RioCan shops for U.S. bargains

RioCan Real Estate Investment Trust, Canada's largest shopping mall owner, says the "stars are aligned" to significantly increase its assets in the U.S. and is eyeing Texas as a potential new market for acquisitions.

RioCan plans to increase its U.S. assets from about six per cent of its current portfolio to 20 per cent, as the company takes advantage of low interest rates and real estate prices south of the border and a strong Canadian dollar.

"To us, all the stars are aligned," said chief executive Edward Sonshine.

After beginning its U.S. venture in the northeastern states last fall, RioCan is now turning its attention to Texas, Sonshine said.

'From a retail perspective, it's fantastic.' — Edward Sonshine, CEO of RioCan Real Estate Investment Trust

Before a trip to the state to stake out opportunities, Sonshine said his only Texas experience had been changing planes at the Dallas-Fort Worth airport.

"The state was far better than what I expected, both in the sophistication of the people, the excellent demographics and the quality of the retail facilities," he said.

"It's a great state, from a retail perspective, it's fantastic."

Sonshine added that, generally, the properties in Texas are more profitable than equivalent properties in Canada, of which few are available.

Last month, RioCan signed a joint-venture agreement with a U.S.-based property owner to acquire eight shopping centres in Texas for $138 million US.

RioCan said it will own 80 per cent of the properties — located in Dallas-Fort Worth, Houston and Austin — while Inland Western Retail Real Estate Trust Inc. will own the remaining 20 per cent.

Growth opportunities for Canadian investors

Sonshine wants the trust's portfolio to remain predominantly Canadian but said acquisitions present the greatest opportunity for growth over the next 18 months and that most of the opportunities are in the United States.

"While the opportunities for acquisitions in Canada are scarce — although we have been successful in acquiring several properties that are acceptable both as to quality and price — the situation in the U.S. is quite different," he said.

RioCan, which owns and manages Canada's largest portfolio of shopping centres, with ownership interests in 261 retail properties, plans to limit its focus to Texas, the northeast and one other region that is yet to be decided.

Sonshine said it's a "terrific" time for Canadian investors in the U.S. because most of their American peers are capital-constrained because U.S. banks are not lending as freely as their Canadian counterparts.

"We have a great advantage down there in that we do not have our own infrastructure so there's no, as they call them, 'social issues,' so when we buy in as partners, nobody loses their job, so that makes us a preferred buyer," Sonshine said.

RioCan isn't alone in its interest in the United States.

Last month, a U.S. bankruptcy court approved a plan by an investor group led by Canadian property manager Brookfield Asset Management Inc. to acquire shopping mall owner General Growth Properties Inc. for $6.5 billion.

RioCan made its first foray into the U.S. real estate market in October with a $181-million deal to acquire shopping malls in the northeastern and mid-Atlantic states as well as a minority stake in a U.S. developer.

Its joint venture with U.S.-based Cedar Shopping Centers Inc. is buying up a number of retail properties owned 80 per cent by the Canadian company and 20 per cent by Cedar.   

Sonshine said the trust is already looking at additional opportunities.