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RioCan Real Estate Investment Trust
Symbol C : REI.UN
Shares Issued 322,702,590
Close 2018-02-13 C$ 23.45
Recent Sedar Documents

RioCan earns $715.28-million in 2017

2018-02-14 02:21 ET - News Release

Mr. Edward Sonshine reports

RIOCAN REAL ESTATE INVESTMENT TRUST ANNOUNCES FINANCIAL RESULTS FOR 2017 WITH 5.4% GROWTH IN OPERATING INCOME AND 2.1% SAME PROPERTY NOI GROWTH

RioCan Real Estate Investment Trust has released its financial results for the three months and year ended Dec. 31, 2017.

RioCan's highlights for 2017:

  • For the year ended Dec. 31, 2017, IFRS (international financial reporting standards) operating income increased 5.4 per cent to $737-million. For the three months ended Dec. 31, 2017, IFRS operating income increased 3.9 per cent to $188-million.
  • Funds from operations (FFO) increased 6.7 per cent or $37-million to $585-million in 2017. FFO per unit increased 6.3 per cent or 11 cents to $1.79, despite the sale of the U.S. portfolio in May, 2016.
  • FFO increased 9.1 per cent or $12-million to $144-million in the fourth quarter over the comparable quarter in 2016. FFO per unit in the fourth quarter increased 9.3 per cent or four cents to 44 cents.
  • Same-property NOI (net operating income) for the year ended Dec. 31, 2017, increased 2.1 per cent or $14-million compared with 2016. This is the trust's strongest annual same-property performance since 2010. Same-property NOI for RioCan's properties in Canada's six major markets increased 2.2 per cent from 2017 to 2016 as compared with same property NOI growth of 1.7 per cent in the secondary markets.
  • Same-property NOI increased by 2.9 per cent, or $4.9-million, in the fourth quarter as compared with the same quarter in 2016. This is the strongest quarterly same-property NOI growth since the fourth quarter of 2010. Same-property NOI for RioCan's properties in Canada's six major markets increased 3.0 per cent over the comparable fourth quarter as compared with same-property NOI growth of 2.6 per cent in the secondary markets.
  • Committed occupancy improved by 100 basis points to 96.6 per cent at Dec. 31, 2017, as compared with Dec. 31, 2016. In addition, committed occupancy for RioCan's properties in Canada's six major markets increased by 110 basis points to 97.6 per cent at Dec. 31, 2017, as compared with Dec. 31, 2016. In-place occupancy increased 200 basis points from 93.6 per cent at Dec. 31, 2016, to 95.6 per cent at Dec. 31, 2017.
  • Lease renewal retention rate increased 530 basis points to 91.1 per cent in 2017 from 85.8 per cent in 2016 with a 5.8-per-cent renewal spread in 2017.
  • The trust is making good progress on the execution of its strategy to accelerate its portfolio focus in Canada's six major markets. In the four months since the strategy's announcement in October, 2017, the trust has either completed or entered into firm agreements to sell $512-million of properties in secondary markets at a weighted-average capitalization rate of 6.07 per cent based on in-place NOI, representing approximately 25 per cent of the announced disposition target. The trust currently also has conditional transactions under contracts totalling $58-million. The aggregate sales proceeds from these assets are in line with the trust's IFRS valuations.
  • The percentage of rental revenue generated from RioCan's properties in Canada's six major markets increased by 0.9 per cent to 76.1 per cent in the fourth quarter versus the third quarter, with the Greater Toronto Area (GTA) generating 40.9 per cent of RioCan's annualized rental revenue as at Dec. 31, 2017.
  • The trust obtained 4.5 million square feet of zoning approvals in 2017 and completed 849,000 square feet of development projects with $224-million costs transferred to income-producing properties.
  • RioCan is making significant progress on the re-leasing of the former Sears space, which accounted for 0.8 per cent of the trust's total NLA (net lettable area) as of Sept. 31, 2017. The trust has completed, or is in the final stages of, lease negotiations for 320,000 square feet or 84 per cent of the vacated Sears space (at RioCan's interest). These leases will replace approximately 130 per cent of the lost annual rental revenue from all of the former Sears space.
  • The trust continued to maintain a strong balance sheet with a debt to total assets ratio of 41.4 per cent on proportionate share basis as of Dec. 31, 2017, and further improved its debt to adjusted EBITDA ratio to 7.57 times for the year. The trust continued to expand its unencumbered assets pool to $7.7-billion, which generates 56.7 per cent of RioCan's annualized NOI as of Dec. 31, 2017.
  • Effective Jan. 1, 2018, RioCan increased its annual distribution by three cents or 2.1 per cent to $1.44 per unit.

"I am very pleased with our results this year, as 2017 marked the strongest year of same-property performance for RioCan in seven years. The performance of our operations excelled in the past year, driving our FFO per unit to its highest level in the trust's history, excluding 2015, when we received a substantial Target settlement, and grew FFO per unit by 6.3 per cent over 2016. Our occupancy levels returned to their historical average of near 97 per cent in the second half of the year, and our same-property portfolio posted the best results that RioCan has delivered since 2010. We are anticipating that 2018 will continue the momentum that began in the second half of 2016, with another year of solid same-property performance. By the end of this year, we should begin to realize some of the benefits of our development program with a number of completions that will propel our growth into 2019," said Edward Sonshine, chief executive officer of RioCan. "We are pleased with the progress that we have already made in executing our strategic vision for RioCan, and we are very confident in our ability to build on our early successes. Our strong balance sheet and the capital provided through the sale of secondary markets properties will enable RioCan to focus on the ongoing value creation in our major market portfolio that will greatly enhance the quality, resilience and growth profile of our portfolio, and deliver strong FFO and net asset value growth to our unitholders during this very exciting time for RioCan."

Financial highlights

For further information about RioCan's results for the year ended Dec. 31, 2017, this earnings release should be read in conjunction with the trust's audited annual consolidated financial statements, as well as management's discussion and analysis for the year ended Dec. 31, 2017.

RioCan's consolidated financial statements are prepared in accordance with international financial reporting standards. Consistent with RioCan's management framework, management uses certain financial measures to assess RioCan's financial performance, which are not generally accepted accounting principles (GAAP) under IFRS. For full definitions of these measures, please refer to non-GAAP measures in RioCan's Dec. 31, 2017, management's discussion and analysis. As a result of the sale of the U.S. operations, the trust has reported its former U.S. geographic segment performance as discontinued operations with comparative income statement amounts adjusted to reflect this change, unless otherwise noted.

Net income from continuing operations attributable to unitholders

2017

Net income from continuing operations attributable to unitholders for the year ended Dec. 31, 2017, is $708.3-million, representing an increase of $25.2-million compared with the same period in 2016. Excluding $45.9-million lower fair value gains over the comparable period, net income from continuing operations attributable to unitholders for the year ended Dec. 31, 2017, increased by $71.2-million or 14.2 per cent from the prior year.

The increase of $71.2-million is largely the net effect of the following:

  • $36.4-million higher income primarily due to property acquisitions (net of dispositions), strong same-property performance, completed developments and higher lease cancellation fees;
  • $31.9-million increase in gains from the sale of available-for-sale marketable securities;
  • $8.1-million in interest savings due mainly to lower average debt and debt refinancing at lower interest rates;
  • $5.7-million in higher income from the trust's equity-accounted investments; partly offset by:
  • $6.1-million in lower transaction gains;
  • $4.6-million less dividend income from available-for-sale marketable securities given such sales since third quarter 2016.

Fourth quarter 2017

Net income from continuing operations attributable to unitholders for the three months ended Dec. 31, 2017, is $209.7-million, representing an increase of $31.3-million to the same period in 2016. Excluding $26.6-million higher fair value gains over the comparable period, net income from continuing operations attributable to unitholders for the fourth quarter of 2017 increased $4.6-million or 3.4 per cent from the same period in 2016.

The increase of $4.6-million is largely the net effect of the following:

  • $5.0-million increase is primarily due to strong same property performance;
  • $6.8-million increase in gains from the sale of available-for-sale marketable securities; partially offset by:
  • $4.1-million in higher general and administrative expenses primarily due to accelerated depreciation of certain management information systems;
  • $2.6-million higher other costs as a result of a one-time fair market value adjustment to a loan receivable.

Funds from operations

2017

FFO for the year ended 2017 is $584.6-million, an increase of $36.7-million or 6.7 per cent. On a diluted per unit basis, FFO is $1.79 compared with $1.68 in 2016, an increase of 6.3 per cent, despite the sale of the U.S. portfolio in May, 2016.

Continuing operations

FFO from continuing operations increased $85.3-million or 17.2 per cent to $582.6-million in 2017. The $85.3-million increase in FFO from continuing operations for the period was primarily due to the following:

  • $36.2-million higher NOI (at RioCan's proportionate share) mainly as a result of acquisitions (net of dispositions), strong growth in same-property NOI, development completions and higher lease cancellation fees;
  • $31.9-million increase in gains related to the sale of available-for-sale marketable securities;
  • $7.7-million lower interest costs (at RioCan's proportionate share);
  • $9.5-million less preferred unit distributions and redemption costs;
  • $5.8-million in higher income from the trust's equity-accounted investments; partially offset by:
  • $4.6-million lower dividend income from the sale of available-for-sale marketable securities.

Fourth quarter 2017

FFO for the fourth quarter of 2017 is $144.2-million, an increase of $12.0-million or 9.1 per cent. On a diluted per unit basis, FFO is 44 cents compared with 40 cents in fourth quarter 2016, representing an increase of 9.3 per cent.

Continuing operations

FFO from continuing operations increased $11.6-million or 8.8 per cent to $144.1-million in fourth quarter 2017. The $11.6-million increase in FFO from continuing operations for the quarter was primarily due to the net effect of the following:

  • $4.8-million higher NOI (at RioCan's proportionate share) mainly as a result of strong same-property NOI growth;
  • $6.8-million increase in gains related to the sale of available-for-sale marketable securities;
  • $3.7-million in higher income from equity-accounted investments, partly offset by:
  • $4.1-million higher general and administrative expenses mainly due to accelerated depreciation as noted above.

Acceleration of major market focus

On Oct. 2, 2017, the trust announced its plan to accelerate its portfolio focus in Canada's six major markets through the sale of approximately 100 properties located primarily in secondary markets across Canada over the next two to three years.

As of Feb. 13, 2018, four months since the strategy's announcement, the trust has either completed or entered into firm agreements to sell $511.9-million of properties in secondary markets at a weighted-average capitalization rate of 6.07 per cent based on in-place net operating income, representing approximately 25 per cent of the announced disposition target. The deals consist of the following:

  • A firm agreement to sell seven properties to CT REIT in Hamilton, Orillia, Sudbury, Collingwood and St. Catharines in Ontario, Oliver, B.C., and Yorkton, Sask., at an aggregate sale price of $200.0-million and a weighted-average capitalization rate of 6.12 per cent based on in-place NOI; the sale of five properties were closed in December, 2017, at a sales price of $135.2-million, with $21.7-million of mortgages repaid on closing; the sales of the remaining two properties are expected to be completed during the first quarter of 2018;
  • The sale of a 50-per-cent non-managing interest of a property in Fredericton, N.B., in December, 2017, to the property's co-owner for a sale price of $10.0-million at a capitalization rate of 10.20 per cent based on in-place NOI; RioCan provided a vendor take-back mortgage of $2.5-million;
  • A firm agreement to sell two properties in Kelowna and Vernon in British Columbia at a sale price of $85.0-million at a weighted-average capitalization rate of 5.45 per cent based on in-place NOI, subject to customary closing conditions; on the expected closing date in the first quarter of 2018, the buyer will assume the mortgage payable of $32.7-million, and RioCan will provide a vendor take-back mortgage of $7.5-million;
  • A firm agreement to sell four properties in Flamborough, Guelph and Orangeville in Ontario and Duncan in British Columbia at a sale price of $216.9-million at a weighted-average capitalization rate of 6.06 per cent based on in-place NOI, with $67.5-million mortgages payable to be repaid upon expected deal closing in April, 2018.

In addition to the above $511.9-million closed and firm deals, the trust has also entered into three conditional agreements as of Feb. 13, 2018, to sell five properties in Ontario and Quebec for aggregate sale proceeds of $58.0-million at a weighted-average capitalization rate of 6.66 per cent. Should these firm and conditional transactions close by the end of the second quarter in 2018, as currently contemplated, the trust would have completed the sale of 19 properties for aggregate sale proceeds of $569.9-million or approximately 28 per cent of the trust's disposition target by sales proceeds, at a weighted-average capitalization rate of 6.13 per cent. The aggregate proceeds from the sale of these properties are in line with the trust's IFRS valuations.

The net proceeds from the dispositions have been and will be used to pay down debt, finance unit repurchases through RioCan's normal course issuer bid (NCIB) program and finance the trust's development activities. Since the renewal of the NCIB program on Oct. 20, 2017, and as of Dec. 31, 2017, RioCan has purchased and cancelled 3.9 million trust units at an average purchase price of $25.30 per unit.

Operational performance

Same-property NOI growth

Refers to same-property NOI growth on a year-over-year basis.

2017

Same-property NOI for the year ended Dec. 31, 2017, increased 2.1 per cent or $13.6-million compared with the same period in 2016. This is the strongest annual same-property growth that the trust has generated since 2010. Approximately $8.8-million of the increase related to higher occupancy, renewal rate growth and contractual rent increases, and $4.8-million is due to the timing of Target backfills and other expansion and redevelopment projects completed in 2017 and 2016.

As a component of total same-property NOI growth, same-property NOI from RioCan's properties in Canada's six major markets increased 2.2 per cent for the year ended Dec. 31, 2017, while same-property NOI over the same comparable period for the trust's secondary markets grew 1.7 per cent.

Fourth quarter 2017

Same-property NOI for the three months ended Dec. 31, 2017, increased 2.9 per cent or $4.9-million compared with the same period in 2016. Approximately $3.8-million of the increase related to higher occupancy, renewal rate growth and contractual rent increases, and $1.1-million is due to an increase in NOI from Target backfills and other expansion and redevelopment projects completed. This is the strongest quarterly same-property NOI growth since the fourth quarter of 2010.

As a component of total same-property NOI growth, same-property NOI from RioCan's properties in Canada's six major markets increased 3.0 per cent for the three months ended Dec. 31, 2017, over the same period in 2016 while same-property NOI from the trust's secondary markets properties grew 2.6 per cent over the same comparable period.

Operating statistics:

  • Despite Sears closures in the fourth quarter, which accounted for 0.8 per cent of the trust's GLA (gross leasable area) as of Sept. 30, 2017, in-place and committed occupancies remain near the trust's historical highs as of Dec. 31, 2017.
  • Committed occupancy improved by 100 basis points to 96.6 per cent at Dec. 31, 2017, as compared with 95.6 per cent at Dec. 31, 2016.
  • In-place occupancy as of Dec. 31, 2017, increased 200 basis points from 93.6 per cent at Dec. 31, 2016, to 95.6 per cent at Dec. 31, 2017.
  • The trust expects to generate $9.0-million of annualized net incremental IFRS rent once all tenants that have committed leases as of Dec. 31, 2017, take possession of their space.
  • RioCan's retention rate increased 530 basis points to 91.1 per cent in 2017 from 85.8 per cent in 2016 with a 5.8-per-cent renewal spread in 2017.

Sears space leasing update

RioCan is making significant progress on the re-leasing of the former Sears premises, with leases completed or in the final stages of negotiation on 320,000 square feet or 84 per cent of the vacated Sears space at RioCan's interest. These leases will replace approximately 130 per cent of the lost annual rental revenue from all of the former Sears space. The replacement rents are expected to exceed that which was paid by Sears by approximately $5 per square foot (60-per-cent increase).

Unlike the trust's previous experience with the vacated Target premises, the trust will not be required to undergo the time-consuming process to obtain site plan approvals to convert the majority of the Sears premises to multitenant units.

As such, the trust anticipates that replacement tenants will be in possession of the spaces by the end of 2018 and will be open and paying rent in first quarter or second quarter of 2019, with costs of tenant work considerably less than what was incurred to fill the vacated Target spaces.

Income-producing property acquisitions and dispositions

Income-producing property acquisitions

During the year ended Dec. 31, 2017, the trust completed the acquisition of one income property for $16.5-million and assumed debt of $8.6-million.

Subsequent to Dec. 31, 2017, the trust acquired Thickson Centre in Whitby, Ont., for a purchase price of $31.1-million at a capitalization rate of 6.16 per cent with no assumption of debt. The trust also acquired the remaining one-third interest in an existing income property in Newmarket, Ont., for a purchase price of $18.5-million at a capitalization rate of 5.65 per cent and assumed a mortgage payable with a fair value of $9.4-million.

Additional capital recycling

As part of RioCan's continuing capital recycling program, RioCan completed income-producing property dispositions totalling $149.6-million in 2017 in addition to the strategic dispositions noted earlier. These consist of:

  • Sale of its Cambie Street property in Vancouver, B.C., on June 29, 2017, for a sale price of $94.2-million at a capitalization rate of 3.29 per cent; there was no debt on the property;
  • Sale of a portfolio of six chartered bank branches located in British Columbia on Aug. 3, 2017, for a sale price of $30.3-million at a capitalization rate of 3.72 per cent; there was no debt relating to the disposition;
  • Sale of a partnership interest for sale proceeds of $25.1-million in first quarter 2017.

Also, RioCan sold a portion of its available-for-sale marketable securities and recognized gains of $10.5-million in the fourth quarter and $46.0-million for the year ended Dec. 31, 2017.

Development program

RioCan's development program is a significant component of its growth strategy to unlock the intrinsic value of its existing properties through redevelopment and intensification and deliver strong net asset value (NAV) growth to its unitholders. During 2017, RioCan continued to make significant progress in advancing its development program.

Project completions: completed 800,000 square feet of projects with $224.3-million in costs transferred to income-producing properties. Notably the trust substantially completed the Sage Hill development, a 380,000-square-foot new format centre located in a growing residential suburb in northwest Calgary. This project is co-owned with KingSett Capital on a 50/50 basis. The 32-acre development site is anchored by Walmart and Calgary's first Loblaws City Market banner, with an excellent mix of strong national (London Drugs, Dollarama, Scotiabank, McDonalds and Royal Bank of Canada) and high-quality regional retailers.

Zoning approvals and development pipeline: obtained 4.5 million square feet (at RioCan's interest) of zoning approvals in 2017, including the zoning approvals for the Well in Toronto, Westgate and Elmvale in Ottawa, Millwoods in Edmonton, and Southland in Calgary. The trust continues to identify new intensification opportunities and expand its development pipeline, while maintaining prudent capital management. As of Dec. 31, 2017, the trust has identified approximately 26.3 million square feet of development pipeline (at RioCan's interests), of which 46.7 per cent is already zoned and another 20.1 per cent with zoning applications submitted.

Project and leasing progress: Several large projects are progressing as planned and are scheduled to be completed by the end of 2018 or early 2019, including, but not limited to:

  • Yonge Eglinton northeast corner condominium: the 623-unit fully presold landmark condominium project located at the intersection of the Yonge-Bloor subway line and the new Eglinton Crosstown light rail transit line (Eglinton LRT) in Toronto; 50/50 co-owned by RioCan and Metropia/Bazis;
  • Yonge Eglinton northeast corner residential rental: a 466-residential-rental-unit project, including 65 residential rental replacement units and retail and office space with underground access to the Yonge-Bloor subway line and Eglinton LRT in Toronto; 50/50 co-owned by RioCan and Metropia/Bazis;
  • King & Portland: a mixed-use project in the trendy Toronto King West neighbourhood; in September, 2017, RioCan and its 50-per-cent partner Allied Properties Real Estate Investment Trust seized the market trend and changed the originally contemplated residential rental component to condominium units, 100 per cent of which were subsequently sold with profitability well ahead of initial estimate; the project's office component is 100 per cent leased, and the retail component is currently 44 per cent leased with the remaining 7,000 square feet expected to be leased upon completion;
  • The trust continues to make good progress on other developments, such as Sheppard Centre, 491 College St. and Bathurst College Centre, all located in urban Toronto and scheduled for full or phased completion in 2018.

New strategic alliances: Part of the strength in RioCan's development program is its ability to attract well-established partners with proven records and residential development expertise. During 2017, RioCan entered into strategic alliances with a few new partners through the sale of partial interests in several development projects. Such strategic alliances not only reduce the trust's development risks but also crystallize the value of zoned density and generate NAV growth for unitholders.

  • Gloucester residential: a new 50/50 joint venture with Killam Apartment Real Estate Investment Trust formed on April 21, 2017, to redevelop an income-producing property located on the new Confederation LRT line in Ottawa into a residential community with four residential towers containing up to 840 units (at 100 per cent);
  • Sunnybrook Plaza: a new 50/50 joint venture with Concert Real Estate Corp. formed on June 14, 2017, to redevelop an income-producing property located on the new Yonge Eglinton LRT route in Toronto into a 16-storey and an 11-storey mixed-use project;
  • Yorkville: A new partner, Capital Developments (CD), was introduced on Oct. 12, 2017, and the project is a 50/25/25 joint venture among RioCan, Metropia and CD; the project is located in the prestigious Toronto Yorkville neighbourhood with the potential for approximately 500,000 square feet of luxury condominiums and retail uses and up to 82 residential rental replacement units; as of Feb. 13, 2018, the partners have completed acquisitions of adjacent properties substantially required for the intensification project; RioCan has agreed to purchase the partners' interest in the retail portion upon project completion at a 6-per-cent capitalization rate and has the right of first opportunity to acquire the residential rental replacement units; this will provide further NAV growth to the trust's unitholders;
  • Brentwood Village: On Nov. 23, 2017, RioCan completed the sale of a 50-per-cent interest in a discrete portion of its Brentwood Village property in Calgary, Alta., to Boardwalk Real Estate Investment Trust for total proceeds, including certain cost recoveries, of $4.8-million (50-per-cent interest); the co-owners plan to develop this discrete portion of the property into a mixed-use project with 163 residential rental units plus retail space; RioCan continues to own 100 per cent of the main portion of the property, including existing retail and future density.

Building on existing strategic alliances, RioCan continues to build on and realign its existing strategic alliances with its partners when opportunities arise for similar reasons as noted earlier for new strategic alliances.

  • Yonge Eglinton northeast corner: On July 5, 2017, RioCan entered into an agreement with its partner to purchase the remaining 50-per-cent interest in the rental residential tower of the landmark, mixed-use, transit-oriented project. The purchase price is based on costs plus $10.0-million upon closing (which is estimated in the first quarter of 2019), subject to a final cost amount.
  • RioCan also has an agreement to acquire the remaining 50-per-cent interest in the retail component of the project at a purchase price based on a 7-per-cent capitalization rate and the stabilized net operating income upon completion in 2019.
  • Both deals will provide RioCan further NAV growth potential upon deal closings.
  • The Well: On Oct. 5, 2017, RioCan and its partner Allied acquired Whitecastle New Urban Fund 2's undivided 20-per-cent interest in the commercial component of the Well, the large-scale landmark mixed-use development in downtown Toronto. As a result of this transaction, both Allied and RioCan each own an undivided 50-per-cent interest in the commercial component of the project.
  • Windfield townhouse development: On Oct. 27, 2017, RioCan formed a 50/50 joint venture with Tribute Communities to develop 551 townhouses in several phases on approximately 31 acres at RioCan's Windfields Farm development property in Oshawa, Ont. One hundred sixty-six of the 170 units released in phase 1 and 14 of the 94 units in phase 2 have been sold.
  • 740 Dupont: On Dec. 15, 2017, RioCan completed the sale of a 50-per-cent interest in its 740 Dupont Ave. mixed-use development project in Toronto, Ont., to Woodbourne Canada Partners for total proceeds, including certain cost recoveries, of $9.4-million (50-per-cent interest). The mixed-use project will consist of 210 residential rental units plus retail space. Woodbourne is also the trust's 50-per-cent partner in its largest 584-unit residential rental development -- residential building 6 at the Well in downtown Toronto.
  • E2 condos at Yonge and Eglinton: On Dec. 11, 2017, RioCan acquired a 10-per-cent interest in E2 Condos, a development adjacent to the trust's residential rental project at the northeast corner of Yonge and Eglinton. RioCan will invest a total of $3.0-million and will participate in project profits and earn fees for easement rights. During fourth quarter 2017, RioCan contributed $1.4-million to the project.

Liquidity and capital

RioCan's debt and leverage metrics are disclosed herein to help facilitate an understanding of RioCan's leverage and its ability to service such leverage.

The trust's interest, debt service and fixed-charge coverage ratios, as well as debt to adjusted EBITDA, at RioCan's proportionate share for the year ended Dec. 31, 2017, have all significantly improved compared with Dec. 31, 2016, mainly due to lower interest and debt service costs as a result of the repayment of debt using the net proceeds from the U.S. sale and interest savings from mortgage refinancing and redemption of preferred units, and an increase in adjusted EBITDA primarily as a result of acquisitions (net of dispositions), strong same-property NOI growth, development completions and higher gains from the sale of available-for-sale marketable securities.

The trust's leverage ratio (total debt to total assets) at RioCan's proportionate share remained low at 41.4 per cent and within the trust's target range as of Dec. 31, 2017. This ratio increased by 1.4 per cent over Dec. 31, 2016, mainly as a result of payment of income taxes in first quarter 2017 relating to the sale of the U.S. portfolio in 2016, which had been accrued in 2016, and the redemption of the Series C preferred units in second quarter 2017.

The trust continued to expand its portfolio of unencumbered assets during 2017. As of Dec. 31, 2017, the trust has $7.7-billion in unencumbered assets, which generates 56.7 per cent of the trust's annualized NOI as of Dec. 31, 2017, as compared with 49.5 per cent as of Dec. 31, 2016. The unencumbered assets to unsecured debt ratio decreased from 240 per cent to 226 per cent over this period, but remained well over the trust's 200-per-cent target, as the increase in the trust's unsecured debt of $635-million outpaced the $1.0-billion increase in unencumbered assets on a relative percentage basis.

As at Dec. 31, 2017, the trust exceeded all of its debt metrics targets.

On Jan. 31, 2018, the trust issued $300-million of Series AA senior unsecured debentures, which mature on Sept. 29, 2023, and carry a coupon rate of 3.209 per cent. The interest on these debentures is payable semi-annually commencing Sept. 29, 2018. The debentures were sold at a price of $999.95 per $1,000 principal amount with an effective yield of 3.209 per cent if held to maturity.

Selected financial information

Financial information prepared by management in accordance with IFRS and based on the trust's consolidated financial statements for the period ended Dec. 31, 2017, is included herein. This financial information does not contain all disclosures required by IFRS, and accordingly should be read in conjunction with the trust's consolidated financial statements and management's discussion and analysis for the period ended Dec. 31, 2017, which is available on RioCan's website and on SEDAR.

                                    CONSOLIDATED STATEMENTS OF INCOME
                           (in thousands of dollars, except per-unit amounts)
 
                                                         Three months ended Dec. 31,                 Year ended Dec. 31,
                                                             2017              2016              2017              2016
Revenue
Rental revenue                                         $  289,403        $  285,257      $  1,140,665      $  1,103,884
Property and asset management fees                          3,823             2,968            14,554            13,186
Residential inventory sales                                     -             3,353                 -            16,262
                                                          293,226           291,578         1,155,219         1,133,332
Operating costs
Rental operating costs
Recoverable under tenant leases                           100,110           101,058           399,580           397,776
Non-recoverable costs                                       5,353             5,233            18,270            19,684
Residential inventory cost of sales                             -             4,550                 -            16,188
                                                          105,463           110,841           417,850           433,648
Operating income                                          187,763           180,737           737,369           699,684
Other income
Interest income                                             1,950             1,657             7,586             5,744
Income from equity-accounted investments                    3,782             4,521            15,719             9,972
Fair value gains on investment properties, net             71,013            44,371           136,942           182,888
Investment and other income                                11,979             6,762            57,014            33,268
                                                           88,724            57,311           217,261           231,872
Other expenses
Interest costs                                             42,389            43,464           171,418           179,527
General and administrative                                 18,123            14,000            52,560            52,220
Internal leasing costs                                      3,265             2,663            10,882            10,931
Transaction and other costs                                 4,295             2,449            11,825             9,577
                                                           68,072            62,576           246,685           252,255
Income before income taxes                                208,415           175,472           707,945           679,301
Deferred income tax recovery                               (1,320)           (3,000)             (320)           (3,850)
Net income from continuing operations                     209,735           178,472           708,265           683,151
Net income (loss) from discontinued operations                (62)          (14,013)            7,021           147,687
Net income                                                209,673           164,459           715,286           830,838
Net income attributable to
Unitholders                                               209,673           164,459           715,286           830,747
Non-controlling interests                                       -                 -                 -                91
                                                          209,673           164,459           715,286           830,838
Net income per unit -- basic
From continuing operations                                   0.64              0.54              2.16              2.06
From discontinued operations                                    -             (0.04)             0.02              0.45
Net income per unit -- basic                                 0.64              0.50              2.18              2.51
Net income per unit -- diluted
From continuing operations                                   0.64              0.54              2.16              2.06
From discontinued operations                                    -             (0.04)             0.02              0.45
Net income per unit -- diluted                               0.64              0.50              2.18              2.51

Conference call and webcast

Interested parties are invited to participate in a conference call with management on Feb. 14, 2017, at 9 a.m. Eastern Time. You will be required to identify yourself and the organization on whose behalf you are participating.

To participate, please dial 647-427-3230 or 1-877-486-4304. If you cannot participate in the live mode, a replay will be available. To access the replay, please dial 1-855-859-2056 and enter passcode 5186169 followed by the number sign.

To access a copy of the slides to be used for the conference call or the simultaneous webcast, go to RioCan's website, and click on the link for the webcast. The webcast will be archived 24 hours after the end of the conference call and can be accessed for 120 days.

About RioCan Real Estate Investment Trust

RioCan is Canada's largest real estate investment trust with a total enterprise value of approximately $13.9-billion at Dec. 31, 2017. 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. Its portfolio is composed of 289 properties, including 17 development properties, with an aggregate net leasable area of approximately 44 million square feet.

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