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Executives

Edward Sonshine – Chief Executive Officer

Raghunath Davloor – Executive Vice President and Chief Financial Officer

Frederic A. Waks – President and Chief Operating Officer

Analysts

Michael Smith – Macquarie

Alex Avery – CIBC

Pammi Bir – Scotia Capital Inc.

Sam Damiani – TD Securities Inc.

Cedrik Lachance – Green Street Advisors

Riocan Real Estate Investment Trust (OTCPK:RIOCF) Q4 2012 Earnings Call February 14, 2013 10:00 AM ET

Operator

Good morning and welcome to RioCan Real Estate Investment Trust Fourth Quarter 2012 Conference Call for Friday, February 14, 2013. Your host for today will be Mr. Edward Sonshine. Please go ahead.

Edward Sonshine

Thank you and good morning everybody. Welcome to our Q4 2012 conference call and webcast. So that’s great. In 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, its 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 financial statements for the period ending December 31, 2012, and Management’s Discussion and Analysis related thereto, together with RioCan’s current Annual Information Form, all of which are available on our website and at sedar.com.

So with that mouthful out of the way, I of course have Mr. Fred Waks, our President and Chief Operating Officer; and Rags Davloor, our Executive Vice President and Chief Financial Officer with me this morning, and I think we’ll start in a usual manner with Rags taking us through the financial results for 2012.

Raghunath Davloor

Okay, good. Thanks Ed, and good morning everyone. We are pleased to announce our results this morning. RioCan once again completed a sizeable amount of acquisitions this past year. The operating results remain strong, and the portfolio continues to perform well, which Fred will speak to later.

For the year, RioCan reported operating FFO of $440 million, an increase of $60 million or 16% compared to operating FFO of $380 million for 2011. On a per unit basis, Operating FFO increased by $0.09 or 6% to $1.52 in 2012 compared to $1.43 per unit in 2011.

On an AFFO basis, RioCan’s distribution is now fully covered with AFFO per unit of $1.39 in 2012. The increase is primarily due to an increased NOI from rental properties of $91 million, which is due to acquisitions, higher lease cancellation fees of $12 million, same property growth of 1% for the Canadian portfolio, and the completion of Greenfield developments, partially offset by higher interest expense of $6 million, which included $2.3 million pre-payment costs on the early repayment of $90 million of secured debt, as well as increased preferred unit distributions of $7 million, and higher G&A expense of $3 million, and lower fees and other income of $13 million.

For the three months ended December 31, 2012, RioCan reported Operating FFO of $116 million, an increase of $16 million or 16% compared to Operating FFO of $100 million for the fourth quarter of 2011. On a per unit basis, Operating FFO increased $0.03 or 8% to $0.39 in fourth quarter of 2012 compared to $0.36 per unit for the same period in ‘11.

Looking forward, the quarterly NOI run rate as of December 31, 2012 excluding lease buyouts is approximately $185 million. For 2013, we expect to see same-store growth to be in a range of 1.25% to 1.5%. For the first quarter 2013, we expect same-store growth to be approximately 0.5%.

Property and asset management fees are expected to be approximately $3 million for Q1. Interest income is also budgeted to be approximately $3 million per quarter. RioCan will no longer receive dividend income from SEDAR after the first quarter as RioCan’s equity investment in SEDAR was sold last week. RioCan will receive one final dividend payment in the first quarter.

For 2013, G&A is expected to be in the range of $45 million to $46 million. For Q1, we expect G&A to be approximately $9.5 million to $10 million. During the most recent quarter, RioCan completed 31 acquisitions in Canada and the U.S. including the purchase of the remaining interest in the SEDAR joint venture at an aggregate purchase price at RioCan’s interest of $378 million with a weighted average cap rate of 6.4%.

For the year, RioCan completed 43 acquisitions of income properties at an aggregate purchase price of RioCan’s interest of $926 million with a weighted average cap rate of 6.1%. RioCan also completed an additional $89 million of development property acquisition during 2012 as RioCan expands its development pipeline.

RioCan currently has two acquisitions and a firm contract for $61 million and $397 million of income property acquisitions after RioCan’s interest under contract where conditions have not yet been satisfied.

Included in the pipeline is RioCan’s conditional agreement with Primaris to purchase a 50% interest in Burlington Mall with KingSett Capital and a 100% interest in Oakville Place.

The aggregate gross purchase price of these two properties is approximately $362 million at RioCan’s interest and the properties will be acquired at a cap rate estimated to be between 5% and 5.25%.

In connection with the purchase, RioCan will assume, at its interest, the in place mortgage financings of approximately $165 million.

Also included in the conditional acquisitions amount is the acquisition of a 100% interest in South Cambridge Centre in Cambridge, Ontario, from H&R REIT at a purchase price of $35 million, which equates to an estimated cap rate of 6.75% to 7.0%.

All three of these acquisitions are conditional on the successful completion of the H&R REIT and KingSett Capital led consortium acquisition of Primaris. For the year, we have budgeted between $550 million and $600 million of total acquisitions of income properties.

RioCan is also in the process of marketing for sale 14 properties located in secondary markets that have a fair value at December 31, in excess of $645 million. The debt associated with these assets is $230 million. We were under no obligation to proceed with such proposed dispositions, which if completed will be done to facilitate Riocan’s objective of paring its portfolio to focus on major markets and recycle capital.

Under IFRS at December 31, RioCan’s investment properties were valued a $12.4 billion based on a weighted average cap rate of 6.01%, which is a decrease of 12 basis points from September 30 and a 52 basis points decrease from year end 2011. This translated to a fair value gain of $348 million in the fourth quarter and $913 million for the full year of 2012. We continue to expect to see further compression in cap rates during 2013.

Financing continues to remain available at favorable terms, and the Trust is experiencing significant interest savings and our refinancings. Where possible, RioCan is actively seeking early renewals and are working with our lenders to lock in interest rate for properties where it makes sense.

With respect to secured debt, we obtained $449 million of financings at an average interest rate of 3.1% and an average term of 5.1 years in Canada and $92 million of financings at an average rate of 4.3% and an average term to maturity of 6.8 years in the U.S.

Through the equity and unsecured debenture markets, RioCan raised in excess of $1 billion of unsecured debt and equity in 2012. RioCan raised a total of $531 million of equity through two equity offerings that totalled $423 million and $108 million of equity was issued through our DRIP program. RioCan’s current DRIP participation rate is approximately 27%. RioCan also issued $575 million of unsecured debentures at an effective average interest rate of 3.77% at an average term of seven years.

For the three months ended December 31, RioCan’s coverage metrics continued to show improvement over the prior quarters as follows; interest coverage at 3.03 times, debt service coverage was 2.2 times, fixed charge coverage, which includes preferred and common distribution was 1.1 times.

RioCan’s debt-to-total assets was 43.5% as compared to 46.4% at December 31, 2011. RioCan’s other measure of leverage net operating, debt operating EBITDA was 7.19 times for the quarter. RioCan has continued flexibility to generate funds through financing, maturing loan balances, as well as repay additional balloon balances to increase the size of our pool of unencumbered assets.

As of December 31, 2012, RioCan had interest of 79 properties that are unencumbered with a fair value of approximately $1.3 billion. This has grown significantly over the course of the year as compared to $644 million a year ago. It is our objective to continue to growth the size of the pool, over time and during the first half of 2013, RioCan intends to repay 11 mortgages that are maturing were the underlying value of the assets is approximately $275 million.

Overall, we are pleased with our results and positioning of our capital structure. We continue to work on strengthening the balance sheet and credit metrics, which provides us access to capital to both debt and equity to fund our ongoing acquisition and development platform.

Fred will now provide further insights onto operations.

Frederic A. Waks

Thank you very much, Rags. December 31, 2012, RioCan have procured 1.7 million square feet of new leasing as compared to just over 1.5 million the previous year, of that 74% with national tenancies as compared to 68.5% the previous year.

In terms of the leasing market today, what’s happening with tenancies, our people just returned from listeners for the ICSC there. Nordstrom is extremely active right now trying to roll out the rack concept in anticipation of opening up three department stores. All eyes are on target of course with – they’re opening up their first group of stores in March 2013, which RioCan will be participating in nine of those coming the first week or second week of March.

CTC, Canadian Tire continues to be extremely busy in terms of all their brands in particularly supporting the sizing and Dick’s has reengaged in looking to move their Canadian plans forward.

Big Lots as well is now looking to reformat their existing liquidation rules and is opening the new banners as well. The grocery stores sector extremely busy, RioCan again has procured three new deals in Cornwall, Laurentides, Montreal and in Calgary with Loblaws and looking to expand some deals right now with Sobeys and Metro as well.

Target continues to aggressively look at new deals now as well as looking at converting some of the smaller boxes, for example, our auto allocation of Sanguine lot is going to be reformatted into a new two-storey Target. There is still strong interest out there from some boxes, from Marshalls, Winners, Michaels and PetSmart, but particularly in the six urban markets in urban locations.

Pharmacies, again very interested and still looking to expand both Pharma and Shoppers in, particularly, again the six major markets. Our GTA office States’ market continues to be strong with our two large office tower locations, the Yonge Eglinton being 99.7% leased and Yonge Sheppard Centre being 100% leased.

Renewals, renewals continue to be strong in terms of attention, both sitting from 2012, at 90% as compared to 90.5% the previous year. What is interesting is in 2011, our average rental increase was $2.26 a foot as compared to $3.29, so 12% going up to 16.4%.

In terms of lost revenues due to vacancies unbudgeted, we had a tough year last year this point in time in the beginning of the year between Premiered HARP, which equated to almost a third of our losses in terms of revenues, which were $24 million, just want to put that out there, happened in the beginning of the year, which was putting a lag in terms of our occupancy and also of course the numbers in terms of same store.

In terms of lease buyouts, which everybody is interested, which also is a part of looking at, is going to be more so in the first couple of quarters of this year. As you know, we did a deal with AMC at our Kennedy Commons property to get a lease buyout from AMC, which was basically to our end, producing sum of about $1.3 million. We have been able to successfully release that space to LA Fitness, Michaels and are just finalizing with Staples and have 10,000 square feet.

We will be replicating the existing rents that we had in the property after the lease buyout with long-term leases and a better tendency mix, we believe, in terms of rest of the property. We have demolition permits in place and we will be commencing that project very, very shortly.

In terms of the Zellers’ premises, which was at our last quarterly conference call, we have leased up already 53% of the RioCan Zellers space and of that space we were then been able to replicate out of their 83% of what we’re getting from the balance of those Zellers locations. Average rents that we are getting from Zellers at the time was $5.45 per square foot.

The new deals are averaging at $9.48 per square foot, an average increase of just over $4 per square foot. We believe those Zellers will be down approximately on an average of 11 months and the type of tenants that we’re looking at in terms of these properties include Winners, SportChek, Sobeys, Bed Bath & Beyond, Urban Planet, No Frills, Ardene, LA Fitness, Giant Tiger and Atmosphere. So in each case we’re going to be sitting there and looking to reposition these assets and we will – these assets of course will be performing much better once these tenants step in.

In terms of our occupancy, we are running at 97.4% as compared to 97.6% with an economic occupancy basically running at 95.9%. So over the next twelve months we’re looking at another, absorbing 711,000 square feet or 15.5 million. So that’s now starting to shrink back down. Last quarter I reported just over 18 million in terms of that occupancy.

In terms of our top 10 tenancies, Wal-Mart is number one overall in the portfolio, with Canadian Tire being number two, Famous Players being three and four, Metro and the rest the Who’s Who in Canadian and U.S. retail. Target is now sitting at number nine.

Our U.S. property portfolio continues to perform extremely well, running at 98.1% with a retention in terms of reduced renewals running at 86.4%, which is very high by U.S. standards with an average rental increase of $1.41 per square foot.

In terms of new lease deals, we have done a 180,000 square feet and of that basically, we’re running at about 60% in terms of national tenancies. That’s it.

Edward Sonshine

Okay, thank you Fred and thank you Rags both from a operating point of view and a financial point of view, it’s hard for us to keep our excitement out of our voices because things are actually starting to go very well after what was not an easy year in 2012. So, considering that today is that Hallmark holiday, St. Valentine’s Day, I intend to be free with the use of the word love. Not necessarily as in John Love, although he is one of our great partners and we certainly appreciate the opportunities he has helped to create for us in our upcoming acquisitions from Primaris. But what I really love is how we have been able to reposition RioCan over the last four years.

A period at the beginning of which many reach in Canada and in the U.S. were struggling, some just a survive, but over that period of time we’ve acquired over $3 billion, a great assets at cost and at cap rates when in today’s market context look ridiculously attractive. I should remind everyone that in our first waive of acquisitions in the U.S., we’re achieving cap rates 49% and then we purchased a wonderful assets in Canada, in 2010 at cap rates in the high sevens.

The value creation that resulted from our timely and judicious raising and investment of capital is something that everyone should love, but perhaps it is not closely enough watched in today’s world a quarter-by-quarter measurements of hits and misses. Another matter that is perhaps not always sufficiently noted by analysts is debt matrix.

As Rag has reviewed for you, not only is our leverage ratio trending closer to our eventual goal of 40%, but our coverage ratios are getting better every year and they are also getting close to where we want them to be.

I stated a year ago that 2012 will have operating headwinds. It did. By reason of bankruptcies at the beginning of that year and other tenant failures and buyouts, we lost, as Fred mentioned, well in excess of $20 million of annualized NOI. However, not only did we have a very satisfactory result of operating funds from operations growth anyway, but we have set the stage free for better growth over the next several years.

2013 will be positively impacted by the releasing of the Zellers stores that were surrendered and returned. Fred is giving you an early look at the upside we expect to see, as well as the full year income from the premises vacated as a result of the bankruptcies early into 2012 that were essentially re-leased by the end of 2012.

2013 will also mark the opening in Canada of Target stores, while some REITs make much of possibly acquiring up to 10 Target anchored centers. By the end of this year, we will enjoy seeing 25 target anchored centers in the RioCan portfolio.

Keep in mind that with the extensive reconstruction and renovations undertaken by target over the past nine months, all of these centers were virtually construction sites with the negative impacts that that has. So 2013 is expected to be a good year for RioCan with OFFO per unit growth exceeding that achieved in 2012. While doing that we will continue to make serious investments in our development and redevelopment programs. We expect considerable positive impact to our OFFO from the many completions that we will commence in that program in 2014 and continuing in 2015 and even 2016.

In so far as our strategy going forward, there are only a few directional changes that I might note. One, as our leverage ratios approach our goals, we expect to issue far less equity. We will fund our continued growth through selective asset sales, our DRIP program, which we expect will add about $125 million to our equity base this year alone and retain earnings – retained earnings.

Two, now that we have successfully established an operating platform in the United States, we will be acquiring more assets on our own. While we’re happy with the performance of our various continuing partners in America and we expect to do more business with them, ultimately we will be happier and we’ll make – and we’ll be more cost-effective to manage our own assets for ourselves.

Three, with cap rate compression that has occurred, particularly in Canada, but also in the U.S., we are certainly not expecting the same pace of acquisitions as in previous years. However, you should expect us to continue acquiring assets that we consider strategic or opportunistic.

To sum up, I love where RioCan is today and the plans it has underway to get to an even better place in the next few years. We have the capital structure in place to do it and what I believe is the best management team in Canada to oversee the process.

I could quite frankly carry on for much longer about all the good things happening at RioCan and the great people that we have doing them. But we love answering your questions and I want to leave sufficient time to do that.

So thank you. And I’ll now turn it back to Wayne for questions.

Question-and-Answer Session

Operator

Thank you. We will now take questions from the telephone lines. (Operator Instructions) The first question is from Michael Smith from Macquarie Securities. Please go ahead.

Michael Smith – Macquarie Securities

Thank you, and good morning.

Edward Sonshine

Good morning, Michael.

Michael Smith – Macquarie Securities

You’ve had five consecutive quarters of double-digit renewals in your Canadian portfolio, so bumps on renewals.

Edward Sonshine

You mean double-digit growth? Yes, on renewals.

Michael Smith – Macquarie Securities

Double-digit growth, yes.

Edward Sonshine

Yes.

Michael Smith – Macquarie Securities

And that’s the trend I love.

Edward Sonshine

Yeah, me too.

Michael Smith – Macquarie Securities

Is it going to continue? And can you give us a little color as to why that’s so high and particularly last quarter or this quarter I should say 18.4%.

Edward Sonshine

Yeah I’ve sort of asked Fred to help me with that, but I can tell you that what we are starting to see now is renewals coming in on centers that we built and developed at or call it sort of at the end of the last century, and into the beginning of this century, 2001, 2002, 2003, and 2004 were big completion years out of our joint venture with Trinity. We were starting to do things on our own then.

Often you get tenure once on those leases and the particularly out in Western Canada, the renewals were getting on the centres that we built around the turn of the century are very serious, $18 rents going up into the low 30s, to pick an example that I’ve noticed in some of our centers like in Signal Hill.

These centers take a while and we have never been known for being overly aggressive in our asking rents. At the outset of those centers, we’re quite frankly more concerned and getting them filled up in the first place and being contempt to wait for the future to see real rent of appreciation. Personally I think the future is now and we will continue to see perhaps not quite that rental growth, because it is very tenant specific as to what’s coming up in that particular year, but let me turn over to Fred if he can add some specifics to that generalities.

Frederic A. Waks

There is fixed rents, which tend to hold back some of the growth that we did see. But the fact is that, as we’ve been building and buying better product, and add mantra and our belief that the six major markets is where we want to take this company to has been a big part of it as well.

The real estate speaks to those renewals. And the fact is as we paired back in some of the properties that we sold five years ago and that are in other reach today, the fact is we’re going to see the benefit of that and we are. And quite frankly, as pushing the hell out of Jeff and myself right now.

So you can see we believe that growth is going to be there. The sales are there to support it, that’s the other thing. Good real estate leads to good sales, which leads to good percentage of rent that you can afford to pay.

Edward Sonshine

I think Fred’s put his finger on the important answer to that besides the development timeframe that I talked about that is that our percentage of assets in the six growth markets is continuing to increase.

Our hope is that over the course of this year will get it into the 70s quite frankly from where I think it’s about two-thirds right now, little over two-thirds, and what, I mean that was a strategic decision shift we made back in 2004, 2005, and it’s bearing fruit, where the tenants are doing business and where there is population growth, you can get rental and increases. It’s a simple formula, but it works.

Michael Smith – Macquarie

Thank you. So with that shift in 2004 and 2005, would it seems now, and correct me if I’m wrong, it seems like you’re actually stepping up your development as well. Like I know, you’ve always been developing, but it seems like there is even a more intense focus. Is that…?

Edward Sonshine

I think that’s correct Michael. And part of that is driven by cap rates, and on the value you get in the acquisition market. We did not do a lot of development starting; let’s say in 2010 and 2011, because quite frankly, it was a happy hunting ground as far as making acquisitions, where in 2010, we bought a large Wal-Mart anchored portfolio, if I remember correctly at cap rates in the mid-sevens, which were still enjoying build-outs at those rates on those properties, as cap rates moved down into, for quality assets down into the fives, which where we are today. Suddenly, development number one makes economic sense because typically you can still develop on our great assets at between 7% and 8% cap rates sometimes even better, that quite often even better.

So that’s number one. Number two, the great assets aren’t coming up for sale that often, that’s where I talk about optimistic, when great assets come up for sale, we’ll pay up for them but right now, I think the face that the business is in as you create more value by creating new assets not to mention that in the urban areas where all the population growth is happening to earn any existing assets, so we’re taking filling up that void by actually creating them.

Frederic A. Waks

And it goes back to tenant demand.

Edward Sonshine

Yeah.

Michael Smith – Macquarie

Okay. Thank you. Last question, did I hear correctly, you said 53% of the Zellers base has been lacked and it’s that 53% is going to replace 83% of the entire Zellers income?

Edward Sonshine

We got both numbers, right. Yes, you heard correctly.

Michael Smith – Macquarie

Thank you.

Edward Sonshine

We expect to see some good upside from those Zellers stores.

Michael Smith – Macquarie

Good, good. Thank you.

Edward Sonshine

Thanks.

Operator

Thank you. The following question is from Alex Avery from CIBC. Please go ahead.

Alex Avery – CIBC

Thank you. Just to follow-on on the, I guess the Zellers stores that were taken by Target?

Edward Sonshine

Yeah.

Alex Avery – CIBC

You had a 74% increase in rents, and I guess that would suggest that these stores are actually going to be a bigger benefit to RioCan in the short-term, and even the Target’s assumptions of that space. Can we assume that that 74% uplift is in the same ballpark is what you might realize on the remainder of that space?

Edward Sonshine

You know what you shouldn’t assume that will be that there even. I think when it’s all said and done, keep in mind these are primarily in secondary markets. I think it’s through the great relationships that Fred and our people in the leasing group led by Jeff Ross have with tenants and simply sometimes getting the ability to get them out there and seriously consider for example our location in Cornwall, were target didn’t want to be. So I wouldn’t be surprised, if when that all said and done we see somewhere between a 50% and 60% uplift across the board on the Zellers space, we’re taking back, which is pretty good.

That’s a factor of the very low Zellers rates that were being paid plus what we’re able to achieve, but you use the word short-term and I’ll differ with you there is actually a huge long-term benefit because what we’re entering into here are 10 year and 15 year and 20 year leases with very credit worthy tenants that will actually positively impact the rest of the Shopping Centres and I will use Cornwall for an example where you had a Zellers that maybe was doing $100 a foot, maybe on a good day. We have nine other vacancies in that besides the Zeller store that’s coming back to us at the end of March. And as we refill that Zeller store with I guess four pretty good retailers I think is the current plan Freddie.

Frederic A. Waks

Yes.

Edward Sonshine

There is no doubt in my mind that we’re going to be able to fill up the rest of those vacancies. So it’s going to be a really good story for us over quite a number of years Alex. With short-term bumps long-term benefits as well.

Alex Avery – CIBC

Yeah. Now that sounds better than pretty good.

Edward Sonshine

It is, thank you.

Alex Avery – CIBC

I guess just a little bit further on that in the MD&A you disclosed that you thought the average I guess re-tenanting period would be about a 11 months, which I guess two question there, one that seems a little bit longer than what might be typical. And secondly is that a 11 months timeframe, I guess from the time that you getting control of the stores. So I think the first one was last September, couple of them are in January and some of them are in beginning of April.

Edward Sonshine

There is going to be some that will be short, a couple of that will be longer, and that’s because we’re going to be dividing the space up, there is permits, there is zoning, there is also – they become small construction sites.

Alex Avery – CIBC

That’s not just the same box with you’ve noted?

Frederic A. Waks

Oh, No. These are going to look totally different from what they were. We have not leased up any of them to that just a single user. These are going to be a re-merchandized, repositioned shopping centers with other boxes to replace them or food stores.

Edward Sonshine

As my good friend Mitch Goldhar when said, development moves at geologic time base, well we’re finding that in today’s world doing anything where you need municipal permits and you need you know perhaps site plan, new site plan agreements, it just takes a long time. The biggest factor in that 11 month average will probably be municipal approvals Alex, it’s just the way it is.

Alex Avery – CIBC

Okay that’s great. And then just wanted to – I guess reconcile the couple of your other comments and I guess the trend that I’ve noticed. 2012 was the first year, since 2009 that you’ve bought more property in Canada than you did in the U.S. Your introductory comments suggested that you are continuing to see lots of opportunity in the U.S. and that you have ambitions to continue to grow on your own accounts in the U.S.

Edward Sonshine

Well I think…

Alex Avery – CIBC

But at the same time you suggested that you might get your six Canadian City content up over 70%. I assume that you would have to be a net buyer of property in Canada even if you sold the $600 million plus?

Edward Sonshine

No, not necessarily. Actually playing with some numbers that – Rag is very good playing with numbers as he’s our Head of Asset Management. If we complete the sales program we currently have and obviously no assurance that we’ll sell them all, but if we do and just by completion of the two assets from Primaris that percentage will go, I think, to about 72%. And as far as the U.S., I should tell you the opportunities in U.S. are not a lot. That market has tightened down as has Canada’s, quality assets don’t come up for sale that much, but happily with the relationships we’ve made over the last, almost four years of being on the ground down there, we think that the opportunities to invest more in the United States will be there, just not to the same extent they had been in previous years.

Alex Avery – CIBC

So, well, you expect to be in that buyer in 2013?

Edward Sonshine

Yes.

Alex Avery – CIBC

Okay. That’s great. Thank you very much.

Edward Sonshine

Thank you.

Operator

(Operator Instructions) The following question is from Pammi Bir from Scotia Capital. Please go ahead.

Pammi Bir – Scotia Capital Inc.

Thanks, good morning.

Edward Sonshine

Good morning Pammi.

Pammi Bir – Scotia Capital Inc.

I’m just thinking about the strategy going forward and, its path to a higher multiple, you’ve got this sizable?

Edward Sonshine

You’ve put your finger on what it’s all about.

Pammi Bir – Scotia Capital Inc.

No, you have this sizable Canadian portfolio per sale and you want to recycle that equity into higher quality, I guess assets in your core markets.

Edward Sonshine

We are not necessarily hire quality, but faster growth.

Pammi Bir – Scotia Capital Inc.

Faster growth, okay. Now, I guess maybe that will help to answer part of this question, but how are you balancing these sort of competing goals or trying to generate that 5% plus FFO growth, but also improving the quality of the portfolio over time, which arguably will come at a higher cost. So is there a focus on one more than the other at this stage of the cycle?

Edward Sonshine

No, no. You put your finger on a couple of things and obviously that the ultimate goal is for the benefit of our unitholders to get a higher multiple better than what we got, but it’s a real art in doing. I don’t have an easy answer for how do we do it. You do it on a deal-by-deal basis. You do it by always keeping the larger picture in mind and balancing the priorities between our balance sheet, our growth, the quality of our assets, the relationships with the tenants and it’s what we get paid to do. There’s no easy answer to your question, but we do it.

Pammi Bir – Scotia Capital Inc.

Okay. And just, maybe in terms of the – given the increase in the values of the U.S. portfolio…

Edward Sonshine

Yeah.

Pammi Bir – Scotia Capital Inc.

You alluded to it at the beginning. Are you considering any dispositions and perhaps recycling some of that equity into either Canadian assets or reinvesting it into the U.S.

Edward Sonshine

No, we’re quite happy with our portfolio. As Freddy mentioned it’s performing terrifically. I think we’re better than the 98% occupancy rate. We’re seeing some that right now in the initial phases the growth prospects were perhaps a little more muted, but that’s quite frankly because we’ve effective there in having third-party management on all our Northeast portfolio.

One of the benefits and I alluded to this, that we’ve seen when we put in our own property management, asset management. We’re actually able to use the tremendous relationships that we have with tenants that are really on a – with our size, I mean every so often I remind ourselves we’re the third largest retail REIT in North America with a reach that implies and I think we’re going to see better growth from our existing assets in the United States over the next several years and there is certainly no intention of recycling any of those assets.

Pammi Bir – Scotia Capital Inc.

Great. Thank you.

Edward Sonshine

Thank you.

Operator

Thank you. The following question is from Sam Damiani from TD Securities. Please go ahead.

Sam Damiani – TD Securities Inc.

Thanks and good morning.

Edward Sonshine

Good morning, Sam.

Sam Damiani – TD Securities Inc.

I just wanted to touch on the renewal uplift and some of the development projects. Just on the renewal uplift, could you maybe give us a sense as to the difference in the uplift between your Western Canadian portfolio versus your Central and Eastern Canadian portfolio?

Edward Sonshine

I don’t have that in front of me, Sam. I can call you afterwards, but I can tell you that I – West is going to outperform the East taking the GTA out of that. GTA in the West is what you – is where the most growth is coming, but just interesting enough, because there’s lot to talk about new format and boxes et cetera. We did see a 15% increase across the board in our new format portfolio.

Frederic A. Waks

Yeah, which maybe a little counterintuitive sometimes, but I think part of that goes back to the date of acquisition or the date of creation of those developments that’s part of the story, that so many of these were built 10 years ago and we’re seeing them come after 10 year leases.

Sam Damiani – TD Securities Inc.

Okay. That’s great, that’s helpful. And I’ve seen some of the development sites both active and the Greenfield urban sites, the completion dates getting push back – little bit here and there that always happen. Could you…

Frederic A. Waks

You mean from the municipalities?

Sam Damiani – TD Securities Inc.

Well perhaps, yeah and so I’m looking for some of the reasons for these modest delays.

Frederic A. Waks

Sure.

Sam Damiani – TD Securities Inc.

And if you could address the specifically the status and expectations we should have with respect to the Bathurst & College site the Dupont site and the northwest corner of Yonge and Eglinton.

Edward Sonshine

Okay. You know what, I will hit those three and again I’m not going to call Mitch Goldhar twice, but these things unfortunately do take a long time, on Bathurst Street specifically, you know what, we – I don’t want to use the word got misled a little bit, because we’re a big boys and we should know what we’re doing, but we – with the encouragement of the city, we chose to go through the Committee of Adjustment route, where for the variance as the product, because the property is actually zoned for retail, but it’s – and you still need site plan approval and you needed some amendments to the specific bylaws.

We chose to go with the Committee of Adjustment. And even though, city staff supported our application, it was turned down, because of may be a couple of councilors that didn’t like the users that they thought we’re going to be introducing, mainly Wal-Mart. We then appeal that to the OMB, and I think the OMB took the easy way out and said, you really should get a rezoning, because the changes that you’re asking for perhaps outside the authority of the Committee of Adjustment.

We will be either this week or next filing the rezoning application. City staff as far as we know and we certainly continue to talk to them, will be in support of that zoning application. We hope it will be approved by City Council, good sense will prevail because it is totally in accordance with the official plans and overall plans for – by the City, and if not, we will go to the OMB right away. So is there going to be a year’s delay? Absolutely, but it will happen. We’re quite confident of that fact. What were the other two sites you mentioned?

Sam Damiani – TD Securities Inc.

Dupont and northeast corner of Yonge and Eg.

Edward Sonshine

Okay. Let me do the northeast corner first. That is moving along actually quite nicely. Our understanding from our partners that are actually carrying the zoning program forward is that borrowing any OMB approvals, we expect to have city council approval of a – of the development that’s close to the heights that we asked for, but not at the heights we asked for. It will be somewhat diminished by few stories, by I hope the end of this year, that could be further delayed, if somebody appeals us to the OMB, but all other things being equal I would say by spring of 2014. We should be able to commence that development. On Dupont and I think you are talking about the Grand Touring site there perhaps.

Sam Damiani – TD Securities Inc.

Correct.

Edward Sonshine

What we bought that it was 7.5% or 7.5 cap rates. It was one of the steels we made one December. We have a very nice tenant there. Two things have happened. First of all, the city has put into place what they call an Avenue Study, which is sort of freezes any re-development proposals until that study is finished. I don't know the exact date that study will be finished. I expect sometime this year. More important, until working with Grand Touring, until we confine them and relocate. They have a least, but has a few years left. So we’re happily getting a nice 7.5% return there, while we await things to get together. We’re not in a rush.

Sam Damiani – TD Securities Inc.

So all these projects are – you are seeing some delays due to approvals, but the leasing demand is there and…

Edward Sonshine

Well, there is no question that the demand is there, I mean and the funny thing is the delays will often work to our benefit, because the demand seems to grow and usually when demand grows, rent grows, as the competition increases for these urban locations. The beauty of all these properties and quite frankly the properties that we expect to be acquiring from Primaris is that population growth continues a pace, while things are happening I mean Oakville Place to pick an example, I think was built in 1981. While, think of Oakville in 1981, and think of in Oakville in 2013, I think the population has approximately quadrupled and continues to grow quite nicely as they start to get some hike in some of the properties, particularly near where we are, which is of course near to highway and near to GO Station there.

And yet, other than some wonderful renovations and upgrades, there hasn’t been anything really exciting done to that property in quite some time and even better example maybe the property we acquired a year ago, Shepherd Center at the northeast corner of the Yonge Sheppard, where that building has largely stayed the same for the last 20 years under the ownership of the – under previous ownership. Think about what’s happened in that Yonge Street corridor from 401 virtually up to 50 in the last 20 years from the perspective of residential development, residential growth, but there’s been very little retail growth.

So I think you’ll see us starting a redevelopment of that property probably mid-to-late 2014, we’ll be filing for this owing approvals there on the retail component of it within the next of couples of months, I think and it will be a very exciting project where the value creation and income growth, I think will be quiet speculator. So, they take time, but the good news is we have a nice pipeline of them going here and just for the final example, Fred reminded me we’ve owned Yonge Eglinton Centre for I guess six years now. And we just told last week finally, the building permit for the queue, that we‘re putting in front and we’ve started the construction of improvements on the interior. So again, it’s been a long haul, a long way a lot of opposition as some of you may recall to the building that we want to add in the front, but probably next week you drive by, you will see holding up.

Sam Damiani – TD Securities Inc.

Wonderful. Great, thank you.

Operator

Thank you (Operator Instructions) The following question is from Cedrik Lachance from Green Street Advisors. Please go ahead.

Cedrik Lachance – Green Street Advisors

Thank you. Good morning.

Edward Sonshine

Good morning.

Frederic A. Waks

Good morning.

Cedrik Lachance – Green Street Advisors

I’m interested by your somewhat transition this year to owning more malls. What does it mean from an operating perspective? And in particular what I’m interested in listening to you is what does that means from the leasing perspective, the personnel you need to hire for that, and how you have to adjust the leasing mentality. Leasing mall properties versus some of the openers centers that you have.

Edward Sonshine

That’s a very good question, and keep in mind we’re acquiring these two new malls. We acquired Georgian Mall last summer. These are all quasi-regional malls. They’re all in the 500,000 square foot to 700,000 square foot range. They really added to a portfolio of largely urban centered in close shopping facilities, which all include the Yonge Eglinton Centre, Yonge Sheppard Centre, that I mentioned, Lawrence Square, Shoppers World Brampton, Empress Walk upon on Yonge Street. So we have a lot of this stuff.

It’s not a brand new area for us, but what we’re doing is, from a staffing perspective we have recently hired, I think, they’re already on board, a new Vice President of Marketing, because again these malls require a lot more marketing. We want to be taken into the bright new world of digital marketing.

We have to remain relevant in these properties because it’s larger due to the younger demographic, where the largely the customers that we’re looking to get in these centers. So we’re on top of that, and we’re building a little – building out some infrastructure, human capital infrastructure there. At the same time, we’re revamping our leasing group and we’re adding I think we’ve hired Fred a new Vice President of Leasing, who is going to focus on the – and has experience in the actual mall sector much more heavily into fashion tenants and tenants like that. When you add in the experience that we’ve got dealing with a lot of food users and people like that. We think those opportunities in all these malls to significantly upgrade the food and the fashion components. As things are moving here in Canada and we stepped up to take advantage of those opportunities Cedrik.

Cedrik Lachance – Green Street Advisors

Okay. And as you look forward to the next two, three years and you look at your acquisition goals and target. Would you see mall assets, fashion malls being a more important part of that acquisition mix for you?

Edward Sonshine

I think if they are in the big cities, here in Canada, I can’t see that – see us jumping into that sector in the United States, because it’s just, it’s such a big sector and, we’re nobody in it. Here in Canada, as we continue to focus on largely in Toronto, if you look at the bulk of our mall portfolio is strong and Centric can be very hands-on and, I can’t see us doing too many more malls here in Canada, because quite frankly which is not available. Essentially, there hasn’t been a new mall built in Canada, except for a couple by Ivanhoe Cambridge, which were essentially outlet malls, fun malls and cross-centered malls or Calvary.

Had been built in over 20 years, because I mean that’s the other thing. Their big cost prohibit us to build in today’s world. I should mention though when you talk about malls, when I talk about our whole urban strategy, while, we’ll ultimately be our biggest development project will be the acquisition of the GoldMail site, which when all said and done, should total close to eight acres. The best part of the city block fronted by the – for those who know Toronto, Spadina, Wellington and Front Street and what our concepts are there is not to actually build on a mall, but to build something very urban that we expect nobody in Canada has seen the like of and perhaps even not in the United States.

We have a whole team being led by Fred that’s going over to the UK and Europe next week – in two weeks, I’m sorry, to meet with some architects there to look some of the examples, some of the urban developments, huge retail, but real mixed use with significant residential, significant office developments that have been done that I think will actually help us, because it’s going to be, I hope, a wow development and there is a lot of retailers, European, lesser extent American. They are looking for locations particularly in Toronto that are – we’ll call it midpoint luxury. They’re not of the price points of a Hermes or Louis Vuitton or people of that.

They are probable coach or a little better. So they don’t necessarily, looking at downtown Toronto, want to be in the center because that’s not they’re demographic. They can’t really be on Bloor Street either and I’m sorry for being so Toronto centric, but we think this GoldMail site where the average age of the 150,000 people that already live within the walk distance is probably about 32 years old will really attract them. So it’s sort of a strategy that’s all coming together, but I don’t think you’ll see us buying a lot more mall Cedrik.

Cedrik Lachance – Green Street Advisors

Okay. Then perhaps just a – the quick follow-up question. What’s the valuation yield as you reply right now the 14 properties for sale?

Edward Sonshine

We’re carrying them on our books I think the average price is about the values both five and three quarter Ced.

Cedrik Lachance – Green Street Advisors

Yeah.

Edward Sonshine

Based on what the brokers are telling us in the early demand and we’re expecting to see the first round of bids at the end of this month. We expect to do better than what we’re carrying them at.

Cedrik Lachance – Green Street Advisors

And geographically these properties are in which market?

Edward Sonshine

Well, I’m sorry to say to you that largely there in Quebec, because I know I think you have some roots there Cedrik. There is a large one in the Maritimes and month in New Brunswick, large one in Kingston and last thing in Thunder Bay. I think three in Quebec, one in New Brunswick, one in Kingston, Ontario and one in the Thunder Bay, Ontario

Cedrik Lachance – Green Street Advisors

That’s great. Thank you.

Edward Sonshine

Thank you.

Operator

Thank you. (Operator Instructions) There are no following questions registered at this time.

Edward Sonshine

Sorry, Wayne. That’s perfect. We got to done within the hour we had allocated. Go ahead, Wayne. Sorry. Hello?

Operator

Yes.

Edward Sonshine

Wayne, are you going to wrap it up or shall I wrap it up?

Operator

Absolutely. Please go ahead, sir, for your final comments.

Edward Sonshine

Okay. Well, thank you very much for dialing in. I hope I didn’t get too corny using all the love stuff in my remarks, but I couldn’t resist it, being Valentine’s Day. And, as you can tell, we’re just generally very, not only pleased, because pleased can sometimes turn into smug. We’ll never smug around here, and never complacent, and we’re really excited about the – what the next several years going to bring with RioCan. Last few years have been great, next few years are going to be better. Thank you. I look forward to talking to you all in future conferences.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.

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