TORONTO – RioCan (TSX:REI.UN) says it has begun negotiations with retailers that could potentially use some of the space in 15 former Target Canada stores that have been returned to the real estate investment trust.
“We’ve got lots of interest,” said RioCan CEO Edward Sonshine, adding that some of the stores will be broken up into smaller units.
RioCan says the space at the 15 former Target Canada stores represented about $8.6 million of annual revenue. In total, RioCan’s 26 former Target Canada stores make up 1.9 per cent of its total annual rental revenue.
If RioCan is able to backfill the stores, that will reduce how much money it will seek from Target for lost rental revenue under the terms of a guarantee from the U.S. company, which closed all 133 Canadian Target stores during the first quarter.
An additional 11 former Target Canada locations in RioCan’s property portfolio remain part of the retailer’s court-supervised windup. An auction of the dozens of Target Canada leases is scheduled to be held this week in Toronto.
Canadian retailers have been struggling lately, as more shoppers flock to online outlets such as Amazon and eBay. Electronics stores have been hit particularly hard, with Best Buy announcing in March it is closing 66 Future Shop stores, while Sony has shut down all 14 of its Canadian locations. A number of mid-level fashion retailers, including Jacob and Mexx, have also recently shut down.
RioCan has been left with 18 empty Mexx stores and five vacant Future Shop locations.
During a conference call with investors Tuesday, Sonshine recalled how, roughly five years ago, a number of retailers south of the border — including Circuit City and Linens ‘n Things — vacated their stores within a short time span.
“They created over 150 million square feet of vacant retail space,” Sonshine said. “Yet, within a short few years, this massive overhang of space was absorbed and retail space was achieving valuations and occupancy rates higher than the pre-crisis levels seen in 2007.”
Sonshine expects a similar result in Canada.
“Disruption and adversity create opportunity,” he said. “The key is being positioned to take advantage of those opportunities, rather than suffering from the disruption.”
RioCan also released its first-quarter financial results on Tuesday. The company said its net earnings dropped by 48 per cent to $89 million in the three months ended March 31, from $171 million in the first quarter of 2014. That amounted to 27 cents per unit of net income, down from 55 cents a year earlier.
However, RioCan said its funds from operations in the three months ending March 31 were still up 8.8 per cent from a year earlier, rising to $138 million or 44 cents per unit.
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