Q2 2009 Report to Unitholders - English version (PDF 1.78 ... - RioCan

MANAGEMENT’S DISCUSSION AND ANALYSIS
In selecting appropriate funding choices, RioCan’s objective is to manage its capital structure in such a way so as to diversify
its funding sources while minimizing its funding costs and risks. For the remainder of 2009, RioCan expects to be able to
satisfy all of its financing requirements through the use of cash on hand, cash generated by operations, refinancing of
maturing debt, financing of certain assets currently unencumbered by debt and available credit facilities.
As at June 30, 2009 and December 31, 2008, RioCan’s capital structure is as follows:
June 30, December 31,
(thousands of dollars, except percentage amounts) Proforma (i) 2009 2008 Increase
Capital:
Mortgages payable $ 2,598,412 $ 2,598,412 $ 2,415,803 $ 182,609
Debentures payable 889,262 968,943 844,492 124,451
Unitholders’ equity 1,821,153 1,821,153 1,746,450 74,703
Total capital $ 5,308,827 $ 5,388,508 $ 5,006,745 $ 381,763
Debt to Aggregate Assets ratio 55.3% 55.8% 54.9% 0.9%
(i)
June 30, 2009 balance adjusted to reflect impact of anticipated repayment of Series D debentures on September 21, 2009 in the amount
of $79.7 million.
“Aggregate Assets” is a non-GAAP measure used by RioCan for the computation of the maximum permitted borrowing
threshold of the Trust and calculated as the aggregate amount of the total assets of the Trust, plus the amount of
accumulated amortization of income properties recorded by the Trust, as calculated in accordance with GAAP.
RioCan’s Declaration provides that the Trust shall not assume or incur any indebtedness unless, at the date of the proposed
assumption or incurring of the debt, the aggregate of the total indebtedness of the Trust and the amount of additional
indebtedness proposed to be assumed does not exceed 60% of the Aggregate Assets of the Trust (“Debt to Aggregate Assets”).
This calculation assumes that additional amounts borrowed will be added to the asset base. As at June 30, 2009, RioCan’s
indebtedness was 55.8% of Aggregate Assets, such that the Trust could incur additional indebtedness of approximately
$664 million and still not exceed the 60% leverage limit. As a matter of policy, RioCan would not likely incur indebtedness
significantly beyond 58% of Aggregate Assets, which would permit the Trust to incur additional indebtedness of approximately
$328 million.
Interest coverage and debt service coverage ratios are as follows:
June 30, December 31,
2009 2008 Decrease
Interest coverage ratio (i) 2.5 2.6 (0.1)
Debt service coverage ratio (ii) 1.9 2.0 (0.1)
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(i)
(ii)
RioCan defines interest coverage as GAAP net earnings for a rolling twelve month period, before net interest expense, income taxes
and income property amortization (including provisions for impairment) divided by total interest expense (including interest that has
been capitalized).
RioCan defines debt service coverage as GAAP net earnings for a rolling twelve month period, before net interest expense, income taxes
and income property amortization (including provisions for impairment) divided by total interest expense and scheduled mortgage
principal amortization (including interest that has been capitalized).
The period over period decrease in the interest and debt coverage ratios primarily arose as a result of increased aggregate
indebtedness during the period which proceeds were partially used to fund the Trust’s ongoing development pipeline, which is
not yet income producing, and a larger cash balance as at June 30, 2009.
Debt
Standard & Poor’s Rating Services (“S&P”) and Dominion Bond Rating Services Limited (“DBRS”) provide credit ratings of
debt securities for commercial entities. A credit rating generally provides an indication of the risk that the borrower will not
fulfill its obligations in a timely manner with respect to both interest and principal commitments. Rating categories range
from highest credit quality (generally AAA) to default payment (generally D).