RioCan REIT (
Q3 2010 Earnings Call
October 28, 2010 10:00 am ET
Edward Sonshine - President & CEO
Rags Davloor - SVP, CFO & Corporate Secretary
Fred Waks - EVP & COO
Karine MacIndoe - BMO Capital Markets
Alex Avery - CIBC World Markets
Mandy Samols - Raymond James
Pammi Bir - Scotia Capital
Laura Clark - Green Street Advisors
Sam Damiani - TD Newcrest
Heather Kirk - National Bank Financial
Good morning and welcome to RioCan Real Estate Investment Trust third quarter 2010 earnings conference call for Thursday October 28, 2010. Your host for today will be Mr. Edward Sonshine. Mr. Sonshine, please go ahead.
Thank you and good morning and welcome to our conference call. I have here with me of course our Chief Financial Officer, Rags Davloor and our Chief Operating Officer, Fred Waks. Before turning it over to them I’m required by our many lawyers to read the to you.
And 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 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.
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 ending September 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 SEDAR.
Okay with that having been said, I'm assured it is longer than it was last quarter it seems that way. I will turn it over to Rags Davloor.
Thanks, Ed, and good morning, everyone. Our financial results show continuing strengthening that reflects the impact of acquisitions that were completed later in 2009, and in the first nine months of this year. In addition our portfolios operating metrics are healthy both in Canada and in U.S. and they continue to improve.
In the third quarter, RioCan completed six acquisitions in Canada and 10 in the U.S. at an aggregate purchase price at RioCan's interest up 372 million with a weighted average cap rate of 7.4%. Subsequent to the quarter end RioCan has completed the acquisition of an additional nine properties in the U.S. at an aggregate purchase price of 141 million with a weighted average cap rate of 7.8%. In Canada RioCan acquired two properties at a purchase price of 25.6 million, the first being March Road and the development component to it and is being classified as properties under development. The second property Brant Power Center, was acquired from purchase price of 30.1 million at a cap rate of 7%.
In the U.S. we expanded our JV relationships with our first acquisition with Camco. RioCan currently have 197 million in various acquisitions in Canada and the U.S. where we have completed due-diligence and have waived conditions that will be acquired at a weighted average cap rate at 7.4%.
RioCan reported FFO for the third quarter of $89.3 million, an increase of $17.7 million or 25%, compared to FFO of $71.6 million for the same period in '09. On a per unit basis, FFO increased by 20% to $0.30 per unit in Q3 '09 to $0.36 per unit in Q3, 2010.
The $17.7 million increase in FFO was primarily due to the following. Increased NOI from rental properties of 21.8 million, which is due to acquisitions, same-store growth of 1.2%, completion of Greenfield developments, intensifications of existing properties and increased lease cancellation fees of 4.5 million. Increased transaction gains of 2.7 million. These are offset by increased interest expense of 3.6 million and higher G&A expense including IFRS and SIFT transition costs of 1.1 million.
Same-store NOI increased by 1.3 million or 1.2% for the third quarter as compared to the same periods in '09 primarily due to new and renewal leasing and fixed rent steps which positively impacted NOI by 2.2 million and reduced bad debt expense of $0.9 million offset by reduced NOI due to vacancies of 2.5 million. On a sequential basis, same-store NOI remained constant during the third quarter of 2010 as compared to the second quarter of 2010.
Same-store NOI increased 7.1 million or 2.2% for the nine months ended September 30, 2010, as compared to the same period in '09 primarily due to new and renewal leasing and fixed rent steps which impacted NOI by $5.4 million, reduced bad debt expense of $2.4 million, offset by reduced NOI as a result of vacancies were 5.1 million.
Looking ahead to the fourth quarter and into 2011, there are a number of factors that will positively impact RioCan's results. Based on the acquisitions closed in '03, the NOI run rate of Q3 2010, excluding any lease buyouts is approximately 140 million. Growth will come from acquisitions, completion of developments and same-store rental growth. Same-store rent growth for the fourth quarter is expected to come in at just over 3.5%, with same-store growth for the year expected to be approximately 2.5%. For 2011 we expect to see same-store growth of approximately 2%. A number of RioCan’s Greenfield developments have scheduled to come online including Queen and Portland and 1717 Avenue Road during 2011 which will begin to contribute to RioCan's FFO.