RioCan Real Estate Investment Trust (RIOCF.PK)
Q2 2010 Earnings Call
July 29, 10:00 AM ET
Edward Sonshine – President and CEO
Rags Davloor – Chief Financial Officer
Fred Waks – Chief Operating Officer
Michael Smith – Macquarie Capital
Sam Damiani – TD Newcrest
Mandy Samols – Raymond James
Karine MacIndoe – BMO Capital Markets
Alex Avery – CIBC
Pammi Bir – Scotia Capital
Michael Missaghie – Sentry Investments
Mark Rothschild – Canaccord Genuity
Jeff Roberts – Desjardins Securities
RioCan Real Estate Investment Trust Q1 2010 Earnings Call Transcript
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Good morning. And welcome to the RioCan Real Estate Investment Trust Second Quarter 2010 Earnings Conference Call for July 29th. Your host for today will be Mr. Edward Sonshine. Mr. Sonshine, please go ahead.
Thank you and good morning to everyone. And welcome to our second quarter conference call -- so RioCan’s second quarter conference call -- hopefully my tongue will start working a little better as we get into this. Before I turn the floor over to Rags Davloor and Fred Waks, I just – I’m required to read a warning that our lawyers make me do, so let me do that without further ado.
In talking about our financial and operating performance, and in responding to your questions, we may make forward-looking statements, including statements concerning RioCan’s objectives and strategies to achieve those objectives, as well as statements with respective 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.
These statements are based on our current estimates and assumptions, and are subject to risks and uncertainties that could cause our actual results to differ materially from the conclusions in these forward-looking statements. Additional information on the material risks that could impact our actual results, and the estimates and assumptions we applied in making these statements, can be found in the unaudited interim financial statements for the period ended June 30, 2010, and Management’s Discussion and Analysis related thereto, together with RioCan’s current annual information form that are all available on our website and at www.sedar.com.
So with that out of the way, I’m going to turn it over to Mr. Davloor to talk about our results.
Okay. Thanks, Ed, and good morning, everyone. In the second quarter, our financial results show continuing strengthening that reflects the impact of the acquisitions that were contributed in 2009, holding on our cash balances and improving operating metrics. We’re seeing continued health in both Canada and the U.S., and we expect this momentum to continue into the second half of the year.
In the second quarter, RioCan completed three acquisitions in Canada and three in the U.S. at an aggregate purchase price of $86.4 million as RioCan’s interests with a weighted average cap rate of 7.9%. RioCan currently has $233 million in those acquisitions in Canada and the U.S. where we have completed due diligence and buoyed conditions, they will be acquired at a weighted average cap rate of approximately 7.6%.
Included in this amount are the eight properties that we will be acquiring from Inland Western, one property with Cedar in the Northeastern U.S. and four in Canada. We expect to complete these acquisitions during the third and fourth quarters of this year.
RioCan reported FFO for the second quarter of $92.8 million, an increase of $24.9 million or 37%, compared to FFO of $67.9 million for the same period in ‘09. On a per unit basis, FFO increased by 27% from $0.30 per unit in Q2 ‘09 to $0.38 per unit in Q2 2010.
The $24.9 million increase in FFO was primarily driven by the following factors. Increased NOI from renting properties at $20.4 million, which is due to acquisitions, same store growth of $2.1 million or 1.9%, the completion of the Greenfield developments, intensification of existing properties and increased lease cancellation fees of approximately $5 million. We had increased transaction gains of $7.4 million and increased fees and other income of $2.8 million. These amounts were offset by increased interest expense of $4 million and increased G&A expense of $1.4 million.
Same store NOI increased by $2.1 million or 1.9% for the second quarter as compared to the same periods in ‘09 primarily due to the following. New and renewal leasing and fixed rent steps, which positively impacted NOI by $2.1 million, reduced bad debt expense of $0.7 million and these items were offset by reduced NOI due to vacant space carrying of approximately $2.1 million. On a sequential basis, same property NOI increased by $0.6 million over the first quarter with the same store NOI also increasing by the same amount.
Same store NOI increased by $5.2 million or 2.4% for the six months ended June 30, 2010, as compared to the same period in ‘09 primarily as a result of the following. New and renewal leasing and fixed rent steps positively impacted NOI by $4 million, reduced bad expense of $1.5 million, which were offset by reduced NOI due to vacant space carry incurred approximately $3.8 million.
Looking ahead to the second half of this year, there are a number of factors which we will expect to positively impact our results. The NOI run rate of Q2 2010, excluding any lease buyouts is approximately $134 million. And we expect to see growth from acquisitions, completion of developments and same store rent growth. Same store rent growth for the year is expected to come in at between 2.5% to 3%, a number of RioCan’s Greenfield developments are scheduled to also come online in 2010.
Occupancy is expected to increase by 20 to 30 basis points by the end of the third quarter and by 50 basis points by the end of the year.
Property and asset management fees are expected to run at approximately $3 million per quarter. Interest income for the remainder of the year expected to be in the range of $3.6 to $3.8 million per quarter and the dividend from Cedar’s shares is expected to track $850,000 per quarter as expected.
We expect G&A to be between $6.5 to $7 million in the third quarter and close to $10 million in the fourth quarter which basically reflects the bonus accruals at year-end. The G&A number does exclude costs related to IFRS and SIFT restructuring, which are budgeted to be between $3 to $4 million for the year.