Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Paul Godfrey - Chairman

David Matlow - Partner, Goodmans LLP

John Ballantyne - SVP, Asset Management

Raghunath Davloor - EVP, CFO & Corporate Secretary

Howard Rosen - SVP & CAO

Jordan Robins - SVP, Planning and Development

Jeff Ross - SVP-Leasing

Michael Connolly - SVP, Construction

Edward Sonshine - CEO

Analyst

Riocan Real Estate Investment Trust (OTCPK:RIOCF) 2014 Annual and Special Meeting May 28, 2014 10:00 AM ET

Paul Godfrey

Ladies and gentlemen, the 10 O'clock having arrived I'd like to welcome you all here. My name is Paul Godfrey, as Chairman I would like to welcome you to the 2014 Annual and Special Meeting of unitholders of RioCan Real Estate Investment Trust. Before we start I'd like to apologize to all our special guests today for the fact that the -- you all had, probably have a special workout getting up the steps because of the escalator. In order to put the record straight, I want to assure all of you that is not a RioCan escalator. That is owned, operated and paid for by Cineplex. And we will tell our friends at Cineplex that -- of the inconvenience that was created. So I just want to set the record straight right at the beginning.

To start let me introduce our head table. On my immediate left is Edward Sonshine, Order of Ontario QC, is the Chief Executive Officer and David Matlow is a partner on his left with Goodmans LLP, the Trust legal counsel. David Matlow will now provide an advisory regarding the forward-looking information that may be discussed in today’s meeting. David?

David Matlow

Good morning. Certain information to be discussed during this annual and special meeting or in the management presentation which will follow the formal portion of the meeting contains forward-looking statements within the meaning of applicable securities laws, including among other statements concerning RioCan’s 2014 objectives, RioCan’s strategies to achieve those objectives as well as statements with respect to management’s beliefs, estimates and intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts.

Such forward-looking statements reflect management's current beliefs and are based on information currently available to management. These statements are not guarantees of future performance and are based on RioCan’s estimates and assumptions and are subject to risks and uncertainties including those described in RioCan’s management discussion and analysis regarding the 2013 audited financial statements and the MD&A which accompanies the Trust’s first quarter financial statements for the period ended March 31, 2004 which could cause RioCan’s actual results to differ materially from the forward looking statements to be discussed during this annual and special meeting. Although the forward looking information discussion during this annual and special meeting is based upon what management believes are reasonable assumption, there can be no assurance that actual results will be consistent with these forward looking statements.

Paul Godfrey

Thank you very much David. I will now ask the annual and special meeting of the unitholders to come to order. I will act as the Chairman of the meeting. I will ask David Matlow to act as a secretary of the meeting and CSP Trust company representatives Greg Ashe P. and Carol Panetta to act as scrutineers. In view of the need to attend to a number of formal matters certain unitholders have volunteered to move in second resolutions we’re required while this procedure will facilitate the handling of the formal matters any unitholder or proxy holder may speak on a matter where that matter is before the meeting. When I recognize you please give your name and state whether you are a unitholder of a proxy holder. The minutes of the last meeting of unitholders held on June the 5th 2013 are here and are available for your inspection.

I am also tabling a copy of the 2013 audited financial statements. They have been made available in addition to the proxy materials and additional copies are also available here today. Please note that upon completion of the meeting, Edward Sonshine will be making a presentation. Following his presentation Mr. Sonshine will answer questions you may have accordingly. During the formal portion of the meeting I would ask you to limit your questions and discussions of those matters directly related to the specific matters before being considered.

For the second consecutive year the Trust used the notice and access mechanism to furnish proxy materials over the internet to unitholders instead of mailing paper copies to you. If you do not have a paper copy of the material, additional copies are available here today. I have been advised by the scrutineers that prior to the meeting, proxies were received from the unitholders of 142,691,981 units or approximately 46.87% all units entitled to be voted. As a result we have a forum for this meeting and the meeting is properly constituted for the transaction of business.

Ladies and gentlemen, fellow unitholders welcome to this 21st annual and special meeting of RioCan Real Estate Investment Trust. Our 21st birthday suggests the kind of coming of age, one achieves the full recognition and the responsibility of adulthood. And over the past 20 years RioCan has certainly established itself in the eyes of its community, in the eyes of its partners, suppliers, investors, analysts and tenants, and even our competitors. We have deserved in one recognition for our achievements and we have built up expectations of even greater things to come. Let me remind you of just a few of those wonderful accomplishments.

In 20 years RioCan has grown from a mere startup to the leading retail investment -- real estate investment Trust in Canada. Our leasable space has expanded from less than 1 million square feet to more than 50 million square feet of retail and office space across North America. Our rental income has climbed from $13 million to $1,200 million this year and our assets has soared as well from a $100 million in 1993 to $14.5 billion today. These are the financial measures of our success. And RioCan is a business enterprise so those are vitally important metrics but they are not the only measures of RioCan’s leadership. So that leadership can also be seen in the vision that has guided our growth over the years. The vision recognized opportunities in the United States for instance as early as five years ago and then saw new opportunities arising from 2008, saw them and with daring and discipline, seize upon those opportunities. Today 20% of RioCan’s income producing properties by square feet are in the United States, generating 16% of RioCan’s overall rental revenue. That too is a reflection of the vision and discipline that guided their acquisition.

The grocery chains in particular are providing us with strong anchors in some very high value retail centers. If this measure of RioCan’s leadership goes beyond even these numbers, it’s not just dollars and not just square feet, they are human beings before behind every one of these numbers. There is your Board of Trustees who exercises continues over sight to make sure the policies of RioCan stay true to our principles and to keep us on track for the goals we set for ourselves as a Trust. And there is our talented executive team, Fred, Rags and Jeff and Jordan, Jonathon, Danny, John and Michael and Howard who execute the discipline, realize the vision and achieve the goals of RioCan that we have set.

These are the partners, they’re the partners, suppliers who work with RioCan to build not just new buildings but a whole new level of prosperity. And they are the excellent employees of RioCan of course, but also our partners and our tenants doing their jobs in serving the public thousands of them across North America. And they’re the communities and municipalities themselves who have worked with RioCan and for whom RioCan has meant new jobs, new growth, a new future for so many and so many communities. You won’t find those numbers in our financial statements, but they are there nevertheless behind everything RioCan has done and everything RioCan has accomplished.

This is a measure of RioCan’s leadership. And I know I am not alone in saying that it flows directly from the man who leads RioCan. So it came as no surprise to anyone including myself, when our CEO, our Founder and our visionary Ed Sonshine was voted the Outstanding CEO of the Year award in 2013. The leadership, the reputation, the respect that people feel for RioCan is something they also feel for Eddy Sonshine. Now Ed will be the first to insist that RioCan is not a one man show and it will certainly be right. Everyday hundreds even thousands of individuals contribute their time and their talent to the success of our Trust. But the secret of leadership is knowing how to direct those talents to provide the incentives that channel that human energy towards our common goals.

In business terms that kind of leadership, prudent, systematic, strategic is called governance. You can see it at work with resolutions that you’re being considered at this meeting today especially in the compensation policies that are being put forward. This was a refinement and an improvement on existing policies designed to achieve the same objectives yet more directly and efficiently. The principle objective is to being into total alignment the interest of our management, our trustees and our unitholders. We all want to sing from the same song book and work towards the same goals and the same success. Not just this quarter or even just this year, but year-after-year over the long-term as RioCan continues to grow and to realize its fullest potential.

Those who us have followed RioCan’s progress from the beginning can only marvel at everything that Ed and the Trust have accomplished over the last 20 years. Yet the provision today is to be truly 20-20, we can’t just look at the 20 years behind us. We have to look forward as well to the 20 years ahead of us. Sound governance and visionary leadership will continue to be a vital part of it and the future as much as the past. Ed will give you some of the financial highlights. As your CEO he’s understandably proud of him, let me just point out that we establish a deeper and stronger foundation for your trust to build on. That is leadership from top to bottom.

From who we are and how we work and what we accomplish, so welcome to you all to the 21st Annual and Special meeting of your Trust. The past 20 years have been next to ordinary experience for us all, and speaking personally an extraordinary privilege. But I think even those accomplishments will soon fade just a little in comparison to the amazing things to come over the course of RioCan’s next 20 years. Like the song says, “you ain't seen nothing yet”, and that’s a promise that we intend to keep.

The first item of business is the election of trustees, unitholders have been provided with the opportunity to vote for each trustee or withheld or withhold their vote on an individual basis in accordance of RioCan’s majority voting policy details of which are provided in the management information circular for the meeting. The management information circular sets out particulars, the nine nominees proposed by management, proxies will be voted for the election in the absence of instructions to the contrary, the secretary will now read out these names.

Unidentified Company Representative

Mr. Chairman the names of the nominees are Boney Brooks, Clare R. Copeland, Raymond M. Gelgoot, Paul Godfrey, Dale H. Ashman, Sharon Shallows, Edward Sonshine, Luc Vanneste, and Charles Winograd.

Paul Godfrey

Thank you very much. If elect to these nominees we will hold office until the next annual meeting of unitholders or successors are elected or appointed. I now recognize John Ballantyne for the purpose of the motion.

John Ballantyne

Mr. Chairman, I nominate the nine persons whose names have been read to this meeting by the secretary for election as trustees of the trust to serve until the next annual meeting of unitholders or until his or her successor is duly elected or appointed or he or she otherwise ceases to hold office.

Paul Godfrey

Mr. Davloor.

Raghunath Davloor

Mr. Chairman, I second those nominations.

Paul Godfrey

The nine persons been nominated for the election as trustees and there are nine trustees to be elected. For the information of the meeting, will the secretary please confirm whether the number of units represented by the proxy is received that were in favor of each of the nine nominees has reached a majority of those voted.

David Matlow

Mr. Chairman, I confirm that prior to the meeting, proxies were received in favor of election of each of the nine nominees as trustees from the holders of units representing more than the majority of all votes cashed by proxy in according with the Trust’s majority voting policy for election of trustees.

Paul Godfrey

Thank you very much Mr. Matlow. In light of the foregoing I therefore propose to take a vote by show of hands. Will those in favor of the motion, please signify by raising your hands? Thank you. Those opposed? I declare that each of the nine nominees whose names have been read by the secretary have been elected trustees of the Trust to hold office until a close of the next annual meeting of unitholders and until his or her successors is duly elected or he or she otherwise ceases to be a unitholder.

Next item of business is the approval business for which this meeting has been called, is to consider and thought appropriate to approve a resolution reappointing Ernst & Young LLP as auditors of the Trust and authorizing the trustees to fix the remuneration of the auditors. May I have a motion for approval of this resolution, Mr. Rosen?

Howard Rosen

Mr. Chairman, I hereby move that Ernst & Young LLP, be reappointed auditors of the trust and that the Board of Trustees be authorized to fix their remuneration.

Paul Godfrey

Mr. Robins?

Jordan Robins

Mr. Chairman, I second the motion.

Paul Godfrey

Thank you very much. Is there any discussion? The meeting will now vote on the motion. I propose to take a vote by way of show of hands as I did previously. Will those in favor of the motion, please signify by raising your hands, all in favor. Those opposed? Thank you very much. The motion is carried. I declare that Ernst & Young LLP have been appointed auditors of the trust in accordance with the motion that’s just been passed.

The next item of the business is the approval of the deferred unit plan for RioCan’s non-employee trustees. Full particulars of the proposed deferred unit plan are set out in the management information circular for this meeting. The plan included the inner circular has been further enhanced to require unitholders approval for any amendment except those which are specifically listed in the plan. The form of the resolution approving the adoption of the deferred unit plan is set out in Appendix A to the circular and requires the approval of a majority of votes cast by the unitholders entitled to vote who are present in-person or represented by proxy at this meeting. May I have a motion for the approval of this resolution, Mr. Robins?

Jordan Robins

Mr. Chairman, I hereby move that the resolution set out at Appendix A to the trust management information circular dated April 11, 2014 be and is hereby approved.

Paul Godfrey

Mr. Ross, seconder?

Jeff Ross

Mr. Chairman I second the motion.

Paul Godfrey

Are there any comments from anybody at the meeting? Meeting will now vote on the motion based on the proxies received in favor of management. If a ballet vote were conducted on this matter, more than 98% of the votes eligible to be cashed at this meeting, will be voted in favor of the proposed deferred unit plan, therefore I propose to take the vote by the way of show of hands. Will those in favor of the motion, please signify by raising your hands. Those opposed? The motion is carried. I declare that the deferred unit plan has been approved in accordance with the motion.

The next item of business is the approval of a non-binding advisory say-on-pay resolution on executive compensation. The Board has decided that unitholders should have the opportunity to vote on the trust’s approach to executive compensation. The non-binding advisory vote forms an important part of the ongoing process of engagement between unitholders and the Board of the executive compensation and Board on executive compensation, full particulars on the say-on-pay are set out in the management information circular for this meeting.

The form of resolution passing the say-on-pay advisory vote is set out on Page 15 of the circular and requires the approval of a majority of the votes cast by unitholders entitled to vote who are present in person or represented by proxy at this meeting. May I have a motion for the approval of this resolution, Mr. Ross?

Jeff Ross

Mr. Chairman, I hereby move that the resolution sent out on Page 15 of the trust management information circular dated April 11, 2014, be and is hereby approved.

Paul Godfrey

Mr. Connolly, a seconder?

Michael Connolly

Mr. Chairman, I second the motion.

Paul Godfrey

Are there any comments on this motion?

Michael Connolly

The meeting will now vote on the motion based on the proxies received in favor of management, if a ballot were conducted on this matter, more than 95% of the voters eligible to be cast at this meeting voted in favor of the proposed say-on-pay advisory vote. Therefore, I propose to take the vote by way of show of hands. Well, those in favor of the motion, please signify by raising your hand. Those opposed? The motion is carried. I declare that the say-on-pay advisory vote has been passed in accordance with the motion. Is there any other business to come before this meeting? I hereby declare the meeting terminated.

I would right now like to ask Edward Sonshine, the Trust’s Chief Executive Office, to make a presentation and to answer any of your questions. Mr. Sonshine.

Edward Sonshine

First, let me thank you all for attending RioCan’s Annual and Special Meeting. If this was one of Cineplex movies, I think it’s just about a sold out house, so thank you for being here and for some of you this will be your 21st meeting and I want to specially thank you for your support and for coming back to hear Paul and I speak so many years in a row. We appreciate it.

Let me start my address by looking back on how we brought RioCan to where it is today and then end with what we hope to achieve in the future. When I reflect on RioCan’s success over the last 20 years, I realize that one of the prime reasons for that success was being flexible enough to alter our basic strategies from time to time and then even more important, executing those new strategies as well as we could and I have to pay tribute without a wonderful team like we have led by Fred Waks and Rags Davloor, that execution is not something we take for granted and probably wouldn’t have occurred.

So now we’re at the beginning of yet another strategic shift which evolves urban development and even more particularly, redevelopment of many of our major properties. And I will focus more on that where that is taking us in the latter part of my address. But first let me quickly share with you what we have achieved over the last five years, as in addition to our U.S. venture, our strategic focus over that period was to continue to improve the financial foundation of RioCan. As we concluded that only with incredibly strong financial metrics could we afford to undertake the value creation activities that I will carry on at length about in a few minutes. I think that a few charts might be best to illustrate what we’ve achieved in the last five years.

Our revenue has increased by about 50% over that time period to almost $1.2 billion in 2013. Compound and annual growth rate of 12%. As someone would have told me or any of our long servicing executives like Danny Kissoon, our SVP of Operations who is actually responsible for receivables that we will be collecting $100 million per month in revenue, I would have thought they were spending too much time with Mayor, Ford, in some of his more notorious activities.

Our net operating income determined after we pay all third-party cost such as reality taxes has kept pace with revenue growth, growth one of the many benefits of having net leases. In 2013, our net operating income was $758 million, representing a compounded annual growth rate since ’09 of 12.9%, but the most important number to you our unitholders is our FFO per unit which grew at a 7.5% CAGR during the same five years to last year’s $1.63 per unit.

One of the criticisms leveled at RioCan in the past was that our payout ratio was too high and it is one of the few criticisms that was actually correct. In the chart on the screen now you will see how we’ve brought down this payout ratio to an extremely manageable figure without ever having to even seriously consider reducing the distribution. In fact, we’ve been able to modestly increase it during this difficult economic period and we certainly hope and expect to continue that program of modest increases while at the same time continuing to reduce our payout ratio. While achieving all of the financial metrics that I just described, we did not for a moment change our strategy of quality properties in the major markets, and what you’ll see, you’ll see on the screen now how we have increased our portfolio concentration in those major markets over the last few years.

With essentially all of our development program and any acquisitions being in these major markets, I expect this concentration percentage to move to over 75% within the next couple of years and eventually settle in above 80%. Financial metrics obviously include our levels of debt, it’s been extremely tempting over the last several years to grow using historically cheap debt as rocket fuel, but we’ve avoided that temptation. While at the same time taking full advantage of the economic opportunities offered by the current interest rate environment.

In this slide you will see that while our growth and assets over the last five years was in excess of 20% compounded annual growth rate, the growth in debt was less than 13%. This results in the last slide, where you’ll see a consistent growth over the last five years in our interest coverage ratio and a dramatic reduction in our leverage ratios from 2009 to 2013.

So now that I have been properly self-congratulatory about what we have achieved over the last five years, let me move on to what I see as the current state of our little world and where we would like to take it in the future.

In the economic environment that we find ourselves in, which seems to be one of slow growth and lower than historically normal interest rates, we feel that the differentiating factor amongst everyone in this business will be their success in continuing to achieve growth in operating funds from operations. Growth by acquisition is not only quick, it frankly provides instant gratification. However, quality assets of the type we wish to own are rarely available, and they certainly can’t be countered on for near term growth notwithstanding the superb efforts of our investment team led by Jonathon Gitlin who thinks nothing of jumping on a plane to fly anywhere to go private source of property.

The hunger for quality real-estate assets has driven asset prices to the point or even when they sometimes become available, such as the sale of Baby Village Shopping Center last year, the price that they go at is certainly not one that will provide us growth in the short-term or even in the medium term. This is the case in Canada and to a very large extent it’s the same in the United States.

When we saw the real-estate markets starting to go this way about two years ago, we decided to expand our development and intensification initiatives starting and focusing with this significant portfolio that we already own. This is nothing new for us and I am sure many of you in this room have driven by 1717 Avenue Road here in Toronto, which just a few years ago was simply a 23,000 square foot strip shopping center and now is a seven storey building with an equivalent amount of retail and six floors of condominiums on top.

The basic change from what we have done in the past in this area is to understand that while transaction gains achieved by creating and selling air right or condominiums are very pleasant to receive and provide pretty good capital, they do not directly contribute to our core mission of creating solid and reliable cash flows that will grow over time. So we’re embarking on adding rental residential to our mixed used developments rather than condominiums in locations where the economics will work. Clearly these will be urban and they will typically be located at or on major transit facilities.

Development, particularly urban development pose a unique set of problems, they range from zoning to construction, to dealing with the existing tenants of the property. But RioCan is singly suited to deal with a maze of issues that arises on every single project of this sort. As the frustrations inevitably amount, I have to keep reminding myself as well as Jordan Robins our Head of Development, Jeff Ross our Head of Leasing and Mike Connolly our Head of Construction that if it were easy, anyone could do it. But because of the difficulties I think we really are ideally suited to do it, but because of those difficulties, timing of completion of these developments is completely uncertain. The key to success for an entity such as ours in this type of program besides having the best people and the best consultants is having a large number of projects underway.

So what we have done and continue to be in the process of doing is to essentially build a development ladder, the same strategy we have for many years applied to debt and lease maturities. It is obviously a far more subjective exercise when it comes to development, due to the large number of variables I mentioned earlier. But we hope that for every project that gets delayed another will actually go faster than we expected, that’s rare but it does happen. Needless to say, approaching our development program in this manner provides several advantages as follows.

First it allows us to manage our risk, and unfortunately enhanced risk is an inevitable part of the development process by ensuring that our development exposure does not bulge up too high in any one year.

Second, it allows us to plan for the financing of that development program which we do mostly with equity and third it provides on an annual basis growth in our underlying cash flow as projects move from development status into income producing.

While this development ladder is a bit of a work in progress and will constantly be evolving due to its very nature, allow me to set out the basic program as we see it today. With the years indicating when we expect the properties in question will become mostly income producing.

So in 2014 which of course we’re already in, the stockyards at Weston Road in St. Clair which is a urban format, large scale center and is one I have discussed in years passed, fact that I think couple of years ago I showed you a video of what we hope that it would look like. We’ll it’s now built at St. Clair Weston Road, I encourage you to out and have a look at it.

It’s essentially complete it’s about 65% open with the remaining tenants opening over the course of the next several months. This 551,000 square foot asset in the middle of the city of which we now own 50% together with our partner CPPIB will on full opening of all tenants generate about $6.5 million of NOI to RioCan.

Tanger Outlet mall expansion in Cookstown. Anyone who has driven up to Cottage Country by way of Highway 400 will be aware of the extensive construction that has been underway since late last year on the original Outlet Mall which we acquired a couple of years ago with our 50-50 partners Tanger Factory Outlets.

By the end of this year the 155,000 square foot addition will be complete, almost doubling the NOI from this property. Tanger Outlet mall in Ottawa. This 300,000 square feet Outlet Mall will be opening in October will include a Polo Outlet and a Saks Off 5th. We are as certain as one can be that it will be a tremendous success. Our share of the full of this income from this property will be in excess of $4.2 million annually. Smaller one, redevelopment of Blue Mountain Mall, Collingwood, we will be completing prior to this year end the complete redevelopment of the vacant Zeller store in this mall. When I say redevelopment, we’re actually demolishing it. And we replace Zellers with such tenants as Sport Check, Bed Bath & Beyond, Winners and Dollarama as well as an expansion of Freshco, realizing incremental income in excess of $1 million annually upon completion.

Next year 2015 Sage Hill shopping center in Calgary, Alberta, will come on stream. Construction has commenced of this 383,000 square foot conventional center anchored by Walmart, Loblaws and London Drugs. On completion next year we and our partners KingSett will enjoy about $8 million per year of new net income. The (queue) [ph] RioCan Yonge Eglinton Centre, we started working on the planning of this small addition to the building we are in, in late 2007. It took us almost five years to design and then receive a controversial approval for a mere 42,000 square foot addition which we expect to be complete and open before the end of next year. Although small in size on completion it will generate almost $3.3 million in annual income from tenants who are all signed up and ready to go.

Herongate shopping center in Ottawa, this property is a complete redevelopment of what was an enclosed and essentially obsolete community mall on a major arterial road in Ottawa. This redevelopment was complex. In that the two major tenants Metro and Pharma Plus did not wish to ever be out of business, a theme which we encounter in virtually every redevelopment that we undertake.

However, the heavy lifting part of this project has been completed with a newly built metro supermarket and Pharma Plus drug store now being open for business, the old mall has been demolished and construction is commencing shortly on the new components of the center that we are constructing around these two anchors.

Whole Foods on Bayview, this property is one that we are purchasing from Trinity Developments and KingSett Partners and therefore on completion we will own 100% of this very urban building, one that is completed in the middle of 2015 and we expect to generate in excess of $3 million of annual income per year from this property alone.

2016, redevelopment and expansion of Yonge Sheppard Center, Toronto, we believe that this property will over the next few years mirror the enormous success that we have had with the Yonge Eglinton Centre. The area is as dense as it is here. And it is the prime retail hub for an area encompassing thousands of apartments as well as being at the intersection of the Yonge and Sheppard subway lines with the main entrance to transit being right in the building. We are still in the zoning process here but we expect to receive approval very shortly for the retail and office expansion which should generate for ourselves and our partners at KingSett almost $9 million of incremental NOI per year. The residential tower which is at the forefront of that picture and which we hope to build at the north end of the site will be a rental building and should follow a year or two later.

430 Bathurst Street, this is the one we’re -- this building somehow became the Darth Vader of Kensington. While I am not at liberty to reveal the final tenancies here I’ve learned not to do that, I can tell you that the property known as the Kromer site will not be anchored by Walmart. Our new plan received unanimous city council approval and we are hopeful of commencing construction before the end of this year for completion in late 2016.

547-555 College Street, it’s amazing we’re doing deals around where I grew up as a little boy. This joint venture with Allied Properties is expected to commence actual physical development by early 2015 and will include 78 rental units that we expect will be the first fruit of our residential rental program. The redevelopment and expansion of Collister Shopping Center 1, we are proceeding with the demolition of the space formally occupied by Rona fairly soon, in fact I think as early as next month. The new building will be approximately 30,000 square feet larger than the Rona building and we expect to receive final municipal approvals sometime this year.

2017, East Village, Calgary, Alberta. This is a site that internally we refer to as the CPA site, as we purchased it from the Calgary Police Association. It is kitty corner to Calgary City Hall and just down the street from the ball as you can see from this shot, this rendering.

It will form the centerpiece of the municipally led redevelopment adjacent to Calgary’s downtown. We expect this building which is also been done in partnership with KingSett to consist of about 215,000 square feet of retail area below two residential towers which themselves will total about 600,000 square feet. While it is too early to get into details, I can tell you that the second floor of the retail facility which totals over 100,000 square feet has already been pre-leased in its entirety to Loblaws.

East Hills power centres which may be one of the last of its breed. This large retail development of which RioCan owns 50% and where our main partner is CPPIB will be built in phases over the next several years. In fact the first phase anchored by a Walmart land lease is opening this year, and in fact I think it might be opened already with the remaining phases filling in the centre over the next three years. When complete it will total almost a 1 million square feet.

King Street West and Portland redevelopment here in Toronto, this joint venture with allied properties is currently in its zoning process but we are hopeful of securing approval sometime next year with completion about two years later. This will be a mixed use development where we will be adding retail and residential components to what is currently primarily an office development, haven't decided on this yet if we are going to rental or condominium. And it will be something as we go down the road we will conclude with our partners.

Northeast corner of Yonge and Eglinton, demolition has commenced on what will be a significant redoing of this property at the hub of two main transit lines and which will be connected underground to the center you are in right now. I look forward to start seeing it rising out of the ground next year and actually I literally look forward to seeing it as it's directly across the street from my office.

The Southerly Tower that you see in this rending is a condominium building that is I think 58 storeys high and which will contain 630 units, it is already 92% pre-sold. With our partners Metropia and Bazis, we are taking the opportunity of this superb location to build the north building as a 450 unit rental residential tower. In addition, there will be almost 100,000 square feet of fine retail and commercial space, a big chunk of which has already been leased to TD Bank.

Now, 2018 we expect at that time to complete the first of our intensification program on existing properties, each involves much still to be done including zoning and relocation of existing tenants. However, we're confident and we have picked three examples out of the many we're working on because we think these three will be complete by 2018. The ones I am going to highlight are those three and they have been chosen of course as they are located in three different major markets in addition to us being confident that four years from now they will exist and in each case we already own them and also in each case we've owned them for quite some time.

The Brentwood Shopping Center is already a proven residential location. Metropia has successfully marketed and built, you see in the foreground, four -- sorry several condominium towers on what was a portion of the original centre. We expect to be able to receive zoning to build 180 units on a portion of the centre that is currently occupied, believe it or not by carwash. So, we are losing a carwash, gaining a 180 unit building.

Eglinton and Layered in Toronto is also an existing shopping centre, many of you may know anchored by Canadian Tire and it comprises a land area of over 8 acres. Metrolinx has already approached us, telling us because they don’t ask that they are going to locate the LRP stop for the new Eglinton transit line and the entrance at the corner of our property thus making it even more attractive and inevitable as a major residential intensification site. We are not ignoring our nation’s capital, we are actively working on a portion of our Silver City Gloucester Centre which was actually the fashion component which never quite was very fashionable, so this is a great alternative use.

And it happens to be adjacent to the transit station right at the very end of the new LRT system that’s in the process of being completed in Ottawa and we just think it’s going to work brilliantly.

Obviously though the further out in years that we go the more uncertain the timing and the net income that we expect to achieve from any individual project. But when we added up some of the numbers I set out today and added on to that, layered onto that, some of the projects that we feel are more likely, are most likely to come on stream by 2020, picking up a piece from you Mr. German 2020, we expect to be able to add over the next five to six years in excess of $250 million at RioCan’s interest per year of net income. Obviously there is a cost to that but all of these developments will yield well in excess of what they will be worth on completion. So, in addition to creating all of this income, we will be creating significant value.

I would like to conclude by previewing with you what is our largest development undertaking, the well. This site formerly known as the Globe Maylands consists of about 7.75 acres of land just west of Toronto’s port, with our partners’ allied properties in Diamond Corp. we have applied for zoning to permit a development aggregating in excess of 3 million square feet of what I believe will be the finest mixed use project Toronto has ever seen. The foundation of it will be about 600,000 square feet of unique urban oriented retail space. On top of this retail component will be approximately 1 million square feet of office space and about 1.5 million square feet of residential space which itself will be a mix of condominiums and rental units.

Now if everything is working correctly which I think it is, you’re now seeing images of what we expect the Well to look like upon completion which we hope will be about 2020. It’s going to be just a transformation of what I’ll call downtown west. And if the name the Well seems odd, you have to think of it, think shop well, live well, eat well and work well.

Anyway I started a practice many years ago, not sure why I started, but I did, providing you with the annual return that an investor would have achieved, had they purchased a RioCan unit on the day of last year’s annual meeting and held it until the day prior to this year. I think 20 years of doing this is enough, so unless there is real popular demand, it’s the last time I am going to do this. So for this last time, the return for that period of time was 9%.

Thank you very much for your attention and for your attendance. And I would now like to open the floor to any question that any of you may have.

Question-and-Answer Session

Unidentified Analyst

My name is Mike (Sedan) [ph] I am a unit holder. In the past it’s been your philosophy to have anchor stores as grocery stores. I am wondering do you have any Apple stores or Microsoft stores in your properties now?

Edward Sonshine

I’ll stand to be corrected, I do not believe that we do, we may have some Microsoft boutiques in some of our Best Buy and Future Shop and I would be very surprised if we didn’t have some of those stores coming on in some of the urban developments that we talked about, today we do not have any of those stores.

Unidentified Analyst

I look at them as a good anchor store, because once people buy say a MacBook Pro, they offer constant training and people are coming back and back and back and back, so that makes them all more successful. So I would -- I think it’s worth looking into that.

Edward Sonshine

I agree with you and listen we tried hard actually to get an Apple store to anchor the cube that we’re building out front of this building but they haven’t put one in this area yet, so they’re still in play but that’s want of trying that we don’t have them.

Unidentified Analyst

Okay, let’s talk about Staple stores maybe closing down across North America and moving to sales through the Internet, like Amazon.ca or Amazon.com. Is that going to affect RioCan?

Edward Sonshine

Well there is talk about a lot of things and the reporters like to start stories, our best information from Staples is that they will be downsizing and they are in the process of downsizing. They can’t just walk away from their stores about 50% of their business as I understand it comes from the Internet, but there is another 50% that doesn’t and what they’re finding quite simply is that business customers are using Internet ordering and then having it delivered. Most retail customers individual such as most of the people here actually still like going to a store. So where the stores are, were 25,000 feet, they are new model and they’re still opening new stores. So I am not sure about the talking and is more like 10,000 square feet and we think that will continue. As far as how it would affect us, if god forbid, they close all their stores it would obviously have an impact but I don’t even think they’re in our top 10 tenancies. And once you fall below our top 10, nobody’s more than 1%. So it’s something we’ve managed just like we manage everything else, tenants come and go unfortunately.

Unidentified Analyst

Yes, I know it’s not in your control but I just think maybe that could fit in with the idea of Microsoft and Apple, because it’s the same type of market and you have proof that people go to these type of stores looking for Apple's computers which Staple sells, but the problem with going to a Staples and buying an Apple product is they don’t provide the training, the one-on-one training that people need.

Edward Sonshine

You’re not here from Apple are you? You’re selling in like an Apple commercial but thank you for your comments.

Unidentified Analyst

No, I am -- there is no conflict of interest, I do own MacBook Pro and I also use Microsoft software on my MacBook Pro.

Edward Sonshine

A very common thing.

Unidentified Analyst

So I go back and forth for lessons from the Apple store and the Microsoft store and I am sure I am just one of many.

Edward Sonshine

I am sure that’s correct. Any Apple store I have gone by is always busy. Thank you.

Are there further questions?

Unidentified Analyst

[Question Inaudible]

Edward Sonshine

I am sorry. Is there a microphone nearby because I can’t hear you?

Unidentified Analyst

I am sure that you have read that there is a very vocal movement to have more remain in management boards and executive teams and I didn’t see a single female face in your very talented team.

Edward Sonshine

You blinked. You missed it.

Unidentified Analyst

Oh! There was lady in one of those pictures, but I don’t know who she was, but in the executive team of 10 people there was hardly anybody.

Edward Sonshine

That’s true.

Unidentified Analyst

Have you got -- given any thought, is that a thing or is it that an all-boys club?

Edward Sonshine

Diversity in both our executive teams and our board is something that quite frankly is part of our whole governance structure it’s something we actively work on. If you would have been here 10 years ago, there are actually two senior women and they’re not with us anymore, but we’re always actively looking to recruit those and the same is on our board. So it is something we’re aware of sir and we’re trying to do better. Thank you. Any other questions? You’re getting a workout there (Mr. Logo) [ph].

Unidentified Analyst

Hi, my name (Adrienne McGinnis) [ph] I am a unitholder. I'd like to just know that part of owning stocks for me is really important to feel like something is going back to the community, could you just give any -- a bit of view of what we’re doing in terms of charity?

Edward Sonshine

Sure. Our main focus in charities and quite frankly, why we’re a little bit different incorporations because donations don’t give us same benefit because we don’t pay taxes, we pass all of that through to our unitholders, so we have to be careful in the quantum, but we try to at least come close having a counter types difference to what the imagined program of looking at a target of 1% of your profits so to speak to donate. But we work on a couple of levels, our prime charity focus quite simply is helping the healthcare system and cities right across Canada wherever we have developments in shopping centers be as good as they can be. I think the emergency department in Orangeville Hospital is one that we -- that comes to mind and certainly has been progressed excuse me, both here in Toronto and across the country.

So that is the prime focus of our actual charitable donations, also we’re quite involved with the united way here in Toronto and actually just made a major commitment to what’s called the Rexdale Hub that they’re completing up in a challenged part of the city and we’re getting very involved in that. But besides money, we encourage all of the people to really get involved in their communities, where our shopping centers are located and we’re working on a program just as an example we own Albion Mall, which is part of that Rexdale Community where the hub is being built. And we’re working on interaction between our staff in the mall and the people at the hub trying to develop opportunities for young people. We do the same thing at our Lawrence Square where we host job fairs and things like that. So could we do more? We can always do more but it’s something we’re very aware of and our responsibility is to help out. And quite frankly, there is a bit of self-interest there the better we can make the communities that we do business in the better off we will be and our unitholders will be. Thank you for that question.

Unidentified Analyst

Thank you. My name is [Manish Damania]. I just have a simple question. Right now we’re in a low interest environment which is very suitable for RioCan; however, have you any projections to show us what would happen if the interest rates would rise say 1% or 2% in the coming years, what would be the growth and the financial status of RioCan?

Edward Sonshine

I don’t have anything to show you but I will tell you that it's something we’re constantly mindful of and we run internal models. And I talked about and talking about development I mentioned casually our debt letter and this is a defensive measure that we started -- it takes a long time to set these up. We started doing it probably 17 or 18 year ago. And what we try to ensure and I think I focused on this in previous meetings is that no more than about 10% of our overall debt comes due in any one year and the whole purpose of that debt ladder is to cushion. We never know what interest rates are going to be. We don’t want to gamble interest rates. It obviously they have a fair impact. So the two things that we rely on is this debt ladder so that any impact will be gradual and hopefully will not be felt by our unitholders and the second thing we do quite frankly is to keep the leverage low. I think our current number that we show was 44%, so the impact again on the overall revenue is relatively low.

So we do model it internally I don’t have anything here to show you, but unless we have an outsize increase a lot more than 200 basis points. Our basic business plans certainly in the next three to five years will not be that adversely impacted.

Unidentified Analyst

Now you have told us that last year we as shareholders got a 9% return.

Edward Sonshine

Correct.

Unidentified Analyst

What is your projection in the future years?

Edward Sonshine

If you could tell me what the stock market is going to do to our units, you’re a better man than I, I can’t do it. So, I don’t like to project that.

Unidentified Analyst

Okay.

Edward Sonshine

Thank you.

Unidentified Analyst

Welcome.

Edward Sonshine

Thanks. There is a question right here I think there in the front.

Unidentified Analyst

Hey I’ll start. Here you go.

Edward Sonshine

Thank you.

Unidentified Analyst

Well, you, in the past, have given your returns from annual meeting to annual meeting and I appreciate it. And I wondered if you should ask the audience here if we could get a show of hands and see if we can convince you to carry on with the process.

Edward Sonshine

You know what, one request is enough, I don’t need to show hands if you want it, I’ll do it. I see it was a popular choice. There is another question over here then.

Unidentified Analyst

Here sir.

Edward Sonshine

Thank you.

Unidentified Analyst

Thank you. I am just wondering what your plans are for if you have any for increasing your exposure to the U.S. market? And also what RioCan’s greatest future opportunities for growth are in what areas.

Edward Sonshine

Okay, thank you. I often say that when we went into the United States looking back five years it’s been almost five years so certainly since we made the decision I only have one regret and that’s that we didn’t buy twice as much and as quickly because I think the opportunity that we have towards the end of ’09, ’10 and maybe a little bit into ’11, of acquiring great assets at fabulously inexpensive prices, it’s gone. So we are actively trying to acquire more assets, particularly in Texas which we just think is a great market.

But as I mentioned I think the price increases in the United States have been pretty much as dramatic as here in Canada where -- and the competition for assets. You do get more that come up for sale because it's just such a much bigger market but the competition for the good assets that come up for sale is really breathtaking.

I mentioned that Jonathan Gitlin jumps on a plane at the slightest provocation and yesterday he flew to -- and on Monday -- sorry, he flew to Boston because to give you an idea there was a Whole Food anchored shopping center and other than having Whole Foods in it, it was really nothing special and in fact it had some negatives. And our offer and this was the third round of bidding I mean that’s the way these things go today was already quite frankly more than I wanted to pay and I wasn’t sure if we go forward with it. But the buyers or the sellers rather there is so much demand that they basically told us look, unless a senior person has come down and seen this property, we’re not going to even consider your offer. So when sellers can act like that because they had very good offers sitting in front of them from people who had seen the property which is why he flew down to Boston and then we decided not to proceed with it. So, it was actually good.

So it’s tough to expand down there. We’re working on in many ways. I think the biggest opportunity for RioCan over the next five years is the one I described, which is intensifying the fabulous numbers of properties that we already own in the major markets of Canada. We have over 300 of them, 72% of them are in those major markets.

The real value if you look out over a 20 year period I believe in RioCan is the land sitting under those assets. I mean I talked about very briefly about the Colossus and which is at Highway 7 and 400, many of you have driven by, they call it the Spaceship Theater that you see on your way up to Cottage Country. We have 60 acres of land there. There is a subway coming up that’s going to go right to Highway 7, little just on the other side 400 from our center. 20 years from now I don’t know what Colossus is going to look like but I can virtually assure you that it'll have a lot more buildings on it and they will be extremely profitable just because of that piece of land, 8 acres as I mentioned [indiscernible] layer with a subway stop on the site. So, I think mining the assets they already have is going to be as opposed to competing out there with every Tom, Dick pension fund that has more money than we do and a lower cost of funds than we do is the way for this Company to go over the next five to 10 years unless there is a material change in the world which who knows. Thank you for the question.

Any other questions? Oh sorry, down here in front end.

Unidentified Analyst

One second.

Edward Sonshine

Thank you.

Unidentified Analyst

Hello sir. Thanks for the presentation, excellent job. My name is Christopher Bluemel, I am unitholder. My question is regarding the residential during the presentation looks like commercial versus residential and to 2020 do you see that there is more residential development happening here with RioCan or could you may be enlighten us with that? Thank you.

Edward Sonshine

Yes, I think there will be more residential development, I mean the three I mentioned or four including the Well, there’s probably I could tell you that there’s probably a dozen in Toronto, Calgary and Ottawa primarily that we are working on right now one in Vancouver because the opportunities are there and from the point of view of long-term risk, there is no lower risk category obviously than residential. There’s no staple stores to worry about. People always are going to have to live somewhere even if they are just going to stay in that room and work on their computer, so but they still need a roof. So, I think that opportunity is there but having said that if you take out our whole program and take it out seven, eight, nine years, we've done a little bit of paper, residential probably would still form less than 10% of our overall portfolio if that answers your question.

Any other questions? Sure.

Unidentified Analyst

My name is McNickle and I am an unitholder, just a suggestion, when you are introducing the people who are going to be standing for election to your Board, it would be helpful if we could identify the face with the name, so would you have them standup when they are introduced, so we can relate.

Edward Sonshine

You know what, that is a good suggestion and I love your voice and next year I promise we will do that. One more.

Unidentified Analyst

I don’t even like to vote.

Edward Sonshine

You are right.

Unidentified Analyst

[Question Inaudible]

Edward Sonshine

And we thank you for your comments and the dairy products. Thank you and he is not related to me I promise. Is there any other questions or comments? Sorry, one more here then just in front.

Unidentified Analyst

What’s happened recently that makes rental properties building of apartments versus condos economically affordable and what about the politics of rent controls?

Edward Sonshine

Good question. First of all rent control doesn’t apply to new built buildings that was something the Ontario government changed probably 17 or 18 years ago because they realized after they brought-in rent control, in the 70s everybody stopped building apartment buildings that’s why you have only seen condos being built for like the last 15, 20 years, a good chunk of which are the new substitute rental product. So, rent control is not an issue except to the extent it effects the overall market but really what’s changed or there is a few things, first of all rents have gone up and higher rents that make building a new building are now achievable. Other things have happened like improvements in construction where new buildings are far more energy efficient, use a lot less for heat and air-conditioning, individual metering program from hydro, so a new builds, the tenant effect it paces on hydro, something that hydro actually encourages to make people aware of their usage and maybe get them to conserve a little more.

So, there has been a whole series of changes, biggest one being just the level of rent and this isn’t something we just sort of came upon. We're not the only guys who have figured this out and what we have seen Morguard built a building, you may have seen some ads for the billboards just off St. Claire at [indiscernible] it’s called the [indiscernible] and we know the rents obviously. We've done research into what they have done. We know the rents they are charging. They are getting them. They have been raising those rents and they are filling up that building like there is no tomorrow, so we're very encouraged by that because the locations we've got are actually even better than that one or at least as good and if we could get three years from now, the rents they are getting today, these buildings that we intent to build will meet our yield expectations.

Unidentified Analyst

[Question Inaudible]

Edward Sonshine

Yes, I don’t think that will be a problem for the very simple reason that most of our buildings will be expensive buildings and people that pay higher rents, generally the politicians don’t much care. Thank you.

Okay, well thank you very much. It’s been a great session and I appreciate your coming. Thank you all. And are you going to close it off, sir?

Paul Godfrey

Thank you very much ladies and gentlemen. I think you now can see from Eddie’s positive view of future that the next 20 years will be hopefully even more productive and more profitable than the last 20 years which was -- has been really a terrific showing. So I thank you all for coming. I think that we’ve had some very-very interesting questions as some ways been very entertaining Annual General Meeting and hope we can up the show for you for next year. Thanks for coming.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Riocan Real Estate Investment Trust's (RIOCF) CEO Edward Sonshine Hosts 2014 Annual and Special Meeting Conference

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts