Canada’s largest real estate investment trust is once again being questioned about paying out more income than it is pulling in.
RioCan REIT might end up with a distribution above adjusted funds from operations, says Heather Kirk, an analyst with National Bank Financial. She had expected RioCan to have funds from operations of 33¢ per unit in the fourth quarter but the REIT finished with 28¢ per unit of FFO. That was down from FFO 39¢ per unit a year ago.
“The miss is largely as a result of an absence of gain revenues once again in the quarter and an increase in interest expense. Last quarter management had indicated that the $9-million to $10-million of expected gain revenues would decline to $7-million and be pushed into Q4 and Q1 2010. This has not materialized,” said Ms. Kirk. “If gain income does not recover, distributions are expected to remain above AFFO.”
The big question then becomes will RioCan be forced to cut its distribution, something chief executive Ed Sonshine said he wouldn’t do at the company’s annual general meeting last year.
“Will the distribution be cut?,” said Ms. Kirk. “We do not expect so given that the shortfall is small when taken in the context of the overall value of the REIT’s portfolio and in particularly if you back out the reinvestment of distributions. Adding additional leverage to make up the shortfall would barely turn the dial in terms of RioCan’s debt to gross book value.”