RioCan says rent increases, retailer expansion will drive growth into '08

By Romina Maurino

TORONTO (CP) - Rent increases, retailer expansion and development projects will drive growth into 2008 at RioCan Real Estate Investment Trust (TSX:REI.UN), Canada's largest shopping mall owner said Wednesday after posting a 16 per cent increase in quarterly profits.

Edward Sonshine, RioCan's president and CEO, told analysts the trust expects growth from new malls coming on line and solid organic growth from lease and financing renewals.

"Development projects that I knew would not be coming on line last year are generally going to be completed toward the end of 2007," he said in a conference call.

"They will mostly start contributing fully to our income in the third and fourth quarter of this year, so there will be a tendency for the year to be back-end loaded."

The REIT is also expecting "healthy rent increases" as demand outpaces new development.

In 2007, RioCan has almost 1.9 million square feet of real estate coming up for renewal, and more than five million square feet over 2008-2009, Sonshine said.

"While some space in encumbered with fixed-renewal rates, where that is not the case, we expect rent increases that will be on the double digits on a per-square foot basis."

Rent increases are also getting a boost from a healthy retail climate and expansion both by existing and new retailers, said chief operating officer Fred Waks.

"Expansion continues to be key to all the national tenants, and there's good interest on all levels," he said.

"Growth (plans) in Western Canada, especially Alberta and B.C., are on every tenant's agenda."

RioCan has also made a deal to expand Wal-Mart's Belleville, Ont., location to a superstore and has three agreements for new locations. One deal is for the sale of land for a superstore, which will be part of one of RioCan's newly developed malls, and two land leases for two centres that have yet to be development.

Late Tuesday, RioCan said net earnings for its fourth quarter ended Dec. 31 rose to $43.4 million, or 22 cents a share, from $37.3 million or 19 cents a share, for the same period the previous year.

Total rental revenue was $151.2 million, compared with $138.9 million a year ago, while funds from operations - a key measure in real estate - was $77.1 million, up from $66.5 million.

For the year, the REIT posted profits of $163.8 million or 83 cents per share, up 23 per cent from $132.6 million or 68 cents per share in 2005.

Sonshine also said Wednesday the REIT is waiting to see if its submissions to the federal government on the proposed taxation and new rules governing income trusts had been successful.

Unlike energy and general business trusts, real estate trusts are not expected to be taxed under Ottawa's new proposals. However, the REIT is worried that foreign content restrictions will hamper possible plans for the fund's international expansion.

"The feedback that we've gotten directly and through our attorneys have been positive, but God is in the details, and we won't know the details until they table the actual legislation," he said.

RioCan owns and manages Canada's largest portfolio of shopping centres, with ownership interests in a portfolio of 206 retail properties, including nine under development.

On the TSX Wednesday, RioCan units closed at $25.98, up eight cents.