It has been a tough environment for Canada's biggest real estate investment trust. On one hand, some tenants in its malls have had to close their doors, adding to expenses. On the other, financially trouble property owners have been slow to put their assets on the market, hoping to hold on for better pricing.
During last year's rough period, RioCan Real Estate Investment Trust moved to raise as much capital as it reasonably could to prepare it for better times. But its year-end results couldn't hide the fact that performance suffered.
The price of units declined 5 per cent after Canada's largest shopping mall company results that missed the Street's expectations yesterday. RioCan said profit for the three months ended Dec. 31 fell to $28-million or 11 cents a unit, down from about $29-million or 14 cents in the year-earlier period.
Funds from operations fell to $66-million or 28 cents a unit from $87-million or 39 cents. The consensus of analysts was for 32 cents a unit.
RioCan blamed the decline on an increase in interest expenses and lower gains on properties held for resale.
Results mean that RioCan has a distribution payout ratio of 144 per cent of funds from operations, calculated Shant Poladian, an analyst with Canaccord Adams Inc., who rates the trust a "hold."
"Will the distribution be cut? We do not expect so given that the shortfall is small when taken in the context of the overall value of the REIT's portfolio," Heather Kirk, an analyst with National Bank Financial, wrote in a research note.
RioCan is Canada's largest REIT and owns a portfolio of shopping centres anchored by tenants such as Wal-Mart, Loblaw and Shoppers Drug Mart. The trust had a capitalization of about $8.5-billion at the end of last year.
RioCan said same-store net operating income decreased 3.4 per cent in the fourth quarter, caused mainly by an increase in bad debt expenses and vacancies.
Edward Sonshine, RioCan's president and chief executive officer, described 2009 as "a very difficult year" due to the economy and state of the capital markets.
"During this time, RioCan maintained a steadfast guardianship of our balance sheet by raising capital as the markets became less hostile. Our conservative approach in 2009 resulted in a short-term drag on our profitability, but has enabled RioCan to take advantage of acquisition opportunities in the fourth quarter and set the stage for material growth in [funds from operations]" he said in a news release.
RioCan said the market for acquisitions continues to be limited, with few distressed sellers in the market. Nevertheless, during the fourth quarter RioCan embarked on its first foray into the United States, buying a minority stake in Cedars Shopping Centers Inc. of Port Washington, N.Y., and forming a joint venture with the U.S. REIT to acquire supermarket-anchored retail properties. The partnership has completed the acquisition of the first three of seven grocery-anchored shopping centres and said it expects the remaining four properties to close this quarter, subject to lender approvals.
During 2009 RioCan raised about $1.1-billion of capital through a combination of equity, mortgage financing, and debenture offerings. "Over all, we expect the market reaction today could be mixed," BMO Nesbitt Burns analyst Karine MacIndoe said in a note yesterday. She has a "market perform" rating on the trust.
Yesterday's close $18.13, down 95 cents
Q4 / 2009 / 2008
Profit / $28-million / $29-million
EPU / 11 cents / 14 cents
Revenue / $726-million / Unavail.
Source: Company reports