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RioCan Ties Up Another $278.6 Million, 58% of Way to $2 Billion Disposition Target

Toronto-Based REIT Uses Earnings Call to Update Sale Progress and Talk About Where Cannabis Fits for Retail
August 8, 2018
Pictured: Ed Sonshine, chief executive of RioCan.

RioCan Real Estate Investment Trust says it has conditionally sold 14 properties located in Ontario, Quebec and New Brunswick for $278.6 million, as it continues its strategy of focusing on Canada's six largest centres.

As part of a second-quarter earnings release, the Toronto-based REIT said it had agreements to sell four properties in Sault Ste. Marie, Whitby, Flamborough and Guelph, Ontario, to three separate buyers for $80 million at a weighted average capitalization rate of 5.79 per cent based on in-place net operating income.

RioCan also said it has an agreement to sell a portfolio of four properties located in Levis, Granby, Montreal and St. Antoine, Quebec, for $41.1 million at a weighted average cap rate of 9.34 per cent based on current NOI.

In London, where the REIT had almost 1 million square feet on the market, RioCan said it had sold five properties conditionally for $100.6 million at a weighted average cap of 6.47 per cent based on in-place NOI.

"As we move into 2019, the transformation of RioCan from what it was to what it will be will start to become evident to the investing world, including analysts," said Ed Sonshine, chief executive of RioCan, in a conference call to discuss the results. "In some ways, we will be smaller."

RioCan now says it has firm agreements to sell $876 million of properties in secondary markets at a weighted average cap rate of 6.34 per cent with conditional transactions under contract for $279 million.

Since first announcing its strategy to focus on the big six Canadian cities of Vancouver, Edmonton, Toronto, Calgary, Ottawa and Montreal, RioCan will have closed, firm or conditional deals, of $1.2 billion, or about 58 percent of the disposition target of close to $2 billion.

Jonathan Gitlin, the chief operating officer of RioCan who has handled the disposition, said buyers have tended to be private REITs, private individuals and syndicators.

"There are different parties coming to the fold depending on the geographic region because there is some local high-net worth people who like to buy assets local to them," said Gitlin.

RioCan also said it now has 18 deals and 53,000 square feet signed for cannabis retailers, most of them in Alberta, which has agreed to allow private sellers. The two leases in Ontario are with the government-controlled Cannabis Control Board of Ontario.

"The spaces are generally conventional retail spaces. They are not extremely sizeable. They average 2,500 to 3,000 square feet," said Gitlin, adding the creditworthiness of tenants is looked at the same way for cannabis retailers.

With rumours circulating that Ontario's new conservative government will allow private retailers to sell cannabis like in Alberta, Sonshine said that a change in policy would be key.

"Quite frankly the big gold rush will be what the province finally does. [Ontario] is where 40 per cent of the population lives and presumably where 40 per cent of cannabis users are," said the chief executive, adding RioCan has some of the best locations. "At the risk of making a joke, we are going to have 6,000 tech/knowledge workers at The Well [office development complex in downtown Toronto]. You think that's a good cannabis location? Probably. We expect premium rents. It's not a big amount of space, but it could be a good contributor."

Garry Marr, Toronto Market Reporter  CoStar Group   
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