RioCan Real Estate Investment Trust Announces Financial Results for the Second Quarter of 2018 With Significant Progress on Strategic Dispositions and Developments and 2.5% Same Property NOI Growth From Major Market Assets

08/08/2018

RioCan's HIGHLIGHTS for the three months ended June 30, 2018 ("Second Quarter"):

  • RioCan continues to make good progress on the execution of its strategy to accelerate its portfolio focus in Canada’s six major markets. The Trust has either completed or entered into firm agreements to sell $876 million of properties in secondary markets at a weighted average capitalization rate of 6.34% and has conditional transactions under contract totalling $279 million. This brings total closed, firm or conditional deals to $1.2 billion or approximately 58% of the announced disposition target. The aggregate sales proceeds from these assets are materially in line with the Trust's IFRS valuations;
  • As a result of the substantial dispositions completed since the announcement of the strategy in October 2017, operating income for the Second Quarter decreased by $8.0 million when compared to Q2 2017;
  • FFO per unit, however, increased by 2.5% to $0.46 in the Second Quarter, and increased to $0.92 per unit for the six months ended June 30, 2018, a $0.04 per Unit or 4.3% increase as compared to Q2 2017, despite the substantial dispositions completed and $4.3 million severance costs;
  • Same property NOI increased by 2.1% or $3.3 million in the Second Quarter as compared to Q2 2017. Same property NOI for RioCan's properties in Canada's six major markets increased 2.5% in the Second Quarter as compared to flat same property NOI growth for its secondary markets properties;
  • Committed occupancy for retail increased by 30 basis points to 97.0% from the previous quarter. For the overall portfolio, committed occupancy improved by 20 basis points to 96.8% and in-place occupancy remained high at 95.6% as at June 30, 2018. Committed occupancy for RioCan's properties in Canada's six major markets increased by 10 basis points to 98.0% at June 30, 2018 from the previous quarter;
  • The percentage of annualized rental revenue generated from RioCan's properties in Canada's six major markets increased by 1.4% to 81.4% as at June 30, 2018 versus the prior quarter, with Greater Toronto Area (GTA) generating 43.5% of RioCan's annualized rental revenue as at June 30, 2018;
  • RioCan and Allied Properties REIT (Allied) recently announced that they are proceeding with the full development of the commercial component of The Well in Toronto Downtown West given significant leasing progress based on committed leases from two global companies (30% of the office component) plus additional leases in the final stage of negotiations that if completed would bring the committed leasing of the office component to 80%;
  • During the quarter, RioCan completed 119,000 square feet of development including the completion and full lease up of 491 College Street in Toronto. The Trust continues to make good progress on developments, including Sobeys and other retail tenants taking possession at Bathurst College Centre in Toronto. Yonge & Eglinton Northeast Corner (ePlace) and King Portland Centre (Kingly) in Toronto are nearing substantial completion and Gloucester (Frontier) is scheduled to be completed in 2019. We will start to market the residential rental tower at ePlace in the coming months;
  • The Trust continues to maintain its competitive advantage and leading position in the extent of zoning approvals for its development pipeline. As at June 30, 2018, the Trust has 46.3% of its pipeline or 12.1 million square feet zoned plus another 20.6% or 5.4 million square feet with zoning applications submitted;
  • As at June 30, 2018, The Trust continued to maintain a strong balance sheet with debt to adjusted EBITDA ratio of 7.74x on a 12-month rolling basis despite substantial strategic dispositions completed; debt to total assets ratio was at 42.4% on a proportionate share basis as at June 30, 2018.

TORONTO, Aug. 08, 2018 (GLOBE NEWSWIRE) -- RioCan Real Estate Investment Trust (“RioCan”) (TSX: REI.UN) today announced its financial results for the three and six months ended June 30, 2018.

“Our results for the second quarter were once again more than satisfactory and our portfolio continues to deliver strong growth. We are making excellent progress on our strategic disposition program in terms of both the number of properties sold and the prices we have achieved. Our urban intensification program is also progressing very well,” said Edward Sonshine, Chief Executive Officer of RioCan. “I am very pleased with the significant office leasing momentum that is building at our landmark development, The Well, with Allied and our decision to proceed with the full development of the commercial component of this mixed-use community as previously anticipated. Our first key mixed-use projects at the northeast corner of Yonge and Eglinton and King and Portland in Toronto are near substantial completion and we anticipate marketing the rental residential portion at Yonge and Eglinton in the coming months.”

Financial Highlights
All figures are expressed in Canadian dollars unless otherwise noted. For further information about RioCan's results for the three and six months ended June 30, 2018, this earnings release should be read in conjunction with our unaudited interim consolidated financial statements ("Consolidated Financial Statements"), as well as Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2018.

RioCan’s Consolidated Financial Statements are prepared in accordance with International Financial Reporting Standards (IFRS). 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 June 30, 2018 Management's Discussion and Analysis. As a result of the sale of the U.S. operations, we have reported our 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

  Three months ended June 30, Six months ended June 30,
(in millions except percentages and per unit values)   2018   2017 % Change     2018   2017 % Change  
Net income from continuing operations $   111.3 $   155.1 (28.2 )% $   248.5 $   318.2 (21.9 )%
Net income per unit from continuing operations attributable to unitholders – diluted $   0.35 $   0.47 (25.5 )% $   0.78 $   0.96 (18.8 )%
                         

Q2 2018
Net income from continuing operations attributable to unitholders for the three months ended June 30, 2018 is $111.3 million compared to $155.1 million during the same period in 2017, representing a decrease of $43.7 million. Excluding $35.7 million of lower fair value gains over the comparable period and $6.1 million of unrealized items included in net income related to marketable securities, net income from continuing operations attributable to unitholders for the second quarter of 2018 is $140.3 million compared to $142.2 million in 2017, representing a decrease of $1.9 million or 1.4%.

The decrease of $1.9 million is largely the net effect of the following:

  • $8.0 million in lower operating income primarily due to property dispositions as part of the Trust's strategic disposition program, partially offset by strong same property performance;
  • $6.2 million in higher general and administrative expenses primarily due to one-time severance costs and mark to market adjustments associated with cash-settled unit-based compensation; partially offset by
  • $10.0 million in higher realized gains on marketable securities sold; and
  • $2.1 million in lower transaction costs on dispositions and acquisitions mainly due to incurred costs of potential transactions not pursued by the Trust in 2017.

YTD 2018
Net income from continuing operations attributable to unitholders for the first half of 2018 is $248.5 million compared to $318.2 million during the same period in 2017, representing a decrease of $69.7 million. Excluding $41.0 million lower net fair value gains on investment properties over the comparable period and $21.8 million of unrealized items included in net income related to marketable securities, net income from continuing operations attributable to unitholders for the six months ended June 30, 2018 is $280.4 million compared to $287.3 million in 2017, representing a decrease of $6.9 million or 2.4%.

The decrease of $6.9 million is largely the net effect of the following:

  • $6.5 million in higher general and administrative expenses primarily due to one-time severance costs and mark to market adjustments for cash-settled unit-based compensation costs;
  • $5.3 million in lower income from our equity accounted investments primarily due to higher fair value gains in 2017;
  • $4.6 million in lower operating income primarily due to property dispositions as part of the Trust's strategic disposition program, partially offset by strong same property performance;
  • $3.4 million in higher transaction costs on dispositions and acquisitions given the Trust's strategic disposition program; and
  • $3.0 million in lower income earned on marketable securities; partially offset by
  • $12.8 million in higher realized gains on marketable securities sold;
  • $2.0 million in higher interest revenue due to new advances on mortgages and loans receivable at higher interest rates and fair value gains on mortgages and loans receivable; and
  • $2.3 million in lower interest expense due to higher capitalized interest.

Funds From Operations ("FFO")

  Three months ended June 30, Six months ended June 30,
(in millions except percentages and per unit values)   2018   2017 % Change     2018   2017 % Change  
FFO from continuing operations $   144.9 $   145.7 (0.6 %) $   293.7 $   288.7 1.7 %
FFO from discontinued operations $   0.4 $   0.9 N/A   $   0.8 $   0.7 N/A  
FFO (i) $   145.3 $   146.6 (0.9 %) $   294.5 $   289.4 1.8 %
FFO per Unit - diluted $   0.46 $   0.45 2.5 % $   0.92 $   0.88 4.3 %
                         


(i)   A non-GAAP measurement. A reconciliation to net income can be found under “Results of Operations” in RioCan's Management's Discussion and
Analysis for the period ending June 30, 2018.
     

Q2 2018
Despite substantial dispositions and $4.3 million one time severance costs in the Second Quarter, FFO on a diluted per unit basis increased 2.5% to $0.46 as compared to $0.45. FFO for the second quarter of 2018 is $145.3 million compared to $146.6 million representing a decrease of approximately $1.3 million or 0.9%.

Continuing Operations
FFO from continuing operations decreased from $145.7 million in the second quarter of 2017 to $144.9 million in the second quarter of 2018, representing a decrease of $0.9 million or 0.6%. The $0.9 million decrease in FFO from continuing operations for the quarter was primarily due to the net effect of the following:

  • $8.0 million in lower operating income mainly as a result of dispositions, partially offset by strong same property NOI growth;
  • $6.2 million in higher general and administrative expenses primarily due to one-time severance costs and mark to market adjustments associated with cash-settled unit-based compensation;
  • $1.5 million in lower dividend income on marketable securities; largely offset by:
  • $10.0 million increase in realized gains on marketable securities sold;
  • $1.8 million in lower Series C preferred unit distributions;
  • $1.8 million in higher interest revenue; and
  • $1.4 million in lower interest expenses.

YTD 2018
FFO for the six months ended June 30, 2018 is $294.5 million compared to $289.4 million representing an increase of approximately $5.1 million or 1.8%. On a diluted per unit basis, FFO is $0.92 compared to $0.88, representing an increase of 4.3%.

Continuing Operations
FFO from continuing operations increased from $288.7 million during 2017 to $293.7 million in 2018, representing an increase of $5.0 million or 1.7%, despite substantial dispositions and $4.3 million one time severance costs. The $5.0 million increase in FFO from continuing operations for the period was primarily due to the following:

  • $12.8 million increase in realized gains on marketable securities sold;
  • $3.5 million less Series C preferred unit distributions;
  • $2.0 million increase in interest revenue; and
  • $2.3 million decrease in interest expense; partially offset by
  • $6.5 million in higher general and administrative expenses primarily due to one-time severance costs and mark to market adjustments associated with cash-settled unit-based compensation;
  • $4.6 million lower operating income mainly as a result of property dispositions (net of acquisitions), partially offset by strong same property NOI growth, development completions and higher lease cancellation fees; and
  • $3.0 million lower dividend income from marketable securities.

Operational Performance

Same Property NOI Growth

  Three months ended
June 30, 2018
      Six months ended
June 30, 2018
Same Property NOI Growth 2.1%   2.3%
Refers to same property NOI growth on a year over year basis.      
       


Q2 2018
Same property NOI for the three months ended June 30, 2018 increased 2.1% or $3.3 million compared to the same period in 2017. Approximately $2.4 million of the increase related to higher occupancy, renewal rate growth and contractual rent increases and $1.7 million is due to an increase in NOI from Target backfills and other expansion and re-development projects completed, which is offset by the $0.8 million negative effect of the Sears closures.

Same property NOI from RioCan's properties in Canada's six major markets increased 2.5% and same property NOI from its secondary markets properties remained relatively flat with an increase of 0.1% compared to the same period in 2017 for the three months ended June 30, 2018.

YTD 2018
Same property NOI for the six months ended June 30, 2018 increased 2.3% or $7.2 million compared to the same period in 2017. Approximately $5.1 million of the increase is related to higher occupancy, renewal rate growth and contractual rent increases and $3.6 million is due to Target backfills and other expansion and redevelopment projects completed in 2018 and 2017, which is offset by the $1.5 million negative effect of the Sears closures.

Same property NOI from RioCan's properties in Canada's six major markets increased 2.8% and same property NOI from its secondary markets properties decreased a minor 0.1% for the six months ended June 30, 2018 when compared to the same period in 2017.

Acceleration of Major Market Focus
On October 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 two to three years. Refer to the Strategy section of RioCan's MD&A for further details.

As of August 7, 2018, the Trust has either completed or entered into firm agreements to sell $876.1 million of properties in secondary markets at a weighted average capitalization rate of 6.34% based on in-place net operating income (NOI), representing approximately 44% of the announced disposition target. The deals, which span a broad geographical range of secondary markets, consist of the following:

  • Closed or firm deals for 26 properties as of May 8, 2018 as disclosed in the Trust's Q1 2018 MD&A have all been closed as of June 29, 2018 for aggregate sales proceeds of $582.5 million at a weighted average capitalization rate of 6.15% based on in-place NOI.
  • The sale of two properties located in Repentigny, Quebec and Waterloo, Ontario to two separate buyers for aggregate sales proceeds of $7.4 million at a weighted average capitalization rate of 5.95% based on in-place NOI.
  • The sale of five properties located in Cambridge, Pembroke, Caledonia and Hamilton, Ontario and Levis, Quebec to four separate buyers for aggregate sales proceeds of $64.6 million at a weighted average capitalization rate of 6.63% based on in-place NOI. One buyer assumed a $26.1 million mortgage upon closing.
  • Firm agreements to sell four properties located in Sault Ste. Marie, Whitby, Flamborough and Guelph, Ontario to three separate buyers for aggregate sales proceeds of $80.0 million at a weighted average capitalization rate of 5.79% based on in-place NOI.
  • A firm agreement to sell a portfolio of four properties located in Levis, Granby, Montreal and St. Antoine, Quebec for aggregate sales proceeds of $41.1 million at a weighted average capitalization rate of 9.34% based on in-place NOI.
  • A firm agreement to sell a portfolio of five properties in London, Ontario for aggregate sales proceeds of $100.6 million at a weighted average capitalization rate of 6.47% based on in-place NOI.

In addition to the above $876.1 million closed and firm deals, as of August 7, 2018 the Trust has also entered into seven conditional agreements to sell fourteen properties located in Ontario, Quebec and New Brunswick for aggregate sale proceeds of $278.6 million. Should these firm and conditional transactions close, the Trust would have completed the sale of 60 properties for aggregate sale proceeds of $1.2 billion or approximately 58% of our disposition target by sales proceeds, at a weighted average capitalization rate of 6.52%. The aggregate sales prices of these properties are materially in line with the Trust's IFRS valuations.

The net proceeds from the dispositions have been, and are expected to be, used to pay down debt, fund unit repurchases through RioCan’s Normal Course Issuer Bid (NCIB) program and fund the Trust’s development activities. During the six months ended June 30, 2018 the Trust acquired and cancelled 11.1 million units at a weighted average price of $23.94 per unit, for a total cost of $266.6 million. Since the renewal of the NCIB program on October 20, 2017, RioCan has purchased and cancelled 15.1 million units at an average purchase price of $24.29 per unit at a total cost of $366.1 million.

Operating Statistics

The key performance indicators related to operating and leasing for the Canadian portfolio over the last eight quarters are as follows:

  2018 2017 2016
  Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
Committed occupancy 96.8 % 96.6 % 96.6 % 96.8 % 96.7 % 96.2 % 95.6 % 95.3 %
In-place occupancy 95.6 % 95.7 % 95.6 % 96.0 % 95.2 % 94.4 % 93.6 % 93.6 %
Retention rate 91.8 % 87.0 % 87.5 % 93.6 % 93.9 % 88.6 % 84.0 % 83.1 %
% increase in average net rent per sq ft for tenant renewals 4.2 % 4.3 % 4.5 % 5.2 % 4.7 % 8.2 % 8.1 % 6.6 %
                                 

  • Committed occupancy increased by 20 basis points to 96.8% when compared to March 31, 2018 and In-place occupancy remained high at 95.6%. The Trust expects to generate $10.9 million of annualized net incremental IFRS rent once all tenants that have committed leases as of June 30, 2018 take possession of their space;
  • Committed occupancy for retail increased by 30 basis points from the previous quarter to 97.0% while office occupancy edged lower by 60 bps to 93.5% due to one office tenant (approximately 12,000 square feet at RioCan's Interest) vacating their unit during the quarter, which we are confident will be leased up in normal course;
  • As at June 30, 2018, the committed occupancy for our six major markets is 98.0%, up by 0.1% compared to 97.9% at March 31, 2018; and
  • The retention rate for the Second Quarter improved to 91.8% with the renewal increase in average rent per square foot at 4.2% for the quarter due to large proportion of fixed rate renewals.

Property Acquisitions and Additional Capital Recycling
Income Producing Property Acquisitions

During the quarter, RioCan acquired partners' interests in two properties totalling $18.4 million and assumed debt of $5.4 million in connection with these acquisitions.

Additional Capital Recycling

RioCan sold a portion of its marketable securities and realized a cash gain on units sold of $20.2 million and $34.7 million for the three and six months ended June 30, 2018, respectively.

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 the Second Quarter of 2018, RioCan continued to make significant progress in advancing its development program, notably:

  • The Well - On July 31, 2018, RioCan and its partner Allied announced significant progress on the office leasing at its flagship development, The Well, based on lease commitments for approximately 200,000 square of the office GLA by Index Exchange, a global advertising digital marketplace. Another high-calibre office user has agreed to lease 125,000 square feet of GLA at 460 Front Street West, a separate office component that will form part of The Well. The commitments by the two office users represent 30% of the office GLA at The Well. RioCan and Allied are also finalizing leases with other tenants for up to 533,752 square feet of the office GLA at The Well, which would bring the leased area of the office component of The Well to 80%. With such significant progress on office leasing, RioCan and Allied are proceeding with full development of the commercial component of the project. Retail leasing is scheduled to start in 2019 once office leasing is substantially progressed as the office tenants will impact the types of retail tenants that are best suited for the development.

    As part of the dynamic downtown mixed-use community, The Well is expected to include approximately 1.5 million square feet (at 100%) of residential GLA across six buildings. The residential component of The Well will include approximately 1,800 residences consisting of a mix of both rental and condominium units. RioCan intends to maintain a 50% ownership interest in the largest residential tower of the development located at 450 Front Street W., consisting of 590 purpose-built residential rental units.

  • Windfield Farms Townhouses - Construction for phase one of the 551 townhouse project at the 31-acre Windfield Farms site in Oshawa, Ontario commenced in Q2 2018 with first occupancy expected in 2019. This project, also known as UC Towns 2, is a joint venture project with Tribute Communities. The 551 townhouse project will be constructed in three phases. 166 of the 170 units released in phase one have been pre-sold.

  • Development completions - During the quarter, the Trust completed 119,000 square feet of development, bringing total development completions to 237,000 square feet as at June 30, 2018. The retail-office project at 491 College Street in Toronto was completed and fully leased. The Trust continues to make good progress on a number of developments. Sobeys and other tenants took possession at Bathurst College Centre project during the quarter. Yonge & Eglinton NorthEast Corner (ePlace), including the condominium tower (eCondo) and the residential rental tower (eCentral), and King Portland Centre (including Kingly condominiums), are close to substantial completion. We anticipate marketing the residential rental eCentral in the coming months. Gloucester (Frontier) in Ottawa is on schedule to be completed in 2019.

  • Zoning approvals - The Trust continues to maintain its competitive advantage and leading position in the extent of zoning approvals it has obtained for its development pipeline. As at June 30, 2018, the Trust has 46.3% of its pipeline or 12.1 million square feet zoned plus another 20.6% or 5.4 million square feet with zoning applications submitted. The extent of approved zoning density that the Trust has obtained is a key competitive advantage for the Trust, given the increasing value of zoned density in key markets such as Toronto, Ontario, where changes in the zoning approval process are leading to a longer approval process and more uncertainties.

Liquidity and Capital
RioCan’s debt and leverage metrics are disclosed below to help facilitate an understanding of RioCan’s leverage and its ability to service such leverage. The definitions that management uses, as well as the calculation methodology for the ratios included in the table below are described in RioCan's Management’s Discussion and Analysis for the three and six months ended June 30, 2018.

  Rolling 12 months ended
June 30, 2018 December 31, 2017
Interest coverage – RioCan’s proportionate share (i)   3.78x     3.84x  
Debt service coverage – RioCan’s proportionate share (i)   3.11x     3.06x  
Fixed charge coverage – RioCan’s proportionate share (i)   1.17x     1.17x  
Debt to Adjusted EBITDA – RioCan’s proportionate share (i)   7.74x     7.57x  
Ratio of total debt to total assets    
(RioCan's proportionate share, net of cash and cash equivalents)   42.4 %   41.4 %
Unencumbered assets (millions) $ 8,001   $ 7,663  
% of NOI generated from unencumbered assets (ii)   58.3 %   56.7 %
Unsecured debt as a % of Total Debt – RioCan’s proportionate share (i)   59.0 %   56.1 %
Unencumbered assets to unsecured debt   221 %   226 %
             


(i)   Refer to section Non-GAAP Measures in RioCan's MD&A for further details and the calculation of Adjusted EBITDA for the respective periods.
(ii)   Ratio is calculated on a continuing operations basis.
     

As part of our capital management strategy, it is our objective to reduce leverage and further improve our unencumbered asset and coverage ratios. As at June 30, 2018, we exceeded all of our debt metrics targets.

Despite substantial property dispositions over the six months ended June 30, 2018, Debt to Adjusted EBITDA at RioCan's proportionate share remained low at 7.74x on a rolling twelve months basis, albeit slightly increased from 7.57x as at December 31, 2017. This was due to higher average debt balances combined with stable Adjusted EBITDA as a result of property dispositions largely offset by same property NOI growth, development completions and higher gains from the sale of marketable securities.

The percentage of NOI generated from unencumbered assets has increased from 56.7% as of December 31, 2017 to 58.3% as of June 30, 2018. Approximately 59% of the Trust's debt is unsecured as of the quarter end.

Lines of Credit

On May 4, 2018, the Trust exercised its option to extend the maturity date on its operating line of credit to May 31, 2023.

Base Shelf Prospectus

RioCan renewed its Base Shelf Short Form Prospectus on July 3, 2018. The filing provides the flexibility to issue up to $3.0 billion offerings of various securities during the effective period of the prospectus up to August 3, 2020.

Selected Financial Information
The following includes financial information prepared by management in accordance with IFRS and based on the Trust's Consolidated Financial Statements for the three and six months ended June 30, 2018. 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 MD&A for the three and six months ended June 30, 2018, which is available on RioCan's website and on SEDAR.

CONSOLIDATED BALANCE SHEETS
(In thousands of Canadian dollars, except per unit amounts)
(unaudited)

As at   June 30, 2018   December 31, 2017
Assets        
Investment properties $ 13,124,949 $ 13,160,244
Deferred tax assets   12,929   11,929
Equity-accounted investments   177,600   176,256
Mortgages and loans receivable   172,443   145,873
Residential inventory   188,553   132,003
Assets held for sale   294,640   410,178
Receivables and other assets   220,124   269,870
Cash and cash equivalents   58,408   70,225
Total assets $ 14,249,646 $ 14,376,578
Liabilities        
Debentures payable $ 2,742,736 $ 2,694,619
Mortgages payable   2,183,709   2,300,247
Lines of credit and other bank loans   1,066,780   904,429
Liabilities associated with assets held for sale   26,100   32,670
Accounts payable and other liabilities   425,914   399,927
Total liabilities $ 6,445,239 $ 6,331,892
Equity        
Unitholders' equity:        
Common   7,804,407   8,044,686
Total equity   7,804,407   8,044,686
Total liabilities and equity $ 14,249,646 $ 14,376,578
         

CONSOLIDATED STATEMENTS OF INCOME
(In thousands of Canadian dollars, except per unit amounts) 
(unaudited)

  Three months ended June 30, Six months ended June 30,
    2018     2017   2018     2017
Revenue        
Rental revenue $   274,492   $   280,862 $   560,897   $   567,549
Property and asset management fees   3,357     4,770   7,031     7,753
    277,849     285,632   567,928     575,302
Operating costs        
Rental operating costs        
Recoverable under tenant leases   96,495     96,248   199,785     202,708
Non-recoverable costs   4,274     4,340   8,796     8,637
    100,769     100,588   208,581     211,345
Operating income   177,080     185,044   359,347     363,957
Other income (loss)        
Interest income   3,513     1,716   5,991     4,004
Income from equity-accounted investments   1,158     2,389   3,359     8,609
Fair value gains (losses) on investment properties, net   (22,837 )   12,831   (10,056 )   30,938
Investment and other income   14,844     13,707   14,827     29,084
    (3,322 )   30,643   14,121     72,635
Other expenses        
Interest costs   41,188     42,580   83,286     85,585
General and administrative   17,523     11,294   28,750     22,225
Internal leasing costs   2,787     2,318   5,544     4,811
Transaction and other costs   2,324     4,428   8,155     4,780
    63,822     60,620   125,735     117,401
Income before income taxes   109,936     155,067   247,733     319,191
Deferred income tax expense (recovery)   (1,400 )     (800 )   1,000
Net income from continuing operations $   111,336   $   155,067 $   248,533   $   318,191
Net income from discontinued operations   62     1,405   87     2,852
Net income $   111,398   $   156,472 $   248,620   $   321,043
Net income attributable to:        
Unitholders $   111,398   $   156,472 $   248,620   $   321,043
  $   111,398   $   156,472 $   248,620   $   321,043
Net income per unit - basic:        
From continuing operations $   0.35   $   0.47 $   0.78   $   0.96
From discontinued operations             0.01
Net income per unit - basic $   0.35   $   0.47 $   0.78   $   0.97
Net income per unit - diluted:        
From continuing operations $   0.35   $   0.47 $   0.78   $   0.96
From discontinued operations             0.01
Net income per unit - diluted $   0.35   $   0.47 $   0.78   $   0.97
Weighted average number of units (in thousands):        
Basic   316,244     327,063   319,054     326,921
Diluted   316,329     327,201   319,143     327,073
                     

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars) (unaudited)

  Three months ended June 30, Six months ended June 30,
    2018     2017     2018     2017  
Operating activities        
Net income from:        
Continuing operations $   111,336   $   155,067   $   248,533   $   318,191  
Discontinued operations   62     1,405     87     2,852  
Net income   111,398     156,472     248,620     321,043  
Items not affecting cash:        
Depreciation and amortization   1,155     1,250     2,281     2,845  
Amortization of straight-line rent   (1,281 )   (1,999 )   (2,594 )   (4,362 )
Unit-based compensation expense   2,058     1,600     3,573     2,079  
Income from equity-accounted investments   (1,158 )   (2,389 )   (3,359 )   (8,609 )
Fair value (gains) losses on investment properties, net   22,837     (12,831 )   10,056     (30,938 )
Deferred income tax expense (recovery)   (1,400 )       (800 )   1,000  
Fair value gains on marketable securities   (14,120 )       (12,863 )    
Transaction gains, net on disposition of:        
Realized gain on marketable securities       (10,280 )       (21,822 )
Canadian investment properties   121     (629 )   100     (971 )
Adjustments for other changes in working capital items   (28,245 )   (26,362 )   (70,700 )   (176,177 )
Cash provided by operating activities   91,365     104,832     174,314     84,088  
Investing activities        
Acquisitions of investment property   (90 )   (7,544 )   (50,884 )   (12,928 )
Construction expenditures on properties under development   (92,562 )   (79,949 )   (184,620 )   (155,672 )
Capital expenditures on income properties:        
Recoverable and non-recoverable costs   (1,017 )   (7,727 )   (6,550 )   (12,327 )
Tenant improvements and external leasing commissions   (9,777 )   (11,932 )   (15,048 )   (20,865 )
Proceeds from sale of investment properties   278,824     128,218     404,762     159,630  
Earn-outs on investment properties   (363 )       (930 )   (1,309 )
Contributions to equity-accounted investments   (369 )   (620 )   (3,371 )   (13,801 )
Distributions received from equity-accounted investments   2,472     4,823     5,406     7,225  
Advances of mortgages and loans receivable   (8,882 )   (2,312 )   (39,349 )   (4,562 )
Repayments of mortgages and loans receivable               5,129  
Proceeds from sale of marketable securities, net of selling costs   52,043     33,190     90,939     75,968  
Cash provided by investing activities   220,279     56,147     200,355     26,488  
Financing activities        
Proceeds from mortgage financing, net of issue costs   73,360     85,409     119,360     182,529  
Repayments of mortgage principal   (111,026 )   (63,817 )   (222,268 )   (253,215 )
Advances from bank credit lines, net of issue costs   32,513     3,940     289,341     99,471  
Repayment of bank credit lines   (75,542 )   (225,028 )   (126,697 )   (230,028 )
Proceeds from issuance of debentures, net of issue costs       298,565     298,323     596,948  
Repayment of unsecured debentures           (250,000 )   (150,000 )
Distributions to common trust unitholders, net of distributions reinvested   (114,110 )   (108,779 )   (229,434 )   (216,711 )
Distributions to preferred trust unitholders       (1,757 )       (3,514 )
Units repurchased under normal course issuer bid   (126,224 )       (266,630 )    
Proceeds received from issuance of common units, net   119     215     1,519     720  
Redemption of preferred units       (149,500 )       (149,500 )
Cash used in financing activities   (320,910 )   (160,752 )   (386,486 )   (123,300 )
Net change in cash and cash equivalents   (9,266 )   227     (11,817 )   (12,724 )
Cash and cash equivalents, beginning of period   67,674     41,415     70,225     54,366  
Cash and cash equivalents, end of period $   58,408   $   41,642   $   58,408   $   41,642  
                         

Conference Call and Webcast
Interested parties are invited to participate in a conference call with management on Wednesday, August 8, 2018 at 10:00 a.m. Eastern time. You will be required to identify yourself and the organization on whose behalf you are participating.

In order 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 9216319#.

A copy of the slides to be used for the conference call or, to access the simultaneous webcast, can be found on RioCan’s website at http://investor.riocan.com/investor-relations/events-and-presentations/ 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
RioCan is one of Canada’s largest real estate investment trust with a total enterprise value of approximately $13.7 billion at June 30, 2018. 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. Our portfolio is comprised of 267 properties, including 17 development properties, with an aggregate net leasable area of approximately 42 million square feet. To learn more about how we deliver real vision on solid ground, visit www.riocan.com.

Non-GAAP Measures
RioCan’s consolidated financial statements are prepared in accordance with IFRS. 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. The following measures, RioCan's Interest, RioCan's Proportionate Share, Funds From Operations (“FFO”), Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”), Interest Coverage Ratio, Debt Service Coverage Ratio, Debt to Adjusted EBITDA, Net Operating Income ("NOI"), Same Property NOI, Fixed Charge Coverage, Percentage of NOI Generated from Unencumbered Assets, Unencumbered Assets to Unsecured Debt, and Total Enterprise Value, as well as other measures that may be discussed elsewhere in this release, do not have a standardized definition prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other reporting issuers. RioCan supplements its IFRS measures with these non-GAAP measures to aid in assessing the Trust’s underlying performance and reports these additional measures so that investors may do the same. Non-GAAP measures should not be considered as alternatives to net earnings or comparable metrics determined in accordance with IFRS as indicators of RioCan’s performance, liquidity, cash flow, and profitability. For a full definition of these measures, please refer to the “Non-GAAP Measures” in RioCan’s Management Discussion and Analysis for the period ending June 30, 2018.

Forward-Looking Information

This news release contains forward-looking information within the meaning of applicable Canadian securities laws. This information includes, but is not limited to, statements made in “Financial Highlights”, "Acceleration of Major Market Focus", “Operational Performance", "Operating Statistics" “ Property Acquisitions and Dispositions”, "Development Program", Liquidity and Capital" 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 News Release is qualified by these cautionary statements.

Forward-looking information is not a guarantee of future events or performance and, by its nature, is based on RioCan’s current estimates and assumptions, which are subject to numerous risks and uncertainties, including those described under “Risks and Uncertainties” in RioCan's Management's Discussion and Analysis for the period ended June 30, 2018 ("MD&A"), which could cause actual events or results to differ materially from the forward-looking information contained in this News Release. Those risks and uncertainties include, but are not limited to, those related to: liquidity and general market conditions; tenant concentrations and related risk of bankruptcy or restructuring (and the terms of any bankruptcy or restructuring proceeding); occupancy levels and defaults, including the failure to fulfill contractual obligations by the tenant or a related party thereof; lease renewals and rental increases; the ability to re-lease and find new tenants for vacant space; retailer competition; access to debt and equity capital; interest rate and financing risk; joint ventures and partnerships; the relative illiquidity of real property, the timing and ability of 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; unexpected costs or liabilities related to acquisitions and dispositions; development risk associated with construction commitments, project costs, related zoning and other permit approvals, and changes in Ontario rent control legislation; environmental matters; litigation; reliance on key personnel; unitholder liability; income, sales and land transfer taxes; and credit ratings.

Our U.S. subsidiary qualified as a REIT for U.S. income tax purposes up to May 25, 2016, subsequent to the closing date of the sale of our U.S. property portfolio. For U.S. income tax purposes, the subsidiary distributed all of its U.S. taxable income and is entitled to deduct such distributions against its taxable income. The subsidiary’s qualification as a REIT depends on the REIT’s satisfaction of certain asset, income, organizational, distribution, unitholder ownership and other requirements up until May 25, 2016. Our U.S. subsidiary was subject to a 30% or 35% withholding tax on distributions of its U.S. taxable income to Canada. We did not distribute any withholding taxes paid or payable to our unitholders related to the disposition. Should RioCan’s U.S. subsidiary no longer qualify as a U.S. REIT for U.S. tax purposes prior to May 25, 2016, certain statements contained in the MD&A may need to be modified.

General economic conditions, including interest rate fluctuations, may also have an effect on RioCan’s results of operations. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information may include, but are not limited to: a stable retail environment; relatively low and stable interest costs; a continuing trend toward land use intensification, including residential development in urban markets; access to equity and debt capital markets to fund, at acceptable costs, future capital requirements and to enable our refinancing of debts as they mature; the availability of investment opportunities for growth in Canada; and 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 RioCan's MD&A for the period ended June 30, 2018 and the Risks and Uncertainties section in RioCan’s AIF. Although the forward-looking information contained in RioCan's MD&A for the period ended June 30, 2018 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 News Release may be considered “financial outlook” for purposes of applicable Canadian securities laws, and as such the financial outlook may not be appropriate for purposes other than this News Release. The forward-looking information contained in this News Release is made as of the date of this News Release, and should not be relied upon as representing RioCan’s views as of any date subsequent to the date of this News Release.

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.

Contact Information:
RioCan Real Estate Investment Trust
Qi Tang
Senior Vice President and Chief Financial Officer
416-866-3033
www.riocan.com

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Source: RioCan Real Estate Investment Trust

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