RioCan Real Estate mulling sale of U.S. portfolio

RioCan Real Estate Investment Trust is launching a strategic review of its U.S. operations, a process that could lead to the real estate giant selling part or all of its portfolio of properties south of the border.

"It's very difficult to grow down there," chief executive Edward Sonshine said during a conference call Friday with investors.

With the U.S. dollar now significantly outperforming the loonie, Sonshine said the company could realize large profits if it decided to sell.

But he stopped short of speculating on what RioCan would use the proceeds of the sale for, saying such conjecture would be "premature" and that divesting the properties was only one of many options the company is considering.

The U.S. portfolio, mainly shopping malls, is valued at around $1.2 billion on a net basis, Sonshine said.

Pondering for 18 months

"This is something that we've been pondering and kicking around internally as it became clear, probably 18 months ago, that we couldn't just keep acquiring the way that we had been in the past in the United States," Sonshine said.

The company has hired external advisers to help it determine what to do with the portfolio. It expects the review to be completed by the end of the year.

Sonshine made his comments as the company reported a second-quarter profit of $86 million or 26 cents per share, down from $159 million and 51 cents per share in the same period last year.

RioCan has been scrambling to fill vacant space after U.S. discount retailer Target pulled out of Canada earlier this year.

While new tenants have been found for some of the stores with Lowes Canada snatching up six while Canadian Tires is taking over one of RioCan's former Target locations the Toronto-based company says it's unlikely that all of the vacant stores will be taken over by single tenants.

Former Target stores

Instead, RioCan is looking to split up many of the former Target stores into smaller units. The company estimates it could be 18 to 24 months before new tenants are paying rent for those units.

Meanwhile, the company is negotiating with Target with regards to rent payments as well as damages that the retailer had promised as part of its indemnity agreements. RioCan said it has yet to receive any of the payments.

RioCan, which owns nearly 50 million square feet of retail space in Canada and the U.S., said it made $322 million in consolidated revenue in the quarter ending June 30, up from $303 million in the same period last year.

Committed occupancy for its 338 income properties and 15 properties under development was 93.9 per cent in the quarter, down from 96.9 per cent last year.

The company said the departure of Target Canada, which leased 18 stores from RioCan and ceased operations in April, caused a 2.7 per cent drop in its committed occupancy and pushed its revenue from anchor tenants down to 83.7 per cent of the total from 86.6 per cent the year before.