
various levels of government in Canada; the introduction or extension of temporary or permanent rent control or other form of
regulation or legislation that may limit the Trust's ability or its extent to raise rents based on market conditions upon lease
renewals or restrict existing landlord rights or landlord' ability to reinforce such landlord rights; domestic and global supply chains;
timelines and costs related to the Trust’s development projects; the pace of property lease-up and rents and yields achieved upon
development completion; potential changes in leasing activities, market rents and property valuations; the capitalization rates that
arm's length buyers and sellers are willing to transact on properties; the availability and extent of rent deferrals offered or to be
offered by the Trust; domestic and global credit and capital markets, and the Trust's ability to access capital on favourable terms
or at all and its ability to maintain its credit ratings; the total return and dividend yield of RioCan's Units; and the health and safety
of our employees, tenants and people in the communities that our properties serve. For further details on the risks related to
COVID-19 and its potential impact on the Trust, refer to the Risks and Uncertainties - COVID-19 Health Crisis section of this
MD&A.
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 gradual recovery and growth of the retail environment and the general economy
over 2021; relatively historically low interest costs; a continuing trend toward land use intensification at reasonable costs and
development yields, 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 the purposes of applicable Canadian securities laws, and as such the financial
outlook may not be appropriate for purposes other than this MD&A. The forward-looking information contained in this MD&A is
made as of the date of this MD&A, and should not be relied upon as representing RioCan’s views as of any date subsequent to
the date of this MD&A. Management undertakes no obligation, except as required by applicable law, to publicly update or revise
any forward-looking information, whether as a result of new information, future events or otherwise.
BUSINESS OVERVIEW 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. RioCan's trust units (Units) are 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 $12.4 billion as at
December 31, 2020, consisting of $7.1 billion total debt on a proportionate share basis plus $5.3 billion market capitalization
based on a market price of $16.75 per Unit. The decrease in the Trust's enterprise value since the beginning of the year was
primarily due to the sharp decline in the capital markets as a result of the COVID-19 pandemic. The quarter to quarter change
was also primarily driven by capital markets' reactions to events relating to the pandemic.
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 223 retail and mixed-use
properties with an aggregate net leasable area (NLA) of 38,260,000 square feet, including office, residential rental and 14
properties under development as at December 31, 2020 (at RioCan's interest). As of December 31, 2020, retail accounts for
90.6% of the Trust's annualized rental revenues, followed by office at 7.8% and residential at 1.6%. As more RioCan Living
residential rental buildings currently underway are completed and stabilized, the residential proportion of the Trust's portfolio will
grow over time, resulting in an increasingly mixed-use portfolio.
RioCan's property portfolio includes Mixed-Use / Urban, Grocery Anchored centres, Open Air centres and Enclosed centres,
which are defined under the Property Portfolio Overview section of this MD&A. As of the year end, the portfolio was comprised of
180 properties which are 100% owned (178 income properties and 2 properties under development) and 43 properties which are
co-owned and governed by co-ownership agreements (including 12 properties under development). RioCan’s primary co-
ownership arrangements are with Allied Properties REIT (Allied); Boardwalk REIT (Boardwalk); Broccolini Real Estate Group
(Broccolini); Canada Pension Plan Investment Board (CPPIB); Concert Properties (Concert); Killam Apartment REIT (Killam);
KingSett Capital (KingSett); Tanger Factory Outlet Centres, Inc. (Tanger); and Woodbourne Canada Partners (Woodbourne). In
addition, the Trust also owns partial interests in 14 properties through joint ventures with Hudson's Bay Company (HBC) and
Marketvest Corporation/Dale-Vest Corporation and Fieldgate Urban (Fieldgate) which are included in our equity-accounted
investments in the 2020 Annual Consolidated Financial Statements.
21 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Strategy
Despite the current pandemic environment, the Trust remains focused on its longer-term growth strategy while continuing to
adapt and evolve its strategy to the ever-changing economic and business environment.
Canadian Major Market Focus
RioCan's major market strategy is a key initiative that has strengthened and will further enhance the quality, growth profile and
resilience of the Trust's portfolio. The Trust embarked on this strategy over a decade ago and has evolved the Trust's assets into
a more urban and mixed-use portfolio of properties located in prime, high density, transit-oriented areas where Canadians want to
shop, live and work. Its tenant base has also been adapted to become more diversified, and necessity, value and service-
oriented. While the ongoing pandemic further validates the relevance of this strategy as reflected in the strength of the Trust's
cash rent collection, operational and financial results, management will proactively adapt its strategy to address the various
impacts of this health crisis as businesses reassess and adjust their business models post the pandemic.
Driving Organic Growth
RioCan drives strong organic growth by strategically curating and evolving the tenant mix of its properties and improving the
operating efficiency and cost structure of its portfolio as well as leveraging its existing strengths, such as its strong relationships
with high quality tenants and partners, economies of scale and experience. In addition, RioCan continually searches for ways to
create new sources of income from ancillary revenues, fee income from joint venture arrangements and incremental growth
through new pads and redevelopments. At the same time, to better serve changing consumer habits and spending patterns, the
Trust consistently looks to innovate and actively explores opportunities to improve its properties for better and more efficient uses
including greater participation in the logistics of retailers' E-commerce channels and offering RioCan Curbside CollectTM.
Unlocking Intrinsic Value through Development
Over the past 27 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 line expansions.
Despite the pandemic, the Trust remains focused on optimizing the value of its existing properties through its mixed-use
development program. The program allows the Trust to diversify its portfolio with residential real estate including both rental and
inventory (condominium / townhouse) projects. The Trust's RioCan LivingTM residential rental program combines great retail
experiences with residential and creates a premium residential tenant experience that will in turn drive traffic for retail tenants.
The Trust's residential inventory projects serve specific market demand for housing ownership as opposed to rental and enable
the Trust to accelerate capital recycling to further fuel its development program. RioCan benefits from the ability to marry strong
retail with strong residential, serving as an exceptional amenity and adding value to the residential offering. The Trust believes
mixed-use developments will ultimately drive future revenue growth and deliver FFO and NAV growth to its Unitholders. The
development program will also decrease the average age of the portfolio and over time, the Trust is expected to ultimately benefit
from lower capital expenditure requirements. The Trust will continue to pursue a disciplined approach to its development program
in major markets with a strong focus on the Greater Toronto Area (GTA) and to meet the evolving needs of the communities it
serves.
RioCan's development program represents a distinct competitive advantage given its head-start with zoning approvals achieved
and zoning applications submitted and recent or near substantial completions of a number of large mixed-use projects as well as
the experience and scale of its development team.
Strategic Acquisitions
Given the competitive nature of the real estate market prior to the pandemic, limited market transactions during the pandemic,
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, especially when normal market activities resume post-pandemic,
RioCan is expected to continue to seize opportunities to acquire partners' interests in existing co-owned properties that are
unavailable on the open market. In addition, the Trust will continue to 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 its property assembly along the Yonge Street corridor close to the
Trust's flagship Yonge Eglinton Centre and eCentral and recently completed Bloor Street acquisition adjacent to an existing
property.
Strong Balance Sheet
RioCan prudently manages its balance sheet and capital structure. The Trust targets to maintain low leverage, staggers its debt
maturities and limits its variable rate debt to reduce interest rate and refinancing risk, maintains an optimal mix of unsecured and
secured debt to provide continued financial flexibility and liquidity, balances between line of credit utilization and unsecured
debenture issuance, builds on established lender relationships and continues to utilize multiple sources of capital. Even though
the ongoing pandemic will increase RioCan's leverage and debt to adjusted EBITDA to an extent in the short-term, this disciplined
approach allows RioCan to maintain the strong liquidity and financial strength needed to drive growth and thrive in the ever-
changing marketplace including the current pandemic environment.
RioCan Annual Report 2020 22
MANAGEMENT’S DISCUSSION AND ANALYSIS
BUSINESS ENVIRONMENT AND OUTLOOK
COVID-19 Pandemic
The ongoing COVID-19 pandemic has had a significant impact on the Canadian and global economy and on RioCan's business.
Following the onset of the pandemic in mid-March 2020 and the resulting restrictive measures introduced by various levels of
governments in Canada, many businesses had to close or reduce their hours of operations or customer capacity for several
months. As the number of cases fell following this first wave, restrictions were lifted and businesses began to reopen on a phased
regional approach during the summer. However, the arrival of the second wave of the pandemic in the fall gradually resulted in
governments reverting back to more restrictive measures by late November and even more restrictive measures by late
December 2020 in certain key provinces. Although the initial rollout of the vaccine has instilled optimism in the market, challenges
regarding vaccine distribution persist and the duration and the impact of the pandemic remain uncertain. As of December 31,
2020, 25% of the Trust's tenants were closed, compared with essentially none of its tenants as of September 30, 2020.
Despite the challenges presented by the changing circumstances surrounding the pandemic, as of February 10, 2021, the Trust
collected 94.2% of its fourth quarter billed gross rents in cash, modestly higher than its collection ratio for Q3 based on its Q3
2020 results reported in late October 2020. As more fully explained later in this section, the Canadian Emergency Commercial
Rent Assistance (CECRA) program was replaced by the Canada Emergency Rent Subsidy (CERS) program in the fourth quarter.
Under CERS, federal government funding is provided directly to tenants without any landlord rent abatement mandate. As a
result, there was no CECRA government funding or CECRA-related rent abatement provision in the fourth quarter.
The Trust's collection of billed gross rents as of February 10, 2021 are summarized as follows for the three quarters impacted by
the pandemic:
Tenant direct cash collection (ii)
CECRA government funding (iii)
Total cash collected
Deferred rents with definitive payment schedule
Provision for rent abatements and bad debts
Remaining rent to be collected
Total
Q4 2020
94.2 %
— %
94.2 %
0.8 %
3.4 %
1.6 %
100.0 %
Q3 2020
90.8 %
3.7 %
94.5 %
0.2 %
5.3 %
— %
100.0 %
Q2 2020
80.5 %
6.7 %
87.2 %
4.7 %
6.8 %
1.3 %
100.0 %
Total 2020 (i)
88.3 %
3.5 %
91.8 %
2.0 %
5.2 %
1.0 %
100.0 %
(i) Based on total of Q2 2020 to Q4 2020 for respective items out of total of billed gross rents for the three quarters.
(ii)
(iii) The changes in percentages of CECRA government funding for Q2 and Q3 relative to the prior quarter report were due to adjustments based on
Includes $2.9 million of security deposits applied in Q3 2020, representing approximately 1.1% of billed gross rents for that quarter.
actual and final CECRA applications.
Most tenants with deferred rents have been paying their deferred rents based on definitive payment schedules. RioCan is
confident in the collectability of the 2.0% in deferred rents and 1.0% in remaining rents to be collected.
The Trust has categorized its tenants according to management's assessment of strength of tenant use and tenant rent paying
ability in today's environment. Based on annualized net rent as of December 31, 2020, approximately 78.8% of the Trust's tenants
are classified as "strong" or "stable" as reflected in the combined average cash rent collection of 98.1% for Q4 2020. Cash rent
collected from the remaining "potentially vulnerable" tenants was 81.4% as they are more impacted by the pandemic. However,
the length of tenants' CERS application process and the administrative time required for eligible tenants to receive CERS funding
could have had an impact on these tenants' cash rent collection in the short-term.
Tenant Composition
Strong (i)
Stable (ii)
Subtotal
Potentially Vulnerable (iii)
Total
% of Annualized Net Rent
61.1 %
17.7 %
78.8 %
21.2 %
100.0 %
Q4 2020 Cash Rent
Collection % (iv)
99.4 %
93.8 %
98.1 %
81.4 %
94.2 %
(i) Strong is represented by, or includes, national office tenants and essential / necessity / value / and specialty retail tenants that have strong rent
paying ability in today's environment. It includes residential tenants as well.
(ii) Stable is represented by, or includes, tenants with reasonably strong uses and good rent paying ability or tenants with medium uses in today's
environment but strong rent paying ability.
(iii) Potentially Vulnerable under COVID-19 includes tenants with uses that are being significantly impacted by the pandemic (such as movie theatres,
gyms, sit-down restaurants) as well as uses that were of concern prior to the pandemic (such as apparel) or tenants whom the Trust has concerns
over tenant rent paying ability under the COVID-19 circumstances.
(iv) Includes tenant direct cash collection as of February 10, 2021 relating to Q4 2020 billed gross rents. The CECRA program ended in September
2020 therefore there was no CECRA government funding during the fourth quarter.
23 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
RioCan has strategically managed its rent collection process during the pandemic and tailored its approach in recognition of the
challenges that some of its tenants faced or continue to face as restrictions remain in flux. On a case-by-case basis, the Trust has
been working with its tenants to find sensible solutions to support their businesses while protecting its own rights and financial
position. In limited circumstances where abatement was provided in favor of a tenant other than in the case of the CECRA
program, RioCan typically received concessions of value in exchange, such as development rights, lease term extensions or the
waiver of exclusivity provisions.
As of February 10, 2021, the Trust has collected 91.7% of its billed January 2021 gross rents in cash. Given the resurgence in the
spread of the pandemic and the mandated closures of non-essential businesses in certain jurisdictions, approximately 23% of the
Trust's tenants are currently closed. While the length and extent of such mandated closures are difficult to predict, the strength of
the Trust's tenant base offers significant downside protection. Furthermore, RioCan holds approximately $28.6 million of security
deposits and approximately $4.6 million in letters of credit from a number of tenants which could be used to offset rents owed on
a tenant-by-tenant basis in the event of unresolved tenant defaults.
CECRA Participation and Provision for Rent Abatements and Bad Debts
The Trust continues to work with those tenants whose businesses have been affected by the pandemic. The Trust accrued a $9.0
million provision for rent abatements and bad debts (collectively the "pandemic related provision") for the fourth quarter, resulting
in a total of $42.5 million pandemic related provision for the year. This provision included a $14.4 million CECRA abatement for
the year.
In aggregate, approximately 10.6% of the Trust's tenants participated in CECRA during the second and third quarters, as
measured by billed gross rents. The CECRA program, which was in effect from April to September 2020, provided eligible tenants
with the benefit of a 75% gross rent reduction whereby the federal government funded 50% and landlords funded 25% through
rent abatement. For eligible tenants in Quebec, the provincial government offered another 12.5% in funding, which reduces the
landlord's net rent abatement to 12.5%. The government funding relating to CECRA tenants was received in cash.
The federal government announced the new CERS program on October 9, 2020 to replace the CECRA program. CERS is
provided directly to tenants without any landlord rent abatement mandate and is comprised of two parts; the base subsidy up to
65% of its eligible expenses including gross rents, and the lockdown support which provides an additional 25% of eligible
expenses top-up to those entities that must either close or significantly restrict their activities due to a public health order. In total,
a qualifying business could potentially receive up to 90% of their eligible expenses including gross rents subject to certain per
store location and/or per affiliated entity limits and dependent on the percentage of revenue declines. The CERS program will be
in effect until June 2021. The program is available to businesses of varying sizes, not just small or medium businesses, but is
subject to certain limitations as noted above. As the CERS program has to be applied for directly by the eligible tenants
themselves, RioCan does not have sufficient or complete information on the extent of CERS participation among its tenant base.
In addition to the federal program, there are certain provincial aid programs for small businesses that are being rolled out.
Efficient Operations - Containing Costs and Enhancing Liquidity
RioCan continues to identify areas of operations to reduce costs and manage the cash flow impacts of the pandemic. Expense
management and operational efficiency improvements identified and implemented include, but are not limited to the following:
energy reductions, staffing level adjustments, hiring freezes, further streamlining of national procurement, operating costs
management and a more robust property tax appeal effort. The Trust achieved $6.6 million in recoverable operating costs savings
for the year ended December 31, 2020 when compared to the same period in the prior year. Payments which were deferred
based on available government programs at the end of the third quarter, mostly in municipal realty taxes, were paid when due in
the fourth quarter.
Market Trends
Canadian Retail Environment and E-Commerce
The ongoing pandemic and the resulting government mandated restrictions have undoubtedly impacted the economy, the retail
environment, and consumer habits in Canada and around the world. The pandemic, however, has also underscored the human
desire for personal interactions and the need for bricks and mortar real estate as meeting and market places, as evidenced by the
surge in retail traffic and the Trust's strong rent collections during the periods of the year when restrictions were eased. While
there is undoubtedly a surge in the reliance on on-line shopping, this health crisis has also reinforced the critical nature of the
retail outlet in the consumer ecosystem. The Trust has seen retailers, necessity-based or otherwise, alter their infrastructure to
accommodate a variety of delivery models including click-and-collect, curbside pick-up and buy-online-pickup-in-store. It has also
seen increased in-person visits to necessity-based retailers such as grocery stores and pharmacies demonstrating that in any
circumstances, these outlets prove critical to the communities they serve. Even during this crisis, with mobility restricted, e-
commerce has not fully accommodated providing goods and services to Canadian consumers, validating the importance of an
integrated and robust omni-channel model.
RioCan believes that many retailers recognize the vital necessity of offering customers increased flexibility in their shopping
choices while also adapting store sizes, layout and product mixes to better meet consumer demands in various settings.
Responsible and forward thinking commercial landlords, like RioCan, will continue to seek ways to help retailers adapt their
stores to provide their customers with this type of flexibility and through this process, will continue to provide relevant and resilient
RioCan Annual Report 2020 24
MANAGEMENT’S DISCUSSION AND ANALYSIS
shopping environments. RioCan is of the view that in the medium and long-term, shopping centres will continue to provide
retailers with a cost-effective way of distributing goods and services given Canada’s geographic dispersion, the high cost of “last
mile” deliveries and high barriers to establishing distribution centres in urban settings. One such program is RioCan Curbside
Collect, a permanent initiative that offers designated areas for customers to access their pre-ordered items making it easier for
RioCan tenants to coordinate transactions with their customers, mitigate the cost of delivery, and drive consumer traffic and
repeat visits.
While this unprecedented health crisis has undoubtedly caused significant temporary disruption to the retail landscape, RioCan’s
management does not believe these current conditions to be entirely indicative of the retail landscape to come. There has been
some fallout and vacancy, but these conditions are by no means terminal in nature. The attributes attached to the Canadian retail
environment will, in RioCan's view, allow these conditions to be rather short lived. Relative to other countries, Canada benefits
from low retail space per capita, a limited number of retailers within each retail category and tight building zoning controls that
keep supply in check. In spite of the current slowdown in travel and immigration, Canada's population in the long-term is
expected to continue to increase particularly in its six major markets. In the pre-pandemic world, Canada had one of the highest
population growth rates among the Organization for Economic Co-operation and Development (OECD) countries, fueled by
immigration. In late October 2020 amidst the pandemic, the federal government announced its immigration targets over the next
three years - 401,000 in 2021, 411,000 in 2022 and 421,000 in 2023, averaging 411,000 a year. Even though the 2021
immigration numbers could be dampened to some extent by the ongoing heightened restrictions on travel under the second wave
of the pandemic, the medium and long-term trend in immigration post the pandemic is clear in the Canadian government's
immigration targets. Based on past immigration history, most of the immigrants land or migrate to the six major markets,
especially the GTA.
All of the above factors contribute to a resilient base of strong retail centres. Consequently, upon the resumption of regular
commercial activity in the Canadian markets, RioCan believes that there will be demand for well-positioned retail space. It
believes that it is too simplistic to view the current extraordinary and temporary state of commercial activities as the normal
course. Strong, well-positioned retail assets, such as those owned by RioCan, have proven and will continue to prove resilient
both during this pandemic and certainly, once the pandemic subsides. The attributes that RioCan's portfolio possesses, such as
proximity to transit, high demographic profile and high visibility will not lose their prominence.
Over its 27-year history, RioCan's experienced management team, recognized for its visionary leadership and adaptability within
an ever-changing real estate environment, has successfully managed through various economic cycles and challenging
circumstances. RioCan's management team continually assesses and adapts its strategies to address market dynamics and
even more so through the extremely fluid COVID-19 pandemic. The Trust maintains its strategy to expand and enhance the
mixed-use characteristics of its portfolio to address trends. It will continue to adapt and re-purpose its existing retail portfolio and
grow its residential portfolio, which is designed with amenities suited for e-commerce such as concierge services, dedicated
space for receipt and storage of packages and, in some cases, cold storage.
Development Environment and Residential Real Estate Market
Prior to the pandemic, with population growth and a limited supply of land available for development, Canada’s six major markets,
particularly the GTA and Vancouver areas, had experienced a significant boom in housing development and construction over the
last number of years. 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 labor, which tend to
increase development risks.
Over the course of the pandemic residential development projects, which are typically considered essential projects under the
government guidelines, can continue to proceed. Social distancing and other measures, as well as increasing COVID-19 cases
under the second wave of the pandemic, may have resulted in a somewhat slower pace of development progress in general,
although they have had no material impact on RioCan's projects. The lockdown measures recently introduced by the Ontario
government for commercial developments relating to non-essential uses could, on the other hand, potentially increase trade labor
availability. This may lead to a positive effect on the pace and cost of RioCan projects given that most of its projects are not
impacted by the lockdown measures. The net effect of the pandemic on development is difficult to predict, dependent on the
length and severity of the second wave and the rollout of the vaccine administration.
Recently there have been some media headlines indicating that the pandemic has put increasing pressures on urban
condominium rental rent and occupancy, particularly in Toronto and Vancouver, as well as a flight to suburban locations. RioCan
also saw a temporarily dip in occupancy and average rent per square foot in recent quarters at eCentral in Toronto. However,
RioCan is confident in its mixed-use residential development strategy in major markets and long-term NAV growth potential that
such development will bring to its Unitholders. RioCan has a diverse range of residential offerings, some of which are urban such
as Pivot in Toronto and some of which are suburban such as Windfields Farms in Oshawa, suburb of Toronto. We are confident
that in the long-term, all will be in high demand given their locational attributes, but during the pandemic the balance of residential
offerings has served RioCan well. The Trust believes what will drive residential real estate growth in the medium and long-term
will be the increasing immigration once it resumes post the pandemic as the Canadian government has announced, as well as its
impacts on the Canadian economy and real estate market in general. The three-year annual average target immigration level of
411,000 from 2021 to 2023 based on the federal government's October 2020 announcement is about 30% higher than the 2019
25 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
actual of 314,000 and about 24% above the estimated 2020 level of 331,000. In addition, based on various sources, there are an
estimated 600,000 to 750,000 international students that require housing. These drivers of population growth will fuel demand for
residential real estate in major markets in terms of both ownership and rental over the medium to long-term, which will in turn
drive up residential real estate occupancy, rent, and valuation or sale price. The social aspect of human nature will persist and
translate into continuing growth of the major markets and urban markets in the post COVID-19 world. Even under the pandemic,
the pace of condominium and townhouse unit presales among RioCan's developments has remained robust after an initial slow
down, as evidenced by the average 98.2% presale level and up-to-date pre-sale deposits at its three condominium and
townhouse projects currently underway in the GTA.
The Trust's 21.8 million square feet of zoning entitlements (zoned density and zoning applications submitted), which is primarily
located in the GTA, remains a significant competitive advantage for RioCan. 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
market conditions including the challenges imposed by the current pandemic. Refer to the Development Program section of this
MD&A for a further discussion on how the Trust prudently manages its development risks.
Alberta Economy
The Alberta economy faced a number of setbacks during 2020 including a sharp and sudden decline in the demand for oil as the
global economy largely shut down to contain the COVID-19 pandemic, coupled with a similar sharp drop in oil prices resulting
from an international price war and dispute over oil production levels. As many countries reopened their economies after the
spring lockdown, global demand for oil picked up resulting in improved benchmark oil prices. Better balancing of production
capability with take-away capacity also helped to increase oil prices although the recent global tightening of lockdown measures
and cancellation of the Keystone XL expansion by the new U.S. administration will likely have a dampening effect on oil
investment and production in Alberta, as well as on Alberta's economy in general.
The Alberta provincial deficit increased to historic levels in 2020 as a result of severe revenue declines coupled with the increased
costs primarily from economic aid packages. While the province's immediate priority is health care and the COVID-19 response,
once the province emerges from the pandemic, the focus will shift to reviving economic growth including the roll out of an
ambitious job training program for dislocated energy sector workers. The province's recovery and return to growth will take time
and is difficult to predict, especially given the risks and uncertainties associated with the second wave of the pandemic.
Despite the challenging circumstances, the committed occupancy rate in the Trust's Alberta portfolio increased by 10 basis points
from the previous quarter and remained reasonably strong at 95.3% as of December 31, 2020. RioCan's first residential building,
Brio in Calgary, is leasing well notwithstanding having been launched right at the outset of the pandemic. In addition, in 2020 we
completed the two tranches of sales of air rights related to the 5th & THIRD project in Calgary as planned. Nonetheless, the
regional economy is sensitive to potential further volatility in oil prices and the uncertainties surrounding the timing of the
economic recovery from the pandemic. As a result, the Trust wrote down the fair value of its Alberta assets by 4.8% or $124.3
million for the year ended December 31, 2020.
Outlook
Economic momentum heading into the fourth quarter appeared strong. However, the second wave of the pandemic that started in
the fall of 2020 worsened over time and resulted in the re-imposition and tightening of restrictions and slowed economic growth.
The arrival of vaccines in late 2020 was cause for optimism but the distribution of the vaccine, which is key to economic recovery,
will take time and has also been slower than expected particularly given the recent vaccine production issues. At its most recent
interest rate announcement, the Bank of Canada held the overnight interest rate steady at 0.25% and indicated that it will
continue to deploy its quantitative easing program to ensure financial market liquidity and lower borrowing costs. In addition to
monetary stimulus by the central bank, the federal government in Canada continues to provide a variety of programs to support
businesses and individuals, with some additional programs from the provincial governments.
The impact on the economy of lockdowns renewed across the country late in 2020 and is expected to carry over into at least the
first quarter of 2021. The pace of economic recovery is expected to be uneven in 2021 and will vary with the timing of the
immunization campaign and the length and severity of the pandemic and resulting restrictive measures imposed by different
levels of government, as well as the nature and extent of the government support programs.
Given these uncertainties, the impacts of the pandemic on RioCan operations and financial performance are difficult to predict.
RioCan therefore does not provide 2021 guidance at the current stage.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) PRIORITIES AND PROGRESS
RioCan embeds ESG in every aspect of its business, including developments, operations, investment activities and corporate
function. Internally, RioCan also refers to its ESG initiatives as sustainability initiatives. Embedding ESG or sustainability is
important for RioCan as it:
•
•
•
promotes resource efficiency, saving costs and minimizing environmental degradation;
increases property values, contributing to stakeholder satisfaction, and drives long-term NAV growth for Unitholders
drives appeal of our assets, helping to attract and retain tenants;
RioCan Annual Report 2020 26
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
•
builds collaborative relationships with our tenants and employees, which accelerates the pace of positive change;
manages risks and complies with ever-evolving regulations, enhancing operations management and governance practices;
and
provides its employees with sustainability impact opportunities, leading to increased employee job satisfaction and retention.
To meet its ESG objectives, RioCan is executing a multi-year plan that includes commitments and targets as well as actions and
initiatives to improve its ESG performance year-over-year. For performance tracking and reporting, the GRESB Real Estate
Assessment provides the Trust with a framework to benchmark organization-wide performance and also ensure transparency and
continuous improvement. Specific to climate-related metrics, RioCan measures and discloses scope 1 (direct emissions from
company-owned and controlled resources) and scope 2 (indirect emissions from the generation of purchased energy), as well as
selective scope 3 (all indirect emissions not included in scope 2) greenhouse gas emissions, as defined by The Greenhouse Gas
Protocol Corporate Accounting and Reporting Standard on an annual basis and area of properties located in 100-year floodplain
zones. The Trust published its second annual sustainability report this year in accordance with Global Reporting Initiative
Standards and the report includes indicators from the Sustainability Accounting Standards Board (SASB) Real Estate sub-sector
and recommended disclosures from the Task Force on Climate-related Financial Disclosures (TCFD).
RioCan's Sustainability Council is comprised of cross-functional executive and leadership team members that oversee the
sustainability strategy implementation and drive performance improvements. Council 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, led by the Senior Vice President, Asset Management, responsible for reporting ESG goals,
plans and performance to the Sustainability Council and Board of Trustees and ensuring sustainability initiatives are resourced
and elevated across the company. The Board of Trustees is updated at least annually on sustainability related issues including
climate change and has ultimate oversight of risk management. Significant and emerging risks are escalated to the Audit
Committee. For RioCan's sustainability policy and additional information about its sustainability strategy and plan, visit RioCan's
website under Sustainability.
RioCan launched its ESG or sustainability program in 2016 with a goal to be among the leaders in embedding sustainability
practices throughout its business by 2020. This year RioCan has achieved this goal. Key accomplishments this year include:
Environmental
•
•
•
•
•
•
•
•
•
•
Achieved a 5 Star rating in the 2020 GRESB Real Estate Assessment with a score of 85. The 2020 score represents a 97%
improvement since RioCan’s first submission in 2017;
Ranked first amongst its Canadian peers in the GRESB Public Disclosure Assessment;
Increased overall FTSE Russell ESG score by 26%, ranking RioCan above the industry peer average. FTSE Russell ESG
ratings measure ESG risk and performance on 7,200 securities across 47 developed and emerging markets;
Became the first Canadian REIT to launch a Green Bond Framework and issued two green bonds, raising a total of $850
million to fund eligible green projects in line with the RioCan Green Bond Framework;
Achieved an Environmental and Social Quality Score upgrade with Institutional Shareholder Services (ISS) as a result of
enhanced risk management, climate and stakeholder based disclosures;
Increased the number of properties achieving Building Owners and Managers Association Building Environmental Standards
(BOMA BEST) certifications to over 90 across Canada, representing approximately 50% of GLA (at 100% for commercial);
Received BOMA Toronto’s race2reduce Commercial Real Estate Trailblazers (CREST) Award for select RioCan’s properties
recognizing commitment to promote operational excellence through improved building performance.
Conducted internal environmental inspections at all RioCan managed income producing properties with favourable results as
RioCan remains in material compliance with applicable environmental laws, regulations and guidelines;
Established long-term reduction targets for energy, water, waste and greenhouse gas (GHG emissions). Targets are set for
2030 across all four metrics; and
Assessed climate change-related opportunities on RioCan’s portfolio, established a location specific framework to assess,
manage and implement measures to adapt to ESG risks and aligned climate-related disclosures with TCFD.
Social
•
•
•
•
Recognized as one of the top 100 employers by Greater Toronto’s Top Employers;
Earned recognition as the top ranked real estate firm on the Best 50 Corporate Citizens in Canada by Corporate Knights;
Established the RioCan Diversity, Equity & Inclusion (DEI) Council and appointed DEI officers to promote a diverse and
inclusive workplace;
Signed the BlackNorth CEO Pledge, which was initiated by the Canadian Council of Leaders Against Anti-Black Systemic
Racism;
27 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
•
Signed the Inclusive Local Economic Diversity Opportunity (ILEO) Charter, which was initiated by the United Way to drive a
new and collective commitment to creating inclusive economic opportunity in communities, and to advance the goal of an
“inclusive rebuild”;
Established RioCan Cares, a formal program to work with charities and hospitals to provide assistance where needed; and
Continued to build toward a culture of excellence by conducting an Employee Engagement Survey, achieving a 99%
employee participation rate in 2020. The overall engagement score improved since the last survey in 2018 despite being in
the midst of a pandemic. The Trust intends to conduct the survey on annual basis going forward.
Governance
•
•
•
•
•
Awarded the Outstanding In-House Company Diversity & Inclusion Award by Chambers and Partners, a leading international
provider of legal research and analysis for including ESG objectives in every bonus-eligible employee performance
scorecard;
Achieved an ESG rating upgrade by Morgan Stanley Capital International (MSCI) for the second year in a row, driven by
improvement in employee management programs and green building certifications;
Improved the Sustainalytics risk ranking from medium to low risk, resulting from enhanced ESG disclosures in annual and
quarterly reporting as well as dedicated and enhanced ESG or sustainability reporting;
Launched Board investor outreach program to receive investor feedback and have discussions on ESG matters; and
Implemented a Sustainability Policy and Plan for RioCan’s Development department.
PROPERTY PORTFOLIO OVERVIEW
Property Operations - Total Portfolio
Net Leasable Area (NLA) and Property Count
RioCan's portfolio of net leasable area and properties consisted of the following as at December 31, 2020:
NLA at RioCan's Interest
Total Portfolio
(thousands of sq. ft., except where
otherwise noted)
Income properties (i)
Properties under development (ii)
Total NLA
Retail
33,459
602
34,061
Office
2,313
520
2,833
Total
Commercial
Residential
Rental (iii)
NLA
Property Count
35,772
1,122
36,894
762
604
1,366
36,534
1,726
38,260
209
14
223
(i)
(ii)
Includes NLA which has a rent commencement date on or before December 31, 2020.
Includes NLA for Active Projects with Detailed Cost Estimates under the Development Program section of this MD&A. Excludes air rights sales and
condominium or townhouse units which are reported separately under Residential Inventory. Includes completed Properties Under Development
NLA that have a rent commencement date after December 31, 2020.
(iii) See the Property Operations - Residential section of this MD&A for further details.
Property Mix
The Trust operates a variety of income producing property formats or classes to best serve the communities in which they
operate. The Trust has identified the following four major categories of property classes:
Category
Mixed-Use / Urban
Description
Assets with more than one type of use (retail, office, residential mixed-use assets) located in major
markets and non mixed-use assets located in high density urban areas. Examples of these properties
include: King Portland 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 Hills 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 Annual Report 2020 28
MANAGEMENT’S DISCUSSION AND ANALYSIS
RioCan's portfolio of properties consisted of the following:
As at December 31
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)
2020
2019
Number of
income producing
properties
Income producing
properties NLA
% of NLA
% of annualized
rental revenue
% of annualized
rental revenue
34
95
69
11
209
5,673
16,844
10,699
3,318
36,534
15.5 %
46.1 %
29.3 %
9.1 %
100.0 %
21.4 %
42.0 %
27.1 %
9.5 %
100.0 %
22.0 %
40.9 %
27.2 %
9.9 %
100.0 %
(i) Mixed-Use / Urban includes approximately 0.8 million square feet of residential rental NLA and the corresponding annualized residential rental
revenue.
As of December 31, 2020, 90.5% of RioCan's annualized rental revenue is from Grocery Anchored, Mixed-Use / Urban and Open
Air centres while Enclosed centres represent 9.5% of its total portfolio. The Trust's property mix exposure to Grocery Anchored
Centres increased by 1.1% from 2019 to 2020 while its exposure to Enclosed centres decreased by 0.4% over the same period.
Enclosed centres are undoubtedly more disproportionately impacted by the mandated or self-imposed restrictions under the
global pandemic. The Trust's Enclosed centres still reported cash rent collections of approximately 89.9% for the quarter,
reflecting the quality of its Enclosed centres even under such unprecedented circumstances.
Overall, the majority of the Trust's portfolio is comprised of formats that are attractive from a tenanting perspective, more resilient
to changes in economic cycles and evolving retail trends. The shift in the Trust's portfolio to become more urban, mixed-use, and
necessity-based with fewer enclosed centres forms a solid foundation for organic growth post the pandemic.
Six Major Markets and GTA Focused
At RioCan’s Interest
As at December 31
Greater Toronto Area (i)
Ottawa
Calgary
Montreal (ii)
Edmonton
Vancouver (iii)
Total Six Major Markets
Total Secondary Markets
Total Portfolio
% of NLA
% of annualized rental revenue
2020
46.8 %
13.1 %
9.9 %
6.6 %
6.1 %
4.9 %
87.4 %
12.6 %
100.0 %
2019
45.8 %
13.2 %
9.6 %
7.2 %
6.2 %
5.0 %
87.0 %
13.0 %
100.0 %
2020
51.3 %
12.8 %
10.4 %
4.1 %
6.7 %
4.7 %
90.0 %
10.0 %
100.0 %
2019
52.4 %
12.5 %
9.0 %
4.7 %
6.6 %
4.9 %
90.1 %
9.9 %
100.0 %
(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.
Since Q4 2019, the Trust has achieved its strategic milestones of greater than 90% and 50% of total annualized rental revenue
from the six major markets and the GTA, respectively. The 50 basis point increase in the GTA presence from the prior quarter
resulted from completed developments in the fourth quarter and the timing of certain revenues and the related impact on
annualized revenues as of each quarter end. The year-over-year decline of 110 basis points in the GTA was primarily due to a
decline in parking revenue and percentage rent as a result of the pandemic and certain closures of tenants who had filed for
protection under restructuring filings.
29 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Property Operations - Commercial
Retail Tenant Profile
The Trust has been adapting to the ever-changing retail landscape and incorporating 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, personal services, specialty retailers and
value retailers. During the current quarter alone, it increased its tenant mix in grocery/pharmacy/liquor retailers by 70 basis points
and decreased its apparel exposure by 50 basis points. On an annual basis, the Trust increased its exposure in grocery/
pharmacy/liquor retailers by 110 basis points and decreased its apparel exposure by 130 basis points.
RioCan will continue evaluating its tenant mix during and post the pandemic and adapting its tenant mix to the ever-changing
consumer trends, while continuing to increase its necessity-based retail and diversify more into residential and office real estate.
As of December 31, 2020, the Trust's annualized net rental revenue was derived from the following retailer categories:
(i) Excludes Home Outfitters (included in Home and Furniture), Saks Off 5th (included in Value Retailers) and Lawrence Allen Centre's HBC office.
(ii) All trademarks and registered trademarks in the chart above are the property of their respective owners.
RioCan Annual Report 2020 30
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, 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, as well as investments in residential developments.
At December 31, 2020, RioCan’s 30 largest tenants measured by annualized gross rental revenue are as follows:
Rank Tenant name
1
2
3
4
Canadian Tire Corporation (ii)
Loblaws/Shoppers Drug Mart (iii)
The TJX Companies, Inc. (iv)
Cineplex (v)
5 Metro/Jean Coutu (vi)
6 Walmart
7
Sobeys/Safeway
8 Montana's, Harvey's, Swiss Chalet, Kelseys (vii)
9
Dollarama
10 GoodLife Fitness
11 Michaels
12
Lowe's
13 Staples/Business Depot
14
TD Bank
15 PetSmart
16 Bank Of Montreal
17 Chapters/Indigo
18
LA Fitness
19 Value Village
20 Bed Bath & Beyond
21 Best Buy
22
Leon's/The Brick
23 DSW/The Shoe Company
24
25
26
The Bank Of Nova Scotia
Tim Hortons/Burger King/Popeyes
Liquor Control Board of Ontario (LCBO)
27 Old Navy
28
The Bay/Home Outfitters (viii)
29 Canadian Imperial Bank of Commerce
30 MTY Food Group
Percentage of
annualized
total rental
revenue
Number
of
locations
NLA
(thousands of
sq. ft.)
Percentage
of total
IPP NLA
Weighted
average
remaining lease
term (years) (i)
4.9 %
4.9 %
4.6 %
3.4 %
2.7 %
2.7 %
1.7 %
1.6 %
1.6 %
1.4 %
1.4 %
1.4 %
1.3 %
1.3 %
1.2 %
1.1 %
0.9 %
0.7 %
0.7 %
0.7 %
0.7 %
0.7 %
0.7 %
0.7 %
0.6 %
0.6 %
0.6 %
0.6 %
0.5 %
0.5 %
75
68
71
22
37
16
21
83
65
26
24
9
27
47
26
34
17
8
12
13
11
11
29
26
58
18
21
7
19
62
2,073
1,823
2,030
1,171
1,419
2,069
759
386
616
565
519
1,154
571
253
409
245
288
318
323
301
261
269
222
130
138
171
203
409
108
86
5.8 %
5.1 %
5.7 %
3.3 %
4.0 %
5.8 %
2.1 %
1.1 %
1.7 %
1.6 %
1.4 %
3.2 %
1.6 %
0.7 %
1.1 %
0.7 %
0.8 %
0.9 %
0.9 %
0.8 %
0.7 %
0.8 %
0.6 %
0.4 %
0.4 %
0.5 %
0.6 %
1.1 %
0.3 %
0.2 %
46.4 %
963
19,289
53.9 %
6.6
8.6
5.8
6.7
7.8
8.0
9.4
6.5
7.1
10.1
5.8
8.6
6.0
8.8
5.2
4.9
8.5
12.4
8.6
6.4
3.3
4.9
5.0
5.1
8.1
9.6
5.1
12.6
5.0
6.3
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) 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% interest in the two properties that are 50/50 owned by RioCan and HBC. Includes Home Outfitters, Saks Off 5th and
Lawrence Allen Centre's HBC office.
31 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Occupancy by Markets and Usages
The 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
Committed Occupancy
In-Place Occupancy
2020
2019
2020
2019
96.3 %
97.6 %
95.7 %
90.9 %
94.9 %
99.0 %
96.1 %
93.6 %
95.7 %
98.3 %
98.2 %
97.5 %
92.6 %
97.5 %
99.6 %
97.7 %
93.6 %
97.2 %
95.5 %
97.3 %
93.9 %
90.3 %
94.3 %
98.2 %
95.3 %
92.0 %
94.9 %
97.3 %
98.0 %
95.4 %
92.4 %
97.1 %
99.4 %
96.9 %
92.4 %
96.3 %
(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.
The following table summarizes the Trust's committed and in-place occupancy rates by retail and office as at December 31, 2020.
Total Portfolio
Six Major Markets
Greater Toronto Area
Committed Occupancy
In-Place Occupancy
Committed Occupancy
In-Place Occupancy
Committed Occupancy
In-Place Occupancy
Retail
96.1 %
95.1 %
96.5 %
95.7 %
97.1 %
96.3 %
Office
91.1 %
91.0 %
90.2 %
90.0 %
90.2 %
90.0 %
Total Commercial
95.7 %
94.9 %
96.1 %
95.3 %
96.3 %
95.5 %
The declines in committed and in-place occupancy rates during the year were due to the unprecedented pandemic. However,
despite the extent of mandated store closures to curtail the spread of the second wave of the pandemic, occupancy remained
strong. Retail committed occupancy for the total portfolio and six major markets increased by 10 basis points during Q4 2020
relative to the prior quarter despite the pandemic due to new leases that the Trust entered into during the quarter. One large
office tenant consolidated its office space and reduced its space by about 100,000 square feet of lease at one GTA location. This
led to the decrease in office committed occupancy, as well as the 30 basis points decrease in total commercial committed
occupancy.
The 30 basis point decline in retail in-place occupancy over the prior quarter end was primarily due to the delayed effect of
previously announced store closures while the 440 basis point quarter to quarter decline in office in-place occupancy was related
to the above mentioned large office tenant not renewing its lease in one location. These two factors combined led to a 50 basis
point decline in total portfolio in-place occupancy from the previous quarter end.
Average Net Rent
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)
Retail
Office
(i)
Net rent is primarily contractual base rent pursuant to tenant leases.
$
$
$
2020
19.80 $
19.91 $
18.23 $
2019
19.75
19.92
17.22
The overall portfolio increase in average net rent per occupied square foot was driven by increases in office rents. Rent steps,
increases upon renewal and new deals at higher rents drove the increase in office average net rent per occupied square foot.
Additionally, the one large office tenant that did not renew its lease due to consolidating its office space in Q4 2020 paid lower
than the office portfolio average net rent per occupied square foot.
The impact of retail rent steps, increases upon renewal and new deals at higher rents was offset by certain rent reduction
agreements reached with select tenants resulting from the pandemic.
RioCan Annual Report 2020 32
MANAGEMENT’S DISCUSSION AND ANALYSIS
New Leasing Activity
(in thousands, except per sqft amounts)
New Leasing NLA at 100% - IPP & PUD
Average net rent per square foot - IPP & PUD (i)
IPP
PUD
New Leasing Spread IPP - Overall Portfolio
New Leasing Spread IPP - Major Markets
Three months ended
December 31
Years ended
December 31
2020
359
43.90 $
23.46 $
95.45 $
5.1%
1.6%
2019
485
29.03 $
20.06 $
45.74 $
2.1%
2.1%
2020
1,209
32.05 $
23.24 $
48.50 $
7.9%
8.3%
2019
1,614
25.56
21.69
41.70
10.0%
8.8%
$
$
$
(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. For further clarity, net rent on new leases signed on new square footage from new development
projects is included in the average net rent per square foot for new leases but are excluded in calculating the new leasing spread given that there
is no base to compare to for such new developments.
Renewal Leasing Activity
A summary of our 2020 and 2019 commercial renewal leasing activity is as follows:
Three months ended
December 31
Years ended
December 31
(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 - Overall Portfolio (iii)
Renewal leasing spread percentage - Major Markets (iii)
Retention ratio - Overall Portfolio
Retention ratio - Major Markets
2020
853
373
1,226
20.23 $
0.70 $
3.6%
4.4%
85.8%
85.7%
2019
614
175
789
22.89 $
2.12 $
10.2%
10.6%
89.9%
90.0%
2020
2,421
1,220
3,641
20.01 $
0.85 $
4.4%
5.0%
86.7%
86.0%
Net rent is primarily contractual base rent pursuant to tenant leases.
(i)
(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.
Blended Leasing Spread
Blended leasing spread for both new and renewal leasing
- Overall Portfolio (i)
Blended leasing spread for both new and renewal leasing
- Major Markets (i)
Three months ended
December 31
Years ended
December 31
2020
3.8%
3.9%
2019
8.2%
8.4%
2020
5.0%
5.6%
2019
2,761
1,246
4,007
20.98
1.77
9.2%
9.9%
89.4%
89.8%
2019
9.4%
9.7%
(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 quarterly new leasing spread is calculated for properties owned by the Trust as of each quarter end date. The annual leasing spread is
the weighted average of quarterly new leasing spread as reported over the four quarters of a year.
For the year ended December 31, 2020 the blended leasing spread exceeded the renewal leasing spread as a result of strong
new leasing, particularly in the major markets.
33 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Retailer Restructuring Filings
Since the Trust's Q1 2020 report, the number of retail filings for protection under the Companies' Creditors Arrangement Act
(CCAA) in Canada or Chapter 11 in the U.S., have been accelerated by the pandemic. Protection under these filings allows
companies to restructure their affairs during a stay period and therefore, does not necessarily result in the closure of store
locations. RioCan is entitled to gross rents during the stay period until a lease is disclaimed or terminated.
As of February 10, 2021, RioCan's exposure to tenants with restructuring filings, and those who have issued Notices of Intent to
file or entered into Bankruptcy proceedings, since March 31, 2020 is summarized in the table below, as well as RioCan's
exposure based on confirmed closures by tenants:
Tenant
Globo Shoes (i)
L' Aubainerie
Reitmans (ii)
Stern Group (iii)
GNC
Laura (iv)
Moores
Le Chateau
Others (v)
Total tenant restructuring filings since
March 31, 2020 as of February 10, 2021
Percentage of annualized
total rental revenue
Confirmed closures as %
of annualized
total rental revenue
0.2%
0.1%
0.8%
0.2%
0.1%
0.4%
0.3%
0.1%
0.5%
2.7%
—%
0.1%
0.3%
—%
0.1%
—%
0.1%
—%
0.3%
0.9%
(i) Globo Shoes includes Aldo, Call It Spring and Globo.
(ii) Reitmans includes Penningtons, RW&CO., Addition Elle and Thyme Maternity.
(iii) Stern Group includes Ricki's, Cleo and Bootlegger.
(iv) Laura includes Laura and Melanie Lyne.
(v) Others include Anna Bella, Ascena Group Inc., Brooks Brothers, Chuck E. Cheese, Coats Co., Conforti Holdings Inc., Davids Tea, Dr. Bernstein
Health and Diet Clinic, Garage, Haggar Direct Inc., Henry's, Infinity Dental, Jack & Jones, J. Crew, KSF Group, L'Accessoirie, Lucky Brand,
Mendocino, Mountain Equipment Co-Operative, Solutions, Swimco and Zacks Fashions.
The percentage of annualized total rental revenue from tenants undergoing restructuring declined slightly when compared to the
prior quarter due to marginal changes in total annualized rental revenue. The confirmed closures continue to represent less than
1.0% of our total portfolio and have not changed quarter to quarter. Such vacant space is expected to be re-tenanted in due
course to new uses better suited to the evolving economy and consumer trends. For any other retailers that have filed for CCAA
or Chapter 11 since March 31, 2020, but are not included in the above table, the Trust has no exposure to them.
Lease Expiries
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
Average net rent per occupied square foot
Contractual Rent Increases
Total
IPP NLA
35,772
2021
2,833
7.9 %
2022
3,907
10.9 %
2023
4,159
11.6 %
2024
4,567
12.8 %
2025
4,381
12.3 %
$
20.92 $
20.88 $
20.85 $
21.48 $
21.02
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
2021
2022
2023
2024
$
8,102 $
6,721 $
6,334 $
4,789 $
2025
3,329
Above contractual rent increases are based on existing leases as of December 31, 2020 and are on a year-over-year incremental
increase basis. The contractual rent increases are higher in 2021 as they reflect more market rent changes as a result of new
leasing and renewals completed in 2020. 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).
RioCan Annual Report 2020 34
MANAGEMENT’S DISCUSSION AND ANALYSIS
Future Lease Commencements
Subsequent to Q4 2020, we expect to generate approximately $10.0 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, 2020. 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, 2020 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 2021
Q2 2021
Q3 2021
Q4 2021+
312
312
230
230
73.7 %
73.7 %
51
281
16.3 %
90.0 %
31
312
10.0 %
—
312
— %
100.0 %
100.0 %
Monthly net incremental IFRS rent commencing (ii)
$
Cumulative monthly net incremental IFRS rent commencing
$ 10,032 $
836 $
836 $
602 $
602 $
145 $
747 $
89 $
836 $
% of net incremental IFRS rent for NLA commencing
Cumulative % total net incremental IFRS rent commencing
72.0 %
72.0 %
17.4 %
89.4 %
Includes NLA expected to be completed from expansion and redevelopment projects.
(i)
(ii) Based on monthly IFRS rental revenue.
Property Operations - Residential
—
836
— %
10.6 %
100.0 %
100.0 %
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, design, amenities, community-focused event programming, professional
management and access to strong retail offerings are all key strengths of RioCan Living. While it is difficult to project the longer
term impact of the current worldwide pandemic on immigration to Canada and its corresponding impact on Canadian population
growth, the economy and housing market, RioCan believes in the long-term value creation and risk mitigation benefits of its
residential strategy. Refer to the Business Overview and Strategy, Business Environment and Outlook, and Risks and
Uncertainties sections of this MD&A for further discussions on the impact of the pandemic on the Trust's business.
The Trust currently has four completed RioCan Living projects as summarized below and 11 projects in different phases of
development. None of the Trust's residential units (other than the rental replacement units, which are rented at prescribed rents)
are subject to rent controls. For the fourth quarter of 2020, RioCan has received approximately 98.2% of the residential rents at
eCentral, Frontier, Brio and Pivot as of February 10, 2021. As a result of COVID-19, the Ontario provincial government has
passed legislation that freezes rent at 2020 levels in 2021 for most residential units in the province.
As at
Occupancy as of December 31, 2020
Leasing as of February 10, 2021
Residential Rental Buildings in Operations
eCentral (Yonge Eglinton Northeast Corner,
Toronto) (ii)
Frontier (Gloucester, Ottawa) (iii)
Brio (Brentwood Village, Calgary) (iii)
Pivot (Yonge Sheppard Centre, Toronto) (iv)
Number
of total
units
Number of
occupied
units
% of
occupied
units
Average
monthly
market rent
per square
foot (i)
Number
of leased
units
% of
leased
units
Average
monthly
market rent
per square
foot
466
228
163
361
401
222
87
17
86.1 % $
97.8 % $
53.7 % $
4.7 % $
3.89
2.50
2.54
3.67
402
222
96
39
86.3 % $
97.8 % $
59.3 % $
10.8 % $
3.85
2.52
2.54
3.61
(i) 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. RioCan Living tenants generally pay their own utility bills.
(ii) eCentral lease-up has been slowed by the current COVID-19 pandemic. As at December 31, 2020, the total of 401 units included 338 market rent
units occupied at an average monthly rate of $3.89 per square foot and 63 rental replacement units occupied at an average monthly rate of $2.30.
As at February 10, 2021, the total of 402 units leased were comprised of 339 market rent units leased at an average monthly rate of $3.85 per
square foot and 63 rental replacement units leased at an average monthly rate of $2.30 per square foot.
(iii) Total units include one guest suite, which is excluded in the occupied and leased percentage calculation for the property.
(iv) As at December 31, 2020, the total of 17 units included 16 market rent units occupied at an average monthly rate of $3.67 and 1 rental
replacement units occupied at an average monthly rate of $1.87. As at February 10, 2021, the total of 39 units leased were comprised of 33
market rent units leased at an average monthly rate of $3.61 and 6 rental replacement units leased at an average monthly rate of $1.66.
35 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Capital Expenditures on Income Properties
Maintenance Capital Expenditures
Maintenance capital expenditures refer to investments that are necessary to maintain the existing earnings capacity of our
property portfolio and are dependent upon many factors. 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, 2020, the estimated weighted average age of our income property portfolio is
approximately 26 years (December 31, 2019 - approximately 25 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.
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
The Trust's 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 the Trust's 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
The Trust also invests capital on a regular basis to physically maintain its 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. The Trust expenses or
capitalizes 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 is considered revenue enhancing. RioCan considers such amounts to be investing activities. As
a result, it does 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:
Three months ended
December 31
Years ended
December 31
Normalized capital
expenditures (i)
(thousands of dollars)
Maintenance capital expenditures:
Tenant improvements and external leasing commissions $
Recoverable from tenants
Non-recoverable
2020
2019
2020
2019
2020
2021
7,099 $
9,956 $ 31,486 $ 33,005 $ 16,000 $ 27,000
2,786
916
4,822
2,700
8,007
12,263
18,000
12,000
4,684
5,847
6,000
6,000
Revenue enhancing capital expenditures
$ 10,801 $ 17,478 $ 44,177 $ 51,115 $ 40,000 $ 45,000
2,513
6,861
17,415
22,205
$ 13,314 $ 24,339 $ 61,592 $ 73,320
(i) Refer to the Non-GAAP Measures section in this MD&A for details on how management estimates its normalized capital expenditures.
RioCan's total maintenance capital expenditures for the year ended December 31, 2020 was $44.2 million, $4.2 million higher
than our normalized capital expenditures of $40.0 million for the year. This was primarily related to higher than expected tenant
improvements and external leasing commissions partly resulting from the pandemic. For 2021, normalized maintenance capital
expenditure guidance is set at $45.0 million, $5.0 million higher than 2020. As a result of filling certain vacancies resulting from
the COVID-19 pandemic, the Trust anticipates additional tenant improvements in 2021 and has determined that $45.0 million is a
reasonable normalized capital expenditure estimate for 2021, although quarterly fluctuations between the $11.3 million quarterly
normalized capital expenditures and the actual expenditures are expected. The Trust will reassess this estimate as necessary on
a go forward basis. Refer to the Non-GAAP Measures section of this MD&A for details on how estimates of normalized capital
expenditures were determined for 2020 and 2021.
RioCan Annual Report 2020 36
MANAGEMENT’S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Summary of Selected Financial Information
RioCan has summarized in the following table key selected financial information that were based on or derived from, and should
be read in conjunction with the Consolidated Financial Statements of the Trust for the respective years.
(thousands of dollars, except where otherwise noted)
As at and for the year ended December 31,
Revenue
Net operating income (NOI) (i)
FFO (i)
Operating income
Net income (loss)
Distributions declared
Weighted average Units outstanding (in thousands)
Basic
Diluted
Per unit basis
Net income (loss) - basic
Net income (loss) - diluted
FFO - diluted (i)
Unitholder distributions (v)
FFO Payout Ratio (i)
ACFO Payout Ratio (i)
Investment properties
Total assets
Unencumbered assets (RioCan's proportionate share)
Total debt (ii)
Total equity
Debt to total assets (i) (iii)
Debt to total assets (RioCan's proportionate share) (i) (iii)
Interest coverage (RioCan's proportionate share) (i) (iv)
Debt to Adjusted EBITDA (RioCan's proportionate share) (i) (iv)
Weighted average contractual interest rate
2020
2019
2018
$
1,143,663 $
1,326,325 $
1,147,842
652,177
507,394
680,283
(64,780)
457,525
317,725
317,725
(0.20) $
(0.20) $
1.60 $
1.44 $
90.2%
98.9%
691,705
575,845
748,612
775,834
444,462
307,683
307,779
2.52 $
2.52 $
1.87 $
1.44 $
76.9%
84.3%
703,491
580,223
720,291
528,103
450,743
313,936
314,024
1.68
1.68
1.85
1.44
77.9%
85.7%
$
$
$
$
$
14,063,022 $
14,359,127 $
13,009,421
15,267,708
15,188,326
14,003,765
8,727,354
6,927,883
7,734,973
8,936,721
6,390,818
8,305,211
7,970,296
5,874,033
7,666,390
44.5%
45.0%
3.10
9.47
3.13%
41.7%
42.1%
3.50
8.06
3.34%
41.6%
42.1%
3.63
7.88
3.51%
231%
25.13
Unencumbered assets to unsecured debt (RioCan's proportionate share) (i)
Net book value per unit
$
215%
24.34 $
227%
26.14 $
(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 the 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. Refer to the Debt Metrics section of this MD&A for further details.
(v) Effective January 2021, the distribution was reduced to $0.96 on an annualized basis.
The Trust's year-over-year changes in revenues, NOI, FFO, and net income, as well as other key financial information were
primarily impacted by its strategic secondary market disposition program completed between late 2017 and the end of 2019, the
timing and magnitude of its residential condominium and townhouse projects closings, the magnitude and pace of development
expenditures and project completions, and in 2020 the global pandemic and its effects on tenant and RioCan operations.
Net income, investment properties and a few other financial position related metrics such as debt to total assets were further
impacted by the year-over-year changes in the fair values of investment properties, particularly the significant fair value write-
downs in 2020 as a result of the pandemic. Refer to the various sections of this MD&A for more detail on the Trust's key financial
and operational information.
37 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Rental Revenue
The rental revenue for the three months and year ended December 31, 2020 and 2019 is as follows:
(thousands of dollars)
Base rent
Realty tax and insurance recoveries
Common area maintenance recoveries
Percentage rent
Straight-line rent
Lease cancellation fees
Parking revenue
Rental revenue
2020
Three months ended
December 31
Years ended
December 31
2020
2019
2020
$
173,160 $
174,968 $
697,006 $
53,384
40,196
2,774
1,458
5,199
251
53,355
44,620
2,368
2,376
477
888
217,957
155,879
4,874
7,177
6,284
1,555
2019
684,383
217,984
164,921
6,719
8,880
7,903
2,937
$
276,422 $
279,052 $
1,090,732 $
1,093,727
The $3.0 million decrease in rental revenue for the year was primarily due to lower common area maintenance recoveries
resulting from operating costs savings achieved and wage subsidy benefits transferred to tenants, lower percentage rent and
parking revenues due to the pandemic, partially offset by higher base rent primarily from residential rental revenue as the four
RioCan Living properties were being leased-up.
Q4 2020
The $2.6 million decrease in rental revenue for the quarter is primarily due to lower base rent and common area maintenance
recoveries primarily from lower occupancy resulting from COVID-19, partially offset by higher lease cancellation fees.
Net Operating Income (NOI)
NOI represents rental revenue from income properties less property operating costs, and is a subset of IFRS operating income.
The NOI for the three months and year ended December 31, 2020 and 2019 is as follows:
(thousands of dollars)
Operating income (i)
Adjusted for the following:
Three months ended
December 31
Years ended
December 31
2020
2019
2020
2019
$
173,594 $
189,587 $
680,283 $
748,612
Property management and other service fees
(4,050)
(3,039)
(16,584)
(23,633)
Residential inventory
Sales
Cost of sales
Operational lease revenue and (expenses) from ROU
assets
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
Other (ii)
NOI of proportionate share of equity-accounted
investments
NOI - RioCan's proportionate share
(4,712)
1,143
(38,639)
27,604
(36,347)
20,842
(208,965)
172,688
1,065
910
3,983
3,003
$
167,040 $
176,423 $
652,177 $
691,705
59.4%
62.9%
59.3%
62.7%
3,747
3,810
317
(662)
(126)
104
3,253
3,810
386
(608)
(126)
128
3,747
15,188
1,392
(2,806)
(506)
294
$
$
3,443 $
3,590 $
13,562 $
170,483 $
180,013 $
665,739 $
3,253
15,295
1,649
(2,595)
(506)
572
14,415
706,120
(i)
(ii)
In accordance with IFRS.
Includes NOI from RioCan's equity-accounted investments in Dawson-Yonge LP, RioCan-Fieldgate JV, WhiteCastle New Urban Fund, LP,
WhiteCastle New Urban Fund 2, LP, WhiteCastle New Urban Fund 3, LP and WhiteCastle New Urban Fund 4, LP.
RioCan Annual Report 2020 38
MANAGEMENT’S DISCUSSION AND ANALYSIS
NOI as a percentage of rental revenue (excluding the impact of lease cancellation fees) was lower for the three months and year
ended December 31, 2020 over the comparable periods primarily due to the $9.0 million and $42.5 million provision for rent
abatements and bad debts, during the respective periods in 2020, as a result of the COVID-19 pandemic. Excluding the
provision, the NOI margin would have been 62.7% and 63.2%, respectively for the three months and year ended December 31,
2020. The NOI margin increase from the comparable year is due primarily to lower operating costs.
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.
2020
Three months ended
December 31
Years ended
December 31
2020
2019
2020
2019
$
$
165,070 $
174,548 $
643,934 $
689,278
1,970
1,875
8,243
2,427
167,040 $
176,423 $
652,177 $
691,705
The $39.5 million or 5.7% decrease in NOI for the year compared to the prior year 2019 was the net effect of a $45.3 million
decrease in commercial NOI and a $5.8 million increase in residential NOI due to lease-up at eCentral, Frontier, Brio and Pivot.
The decrease in commercial NOI was largely due to:
•
•
•
$42.5 million provision for rent abatements and bad debts as a result of the pandemic;
$1.7 million lower straight-line rent; and
$1.6 million in lower lease cancellation fees.
Q4 2020
The $9.4 million or 5.3% decrease in NOI for the quarter compared to the same period in 2019 was the net effect of a $9.5 million
decrease in commercial NOI and a $0.1 million increase in residential NOI due to lease-up of Brio and Pivot.
The decrease in commercial NOI was largely due to the the following:
•
•
•
•
$9.0 million provision for rent abatements and bad debts as a result of the pandemic;
$4.3 million lower NOI due to lower occupancy resulting from the pandemic (net of higher NOI from completed
developments);
$0.9 million lower straight-line rent; partially offset by,
$4.7 million higher lease cancellation fees.
39 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Same Property NOI
Same property NOI for the three months and year ended December 31, 2020 and 2019 is as follows:
(thousands of dollars)
Same property (i)
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
NOI of proportionate share of equity-accounted
investments
NOI - RioCan's proportionate share
Three months ended
December 31
Years ended
December 31
2020
2019
2020
2019
$
152,125 $
165,112 $
572,518 $
612,612
1,865
64
1,929
2,586
1,773
5,199
1,458
1,970
253
2,464
2,717
1,860
2,006
477
2,376
1,875
35,498
2,298
37,796
13,539
6,620
6,284
7,177
8,243
18,166
21,912
40,078
10,996
8,809
7,903
8,880
2,427
167,040 $
176,423 $
652,177 $
691,705
3,443 $
3,590 $
13,562 $
170,483 $
180,013 $
665,739 $
14,415
706,120
$
$
$
Total straight-line rent - RioCan's proportionate share $
1,775 $
2,762 $
8,569 $
10,529
(i) Represents a non-GAAP measure. Refer to the same property NOI in the Presentation of Financial Information and Non-GAAP Measures sections
of this MD&A.
Includes properties acquired or disposed during the periods being compared.
(ii)
2020
Same property NOI for the year decreased by 6.5% or $40.1 million compared to the prior year 2019, primarily due to the
provision for rent abatements and bad debts as a result of the pandemic. Including completed properties under development,
primarily Bathurst College Centre in Toronto and 5th & THIRD in Calgary, same property NOI decreased by 6.0% for the Trust's
commercial portfolio.
Excluding the provision and incremental development NOI, same property NOI decreased by 0.2%.
Q4 2020
Same property NOI for the quarter decreased by 7.9% or $13.0 million compared to the same period in 2019 primarily due to the
provision for rent abatements and bad debts. Including completed properties under development, primarily 5th & THIRD in
Calgary, same property NOI decreased by 7.3% for the Trust's commercial portfolio as a result of the pandemic.
Excluding the provision and incremental development NOI, same property NOI decreased by 2.6%.
RioCan Annual Report 2020 40
MANAGEMENT’S DISCUSSION AND ANALYSIS
Operating Income
The IFRS operating income for the three months and year ended December 31, 2020 and 2019 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
2020
Three months ended
December 31
Years ended
December 31
2020
2019
2020
2019
276,422 $
279,052 $
1,090,732 $
1,093,727
4,712
4,050
38,639
3,039
36,347
16,584
208,965
23,633
285,184 $
320,730 $
1,143,663 $
1,326,325
95,452 $
97,789 $
377,787 $
14,995
1,143
5,750
27,604
64,751
20,842
111,590
131,143
463,380
173,594 $
189,587 $
680,283 $
168,055 $
176,677 $
656,535 $
5,539
12,910
23,748
173,594 $
189,587 $
680,283 $
384,404
20,621
172,688
577,713
748,612
709,908
38,704
748,612
$
$
$
$
$
$
The $68.3 million or 9.1% decrease in operating income for the year compared to the prior year 2019 consisted of a $53.4 million
decrease in commercial operating income and a $15.0 million decrease in residential operating income.
The decrease of $53.4 million in commercial operating income was largely the effect of the following:
•
•
$45.3 million decrease in NOI primarily from a $42.5 million provision in 2020 for rent abatements and bad debts as a result
of the COVID-19 pandemic; and
$7.0 million lower property management and other service fee revenue primarily due to higher development fees and
financing fees in 2019 associated with one large property under development which has since been completed.
The decrease of $15.0 million in residential operating income was the net effect of the following:
•
•
$20.8 million lower inventory gains due to timing of condominium closings (more condominium closings in 2019), net of the
gains from the sales of 50% interests in Dufferin Plaza and 2939-2943 Bloor Street West in Toronto; partially offset by,
$5.8 million increase in NOI as the Trust's first four residential towers were being leased-up.
Q4 2020
The $16.0 million or 8.4% decrease in operating income for the quarter compared to the same period in 2019 consisted of a $8.6
million decrease in commercial operating income and a $7.4 million decrease in residential operating income.
The decrease of $8.6 million in commercial operating income was largely the net effect of the following:
•
•
$9.5 million decrease in NOI primarily from a $9.0 million provision for rent abatements and bad debts as a result of the
pandemic; partially offset by,
$1.0 million higher property management and other service fee revenue.
The decrease of $7.4 million in residential operating income was due to lower residential inventory gains relating to the timing of
condominium closings, net of the gain from the sale of a 50% interest in 2939-2943 Bloor Street West in Toronto.
41 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Other Income (Loss)
(thousands of dollars)
Interest income
Income (loss) from equity-accounted investments
Fair value (losses) gains on investment properties, net
Investment and other income (loss)
Other income (loss)
2020
Three months ended
December 31
Years ended
December 31
2020
2019
2020
$
3,500 $
4,438 $
14,602 $
421
(42,286)
967
(2,816)
23,274
(53)
3,985
(526,775)
8,216
2019
16,916
10,051
247,624
7,732
$
(37,398) $
24,843 $
(499,972) $
282,323
The $2.3 million lower interest income when compared to the prior year was primarily due to a $2.2 million decrease from
condominium interim occupancy fees related to interest.
RioCan's share of FFO from equity-accounted investments was $14.5 million for the year, $3.9 million lower than the prior year,
primarily due to higher transaction gains recognized in 2019. RioCan's share of FFO from the RioCan-HBC joint venture was
relatively stable. For further details on the results of operations of the RioCan-HBC joint venture, refer to the Joint Arrangements
section of this MD&A.
The Trust recognized fair value losses of $526.8 million on investment properties during the year as a result of the pandemic,
representing a 3.7% write-down of the Trust's total investment properties valuation at the beginning of 2020, including assets held
for sale. In the pre-pandemic 2019, the Trust recorded fair value gains of $247.6 million primarily driven by higher stabilized net
operating income on certain income properties, updated valuation estimates on specific development properties and capitalization
rate reduction in certain urban market assets. This led to a $774.4 million change in fair value on investment properties year-over-
year, which was a key factor in net income change year over year. Refer to the Property Valuations section of this MD&A for
further details.
Investment and other income increased by $0.5 million over the prior year. However, this was the net result of the following, of
which changes in unrealized fair value gain on marketable securities do not impact FFO:
•
•
•
$8.5 million in higher other income primarily from an investment in e2 (a development adjacent to ePlace) and a fee received
from the termination of a property forward purchase agreement, and
$5.4 million increase in the change in unrealized fair value on marketable securities, largely offset by,
$13.4 million in lower realized gains on the sale of marketable securities and dividend income.
Q4 2020
Interest income decreased slightly by $0.9 million over the same period in 2019. This was mainly due to a $0.5 million decrease
in interest related condominium interim occupancy fees and $0.5 million decrease resulting from lower effective interest rates on
mortgage 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 this quarter, RioCan's share of FFO from equity-accounted investments was $3.5 million, $0.7 million
higher than the comparative period in 2019, primarily due to higher transaction gains. FFO from the RioCan-HBC joint venture
was stable. For further details on the results of operations of the RioCan-HBC joint venture, refer to the Joint Arrangements
section of this MD&A.
The Trust recognized fair value losses of $42.3 million on investment properties for the quarter, including assets held for sale.
Refer to the Property Valuations section of this MD&A for further details.
Investment and other income increased by $1.0 million during the quarter over the comparable period in 2019. This was the net
effect of the following, of which changes in unrealized fair value gain on marketable securities do not impact FFO:
•
•
•
$7.4 million increase in the change in unrealized fair value on marketable securities, and
$1.0 million in higher other income, largely offset by,
$7.3 million in lower realized gains on the sale of marketable securities and dividend income.
RioCan Annual Report 2020 42
MANAGEMENT’S DISCUSSION AND ANALYSIS
Other Expenses
Interest Costs
(thousands of dollars, except where otherwise noted)
Total interest
Interest costs capitalized (i)
Net interest
Percentage capitalized
Three months ended
December 31
Years ended
December 31
2020
56,070 $
(11,229)
44,841 $
$
$
2019
2020
54,238 $
222,593 $
(9,023)
(41,782)
45,215 $
180,811 $
20.0%
16.6%
18.8%
2019
216,249
(33,469)
182,780
15.5%
(i) Includes amounts capitalized to properties under development and residential inventory.
Total interest costs increased by $1.8 million and $6.3 million for the quarter and year, respectively, compared to the same
periods in 2019. This was primarily due to a debt modification gain of $1.3 million in Q4 2019 and from higher average debt
balances in the current quarter and year, partially offset by a lower average cost of debt. As at December 31, 2020, the weighted
average effective interest rate of our total debt is 3.21% (December 31, 2019 - 3.44%).
Interest capitalized to development properties increased by $2.2 million and $8.3 million for the quarter and year, respectively,
compared to the same periods in 2019. This was primarily due to continuing progress on existing and new active developments.
Interest was capitalized to properties under development and residential inventory at a weighted average effective interest rate of
3.23% and 3.32% for the three months and year ended December 31, 2020, respectively (three months and year ended
December 31, 2019 – 3.45% and 3.51%).
As a result of the changes in total interest costs and interest costs capitalized, net interest costs decreased by $0.4 million and
$2.0 million, respectively, for the quarter and year ended December 31, 2020, compared to the same periods in 2019.
General and Administrative (G&A)
(thousands of dollars, except where otherwise noted)
Non-recoverable salaries and benefits
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 expense (ii)
Three months ended
December 31
Years ended
December 31
2020
2019
2020
$
9,849 $
10,570 $
37,046 $
(2,312)
(2,205)
5,332
2,136
1,059
4,414
(2,438)
(2,204)
5,928
1,280
1,122
3,957
(9,440)
(7,895)
19,711
7,271
4,342
9,200
Total general and administrative expense
$
12,941 $
12,287 $
40,524 $
2019
40,885
(9,812)
(8,762)
22,311
5,358
4,381
14,764
46,814
Total general and administrative expense as a percentage
of rental revenue
4.7%
4.4%
3.7%
4.3%
Include salaries and benefits related to properties under development and residential inventory, as well as landlord work.
(i)
(ii) Primarily includes information technology costs, public company costs, travel, marketing, legal and professional fees, as well as trustee costs.
In response to the COVID-19 pandemic, the Canadian federal government introduced the Canada Emergency Wage Subsidy
(CEWS) program which is designed to subsidize 75% of eligible employee wages on a retroactive basis from March 15, 2020 to
August 29, 2020. In July 2020, the federal government extended the program to November 21, 2020. Under the new CEWS
program, the government amended the subsidy benefits by removing the minimum 30% revenue decline requirement and
introduced a subsidy that is based on the percentage of revenue reduction but will decline in the later periods on a retroactive
basis from July 5, 2020 to November 21, 2020. The federal government recently announced its intention to further extend the
CEWS program into June 2021 and maintain the maximum subsidy rate of up to 65% of eligible wages, although further details
are pending.
For the quarter and year ended December 31, 2020, the Trust accrued $1.2 million and $6.4 million of the CEWS subsidy as a
reduction to gross general and administrative expenses, respectively, of which $5.0 million relating to Q2 and Q3 2020 has been
received in cash. Approximately 64% of the wage subsidy pertained to recoverable operational salaries and benefits and as such,
the majority of the wage subsidy is passed back to the tenants through lower recoverable operating costs. The remaining 36%
pertained to non-recoverable salaries related to wages for development and internal leasing staff, and general and administrative
functions. The net benefit of the CEWS program to the Trust was $0.2 million and $1.0 million in net general and administrative
expenses savings for the three months and year ended December 31, 2020, respectively, which benefited FFO accordingly.
43 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
2020
The $6.3 million decrease over the prior year was primarily due to:
•
•
•
$5.6 million decrease in other general and administrative expenses mainly as a result of a $4.0 million mark-to-market
decrease for cash-settled unit-based trustee costs given the year-over-year Unit price drop as a result of the pandemic, and
$2.1 million in lower consulting, advertising and promotion, and travel and entertainment costs; and
$2.6 million decrease mainly due to bonus accrual reduction as a result of COVID-19's effect on operating results and CEWS
subsidies; partially offset by,
$1.9 million increase in unit-based compensation expense primarily due to a change in the expensing schedule of CEO
compensation offset by a reduction to expense accrual due to lower operating results as a result of COVID-19.
Q4 2020
The $0.7 million increase over the comparable period in 2019 was primarily due to the net effect of the following:
•
•
•
$0.9 million increase in unit-based compensation expense primarily due to a change in the expensing schedule of CEO
compensation and changes in estimates and assumptions; and
$0.5 million increase in other general and administrative expenses mainly as a result of a $1.2 million increase in mark-to-
market adjustments for cash-settled unit-based trustee costs given the Unit price recovery, and $0.4 million higher
information technology costs, net of $1.1 million in lower consulting, advertising and promotion, and travel and entertainment
costs; partially offset by,
$0.6 million decrease mainly due to bonus accrual reduction as a result of COVID-19's effect on operating results and CEWS
subsidies.
Internal Leasing Costs
Internal leasing costs are comprised of the payroll costs of our internal leasing department and related administration costs. For
the quarter and year ended December 31, 2020, leasing costs decreased by $0.1 million and $1.1 million, respectively, compared
to the same period in 2019. The changes were primarily related to a reduction to bonus accruals and the impact of the CEWS
program as discussed in the General and Administrative section earlier in this MD&A.
Transaction and Other Costs
Transaction and other costs decreased by $2.1 million and $9.9 million for the quarter and the year, respectively, compared to the
same periods in 2019. The decreases were primarily due to lower volume of dispositions in 2020, as well as lower marketing
costs. In addition, the decrease for the year included a reversal of a prior year transaction cost accrual.
During the quarter and year ended December 31, 2020, the Trust incurred $0.4 million and $1.1 million of marketing costs,
respectively (three months and year ended December 31, 2019 - $0.8 million and $3.4 million, respectively). Such marketing
costs are mainly comprised of those related to condominium and townhouse projects which are expensed as incurred before
condominium sales revenues are recognized into income and marketing costs related residential rental buildings that are in
lease-up.
Net Income (Loss) Attributable to Unitholders
(thousands of dollars, except per unit amounts)
Net income (loss) attributable to Unitholders
Three months ended
December 31
2020
Years ended
December 31
2019
2020
2019
$
65,609 $
150,786 $
(64,780) $
775,834
Net income (loss) attributable to Unitholders (basic)
Net income (loss) attributable to Unitholders (diluted)
$
$
0.21 $
0.21 $
0.48 $
0.48 $
(0.20) $
(0.20) $
2.52
2.52
2020
Excluding $774.4 million changes in fair value gain (loss) on investment properties as discussed in the Other Income (Loss)
section of this MD&A, net income attributable to Unitholders for the year was $462.0 million compared to $528.2 million for the
prior year, representing a decrease of $66.2 million or 12.5%. This decrease was largely the net effect of the following:
•
•
•
•
$68.3 million decrease in operating income primarily due to a $42.5 million provision for rent abatements and bad debts,
$20.8 million lower inventory gains, and $7.0 million lower property management and other services fees;
$7.9 million decrease in other income, primarily from $6.1 million lower income from equity-accounted investments due to
higher inventory gains from the Whitecastle investment in the prior year; and
$9.3 million increase in income taxes primarily due to a write-off of deferred tax assets, partially offset by,
$19.3 million lower other expenses, consisting primarily of $9.9 million lower transaction costs, $2.0 million lower interest
expense, $1.1 million lower internal leasing costs and $6.3 million in lower general and administration costs.
RioCan Annual Report 2020 44
MANAGEMENT’S DISCUSSION AND ANALYSIS
Q4 2020
Excluding $65.6 million changes in fair value gain (loss) on investment properties over the comparable period, net income
attributable to Unitholders for the quarter was $107.9 million compared to $127.5 million in the same period in 2019, representing
a decrease of $19.6 million or 15.4%. This decrease was largely the net effect of the following:
•
•
•
•
$16.0 million decrease in operating income primarily due to a $9.0 million provision for rent abatements and bad debts, and
$7.5 million lower residential inventory gains; and
$8.9 million increase in income taxes primarily due to a write-off of deferred tax assets; partially offset by,
$3.3 million increase in other income, primarily due to $3.2 million higher income from equity-accounted investments
resulting from a fair value decrease in Q4 2019; and
$1.9 million lower other expenses, primarily from lower transaction costs.
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 (loss) attributable to Unitholders to FFO from operations:
(thousands of dollars, except per unit amounts)
Net income (loss) attributable to Unitholders
2020
2019
2020
2019
$
65,609 $
150,786 $
(64,780) $
775,834
Three months ended
December 31
Years ended
December 31
Add back/(Deduct):
Fair value losses (gains), net
Fair value losses included in equity-accounted investments
Deferred income tax expense
Internal leasing costs
Transaction losses (gains) on investment properties, net (i)
Transaction costs on sale of investment properties
Change in unrealized fair value on marketable securities
Current income tax (recovery)
Operational lease revenue (expenses) from ROU assets
Operational lease revenue (expenses) from ROU assets in
equity-accounted investments
Capitalized interest on equity-accounted investments (ii)
FFO
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 (iii)
42,286
(23,274)
526,775
(247,624)
2,852
9,105
2,901
121
1,003
—
(711)
710
(7)
235
5,605
(216)
3,017
(98)
2,595
7,395
(273)
570
(6)
—
9,613
10,905
10,192
503
768
10,219
(275)
2,572
(28)
930
8,330
2,064
11,309
1,066
7,989
15,637
(699)
1,963
(24)
—
$
$
$
$
124,104 $
146,101 $
507,394 $
575,845
124,104 $
146,101 $
507,394 $
575,845
0.39 $
0.39 $
0.46 $
0.46 $
317,739
317,739
314,953
315,080
1.60 $
1.60 $
317,725
317,725
90.2%
1.87
1.87
307,683
307,779
76.9%
(i) Represents net transaction gains or losses connected to certain investment properties during the period.
(ii) This amount represents the interest capitalized to RioCan's equity-accounted investment in WhiteCastle New Urban Fund, LP, WhiteCastle New
Urban Fund 2, LP, WhiteCastle New Urban Fund 3, LP and WhiteCastle New Urban Fund 4, LP. This amount is not capitalized to properties under
development under IFRS, but is allowed as an adjustment under REALPAC’s definition of FFO.
(iii) Calculated on a twelve month trailing basis. For a definition of the Trust's Unitholder distributions as a percentage of FFO, refer to the Non-GAAP
Measures section of this MD&A.
FFO Highlights
2020
FFO for the year decreased by $68.5 million or 11.9% from the prior year. On a diluted per unit basis, FFO decreased $0.27 per
unit or 14.6% when compared to $1.87 for the prior year. This decrease was primarily the net effect of the following:
•
$42.5 million provision for rent abatements and bad debts as a result of the pandemic;
45 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
•
•
•
•
$20.8 million lower residential inventory gains primarily due to timing of condominium closings;
$13.4 million in lower realized gains on the sale of marketable securities and dividend income;
$8.7 million lower lease cancellation, property management and other services fees; partially offset by,
$7.9 million in higher other FFO income primarily from an investment in e2 (a development adjacent to ePlace) and a fee
received from the termination of a property forward purchase agreement;
$6.3 million lower general and administration expenses primarily as a result of mark-to-market adjustment for cash-settled,
unit-based compensation, lower bonus accrual, lower travel and other costs, all resulting from the pandemic;
$5.8 million increase in NOI as the Trust's first four residential towers were being leased-up.
Q4 2020
FFO decreased $22.0 million or 15.1% during the quarter when compared to the same period in 2019. On a diluted per unit basis,
FFO of $0.39 decreased $0.07 per unit or 15.8% when compared to $0.46 in the same period in 2019.
This decrease was primarily due to the net effect of the following:
•
•
•
$9.0 million provision for rent abatements and bad debts as a result of the pandemic;
$7.5 million lower residential inventory gains primarily due to timing of condominium closings; and
$7.3 million in lower realized gains on the sale of marketable securities and dividend income.
FFO Payout Ratio
Primarily as a result of the impact of COVID-19, particularly the $42.5 million provision, the FFO payout ratio increased by 13.3%
to 90.2% for the twelve month period ended December 31, 2020.
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)
Cash provided by operating activities
Add back/(Deduct):
Three months ended
December 31
Years ended
December 31
2020
2019
2020
2019
$
182,472 $
170,274 $
552,584 $
568,886
Adjustments to working capital changes for ACFO (i)
(46,771)
(40,058)
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
1,854
1,003
(4,000)
(4,500)
(1,500)
—
535
(711)
710
2,712
2,595
(4,000)
(4,500)
(1,500)
7,215
557
(273)
570
(76,468)
10,619
768
(16,000)
(18,000)
(6,000)
11,097
1,880
(275)
2,572
(54,778)
16,382
7,989
(16,000)
(18,000)
(6,000)
23,667
2,087
(699)
1,963
ACFO
$
129,092 $
133,592 $
462,777 $
525,497
(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. Working capital changes related to payment deferrals that are implemented during the COVID-19 pandemic are not excluded from
ACFO as they are intended to offset the short-term increase in net contractual rent receivables and other tenant receivables, which are not
excluded in ACFO either.
(ii) Normalized capital expenditures are management's estimate of ongoing capital investment required to maintain the condition of the physical
property and current rental revenues. Refer to the Non-GAAP Measures section of this MD&A for further discussion.
(iii) 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 operations. This adjustment effectively excludes this item's impact in ACFO based on the REALPAC
February 2019 whitepaper.
RioCan Annual Report 2020 46
MANAGEMENT’S DISCUSSION AND ANALYSIS
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:
Residential inventory
Interest expense, net of interest income
Realty taxes and insurance
Transaction related costs (i)
Other (ii)
Three months ended
December 31
Years ended
December 31
2020
2019
2020
2019
$
(6,549) $
(13,557) $
(68,205) $
(3,862)
(39,103)
1,017
1,726
1,864
(10,613)
(36,273)
3,739
4,169
(5,769)
4,606
3,513
(68,085)
(13,192)
(5,965)
6,069
26,395
Adjustments to working capital changes for ACFO
$
(46,771) $
(40,058) $
(76,468) $
(54,778)
(i) Represents costs associated with dispositions and acquisitions.
(ii)
Includes working capital changes related to sales and other indirect taxes payable to or receivable from applicable governments, other
investments, and income tax payments (accruals) relating to the sale of our U.S portfolio in May 2016.
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)
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
ACFO Highlights
2020
Three months ended
December 31
Years ended
December 31
2020
2019
2020
2019
$
$
63,212 $
39,910 $
77,524 $
(46,771)
(40,058)
(76,468)
16,441 $
(148) $
1,056 $
53,927
(54,778)
(851)
ACFO for the year decreased by $62.7 million or 11.9% compared to the prior year, primarily due to the following factors:
•
•
•
•
•
•
•
•
•
$42.5 million provision for rent abatements and bad debts as a result of the pandemic;
$20.8 million lower residential inventory gains primarily due to timing of condominium closings;
$13.4 million in lower realized gains on the sale of marketable securities and dividend income;
$8.7 million lower lease termination, property management and other services fees;
$5.8 million decrease in cash distributions received from equity-accounted investments primarily due to a transaction gain in
Q1 2019; partially offset by,
$1.9 million in higher net working capital increase relating to property operations primarily due to operating cost efficiencies;
$7.9 million in higher other FFO income primarily from an investment in e2 (a development adjacent to ePlace) and a fee
received from the termination of a property forward purchase agreement;
$8.9 million lower general and administration expenses primarily as a result of mark-to-market adjustment for cash-settled,
unit-based compensation, lower bonus accrual, lower travel and other costs, all resulting from the pandemic; and
$5.8 million increase in residential NOI as the Trust's first four residential towers were being leased-up.
Q4 2020
ACFO for the quarter was relatively stable from the same period in 2019, primarily due to the net effect of the following factors:
•
•
•
•
$9.0 million provision for rent abatements and bad debts as a result of the pandemic;
$7.5 million lower residential inventory gains primarily due to timing of condominium closings; and
$7.3 million in lower realized gains on the sale of marketable securities and dividend income; partially offset by,
$16.6 million in higher net working capital increase relating to property operations primarily from collections of past due rent
related to COVID-19.
47 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following tables present RioCan's ACFO payout ratio for the twelve months ended December 31, 2020 and 2019:
(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, 2020
Q4 2020
Q3 2020
Q2 2020
Q1 2020
462,777 $
129,092 $
146,998 $
78,256 $
108,431
457,521
114,385
114,378
114,387
114,371
98.9%
1,056 $
16,441 $
26,389 $
(18,791) $
(22,983)
Twelve months ended
December 31, 2019
Q4 2019
Q3 2019
Q2 2019
Q1 2019
525,497 $
133,592 $
144,904 $
139,485 $
107,515
442,953
113,285
110,224
109,598
109,846
84.3%
(851) $
(148) $
14,624 $
6,847 $
(22,174)
$
$
$
$
The ACFO payout ratio for the year was 98.9%, 14.6% higher than the prior year, primarily as a result of the pandemic and its
impact on cash from operating activities.
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.
Effective with its January 2021 distribution, the Trust reduced its annual distribution from $1.44 per unit to $0.96 per unit, which
will lead to approximately $152.0 million of annual cash flow savings and will reduce ACFO payout ratio to quite an extent. Refer
to the Distributions to Unitholders section for further details surrounding distribution reduction.
PROPERTY VALUATIONS
Refer to Note 3 of the 2020 Annual Consolidated Financial Statements for the change in consolidated fair value 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. The internal valuation team utilizes appraisal methodologies largely consistent with the practices
employed by third-party appraisers. 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 the year ended December 31, 2020, the Trust obtained a total of 29 external property appraisals (including 5 vacant land
parcels), which supported an IFRS fair value of approximately $2.1 billion, or 15% of the Trust's investment property portfolio as
at December 31, 2020. 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.
RioCan Annual Report 2020 48
MANAGEMENT’S DISCUSSION AND ANALYSIS
The table below provides details of the average capitalization rate (weighted by stabilized NOI) by market category:
As at
Major markets (i)
Secondary markets
Total average portfolio capitalization rate
Weighted average capitalization rate
December 31, 2020
December 31, 2019
5.22 %
7.67 %
5.44 %
5.09 %
7.23 %
5.28 %
(i)
Includes properties located in the six major Canadian markets of Calgary, Edmonton, Montreal, Ottawa, Vancouver and the Greater Toronto Area.
At December 31, 2020, the weighted average capitalization rate of the Trust's investment portfolio was 5.44%, slightly lower
compared to the prior quarter. The increase of 16 basis points when compared to December 31, 2019 was mainly due to fair
value write-downs in 2020 due to the impacts of the pandemic and depressed oil and gas markets.
COVID-19 Pandemic and Its Impact on Investment Property Valuation
The Trust recorded a $42.3 million net fair value loss for its investment properties for the quarter ended December 31, 2020. For
the year ended December 31, 2020, the Trust recorded a net fair value loss of $526.8 million, representing 3.7% of the IFRS
carrying value of investment properties as of December 31, 2019, including assets held for sale.
Although the short and long-term impact of the pandemic on RioCan investment property valuation is difficult to assess and
predict particularly given the relatively low volume of market transactions, the fair value losses and capitalization rate increases in
the year ended December 31, 2020 reflected the estimated effect of the pandemic on property cash flows and capitalization rates,
as well as the estimated effect of the depressed oil and gas markets. Factors that were considered in estimating the underlying
cash flows and capitalization rates include but are not limited to, geographic location, property type, the strength of the underlying
tenant covenants, the proportion of tenants within the property subject to discretionary consumer spending, discounted cash flow
impact of the rent deferral and abatement arrangements, estimated vacancy allowances and resulting re-tenanting costs.
The following tables present the net fair value gain (loss) for the quarter and year by geographic market and by property mix:
For the three months ended December 31, 2020
Fair Value Gain
(Loss)
Percentage of
Q4 2020 Fair
Value Gain
(Loss)
Gain (Loss) as a
percentage of
IFRS value as of
September 30, 2020
(thousands of dollars,
except where otherwise
noted)
Total Six Major Markets
For the year ended December 31, 2020
Gain (Loss) as a
percentage of
IFRS value
as of December
31, 2019
Percentage of
2020 Fair Value
(Gain) Loss
Fair Value Gain
(Loss)
Greater Toronto Area (i)
$
Ottawa (ii)
Calgary
Montreal
Edmonton
Vancouver (iii)
Total Six Major Markets
Total Secondary Markets
Total Portfolio
$
14,849
(33,395)
(4,038)
(4,053)
(2,298)
(3,890)
(32,825)
(9,461)
(42,286)
(35.1) %
79.0 %
9.5 %
9.6 %
5.4 %
9.2 %
77.6 %
22.4 %
100.0 %
0.2 % $
(259,638)
(2.0) %
(0.3) %
(0.9) %
(0.3) %
(0.5) %
(0.3) %
(1.1) %
(62,787)
(64,049)
(27,105)
(53,922)
(2,406)
(469,907)
(56,868)
49.3 %
11.9 %
12.2 %
5.1 %
10.2 %
0.5 %
89.2 %
10.8 %
(0.3) % $
(526,775)
100.0 %
(3.3) %
(3.7) %
(3.9) %
(5.6) %
(6.4) %
(0.3) %
(3.5) %
(6.3) %
(3.7) %
(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.
For the three months ended December 31, 2020
Fair Value Gain
(Loss)
Percentage of
Q4 2020 Fair
Value Gain
(Loss)
Gain (Loss) as a
percentage of
IFRS value as of
September 30, 2020
(thousands of dollars,
except where otherwise
noted)
Property Mix (i)
For the year ended December 31, 2020
Loss as a
percentage of
IFRS value
as of December
31, 2019
Percentage of
2020 Fair Value
Loss
Fair Value
Loss
Mixed-Use / Urban
$
Grocery Anchored Centre
Open Air Centre
Enclosed
Total Portfolio
$
3,502
171
(26,338)
(19,621)
(42,286)
(8.3) %
(0.4) %
62.3 %
46.4 %
100.0 %
0.1 % $
(127,118)
0.0 %
(0.7) %
(2.2) %
(107,076)
(164,141)
(128,440)
24.1 %
20.3 %
31.2 %
24.4 %
(0.3) % $
(526,775)
100.0 %
(3.0) %
(2.0) %
(4.4) %
(13.1) %
(3.7) %
(i) Refer to the Property Mix section of this MD&A for the definition of each property class.
49 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Refer to the Risks and Uncertainties - COVID-19 Health Crisis section of this MD&A for discussions on the risks and uncertainties
associated with the COVID-19 pandemic, including the pandemic's impacts on property valuation. Further, refer to Note 3 of the
2020 Annual Consolidated Financial Statements for a sensitivity analysis of investment property valuations to changes in the
three key inputs to the property valuation - stabilized net operating income (SNOI), capitalization rates and costs to complete.
ACQUISITIONS AND DISPOSITIONS
Acquisitions
The acquisitions during the year ended December 31, 2020 are summarized by quarter as follows:
(in thousands of dollars)
Purchase price (i)
(At RioCan's interest)
Property name and location
Date acquired
Interest
acquired
Capitalization
rate
IPP
PUD
Residential
Inventory
Total
Debt and
other
liabilities
assumed
(ii)
NLA
acquired
(thousands
of sq. ft.)
Q4 2020
Queensway Development
component, Toronto, ON (iii)
(v)
2956 Eglinton Avenue East,
Toronto, ON (v)
Total Q4 2020 Acquisitions
Q1 2020
2290 Lawrence Avenue East,
Scarborough, ON (v)
3180 Dufferin Street, Toronto,
ON (iv) (v)
2345 Yonge Street, Toronto,
ON (vi)
2329 Yonge Street, Toronto,
ON (v) (vi)
2947-2951 Bloor Street
West, Toronto, ON
RioCan Marketplace,
Toronto, ON (vii)
Total Q1 2020 Acquisitions
Total 2020 Acquisitions
December 31, 2020
50.0 %
n/a $ — $ 2,110 $ 18,987 $ 21,097 $
—
—
December 1, 2020 100.0 %
2.59 % 5,370
—
—
5,370
—
$ 5,370 $ 2,110 $ 18,987 $ 26,467 $
—
March 19, 2020 100.0 %
n/a $ — $ 5,587 $
— $ 5,587 $
—
March 5, 2020
50.0 %
n/a
— 28,452
— 28,452
—
March 2, 2020
50.0 %
5.00 % 37,053
—
— 37,053
—
February 20, 2020
50.0 %
2.26 % 7,909
—
—
7,909
4,250
January 31, 2020 100.0 %
4.02 % 4,767
—
—
4,767
—
10
10
—
—
71
5
4
January 9, 2020
33.3 %
5.85 % 18,971
—
— 18,971 11,451
57
$ 68,700 $ 34,039 $
— $ 102,739 $ 15,701
$ 74,070 $ 36,149 $ 18,987 $ 129,206 $ 15,701
137
147
(i) Purchase price includes transaction costs of $6.1 million in aggregate.
(ii) Debt and other liabilities assumed of $15.7 million is at a weighted average interest rate of 3.30% and includes a $4.3 million vendor-take-back
mortgage payable to the vendor.
(iii) The Queensway property is comprised of two parcels: the Development component and the Cineplex land component. RioCan disposed of its
50% interest in the Cineplex component and acquired the remaining 50% of the Development component. See the Residential Inventory section of
this MD&A for further details.
(iv) On March 5, 2020, RioCan acquired a 50% co-ownership interest in 3180 Dufferin Street in Toronto, Ontario. This property is earmarked as a
mixed-use redevelopment site with a potential 440,000 square feet (at 100%) of gross floor area and is adjacent to RioCan's 50% owned Dufferin
Plaza which also has significant redevelopment potential. The redevelopments of the two sites will be coordinated in order to achieve efficiencies
and potentially unlock Dufferin Plaza’s redevelopment potential sooner.
(v) Lower or no capitalization rate is due to the fact that these assets were acquired primarily for their buildable density given their prime urban
locations in Toronto and their proximity to existing RioCan development sites.
(vi) The two Yonge Street acquisitions in Q1 2020 included a 50% interest in each of a nearly fully leased, Class B 10-storey 142,000-square-foot (at
100%) office building with retail at grade level and a 50% interest in a 14,000 square foot (at 100%) commercial building. These two properties,
together with 2323 Yonge Street, in which the Trust acquired a 50% interest in 2019, further strengthen the Trust's commanding presence in the
high demand Yonge and Eglinton area and leverages the sites' close proximity to Yonge Eglinton Centre and ePlace through cost efficiencies and
economies of scale. All three properties have significant residential intensification potential which could further expand the RioCan Living portfolio
to drive income and NAV growth for our Unitholders.
(vii) On January 9, 2020, RioCan acquired the remaining 33.3% interest in RioCan Marketplace in Toronto, Ontario, bringing its total interest owned to
100%.
RioCan Annual Report 2020 50
MANAGEMENT’S DISCUSSION AND ANALYSIS
Dispositions
The dispositions during the year ended December 31, 2020 are summarized by quarter as follows:
(in thousands of dollars)
Property name and
location
Q4 2020
Queensway Cineplex
component, Toronto,
ON
2939-2943 Bloor
Street West, Toronto,
ON (iii) (iv)
The Well (Building A &
B), Toronto, ON (iii)
5th & THIRD, Calgary,
AB(iii)
RioCan Centre
Kirkland, Kirkland,
QC(vii)
740 Stewart Street,
Renfrew, ON (Vacant
land) (iii)
Tanger Outlets
Ottawa, Kanata, ON
(Vacant land) (iii)
Gross sales proceeds
( At RioCan's interest)
Date disposed
Ownership
interest
disposed
Capitalization
rate (i)
IPP
PUD (ii)
Residential
Inventory
Total
Debt
associated
with
property
(thousands
of dollars)
NLA
disposed at
RioCan's
Interest
(thousands
of sq. ft.)
December 31, 2020
50.0 %
6.95 % $ 11,000 $
— $
— $ 11,000 $
—
50
December 30, 2020
50.0 %
n/a
—
398
3,715
4,113
December 23, 2020
40.0 %
n/a
— 24,953
— 24,953
December 21, 2020
100.0 %
n/a
— 20,396
— 20,396
—
—
—
—
—
—
December 21, 2020
50.0 %
7.51 % 19,000
—
— 19,000
—
157
December 1, 2020
100.0 %
n/a
—
350
—
350
—
November 27, 2020
50.0 %
n/a
—
3,686
—
3,686
—
—
—
Total Q4 2020 Dispositions
$ 30,000 $ 49,783 $
3,715 $ 83,498 $
—
207
Q3 2020
Frontenac Mall,
Kingston, ON (v)
RioCan Centre
Burloak, Oakville, ON
(iii)
Dufferin Plaza,
Toronto, ON (iii)
Elmvale Acres -
Phase One (Luma),
Ottawa, ON (iii)
September 8, 2020
30.0 %
14.11 % $ 3,250 $
— $
— $ 3,250 $
—
August 18, 2020
100.0 %
n/a
—
9,200
—
9,200
—
August 10, 2020
50.0 %
n/a
—
1,725
27,025 28,750
—
July 30, 2020
50.0 %
n/a
— 13,655
— 13,655
—
Total Q3 2020 Dispositions
$ 3,250 $ 24,580 $
27,025 $ 54,855 $
—
Q2 2020
The Shops of
Summerhill, Toronto,
ON (vi)
June 23, 2020
75.0 %
4.64 % $ 33,000 $
— $
— $ 33,000 $ 12,112
Total Q2 2020 Dispositions
$ 33,000 $
— $
— $ 33,000 $ 12,112
Q1 2020
5th & THIRD, Calgary,
AB (iii)
Mega Centre Notre-
Dame, Laval, QC (iii)
March 31, 2020
100.0 %
n/a $
— $ 11,715 $
— $ 11,715 $
—
February 19, 2020
100.0 %
n/a
— 10,000
— 10,000
Total Q1 2020 Dispositions
$
— $ 21,715 $
— $ 21,715 $
—
—
84
—
—
—
84
23
23
—
—
—
Total 2020 Dispositions
$ 66,250 $ 96,078 $
30,740 $ 193,068 $ 12,112
314
(i) Capitalization rate is based on in-place NOI calculated on a trailing 12 month basis when the related sale agreement becomes firm.
(ii) Includes cost recoveries of $11.5 million. Gross sales proceeds excluding cost recoveries was $84.6 million for the year.
(iii) Assets disposed represent sale of properties under development, development land or discrete part of existing shopping centres with little or no in-
place NOI, therefore, no capitalization rate is applicable.
51 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
(iv) RioCan disposed of 100% of the 2939-2943 Bloor Street West development to the RioCan-Fieldgate LP joint venture as part of the consideration to
obtain a 50% interest in that joint venture, which was treated as equity-accounted for investments (refer to the Joint Arrangements section of this
MD&A).
(v) Higher capitalization rate was due to the disposition of an older secondary market asset located in Kingston, Ontario which also requires more
capital expenditures going forward.
(vi) Upon disposition of The Shops of Summerhill, the purchaser assumed $12.1 million of debt. RioCan provided a vendor take-back mortgage of
$14.1 million related to this transaction, of which $4.1 million was repaid on July 2, 2020 and the remainder was repaid on December 31, 2020.
(vii) Under this transaction, the Trust will have a 100% economic benefit of in-place NOI until certain development thresholds are met. RioCan provided
a vendor-take-back mortgage of $15.0 million to the purchaser at an annual interest rate 6.0% and due on December 21, 2026.
Further, as of February 10, 2021, the Trust has closed or entered into firm or conditional agreements to dispose 100% or partial
interests in a number of properties for total sales proceeds of $289.6 million, of which $150.8 million is for the sale of a 50% non-
managing interest in eCentral and the commercial component of ePlace, which closed subsequent to the year end. This brings
total closed, firm and conditional deals since the beginning of 2020 to $482.6 million, consisting of $240.9 million of income
producing properties and $241.8 million of development properties. The income producing properties under these closed, firm or
conditional deals have a weighted average in-place capitalization rate of 5.53% based on in-place NOI.
A number of these transactions involve the sale of partial interests in development properties or future density. They allow the
Trust to not only realize inherent density value and recycle capital to fund its mixed-use development program, but also to
mitigate risk, share costs, earn additional fee income, and attract new partners or strengthen existing partner relationships. The
quality of RioCan's assets are evident in the pricing achieved and in the well respected and established partners attracted despite
uncertainty during challenging pandemic circumstances. A few such transactions in the year are highlighted as follows:
•
•
•
•
•
Bloor Street West - In the fourth quarter, the Trust achieved $180 per square foot of buildable density in the sale of a 50%
interest in its Bloor Street property in Toronto to Fieldgate, a well established developer and new partner to the Trust, while
acquiring a 50% interest in the adjacent property from Fieldgate. The combination of the adjacent sites will allow for a mixed-
use condominium project of increased scale and development efficiency in the affluent Kingsway neighbourhood of Toronto.
This project contemplates approximately 240 condominium units with about 18,000 square feet of retail at grade. It is
expected to receive final approvals and initiate pre-sales by year end 2021 followed by sales starting in the second half of
2022. This transaction also led to the realization of $1.4 million of inventory gains during the fourth quarter. The structure of
this partnership led to RioCan's 50% interest in this partnership being treated as an equity-accounted investment under
IFRS. Refer to the Joint Arrangements section of this MD&A for further information.
RioCan Centre Kirkland - The Trust established a new 50/50 co-ownership arrangement in the fourth quarter with a well
known Quebec developer Broccolini for the multi-phase development of RioCan Centre Kirkland in Montreal into a
community of various housing types, office and retail, totalling an estimated 2.8 million square feet of gross floor area. The
property is currently an open air centre anchored by a Cineplex cinema. It features easy access from the TransCanada
Highway and will have direct access to the Kirkland Station of the future Reseau Express Metropolitan ('REM") light rail
transit network. The REM is well under construction with trains expected to be put into service gradually starting in 2022 and
the Kirkland Station ready in 2023-2024. Demolition of the first phase of the project is targeted for late 2022 to 2023. As a
multi-phase project, each staggered phase will remain income producing prior to its development start. RioCan will have a
100% economic interest in property income in the pre-development phase.
Queensway - The Trust took an opportunity to expedite development at its Queensway property in Toronto during the fourth
quarter by disposing of its 50% interest in the Cineplex component of the property to its former partner while acquiring the
remaining 50% interest in the development component of the property from its former partner. The development component
is valued at $80 per square foot of zoned density. As zoning approval is already in place for the development component, this
transaction allows the Trust to gain control over the 500,000 square foot mixed-use condominium development and move up
the development schedule. Refer to the Residential Inventory section of this MD&A for further details of the project.
Air Rights Sales - During the fourth quarter, the Trust also closed the second parcel of the air rights sales at 5th and THIRD
in Calgary and closed the air rights sales for two buildings at The Well in Toronto. These two transactions, together with the
first parcel of air right sales at 5th and THIRD in Q1 2020, were all planned at the early stages of the developments. Such air
right sales reduce net development costs and enhances the development yield. The air rights pertaining to four other
residential buildings at The Well will be conveyed in 2021.
Dufferin Plaza and LumaTM - During the third quarter, the Trust completed the sale of a 50% non-managing interest in the
mixed-use residential development at Dufferin Plaza in Toronto at $115 per square foot of future density and a 50% interest
in LumaTM, the first phase of the mixed-use development at Elmvale Acres Shopping Centre in Ottawa, at $45 per square
foot of future density. The Dufferin Plaza transaction also led to realization of $11.0 million of inventory gains during the third
quarter. The Dufferin Plaza project is RioCan's new partner Maplelands Development Inc.'s (Maplelands) first entry into the
Canadian real estate market recognizing RioCan's development expertise and asset quality. Maplelands is an affiliate of
United Arab Emirates based real estate conglomerate ASGC Construction. The Luma project is the Trust's third co-
ownership arrangement with Killiam Real Estate Investment Trust.
RioCan Annual Report 2020 52
MANAGEMENT’S DISCUSSION AND ANALYSIS
JOINT 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 assets under its co-ownership
agreements in the event of default by its co-owners, in which case the Trust’s claim would be against both the underlying real
estate investments and the co-owners that are in default. In addition to the matter noted above, RioCan has provided guarantees
on debt totalling $139.9 million as at December 31, 2020 on behalf of co-owners (December 31, 2019 - $106.6 million).
Selected Financial Information of Joint Operations (at RioCan's interest)
(thousands of dollars)
As at December 31, 2020
Allied
Allied/Diamond (The Well) (iv)
Boardwalk
CMHC Pension Fund
CPPIB
First Gulf
Killam
KingSett
Metropia/CD (v)
Sun Life
Tanger
Trinity
Woodbourne
Other
RioCan's
ownership
interest
Number of
investment
properties (i) Assets (ii) Liabilities (ii)
50 %
50 %
50 %
50 %
40 %
50 %
50 %
50 %
50 %
40 %
50 %
75 %
50 %
6 $ 191,741 $
10,295 $
1
2
1
2
1
3
1
1
1
3
1
3
634,869
57,809
53,900
106,554
85,824
147,475
117,646
115,450
26,880
133,848
23,418
94,608
54,467
21,479
28,490
11,615
43,416
49,139
80,476
93,676
477
5,390
12,420
23,770
30% - 75%
17
374,157
122,390
43 $ 2,164,179 $
557,500 $
Three months ended
December 31, 2020
Year ended
December 31, 2020
NOI (iii)
1,815 $
42
99
700
807
1,227
902
2,383
—
400
2,283
297
35
5,343
16,333 $
NOI (iii)
7,306
252
41
2,850
3,287
4,492
3,525
5,771
66
1,603
7,466
1,193
66
23,170
61,088
(i)
Includes both income properties and properties under development and is based on the number of proportionately owned properties as of
December 31, 2020.
(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 other partners, which is carried at fair value and included in Other Assets and is therefore excluded from the table
above.
53 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Selected Financial Information of Joint Operations and Joint Ventures
Total Assets
(thousands of dollars)
As at December 31, 2020
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, 2019
$ 1,026,659 $
926,624 $
123,677 $
87,219 $ 2,164,179 $
1,956,774
HBC (RioCan-HBC JV)
$
234,318 $
Marketvest Corporation/Dale-Vest
Corporation (Dawson-Yonge LP)
8,853
— $
—
— $
19,923 $
254,241 $
260,255
—
301
9,154
9,779
Bloor Street West (RioCan-
Fieldgate LP)
Total assets of equity-accounted
joint ventures (iv)
—
1,716
14,783
4
16,503
—
243,171
1,716
14,783
20,228
279,898
270,034
Total joint arrangements
$ 1,269,830 $
928,340 $
138,460 $
107,447 $ 2,444,077 $
2,226,808
(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 comprised of the 11 YV development in the prestigious Yorkville area of Toronto, Ontario with Metropia and CD, the
Windfields Farm condominium and townhouse projects in Oshawa, Ontario with Tribute, the Queensway development at the corner of Islington
Avenue and The Queensway in Toronto, Ontario with Talisker, the Dufferin Plaza development at Dufferin Street and Apex Road in Toronto,
Ontario with Maplelands Development Inc, and the Bloor Street West development with Fieldgate.
(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 the equity-accounted investments in the WhiteCastle Funds.
Total NOI
(thousands of dollars)
Total NOI of proportionately consolidated joint operations $
Equity-accounted joint ventures (i):
Three months ended
December 31
Years ended
December 31
2020
16,333 $
2019
16,325 $
2020
61,088 $
2019
69,761
HBC (RioCan-HBC JV)
$
3,339 $
3,462 $
13,268 $
13,843
Marketvest Corporation/Dale-Vest Corporation
(Dawson-Yonge LP)
Bloor Street West (RioCan-Fieldgate LP)
Total NOI of equity-accounted joint ventures
Total joint arrangements
132
(21)
3,450
124
—
3,586
$
19,783 $
19,911 $
485
(21)
13,732
74,820 $
514
—
14,357
84,118
(i) Includes the Trust's equity-accounted joint arrangements only and excludes our equity-accounted investment in the WhiteCastle Funds.
RioCan Annual Report 2020 54
MANAGEMENT’S DISCUSSION AND ANALYSIS
RioCan-HBC JV
As at December 31, 2020, the Trust's ownership interest in RioCan-HBC JV was 12.6% (December 31, 2019 - 12.6%). The
following tables present the financial results of RioCan-HBC JV on a 100% basis:
Condensed Statements of Financial Position
(thousands of dollars)
As at
Current assets
Non-current assets
Current liabilities
Non-current liabilities (i)
Net assets
RioCan's share of net assets in RioCan-HBC JV (ii)
(i)
Includes mortgages payable and lines of credit with maturities beyond twelve months.
(ii) Represents RioCan's proportionate share of net assets and other acquisition-related costs.
Condensed Statements of Income (Loss)
December 31, 2020
December 31, 2019
$
$
$
4,068 $
1,990,538
313,707
508,094
1,172,805 $
150,578 $
4,679
2,037,539
10,006
812,093
1,220,119
156,554
(thousands of dollars)
Rental revenue
Operating expenses
Fair value 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
Years ended
December 31
2020
2019
2020
$
35,470 $
35,985 $
142,409 $
5,304
(18,149)
8,968
3,049 $
382 $
4,864
(45,739)
9,845
(24,463) $
(3,087) $
22,499
(70,566)
36,632
12,712 $
1,590 $
2019
145,255
20,767
(67,772)
39,042
17,674
2,208
2,664 $
2,677 $
10,463 $
10,733
The changes in RioCan's share of net income (loss) in this JV over the comparable periods were primarily due to fair value
changes. RioCan's share of FFO in the JV has been relatively stable for the quarter and year when compared to the same
periods in the prior year. Relative to the previous quarter, FFO from the JV increased by about $0.2 million.
On February 5, 2021, RioCan contributed the remaining $140.1 million investment commitment related to the RioCan-HBC JV,
which increased RioCan's ownership interest in the RioCan-HBC JV to 20.2%.
DEVELOPMENT PROGRAM
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. Refer to the Business Overview and Strategy, Business
Environment and Outlook, and Risks and Uncertainties sections of this MD&A for discussions about the development
environment in general and under the pandemic specifically, as well as associated risks. Development risk management is
essential to the Trust's success. 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 or for sale residential 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.
55 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
•
•
•
•
•
•
•
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 suboptimal development activities.
RioCan utilizes strategic partnerships to reduce capital requirements and mitigate risks.
RioCan often already owns the assets with development potential 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 validate that a project's constructability and efficiency is maximized, ensuring
that soil and geotechnic conditions are known before breaking ground, that 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 Canadian Mortgage and Housing Corporation
(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
Greenfield Development
Urban Intensification
Expansion and
Redevelopment
Description
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).
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.
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 PUD Project Costs section of this MD&A.
Management's current estimates and assumptions, as discussed throughout this Development Program section of this MD&A,
are subject to change. Such changes may be material to the Trust. 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 particularly under the current health crisis 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, 2020, RioCan's investments in greenfield development and residential inventory as a percentage of
consolidated Unitholders' equity is 4.8% 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, 2020, 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 26 of
the 2020 Annual Consolidated Financial Statements for further details.
RioCan Annual Report 2020 56
MANAGEMENT’S DISCUSSION AND ANALYSIS
Development Pipeline
RioCan's development pipeline as at December 31, 2020 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
Estimated Density (NLA) at RioCan's interest (i)
Number
of
Projects
(ii)
Total PUD (iii)
Residential
Inventory
(iv)
Components of PUD
Commercial
Residential
Rental
Air Rights
Sale (x)
2
434
434
10 3,158
2,947
12 3,592
3,381
8
111
111
20 3,703
3,492
—
211
211
—
211
1,609
1,820
311
2,131
434
1,007
1,441
111
1,552
3,446
4,998
2,016
7,014
—
865
865
—
865
13,057
13,922
17,620
31,542
—
1,075
1,075
—
1,075
—
1,075
—
1,075
B. Active projects with cost estimates in progress(viii)
23 18,112
16,503
Total Active Projects
C. Future estimated density(ix)
Total development pipeline
43 21,815
19,995
15 19,947
19,636
58 41,762
39,631
(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 0.3 million square feet that are currently IPP.
(vi) Urban Intensification projects include approximately 1.2 million square feet that are currently IPP including 0.8 million of air rights that have been
sold.
(vii) Expansion and Redevelopment projects include approximately 49 thousand 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 2.6 million square feet that are currently IPP.
(ix) Future estimated density includes approximately 2.2 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 until the air rights are sold. As a result,
density related to air rights sales is included as part of the PUD square footage.
It should be noted that the explanations or definitions in the footnotes for terms of the above table have the same meanings for
the same terms across this MD&A. They will not be repeated after each relevant table.
Approximately 6.4 million square feet of NLA out of the total estimated 41.8 million square feet development pipeline is existing
NLA which is currently income producing or air rights that have been sold, resulting in net incremental density estimated at 35.5
million square feet as of December 31, 2020. When compared to the Trust's development pipeline as of December 31, 2019, the
development pipeline has increased by 12.7 million square feet despite development completions, primarily in the future
estimated density category. The increases were mainly due to the inclusion of all future phases of the following projects:
•
•
•
•
•
6.9 million square feet at RioCan Colossus Centre in Vaughan, Ontario;
1.7 million square feet at Millcroft Shopping Centre in Burlington, Ontario;
0.8 million square feet at RioCan Scarborough Centre in Scarborough, Ontario;
0.4 million square feet at Sandalwood Square in Mississauga, Ontario, and
0.8 million square feet at Strawberry Hill in Surrey, British Columbia.
In addition, five properties, namely 2323 Yonge Street, 2345 Yonge Street, 2990 Eglinton Avenue East, and 3180 Dufferin Street,
all in Toronto, Ontario and RioCan Centre Kirkland, in Montreal, Quebec were added to the development pipeline at RioCan's
ownership interest. ePlace, King Portland Centre, Frontier and Brio were removed from the pipeline in 2020 as they are
completed.
57 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
(thousands of sq. ft., unless
otherwise noted)
Zoning approved
Zoning applications submitted
Future estimated density
Total development pipeline
Number of
Projects
% of square
footage
zoned
Estimated Density (NLA) at RioCan's interest
Components of PUD
Total
PUD
Residential
Inventory
Commercial
Residential
Rental
Air Rights
Sale
36
7
15
58
33.8 % 14,100 12,741
1,359
4,225
18.4 %
7,715
7,254
47.8 % 19,947 19,636
461
311
100.0 % 41,762 39,631
2,131
773
2,016
7,014
7,441
6,481
17,620
31,542
1,075
—
—
1,075
Zoned NLA decreased by 0.5 million square feet when compared to the year ended December 31, 2019 primarily due to the
increase in density at Strawberry Hill in Surrey, British Columbia and RioCan Durham Centre in Ajax, Ontario, offset by the
removal of ePlace, King Portland Centre, Frontier and Brio which were completed. With the exception of two small redevelopment
projects, all of the projects in development pipeline are located in the six major markets and are typically located in the vicinity of
existing or planned substantive transit infrastructure with 73.6% of the development pipeline 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
Edmonton
Vancouver
Total Six Major Markets
Other (i)
Total development pipeline
(i) Relates to smaller redevelopment projects.
Estimated PUD Project Costs
38
8
4
2
2
2
56
2
58
30,741
2,519
2,864
1,181
2,712
1,712
41,729
33
41,762
73.6 %
6.0 %
6.9 %
2.8 %
6.5 %
4.1 %
99.9 %
0.1 %
100.0 %
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, but are net of
estimated costs recoveries and proceeds from air rights sales.
RioCan's share of estimated PUD project costs as of December 31, 2020 for the 20 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 and net of projected proceeds from development dispositions, are summarized in the table below. Costs relating
to condominiums and townhouse developments are excluded in the following table as they are included in Residential Inventory
in the 2020 Annual Consolidated Financial Statements and in this MD&A.
(thousands of dollars or
thousands of sq. ft.)
Number of
Projects
Total PUD
NLA
At RioCan's Interest
Costs Incurred to Date
Completed
(IPP)
PUD
Total
Total
Estimated
Costs
Estimated
PUD Costs
to Complete
Greenfield Development
Urban Intensification
Expansion & Redevelopment (iii)
Active projects with detailed cost estimates
Development Lands and Other (i)
Projected proceeds from dispositions (ii)
Total
Fair Value to Date
2
10
12
8
20
434 $ 191,221 $ 104,523 $
56,520 $ 161,043 $
30,178
2,947 1,655,847
316,915
749,085 1,066,000
589,847
3,381 1,847,068
421,438
805,605 1,227,043
620,025
111
72,456
—
51,808
51,808
20,648
3,492 $ 1,919,524 $ 421,438 $ 857,413 $ 1,278,851 $ 640,673
—
—
391,057
(43,248)
—
—
391,057
391,057
—
—
—
(43,248)
$ 2,267,333 $ 421,438 $ 1,248,470 $ 1,669,908 $ 597,425
$ 426,940 $ 1,353,982 $ 1,780,922
RioCan Annual Report 2020 58
MANAGEMENT’S DISCUSSION AND ANALYSIS
(i) Development lands and other includes excess land and other properties that could be used for future developments.
(ii) Represents conditional land 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.
(iii) 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 costs for the 20 active projects with detailed cost estimates as of December 31, 2020 decreased by $467.7 million
when compared to December 31, 2019. This decrease was primarily due to the removal of ePlace, King Portland Centre, Frontier
and Brio from total PUD costs as they are completed and the deduction of proceeds from air right sales for two Urban
Intensification projects, partially offset by the addition of the retail and rent replacement units portion of the Yorkville Project.
The above total estimated development costs as at December 31, 2020 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
$
$
1,876,276 $
421,438 $
857,413 $ 1,278,851 $
597,425
391,057
—
391,057
391,057
—
2,267,333 $
421,438 $ 1,248,470 $ 1,669,908 $
597,425
(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.
Incremental Value Creation
For the 20 active properties under development with detailed costs estimates, as well as development lands and other, as
summarized under the Estimated PUD Project Costs section of this MD&A, the Trust has recognized $111.0 million of cumulative
fair value gains as of December 31, 2020. Most of the recognized cumulative fair value gains are related to the present value of
the air rights sales at The Well based on firm agreements, increased valuations of excess land held for future development or fair
value gains upon sales of co-ownership interests to partners such as in the case of Sandalwood Square.
The Trust anticipates realizing substantial net value creation from its additional 18.1 million square feet of excess density that are
either zoned or have zoning applications submitted as well as the 19.9 million square feet of future density. As of December 31,
2020, nominal fair value gains or inventory gains have been recognized relating to these 38.1 million square feet of density.
Properties under Development Continuity
(thousands of dollars)
Balance, beginning of year
Acquisitions (i)
Dispositions (i)
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 (losses) gains, net
Earn-out consideration
Balance end of year
Three months ended
December 31
Years ended
December 31
2020
1,489,164 $
2019
1,229,477 $
2020
1,260,382 $
2019
1,036,495
$
2,110
(48,157)
129,801
(290,194)
18,637
48,700
(18,585)
19,616
2,890
—
—
139,313
(92,302)
(2,574)
32,715
(32,301)
(14,627)
681
36,149
(84,610)
457,109
(386,630)
4,817
161,037
(71,259)
(25,903)
2,890
118,541
(38,141)
438,820
(347,575)
(10,830)
37,615
(32,301)
57,077
681
$
1,353,982 $
1,260,382 $
1,353,982 $
1,260,382
(i) Refer to Acquisitions and Dispositions section of this MD&A for development property acquisitions and dispositions.
59 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Completed Developments in 2020
During the year, RioCan transferred $386.6 million in costs to income producing properties pertaining to 529,000 square feet of
completed development projects. A summary of RioCan’s NLA development completions during the year is as follows:
(thousands of sq. ft.)
Property location
Greenfield Development
NLA at RioCan's Interest
2020
RioCan’s %
ownership
Total NLA
Q4
Q3
Q2
Q1
Tenants
Windfields Farm
100 %
90
59
31 — —
Total Greenfield Development
90
59
31 — —
The Bank of Nova Scotia, Starbucks,
TD Bank, Symposium Café, Pet Valu,
FreshCo, LCBO
Urban Intensification
Brentwood Village (Brio)
50 %
72 — —
4
68
Residential Tower, Papa's Grill, Cora's
Breakfast and Lunch, Denim & Smith
Fifth and Third East Village (5th &
THIRD)
Yonge Sheppard Centre Residential
(Pivot)
100 %
44
1
20 —
23 Olympia Liquor, Winners
100 %
258
258 — — — Residential Tower
Total Urban Intensification
374
259
20
4
91
Expansion and Redevelopment
Garden City Shopping Centre
100 %
26 — — —
26
Michaels, Popeyes Louisiana Chicken,
Qdoba Mexican Eats
Kennedy Commons
RioCan West Ridge Place
1910 Bank Street
1208 1216 Dundas Street East
East Hills North
Burlington Centre
50 %
100 %
100 %
100 %
40 %
50 %
10 — — —
10 QuanU Furniture
6 —
2 —
4 State & Main, Mr. Lube
2 — — —
2 Starbucks
7
2
5 — — Mr. Lube, Tim Hortons, A&W
6 —
6 — — Staples
8 —
8 — — Mark's Work Wearhouse
Total Expansion and Redevelopment
65
2
21 —
42
Total Development Completion
529
320
72
4
133
Annual Development Spending and Completion Outlook
As most of the Trust's current development projects are considered essential projects under the government guidelines, we did
not experience material slowdowns in construction in 2020. During the year, the Trust's reduced development spend in the early
stages of the COVID-19 pandemic was more than offset by productivity gains when restrictions for essential projects were eased.
Similarly and despite the ongoing pandemic, annual development expenditures for 2021 are estimated to be in the $500 million
range, which are net of projected cost recovery and proceeds from air rights sales. This estimate range includes approximately
$400 million of costs on PUD projects and approximately $100 million on residential inventory projects. Inventory projects satisfy
market demand for home ownership and enable the Trust to accelerate capital recycling to further fund its development program.
For 2022 and beyond, the Trust expects that development spend will be lower than that of 2021 due to the completion of a
significant portion of The Well in 2021, staggering development starts and sharing development costs and risks through existing
and future strategic partnerships.
Overall, the Trust expects 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 approximately 10%, despite the maximum of 15% permitted under the
Trust's revolving unsecured operating line of credit and other credit facilities agreements. As of December 31, 2020, this metric
was 10.3%. Refer to Note 26 of the 2020 Annual Consolidated Financial Statements for additional details. The increase in this
metric when compared to last year was driven by the timing of development spending and completions, as well as fair value write-
downs in the year as a result of the pandemic.
The Trust has been funding and will continue to fund its developments primarily through proceeds from dispositions, sales
proceeds from residential inventory developments or air rights sales, strategic development partnerships as well as retained
earnings or excess cash flows after maintenance capital expenditures and distributions have been paid. The one-third distribution
reduction taking effect in January 2021 will conserve approximately $152.0 million on a year to fund development and other value
creation initiatives.
RioCan Annual Report 2020 60
MANAGEMENT’S DISCUSSION AND ANALYSIS
The Trust's estimated development completions for the next two years are summarized as follows:
(thousands of dollars,
unless otherwise noted)
Projected Development Completions (at RioCan's Interest)
Year of completion
NLA Completion (SF)
Cost Transfers from PUD to IPP (i)
Incremental Stabilized NOI
2021
2022
610,395
888,870
$481,779
$812,171
$20,495
$38,233
(i)
2022 cost transfers include multiple projects, most notably the substantial completion of The Well and its transfer to IPP.
The above project completion estimates are subject to changes due to risks and uncertainties as discussed in this MD&A. The
cost transfers estimates represent estimated gross IFRS project costs net of proceeds from sales of air rights including costs
recoveries 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.
Mixed-Use Residential Development
RioCan is committed to its residential development program despite the current COVID-19 health crisis, even though the longer-
term impact of the pandemic is difficult to predict. Refer to the Business Overview and Strategy, Business Environment and
Outlook, and Risks and Uncertainties sections of this MD&A for more details.
RioCan targets to develop approximately 10,000 residential rental units over the next decade. The Trust currently has four
RioCan Living properties or 1,218 residential rental units in operation and lease-up. In addition, the Trust has 1,453 residential
rental units currently under construction among six projects and estimates to have an additional 1,542 residential rental units in
different phases of development by 2022, including construction. The following table summarizes the Trust's mixed-use
residential projects that have been currently identified, some of which are actively being developed and others that are
considered to be strong possible intensification opportunities. This summary does not include Greenfield Development and Urban
Intensification projects that have commercial components only.
61 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Locations
RioCan Ownership
% (Partner)
Total
NLA at
100% Total
Residential
Inventory Commercial
Residential
Rental
Air Rights
Sale
PUD
Estimated Density (NLA) at RioCan's interest
PUD Components
(thousands of sq. ft.)
A
Active mixed-use residential projects with
detailed cost estimates (ii)
Urban Intensification
Dupont Street (Litho) (i)
Toronto, ON 50% (Woodbourne)
178
89
89
Fifth and Third East Village (5th & THIRD) (i)
Yorkville (11 YV) (i)
The Well (i)
Yonge Sheppard Centre Residential (Pivot) (i)
College & Manning (Strada) (i)
Calgary, AB
Toronto, ON
Toronto, ON
Toronto, ON
Toronto, ON
Elmvale Acres - Phase One (Luma) (i)
Westgate - Phase One (Rhythm) (i)
The Well - (FourFifty The Well) (i)
Ottawa, ON
Ottawa, ON
100%
795
795
795
502
251
40
211
50% (CD Capital/
Metropia)
50% commercial
(Allied),
40% residential
(Allied/Diamond)
2,615
1,199
1,199
100%
258
258
258
50% (Allied)
50% (Killam)
108
167
135
54
83
68
54
83
68
100%
165
165
165
—
—
—
—
—
—
—
—
—
16
153
17
73
—
23
—
642
—
766
—
433
—
30
—
5
20
—
258
24
83
63
145
196
—
—
—
—
—
—
Gloucester - Phase Two (Latitude) (i)
Gloucester, ON
50% (Killam)
Toronto, ON 50% (Woodbourne)
393
196
196
Total active mixed-use residential projects with detailed cost
estimates - 10 projects (ii)
B
Active mixed-use residential projects with cost
estimates in progress (iii)
5,316
3,158
2,947
211
1,007
865
1,075
Approved Zoning
Sunnybrook Plaza (i)
Clarkson Village (i)
Gloucester Future Phases (i)
Brentwood Village - Phase Two (i)
Millwoods Town Centre (i)
Elmvale Acres Future Phases (i)
Westgate Future Phases (i)
Southland Crossing (i)
Windfields Farm (i)(v)
Markington Square (i)
RioCan Durham Centre (i)
Queensway (i)
Dufferin Plaza (i)
Toronto, ON
50% (Concert)
339
170
170
Mississauga, ON
100%
454
454
454
Gloucester, ON
50% (Killam)
482
241
241
Calgary, AB
Edmonton, AB
Ottawa, ON
Ottawa, ON
Calgary, AB
Oshawa, ON
Toronto, ON
Ajax, ON
Toronto, ON
100%
810
810
810
100%
1,649
1,649
1,649
100%
423
423
423
100%
537
537
537
100%
968
968
968
100% of commercial,
50% of residential
(Tribute)
1,807
1,251
695
100%
893
893
893
100%
292
292
292
Toronto, ON
50% (Maplelands)
449
224
100%
426
426
43
15
Strawberry Hill Shopping Centre (i)
Jasper Gates Shopping Centre(i)
2955 Bloor Street (i)
Surrey, BC
Edmonton, AB
Toronto, ON
100%
900
900
900
100%
1,063
1,063
1,063
100%
96
96
96
—
—
—
—
—
—
—
—
556
—
—
383
209
—
—
—
22
35
10
405
749
113
67
187
695
79
8
35
15
—
243
10
148
419
231
405
900
310
470
781
—
814
284
8
—
900
820
86
11,588
10,397
9,249
1,148
2,673
6,576
Zoning applications submitted
RioCan Grand Park
Mississauga, ON
100%
216
216
216
RioCan Scarborough Centre
RioCan Leaside Centre
RioCan Hall
Sandalwood Square
Impact Plaza
2323 Yonge Street
Toronto, ON
Toronto, ON
Toronto, ON
100%
3,851
3,851
3,851
100%
1,345
1,345
884
100%
757
757
757
Mississauga, ON
50% (Boardwalk)
1,196
598
598
Surrey, BC
100%
812
812
812
Toronto, ON
50% (Streamliner)
271
136
136
—
—
461
—
—
—
—
8,448
7,715
7,254
461
17
71
240
280
15
114
36
773
199
3,780
644
477
583
698
100
6,481
Total active mixed-use residential projects with cost estimates
in progress - 23 projects ((iii)
20,036
18,112
16,503
1,609
3,446
13,057
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total active mixed-use residential projects - 33 projects
25,352
21,270
19,450
1,820
4,453
13,922
1,075
C Future estimated density - 15 projects (iv)
24,085
19,947
19,636
311
2,016
17,620
—
Total mixed-use residential developments - 48 projects
49,437
41,217
39,086
2,131
6,469
31,542
1,075
Mixed-use residential developments as a percentage of total
development pipeline
98.7 % 98.6 % 100.0 %
92.2 %
100.0 % 100.0 %
RioCan Annual Report 2020 62
MANAGEMENT’S DISCUSSION AND ANALYSIS
(i) 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.
(ii) Active mixed-use residential projects with detailed cost estimates include approximately 1.2 million square feet that are currently IPP including
0.8 million of air rights that have been sold.
(iii) Active mixed-use projects with cost estimates in progress include approximately 2.6 million square feet that are currently IPP.
(iv) Future estimated density includes approximately 2.2 million square feet that is currently IPP.
(v) Excludes Phase One of Windfields Farm Commercial which includes 0.1 million square feet of commercial space. Refer to the Greenfield
Development section of this MD&A for further details.
Mixed-use residential projects account for approximately 98.7% or 41.2 million square feet of NLA of the Trust’s total estimated
development pipeline, of which 13.6 million square feet currently have zoning approvals, 7.7 million square feet currently have
zoning applications submitted and 19.9 million square feet represent sites with future density. In comparison to Q4 2019 mixed-
use residential projects increased by 12.8 million square feet due to similar factors as explained earlier for the increase in the
entire development pipeline.
Residential developments including rental, air rights sales, and residential inventory account for 83.2% or 34.7 million square feet
of the Trust's current development pipeline.
Greenfield Development
As at December 31, 2020, RioCan's two active commercial greenfield development projects with detailed costs estimates are
summarized 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 %
176
114 290 $ 111,852 $ 56,694 $ 35,951 $ 92,645 $ 19,207
61 %
100 %
90
54 144
79,369
47,829 20,569 68,398
10,971
82 %
2022
2021
266
168 434 $ 191,221 $ 104,523 $ 56,520 $ 161,043 $ 30,178
$ 111,278 $ 47,131 $ 158,409
(thousands of dollars or
thousands of sq. ft.)
East Hills, Calgary, AB
Windfields Farm
Commercial Phase One,
Oshawa, ON( ii)
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 10, 2021.
(ii) Excluding approximately 17 thousand square feet of planned but still undeveloped pads, 93% of the space currently under construction has been
leased.
Windfields Farm 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 Windfields Farm project are included in the Mixed-Use Residential Development and Residential
Inventory sections of this MD&A.
As of February 10, 2021, approximately 293,000 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 $22.63
per square foot.
63 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Urban Intensification
A focus within our development growth strategy is urban intensification, which is the category for our mixed-use residential
development program. As at year end, the Trust has 10 active urban intensification projects with detailed cost estimates, which
are summarized in the following table. Most of the 10 projects are located in Toronto and Ottawa, except for one located in
Calgary.
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
(viii)
PUD
Total
Total
Estimated
Costs
Completed
PUD
Total
Estimated
PUD
Costs to
Complete
%
Commercial
Leased (i)
Anticipated
Date of
Development
Completion
Dupont Street (Litho),
Toronto, ON (iv)
Fifth and Third East
Village (5th & THIRD),
Calgary, AB (iv) (vii)
Yorkville (11 YV),
Toronto, ON (iv) (vi)
Gloucester - Phase Two
(Latitude), Ottawa, ON
(iv)
College & Manning
(Strada),Toronto, ON
(iv)
The Well, Toronto, ON
(iii) (iv) (v)
The Well - (FourFifty
The Well), Toronto, ON
(iv)
Yonge Sheppard Centre
Residential (Pivot),
Toronto, ON (iv)
Elmvale Acres - Phase
One (Luma), Ottawa,
ON (iv)
Westgate - Phase One
(Rhythm), Ottawa, ON
(iv)
Total Estimated Costs
(ii)
Fair Value to date
50 %
—
89
89 $ 77,655 $
— $ 51,309 $ 51,309 $ 26,346
100 %
2021
100 %
774
21
795
95,252
68,424 23,697
92,121
3,131
89 %
2021
50 %
—
40
40
48,358
— 16,887
16,887
31,471
50 %
—
83
83
45,777
— 28,670
28,670
17,107
n/a
n/a
2024
2021
50 %
27
27
54
42,242
9,123 22,213
31,336
10,906
91 %
2021
50% of
commercial
40% of
residential
air rights
135 1,064 1,199 821,826
— 540,645 540,645 281,181
85 % 2021-2022
50 %
—
196
196 141,956
— 13,687
13,687 128,269
100 %
258 —
258 239,573
239,368
— 239,368
205
50 %
—
68
68
45,256
— 20,934
20,934
24,322
100 %
—
165
165
97,952
— 31,043
31,043
66,909
1,194 1,753 2,947 $ 1,655,847 $ 316,915 $ 749,085 $ 1,066,000 $ 589,847
$ 315,662 $ 817,808 $ 1,133,470
n/a
n/a
n/a
n/a
2023
2020
2022
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 10, 2021.
(ii) Total Costs incurred to date exclude fair value gains of $68.7 million for properties under development.
(iii) The total estimated PUD costs for The Well are net of approximately $61.0 million of recoverable costs at RioCan's interest relating to matters
such as parking, parkland dedication, and an Enwave thermal energy tank and approximately $75.6 million of air rights sales based on the air
rights sale agreement and other agreements in place. Air rights sales for buildings A & B with gross sales proceeds of $25.0 million including costs
recoveries were closed during Q4 2020. As of February 10, 2021, over 98% of the hard costs have been tendered and 98% awarded.
(iv) 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.
(v) The 992,001 square feet or 85% of total commercial square footage leased at The Well is based on committed leases, including extension rights,
for office space only. The Well project will be completed in phases with the first office possession expected to occur in 2021, with the majority of
the phases expected to reach completion by 2022 and the final building in Q1 2023.
(vi) The Yorkville project (11 YV) consists of three components; the condominium tower, rental replacement units and retail. The NLA noted above
represents only the rental replacement units and retail components of the project representing approximately 17% of the total area. For information
on the condominium component refer to the Residential Inventory section in the MD&A.
(vii) Approximately $32.1 million of air rights sale proceeds were received upon closing during the year ended December 31, 2020, which have been
netted in total estimated and completed costs.
(viii) Completed NLA includes units transferred to IPP as well as NLA associated with air rights sold. As of December 31, 2020 RioCan has sold
0.8 million square feet of air rights.
RioCan Annual Report 2020 64
MANAGEMENT’S DISCUSSION AND ANALYSIS
As of February 10, 2021, approximately 706,000 square feet of the above urban intensification NLA under development has
committed or in-place leases at a weighted average net rent rate of approximately $39.55 per square foot. In comparison to the
previous quarter, the committed or in-place lease square footage increased by 66,000 square feet, primarily due to RioCan's
share of the new leases signed at The Well during the fourth quarter.
Expansion & Redevelopment
A summary of RioCan’s expansion and redevelopment projects as at December 31, 2020 is as follows:
(thousands of dollars or thousands of sq. ft.)
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
Burlington Centre, Burlington, ON
Five Points Shopping Centre, Oshawa, ON
Place St Jean, Saint-Jean-sur-Richelieu, QC
Tanger Outlets - Kanata, Kanata, ON
Yonge Sheppard Centre Commercial, Toronto, ON
50 %
100 %
100 %
50 %
100 %
9 $
4,136 $
1,649 $
2,481 $
4,130 $
10
2
18
31
7,310
1,755
311
356
2,680
2,991
—
356
7,991
4,040
1,314
5,354
39,190
31,416
—
31,416
Properties with former Sears units (ii) - 3 projects
41
12,074
4,495
3,066
7,561
6
4,319
1,399
2,637
7,774
4,513
Total Estimated PUD Costs (i)
PUD Fair Value to date
111 $
72,456 $ 42,267 $
9,541 $ 51,808 $
20,648
$ 35,578
(i)
Total estimated PUD costs include carrying amounts transferred from IPP for redevelopment and exclude historical fair value losses of $16.2
million.
(ii) RioCan transferred carrying value associated with the spaces formerly occupied by Sears from IPP to PUD. The estimated PUD costs to complete
are based upon various scenarios with the objective of developing these assets, such that RioCan can attract new tenants, achieve higher rents
and improve the overall shopping centres.
(iii) Historical costs were costs of IPP prior to the transfer to PUD.
65 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Residential Inventory
Residential inventory is comprised of properties acquired or developed which RioCan intends to dispose all or part of in the
ordinary course of business, rather than hold on a long-term basis for capital appreciation or for rental income purposes. It is
expected that the Trust will earn a return on these assets through a combination of (i) property operating income earned during
the relatively short interim occupancy period, which will be included in net income, and (ii) sales proceeds.
(thousands of
dollars or
thousands of
sq. ft., except
where otherwise
noted)
Condominium/Townhouse
Units Upon Project
Completion (at 100%)
Completed
(i)
Inventory
Total
RioCan's
Ownership
% (Partner)
Total
Estimated
Costs (ii)
At RioCan's Interest
Costs incurred to date
Completed Inventory
Commissions
(ii)
Total
Estimated
Costs to
Complete
(ii)
% Pre
- sold
(iii)
Inventory
gain
($
millions)
Anticipated
Date of
Completion
A. Active mixed-use residential inventory projects with detailed cost estimates
Windfields
Farm U.C.
Towns,
Oshawa, ON
Windfields
Farm U.C.
Uptowns,
Oshawa, ON
Windfields
Farm U.C.
Tower,
Oshawa, ON
Yorkville (11
YV), Toronto,
ON
Subtotal
50%
(Tribute)
50%
(Tribute)
50%
(Tribute)
50% (CD
Capital /
Metropia)
170
—
170 $ 35,066 $ 35,066 $
— $
— $ 35,066 $
—
100.0 %
$13.0
2020
—
153
153
30,228
—
6,097
236
6,333
23,895
100.0 %
—
503
503
72,633
—
16,077
1,423
17,500
55,133
97.6 %
—
586
586
257,999
—
84,003
5,683
89,686
168,313
98.3 %
170
1,242
1,412 $ 395,926 $ 35,066 $ 106,177 $
7,342 $ 148,585 $ 247,341
$5.0 -
$5.5
$14.0 -
$16.0
$68.0 -
$73.0
$100.0-
$107.5
2022
2023
2024
B. Active mixed-use residential inventory projects with detailed cost estimates in progress
Windfields
Farm Future
Phases,
Oshawa, ON
(iv)
Dufferin
Plaza,
Toronto,
ON(v)
Shoppers
World
Brampton
Phase One,
Brampton,
ON
RioCan
Leaside
Centre,
Toronto, ON
Queensway,
Toronto, ON
Clarkson
Village,
Mississauga,
ON
Subtotal
Total
50%
(Tribute)
50%
—
1,028
1,028
TBD $
— $ 1,208 $
— $ 1,208
TBD
n.a
TBD
2026
(Maplelands)
—
561
561
TBD
—
16,292
—
16,292
TBD
n.a
TBD
2027
100 %
—
274
274
TBD
—
2,400
—
2,400
TBD
n.a
TBD
2025
100 %
100 %
100 %
—
—
—
—
637
637
TBD
—
38,560
—
38,560
TBD
520
520
TBD
—
30,959
—
30,959
TBD
470
470
TBD
—
18,585
—
18,585
3,490
3,490
TBD $
— $ 108,004 $
— $ 108,004
TBD
TBD
170
4,732
4,902
TBD $ 35,066 $ 214,181 $
7,342 $ 256,589
TBD
n.a
n.a
n.a
n.a
n.a
TBD
2027
TBD
2025
2024+
TBD
TBD
TBD
(i) Excludes a total of 755 condominium units at eCondos and KinglyTM for which all final closings have occurred prior to 2020.
(ii) Selling commissions paid are included in prepaid and other assets and will be transferred to costs of sales upon buyer possession of the units.
Such selling commissions are included in the total estimated costs and estimated costs to complete in the above table.
(iii) % Pre-sold as of February 10, 2021.
(iv) Windfields Farm Future Phases represents the additional townhomes and condominiums expected to be developed at the site.
(v) During the year ended December 31, 2020, RioCan sold a 50% interest in Dufferin Plaza and acquired the remaining 50% interest in Queensway.
In addition to the above projects reported under Residential Inventory by IFRS, the Trust has a 50% interest in one condominium
project at Bloor Street West in Toronto with approximately 240 condominium units. This project is reported as an equity-accounted
investment under IFRS given the partnership structure. Overall, in addition to the 1,242 condominium or townhouse units
currently under construction, the Trust has seven active condominium or townhouse projects in various stages of development,
totalling an estimated 3,730 units, which are scheduled to be completed in phases between 2024 and 2027.
RioCan Annual Report 2020 66
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table shows changes in the aggregate carrying value of RioCan's residential inventory during the quarter and year:
(thousands of dollars)
Balance, beginning of year
Acquisitions
Dispositions
Development expenditures
Transfers from investment properties (i)
Transfers to equity-accounted investments (ii)
Three months ended
December 31
Years ended
December 31
2020
2019
2020
2019
$
168,880 $
98,829 $
108,956 $
206,123
18,987
(1,693)
11,604
18,585
(2,182)
—
(26,366)
4,192
32,301
—
18,987
(19,143)
36,304
71,259
(2,182)
—
(164,378)
34,910
32,301
—
Balance, end of year
$
214,181 $
108,956 $
214,181 $
108,956
(i) During the year ended December 31, 2020, transfers to residential inventory from investment property include the components of the following
mixed-use projects for which a change in use for the residential inventory component was established: RioCan Leaside Centre, the Queensway,
Clarkson Village and 2939-2943 Bloor Street West.
(ii) The remaining 50% of the 2939-2943 Bloor Street project owned by RioCan post the 50% sale was transferred to equity-accounted investment
under IFRS due to the partnership structure.
For the quarter ended December 31, 2020, the Trust recognized residential inventory gains of $3.6 million, consisting of $1.4
million from the sale of a 50% interest in 2939 – 2943 Bloor Street West and $2.2 million for cost adjustments on eCondos and
Windfields Farm. For the year, the Trust recognized total inventory gains of $15.5 million, which also included the gain on the sale
of a 50% interest in Dufferin Plaza, the sale of eCondos guest suites, and closing of additional units at Windfields Farm U.C.
Towns, partially offset by cost adjustments for Kingly.
During the year ended December 31, 2020, the following new projects were added to residential inventory:
•
•
•
•
Dufferin Plaza - The property is situated on 3.8 acres of land at the intersection of Dufferin Street and Apex Road in Toronto,
Ontario in close proximity to Yorkdale Shopping Centre as well as major arterial roads, highways and public transit. On
August 10, 2020, RioCan sold a 50% interest in Dufferin Plaza to Maplelands as described under Acquisitions and
Dispositions section of this MD&A. RioCan and Maplelands will develop Dufferin Plaza into a mixed-use property with
approximately 561 condominium units and 32,000 square feet of retail.
Queensway - This property is located at the corner of Islington Avenue and the Queensway in Toronto, Ontario and is
minutes away from the TTC Bloor Line and Mimico GO station, as well as close to major highways. This property was
previously co-owned 50/50 by RioCan and Talisker and was comprised of a development component and a Cineplex
component. RioCan's original 50% interest in the development component of the project was transferred to inventory from
investment properties in Q2 2020. Following the transaction in December 2020 as described in the Acquisitions and
Dispositions section of this MD&A, the Trust now owns 100% of the development component and Talisker owns 100% of the
Cineplex component. Zoning approval is in place for a 500,000 square foot mixed-use development, which will consist of four
towers with 520 condominium units, 12 affordable housing rental units and 40,000 square feet of retail. Construction is
currently anticipated to commence in 2022.
RioCan Leaside Centre - Leaside Centre is situated in the affluent Leaside area of Toronto, right at the corner of Eglinton
Avenue East and Laird Drive. It is adjacent to a new station along the new Eglinton Crosstown LRT and will have a direct
secondary station entrance for the LRT. RioCan is in the process of rezoning the site to include residential rental,
condominium, retail and office. The project will have five buildings with a total estimated GFA of 1.5 million square feet, which
includes 240,000 square feet of commercial space. Building D of the project, which represents approximately 34% of the
total GFA, is anticipated to be residential condominium with 637 units and 9,795 square feet of retail. The condominium
component was transferred to inventory from investment properties during Q2 2020.
Clarkson Village - This property is conveniently located near the intersection of Lakeshore Road and Southdown Road in
Mississauga, Ontario, minutes away from the Clarkson GO station and major highways. The site is expected to have up to
500,000 square feet of GFA with residential density of up to 465,000 square feet and an estimated 35,000 square feet of
retail.The condominium component was transferred to inventory from investment properties in Q4 2020.
67 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
MORTGAGES AND LOAN RECEIVABLE
Contractual mortgages and loans receivable as at December 31, 2020 and December 31, 2019 are comprised of the following:
(thousands of dollars)
Contractual interest rates
As at
Mezzanine financing to co-owners
Vendor-take-back and other
Total
Low
4.20%
5.00%
4.20%
High
6.35%
6.35%
6.35%
(i)
Information presented as at December 31, 2020.
Weighted average
interest rate (i) December 31, 2020
December 31, 2019
5.66 % $
5.64 %
5.65 % $
128,884 $
31,762
160,646 $
155,399
20,552
175,951
All of the $160.6 million of mortgages and loans receivable as at December 31, 2020 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 in the amount of capital that can be invested in greenfield developments and
development properties held for resale, including any mortgages receivable to fund the co-owners’ share of such developments
referred to as mezzanine financing, to no more than 15% of the book value of RioCan's total consolidated Unitholders’ equity. At
December 31, 2020, RioCan was in compliance with these restrictions.
CAPITAL RESOURCES AND LIQUIDITY
Capital Management Framework
RioCan defines capital as the aggregate of 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 Declaration of Trust, 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. Management monitors capital adequacy 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 of Trust and debt covenants (refer to Note 26 of RioCan's 2020 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 non-core and secondary
market properties, and through public offerings of unsecured debentures and common equity. In challenging market conditions,
the Trust could finance certain assets currently unencumbered by debt or issue preferred units.
Total Capital
RioCan uses both debt and equity in its capital structure, which is summarized as follows as at December 31, 2020
(thousands of dollars)
As at
Capital:
Debentures payable
Mortgages payable
Lines of credit and other bank loans
Total debt
Total equity
Total capital
Total assets
Cash and cash equivalents (i)
(i)
Included in total assets.
December 31, 2020
December 31, 2019 December 31, 2020
December 31, 2019
IFRS
RioCan's proportionate share
$
$
$
$
$
3,340,278 $
2,891,648 $
3,340,278 $
2,797,066
790,539
2,412,451
1,086,719
2,905,403
819,255
6,927,883 $
6,390,818 $
7,064,936 $
7,734,973
8,305,211
7,734,973
2,891,648
2,514,178
1,106,105
6,511,931
8,305,211
14,662,856 $
14,696,029 $
14,799,909 $
14,817,142
15,267,708 $
15,188,326 $
15,414,445 $
15,317,298
238,456 $
93,516 $
240,659 $
96,564
RioCan Annual Report 2020 68
MANAGEMENT’S DISCUSSION AND ANALYSIS
Debt Metrics
The following table summarizes the Trust's key debt metrics presented on both an IFRS and RioCan's proportionate share basis:
Ratio of total debt to total assets
(net of cash and cash equivalents) (i)
Debt to Adjusted EBITDA (i)
Interest coverage (i)
Debt service coverage (i)
Fixed charge coverage (i)
Ratio of floating rate debt to total debt
Weighted average term to maturity (in years) (ii)
Weighted average contractual interest rate (ii)
Weighted average effective interest rate (ii)
Targeted
Ratios
38.0%-42.0%
<8.0x
>3.00x
>2.25x
>1.10x
<15.0%
Rolling 12 months ended
IFRS
RioCan's proportionate share
December 31, December 31, December 31, December 31,
2020
44.5 %
9.49
3.11
2.60
1.02
1.3%
3.86
3.13%
3.21%
2019
41.7 %
8.05
3.52
2.98
1.15
6.1%
3.69
3.34%
3.44%
2020
45.0 %
9.47
3.10
2.60
1.03
1.9%
3.83
3.14%
3.22%
2019
42.1 %
8.06
3.50
2.96
1.16
6.4%
3.67
3.36%
3.46%
(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.
Information is as of respective year end.
(ii)
The Trust's leverage ratio (total debt to total assets) at proportionate share increased from December 31, 2019, mainly due to
higher debt levels resulting from timing of development completions relative to development spends and the impacts of the
pandemic on the Trust's property operations and valuations. The Trust remains committed to maintaining a strong balance sheet.
The Trust's Debt to Adjusted EBITDA at proportionate share increased to 9.47x for the year relative to the prior year. The increase
was primarily due to lower Adjusted EBITDA as a result of the COVID-19 pandemic related provision for rent abatements and bad
debts, lower residential inventory gains due to timing of inventory sales, lower realized gains from the sale of marketable
securities, lower fee revenue and higher average debt.
The interest coverage ratio at RioCan's proportionate share for the year remained above its target of 3.0x but declined compared
to the prior year, mainly due to lower Adjusted EBITDA, as noted earlier, and higher interest costs from higher average debt.
Similarly, debt service coverage at RioCan's proportionate share for the year declined but remained above its target of 2.25x.
The fixed charge coverage ratio at RioCan's proportionate share for the year was lower than the prior year, primarily as a result of
lower Adjusted EBITDA, higher interest costs and higher distributions as a result of a private placement of Units in August 2019
and a public Unit offering completed in October 2019. The one-third distribution reduction effective for January 2021 distributions
is expected to increase the fixed charge coverage ratio in 2021 relative to 2020.
The Trust has been reducing its floating interest rate debt exposure over the last couple of years. Its floating interest rate debt
exposure was exceptionally low as of December 31, 2020 mainly due to the issuance of a $500.0 million unsecured debenture
green bond (Series AD debenture) at a fixed rate in December 2020 of which a significant portion of the net proceeds was used to
pay down the Trust's floating rate revolving unsecured line of credit. The Trust's main floating interest rate debt level is primarily
driven by utilization on its revolving unsecured line of credit, which could vary quarter by quarter depending on the timing of
various factors such as debenture or mortgage financing timing, and timing of dispositions and acquisitions.
69 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table presents a reconciliation of consolidated net income attributable to Unitholders to Adjusted EBITDA:
(thousands of dollars)
Net income (loss) attributable to Unitholders
Add (deduct) the following items:
Income tax expense (recovery):
Current
Deferred
12 months ended
IFRS
RioCan's proportionate share
December 31, December 31, December 31, December 31,
2020
2019
2020
2019
$
(64,780) $
775,834 $
(64,780) $
775,834
(275)
10,905
(699)
2,064
(275)
10,905
(699)
2,064
Fair value losses (gains) on investment properties, net
526,775
(247,624)
536,388
(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 losses on the sale of investment properties, net (ii)
Transaction costs on investment properties
Operational lease revenue and expenses from
ROU assets
Adjusted EBITDA
Debt, net of cash and cash equivalents is calculated as follows:
10,219
10,192
9,120
180,811
4,342
503
768
15,637
11,309
6,478
182,780
4,381
1,066
7,989
10,219
10,192
9,120
185,599
4,342
503
768
15,637
11,309
6,478
187,871
4,381
1,066
7,989
2,572
1,963
2,544
1,939
$
691,152 $
761,178 $
705,525 $
774,575
Average debt outstanding
Less: average cash and cash equivalents
Debt, net of cash and cash equivalents
Debt to Adjusted EBITDA
$
$
6,667,444 $
6,206,562 $
6,793,278 $
6,324,391
(111,487)
(75,705)
(113,407)
(78,599)
6,555,957 $
6,130,857 $
6,679,871 $
6,245,792
9.49
8.05
9.47
8.06
(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 the 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 disposition of investment properties.
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. RioCan is rated by two independent credit rating agencies: Standard and Poor’s
(S&P) and DBRS Morningstar (DBRS). A credit rating generally provides an indication of the risk that the borrower will not fulfill its
obligations in a timely manner. On October 12, 2020 S&P confirmed the rating of BBB with stable outlook and on November 30,
2020 DBRS confirmed the rating of BBB(high) and changed the trends on the ratings to Negative from Stable. A credit rating of
BBB- or higher is an investment-grade rating.
The following table summarizes RioCan’s credit ratings as at December 31, 2020:
Issuer Credit Rating
Senior Unsecured Debentures
S&P
DBRS
Credit Rating
BBB
BBB
Outlook
Stable
N/A (i)
Credit Rating
BBB (high)
BBB (high)
Trend
Negative
Negative
(i) S&P does not provide an outlook on the Debentures.
RioCan Annual Report 2020 70
MANAGEMENT’S DISCUSSION AND ANALYSIS
Total Debt Profile
RioCan’s debt maturity profile and future repayments are as outlined below:
(thousands of dollars)
Year of debt maturity
2021
2022
2023
2024
2025
Thereafter
Contractual principal maturities and interest rates
Weighted
average
contractual
interest rate
Weighted
average
contractual
interest rate
Lines of
credit
and other
bank loans
Weighted
average
contractual
interest rate
Total
aggregate
debt
Weighted
average
contractual
interest rate
Mortgages
payable
Debentures
payable
$ 550,000
2.89 % $ 379,995
4.23 % $
50,125
1.68 % $ 980,120
550,000
500,000
300,000
500,000
950,000
3.25 %
199,316
3.24 %
—
— %
749,316
3.42 %
336,358
3.33 %
206,094
3.24 % 1,042,452
3.29 %
333,431
3.11 %
500,000
3.36 % 1,133,431
2.58 %
522,514
3.35 %
36,635
2.38 % 1,059,149
2.54 % 1,030,234
3.18 %
—
— % 1,980,234
$ 3,350,000
2.91 % $ 2,801,848
3.37 % $ 792,854
3.18 % $ 6,944,702
3.34 %
3.25 %
3.35 %
3.27 %
2.95 %
2.87 %
3.13 %
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
—
4,719
479
5,198
(9,722)
(9,501)
(2,794)
(22,017)
Balance, end of year
$ 3,340,278
$ 2,797,066
$ 790,539
$ 6,927,883
The total debt continuity schedule for the year ended December 31, 2020 was as follows:
(thousands of dollars)
Year ended December 31, 2020
Contractual obligations, beginning of year
Borrowings
Scheduled amortization
Repayments
Disposed on the sale of properties
Assumed on the acquisition of properties
Contractual obligations, end of year
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
Debentures Payable
Issuance
Debentures
Mortgages
Payable
Lines of Credit
and Other Bank
Loans
$
2,900,000 $
2,409,917 $
1,090,172 $
850,000
—
804,515
(42,786)
311,720
—
Total
6,400,089
1,966,235
(42,786)
(400,000)
(373,387)
(609,038)
(1,382,425)
—
—
(12,112)
15,701
—
—
(12,112)
15,701
$
3,350,000 $
2,801,848 $
792,854 $
6,944,702
—
4,719
479
5,198
(9,722)
(9,501)
$
3,340,278 $
2,797,066 $
(2,794)
790,539 $
(22,017)
6,927,883
On December 14, 2020, RioCan issued $500.0 million principal amount of Series AD senior unsecured debentures. These
debentures were issued at par, carry a coupon rate of 1.974% per annum and mature on June 15, 2026. The Series AD
debentures were RioCan's second green bond issuance.
On March 10, 2020, RioCan issued $350.0 million of Series AC senior unsecured debentures. These debentures were issued at
par, carry a coupon rate of 2.361% per annum and will mature on March 10, 2027. The Series AC debentures were RioCan’s
inaugural green bond issuance and the first green bond issued by a REIT in Canada.
Redemption
On August 26, 2020, RioCan redeemed, in full, its $250.0 million 2.185% Series X unsecured debentures in accordance with their
terms. On June 1, 2020, RioCan redeemed, in full, its $150.0 million 3.62% Series U unsecured debentures in accordance with
their terms.
71 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
On January 15, 2021, RioCan redeemed, in full, its $250.0 million, 3.716% Series R unsecured debentures due December 13,
2021, in accordance with its terms, at a total redemption price of $256.8 million, plus accrued and unpaid interest of $0.8 million,
up to but excluding, the redemption date. The Trust recorded an early extinguishment charge of $6.7 million, which includes a
write-off of the related unamortized deferred financing costs.
RioCan’s debentures maturity profile and future repayments are as outlined below:
(thousands of dollars)
As at
Series
Maturity date
Coupon rate
Interest payment frequency
December 31, 2020 December 31, 2019
U
X
Z
R
V
Y
T
AA
W
AB
I
AD
AC
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
June 15, 2026
March 10, 2027
3.62 %
2.19 %
2.19 %
3.72 %
3.75 %
2.83 %
3.73 %
3.21 %
3.29 %
2.58 %
5.95 %
1.97 %
2.36 %
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
—
—
300,000
250,000
250,000
300,000
200,000
300,000
300,000
500,000
100,000
500,000
350,000
150,000
250,000
300,000
250,000
250,000
300,000
200,000
300,000
300,000
500,000
100,000
—
—
Contractual obligations
Unamortized debt financing costs
Balance, end of year
$
$
3,350,000 $
2,900,000
(9,722)
(8,352)
3,340,278 $
2,891,648
The unsecured debentures have covenants similar to the Trust's 60% debt to aggregate assets limit as set out in RioCan’s
Declaration of Trust, the maintenance of at least $1.0 billion in Adjusted Unitholders' Equity (as defined in the indenture) and
maintenance of an interest coverage ratio of 1.65 times or better. There are no requirements under the unsecured debenture
covenants that require RioCan to maintain unencumbered assets. The Series I debentures, which are due in 2026 and 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 Adjusted Unitholders' Equity and interest coverage ratio would be eliminated for this series of
debentures.
Mortgages Payable
Mortgages payable consist of the following:
(thousands of dollars)
As at
Fixed rate mortgages (i) (ii)
December 31, 2020 December 31, 2019
$
2,797,066 $
2,412,451
Includes hedged floating rate mortgages.
(i)
(ii) Amount outstanding deducts a total of $4.8 million in unamortized debt modification losses (net of unamortized financing costs), net of
unamortized differential between contractual and market interest rates on liabilities assumed at the acquisition of properties and unamortized debt
modification losses.
At the outset of 2020, RioCan had $503.9 million of mortgage principal maturing in 2020 at a weighted average contractual
interest rate of 3.64%. For the year ended December 31, 2020, RioCan completed new term mortgage borrowings of $804.5
million and renewed maturity balances of $109.5 million at a weighted average interest rate of 2.82% and a weighted average
term of six years, repaid $416.2 million of mortgage balances and scheduled amortization, disposed $12.1 million mortgages on
the sale of investment properties, and assumed $15.7 million of mortgage financing upon acquisitions at a weighted average
interest rate of 3.30%.
Included in the activity above are CMHC insured mortgages for Frontier and eCentral and the retail component ePlace in the
aggregate amount of $195.2 million (at RioCan's interest), at a weighted average interest rate of 2.33% and a weighted average
term of 10 years. 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 its overall cost of debt.
RioCan Annual Report 2020 72
MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
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) (ii)
Non-revolving unsecured credit facilities (i)
Construction lines and other bank loans
December 31, 2020 December 31, 2019
$
$
(1,648) $
699,333
92,854
790,539 $
339,446
699,101
48,172
1,086,719
(i) Amount outstanding deducts a total of $2.3 million in unamortized financing costs, net of unamortized differential between contractual and market
interest rates on liabilities assumed at the acquisition of properties and unamortized debt modification losses.
(ii) There are no drawn amounts at December 31, 2020. The negative balance shown for the 2020 year end represents unamortized financing costs.
Revolving Unsecured Operating Line of Credit
As at December 31, 2020, RioCan had $1.0 billion of undrawn credit availability on its revolving unsecured operating line of
credit, compared to $658.0 million as at December 31, 2019. The weighted average contractual interest rate on amounts drawn
under this facility was nil as of December 31, 2020 (December 31, 2019 - 3.19%).
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 and a weighted average annual all-in fixed interest rate of 3.28%
through interest rate swaps.
In addition, the Trust has a $150.0 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 June 27, 2024 and fixed annual all-in interest rate of 3.43% through
an interest rate swap.
The Trust also has 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, 2020, 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, 2020, these secured facilities and other bank loans have an aggregate
maximum borrowing capacity of $384.2 million (December 31, 2019 - $106.5 million) and mature between 2021 and 2025, of
which the Trust had drawn $92.9 million (December 31, 2019 - $48.2 million). The weighted average contractual interest rate on
the aggregate amounts outstanding is 1.97% (December 31, 2019 - 2.93%).
The year-over-year increase in these secured facilities and other bank loans was primarily due to the addition of secured
construction facilities for the Trust's 11 YV condominium project and two other projects during the year.
Letter of Credit Facilities and Surety Bonds
The Trust has aggregate letter of credit facilities with certain Schedule I banks totalling $93.6 million (December 31, 2019 - $76.4
million). As at December 31, 2020, the Trust’s outstanding letters of credit under these facilities was $66.8 million (December 31,
2019 - $54.8 million).
The Trust is contingently liable for surety bonds that have been provided to support condominium developments and warranties
in the amount of $68.8 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 including maintenance capital and development capital
expenditures, distributions to Unitholders and planned growth in the business.
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.
73 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
As at December 31, 2020, RioCan had approximately $1.6 billion of liquidity as summarized in the following table:
(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, 2020
December 31, 2019
December 31, 2020
December 31, 2019
238,456 $
93,516 $
240,659 $
96,564
1,000,000
658,000
1,000,000
291,332
1,529,788 $
3,350,000 $
2,801,848
792,854
6,944,702 $
22.0%
58.3%
41.7%
58,327
809,843 $
336,030
1,576,689 $
2,900,000 $
2,409,917
1,090,172
6,400,089 $
3,350,000 $
2,910,452
821,597
7,082,049 $
12.7%
61.6%
38.4%
22.3%
57.2%
42.8%
658,000
110,339
864,903
2,900,000
2,511,930
1,109,600
6,521,530
13.3%
60.4%
39.6%
The $711.8 million increase in liquidity on a proportionate share basis over the prior year was in part due to the $500 million green
bond senior unsecured debentures issued in December 2020 and resulting higher cash and cash equivalents on hand as of the
year end, as well as an increase in undrawn construction lines of credit due to the addition of major construction lines of credit
during the year.
RioCan has unencumbered investment properties with a fair value of $8.7 billion on a proportionate share basis as of the year
end, which give RioCan the potential to obtain additional mortgages to bolster liquidity, if needed, and preserve credit availability
under its revolving unsecured line of credit, while maintaining compliance with debt covenants under various credit facilities.
The Trust's liquidity is impacted by contractual debt commitments and committed expenditures on active development projects.
Its contractual debt commitments and committed development expenditures for the next five years are as follows:
(thousands of dollars)
Contractual obligations:
Lines of credit and other bank loans $
Mortgages payable
Unsecured debentures
Lease liabilities (i)
Other lease obligations
Committed developments:
Active committed PUD (ii)
Active committed residential
inventory (ii)
2021
2022
2023
2024
2025
Thereafter
Total
50,125 $
— $ 206,094 $ 500,000 $
36,635 $
— $ 792,854
379,995
199,316
336,358
333,431
522,514
1,030,234 2,801,848
550,000
550,000
500,000
300,000
500,000
950,000 3,350,000
7,856
1,621
1,668
1,669
1,655
26,256
40,725
481
206
79
24
4
—
794
$ 988,457 $ 751,143 $ 1,044,199 $ 1,135,124 $ 1,060,808 $ 2,006,490 $ 6,986,221
318,615
219,638
45,769
13,403
—
—
597,425
73,166
50,078
46,552
77,544
$ 391,781 $ 269,716 $
92,321 $
90,947 $
—
— $
—
247,340
— $ 844,765
Total
$ 1,380,238 $ 1,020,859 $ 1,136,520 $ 1,226,071 $ 1,060,808 $ 2,006,490 $ 7,830,986
(i) Represents the discounted minimum lease payments of lease liabilities under IFRS 16.
(ii) Represents estimated development costs to complete committed properties under active development and active residential inventory projects. A
project is committed 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. The amounts are presented net of projected proceeds from dispositions including air rights sale proceeds related to a
portion of The Well in Toronto, Ontario, which sales currently remain on plan to close in 2021.
The Trust's contractual debt obligations and projected development expenditures can be funded by proceeds from mortgage
refinancing, net proceeds from the sale of assets (including, but not limited to, sale of excess land and development density),
existing cash on hand, revolving unsecured operating line of credit, proceeds from the issuance of unsecured debentures or
issuance of equity Units. Debenture maturities in 2021 of $550.0 million have been effectively refinanced through the issuance of
RioCan Annual Report 2020 74
MANAGEMENT’S DISCUSSION AND ANALYSIS
the aforementioned green bond issue in December 2020. As of February 10, 2021, $229.1 million of the $380.0 million of
mortgages due in 2021 have already been repaid, refinanced or have refinancing commitments in place.
RioCan has also entered into purchase obligations to acquire certain interests from its partners as further described in Note 3 in
the 2020 Annual Consolidated Financial Statements.
RioCan, as a mutual fund trust, expects to make monthly distributions to Unitholders with the cash generated from ongoing
operating activities. Its Unitholder dividend reinvestment plan (DRIP) allows it to conserve liquidity by issuing additional Units, 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
At RioCan's proportionate share, unencumbered investment property assets as at December 31, 2020 have an estimated fair
value of $8.7 billion, which represents 60.3% of the total fair value of investment properties and generates 58.9% of annualized
NOI at RioCan's proportionate share. The decrease in the unencumbered assets from December 31, 2019 was due to mortgage
financing obtained on certain formerly unencumbered assets, as well as fair value write-downs during the year as a result of the
pandemic. The table below summarizes RioCan's unencumbered assets and unsecured debt:
(thousands of dollars, except where otherwise noted)
As at
Unencumbered assets (i) (ii)
Targeted
Ratios
Unsecured debt:
Debentures
Amounts drawn on revolving unsecured operating
line of credit
Amounts drawn on non-revolving unsecured credit
facilities
IFRS
RioCan's proportionate share
December 31, December 31, December 31, December 31,
$
$
2020
8,685,469 $
2019
8,895,777 $
2020
8,727,354 $
2019
8,936,721
3,350,000 $
2,900,000 $
3,350,000 $
2,900,000
—
342,000
—
342,000
700,000
700,000
700,000
700,000
Total unsecured debt outstanding
Unsecured debt to total debt
Unencumbered assets to unsecured debt (i)
NOI generated from unencumbered assets (i)
$
4,050,000 $
3,942,000 $
4,050,000 $
3,942,000
60.0%
> 200%
> 50.0%
58.3 %
214 %
58.6 %
61.6 %
226 %
58.2 %
57.2 %
215 %
58.9 %
60.4 %
227 %
58.5 %
(i) Refer to the Non-GAAP Measures section of this MD&A for further details.
(ii) As at December 31, 2020, included in total investment properties and properties held for sale of $14.3 billion on an IFRS basis are $8.7 billion
unencumbered assets and $5.6 billion encumbered assets. On a proportionate share basis, included in total investment properties and properties
held for sale of $14.5 billion are $8.7 billion of unencumbered assets and $5.7 billion encumbered assets.
Guarantees
As at December 31, 2020, the Trust is contingently liable for debt guarantees, provided on behalf of certain of our co-owners'
interests and mortgages assumed by purchasers on property dispositions, of $195.1 million (December 31, 2019 - $163.2
million), with expiries between 2021 and 2025.
As at and for the year ended December 31, 2020, 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 2020 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 Capital Developments
Other
Assumption of mortgages by purchasers on property dispositions
75 RioCan Annual Report 2020
December 31, 2020 December 31, 2019
$
$
$
41,187 $
23,100
36,635
38,987
139,909 $
55,207
195,116 $
42,349
26,709
—
37,497
106,555
56,644
163,199
MANAGEMENT’S DISCUSSION AND ANALYSIS
Hedging Activities
Interest Rate Risk
As at December 31, 2020, the outstanding notional amount of floating-to-fixed interest rate swaps was $1.3 billion (December 31,
2019 – $1.3 billion) and the term to maturity of these agreements ranges from April 2021 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
interest rate exposures as at December 31, 2020. Refer to Note 25 of the 2020 Annual Consolidated Financial Statements for
further details.
EQUITY
Trust Units
As at December 31, 2020, there are 317.7 million Units outstanding, including exchangeable limited partnership units. All Units
outstanding have equal rights and privileges and entitle the holder to one vote for each Unit at all meetings of Unitholders. During
the years ended December 31, 2020 and 2019, we issued Units as follows:
(in thousands)
Units outstanding, beginning of year (i)
Units issued:
Private placement issued pursuant to an investment
property acquisition
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
Units repurchased and cancelled
Units outstanding, end of year (i)
Three months ended
December 31
Years ended
December 31
2020
2019
2020
2019
317,723
308,723
317,710
305,097
—
—
—
13
12
—
—
8,935
49
3
—
—
—
—
—
26
12
—
3,810
8,935
833
15
—
(980)
317,748
317,710
317,748
317,710
(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, 2020 – 493,476 LP units,
December 31, 2019 – 481,769 LP units).
As of February 10, 2021, there are 317.8 million Units issued and 6.4 million Unit options issued and outstanding under the
Trust’s incentive Unit option plan.
Senior Executive Restricted Equity Plan (Senior Executive REU Plan)
As at December 31, 2020, 251,899 Senior Executive REUs are outstanding (December 31, 2019 - 178,800), of which 55,720 are
vested (December 31, 2019 - 56,833).
On March 2, 2020, the Trust granted 119,621 REUs under its Senior Executive REU Plan. The grant date price was $26.19 per
unit-based on the five-day volume weighted average market price of RioCan's Units traded on the TSX prior to the grant date,
resulting in an aggregate fair value of $3.1 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
Units purchased on the secondary market, net of applicable withholding taxes.
Employee Restricted Equity Plan (Employee REU Plan)
As at December 31, 2020, 279,342 Employee REUs are unvested and outstanding (December 31, 2019 - 232,926).
On March 2, 2020, the Trust granted 101,979 REUs under its Employee REU Plan. The grant date price was $26.19 per unit-
based on the five-day volume weighted average market price of RioCan's Units traded on the TSX prior to the grant date,
resulting in an aggregate fair value of $2.7 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 Units purchased on the secondary market, net of applicable withholding taxes.
RioCan Annual Report 2020 76
MANAGEMENT’S DISCUSSION AND ANALYSIS
Performance Equity Unit Plan (PEU Plan)
As at December 31, 2020, 449,641 PEUs are unvested and outstanding (December 31, 2019 - 416,737).
On March 2, 2020, the Trust granted 119,621 PEUs under its PEU Plan at a fair value of $23.95 per unit resulting in an aggregate
fair value of $2.9 million on the grant date. These PEUs will fully vest in February 2023.
PEUs issued contain a multiplier factor and the final number of PEUs that will be paid out upon vesting will vary based on the
achievement of certain performance targets over a three-year period from the year the award was granted. The performance
targets attributable to PEUs are set by the Trust at the time the awards are granted, or from time to time adjusted as permitted
under the terms of the PEU plan. The performance targets may vary between grants. Further information regarding the PEUs and
the related performance metrics attributable to such PEUs are set out in the Trust's management information circular (MIC).
Incentive Unit Option Plan
During 2020, there were no Unit options granted to senior management (December 31, 2019 - 0.4 million). A Unit option's
maximum term is 10 years. All Unit 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, 2020, 12.5 million Unit options remain available for grant under the Plan (December 31, 2019 – 12.5 million
Unit options).
Subsequent to year end on February 9, 2021, the Board approved approximately 1.4 million of Unit options to be granted to
senior management. Unit options shall vest in accordance with certain time-based and performance-based vesting provisions and
have a seven year term. The option grant value, strike price, and performance measures will be determined later in February
2021 at the grant date.
Trustee Deferred Unit Plan (DU Plan)
As at December 31, 2020, there are 452,368 deferred units vested and outstanding (December 31, 2019 - 319,506). During the
year ended December 31, 2020, 100,760 deferred units were granted and no deferred units were exercised (year ended
December 31, 2019 - 57,936 deferred units granted and 26,892 deferred units exercised).
During the year ended December 31, 2020, the Board approved an amendment effective January 1, 2021 to the DU Plan to
provide that, on or after the date upon which a Trustee ceases to be a Trustee of the Trust (Termination Date), all vested deferred
units issued after January 1, 2021 shall be redeemed and settled only by the issuance of Units. Effective January 1, 2021, each
of the Trustees also provided an irrevocable election with respect to the outstanding deferred units held by such Trustee such that
all such vested deferred units shall be redeemed and settled only by the issuance of Units upon each Trustee's respective
Termination Date.
Normal Course Issuer Bid
On October 14, 2020, RioCan received TSX approval of its notice of intention to renew its NCIB (the 2020/2021 NCIB), to acquire
up to a maximum of 31,615,029 Units, or approximately 10% of the public float as at October 8, 2020, for cancellation or to satisfy
RioCan's obligation to deliver Units under the REU and PEU plans, over the next 12 months, effective October 22, 2020.
The number of Units that can be purchased pursuant to the 2020/2021 NCIB is subject to a current daily maximum of 545,810
Units (which is equal to 25% of 2,183,243, being the average daily trading volume from April 1, 2020 to September 30, 2020,
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, 2020, the Trust did not purchase and cancel any Units.
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 the public float as at September 30, 2019, for cancellation
over the next 12 months, effective October 22, 2019. Units acquired and cancelled prior to October 22, 2019, were pursuant to
the NCIB in effect for the 12 months ended October 21, 2019.
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.
The Trust consolidates certain wholly-owned incorporated entities that are subject to tax. Any tax disclosures, expense and
deferred tax balances relate only to these entities.
If the Trust 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 it would be subject to tax on
such distributions at a rate substantially equivalent to the general corporate income tax rate. Any remaining distributions, other
77 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
The Trust's monthly distribution during 2020 was $0.12 per unit, consistent with that of 2019. Distributions declared to Unitholders
are as follows:
Three months ended
December 31
Years ended
December 31
(thousands of dollars)
Distributions declared to Unitholders
2020
2019
2020
2019
$
114,387 $
114,364 $
457,525 $
444,462
RioCan suspended its DRIP effective November 1, 2017 and Unitholders that were enrolled in the DRIP receive cash distributions
commencing with any distribution declared in November 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. Total distributions declared increased for the three months ended and year ended
December 31, 2020 when compared to the same periods in the prior year as RioCan issued 3.8 million Units on a private
placement basis on August 31, 2019 and 8.9 million Units in a public offering on October 28, 2019.
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 is as follows:
Three months ended
December 31
Years ended
December 31
(thousands of dollars)
Cash flows provided by operating activities
2020
2019
2020
2019
$
182,472 $
170,274 $
552,584 $
568,886
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
(63,212)
(39,910)
(77,524)
(53,927)
119,260
(114,387)
130,364
(114,364)
475,060
(457,525)
$
4,873 $
16,000 $
17,535 $
514,959
(444,462)
70,497
For the three months ended December 31, 2020, cash flows provided by operating activities, excluding non-cash working capital
items, were higher than distributions declared to Unitholders during the period by $4.9 million. For the year ended December 31,
2020, cash flows provided by operating activities, excluding non-cash working capital items, were higher than distributions
declared to Unitholders during the period by $17.5 million.
Distribution reduction effective January 2021
In December 2020, the Trust announced a reduction in its monthly distribution from $0.12 per unit to $0.08 per unit, or from $1.44
to $0.96 on an annualized basis. This decrease will be effective for the Trust's January 2021 distribution, payable in February
2021. This decrease is expected to provide $152.0 million of additional cash flow a year. The additional capital will be used to
fund initiatives that drive long-term net asset value growth for RioCan’s Unitholders such as its mixed-use residential
developments, unit buybacks through its normal course issuer bid program, and debt repayment.
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 distributions to Unitholders, consideration is given by RioCan to the level of cash flow
from operating activities, capital expenditures for the property portfolio and preferred unitholder distributions (if any).
As always, the Board will continuously reevaluate the distribution on a regular basis based on various factors. In determining the
level of distributions to Unitholders, the Board considers, among other factors, cash flow from operating activities, forward-looking
cash flow information including forecasts and budgets and the future business prospects of the Trust including the impact of the
pandemic, the interest rate environment and cost of capital, estimated development completions and development spending,
impact of future acquisitions and dispositions, and maintenance capital expenditures and leasing expenditures related to our
income producing portfolio. In determining the level of distributions to Unitholders, the Board also considers the impact of its
distribution reinvestment plan, if reinstated, when assessing its ability to sustain current distribution levels during the current
period and on a rolling twelve month basis.
RioCan Annual Report 2020 78
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").
On October 21, 2020 RioCan announced RioCan’s founder, Edward Sonshine, will retire as Chief Executive Officer of the Trust
on March 31, 2021 and transition to Non-Executive Chairman on April 1, 2021. The Trust also announced the appointment of
Jonathan Gitlin, currently the Trust’s President and Chief Operating Officer, to succeed Mr. Sonshine as President and Chief
Executive Officer, effective April 1, 2021. Concurrently with Mr. Gitlin’s appointment to the role of CEO, the Board has also agreed
to appoint Mr. Gitlin as an additional Trustee to the Board. Mr. Paul V. Godfrey, Chairman of the Board, has agreed to step down
as Chairman of the Board effective April 1, 2021 and will serve as Lead Trustee.
Remuneration of the Trust’s Trustees and Key Executives during the years ended December 31, 2020 and 2019 is as follows:
2019
5,388
3,460
108
(thousands of dollars)
Years ended December 31
Compensation and benefits
Unit-based compensation
Three months ended
December 31
Years ended
December 31
Trustees
Key Executives
Trustees
Key Executives
2020
2019
2020
2019
2020
2019
2020
$
44 $
43 $
1,126 $
1,315 $
175 $
203 $
5,349 $
Post-employment benefit costs
—
—
33
1,577
388
1,662
765
26
(919)
2,813
4,971
—
—
129
$
1,621 $
431 $
2,821 $
2,106 $
(744) $
3,016 $ 10,449 $
8,956
The negative amount in unit-based compensation costs for the Trustees for the year ended December 31, 2020 was due to a
mark-to-market adjustment resulting from a substantial decrease in the Trust's unit price from December 31, 2019 to
December 31, 2020, among the broad equity market drop in connection with the COVID-19 health crisis and sharp decline in oil
prices. For further details on related party transactions, refer to Note 30 of the 2020 Annual Consolidated Financial Statements.
79 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
SELECTED QUARTERLY RESULTS AND TREND ANALYSIS
(millions of dollars, except per unit amounts)
2020
2019
As at and for the quarter ended (i)
Revenue
Net income (loss) attributable to Unitholders
NOI (ii)
FFO (ii)
ACFO (ii)
Unitholder distributions
Weighted average Units outstanding – diluted
(in thousands)
Per unit basis (diluted)
Net income (loss) attributable to Unitholders
FFO (ii)
Unitholder distributions
Net book value per unit (iii)
Closing market price per unit
Key Performance Indicator Ratios
Q4
Q3
Q2
Q1
Q4
Q3
Q2
285 $
302 $
270 $
286 $
321 $
354 $
328 $
66 $
118 $
(351) $
103 $
151 $
178 $
253 $
167 $
158 $
154 $
174 $
176 $
173 $
175 $
124 $
129 $
110 $
145 $
146 $
143 $
145 $
129 $
147 $
78 $
108 $
134 $
145 $
139 $
114 $
114 $
114 $
114 $
114 $
111 $
110 $
Q1
324
195
167
142
107
110
$
$
$
$
$
$
317,739
317,728
317,721
317,725
315,080
306,280
304,636
305,046
$
$
$
0.21 $
0.37 $
(1.10) $
0.32 $
0.48 $
0.58 $
0.83 $
0.64
0.39 $
0.41 $
0.35 $
0.46 $
0.46 $
0.47 $
0.48 $
0.47
0.36 $
0.36 $
0.36 $
0.36 $
0.36 $
0.36 $
0.36 $
0.36
$ 24.34 $ 24.48 $ 24.45 $ 25.92 $ 26.14 $ 26.01 $ 25.78 $ 25.34
$ 16.75 $ 14.06 $ 15.36 $ 16.13 $ 26.76 $ 26.38 $ 25.99 $ 26.47
Same Property NOI growth (decline) % (ii)
(7.9%)
(9.1%)
(10.8%)
FFO payout ratio (ii)
ACFO payout ratio (ii)
Debt to total assets
(RioCan's proportionate share) (ii)
Debt to Adjusted EBITDA
(RioCan's proportionate share) (ii)
Other
Total portfolio NLA
Number of properties
Number of employees
Residency of Unitholders (iv)
– Canadian
– Non-resident
90.2%
98.9%
86.2%
97.7%
83.2%
97.2%
3.0%
77.4%
85.0%
2.3%
76.9%
84.3%
2.1%
77.4%
83.5%
2.2%
77.2%
86.7%
1.4%
77.9%
87.5%
45.0%
44.8%
44.4%
43.0%
42.1%
43.6%
42.9%
42.2%
9.47
9.13
8.80
8.22
8.06
8.07
7.92
7.94
38,260
38,394
38,647
38,623
38,402
39,336
39,071
38,286
223
586
221
585
221
587
222
605
220
605
225
605
230
597
230
585
74.4%
25.6%
77.2%
22.8%
73.1%
26.9%
66.3%
33.7%
67.6%
32.4%
66.3%
33.7%
75.6%
24.4%
70.6%
29.4%
(i) Refer to RioCan’s respective annual and interim MD&As issued for a discussion and analysis relating to those periods.
(ii) For definitions and the 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.
(iii) A non-GAAP measurement. Calculated by RioCan as 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.
Our revenue and operating results are not materially impacted by seasonal factors. However, macroeconomic and market trends,
and the unprecedented COVID-19 pandemic as described under the Business Environment and Outlook section of this MD&A,
impact on the demand for space, occupancy levels and, consequently, the Trust's revenue, financial performance and property
valuations.
The Trust's quarterly changes in revenues, NOI, FFO, ACFO and net income, as well as other key financial information were
primarily impacted by its strategic secondary market disposition program executed during late 2017 to the end of 2019, the timing
and magnitude of its residential condominium and townhouse projects closings, the magnitude and pace of development
expenditures and project completions, and in 2020 the global pandemic and its effects on the economy and RioCan operations.
ACFO was also impacted by changes in working capital, which experienced larger quarterly fluctuations from Q2 2020 to Q4
2020 in particular, driven primarily by the timing of the collection of contractual rents receivable as a result of the pandemic.
Net income, investment properties and certain other financial position related measures such as debt to total assets were further
impacted by the changes in the fair values of investment properties, particularly the significant fair value write-downs in Q2 2020
as a result of the pandemic.
The above factors resulted in similar impacts to FFO and ACFO payout ratios, debt to total assets and debt to adjusted EBITDA.
RioCan Annual Report 2020 80
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 (loss)
Interest income
Income (loss) from equity-accounted investments
Fair value (losses) gains 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 expense (recovery)
Net income
Net income
Unitholders
Net income per unit:
Basic
Diluted
Weighted average number of units (in thousands):
Basic
Diluted
81 RioCan Annual Report 2020
2020
2019
$
276,422 $
279,052
4,712
4,050
38,639
3,039
285,184
320,730
95,452
14,995
1,143
111,590
173,594
3,500
421
(42,286)
967
97,789
5,750
27,604
131,143
189,587
4,438
(2,816)
23,274
(53)
(37,398)
24,843
44,841
12,941
2,901
1,510
62,193
74,003
(711)
9,105
45,215
12,287
3,017
3,614
64,133
150,297
(273)
(216)
65,609 $
150,786
65,609 $
65,609 $
150,786
150,786
0.21 $
0.21 $
0.48
0.48
317,739
317,739
314,953
315,080
$
$
$
$
$
MANAGEMENT’S DISCUSSION AND ANALYSIS
NON-GAAP MEASURES
The financial statements of RioCan are prepared in accordance with IFRS. In addition to reported IFRS measures, industry
practice is to evaluate real estate entities giving consideration, in part, to certain non-GAAP performance measures described
below. 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 non-GAAP
measures, and related per unit amounts, should not be construed as alternatives to net income or comparable metrics
determined in accordance with IFRS as indicators of RioCan’s performance, liquidity, cash flows and profitability and may not be
comparable to similar measures presented by other real estate investment trusts or enterprises. These non-GAAP measures are
defined below and are cross referenced, as applicable, to a reconciliation elsewhere in this MD&A to the most comparable IFRS
measure. RioCan believes these non-GAAP financial measures provide useful information to both management and investors in
measuring the financial performance and financial condition of the Trust for the reasons outlined below.
Non-GAAP Measure Description
Reconciliation
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,
unrealized gains or losses on marketable securities and gains and losses on the
disposal of investment properties, including associated transaction costs, which
are not representative of recurring operating performance.
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.
RioCan’s method of calculating FFO may differ from other issuers' methods and,
accordingly, may not be comparable to FFO reported by other issuers.
Funds from
Operations (FFO)
section
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 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.
Adjusted Cashflow
from Operations
(ACFO) section
RioCan Annual Report 2020 82
MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-GAAP Measure Description
Reconciliation
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. 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.
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.
For both 2019 and 2020, the Trust determined that $40.0 million was a
reasonable estimate for its normalized capital expenditures. This normalized
capital expenditures estimate for 2020 does not include capital expenditures for
mixed-use residential projects given these are newly constructed buildings. Actual
maintenance capital expenditure maintenance for 2020 amounted to $44.2
million. In 2021 the Trust anticipates a gradual resumption of a more normal level
of business activities given the roll out of the immunization program in response
to COVID-19. Given that there have been certain vacancies in 2020 resulting
from the COVID-19 pandemic, the Trust anticipates that it will incur additional
tenant improvements in 2021 and has determined that $45.0 million is a
reasonable normalized capital expenditure estimate for 2021 although quarterly
fluctuations between the $11.3 million quarterly normalized capital expenditures
spend and actual spend are expected.
Capital
Expenditures on
Income Properties
section
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 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 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.
Funds from
Operations (FFO)
and Adjusted
Cashflow from
Operations (ACFO)
sections
83 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-GAAP Measure Description
Reconciliation
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.
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.
Net Operating
Income (NOI)
section
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 for a limited number of properties undergoing significant de-
leasing in preparation for redevelopment or intensification. Same property NOI 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.
Net Operating
Income (NOI)
section
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, 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.
Business Overview
section
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).
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. The
following ratios are calculated on the basis of both a RioCan's proportionate
share basis and using IFRS reported amounts to convey a more meaningful
measure of financial performance with respect to the periods reported.
Total Capital section
RioCan Annual Report 2020 84
MANAGEMENT’S DISCUSSION AND ANALYSIS
Non-GAAP Measure Description
Reconciliation
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 and losses on marketable securities, interest costs, current and
deferred tax expenses and recoveries, transaction gains and losses on the
disposition of
investments,
transaction costs and other items that management considers either non-
operating in nature or related to the capital cost of our investment properties.
investment properties and equity-accounted
Debt Metrics section
Ratio of Total Debt to
Total Assets
Ratio of Total Debt to Total Assets is a non-GAAP measure of our financial
leverage calculated by taking the total debt net of cash and cash equivalents
divided by total assets net of cash and cash equivalents.
Total Capital section
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 Metrics section
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 Metrics section
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.
Debt Metrics section
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 Unitholders and preferred unitholders. It measures our ability to meet our
interest, Unitholder and preferred unitholder distribution obligations on a trailing
twelve month basis.
Debt Metrics section
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. Unencumbered assets are investment properties that
have not been pledged as security for debt.
Unencumbered
Assets section
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.
Unencumbered
Assets section
85 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are described in Note 2 of RioCan's 2020 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.
Estimation Uncertainty as a Result of COVID-19
In the preparation of RioCan’s 2020 Annual Consolidated Financial Statements, the Trust has incorporated the potential impact of
COVID-19 into its significant estimates and assumptions that affect the reported amounts of its assets, liabilities, net income and
related disclosures using available information as at December 31, 2020. For the significant estimates and assumptions that have
been impacted by COVID-19 underlying the valuation of investment properties and the estimates of expected credit losses on net
contractual rents receivable and other tenant receivables, refer to Note 3 and Note 7, respectively of the 2020 Annual
Consolidated Financial Statements. Due to the continuing risks and uncertainties arising from the COVID-19 health crisis, actual
results may differ from these estimates and assumptions.
Adoption of New Accounting Standards
Effective January 1, 2020, the Trust adopted the following amended standards 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 Note 2 of the 2020 Annual Consolidated Financial Statements and
further described below.
Amendments to IFRS 7, Financial Instruments: Disclosure, IFRS 9 and IAS 39, Financial Instruments: Recognition and
Measurement - Interbank Offered Rate (IBOR) Reform
Amendments to IFRS 9 and IAS 39 provide relief from the potential effects of the uncertainty arising from Interbank Offered Rate
(IBOR) reform, in particular during 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. These amendments did not impact the Trust's consolidated financial statements upon adoption.
Amendments to IFRS 3, Business Combinations - Definition of a Business
The amendments to the definition of a business in IFRS 3 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 applied prospectively to transactions or other events that occur on or after the date of first application.
and did not have a significant impact on the Trust's consolidated financial statements.
Amendments to IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Accounting
Estimates and Errors - Definition of Material
Amendments to IAS 1 and IAS 8 align the definition of "material" across the standards and 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. The adoption of the amendments to the definition
of material did not have a significant impact on the Trust's consolidated financial statements.
Critical Accounting Judgements and Estimates
Our critical accounting judgements and estimates relate to the following areas: fair value, contractual rents and other tenant
receivables - allowance for doubtful accounts, the net realizable value of residential inventory, the determination of the type of
lease where we are the lessor, the recognition of and income taxes.
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.
RioCan Annual Report 2020 86
MANAGEMENT’S DISCUSSION AND ANALYSIS
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:
•
•
Investment properties are initially measured at cost, including all amounts related to the acquisition and costs associated with
improving and /or extending the life of the asset. Judgement is required in determining whether certain costs represent
additions to the carrying amount of the property, in distinguishing between tenant incentives and capital improvements and
for capitalization of costs to properties under development, when the project commences active development and when it is
substantially complete. The investment properties are subsequently measured at fair value. 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 fairly 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, 2020, RioCan had 29 properties including 5 land parcels (year ended December 31, 2019 - 32 properties
including 8 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 Property Valuations 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.
Contractual rents and other tenant receivables - allowance for doubtful accounts
Contractual rents and other tenant receivables presented net of an allowance for doubtful accounts. Estimates and assumptions
used in determining the allowance for doubtful accounts, include the historical credit loss experience adjusted for current
conditions and forward-looking information including future expectations of likely default events based on actual or expected
insolvency filings, likely deferrals of payments due and potential abatement to be granted by the landlord through tenant
negotiations or under government programs.
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.
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.
87 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Future Changes in Accounting Policies
RioCan monitors the potential changes proposed by the IASB and analyzes the effect that changes in the standards may have on
RioCan’s operations. Standards issued, but not yet effective, up to the date of issuance of the 2020 Annual Consolidated
Financial Statements for the year ended December 31, 2020, 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.
Amendments to IFRS 7, Financial Instruments: Disclosure, IFRS 9, IAS 39, Financial Instruments: Recognition and
Measurement IFRS 4, Insurance Contracts, and IFRS 16, Leases - Interbank Offered Rate (IBOR) Reform - Phase 2
In August 2020, the IASB published IBOR Reform Phase 2 which address issues that might affect financial reporting after the
reform of an interest rate benchmark, including its replacement with alternative benchmark rates.
For financial instruments at amortized cost, the amendments introduce a practical expedient such that if a change in the
contractual cash flows is as a result of IBOR reform and occurs on an economically equivalent basis, the change will be
accounted for by updating the effective interest rate with no immediate gain or loss recognized. The amendments also provide
temporary relief that allow the Trust's hedging relationships to continue upon replacement of the existing interest rate benchmark
with the alternative risk-free rate resulting from IBOR reform. The relief requires the Trust to amend hedge designations and
hedge documentation. Updates to hedging documentation must be made by the end of the reporting period in which a
replacement takes place. The amendments are effective for annual periods beginning on or after January 1, 2021, with earlier
application permitted. Management is in the process of assessing the impact of these amendments on contracts in scope,
including our IBOR-based financial instruments and hedge relationships.
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, 2023, 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, 2020, 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, 2020 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, 2020, 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, 2020 that have materially
affected, or are reasonably likely to materially affect, the Trust’s ICFR.
RioCan Annual Report 2020 88
MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
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 creditworthiness 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 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 provisions.
COVID-19 Health Crisis
COVID-19 and the resulting government restrictive measures continue to have a significant impact on the global and domestic
economy since the onset of the pandemic in March 2020. While many areas experienced a respite in case counts delineating the
first wave, the pandemic entered a second wave with increased case outbreaks in Q4 2020. As a result, some regional and
provincial governments in Canada have introduced or restored restrictive measures for certain businesses with certain regions
implementing containment measures that were reminiscent or more stringent than the measures instituted during the first wave.
These restrictions impose additional risks and uncertainties to RioCan's business, operations and financial performance as
discussed in this MD&A.
The Trust has implemented additional safety measures at all of its properties, including increased frequency in cleaning and
disinfecting, as well as physical distancing practices. As the COVID-19 pandemic evolves, the Trust will continue to act according
to directions provided by the Federal and applicable Provincial and Municipal governments. Despite the recent rollout of
vaccinations across Canada and globally, the longevity and extent of the pandemic, the duration and intensity of resulting
business disruptions and related financial, social and public health impacts currently remain fluid and uncertain.
Such continuing risks and uncertainties arising from the COVID-19 health crisis include, but are not limited to, consumer
demands for tenant's products or services; consumer foot traffic to tenant stores and RioCan shopping centres; changing
consumer habits and level of discretionary spending; mobility restrictions; increased unemployment; tenants' ability to adequately
staff their businesses; tenants' ability to pay rent as required under their leases; the extent of tenant business closures and
changes in tenant business strategies that may impact retail real estate occupancy; changes in the creditworthiness of tenants;
leasing activities; market rents; the availability, duration and effectiveness of various support programs that are or may be offered
by the various levels of government in Canada; the introduction or extension of temporary or permanent rent control or other form
of regulation or legislation that may limit the Trust's ability or its extent to raise rents based on market conditions upon lease
renewals or restrict existing landlord rights or landlord' ability to reinforce such landlord rights; the availability and extent of
support programs that the Trust may offer its tenants; timelines and costs related to the Trust's development projects; the pace of
property lease-up or rents and yields achieved upon development completion; domestic and global supply chains; labor supply
and demand; and the capitalization rates that arm's length buyers and sellers are willing to transact on properties.
89 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Many of these factors could not only impact RioCan's operations and financial performance but could also have a material
adverse impact on RioCan's investment property valuations because such factors could have a direct or indirect impact on
stabilized NOI, cash flows or capitalization rates, among others, that are inputs to investment property valuations. For the year
ended December 31, 2020, the Trust wrote down 3.7% of the IFRS value of its investment properties as of the beginning of the
year including assets held for sale, reflecting the Trust's current estimate of the effect of the pandemic on property valuation, as
well as the estimated effect of the depressed oil and gas market in Alberta. As the events unfold in association with the pandemic,
further adjustments to the Trust's IFRS value of investment properties, which could be negative or positive, may be required.
Refer to Note 3 of the 2020 Annual Consolidated Financial Statements for a sensitivity analysis of investment property valuations.
The ongoing pandemic could also impact the timelines and costs related to the Trust’s development projects, the progress of its
development program and annual development spend, the pace of property lease-up or rents and yields achieved upon
development completion, as well as the pace of maintenance capital expenditures. The current pandemic could also increase
risks associated with cyber security, information technology systems and networks, which in turn could impact the Trust's
business and operations.
The spread, duration and severity of COVID-19 could adversely affect global economies, including credit and capital markets,
resulting in a short-term or long-term economic downturn, which could potentially increase the difficulty and cost of accessing
capital. It could also potentially impact RioCan’s current credit ratings, total return and dividend yield of the Trust’s Units.
Ownership of Real Estate
Tenant Concentration
In the event tenants experience financial difficulty as a result of the difficulties presented by the global COVID-19 pandemic or
otherwise, and are unable to fulfill their 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 of
Trust 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.
In order to reduce RioCan’s exposure to the risks relating to credit and the financial stability of tenants, the Declaration of Trust
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, 2020, 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 a number of factors, including, but not
limited to, increased competition, internet sales, changing population demographics, poor economic conditions, rising costs and
changing shopping trends and/or perceptions. The pandemic has impacted almost every aspect of these factors and accelerated
certain tenant bankruptcy filings as disclosed in the Retailer Restructuring Filings section of this MD&A. Given the strength of
RioCan's tenant base, the impact of such restructuring filings based on confirmed store closures has been relatively small,
representing 0.9% of the Trust's annualized total rental revenue as of December 31, 2020. Nonetheless, tenant bankruptcies or
restructurings remain a risk that RioCan closely manages. 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.
RioCan Annual Report 2020 90
MANAGEMENT’S DISCUSSION AND ANALYSIS
Lease Renewals and Rental Increases
Growth of rental income is dependent on strong leasing markets to ensure expiring leases are renewed and new tenants are
found promptly to fill vacancies at rental rates similar to those paid by existing tenants in order for 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.
As at December 31, 2020, RioCan had a commercial NLA, at its interest, of 35,772,000 square feet of income producing
properties and a portfolio in-place occupancy rate of 94.9%. Based on our current annualized portfolio weighted average
commercial rental revenue of approximately $30.49 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 $417.7 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, the Trust's net income would be impacted by
approximately $4.2 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 Liquidity 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.
Regulatory Risk
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 and rent controls
did not apply to RioCan's current residential properties in the pre-pandemic world other than limited cases of rent replacement
units. However, there is no assurance that future governments will not reintroduce rent control measures. As a result of the
pandemic, the Ontario provincial government has passed legislation that will freeze residential rents in 2021 at 2020 levels until
December 31, 2021 for the vast majority of residential rental units in the province.
Any reintroduction of rent control legislation in the future and/or prolonged rent freezes under the pandemic could impact no only
the Trust's existing residential rental operations but also the Trust's certain mixed-use development projects' future NOI growth
potential. 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.
Under the pandemic, certain provinces including Ontario, have introduced regulation that limits landlords' ability to terminate a
tenancy should a commercial tenant fail to pay contract rent, provided this tenant has been approved to receive CERS funding or
has provided proof of the CERS approval to its landlord. Depending on the timing or duration of a tenant receiving or being
approved of for CERS funding, the moratorium on evictions can be in effect for a tenant until April 22, 2022. The length and extent
of applicability of the CERS program and resulting restrictions could impact RioCan's operations during the pandemic.
91 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
Development Risk
As discussed in the Business Environment and Outlook section of this MD&A, 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 current pandemic imposes additional risks and uncertainties on
development, which include but are not limited to, potential development or construction delays or shutdowns, rising costs in
some cases and lower costs in other cases, extension of rent freeze legislation introduced under the pandemic in certain
provinces such as Ontario, slower pace of property lease-up or condominium pre-sale, lower residential rent or condominium
sales price, and lower property valuation. The net effect of the pandemic on development is uncertain and difficult to predict and
is dependent on the length and severity of the second wave and rollout of the COVID-19 vaccine. The impact of development risk
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.
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. Depending on the length and severity of the pandemic, the current
temporary drop in immigration to Canada could be prolonged, despite the Canadian government's October 2020 announcement
on its target of increased immigration over the next three years. This could in turn impact the economy and housing market over
the long-term, although this is difficult to predict. As a landlord of 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, 2020, RioCan’s total indebtedness had a 3.86 year weighted average term to maturity bearing interest at a
weighted average contractual interest rate of 3.13% 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, 2020, 1.9% 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, 2020, the carrying value of our floating rate debt, not subject to a hedging strategy, is $91.2 million. A 50
basis point increase in market interest rates would result in a $0.5 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,
such changes can affect the cost at which we can access the debenture or preferred unit market, as applicable.
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
RioCan Annual Report 2020 92
MANAGEMENT’S DISCUSSION AND ANALYSIS
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.
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 acquisitions 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, 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.
Climate Change Risk
RioCan is exposed to climate-related risk in the form of natural disasters, severe weather, and emerging carbon-related
regulations. Such damage may result in loss of NOI from an investment property becoming non-operational, increased costs to
recover/repair properties from a natural disaster and inclement weather, the potential risk to the health and safety of our onsite
staff, tenants and customers and increased insurance costs to insure the property against natural disasters and severe weather
events.
RioCan understands the need to prepare and plan for climate-related risks by reducing greenhouse gas emissions in the
atmosphere and adapting to the impacts of extreme weather events. The Trust has identified key climate related risk including 1)
physical impacts of climate extremes and changes in climate over the next three decades under Intergovernmental Panel on
Climate Change (IPCC) Representative Concentration Pathway 8.5; 2) increase in the average number of heating degree days
that may be expected to experience each year in the future climate (2036-2060); and 3) potential transitional risks of more
stringent carbon policies on business, potentially affecting the marketability of its properties.
An action plan is underway to further classify and address these climate-related risks and opportunities and assess the
implications of both physical and transitional risks. RioCan will continue assessing climate-related risks, opportunities, and the
potential impact on its business, resulting from potential future climate scenarios. In addition, RioCan is utilizing the TCFD
recommendations to guide its strategy, plan and manage risk.
Cyber Security Risk
Cyber security continues to be an increasing area of focus as reliance on digital technologies to conduct business operations has
grown significantly. The introduction of work from home arrangements for many of the Trust's employees resulting from COVID-19
related restrictions has heightened the importance of cyber security risk management. 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 program focused across a spectrum of preventative protective and detective
measures. These measures include, but are not limited to, security awareness programs for employees, regular vulnerability
testing performed by both internal and 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 and in response to the challenges presented by the COVID-19 pandemic.
The Trust also follows certain protocols when it engages technology vendors concerning data security and access control.
93 RioCan Annual Report 2020
MANAGEMENT’S DISCUSSION AND ANALYSIS
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, insurrection, rebellion, revolution,
civil war, usurped power, or action taken by a government authority in hindering, combating or defending against such an event,
nuclear reaction or nuclear radiation or radioactive contamination 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.
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 statutes 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.
RioCan Annual Report 2020 94
Audited Annual Consolidated Financial Statements
for the Years Ended December 31, 2020 and 2019
TABLE OF CONTENTS
Management's Responsibility for Financial Reporting
Independent Auditor's Report
Consolidated Balance Sheets
Consolidated Statements of Income (Loss)
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Changes In Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
96
97
100
101
102
103
104
105
95 RioCan Annual Report 2020
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The management of RioCan Real Estate Investment Trust (the Trust or 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) as issued by the International Accounting Standards Board.
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, 2020, 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 2020 and 2019 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.
Chief Executive Officer
Qi Tang
Senior Vice President and Chief Financial Officer
Toronto, Canada
February 10, 2021
RioCan Annual Report 2020 96
INDEPENDENT AUDITOR’S REPORT
To the Unitholders of RioCan Real Estate Investment Trust
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, 2020 and 2019, and the consolidated statements of income
(loss), consolidated statements of comprehensive income (loss), 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, 2020 and 2019, 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.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the consolidated
financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial
statements as a whole, and in forming the auditor’s opinion thereon, and we do not provide a separate opinion on these matters.
For the matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial
statements section of our report, including in relation to this matter. Accordingly, our audit included the performance of
procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements.
The results of our audit procedures, including the procedures performed to address the matter below, provide the basis for our
audit opinion on the accompanying consolidated financial statements.
97 RioCan Annual Report 2020
INDEPENDENT AUDITOR’S REPORT (continued)
Key audit matter
Valuation of investment properties
How our audit addressed the key audit matter
The Trust’s investment property portfolio is comprised of
income-producing
under
development with a fair value of $14.1B which represents 92%
of total assets at December 31, 2020.
properties
properties
and
in
The Trust measures the vast majority of its investment
properties using valuations prepared by an internal valuations
team, consisting of individuals with specialized industry
real estate valuations. The valuation
experience
methodology for these investment properties is primarily
the direct
based on an
capitalization method. Properties under development
-
undeveloped land is measured using a comparable sales
approach on a land value per acre basis. Depending on the
property asset type and location, the Trust may also obtain
independent third-party valuations from firms that employ
qualified appraisers.
income approach, utilizing
Note 2.8 of the consolidated financial statements describes
the accounting policy for investment properties, and Note 3
describes the valuation method and key valuation inputs.
Note 3 of the consolidated financial statements discloses the
sensitivity of the fair value of investment properties to a
change in capitalization rates and stabilized net operating
income.
The valuation of the Trust’s investment property portfolio is a
key audit matter given the inherently subjective nature of
significant assumptions including, capitalization rates, and
stabilized net operating income including occupancy and
rental rate assumptions. These assumptions are influenced by
property-specific characteristics including location, type and
quality of the properties and tenancy agreements.
For properties under development, depending on
the
complexity and stage of completion, costs to complete
construction as well as leasing and construction risk are
additional significant assumptions
final
valuation.
impact
that
the
With the assistance of our real estate valuation specialists, we
obtained an understanding of the valuation process, evaluated
the appropriateness of the underlying valuation methodology,
and performed the following audit procedures, among others:
the
We assessed
competence and objectivity of
management’s internal valuations team, and any third-party
appraisers engaged, by considering the qualifications and
expertise of the individuals involved in the preparation and
review of the valuations.
We selected a sample of properties where either the fair value
change from prior year or significant assumptions fell outside
the
our expectations, based on our understanding of
geographical real estate market for the specific asset type. For
this sample of investment properties, we evaluated the
significant assumptions by comparison to the expected real
estate market benchmark range for similar assets and
tenancies, in similar locations. We also considered whether
there were any additional asset-specific characteristics that
may impact the significant assumptions utilized and that these
were appropriately considered in the overall assessment of
fair value. We performed a look-back analysis to assess the
accuracy of management’s historical fair value estimates
through comparison to transactions to acquire and dispose of
interests in investment properties completed by the Trust
during the year.
the
For properties under development,
procedures performed above, we compared construction
budgets to actual expenditures and evaluated estimated costs
to complete by comparing to contractual arrangements or
reference to third party data, as applicable, on a sample basis.
in addition
to
We also evaluated whether the capitalization rate used to
value properties under development considered
the
complexity of the development, stage of completion, and
timing of cashflows.
We evaluated the Trust’s critical accounting policies and
related disclosures in the consolidated financial statements to
assess appropriateness and conformity with IFRS.
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 & Analysis and the Annual Report 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.
RioCan Annual Report 2020 98
INDEPENDENT AUDITOR’S REPORT (continued)
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 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.
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:
•
•
•
•
•
than
forgery,
involve collusion,
for one resulting
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
intentional omissions,
fraud may
from error, as
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.
From the matters communicated with those charged with governance, we determine those matters that were of most significance
in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Mark Vrooman, CPA, CA.
Toronto, Canada
February 10, 2021
99 RioCan Annual Report 2020
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
Total liabilities and equity
Note
December 31, 2020
December 31, 2019
3, 8
$
14,063,022 $
14,359,127
9
4
5
6
3
7, 8
12
11
10
8, 13
$
$
$
$
—
209,676
160,646
214,181
198,094
183,633
238,456
12,045
190,508
175,951
108,956
21,800
226,423
93,516
15,267,708 $
15,188,326
3,340,278 $
2,797,066
790,539
604,852
7,532,735 $
2,891,648
2,412,451
1,086,719
492,297
6,883,115
7,734,973
15,267,708 $
8,305,211
15,188,326
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
RioCan Annual Report 2020 100
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(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 (loss)
Interest income
Income from equity-accounted investments
Fair value (losses) 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 (loss) before income taxes
Current income tax recovery
Deferred income tax expense
Net income (loss)
Net income (loss)
Unitholders
Net income (loss) per unit
Basic
Diluted
The accompanying notes are an integral part of the consolidated financial statements.
Note
2020
2019
17
17
17
19
4
3
18
20
21
22
23
23
$
1,090,732 $
1,093,727
36,347
16,584
208,965
23,633
1,143,663
1,326,325
377,787
64,751
20,842
463,380
680,283
14,602
3,985
(526,775)
8,216
(499,972)
384,404
20,621
172,688
577,713
748,612
16,916
10,051
247,624
7,732
282,323
180,811
182,780
40,524
10,192
2,934
234,461
(54,150)
(275)
10,905
46,814
11,309
12,833
253,736
777,199
(699)
2,064
(64,780) $
775,834
(64,780) $
(64,780) $
775,834
775,834
(0.20) $
(0.20) $
2.52
2.52
$
$
$
$
$
101 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands of Canadian dollars)
Years ended December 31,
Net income (loss)
Other comprehensive income (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 loss on pension plan
Other comprehensive loss, net of tax
Comprehensive income (loss), net of tax
Comprehensive income (loss), net of tax attributable to:
Unitholders
The accompanying notes are an integral part of the consolidated financial statements.
Note
2020
2019
$
(64,780) $
775,834
14
14
4, 14
14
$
$
(64,550)
16,469
(333)
(14,807)
2,821
(51)
(2,650)
(51,064)
(115,844) $
(972)
(13,009)
762,825
(115,844) $
762,825
RioCan Annual Report 2020 102
1
0
3
i
R
o
C
a
n
A
n
n
u
a
l
R
e
p
o
r
t
2
0
2
0
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands of Canadian dollars)
Balance, December 31, 2018
Adjustment on adoption of IFRS 16
Balance, January 1, 2019
Changes during the year:
Net income
Other comprehensive loss
Unit-based compensation exercises, net of Units repurchased
for settlement of Unit exercises
Units issued, net of issuance costs
Units purchased and cancelled
Unit-based compensation awards
Distributions to unitholders
Balance, December 31, 2019
Note
$
$
14
14
14
14
14
16
Trust Units Contributed surplus
4,484,827 $
33,449 $
Retained earnings
Accumulated other
comprehensive loss
3,152,383 $
(4,269) $
Total equity
7,666,390
—
—
(835)
—
(835)
4,484,827 $
33,449 $
3,151,548 $
(4,269) $
7,665,555
—
—
23,085
320,585
(14,400)
—
—
—
—
(4,259)
—
—
6,878
—
775,834
—
—
—
(10,596)
—
(444,462)
—
(13,009)
—
—
—
—
—
775,834
(13,009)
18,826
320,585
(24,996)
6,878
(444,462)
$
4,814,097 $
36,068 $
3,472,324 $
(17,278) $
8,305,211
Balance, December 31, 2019
Changes during the year:
Net loss
Other comprehensive loss
Unit-based compensation exercises, net of Units repurchased
for settlement of Unit exercises
Units issued, net of issuance costs
Unit-based compensation awards
Distributions to unitholders
Balance, December 31, 2020
Note
Trust Units Contributed surplus
Retained earnings
Accumulated other
comprehensive loss
Total equity
$
4,814,097 $
36,068 $
3,472,324 $
(17,278) $
8,305,211
14
14
14
14
16
—
—
484
649
—
—
—
—
(6,722)
—
8,720
—
(64,780)
—
—
—
—
(457,525)
—
(51,064)
—
—
—
—
(64,780)
(51,064)
(6,238)
649
8,720
(457,525)
$
4,815,230 $
38,066 $
2,950,019 $
(68,342) $
7,734,973
The accompanying notes are an integral part of the consolidated financial statements.
RIOCAN REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
Years ended December 31,
Operating activities
Net income (loss)
Items not affecting cash:
Depreciation and amortization
Amortization of straight-line rent
Unit-based compensation expense
Income from equity-accounted investments
Fair value losses (gains) on investment properties, net
Deferred income tax expense
Fair value gains on marketable securities
Transaction (gains) losses, 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
Proceeds from sale of marketable securities, net of selling costs
Lease payments received from finance lease receivables
Cash 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 paid to Unitholders
Units repurchased under normal course issuer bid
Units repurchased for settlement of Unit compensation exercises and proceeds
received from issuance of Units, net of issue costs
Repayment of lease liabilities
Cash provided by 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
2020
2019
$
(64,780) $
775,834
4,342
(7,177)
9,120
(3,985)
526,775
11,645
(878)
(2)
77,524
552,584
(86,329)
(455,042)
(20,171)
(41,421)
98,115
(3,003)
(18,924)
10,619
(44,874)
70,027
19,001
2,664
4,381
(8,880)
6,478
(10,051)
(247,624)
1,694
(8,030)
1,157
53,927
568,886
(563,063)
(463,766)
(30,884)
(42,436)
480,296
(1,311)
(6,975)
16,382
(45,587)
31,374
44,000
2,088
(469,338)
(579,882)
797,862
(416,173)
308,702
(609,040)
845,737
(400,000)
(457,521)
—
(5,778)
(2,095)
61,694
144,940
93,516
$
238,456 $
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
21
17
14
4
3
18
29
4
4
18
12
12
28
28
RioCan Annual Report 2020 104
Notes to Consolidated Financial Statements
for the Years Ended December 31, 2020 and 2019
Canadian dollars, tabular amounts in thousands, except
per unit amounts or unless otherwise noted
TABLE OF CONTENTS
1. General Information
106
18.
Investment and Other Income
2.
Significant Accounting Policies
106
19.
Interest Income
3.
Investment Properties
118
20.
Interest Costs
4.
Equity-accounted Investments and Joint
Arrangements
124
21. General and Administrative
5. Mortgages and Loans Receivable
126
22. Transaction and Other Costs
6.
Residential Inventory
126
23. Net Income (Loss) per Unit
7.
Receivables and Other Assets
127
24. Fair Value Measurement
8.
Leases
128
25. Risk Management
9.
Income Taxes
130
26. Capital Management
10. Lines of Credit and Other Bank Loans
130
27. Subsidiaries
11. Mortgages Payable
131
28. Supplemental Cash Flow Information
12. Debentures Payable
132
29. Changes in Other Working Capital Items
13. Accounts Payable and Other Liabilities
133
30. Related Party Transactions
14. Unitholders' Equity
134
31. Employee Benefits
15. Unit-based Compensation Plans
135
32. Segmented Information
16. Distributions to Unitholders
137
33. Contingencies and Other Commitments
17. Revenue
138
34. Events after the Balance Sheet Date
139
139
139
139
139
140
140
142
144
146
147
147
147
148
149
149
150
105 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
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-focused 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 2, 2020. 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 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, 2020 and 2019 were authorized for issue
by RioCan's Board of Trustees on February 10, 2021.
2. 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 have been applied consistently in all material respects in the preparation of
these consolidated financial statements. Any IFRS standards issued but not yet effective for the current accounting year are
described in Note 2.28.
2.1 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).
2.2 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, including properties held for sale, and certain financial instruments, as
set out in the relevant accounting policies. These consolidated financial statements are presented in Canadian dollars, which is
the functional and presentation currency of the Trust. All dollar amounts discussed herein are in thousands of Canadian dollars,
unless otherwise stated.
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. Any IFRS standards issued but not yet effective up to the date of
issuance of these consolidated financial statements are described in Note 2.28. Certain comparative amounts have been
reclassified to conform to the current year's presentation.
2.3 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 2.8. 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 and residential inventory
Development costs for properties under development and residential inventory are capitalized during active development in
accordance with the accounting policy in Note 2.8. 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 - 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.
RioCan Annual Report 2020 106
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
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 (loss).
2.4 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 (loss) 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.
Elevated estimation uncertainty as a result of COVID-19
Since the outbreak of COVID-19 and the declaration by the World Health Organization as a global pandemic on March 11, 2020,
various authorities, including Canadian federal and provincial governments, introduced certain restrictive measures which include,
but are not limited to, travel bans, quarantines, self-isolation, social distancing and the closure of non-essential businesses in an
effort to reduce the spread of the pandemic. Many of the measures that were introduced at the outset of the pandemic continue to
remain in place, and vary depending on the spread and rate of infections.
Given the continuously evolving circumstances surrounding COVID-19, it is difficult to predict with certainty the nature, extent and
duration of COVID-19, and the duration and intensity of resulting business disruptions and related financial, social and public
health impacts. Such effects could be adverse and material, including their potential effects on RioCan's business, operations and
financial performance both in the short-term and long-term.
Estimates and assumptions that are most subject to increased uncertainty caused by the COVID-19 pandemic relate to the
valuation of investment properties and the assessment of collectability of contractual rents receivable due to the forward-looking
nature of the information (Note 3 and Note 7).
The amounts recorded in these consolidated financial statements are based on the latest reliable information available to
management at the time the consolidated financial statements were prepared where that information reflects conditions at the
date of the consolidated financial statements. However, given the heightened level of uncertainty caused by COVID-19, these
assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the
affected asset or liability in the future.
Investment property
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 fees and structural reserves)
and costs to complete and other temporary valuation allowances, if applicable, are adjusted to reflect lease-up assumptions and
construction risk, when appropriate. 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. The carrying value for the Trust's investment properties reflects its best
estimate for the highest and best use as at December 31, 2020 (Note 3).
Contractual rents and other tenant receivables - allowance for doubtful accounts
Contractual rents and other tenant receivables presented net of an allowance for doubtful accounts. Estimates and assumptions
used in determining the allowance for doubtful accounts, include the historical credit loss experience adjusted for current
conditions and forward-looking information including future expectations of likely default events based on actual or expected
insolvency filings, likely deferrals of payments due and potential abatements to be granted by the landlord through tenant
negotiations or under government programs, and macroeconomic conditions.
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 2.15. In addition, the Trust uses estimates and assumptions for determining the fair values of financial instruments for
disclosure purposes (Note 24).
107 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
2.5 Basis 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 (loss)
attributable to non-controlling interests is separately disclosed in the Trust's consolidated statements of income (loss).
(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.
(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 (loss) and
consolidated statements of comprehensive income (loss).
2.6 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 Trust has an option to apply a ‘concentration test’ that permits a simplified assessment of whether an acquired set of
activities and assets is not a business. The optional concentration test is met and the acquisition can be treated as an asset
acquisition, if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group
of similar identifiable assets.
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 (loss). The difference between the purchase price and the Trust’s net fair value of the acquired identifiable net assets
and liabilities is goodwill. 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.
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RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
2.7 Fair value measurement
The Trust measures certain financial instruments, such as derivatives, and non-financial assets, such as investment properties, at
fair value at each consolidated balance sheet date. Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is determined by
incorporating all factors that market participants would consider in setting a price acting in their economic best interests, including
commonly accepted valuation approaches. The fair value measurement is based on the presumption that the transaction to sell
the asset or transfer the liability takes place either:
•
•
In the principal market for the asset or liability; or
In the absence of a principal market, in the most advantageous market for the asset or liability that is accessible by
RioCan.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits
by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest
and best use.
The Trust uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to
measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value
measurement as a whole:
•
•
•
Level 1 - quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - valuation techniques for which the lowest level input that is significant to the fair value measurement is directly
or indirectly observable
Level 3 - valuation techniques for which the lowest level input that is significant to the fair value measurement is
unobservable
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Trust determines
whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input
that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, RioCan has determined classes of assets and liabilities on the basis of the nature,
characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
2.8 Investment properties
Investment properties comprise of income properties and property under development that are held to earn rental revenue or for
capital appreciation or both. Real estate property held under a lease is classified as investment property, if it meets the definition
of investment property, as further described in Note 2.11.A(i).
(i) Income properties
Income properties are initially measured at cost. Costs include all amounts related to acquisition, including transaction costs
related an asset acquisition as outlined in Note 2.6, 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 (loss) 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
109 RioCan Annual Report 2020
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
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 (loss).
Investment properties are derecognized on disposal or when no future economic benefits are expected from their use or disposal.
2.9 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.
Residential inventory is reviewed for impairment at each reporting period date. An impairment loss is recognized in net income
(loss) 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.
2.10 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.
2.11 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. At inception, the ROU assets are recognized at the present value of the future minimum lease payments, and
an equivalent amount is recognized as a lease obligation. Subsequent to initial recognition, ROU assets for property leases
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.
RioCan Annual Report 2020 110
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
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.
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).
(ii) Lease modifications
From time to time, RioCan may agree with tenants to modify the terms of lease agreements, including changes to the
consideration under the lease. When the changes result in a reduction in amounts receivable relating to past lease periods,
RioCan applies IFRS 9 in determining whether to partially or fully derecognize those receivables. Other changes to the terms
and conditions of the lease are treated as lease modifications in accordance with IFRS 16 Leases, and the modified lease is
accounted for as a new lease from the effective date of the modification, with any prepaid or accrued lease payments relating
to the original lease included as part of the lease payments for the new lease.
2.12 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.
111 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
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.
(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 marketing 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.
RioCan Annual Report 2020 112
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
2.13 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 (loss), 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.
2.14 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. 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 (loss).
2.15 Recognition and measurement of financial instruments
Financial assets include RioCan's net contractual rents and other tenant receivables, mortgages and loans receivable, cash and
cash equivalents, amounts due on condominium final closings, funds held in trust, marketable securities, derivative contracts and
other receivables. Financial liabilities include RioCan's operating lines of credit, mortgages payable, debentures payable,
accounts payable related to property operating costs, and capital expenditures and leasing commissions, trade payables and
accruals, deposits received from customers on residential inventory 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 (loss), 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 2.19 for further
discussion regarding hedge accounting policies.
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) Comprised of cash and cash equivalents in the form of a Guaranteed Investment Certificate "GIC" in the amount of $40.0 million as at December
31, 2020 (Nil - December 31, 2019).
113 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
Included in receivables and other assets on the consolidated balance sheet.
(ii)
(iii) Financial instruments in receivables and other assets that are classified as at amortized cost include net contractual rents and other tenant
(iv)
receivables, amounts due on condominium final closings, funds held in trust and other receivables.
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 (loss) 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 (loss) on derecognition for loans and receivables only, or (iii) fair
value through profit or loss (FVTPL). The Trust does not have any financial assets classified as FVOCI.
(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 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.
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.
2.16 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 net contractual rents and other tenant
receivables 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 (loss).
Once these financial assets are identified as impaired, the Trust continues to recognize interest income based on the original
RioCan Annual Report 2020 114
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
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, in addition to a provision matrix by tenant category, to measure the
ECL for net contractual rents and other tenant receivables and applies loss factors accordingly, incorporating forward-looking
information including assessing the viability of retail tenants.
Mortgages and loans receivable, amounts due on condominium closings, finance lease receivables and net contractual rents and
other tenant receivable receivables, together with the associated allowance, are written off when there is no realistic prospect of
future recovery and all collateral has been realized or has been transferred to RioCan.
2.17 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.
2.18 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.
2.19 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
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 immediately in net income (loss).
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 (loss). 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 (loss) 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.
2.20 Comprehensive income (loss)
Comprehensive income (loss) 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 (loss) of equity-accounted investments. The Trust reports consolidated statements of
comprehensive income (loss) comprising net income (loss) and OCI for the year.
115 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
2.21 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:
Current income tax assets and liabilities are measured at the amount expected to be received from or paid to tax authorities
based on the tax rates and laws enacted or substantively enacted at the consolidated balance sheet dates.
Deferred tax liabilities are measured by applying the appropriate tax rate to taxable temporary differences between the carrying
amounts of assets and liabilities, and their respective tax basis. The appropriate tax rate is determined by reference to the rates
that are expected to apply to the year and the jurisdiction in which the assets are expected to be realized or the liabilities settled.
Deferred tax assets are recorded for all deductible temporary differences, carry forward of unused tax credits and unused tax
losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences,
unused tax credits and unused tax losses can be utilized. Current and deferred income taxes are recognized in correlation to the
underlying transaction either in OCI or directly in equity.
2.22 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
2.23 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.
2.24 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.
2.25 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 (loss), 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.
2.26 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
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.
RioCan Annual Report 2020 116
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
2.27 Changes in accounting policies
The accounting policies used in the preparation of the consolidated financial statements are consistent with those of the prior
year, except for the adoption of new standards and interpretations effective January 1, 2020 as follows:
Amendments to IFRS 7, Financial Instruments: Disclosure, IFRS 9 and IAS 39, Financial Instruments: Recognition and
Measurement - Interbank Offered Rate (IBOR) Reform - Phase 1 (IBOR Reform Phase 1)
Amendments to IFRS 9 and IAS 39 provide relief from the potential effects of the uncertainty arising from Interbank Offered Rate
(IBOR) reform, in particular during 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. These amendments did not impact the Trust's consolidated financial statements upon adoption.
Amendments to IFRS 3, Business Combinations - Definition of a Business
The amendments to the definition of a business in IFRS 3 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 applied prospectively to transactions or other events that occur on or after the date of first application.
and did not have a significant impact on the Trust's consolidated financial statements.
Amendments to IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Accounting Estimates
and Errors - Definition of Material
Amendments to IAS 1 and IAS 8 align the definition of "material" across the standards and 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. The adoption of the amendments to the definition
of material did not have a significant impact on the Trust's consolidated financial statements.
2.28 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.
Amendments to IFRS 7, Financial Instruments: Disclosure, IFRS 9, IAS 39, Financial Instruments: Recognition and Measurement
IFRS 4, Insurance Contracts, and IFRS 16, Leases - Interbank Offered Rate (IBOR) Reform - Phase 2 (IBOR Reform Phase 2)
In August 2020, the IASB published IBOR Reform Phase 2 which address issues that might affect financial reporting after the
reform of an interest rate benchmark, including its replacement with alternative benchmark rates.
For financial instruments at amortized cost, the amendments introduce a practical expedient such that if a change in the
contractual cash flows is as a result of IBOR reform and occurs on an economically equivalent basis, the change will be
accounted for by updating the effective interest rate with no immediate gain or loss recognized. The amendments also provide
temporary relief that allow the Trust's hedging relationships to continue upon replacement of the existing interest rate benchmark
with the alternative risk-free rate resulting from IBOR reform. The relief requires the Trust to amend hedge designations and
hedge documentation. Updates to hedging documentation must be made by the end of the reporting period in which a
replacement takes place. The amendments are effective for annual periods beginning on or after January 1, 2021, with earlier
application permitted. Management is in the process of assessing the impact of these amendments on contracts in scope,
including our IBOR-based financial instruments and hedge relationships.
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, 2023, with early adoption permitted. The
amendments are to be applied retrospectively. Management is currently assessing the impact of this amendment.
117 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
3. INVESTMENT PROPERTIES
As at
Income properties
Properties under development
Year ended December 31, 2020
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 loss, 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, 2020
December 31, 2019
$
$
12,740,959 $
1,322,063
14,063,022 $
Income properties
Properties under
development
$
13,120,545 $
1,260,382 $
74,070
(66,250)
—
14,083
35,648
220,776
—
(500,872)
7,177
(4,009)
5,966
—
36,149
(84,610)
457,109
—
—
(220,776)
(71,259)
(25,903)
—
—
—
2,890
13,120,545
1,238,582
14,359,127
Total (iv)
14,380,927
110,219
(150,860)
457,109
14,083
35,648
—
(71,259)
(526,775)
7,177
(4,009)
5,966
2,890
$
$
$
12,907,134 $
1,353,982 $
14,261,116
12,740,959 $
166,175
12,907,134 $
1,322,063 $
31,919
1,353,982 $
14,063,022
198,094
14,261,116
(i) During the year ended December 31, 2020, transfers to income properties from properties under development totalled $381.8 million, reflecting
completed developments. Transfers from income properties to properties under development totalled $161.0 million, reflecting the commencement
of active development on certain income properties during the year.
(ii) During the year ended December 31, 2020, a portion of RioCan Leaside Centre, a portion of Queensway, 2939 – 2943 Bloor Street West and a
portion of Clarkson Village were transferred to residential inventory from investment property as appropriate evidence of a change in use was
established.
Included in investment properties is $116.5 million of net rents receivable arising from the recognition of rental revenue on a straight-line basis over
the lease term (December 31, 2019 - $111.1 million).
Included in investment properties are 12 properties held as ROU assets as at December 31, 2020. Refer to Note 8.
(iv)
(iii)
RioCan Annual Report 2020 118
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
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
Income properties
Properties under
development
Total (v)
$
12,167,153 $
1,036,495 $
13,203,648
(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
(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
$
$
$
13,120,545 $
1,260,382 $
14,380,927
13,120,545 $
1,238,582 $
14,359,127
—
21,800
21,800
13,120,545 $
1,260,382 $
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.
Included in investment properties are 11 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 8.
(v)
Acquisitions
The following table summarizes the Trust's acquisitions of properties:
As at December 31,
Properties acquired during the year:
Total consideration
Debt assumed
Other liabilities assumed
Income properties
Properties under development
2020
2019
2020
2019
$
74,070 $
822,671 $
36,149 $
118,541
(15,701)
(194,152)
—
(13,726)
—
—
(65,288)
(5,506)
47,747
Total consideration, net of liabilities assumed (i)
$
58,369 $
614,793 $
36,149 $
(i) All consideration has been allocated to income properties and includes $100.0 million of equity issued to KingSett in connection with the
acquisition of Yonge Sheppard Centre on August 30, 2019.
119 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
Investment properties acquisitions
Property name and location
Date
acquired
Interest
acquired
IPP
Purchase
price (i)
PUD
Purchase
price (i)
Debt
assumed
Queensway Development component, Toronto, ON (ii) December 31, 2020
2956 Eglinton Avenue East, Toronto, ON
December 1, 2020 100.0 %
50.0 % $
— $
2,110 $
Total acquisitions for the three months ended December 31, 2020
$
2290 Lawrence Avenue East, Scarborough, ON
March 19, 2020 100.0 % $
3180 Dufferin Street, Toronto, ON
2345 Yonge Street, Toronto, ON
2329 Yonge Street, Toronto, ON (iii)
2947-2951 Bloor Street West, Toronto, ON
RioCan Marketplace, Toronto, ON
March 2, 2020
March 5, 2020
50.0 %
50.0 %
50.0 %
February 20, 2020
January 31, 2020 100.0 %
33.3 %
January 9, 2020
Total acquisitions for the three months ended March 31, 2020
Total acquisitions for the year ended December 31, 2020
$
$
5,370
5,370 $
—
2,110 $
— $
—
5,587 $
28,452
37,053
7,909
4,767
18,971
—
—
—
—
68,700 $
34,039 $
—
—
—
—
—
—
4,250
—
11,451
15,701
74,070 $
36,149 $
15,701
(i) Purchase price includes transaction costs.
(ii) The acquisition of the remaining 50% interest in the Queensway Development component included both properties under development and
residential inventory, and was allocated as $2.1 million and $19.0 million, respectively including transaction costs. The transaction price was
partially settled by the sale of RioCan's 50% interest in Queensway Cineplex component for $11.0 million.
(iii) Debt and other liabilities assumed includes a $4.3 million vendor-take-back mortgage payable to the vendor.
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.
Dispositions
The following table summarizes the Trust's dispositions of investment property:
Years ended December 31,
Properties disposed during the year:
Total consideration
Income properties
Properties under development
2020
2019
2020
2019
$
66,250 $
451,190 $
84,610 $
38,141
Mortgages associated with investment property dispositions
Vendor take-back mortgages receivable on dispositions
Other accounts receivable (i)
(12,112)
(25,000)
(4,056)
—
(5,200)
—
—
—
(675)
—
—
—
Total consideration, net of related debt
$
25,082 $
445,990 $
83,935 $
38,141
(i) Repaid on July 2, 2020.
RioCan Annual Report 2020 120
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
Investment properties dispositions
Property name and location
Q4 2020
Date disposed
Interest
disposed
IPP
sales
proceeds
PUD
sales
proceeds
Cost
recoveries
Queensway Cineplex component, Toronto, ON (i)
2939-2943 Bloor Street West, Toronto, ON (ii)
The Well (Building A & B), Toronto, ON (iii)
5th & THIRD, Calgary, AB (iv)
RioCan Centre Kirkland, Kirkland, QC (v)
740 Stewart Street, Renfrew, ON (Vacant land)
December 31, 2020
December 30, 2020
December 23, 2020
December 21, 2020
December 21, 2020
December 1, 2020
Tanger Outlets Ottawa, Kanata, ON (Vacant land)
Total dispositions for the three months ended December 31, 2020
November 27, 2020
Q3 2020
Frontenac Mall, Kingston, ON
RioCan Centre Burloak, Oakville, ON
Dufferin Plaza, Toronto, ON (vi)
Elmvale Acres - Phase One (Luma), Ottawa, ON
September 8, 2020
August 18, 2020
August 10, 2020
July 30, 2020
Total dispositions for the three months ended September 30, 2020
50 % $
50 %
40 %
100 %
50 %
100 %
50 %
$
30 % $
100 %
50 %
50 %
$
11,000 $
—
—
—
19,000
—
—
30,000 $
— $
398
23,327
20,396
—
350
—
—
1,626
—
—
—
3,686
48,157 $
—
1,626
3,250 $
—
—
—
3,250 $
— $
9,200
1,725
3,813
14,738 $
—
—
—
9,842
9,842
Q2 2020
The Shops of Summerhill, Toronto, ON (vii)
June 23, 2020
Total dispositions for the three months ended June 30, 2020
75 % $
$
33,000 $
33,000 $
— $
— $
Q1 2020
5th & THIRD, Calgary, AB (iv)
March 31, 2020
Mega Centre Notre-Dame, Laval, QC
Total dispositions for the three months ended March 31, 2020
February 19, 2020
Total dispositions for the year ended December 31, 2020
100 % $
100 %
$
$
— $
—
— $
11,715 $
10,000
21,715 $
66,250 $
84,610 $
11,468
(i)
The Queensway property is comprised of two parcels: the Development component and the Cineplex land component. RioCan disposed of its
50% interest in the Cineplex component and acquired the remaining 50% of the Development component.
(ii) RioCan disposed of 100% of the 2939-2943 Bloor Street West to the RioCan-Fieldgate JV (Note 4) as part of the consideration to obtain a 50%
interest in that joint venture. The disposition included both properties under development assets and residential inventory, the net sales proceeds
were allocated as $0.4 million and $3.7 million, respectively.
(iii) RioCan and its partners at The Well, completed the sale of the residential air rights and podium space at Building A and B of The Well.
(iv) On March 31, 2020, RioCan completed the pre-agreed sale of 100% interest in one-third of the air rights relating to the 5th & THIRD project.
Subsequently, on December 21, 2020, RioCan completed the sale of the remaining 100% interest in two-thirds of the residential air rights strata
parcel at 5th & THIRD.
(v) The Trust sold its 50.0% interest in the lands at RioCan Centre Kirkland. RioCan provided a vendor take-back mortgage of $15.0 million related to
this transaction. Kirkland is a multi-phase project and each staggered phase of the project will remain income producing prior to its development
start. As a result, the partners have entered into an agreement whereby RioCan will have a 100% interest in the pre-development leases and be
solely responsible for maintaining and operating each phase until it is development ready.
(vi) On August 10, 2020, RioCan sold 50% interest in Dufferin Plaza, for total sales proceeds of $28.8 million, of which $11.3 million was recorded as
a receivable, which is due upon the completion of several pre-construction development phases. The disposition included both properties under
development assets and residential inventory, the sales proceeds were allocated as $1.7 million and $27.0 million, respectively.
(vii) Upon disposition of The Shops of Summerhill, the purchaser assumed $12.1 million of debt. RioCan provided a vendor take-back mortgage of
$14.1 million related to this transaction, of which $4.1 million was repaid on July 2, 2020 and the remainder was repaid on December 31, 2020.
121 RioCan Annual Report 2020
—
—
—
—
—
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
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, 2020
December 31, 2019
$
$
166,175 $
31,919
198,094 $
—
21,800
21,800
As at December 31, 2020, RioCan has six investment properties held for sale with a carrying value of $198.1 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
24 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. The internal valuations team utilizes appraisal methodologies largely consistent with the practices
employed by third party appraisers. 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 ended December 31, 2020, the Trust obtained a total of 29 external property appraisals (including 5 vacant land
parcels), which supported an IFRS fair value of approximately $2.1 billion, or 15% of the Trust's investment property portfolio as
at December 31, 2020. In 2021, 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 is 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
RioCan Annual Report 2020 122
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
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.
•
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
Income - producing properties/
Properties under development
Direct capitalization
income approach
SNOI
Capitalization rate
Relationship between key unobservable inputs
and fair value measurement
There is an inverse relationship between the
capitalization rate and the fair value; in other words,
the higher the capitalization rate, the lower the
estimated fair value.
Generally, an increase in SNOI will result in an
increase in the estimated fair value of the properties.
Costs to complete
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 fair value.
Properties under development -
undeveloped land
Comparable sales
approach
Market
comparison
Land value is in line with market trends.
As at December 31, 2020, the weighted average capitalization rate for the Trust's investment properties and properties held for
sale is 5.44% (December 31, 2019 - 5.28%).
For the year ended December 31, 2020, the Trust reported fair value losses of $526.8 million which reflects the estimated effect
of the COVID-19 pandemic on property cash flows and capitalization rates, as well as the estimated effect of the depressed oil
and gas markets. The carrying value for the Trust's investment properties reflects its best estimate for the highest and best use as
at December 31, 2020.
The longevity and extent of the pandemic, the duration and intensity of resulting business disruptions and related financial, social
and public health impacts continue to be uncertain. Such effects could be adverse and material, including their potential effects
on RioCan's tenants and the Trust's business, operations and financial performance both in the short-term and long-term, which
in turn, could further impact RioCan investment property valuations. As the events unfold in association with the pandemic, further
adjustments to the Trust's IFRS value of investment properties, which could be negative or positive, may be required. Refer to
below for a sensitivity analysis of investment property valuations.
123 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
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, 2020
0.25%
0.50%
0.75%
1.00%
4.44 % $
4.69 %
4.94 %
5.19 %
5.44 %
5.69 %
5.94 %
6.19 %
6.44 %
3,275,413
2,293,613
1,430,098
717,788
—
(632,152)
(1,203,622)
(1,723,957)
(2,199,437)
A 0.25% increase in capitalization rate would result in a lower portfolio fair value of $632.2 million. A 0.25% decrease in
capitalization rate would result in a higher portfolio fair value of $717.8 million. In addition, a 1% increase in SNOI would result in
a higher portfolio fair value of $134.4 million. A 1% decrease in SNOI would result in a lower portfolio fair value of $134.8 million.
A 1% increase in SNOI coupled with a 0.25% decrease in capitalization rates would result in a higher portfolio fair value of $859.5
million. A 1% decrease in SNOI coupled with a 0.25% increase in capitalization rates would result in a lower portfolio fair value of
$760.3 million. A 1% increase in costs to complete for the development properties would result in a lower portfolio fair value of
$2.8 million, and a 1% decrease in costs to complete for the development properties would result in a higher portfolio fair value of
$2.8 million.
4. 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
RioCan-Fieldgate LP
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
Development and sale of residential inventory
December 31, 2020 December 31, 2019
— %
50.0 %
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 %
12.6 %
14.2 %
19.3 %
20.0 %
18.4 %
RioCan-Fieldgate LP (2915-2943 Bloor Street West LP)
On December 30, 2020, RioCan formed a 50/50 joint venture, the RioCan-Fieldgate LP, to build a mixed-use condominium
project on Bloor Street West. In exchange for units in the partnership, RioCan sold its property at 2939 – 2943 Bloor Street West
to the joint venture, generating a $1.4 million gain, and contributed an additional $8.0 million of cash including reimbursement of
its share of development costs incurred to date. Fieldgate Urban contributed its property at 2915 – 2917 Bloor Street West to the
joint venture in exchange for units in the partnership. Through their respective equity investments in the joint venture, each
partner effectively owns 50% of the combined property comprised of $29.6 million of residential inventory and $3.4 million of
properties under development.
RioCan Annual Report 2020 124
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
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, 2020:
Years ended December 31,
Balance, beginning of year
Contributions (i)
Share of net income
Distributions
Other comprehensive loss from equity-accounted investments
Other
Balance, end of year
2020
$
190,508 $
26,261
3,985
(10,619)
(333)
(126)
2019
189,817
6,975
10,051
(16,382)
(51)
98
$
209,676 $
190,508
(i)
Includes a contribution of residential inventory and properties under development of $7.3 million, net of deferred gains.
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, 2020
December 31, 2019
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
$
4,068 $
460,917 $
464,985
$
4,679 $
279,822 $
284,501
1,990,538
25,565
2,016,103
2,037,539
23,944
2,061,483
313,707
88,957
402,664
10,006
88,225
98,231
508,094
156,310
664,404
812,093
43,278
855,371
$
$
1,172,805 $
241,215 $
1,414,020
150,578 $
59,098 $
209,676
$
$
1,220,119 $
172,263 $
1,392,382
156,554 $
33,954 $
190,508
Years ended December 31,
2020
2019
Revenue
Operating expenses
Fair value (losses) gains
Interest expense
Net income (loss)
Income from equity-accounted investments
RioCan-HBC JV
Other
Total
RioCan-HBC JV
Other
Total
$
142,409 $
23,959 $
166,368
$
145,255 $
56,989 $
202,244
22,499
8,693
31,192
(70,566)
(1,779)
(72,345)
36,632
418
12,712 $
13,069 $
1,590 $
2,395 $
37,050
25,781
3,985
$
$
$
$
20,767
(67,772)
39,042
547
425
17,674 $
47,954 $
2,208 $
7,843 $
(67,225)
39,467
65,628
10,051
9,157
29,924
(i) RioCan-HBC JV 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 88.4% of the JV's investment
property portfolio.
(ii) As at December 31, 2020, total current liabilities includes $365.9 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, Joint Arrangements. As at December 31,
2020, the Trust had 43 such joint operations, of which one is considered individually significant: The Well, located in Toronto,
Canada. RioCan has a 50% ownership interest in the commercial component and a 40% interest in the residential component of
The Well.
125 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
5. MORTGAGES AND LOANS RECEIVABLE
As at December 31,
Current
Non-current
Mortgages and loans receivable measured at amortized cost
$
$
2020
65,613 $
95,033
160,646 $
2019
9,818
166,133
175,951
As at December 31, 2020, mortgages and loans receivable bear interest at a weighted average effective and contractual rate of
5.65% per annum (December 31, 2019 - 6.3%) and mature between 2021 and 2028.
Future repayments of mortgages and loans receivables by year of maturity are as follows:
2021
2022
2023
2024
2025
Thereafter
$
$
6. 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 (ii) (iii)
Development expenditures
Transfers from investment properties (iv)
Transfers to equity-accounted investments (iii)
Balance, end of year
$
2020
108,956 $
18,987
(19,143)
36,304
71,259
(2,182)
$
214,181 $
65,613
21,188
24,449
—
5,947
43,449
160,646
2019
206,123
—
(164,378)
34,910
32,301
—
108,956
(i) During the year ended December 31, 2020, RioCan acquired the remaining 50% interest in Queensway Development component. Refer to Note 3
for further details.
(ii) During the year ended December 31, 2020, RioCan sold a 50% interest in Dufferin Plaza, a portion of which was inventory. Refer to Note 3 for
further details.
(iii) RioCan formed a 50/50 joint venture, the RioCan-Fieldgate LP, to build a mixed-use condominium project on Bloor Street West. The transaction
involved the sale of 2939 – 2943 Bloor Street West by RioCan to the joint venture, generating a $1.4 million gain. Refer to Note 4 for further
details.
(iv) During the year ended December 31, 2020, a portion of RioCan Leaside Centre, a portion of Queensway, 2939 – 2943 Bloor Street West and a
portion of Clarkson Village were transferred to residential inventory from investment property as appropriate evidence of a change in use was
established. 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.
RioCan Annual Report 2020 126
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
7. RECEIVABLES AND OTHER ASSETS
The following table details the Trust's receivables and other assets as at December 31, 2020 and December 31, 2019:
As at
December 31, 2020
December 31, 2019
Prepaid expenses and other assets
$
25,649 $
27,014 $
52,663 $
51,579 $
18,802 $
70,381
Current
Non-
current
Total
Current
Non-
current
Total
Net contractual rents and other tenant
receivables
Finance lease receivable
Amounts due on condominium final closings
Other receivables (i)
Funds held in trust
Interest rate swaps agreements
43,676
3,273
1,038
—
37,192
—
15,947
17,540
2,557
9,747
43,676
40,465
1,038
33,487
12,304
16,927
—
2,717
36,402
45,405
15,548
—
6,416
8,816
20,872
—
—
—
328
2,611
16,927
39,119
45,405
21,964
29,688
2,939
$
92,140 $
91,493 $
183,633 $
141,320 $
85,103 $
226,423
(i) Other receivables primarily includes fees and cost reimbursements receivable from partners, and disposition proceeds receivable, including $11.3
million of proceeds to be received related to the Dufferin Plaza disposition, which is expected to be paid upon the completion of several pre-
construction development phases. Refer to Note 3 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 systems.
RioCan pays certain upfront non-refundable selling commissions with respect to the sale of residential inventory which are
included in other assets when 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 (loss) 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
Contractual rents receivable
$
$
2020
522 $
6,925
—
7,447 $
2019
4,216
3,902
(7,596)
522
Contractual rents receivable, including common area maintenance, realty tax, and insurance recoveries, are presented net of an
allowance for doubtful accounts of $12.5 million as at December 31, 2020 (December 31, 2019 - $1.4 million).
RioCan determines its allowance for doubtful accounts using the simplified lifetime expected credit loss (ECL) model for
contractual rents receivable. The Trust uses an accounts receivable aging provision matrix to assess the ECL and applies loss
factors based on historical loss experience calibrated with forward-looking information to its aging buckets.
As a result of COVID-19, RioCan has calibrated its model for estimating lifetime ECLs by performing a tenant-by-tenant
assessment of contractual rents receivable of major national tenants and by incorporating a provision matrix by category of tenant
based on payment history and future expectations of likely default.
On May 25, 2020, the Government of Canada announced the Canada Emergency Commercial Rent Assistance (CECRA)
program, which provides relief for eligible small and medium-sized businesses experiencing financial hardship due to COVID-19.
Under the CECRA program, the Trust effectively abates 25% of gross rents due for April to September 2020 for CECRA-eligible
tenants. The net CECRA rent abatement was $14.4 million for the year ended December 31, 2020. In addition, the Trust has
accrued an additional $28.1 million provision for rent abatements for other tenants and bad debts for the year ended
December 31, 2020. In total, a $42.5 million provision for rent abatements and bad debts has been included in non-recoverable
operating costs for the year ended December 31, 2020 as a result of the COVID-19 pandemic.
On October 9, 2020, the Government of Canada announced a new commercial rent relief program, the Canada Emergency Rent
Subsidy (CERS) to replace the CECRA program post September 2020. Subsidies under the new CERS program, are provided
directly to tenants without any landlord participation and is comprised of (i) a subsidy that is available to organizations that
continue to endure declining revenues or up to 65% of eligible expenses including rent, and (ii) an additional top-up, i.e. new
lockdown support of 25%, for those entities that must either close or significantly restrict their activities due to a public health
127 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
order. Approvals for the subsidy are based on twelve week cycles and tenants who qualify for the base rent subsidy and notify the
landlord of such will be protected from eviction during that cycle. The CERS program will be in effect until June 2021.
The following table summarizes the Trust's movement in allowance for doubtful accounts:
Years ended December 31,
Allowance for doubtful accounts, beginning of year
Provision for (recovery of) credit losses
Write-offs
Recoveries of previous write-offs and other
Allowance for doubtful accounts, end of year
Funds held in trust
$
$
2020
1,360 $
42,499
(33,702)
2,358
12,515 $
2019
1,069
(861)
(1,266)
2,418
1,360
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, after posting the requisite security, 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.
8. LEASES
A. As Lessee
Real estate leases
Included in investment properties are 12 properties held as ROU assets arising from land and/or building leases where RioCan is
the lessee as at December 31, 2020 (December 31, 2019 - 11 properties).
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, and certain other property or related property interests, and excluding sublease
finance lease receivables (refer to Note 7) is $266.7 million (December 31, 2019 - $308.0 million). The corresponding lease
liability in accounts payable and other liabilities is $40.7 million (December 31, 2019 - $35.4 million).
The following table shows the change in lease liabilities during the year:
Years ended December 31,
Balance, beginning of the year (i)
Renewal of leases of properties held under lease
Repayments of lease liabilities
Balance, end of the year
$
$
2020
35,380 $
7,440
(2,095)
40,725 $
(i)
2019 beginning balance includes $17.0 million recognition of ROU assets upon adoption of IFRS 16 effective January 1, 2019.
Future lease payments under these leases are as follows:
As at December 31,
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)
$
$
$
(i) Includes all renewal options at current fixed payment amounts, excludes variable rent payments (percentage rent) on two properties.
2019
37,077
152
(1,849)
35,380
2020
9,770
12,875
63,145
85,790
45,065
40,725
RioCan Annual Report 2020 128
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
The following are the amounts recognized in net income (loss):
Years ended December 31,
Revenue from subleasing ROU assets (i)
Interest expense on lease liabilities
Office equipment lease payments
$
2020
22,661 $
(1,905)
(1,256)
2019
22,180
(2,003)
(1,308)
(i) Includes variable lease payments and excludes finance lease interest income, disclosed below as lessor.
During the year ended December 31, 2020, the Trust had total cash outflows for leases, including office equipment lease
payments and variable lease payments, of $6.5 million (December 31, 2019 - $6.1 million).
B. As lessor
Finance lease receivable
RioCan has real estate subleases that are classified as finance leases 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 the year (i)
New sublease arrangements classified as finance leases
Repayments of finance lease receivables
Balance, end of the year
$
$
2020
39,119 $
4,010
(2,664)
40,465 $
2019
32,726
8,481
(2,088)
39,119
(i)
2019 beginning balance includes $32.7 million recognition of finance lease receivables upon adoption of IFRS 16 effective January 1, 2019.
Future minimum lease payments under these finance leases for the first five years and remaining thereafter are as follows:
As at December 31,
2021
2022
2023
2024
2025
Thereafter
Total minimum lease payments
Less: Future interest income
Present value of minimum lease payments
Lease commitments
$
$
$
2020
5,514
5,609
5,669
5,810
5,861
23,610
52,073
11,608
40,465
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,
2021
2022
2023
2024
2025
Thereafter
Total
129 RioCan Annual Report 2020
$
$
2020
671,765
606,734
526,299
442,704
339,615
1,296,136
3,883,253
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
Supplemental lease disclosures in addition to Note 17 regarding income from lease contracts in which the Trust is a lessor is as
follows:
Years ended December 31,
Variable lease payments from realty tax and insurance recoveries (i)
Variable lease payments from percentage and contractual rent credits (i)
$
Interest income from finance subleases
(i) For tenant operating and finance leases, and subleases.
9. INCOME TAXES
2020
217,957 $
4,782
2,349
2019
217,984
6,536
1,954
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 of December 31, 2020, the Trust's Canadian corporate subsidiaries have a nil amount of deferred income tax asset
(December 31, 2019 - $12.0 million).
10. 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 (i)
Non-revolving unsecured credit facilities
Construction lines and other bank loans
Current
Non-current
$
$
$
$
2020
(1,648) $
699,333
92,854
790,539 $
50,125 $
740,414
790,539 $
2019
339,446
699,101
48,172
1,086,719
30,120
1,056,599
1,086,719
(i) Balance represents deferred financing costs and there are no drawn amounts at December 31, 2020.
Revolving unsecured operating line of credit
As at December 31, 2020, RioCan had $1.0 billion of undrawn credit availability on its revolving unsecured operating line of credit
(December 31, 2019 - $658.0 million). The weighted average contractual interest rate on amounts drawn under this facility was nil
as of December 31, 2020 (December 31, 2019 - 3.19%).
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 and a weighted average annual all-in fixed interest rate of 3.28%
through interest rate swaps.
In addition, the Trust has a $150 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 June 27, 2024 and an annual all-in fixed interest rate of 3.43%
through an interest rate swap.
The Trust also has 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 at December 31, 2020, all of the Trust's non-revolving unsecured credit facilities are fully drawn.
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 26 for additional details.
RioCan Annual Report 2020 130
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
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, 2020, these secured facilities and other bank loans have an aggregate
maximum borrowing capacity of $384.2 million (December 31, 2019 - $106.5 million) and mature between 2021 and 2025, of
which the Trust had drawn $92.9 million (December 31, 2019 - $48.2 million). The weighted average contractual interest rate on
amounts outstanding is 1.97% (December 31, 2019 - 2.93%).
11. MORTGAGES PAYABLE
Mortgages payable, net of deferred financing costs, consist of the following:
As at
Current
Non-current
December 31, 2020
December 31, 2019
$
$
335,034 $
2,462,032
2,797,066 $
503,891
1,908,560
2,412,451
Future repayments of mortgages payable by year of maturity are as follows:
Year
2021
2022
2023
2024
2025
Thereafter
Weighted
average
contractual
interest rate
Scheduled
principal
amortization
Principal
maturities
Total
repayments
4.23 % $
44,961 $
335,034 $
3.24 %
3.33 %
3.11 %
3.35 %
3.18 %
42,093
40,969
35,820
28,022
78,706
157,223
295,389
297,611
494,492
951,528
1,030,234
379,995
199,316
336,358
333,431
522,514
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
3.37 % $
270,571 $
2,531,277 $
2,801,848
4,719
(9,501)
$
2,797,066
As at December 31, 2020, total mortgages payable bear interest at weighted average contractual interest rate of 3.37% and a
weighted average effective interest rate of 3.40% (December 31, 2019 - 3.63% and 3.67%, respectively), and mature between
2021 and 2034.
During the year ended December 31, 2020, RioCan completed new term mortgage borrowings of $804.5 million and renewals at
maturity balance of $109.5 million at a combined weighted average interest rate of 2.82% and a weighted average term of six
years. During the year ended December 31, 2020, repayments of mortgage balances and scheduled amortization amounted to
$416.2 million, mortgages disposed on the sale of investment properties was $12.1 million, while $15.7 million of mortgage
financing was assumed pursuant to completed acquisitions at a weighted average interest rate of 3.30%.
Pledged properties
As at December 31, 2020, $5.8 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, 2019 - $5.6
billion).
131 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
12. DEBENTURES PAYABLE
As at
Current
Non-current
December 31, 2020
December 31, 2019
$
$
550,000 $
2,790,278
3,340,278 $
400,000
2,491,648
2,891,648
As at December 31, 2020, total debentures payable bear interest at weighted average contractual interest rates of 2.91% and a
weighted average effective interest rate of 3.06% (December 31, 2019 - 3.12% and 3.31%, respectively).
Issuance and redemption activity
On December 14, 2020, RioCan issued $500.0 million principal amount of Series AD senior unsecured debentures. These
debentures were issued at par, carry a coupon rate of 1.974% per annum and mature on June 15, 2026.
On March 10, 2020, RioCan issued $350.0 million of Series AC senior unsecured debentures. These debentures were issued at
par, carry a coupon rate of 2.361% per annum and will mature on March 10, 2027.
On August 26, 2020, RioCan redeemed, in full, its $250.0 million 2.185% Series X unsecured debentures in accordance with their
terms.
On June 1, 2020, RioCan redeemed, in full, its $150.0 million 3.62% Series U unsecured debentures in accordance with their
terms.
The Trust has the following series of senior unsecured debentures outstanding as at December 31 :
(thousands of dollars)
Series
U
X
Z
R
V
Y
T
AA
W
AB
I
Maturity date
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
AD
AC
June 15, 2026
March 10, 2027
Contractual obligations
Future repayments are as follows:
Years ending December 31:
Contractual obligations
Unamortized debt financing costs
Coupon rate
3.62 %
2.19 %
2.19 %
3.72 %
3.75 %
2.83 %
3.73 %
3.21 %
3.29 %
2.58 %
5.95 %
1.97 %
2.36 %
Interest payment frequency
December 31,
2020
$
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
Semi-annual
— $
—
300,000
250,000
250,000
300,000
200,000
300,000
300,000
500,000
100,000
500,000
350,000
December 31,
2019
150,000
250,000
300,000
250,000
250,000
300,000
200,000
300,000
300,000
500,000
100,000
—
—
$
3,350,000 $
2,900,000
2021
2022
2023
2024
2025
Thereafter
Weighted average
contractual interest rate
2.89 % $
3.25 %
3.42 %
3.29 %
2.58 %
2.54 %
$
Principal
maturities
550,000
550,000
500,000
300,000
500,000
950,000
3,350,000
(9,722)
3,340,278
RioCan Annual Report 2020 132
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
Covenant compliance
The debentures have covenants relating to RioCan’s leverage limit of up to 60% of aggregate assets as set out in the Declaration
and applicable supplemental indenture. In addition, under the indenture the Trust is required to maintain a $1.0 billion Adjusted
Book Equity (as defined in the indenture) and 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, 2020, the Trust was in compliance with its
covenants pursuant to the Declaration and debenture indentures.
13. ACCOUNTS PAYABLE AND OTHER LIABILITIES
As at
December 31, 2020
December 31, 2019
Current
Non-
current
Total
Current
Non-
current
Total
Property operating costs (i)
$
86,542 $
31,505 $ 118,047 $
57,754 $
30,734 $
88,488
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 compensation payable
Contingent consideration
Interest rate swap agreements
Other trade payables and accruals
136,696
24,466
—
—
136,696
132,876
24,466
36,160
—
—
36,256
67,075
103,331
30,609
21,897
38,125
31,184
—
—
38,125
38,121
31,184
28,902
—
—
7,856
32,869
40,725
1,740
33,640
13,563
—
13,563
13,838
—
—
—
1,386
1,001
11,329
14,798
14,798
7,641
—
7,641
1,386
—
—
14,969
8,560
4,521
—
62,560
63,561
285
18,134
—
11,329
19,557
—
132,876
36,160
52,506
38,121
28,902
35,380
13,838
14,969
8,560
4,521
18,419
19,557
$ 388,404 $ 216,448 $ 604,852 $ 364,363 $ 127,934 $ 492,297
Includes amounts billed in advance for common area maintenance, realty taxes and insurance recoveries.
(i)
(ii) Refer to Note 8 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, 2020
December 31, 2019
$
$
70,105 $
33,226
103,331 $
21,897
30,609
52,506
(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, 2020
December 31, 2019
$
$
21,897 $
48,893
(685)
70,105 $
39,780
25,414
(43,297)
21,897
During the year ended December 31, 2020, $0.7 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, 2019 -
$43.3 million).
Income taxes payable
Income taxes payable relates primarily to the realized gain on sale of the Trust's U.S income property portfolio during May 2016.
133 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
14. UNITHOLDERS' EQUITY
Trust Units
The Trust is authorized to issue an unlimited number of Units. The 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 following represents the
number of Units issued and outstanding, and the related carrying value of Unitholder's equity, for the year ended December 31,
2020 and 2019:
Years ended December 31,
Balance, beginning of year
Units issued:
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
Units repurchased and cancelled
Balance, end of year
2020
Units
$
2019
Units
$
317,710 $
4,814,097
305,097 $
4,484,827
—
—
—
26
12
—
—
—
484
462
187
—
3,810
8,935
833
15
—
(980)
100,000
220,188
23,085
397
—
(14,400)
317,748 $
4,815,230
317,710 $
4,814,097
(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.
Included in Units outstanding as at December 31, 2020 are exchangeable limited partnership Units totalling 0.5 million Units
(December 31, 2019 - 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.
Normal course issuer bid (NCIB)
On October 14, 2020, RioCan received TSX approval of its notice of intention to renew its NCIB (the 2020/2021 NCIB), to acquire
up to a maximum of 31,615,029 Units, or approximately 10% of the public float as at October 8, 2020, for cancellation or to satisfy
RioCan's obligation to deliver Units under the REU and PEU plans, over the next 12 months, effective October 22, 2020.
The number of Units that can be purchased pursuant to the 2020/2021 NCIB is subject to a current daily maximum of 545,810
Units (which is equal to 25% of 2,183,243, being the average daily trading volume from April 1, 2020 to September 30, 2020,
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, 2020, the Trust did not acquire and cancel any Units.
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 the public float as at September 30, 2019, for cancellation
over the next 12 months, effective October 22, 2019.
Units acquired and cancelled prior to October 22, 2019, were pursuant to the NCIB in effect for the 12 months ended October 21,
2019.
Contributed surplus
Awards under the restricted equity plans (REU Plans) and a performance equity plan (PEU Plan) of RioCan and its consolidated
susbsidiaries are settled by the delivery of Units purchased on the secondary market, net of applicable withholdings as further
described in Note 15. 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.
For the year ended December 31, 2020, RioCan recorded $9.1 million in unit-based compensation costs and $0.4 million
deferred tax expense (December 31, 2019 - $6.5 million and $0.4 million deferred tax recovery, respectively).
RioCan Annual Report 2020 134
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
Accumulated other comprehensive loss
Accumulated other comprehensive loss as at and for the year ended December 31, 2020 consists of the following amounts:
As at December 31, 2019
Other comprehensive loss
As at December 31, 2020
Actuarial loss on
pension plan (i)
Interest rate
swap agreements
(hedge reserve)
Equity-accounted
investments
$
$
(2,089) $
(2,650)
(4,739) $
(14,989) $
(48,081)
(63,070) $
(200) $
(333)
(533) $
Total
(17,278)
(51,064)
(68,342)
(i) As at December 31, 2020, deferred taxes related to the pension plan was nil (December 31, 2019 - $0.7 million).
15. UNIT-BASED COMPENSATION PLANS
Restricted Equity Unit Plans (REU Plans)
Senior Executive REU Plan
As at December 31, 2020, 251,899 Senior Executive REUs are outstanding (December 31, 2019 - 178,800), of which 55,720 are
vested (December 31, 2019 - 56,833). 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
trust Units purchased on the secondary market, net of applicable withholdings.
On March 2, 2020, the Trust granted 119,621 REUs under its Senior Executive REU Plan. The grant date price was $26.19 per
unit-based on the five-day volume weighted average market price of RioCan's Units traded on the TSX prior to the grant date,
resulting in an aggregate fair value of $3.1 million.
Employee REU Plan
As at December 31, 2020, 279,342 Employee REUs are unvested and outstanding (December 31, 2019 - 232,926). 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 trust Units purchased on the secondary market, net of applicable
withholdings.
On March 2, 2020, the Trust granted 101,979 REUs under its Employee REU Plan. The grant date price was $26.19 per unit-
based on the five-day volume weighted average market price of RioCan's Units traded on the TSX prior to the grant date,
resulting in an aggregate fair value of $2.7 million.
Performance Equity Unit Plan (PEU Plan)
As at December 31, 2020, 449,641 PEUs are unvested and outstanding (December 31, 2019 - 416,737). 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 be paid out
upon vesting will vary based on the achievement of certain performance targets over a three-year period from the year the award
was granted. The performance targets attributable to PEUs are set by the Trust at the time the awards are granted, or from time
to time adjusted as permitted under the terms of the PEU plan. The performance targets may vary between grants. 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 period and are
generally settled within 30 days after the vesting date by the delivery of an equivalent number of trust units to be acquired on the
secondary market, net of applicable withholdings.
135 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
On March 2, 2020, the Trust granted 119,621 PEUs under its PEU Plan at a fair value of $2.9 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, 2020
2,865
120
23.95
1.2%
11.0%
(3.2)%
(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 total unitholder
return (TUR) performance hurdle where vesting is dependent upon RioCan's 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, 2020 to March 2, 2020.
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 Unit options under the Plan. As at December 31, 2020, 12.5 million
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.
For the year ended December 31, 2020, there were no Unit options granted to senior management (December 31, 2019 - 0.4
million).
Unvested Unit options granted prior to January 1, 2020, which remain outstanding under the existing plan, will continue to be
expensed over the vesting period over which all specified vesting conditions are satisfied. No Unit options were exercised during
the year.
The following summarizes the changes in Unit options outstanding during the years ended December 31, 2020 and 2019:
Years ended December 31,
2020
2019
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
Units
(in thousands)
Weighted
average
exercise price
Units
(in thousands)
Weighted
average exercise
price
6,367 $
26.71
7,910 $
—
—
—
—
6,367 $
5,792 $
—
—
—
—
26.71
26.85
400
(833)
(568)
(542)
6,367 $
5,221 $
$
—
$
26.53
26.49
23.92
27.89
26.98
26.71
27.00
1.01
RioCan Annual Report 2020 136
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
The following table summarizes our outstanding options and related exercise price ranges of units granted under the plan:
Exercise price range ($/unit)
As at December 31, 2020
23.78 to 25.46
25.47 to 26.14
26.15 to 27.03
27.04 to 27.60
27.61 to 29.31
Outstanding Options
Vested Options
Number of Units
issuable
(in thousands)
Weighted average
exercise price per
unit
Weighted average
remaining life
(years)
Number of Units
issuable
(in thousands)
Weighted average
exercise price per
unit
851 $
1,314
1,340
1,601
1,261
6,367 $
24.26
25.78
26.53
27.34
28.70
26.71
4.8
5.2
4.1
2.5
3.4
3.9
576 $
1,314
1,040
1,601
1,261
5,792 $
24.39
25.78
26.55
27.34
28.70
26.85
Subsequent to year end on February 9, 2021, the Board approved approximately 1.4 million of Unit options to be granted to
senior management. Unit options shall vest in accordance with certain time-based and performance-based vesting provisions and
have a seven year term. The option grant value, strike price, and performance measures will be determined later in February
2021 at the grant date.
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.
During the year ended December 31, 2020 the Board approved an amendment to the Deferred Unit Plan to provide that, on or
after the date upon which a Trustee ceases to be a Trustee of the Trust (the Termination Date), all vested Deferred Units issued
after January 1, 2021 shall be redeemed and settled only by the issuance of Units in accordance with the terms of the Deferred
Unit Plan. This amendment is effective January 1, 2021. In addition, effective January 1, 2021, each of the Trustees also provided
an irrevocable election with respect to the outstanding Deferred Units held by such Trustee such that all such vested Deferred
Units shall be redeemed and settled only by the issuance of Units upon the respective Termination Date.
As at December 31, 2020, there are 452,368 deferred Units vested and outstanding (December 31, 2019 - 319,506). During the
year ended December 31, 2020, 100,760 deferred Units were granted and no deferred Units were exercised (December 31, 2019
- 57,936 deferred Units granted and 26,892 deferred Units exercised).
16. DISTRIBUTIONS TO UNITHOLDERS
Total distributions declared to Unitholders are as follows:
Years ended December 31,
Total distributions
Distributions per unit
$
$
2020
457,525 $
1.4400 $
2019
444,462
1.4400
In December 2020, the Trust announced a reduction in its monthly distribution from $0.12 per unit to $0.08 per unit, or from $1.44
to $0.96 on an annualized basis. This decrease will be effective for the Trust's January 2021 distribution, payable in February
2021.
On January 15, 2021, RioCan declared a distribution payable of 8.00 cents per unit for the month of January 2021, which was
paid on February 5, 2021 to Unitholders of record as at January 29, 2021.
137 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
17. 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
$
2020
697,006 $
217,957
155,879
4,874
7,177
6,284
1,555
2019
684,383
217,984
164,921
6,719
8,880
7,903
2,937
$
1,090,732 $
1,093,727
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
$
$
$
$
2020
36,347 $
155,879
16,584
1,555
210,365 $
2020
2,720 $
6,998
383
2,939
3,544
16,584 $
2019
208,965
164,921
23,633
2,937
400,456
2019
4,728
10,431
672
5,423
2,379
23,633
(i) Recognized over time.
(ii) Recognized at a point in time.
(iii) During the year ended December 31, 2020, $3.5 million is recognized over time and nil is recognized at a point in time (December 31, 2019 - $0.2
million and $2.2 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, 2020 and 2019:
As at
Within one year
More than one year
Total
December 31, 2020
December 31, 2019
$
$
22,055 $
422,110
444,165 $
396
327,111
327,507
RioCan Annual Report 2020 138
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
18. 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)
$
$
2020
— $
878
7,338
8,216 $
2019
859
8,030
(1,157)
7,732
The following table breaks down the fair value gains on marketable securities for the years ended December 31, 2020 and 2019:
Years 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
19. INTEREST INCOME
Years ended December 31,
Interest income measured at amortized cost
Other interest income (i)
$
$
$
$
2020
11,097 $
(10,219)
878 $
2020
11,263 $
3,339
14,602 $
(i)
Includes interest from finance subleases of $2.3 million for the year ended December 31, 2020 (December 31, 2019 - $2.0 million).
20. INTEREST COSTS
Years ended December 31,
Total interest (i)
Less: Interest capitalized
$
$
2020
222,593 $
(41,782)
180,811 $
2019
23,667
(15,637)
8,030
2019
11,032
5,884
16,916
2019
216,249
(33,469)
182,780
(i)
Includes interest from lease liabilities of $1.9 million for the year ended December 31, 2020 (December 31, 2019 - $2.0 million).
For the year ended December 31, 2020, interest was capitalized to properties under development and residential inventory at a
weighted average effective interest rate of 3.32% ( December 31, 2019 - 3.51%).
21. GENERAL AND ADMINISTRATIVE
Years ended December 31,
Salaries and benefits
Unit-based compensation expense
Depreciation and amortization
Other general and administrative expense
$
$
2020
19,711 $
7,271
4,342
9,200
40,524 $
2019
22,311
5,358
4,381
14,764
46,814
Other general and administrative costs include information technology costs, public company costs, professional fees, travel
expenses, occupancy costs, donations, advertising, promotion and marketing costs.
22. TRANSACTION AND OTHER COSTS
For the year ended December 31, 2020, transaction and other costs primarily include property acquisition and disposition costs
totalling $2.9 million (December 31, 2019 - $12.8 million).
139 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
23. NET INCOME (LOSS) PER UNIT
Net income (loss) per basic and diluted unit is calculated based on net income (loss) available to Unitholders divided by the
weighted average number of Units outstanding taking into account the dilution effect of Unit options.
Years ended December 31,
Net income (loss) attributable to Unitholders
Weighted average number of Units outstanding (in thousands):
Basic
Dilutive effect of Unit options (i)
Diluted
Net income (loss) per unit (basic)
Net income (loss) per unit (diluted)
$
$
$
2020
(64,780) $
317,725
—
317,725
(0.20) $
(0.20) $
2019
775,834
307,683
96
307,779
2.52
2.52
(i) The calculation of diluted weighted average number of Units outstanding excludes 6.4 million Unit options for year ended December 31, 2020
(December 31, 2019 - 4.6 million Unit options), as the exercise price of these Unit options was greater than the average market price of Units.
24. 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, 2020
December 31, 2019
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$
— $
—
—
—
—
—
— $
— $
18,123 $
— $
5,390
6,900
—
5,693
—
2,236
— 12,740,959
— 1,322,063
—
—
198,094
—
—
—
—
—
— 13,120,545
— 1,238,582
—
21,800
2,939
—
Total assets measured at fair value
$
— $
5,390 $ 14,268,016 $
18,123 $
8,632 $ 14,383,163
Liabilities measured at fair value:
Interest rate swaps
—
63,561
Total liabilities measured at fair value
$
— $
63,561 $
—
— $
—
18,419
— $
18,419 $
—
—
For assets and liabilities measured at fair value as at December 31, 2020, 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 3 for details on the changes in beginning and ending balances.
RioCan Annual Report 2020 140
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
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. Financial instruments that are
classified as at amortized cost whose carrying value reasonably approximates their fair value include net contractual rents and
other tenant receivables, amounts due on condominium final closings, funds held in trust, other receivables, accounts payable
related to property operating costs, and capital expenditures and leasing commissions, trade payables and accruals, and deposits
received from customers on residential inventory.
As at
Financial assets:
Marketable securities
Other investments
Finance lease receivables
Mortgages and loans receivable
Interest rate swap assets
Financial liabilities:
Mortgages payable
Debentures payable
Lines of credit and other bank loans
Interest rate swap liabilities
December 31, 2020
December 31, 2019
Carrying value
Fair value
Carrying value
Fair value
$
— $
— $
18,123 $
12,290
40,465
160,646
—
12,290
40,465
163,365
—
7,929
39,119
175,951
2,939
$
2,797,066 $
2,953,765 $
2,412,451 $
3,340,278
3,458,445
790,539
63,561
790,539
63,561
2,891,648
1,086,719
18,419
18,123
7,929
39,119
175,635
2,939
2,450,273
2,943,585
1,086,719
18,419
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.
141 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
25. 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, 2020, approximately 1.3%
(December 31, 2019 - 6.1%) 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.
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 evaluated the extent to which its cash flow hedging relationships are subject to uncertainty driven by IBOR reform
as at December 31, 2020. The Trust's hedged items and hedging instruments continue to be indexed to 1-month CDOR. Under
IBOR reform a new risk free benchmark interest rate has been introduced as a fallback rate to CDOR, however, the 1-month
CDOR is expected to continue to exist as a benchmark rate for the foreseeable future,
The Trust has applied hedge accounting and recorded the changes in fair value for the effective portion of these derivatives in
other comprehensive income (loss) (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 (loss) in the periods where the forecasted cash flows
impact net income (loss). 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 (loss).
As at December 31, 2020, the outstanding notional amount of the floating-for-fixed interest rate swaps is $1.3 billion
(December 31, 2019 - $1.3 billion) and the term to maturity of these agreements ranges from April 2021 to November 2028.
The outstanding interest rate swaps by year of maturity are as follows:
Maturity
Notional outstanding principal amount Weighted average effective fixed interest rate
2021
2022
2023
2024
2025
Thereafter
$
$
131,066
57,600
397,824
527,138
57,463
156,000
1,327,091
2.63 %
2.86 %
3.45 %
3.35 %
2.80 %
3.52 %
The Trust assessed the effectiveness of its hedging relationships and determined all such designated hedging relationships were
effective as at December 31, 2020. As at December 31, 2020, the fair value of the interest rate swaps is, in aggregate, a net
financial liability of approximately $63.6 million (December 31, 2019 - net financial liability of approximately $15.5 million).
As at December 31, 2020, the carrying value of the Trust's floating rate debt that is not subject to a hedging strategy is $91.2
million and a 50 basis point increase in market interest rates would result in an annualized decrease of $0.5 million in the Trust's
net income (loss).
The amounts relating to items designated as hedging instruments and hedge ineffectiveness were as follows:
Nominal
amount of
hedging
instrument
Carry amount of the hedging
instrument
Assets
Liabilities
Interest
rate risk
$1,327,091
$—
$63,561
2020
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
$(64,550)
$—
$16,469
Interest costs
Line item in the
consolidated
balance sheet
Receivables and
other assets
(assets),
Accounts
payable and
other liabilities
(liabilities)
RioCan Annual Report 2020 142
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
Nominal
amount of
hedging
instrument
Carry amount of the hedging
instrument
Assets
Liabilities
Interest
rate risk
$1,307,191
$2,939
$18,419
2019
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
Line item in the
consolidated
balance sheet
Receivables and
other assets
(assets),
Accounts
payable and
other liabilities
(liabilities)
The amounts at the reporting date relating to items designated as hedged items were as follows:
Fair value gain
(loss) used for
calculating hedge
ineffectiveness
2020
Gain (loss) in
cash flow hedge
reserve for
continuing
hedges
Gain (loss) in
cash flow hedge
reserve for
discontinued
hedges
Fair value gain
(loss) used for
calculating hedge
ineffectiveness
2019
Gain (loss) in
cash flow hedge
reserve for
continuing
hedges
Gain (loss) in
cash flow hedge
reserve for
discontinued
hedges
$(64,550)
$(63,070)
$—
$(14,807)
$(14,989)
$—
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, and funds drawn against the Trust's lines of credit and
other bank loans, refer to Notes 10 and 11 for details.
• For current and non-current scheduled repayments of debentures, refer to Note 12 for details.
The Trust expects to continue financing future acquisitions, development, debt obligations and other financing requirements
through existing cash balances, internally generated cash flows, refinancing maturing debt, utilization of its operating line of
credit, credit facilities, construction financing facilities, mortgaging unencumbered assets, issuance of unsecured debentures, the
sale of non-core assets, sales proceeds from residential inventory or air rights sales, strategic development partnerships and the
issuance of equity when considered appropriate.
Credit risk
Credit risk is the risk of financial loss to RioCan which arises from the possibility that:
• Tenants may 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 or loans receivable to
the Trust.
• Third-parties default 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. Furthermore, RioCan holds security
deposits and letters of credit from a number of tenants which can serve to offset rents owed on a tenant-by-tenant basis in the
unfortunate event of unresolved tenant defaults.
Management reviews contractual rent receivables on a regular basis and reduces carrying amounts through the use of an
allowance for doubtful accounts recognizing the amount of any loss in the consolidated statements of income (loss) within non-
recoverable property operating costs.
143 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
During the COVID-19 pandemic, the Trust has strategically managed its rent collection process and tailored its approach in
recognition of the challenges that some of its tenants faced or continue to face as restrictions remain in flux. The Trust supported
small and medium-sized businesses by actively participating in the federal government's CECRA program for eligible tenants at
its properties. The Government of Canada also announced a new commercial rent relief program, CERS to replace the CECRA
program post September 2020. CERS will provide payments directly to qualifying tenants without requiring the participation of
landlords. For a further description of the CECRA and CERS programs see Note 7. The Trust continues to work with its national
tenants on a case-by-case basis while protecting its rights and financial position. As at December 31, 2020, and December 31,
2019, the allowance for doubtful accounts totals $12.5 million and $1.4 million, respectively. RioCan holds approximately $28.6
million of security deposits and approximately $4.6 million in letters of credit from a number of tenants which could be used to
offset rents owed on a tenant-by-tenant basis in the event of unresolved tenant defaults.
Credit risk relating to mortgages and loans receivable and third-party guarantees is mitigated through recourse against such
counterparties and/or the underlying real estate. These financial instruments are considered to have low credit risk. The Trust
monitors the debt service ability and the fair value 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 counterparties and/or re-recognition of the forfeited leased unit as investment property. Refer to Note 33 for third-
party guarantees.
RioCan’s Declaration of Trust contains provisions that have the effect of limiting the amount of space that can be leased to one
tenant and its investment in mortgages and loans receivable.
The maximum exposure to credit risk on financial assets on the consolidated balance sheet is their carrying values.
26. CAPITAL MANAGEMENT
The Trust defines capital as the aggregate of Unitholders’ equity and debt. The Trust’s capital management framework is
designed to maintain a level of capital that complies with investment and debt restrictions pursuant to RioCan’s Declaration,
complies with existing debt covenants, enables the Trust to achieve target credit ratings, implements its business strategies and
builds long-term unitholder value. The key elements of RioCan’s capital management framework are approved by its Unitholders
via the Trust’s Declaration of Trust and by its Board through their annual review of the Trust’s strategic plan and budget,
supplemented by periodic Board and Board Committee meetings. Capital adequacy is monitored by the Trust by assessing
performance against the approved annual plan throughout the year, which is updated accordingly, and by monitoring adherence
to investment and debt restrictions contained in the Declaration and debt covenants.
RioCan’s Declaration provides for maximum total debt levels up to 60% of Aggregate Assets (as defined in the Declaration). The
Trust is in compliance with this restriction.
Additionally, RioCan’s Declaration contains provisions that have the effect of limiting capital expended by the Trust for, among
other items, the following:
• direct and indirect investments (net of related mortgages payable) in non-income producing properties (including greenfield
developments and mortgages receivable to fund the Trust’s co-owners’ share of such developments) to no more than 15% of
the Adjusted Unitholders’ Equity of the Trust (herein referred to as the “Basket Ratio” with Adjusted Unitholders’ Equity as
defined in the Declaration);
• total investment by the Trust in mortgages receivable, other than mortgages taken back by the Trust on the sale of its
properties, to no more than 30% of the Adjusted Unitholders’ Equity of the Trust;
• any property acquired by the Trust, directly or indirectly, if the cost to the Trust of such acquisition (net of the amount of
mortgages payable assumed) exceeds 10% of the Adjusted Unitholders’ Equity of the Trust;
• subject to the Basket Ratio, securities of an entity, other than to the extent that such securities would, for the purpose of the
Declaration, constitute an investment in real estate; and
• the amount of space that can be leased or subleased to any tenant, with certain exceptions, to a maximum space having an
aggregate gross leasable area of 20% of the aggregate gross leasable area of all real estate investments held by the Trust.
The Trust is in compliance with each of the above noted restrictions as at and for the year ended December 31, 2020. 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. As at and for the year ended December 31,
2020, the Trust was in compliance with these covenants.
RioCan Annual Report 2020 144
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
The following table presents RioCan's capital structure:
As at December 31,
Debentures payable
Mortgages payable
Lines of credit and other bank loans
Total debt
Unitholders’ equity
Total capital
Note
12 $
11
10
2020
3,340,278 $
2,797,066
790,539
6,927,883
7,734,973
2019
2,891,648
2,412,451
1,086,719
6,390,818
8,305,211
$
14,662,856 $
14,696,029
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 revolving unsecured operating line
of credit and non-revolving unsecured credit facilities, which are calculated on a rolling twelve-month basis. As at and for the year
ended December 31, 2020, 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, 2020
< 60%
< 40%
> 1.5x
> $5,000
> 1.5x
< 15%
47.9 %
20.0 %
2.4 x
$7,735
1.9 x
10.3 %
(i)
Total indebtedness consists of the contractual amounts outstanding on mortgages payable, lines of credit and other bank loans, debentures
payable, capital lease obligations, contingent liabilities and the maximum exposure to loss for all third-party debt where RioCan has provided a
financial guarantee.
(ii) Secured indebtedness includes mortgages payable, secured construction lines and other bank loans and capital lease obligations, which are
secured against investment properties.
(iii) Debt service includes regular mortgage principal and interest payments, including interest capitalized on properties under development.
(iv) Unsecured indebtedness includes the contractual amounts outstanding of the revolving unsecured operating line of credit, non-revolving
unsecured credit facilities, debentures and any third-party debt amounts guaranteed by RioCan.
(v) Unencumbered property assets consist of properties that have not been pledged as security for debt. The unencumbered property asset to
unsecured indebtedness ratio is calculated as unencumbered assets divided by unsecured indebtedness.
(vi) These ratios include inputs from proportionately consolidated equity-accounted investments.
145 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
27. 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 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 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 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-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
RC 3180 Dufferin LP
RC 2290 Lawrence (White Shield) LP
Resale Air Right LP
RC Well Commercial LP
RC Well Residential LP
RC Kirkland Trust
RC Eglinton Avenue LP
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
Canada
Canada
Canada
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 4 for the financial information of RioCan-Fieldgate LP (2915-2943 Bloor Street West LP), 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 seven associates and
joint ventures that are accounted for using the equity method as at December 31, 2020.
RioCan Annual Report 2020 146
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
28. SUPPLEMENTAL CASH FLOW INFORMATION
Years ended December 31,
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
The following provides a reconciliation of liabilities arising from financing activities:
$
$
$
2020
21,615 $
220,462
(457,525) $
(38,121)
38,125
(457,521) $
Year ended December 31, 2020
Balance, beginning of year
Proceeds/advances, net
Repayments
Non-cash changes:
Mortgages payable
Lines of credit and
other bank loans
$
2,412,451 $
1,086,719 $
797,862
(416,173)
308,702
(609,040)
Deferred financing costs and premiums and discounts
Contractual principal assumed (disposed) on acquisition/
disposition, net
(663)
3,589
4,158
—
2019
20,163
210,534
(444,462)
(36,612)
38,121
(442,953)
Debentures
2,891,648
845,737
(400,000)
2,893
—
Balance, end of year
$
2,797,066 $
790,539 $
3,340,278
29. CHANGES IN OTHER WORKING CAPITAL ITEMS
Years ended December 31,
Receivables and other assets
Mortgage receivable interest
Residential inventory
Accounts payable and other liabilities
Other
Net change in other working capital items
$
$
2020
21,063 $
8,304
(27,375)
72,236
3,296
77,524 $
2019
(67,444)
7,477
129,468
(12,376)
(3,198)
53,927
30. 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 4.
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").
147 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
Senior executive management and Board changes
On October 21, 2020 RioCan announced RioCan’s founder, Edward Sonshine, will retire as Chief Executive Officer of the Trust
on March 31, 2021 and transition to Non-Executive Chairman on April 1, 2021. The Trust also announced the appointment of
Jonathan Gitlin, currently the Trust’s President and Chief Operating Officer, to succeed Mr. Sonshine as President and Chief
Executive Officer, effective April 1, 2021. Concurrently with Mr. Gitlin’s appointment to the role of CEO, the Board has also agreed
to appoint Mr. Gitlin as an additional Trustee to the Board. Mr. Paul V. Godfrey, Chairman of the Board, has agreed to step down
as Chairman of the Board effective April 1, 2021 and will serve as Lead Trustee.
Remuneration of the Trust’s Trustees and Key Executives during the years ended December 31, 2020 and 2019 is as follows:
Years ended December 31,
Compensation and benefits
Unit-based compensation
Post-employment benefit costs
31. EMPLOYEE BENEFITS
Plan characteristics
Trustees
2020
175 $
(919)
—
(744) $
2019
203 $
2,813
—
3,016 $
Key Executives
2020
5,349 $
4,971
129
10,449 $
2019
5,388
3,460
108
8,956
$
$
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, 2020, RioCan's
contributions to the defined contribution plan were $3.0 million (December 31, 2019 - $2.6 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, 2020 is $3.5 million (December 31, 2019 - $3.7 million). The
recognized pension obligation (net of plan assets) as at December 31, 2020 is $14.8 million (December 31, 2019 - $15.0 million).
Pension costs, net of recoveries, of $0.4 million were recorded in net income (loss) for the year ended December 31, 2020
(pension costs for the year ended December 31, 2019 - $0.4 million). The discount rate used was 2.4% (December 31, 2019 -
3.0%), the compensation growth rate was 4.0% (December 31, 2019 - 4.0%) and the expected long-term rate of return on plan
assets was 2.4% (December 31, 2019 - 3.0%).
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.
RioCan Annual Report 2020 148
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
32. 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.
33. CONTINGENCIES AND OTHER COMMITMENTS
Third-party guarantees
As at December 31, 2020, RioCan is contingently liable, as guarantor for debt, for approximately $195.1 million (December 31,
2019 - $163.2 million), which expires between 2021 and 2025, and which includes guarantees of $139.9 million (December 31,
2019 - $106.6 million) on behalf of co-owners. Debt guaranteed by RioCan that relates to the assumption of mortgages on
property dispositions is $55.2 million (December 31, 2019 - $56.6 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 guarantees has been
recognized in the consolidated financial statements.
Expiry of guarantees by year is as follows:
2021
2022
2023
2024
2025
Thereafter
Total
$
$
107,704
45,682
5,095
—
36,635
—
195,116
Letters of credit and surety bonds
The Trust has aggregate letter of credit facilities with certain Schedule I banks totalling $93.6 million (December 31, 2019 -
$76.4 million). As at December 31, 2020, the Trust’s outstanding letters of credit under these facilities were $66.8 million
(December 31, 2019 - $54.8 million).
The Trust is contingently liable for surety bonds that have been provided to support condominium developments and warranties
in the amount of $68.8 million.
Investment commitments
RioCan-HBC Joint Venture
As at December 31, 2020, RioCan has approximately $140.1 million of remaining unfunded investment commitments related to
the RioCan-HBC JV (December 31, 2019 - $140.1 million) to further the objectives of the joint venture. On February 5, 2021,
RioCan contributed the remaining investment commitment, which increased RioCan's ownership interest in the RioCan-HBC JV
to 20.2%.
WhiteCastle New Urban Funds (WNUF)
As at December 31, 2020, the Trust has total unfunded investment commitments of $63.5 million relating to WNUF 1, WNUF 2,
WNUF 3 and WNUF 4 (December 31, 2019 - $74.8 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,
2023 for WNUF 1; February 28, 2022 for WNUF 2; April 30, 2028 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.
149 RioCan Annual Report 2020
RIOCAN REAL ESTATE INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019
(In thousands of Canadian dollars, tabular amounts in thousands, except per unit amounts or unless otherwise noted)
34. EVENTS AFTER THE BALANCE SHEET DATE
Acquisitions
On January 19, 2021, RioCan acquired a 100% interest in the 2978 Eglinton Avenue East property, located in Toronto, Ontario,
for the purchase price of $11.5 million including transaction costs.
Dispositions
On January 7, 2021, RioCan disposed of a 50% non-managing interest in the residential rental component of eCentral, and the
commercial component of ePlace, a mixed-use property in Toronto, for a total sales price of $150.8 million, to a current partner on
other projects which is acting on behalf of itself and one of its pension fund clients. Upon closing, the purchasers assumed 50% of
the existing CMHC mortgage for the property with an estimated outstanding balance of $165.3 million at the time of the closing.
On January 22, 2021, RioCan sold a parcel of land located in Oshawa, Ontario for total sales proceeds of $3.4 million.
Unsecured Debenture redemption
On January 15, 2021, RioCan redeemed, in full, its $250.0 million, 3.716% Series R unsecured debentures due December 13,
2021, in accordance with its terms, at a total redemption price of $256.8 million, plus accrued and unpaid interest of $0.8 million,
up to but excluding, the redemption date. The Trust recorded an early extinguishment charge of $6.7 million, which includes a
write-off of the related unamortized deferred financing costs.
RioCan Annual Report 2020 150
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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
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, People & Brand
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
George Ho
Vice President, Information Technology
Kim Lee
Vice President, Investor Relations
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
Paul Godfrey, C.M., O.Ont.3,4
(Chairman of Board of Trustees)
Non-executive Chair
Postmedia Network Canada Corp.
Bonnie R. Brooks, C.M.3,4
Executive Chair of the Board of Directors
of Chico’s FAS Inc. (CHS: NYSE)
Board Member, Rogers Communications Inc.
Former CEO & President, Hudson’s Bay Company
and Chico’s FAS Inc.
Richard Dansereau1,2*
Managing Director, Stonehenge Partners
Dale H. Lastman, C.M., O.Ont.
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 TC Energy Corporation
Director of Power Corporation
Director of Great-West Lifeco Inc.
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: ir@riocan.com
Investor Contact
Kim Lee
Vice President, Investor Relations
Tel: (416) 646-8326
Email: klee@riocan.com
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 Front and back cover: 5th & THIRD™ East Village, CalgaryHead OfficeRioCan Yonge Eglinton Centre2300 Yonge Street, Suite 500 P.O. Box 2386 Toronto, Ontario M4P 1E4