management presentation november 21, 2006 · management presentation november 21, 2006. 2...

RioCan Real Estate Investment Trust

Management Presentation November 21, 2006

2

Forward-looking Statements• Certain information included in this presentation contains forward-looking

statements within the meaning of applicable securities laws including, among others, statements concerning our 2006 objectives, our 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. Certain material factors, estimates or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in these statements and actual results could differ materially from such conclusions, forecasts or projections.

• Additional information on the material risks that could cause our actual results to differ materially from the conclusions, forecast or projections in these statements and the material factors, estimates or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information can be found in our annual information form and annual report that are available on our website and at www.sedar.com.

• Except as required by applicable law, RioCan undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

THE CANADIAN MARKETPLACE

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Cap rates have fallen 100 basis points in the last 18 months

Many deals transacted in the 5.75% to 6.5% range

Covenant, location and quality are key to maximizing value

Quality real estate is scarce and highly sought after

Especially those with long lease terms and strong

covenantCompetitive market open to alternative structures tax advantages

Canadian Real Estate Investment Market

5

POWER CENTRES FOOD-ANCHORED PLAZASREGIONAL MALLS

COMMUNITY MALLS VALUE-ADD SHOPPING CENTRES

P R I M A R Y M A R K E T S

• Cap rate range of 5.0% to 5.75%

• Top retailers in each category

• High CRU sales

• Irreplaceable locations


• Excellent locations / access

• Strong anchors

• Major retail nodes


• Superior locations

• Dependant on anchor sales and term

• Limited competition with barriers to entry


• Usually high vacancy / vacant anchor

• Development/Re-merchandising requirements

• Reflection of age/community/competition


• Dense established communities

• Risk of new format retail development

• Typically high capital expenditure

requirements

Pricing Parametres by Asset Type

6

S E C O N D A R Y / T E R T I A R Y M A R K E T SPricing Parametres by Asset Type

• Generally 50 basis points higher on cap rates

• More susceptible to competition

• Less liquidity

• More difficult to finance

• Narrower pool of tenants

7

Canada = 14.0 sf / capita

12.7 sf/capita 17.1 sf/

capita 11.3 sf/capita

13.1 sf/capita

14.5 sf/capita

11.1 sf/capita

16.0 sf/capita

13.9 sf/capita

13.6 sf/capita

15.8 sf/capita

U.S. = approx. 30.0 sf / capita

Canada = 14.0 sf / capita

12.7 sf/capita 17.1 sf/

capita 11.3 sf/capita

13.1 sf/capita

14.5 sf/capita

11.1 sf/capita

16.0 sf/capita

13.9 sf/capita

13.6 sf/capita

15.8 sf/capita

U.S. = approx. 30.0 sf / capita

At approximately 30 sq. ft.

per capita, the U.S. may

have reached a saturation

point

With only 16.5 million sq. ft.

under construction in

2006/2007, Canada

remains a more disciplined

market with room to grow

(approx 0.5 sq. ft. per

capita increase)

Shopping Centre GLA per Capita

8

Only six metropolitan markets within Canada have in excess

of one million people

9

Market 2000 2004 5 year growth

5 year % change

Toronto, Ontario 4,747,199 5,203,5713,606,652

2,159,994

1,142,669

1,037,1361,001,636

Total Six Markets 13,236,599 14,151,658 915,059 6.91%31,946,316

9.61%Montreal, Quebec

3,471,259456,372135,393

119,699

64,192

84,64254,761

3.90%

Vancouver, British Columbia

2,040,295 5.87%

Ottawa-Gatineau,

Ontario/Quebec

1,078,477 5.95%

Calgary, Alberta 952,494 8.89%Edmonton,

Alberta946,875 5.78%

1,257,281Total Canada 30,689,035 4.10%

Source - Statistics Canada Report dated May 26, 2005

Canada’s Six High Growth Markets

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More people ⇒ greater retail sales ⇒ more demand for space and higher rents ⇒ higher growth ⇒greater liquidity ⇒ greater value

creation ⇒ more value added and intensification opportunities

11

RioCan has largely become the Urban Market REIT

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Gross Revenue from Six High Growth Markets At September 30, 2006

• Concentration on properties located in Canada’s six high growth markets including:– Calgary– Edmonton– Montreal– Ottawa– Toronto– Vancouver

• In other markets such as Quebec City, Kingston, Sudbury or Moncton the strategy is to own the dominant unenclosed new format retail centre

EXISTING EXISTING & DEVELOPMENTS# of % of % of Total # of % of % of Total

City Centres GLA Total GLA Gross Income Gross Income Centres GLA Total GLA Gross Income Gross Income

GTA 46 7,663,573 26.2% 178,285,716 30.0% 51 8,536,073 26.9% 200,443,770 30.9%Ottawa 20 2,354,004 8.1% 59,208,396 10.0% 20 2,490,254 7.9% 62,672,544 9.7%Montreal 19 2,990,384 10.2% 56,086,032 9.4% 19 3,816,384 12.0% 70,924,572 10.9%Calgary 10 1,673,090 5.7% 37,228,272 6.3% 10 1,826,690 5.8% 41,437,108 6.4%Edmonton 5 652,713 2.2% 15,342,600 2.6% 6 822,213 2.6% 18,980,495 2.9%Vancouver 9 1,067,551 3.7% 26,057,484 4.4% 9 1,067,551 3.4% 26,057,484 4.0%

TOTAL 109 16,401,315 56.1% 372,208,500 62.7% 115 18,559,165 58.6% 420,515,973 64.9%

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Property Ownership by Geographic Area (square feet)At September 30, 2006

RioCan's Partners' Retailer owned Totalinterests NLA interests anchors site NLA

Ontario Central 10,940,484 2,871,273 2,965,016 16,776,773 Ontario East 3,992,040 1,111,124 1,021,045 6,124,209 Ontario West 2,420,791 - 544,687 2,965,478 Total Ontario 17,353,315 3,982,397 4,530,748 25,866,460

Quebec 5,441,959 884,180 1,592,781 7,918,920 Alberta 2,654,677 1,109,118 1,728,805 5,492,600 British Columbia 1,778,050 1,200,085 341,074 3,319,209 New Brunswick 1,165,360 138,165 375,615 1,679,140 Saskatchewan 317,027 279,508 - 596,535 Newfoundland 183,160 - - 183,160 Manitoba 178,874 - - 178,874 Prince Edward Island 164,255 164,255 - 328,510 Income Producing Properties 29,236,677 7,757,708 8,569,023 45,563,408 Properties Under Development 2,855,450 1,339,550 821,000 5,076,000 Total 32,092,127 9,157,258 9,390,023 50,639,408

RioCan's Partners' Retailer owned Totalinterests NLA interests anchors site NLA

Calgary, Alberta 1,673,090 555,148 1,022,735 3,250,973 Edmonton, Alberta 652,713 522,263 606,070 1,781,046 Montreal, Quebec 2,990,384 884,180 285,700 4,160,264 Ottawa, Ontario 1 2,354,004 652,544 1,155,000 4,161,548 Toronto, Ontario 2 7,663,573 2,042,787 1,926,941 11,633,301 Vancouver, British Columbia 3 1,067,551 785,128 288,074 2,140,753 Income Producing Properties 16,401,315 5,442,050 5,284,520 27,127,885 Properties Under Development 2,553,350 1,187,650 669,000 4,410,000 Total 18,954,665 6,629,700 5,953,520 31,537,885

Notes:1. Area extends from Nepean and Vanier, to Gatineau, Quebec.2. Area extends north to Newmarket, west to Burlington and east to Ajax.3. Area extends east to Abbotsford.

Six High Growth Markets

Provincial

RIOCAN OVERVIEW

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Current Overview of RioCan

• Largest REIT in Canada• Enterprise value of over $7.5 billion• 204 shopping centres, including 8 under

development• Differ in size, location, format and quality• Two most important attributes of quality:

– Location of the shopping centre– Credit worthiness of the tenants and

longevity of the leases

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New Format Retail 47.8%Grocery AnchoredCentre 23.0%Enclosed ShoppingCentre 18.7%Urban Retail 5.9%Non-GroceryAnchored Strip 3.8%Other 0.7%

Asset Type as a % of Gross RevenueAt September 30, 2006

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Stability of Revenue Streams

National Tenants

1995 = 68% of portfolio revenue2006 = 83% of portfolio revenue

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Stability of Revenue Streams

Top 10 Tenants• A diverse, high quality tenant base and long lease-

term profile provides substantial income stability

At September 30, 2006 Percentage of WeightedAnnualized Gross Average Remaining

Top 10 Tenants Rental Revenue Lease Term (yrs)Metro/A&P/Dominion/Super C 6.0% 10.4Famous Players/Cineplex/Galaxy Cinemas 5.8% 16.1Zellers/The Bay/Home Outfitters 5.0% 9.2Wal-Mart 4.3% 11.4Loblaws/No Frills/Fortinos/Zehrs/Maxi 4.1% 7.6Canadian Tire/PartSource/Mark's Work Wearhouse 3.4% 13.4Winners/HomeSense 3.3% 6.7Staples/Business Depot 2.5% 9.4Reitmans/Penningtons/Smart Set/Addition-Elle 1.7% 4.9Shoppers Drug Mart 1.6% 8.0Total 37.7%

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Portfolio RepositioningDuring the first ten months of 2006, we acquired:• South Trail Crossing, a 282,800 square foot new format retail centre

located in Calgary, AB• Impact Plaza, a 133,300 square foot community centre located in

Surrey, BC• Cherry Hill Shopping Centre, a 74,000 square foot community centre

located in Fergus, ON • SuperValu Plaza, a 83,400 square foot community plaza located in

Quispamsis, NB

In 2005, we: • Acquired a total of 1.88MM sq.ft.; all new format retail and in urban

markets (except for one, being a dominant centre in Quebec City)• Disposed of 21 shopping centres totaling 3.37MM sq.ft.; 12 of which

were enclosed malls, none located in Canada’s six high growth markets

20

Growth Strategies

• Organic growth• Development• Redevelopment• Asset management

21

Lease Renewals• Done in-house by a team that exclusively looks after the retention of

existing tenantsLease Expiries at September 30, 2006

Retail Class GLA 2006 2007 2008 2009 2010

New Format Retail 12,781,422 42,545 500,556 599,251 754,420 749,6410.3% 3.9% 4.7% 5.9% 5.9%

Grocery Anchored Centre 7,113,446 98,011 678,836 672,219 1,025,880 939,5161.4% 9.5% 9.4% 14.4% 13.2%

Enclosed Shopping Centre 6,710,719 179,489 497,691 764,141 635,729 852,2812.7% 7.4% 11.4% 9.5% 12.7%

Non-Grocery Anchored Strip 1,261,360 28,871 89,268 140,252 101,631 119,5312.3% 7.1% 11.1% 8.1% 9.5%

Urban Retail 1,028,332 3,082 14,473 118,422 241,541 46,5920.3% 1.4% 11.5% 23.5% 4.5%

Other 341,398 3,082 8,809 2,702 44,885 00.9% 2.6% 0.8% 13.1% 0.0%

TOTAL 29,236,677 355,080 1,789,633 2,296,987 2,804,086 2,707,5611.2% 6.1% 7.9% 9.6% 9.3%

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• 2007 – 501,000 square feet• 2008 – 599,000 square feet• 2009 – 754,000 square feet• 2010 – 750,000 square feet

New Format Retail Expiries

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• Avg. rate in 1997-98: $16 per square foot

• Current rate: $25 persquare foot

RIOCAN BEACON HILL,CALGARY, AB

SIGNAL HILL CENTRE,CALGARY, AB

Rental Rates

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• Avg. rate in 1999: $17 per square foot

• Current rate: $27 persquare foot

RIOCAN CENTRE BURLOAK,OAKVILLE, ON

TRINITY COMMON,BRAMPTON, ON

Rental Rates

25

• Greenfield developments with partners and through in-house capabilities

• Total development = 5.4 million square feet, excluding shadow anchors

• RioCan’s owned interest = 3.5 million square feet• Goal is to expand existing owned portfolio by

250,000 square feet per annum• In 2005, expanded by over 385,000 square feet• In 2006, we anticipate adding over 361,000 square

feet

RioCan’s Development Program

26


27

RIOCAN BEACON HILL, CALGARY, AB


28

RIOCAN CENTRE BURLOAK, OAKVILLE, ON


29

RIOCAN MEADOWS, EDMONTON, AB


30

AVENUE ROAD, TORONTO, ON

Redevelopment and Expansion of Existing Properties

31

LAWRENCE SQUARE, TORONTO, ON

Redevelopment and Expansion of Existing Properties

32

• First fund for RioCan• Formed in 2003• RioCan, TIAA-CREF and OMERS together

committed $200 million of equity• RioCan acts as general partner and handles all

asset management and property management functions

• RioCan benefits by participating as a minority investor and by earning incentive fees and, asset and property management fees in the form of income

RioCan Retail Value Limited Partnership (RRVLP)

33

• The $200 million of equity has been successfully invested in 12 properties comprising 3.4 million square feet and over $500 million

• To date, six properties have been sold, generating IRRs between 19-70% before fees

RioCan Retail Value Limited Partnership (RRVLP)

34

• In October 2004, RioCan and CPPIB announced an agreement to acquire premier regional power centres in Canada on a 50/50 basis

• During the second quarter of 2006, entered into a firm agreement with CPPIB to sell, on a forward sale basis, the following:

– a 50% interest in each of RioCan Centre Burloak, located in Oakville and RioCan Meadows, located in Edmonton

– RioCan (22.5%) and Trinity Development Group Inc. (27.5%) agreed to sell a 50% interest in RioCan Beacon Hill, located in Calgary

• In September 2006, RioCan announced that it completed the first component of the previously announced agreement

– The first component consists of approximately 168,000 square feet of newly completed retail space at RioCan Beacon Hill

– Upon full completion, the centre will comprise approximately 800,000 square feet including anchors Costco and Home Depot, both of whom are already open; additional retailers already open include Winners/HomeSense, Royal Bank, Linens ‘N Things, Golf Town, Michaels and The Shoe Company; the centre will also be tenanted by, amongst others, Canadian Tire, Reitmans, Roots, TD Canada Trust, Mark’s Work Wearhouse, Sport Chek and La Senza

Canada Pension Plan Investment Board (CPPIB) Strategic Alliance

35

Debt Overview

• $2.71 billion in debt comprised of:– $1.818 billion of term mortgage – $870 million in seven unsecured

debenture issues– $22 million of construction loans

36

Summarized Balance Sheets and Other Financial Information

At September 30, 2006

(in thousands, except percentage amounts)

Total assets $ 4,535,896 $ 4,272,796

Real estate investments $ 4,338,776 $ 4,168,006

Income properties $ 4,016,277 $ 3,874,727

Total debt: Mortgages payable $ 1,840,884 $ 1,753,277 Debentures payable 870,000 670,000

$ 2,710,884 $ 2,423,277

Unitholders' equity $ 1,656,800 $ 1,675,570

Cash and short-term investments $ 80,550 $ 22,874

Available lines of credit $ 87,000 $ 89,000

Debt-to-aggregate assets ratio 56.2% 53.9%

December 31, 2005September 30, 2006

37

Summarized Income Statement and Other Financial Information

At September 30, 2006

(in thousands, except per unit amounts)

Rental revenue $ 429,291 $ 548,880

Net earnings $ 120,377 $ 132,574

Net earnings per unit - basic and diluted $ 0.61 $ 0.68

Recurring distributable income $ 209,019 $ 275,046

Recurring distributable income per unit $ 1.057 $ 1.417

Year ended December 31, 2005

Nine months ended September 30, 2006

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RioCan’s Debt Profile

• Borrowings to date have been confined exclusively to the Canadian market:– 26% from life insurance industry– 32% from unsecured debt market– 33% from mortgage conduit market– 6% from banks– Remainder from pension funds and other

lenders

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Debt Repayment ScheduleAt September 30, 2006

(unaudited - in thousand of dollars, except percentage amounts)Scheduled Percentage Principal maturities:

principal Principal Total of total debt weighted averageFuture repayments by year of maturity amortization maturities debt outstanding interest rate

2006 13,192$ 9,442$ 22,634$ 0.8% 6.3%2007 49,016 208,500 257,516 9.5% 6.6%2008 45,180 272,570 317,750 11.7% 5.2%2009 42,737 318,272 361,009 13.3% 6.1%2010 34,411 341,728 376,139 13.9% 6.6%2011 29,462 258,590 288,052 10.6% 5.4%2012 26,331 225,406 251,737 9.3% 6.2%2013 24,396 282,438 306,834 11.3% 5.9%2014 18,681 90,222 108,903 4.0% 6.3%2015 16,860 100,298 117,158 4.3% 4.9%2016 13,892 144,509 158,401 5.9% 5.3%2017 11,974 2,350 14,324 0.5% 7.4%2018 8,886 2,338 11,224 0.4% 7.5%2019 4,843 - 4,843 0.2% 7.1%2020 2,027 - 2,027 0.1% 7.8%2023 - 5,400 5,400 0.2% 7.2%2026 - 100,000 100,000 3.7% 6.0%2034 - 6,933 6,933 0.3% 6.8%

341,888$ 2,368,996$ 2,710,884$ 100.0% 6.0%

5.6 years weighted average term to maturity

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Unencumbered Income Properties

• 46 income producing properties unencumbered with mortgage debt

• 2007 Budget NOI ±$51 million• Value at 6.25% cap rate = $816 million

41

Consistent Moderate Leverage

47.3% 48.2%51.9% 53.1% 53.8% 53.9% 56.2%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%20

00

2001

2002

2003

2004

2005

At

Sept

30, 0

6

• As per RioCan’s Declaration of Trust, leverage is measured at the historic book cost of assets

42

Leverage at NAV and Market• Current market valuation parameters along with

RioCan’s strong ability to create value has resulted in a leverage ratio that, on a Net Asset Value and Unit Market Value basis, is extremely conservative

56.2%

39.7%

35.2%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

Book* NAV** Market***

LEVERAGE – BOOK, NAV, MARKET

Notes:* Based on historic book cost as of September 30, 2006** NAV per unit of $20.73 based on an average of public analysts’ estimates*** Market Value per unit of $25.05 based on the closing price of

RioCan’s units on the TSX on November 7, 2006

43

Strong Historical Interest Coverage

• Interest coverage has historically been in excess of 2.5x, well above the current 1.65x maintenance test

• At the current 2006 2.7x coverage EBITDA could fall by a sizable $161 million annually or 38% before the threshold would be reached

44

Debt Coverage Ratios

Current 2006 2005 2004 2003 2002 2001 2000

EBITDA interest coverage (note) 2.7 2.8 2.7 2.6 2.6 2.8 2.9Debt Service Coverage 2.1 2.1 2.1 2.0 2.1 2.2 2.2

Note: Includes gains on property held for resale, interest income and income from discontinued operations

45

Continuous Distribution Increase

Year-Ended December 31

$0.43$0.58

$0.65$0.78

$0.95$1.04

$1.07$1.08

$1.11$1.14

$1.23$1.27$1.32

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Cu

rren

tA

nnua

lized

PER UNIT DISTRIBUTION

46

Fiscal Conservatism

88.9%88.2%

86.7%

97.4%

93.0%

87.1%88.9%

91.3%

72.8%

77.6%76.9%

90.1%

78.5%80.4%

85.3%

72.1%

70%

75%

80%

85%

90%

95%

100%

1999

2000

2001

2002

2003

2004

2005

Payout as a % of Funds from Operations

Payout as a % of Funds from Operations including DRP

• From 1999 to present, RioCan has decreased its payout ratio

Note: 2005 FFO adjusted to exclude impact of costs of early extinguishment of debentures

PAYOUT RATIO

Year-Ended December 31 Cu

rren

t

2006

47

• Current leverage ratio is approximately 56.2%, allowing ±$460 MM of new debt before reaching 60% leverage

• Intention is to finance growth with debt until leverage limits are ±58%

2006 Debt Strategy

48

Non-executive ChairmanPaul Godfrey,C.M., President & CEO, The Toronto Blue Jays Baseball Club

8 out of 9 Trustees are independentClare R. Copeland, Chairman of Toronto Hydro CorporationRaymond Gelgoot, Senior Partner, Fogler, Rubinoff LLPFrank W. King,O.C., President, Metropolitan Investment CorporationDale H. Lastman, Co-Chair and Partner, Goodmans LLPRonald W. Osborne, Corporate DirectorSharon Sallows, Partner, Ryegate Capital CorporationEdward Sonshine, Q.C., President & CEO, RioCan REITMichael Stephenson, Principal, Stephenson, Leftwick & Short

Board Committees:Investment Human Resources and CompensationAuditNominating and Governance

GovernanceBoard of Trustees

49

Return to Unitholders

Ten months ended October 31, 200612.9%

Year ended December 31, 200536.9%

10 year compounded annual return to December 31, 2005

24.9%

RioCan Real Estate Investment Trust

RioCan REITThe Exchange Tower

130 King Street West, Suite 700Toronto, ON

416-866-3033 / 1-800-465-2733www.riocan.com

management presentation november 21, 2006 · management presentation november 21, 2006. 2...

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