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RioCan_AR08_cover_v2.0.qxd 3/23/09 3:01 PM Page 1 RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2008 DESIGNED FOR STRENGTH RioCan_AR08_cover_v2.0.qxd 3/23/09 2:59 PM Page 109 SENIOR MA Senior Ma Edward Son President and Frederic A. Executive Vice Conservative Leverage Raghunath On a debt-to-book value basis, RioCan has kept its debt well below Senior Vice Pr the 60% threshold set out in its Declaration of Trust. At December 31, 2008, its historic cost (debt-to-gross book value) was 54.9%. Based Donald Mac on its net asset value, management’s view is that RioCan’s leverage Senior Vice Pr is below 50%. Jordan Robi Senior Vice Pr Laddered Maturities Jeff Ross Senior Vice Pr To avoid the fluctuations of debt markets, RioCan has laddered its debt maturities, so that no more than 10 to 12% of its total debt is due in any John Ballan single year. Vice President Michael Con IN Vice President OUR Diversified Tenant Profile Therese Cor To ensure the stability of the Trust, RioCan’s revenue sources are derived Vice President from more than 5,500 individual tenants. Moreover, no single tenant CORE represents more than 5.4% of annualized rental revenue. Jonathan Gi PRINCIPLES Vice President John Ho Staggering of Lease Maturities Vice President Unitholders have additional security from market fluctuations, since Danny Kisso RioCan’s tenant leases do not all expire at the same time. RioCan Vice President has staggered its lease maturities, so that no single lease expiry or tenant will have a material impact on its business in any given period. Suzanne Ma In addition, RioCan has focused on stable sectors, such as grocery, Vice President CONTENTS that will withstand the highs and lows of the marketplace. Maria Rico, 1 Financial Highlights Vice President 2 President’s Report to Unitholders Proudly Canadian Kenneth Sie Vice President 9 Property Portfolio RioCan provides outstanding service and management expertise to 18 Financial Review – Table of Contents tenants and retail leaseholders in prime locations throughout Board of T 20 Management’s Discussion Canada, and only in Canada. and Analysis Paul Godfre 86 Audited Consolidated (Chairman of B Financial Statements President and 109 Senior Management, Geographic Diversification The National P Board of Trustees and From Newfoundland to British Columbia, RioCan is strategically Unitholder Information positioned in Canada’s major population centres. In fact, two-thirds of Clare R. Cop the Trust’s income is derived from Canada’s six major markets, which Chair of Toron include Calgary and Edmonton, Alberta, Vancouver, British Columbia, Raymond Ge Toronto and the greater Ottawa region, Ontario, and Montreal, Quebec. Partner, Fogle Frank W. Ki Strength from Tradition President, Met RioCan continues to focus on its core competencies in the Canadian Dale H. Last marketplace, which is the same philosophy used when the Trust Co-Chair and started 15 years ago. Ronald W. O Chairman of th and Sun Life A Sharon Sall Partner, Ryega Edward Son President and RioCan Real E 1 member of the A 2 member of the H 3 member of the N 4 member of the I RioCan_AR08_p1_8_v2.2 3/23/09 3:03 PM Page 1 Financial Highlights %%$ 97.7 97.6 97.1 96.9 96.3 96.3 95.8 95.4 96.1 100 95.6 100 1.5 1.36 1.3275 1.2975 83.4 1.2725 82.4 82.8 82.5 1.2275 80.7 80.1 78.1 76.4 80 80 76.1 1.2 1.14 1.105 73.0 1.075 1.07125 1.04 60 60 0.9 40 40 0.6 20 20 0.3 0 0 0.0 99 00 01 02 03 04 05 06 07 08 99 00 01 02 03 04 05 06 07 08 99 00 01 02 03 04 05 06 07 08 Total Portfolio National & Distributions Occupancy Anchor Tenants (per unit) (as a % of annualized rental revenue) (thousands of dollars, except per unit amounts) Year ended December 31 2008 2007 Total revenue $ 763,845 $ 719,887 Net earnings* $ 146,921 $ 32,358 INVESTMENT TRUST ANNUAL REPORT 2008 REAL ESTATE RIOCAN Net earnings per unit – basic and diluted* $ 0.67 $ 0.16 1 Total assets $ 5,336,820 $ 5,255,864 Total mortgages and debentures payable $ 3,260,295 $ 3,235,248 Funds from operations (“FFO”)** $ 322,623 $ 314,613 FFO per unit** $ 1.48 $ 1.51 Total distributions to unitholders $ 297,072 $ 276,688 Total distributions to unitholders per unit $ 1.3600 $ 1.3275 Units outstanding Weighted average for the year 218,045 208,412 At December 31 222,042 210,883 * Refer to RioCan’s Management’s Discussion and Analysis for a discussion and analysis relating to the two years ended December 31, 2008 and 2007. ** A non-GAAP measure for which a definition and a reconciliation to net earnings can be found in our Management’s Discussion and Analysis under FFO. RioCan_AR08_p1_8_v2.2 3/23/09 3:03 PM Page 2 DESIGNED FOR STRENGTH Edward Sonshine, Q.C. President and Chief Executive Officer, RioCan Real Estate Investment Trust 2 RioCan_AR08_p1_8_v2.2 3/23/09 3:03 PM Page 3 PRESIDENT’S REPORT TO UNITHOLDERS Welcome to the 2008 RioCan Annual Report. In this letter, you will find RioCan’s strategy, particularly tailored to today’s economic climate. With our core values, conservative financial management, desirable properties, proven track record in retail property management, and exclusive focus on the Canadian marketplace, we are designed for strength. INVESTMENT TRUST ANNUAL REPORT 2008 REAL ESTATE RIOCAN 3 RioCan’s core values demonstrate that it is designed for strength. RioCan’s investment strategy focuses on stable, lower risk, predominantly retail properties in high growth Canadian markets, in order to create stable and, over time, growing cash flows from its property portfolio. As Canada’s largest real estate investment trust, we select premiere locations and are renowned for our expertise in retail property management. We know the Canadian market and recognize opportunities when they arise. RioCan_AR08_p1_8_v2.2 3/23/09 3:03 PM Page 4 IN OUR MANAGEMENT From left to right Michael Connolly John Ballantyne Suzanne Marineau John Ho Raghunath Davloor Donald MacKinnon Edward Sonshine, Q.C. Therese Cornelissen Frederic A. Waks Jordan Robins Jeff Ross Danny Kissoon Maria Rico Jonathan Gitlin Kenneth Siegel 4 RioCan_AR08_p1_8_v2.2 3/23/09 3:03 PM Page 5 PRESIDENT’S REPORT TO UNITHOLDERS Nonetheless, a responsible management team is required to take measures appropriate to current economic conditions. The scale of this economic downturn has not been seen in several generations. We are currently experiencing a global recession, which has grown out of the global credit crisis. A number of international financial institutions have been devastated, and some companies are struggling. While RioCan had the opportunity several years ago to invest in the United States retail real estate marketplace, a conscious decision was made by management not to do so. RioCan stayed focused on its core competencies, the Canadian retail real estate marketplace, and that decision has served us well, particularly in light of the severe downturn in the United States. Canada’s debt-to-GDP ratio ranks the lowest among the G8 nations, and less than half that of the United States. RioCan is well positioned with our exclusive focus on the Canadian retail real estate sector. Our premiere Canadian sites, quality tenants, diversified portfolio and financial acumen are the tools to move us forward, particularly in light of the severe downturn in the United States. Canada, however, is positioned better on a relative basis than most other nations. The oxygen of an economy is provided by its banks, and all of Canada’s RIOCAN REAL ESTATE INVESTMENT TRUST ANNUAL REPORT 2008 REAL ESTATE RIOCAN banks are solvent. In addition, as a result of Canada’s prudent fiscal management 5 over the last ten years, successive Canadian governments have repaid one hundred billion dollars of the national debt bringing Canada’s debt-to-GDP ratio to amongst the lowest in the world. Of all G8 nations, Canada fares the best on this important measure. As examples, Japan’s ratio of debt-to-GDP is over 80%; Germany’s is over 40%; and the United States is at 50% and growing quickly. Canada’s debt levels rank the lowest among the G8 nations at just over 20%. RioCan_AR08_p1_8_v2.2 3/23/09 3:03 PM Page 6 RIOCAN’S 1 Famous Players/Cineplex/Galaxy Cinemas TOP 25 RETAILERS 2 Metro/A&P/Super C/Loeb/Food Basics 3 Canadian Tire/PartSource/Mark’s Work Wearhouse 4 Zellers/The Bay/Home Outfitters 5 Wal-Mart 6 Winners/HomeSense 7 Loblaws/No Frills/Fortinos/Zehrs/Maxi 8 Staples/Business Depot 9 Reitmans/Penningtons/Smart Set/Addition-Elle/Thyme Maternity 10 Harvey’s/Swiss Chalet/Kelsey’s/Montana’s/ Milestone’s 11 Shoppers Drug Mart 12 Best Buy/Future Shop 13 Sport Mart/Sport Chek/Sports Experts/National Sports/ Coast Mountain Sports IN OUR PORTFOLIO IN OUR TENANTS 6 14 Chapters/Indigo 15 Sobeys/Empire 16 Petsmart 17 Blue Notes/Stitches/Suzy Shier/Urban Planet 18 Sears 19 Safeway 20 Dollarama 21 Rona/Revy/Reno 22 TD Bank 23 Premier Fitness 24 The Brick 25 Michael’s RioCan_AR08_p1_8_v2.2 3/23/09 3:03 PM Page 7 PRESIDENT’S REPORT TO UNITHOLDERS Canada has not suffered the same level of fallout from a risky lending culture as has the United States. With little to no sub-prime lending, mortgage debt being on a recourse basis, and institutions taking fewer financial risks than in the United States, Canada’s downturn has been less severe.