Canada’s largest retail landlord RioCan is likely to be affected by Target’s departure as the company generates 2.5 per cent of RioCan’s total annualized rental revenue.
The financial information of the 3rd Quarter of 2014 shows a slight increase in earnings before interest, tax, depreciation and amortization, which indicate that RioCan may have hard time tackling the blow Target’s withdrawal may cause.
According to the report, net earnings attributable to the investors is $162 million, which is $33 million more than the amount posted for the same period last year.
Deen Taposh, an investment analyst at Lamarnic & J Ltd. said, “RioCan reports another stable year. The increase in the company’s enterprise value in 2014 shows Riocan, as a company has experienced an increase in its value or takeover price but that’s not substantial.”
According to the financial report, in 2014, RioCan has experienced a modest increase in its asset and a decrease in its debt too.
When asked how Target’s withdrawal will affect RioCan, Taposh said, “They will be affected for sure as Target constitutes a good share of RioCan’s revenue but it depends a lot on how the management deals with the crisis.”
“When you see a company’s debt coverage ratio is higher than 1, you know it can sustain damages as it illustrates that the company is generating enough income to pay its debt obligations. Then again RioCan is not able to carry the burden for long period of time,” Taposh added.
According to RioCan’s 2014 Q3 financial records, the company’s debt service coverage ratio is 2.89. Last year it was 2.10.
Minneapolis-based clothing and housewares retailer Target announced on Jan. 15 that they are going to withdraw themselves from the Canadian market.
According to a RioCan statement issued the same day, RioCan has 26 locations leased by Target. In the statement Edward Sonshine, Chief Executive Officer of RioCan said, ” While significant, Target currently represents less than two percent of RioCan’s annual rental revenue, thus reinforcing the strength of the Trust’s tenant diversification within the portfolio.”
“Our locations are in strong retail nodes, and while this process will unfold over time, we expect that the interruption to revenue will be minimal, if at all. Ultimately, this could prove to be an opportunity for RioCan,” Sonshine said.
RioCan, however, has been struggling to regain its committed occupancy rate in Canadian portfolio. Now the rate is 97 per cent while in the fourth quarter of 2012 it was 97.2 per cent.
The committed occupancy rate of the Canadian portfolio
over the most recent eight quarters:
Source: RioCan Real Estate Investment Trust 3rd Quarter Report 2014
The company’s committed occupancy rate in the US market is in a standstill as well.
RioCan owns and operates Canada’s largest portfolio of shopping malls, with ownership interests in a portfolio of 340 retail properties in Canada and US combined, containing approximately 80 million square feet as at Sep. 30, 2014.