Shoppers outside of the Zellers department store at the County Fair Mall in New Minas, N.S., in 2012Paul Darrow/The Globe and Mail
RioCan Real Estate Investment Trust says its second-quarter results were hurt by the vacancies of nine Zellers locations, but it's well on its way to replacing the lost rental income.
"We felt the full impact of the Zellers vacancy of the nine stores not taken by Target or anyone else," chief executive Edward Sonshine told analysts Wednesday.
"While the base rent loss is relatively less than the total square footage of 566,000 square feet, it still amounts to almost $1-million per quarter."
The Toronto-based trust, which has one of Canada's largest portfolios of retail and commercial properties, says 62 per cent of the vacated Zellers space has been leased and will begin generating 102 per cent of revenue as it comes on stream.
RioCan said its stock price has been hurt by rising long-term interest rates, resulting from higher bond yields, but the company believes the market reaction has been overdone.
"The economy itself continues to be a goldilocks scenario, which, while presenting some operational challenges, will not of itself result in the kind of inflation that will cause interest rates to go much higher," said Sonshine.
The company has been focusing more on Canada's six metropolitan centres – Toronto, Montreal, Vancouver, Ottawa, Calgary and Edmonton – where the population is growing faster than in any other part of the country.
Sonshine said many of these urban centres have limited, or eliminated entirely, the creation of suburbs on their peripheries, which will make their property values rise.
"This is something we are already experiencing, and we see absolutely no reason why this trend won't continue," said Sonshine.
The company gets 72 per cent of its Canadian revenue from these markets, said Sonshine.
RioCan said its operating funds from operations grew to $121-million in the three months ended June 30, up 14 per cent from $106-million a year earlier.
Overall occupancy was little changed but slipped to 96.7 per cent as of June 30, down from 97.4 per cent a year earlier.
On a per-unit basis, operating funds from operations was 40 cents, up from 37 cents a year ago.
The operating funds from operations and adjusted earnings are more closely watched by analysts than net income, which includes a number of non-operating items such as the estimated value of its properties.
Net earnings attributable to unit holders was $153-million, down from $409-million a year earlier, mostly because of adjustments to the fair value of its holdings.
Adjusted earnings excluding taxes and fair value adjustments was $112-million, up from $106-million a year earlier.
RioCan units were at $24.64 on the Toronto Stock Exchange, up nine cents.
Alexandra Posadzki