Q3 2024 RioCan Real Estate Investment Trust Earnings Call
Thanks for watching!
Speaker Change: Good day, ladies and gentlemen, and welcome to the Rural Canberra Estate Investment Trust 3rd quarter 2024 conference call and webcast.
Speaker Change: As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Jennifer Suess.
Senior Vice President, General Counsel, ESG, and Corporate Secretary.
Speaker Change: Ms. Suess, you may begin. Thank you and good morning everyone. I am Jennifer Suess, Senior Vice President, General Counsel, ESG and Corporate Secretary of Rio Can.
Speaker Change: Before we begin, I am required to read the following cautionary statement.
Speaker Change: In talking about our financial and operating performance, and in responding to your questions, we may make forward-looking statements, including statements concerning RioCan's objectives, its strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts.
Speaker Change: These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from the conclusions in these forward-looking statements.
Speaker Change: In discussing our financial and operating performance, and in responding to your questions, we will also be referencing certain financial measures that are not generally accepted accounting principle measures, GAAP under IFRS.
Speaker Change: These measures do not have any standardized definition prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other reporting issuers.
Speaker Change: Non-GAAP measures should not be considered as alternatives to net earnings or comparable metrics determined in accordance with IFRS as indicators of Rio Camp's performance, liquidity, cash flows, and profitability. Rio Camp's management uses these measures to aid in assessing the Trust's underlying core performance and provides these additional measures so that investors may do the same.
Speaker Change: Additional information on the material risks that could impact our actual results, and the estimates and assumptions we applied in making these forward-looking statements.
Speaker Change: I will now turn the call over to Rio Camp's President and CEO, Jonathan Gitlin.
Jonathan Gitlin: Thanks, Jennifer, and thank you all for joining Rio Camp's senior management team today. I'm pleased to report that our team has delivered another strong quarter with standout results.
Speaker Change: We are encouraged by the consistently strong results generated by Rio Can's high-quality, major-market, necessity-focused portfolio.
Speaker Change: We've maintained positive momentum with leafing activity that enhances stability and fuels future growth.
Speaker Change: We set new records and leasing results at game this quarter.
Speaker Change: Additionally, our advancement and commitment to responsible growth, sustainability, and ethical governance was reaffirmed by our outstanding performance in the recent GRES assessment where we were ranked number one amongst our peers.
Speaker Change: At the same time, our financing activities underscore our access to diverse funding and commitment to maintaining ample liquidity and an ever-improving balance sheet.
Speaker Change: Market fundamentals favor retail real estate, particularly assets of Rio Can's caliber. Premium real estate remains limited and this will likely persist due to tough zoning laws and high construction costs.
Speaker Change: Our prime market locations and appealing demographic characteristics draw the best-in-class tenants from Canada and worldwide.
Speaker Change: Rio Can has the unique combination of a top-tier team and ideal locations that Canada's sixth-largest and most densely populated city. Let's focus for a second on our demographics.
Speaker Change: Within a 5 km radius of Rio Can centers, the average population is 273,000 and the average household income is $148,000. Over the past year, these figures have grown by 5%.
Speaker Change: This setting, along with our strong tenant mix and our ongoing focus on portfolio quality lead to sustained demand. Simply put, it's where relevant retailers need to be.
Speaker Change: In Q3, we finalized approximately 1.3 million square feet of leases, including 251,000 square feet of new leases.
Speaker Change: With heightened leasing demand comes heightened occupancy levels. Committed and retail occupancy reached record highs of 97.8% and 98.6% respectively in the quarter.
Speaker Change: Our blended leasing spread for the quarter was 14.2%, with renewals at 12.6% and new leases at 24.2%.
Speaker Change: This is Rio Can's third consecutive quarter of double-digit leasing spreads.
Speaker Change: Alongside these outstanding leasing results, we're very pleased, though not surprised, with the releasing of the 10 vacant units resulting from the failures of Bad Boys and Rooms in Spaces, which occupied 261,000 square feet of space in our centers.
Speaker Change: With the completion of two deals in the third quarter, all units have now been leased to relevant and resilient retailers, including Longo's, Winners, Homesense, and No Frills. The leases feature 23.9% higher base rents and contractual annual increases.
Speaker Change: We did what we said we would do. We seized an awesome opportunity to move from lower growth, lower quality leases, to the high quality tenancies you would typically associate with a Rio Can shopping center.
Speaker Change: This outcome further enhances Rio Can's portfolio quality and cash flow growth. We've made the smart decision to focus on high-quality tenancies to drive sustainable growth in FFO and NAV.
Speaker Change: The long-term benefits of the strategic leasing significantly surpassed the short-term downtime needed to prepare these premium spaces.
Speaker Change: In addition to backfilling these units, we finalized the land lease for a 158,000 square foot Costco at Ryokan Center, Burloak.
Speaker Change: Costco will be transformative to that center, replacing less resilient fashion focused tenants with an additional strong service-based anchor that will draw significant traffic, attract impactful co-tenants, and enhance the property's net asset value.
Speaker Change: Additionally, since the beginning of the year we've signed six new grocery leases representing 117,000 square feet, three of which transformed previously open-air or urban sites into highly valued grocery anchored centers.
Speaker Change: While Rio King continues to actively manage its portfolio to drive income quality and asset value, we also remain focused on fortifying our balance sheet.
Speaker Change: By year-end, we're on track to reach the high end of our long-term adjusted net debt to EBITDA target range of 8 to 9 times.
Speaker Change: This goal will be achieved in part through increased EBITDA, supported by a steady stream of diversified NOI from strong operations and development deliveries, like the wells, in Toronto's downtown west.
Speaker Change: Since Wellington Market opened in May, traffic at the well continued to exceed our expectations.
Speaker Change: Many new businesses continue to open, driving even more traffic to this vibrant mixed-use center.
Speaker Change: On the other side of our deleveraging equation, our strategy includes significantly reducing construction spend. We've halted the start of new construction, and we don't intend to commence physical construction of mixed-use property any time soon.
Speaker Change: We continue to drive value through rezoning and enhancing existing entitlements, but we will not initiate new capital-intensive projects for the foreseeable future.
A roadmap also involves repatriating proceeds from inventory property sales.
Speaker Change: I'll spend a moment on the condo units the Rio Can has in its inventory. There's been a significant amount of focus on our pre-sold condo units and the associated risks if they don't close.
Speaker Change: Let me explain to you why we do not view this as a material risk.
Speaker Change: First, I'll acknowledge that the cotton market across Canada is under strain.
Speaker Change: There are no new product launches, and it's very difficult to dispose of unsold inventory in this environment. However, it's important to note that RioCan is not relying on the disposition of unsold inventory to achieve our balance sheet objectives.
Speaker Change: We've pre-sold approximately 90% of the 2,500 units we will complete through 2026.
Speaker Change: So, we're talking about pre-sold units that are subject to legal binding purchase agreements with buyers who passed credit checks and made average deposits of close to 19% or, on average, $150,000 each.
Many buyers also invested additional funds in unit upgrades.
Speaker Change: The vast majority of these condo sales were concluded before the market peak and the closing prices are below market value.
Speaker Change: In addition, interest rates have decreased and will likely continue to do so. This makes carrying costs for our purchasers more viable and will help facilitate transaction closings.
Speaker Change: I must also remind you that we are through 24% of the inventory sales that we highlighted at the beginning of 2024.
Speaker Change: To break it all down, out of the approximately $800 million expected from six active condo projects, we've already realized and accelerated $193 million through unit sales and forward selling.
Speaker Change: These dispositions accelerate revenue, reduce our condo exposure, and preserve capital as purchasers assume the cost to complete and the associated debt.
Speaker Change: Another 607 million dollars is expected as units close. As they say, the proof will be in the pudding.
Speaker Change: We are commencing occupancy and closings on a number of projects in Q4 and into the first half of 2025.
Speaker Change: We will keep you apprised of our progress. When it comes to Rio Can's pre-sold condo inventory, I do not perceive a material risk.
Speaker Change: Our portfolio features many low cap rate properties that appeal to both institutional and private investors.
Speaker Change: These assets allow RIOCAN to use strategies, such as asset dispositions, to further improve financial flexibility when attractive opportunities arise.
Speaker Change: The growing demand for these assets is evidenced by our recent firm agreement to sell Strata, a residential property in downtown Toronto, at a sale price reflecting a 6% premium over its IFRS carrying value.
Speaker Change: Selling Strata for a price above IFRS value is just one case.
Speaker Change: that highlights and substantiates the immense value of our residential rental properties, which have an average age of approximately four years, are not subject to rent control, and have below-market debt with average remaining term of eight years.
Speaker Change: You'll recall that one of our objectives for the Rio Can Living portfolio was to create enough scale to provide us with flexibility and options.
Speaker Change: And we've reached that point with these valuable assets and can now focus on unlocking the inherent value of that portfolio. As we consider our next steps, the market continues to move in a favorable direction.
Speaker Change: I'll take a minute now to quantify the capital that we are capable of repatriating in the short term.
Speaker Change: Rio Can living assets are valued at approximately 1 billion dollars.
Speaker Change: As I mentioned a moment ago, we expect to repatriate over $600 million from inventory sales between now and 2026.
Speaker Change: Furthermore, we are preserving over $150 million in free cash flow annually due to our conservative payout ratio.
Speaker Change: Combining these factors, RioCan has the potential to compile approximately $2 billion between now and 2026 without materially diminishing FFO.
This $2 billion represents fuel that we can deploy strategically.
Speaker Change: For instance, we can rapidly accelerate balance sheet improvement and enhance FFO growth by strategically redeploying the capital through pay down of existing debt and accretive activities such as unit buyback and portfolio acquisition.
Speaker Change: The flexibility provides RioCam with a very attractive range of options.
Speaker Change: Our strategy to build a valuable residential portfolio is clearly paying off. We now have the appropriate scale and quality to explore effective pathways to monetize this portfolio.
Speaker Change: Before turning the call over to Dennis, I'll address our recent restructuring.
Speaker Change: On October 22nd, we restructured our workforce to optimize the organization and support future growth.
Speaker Change: As part of this process, we made the difficult decision to reduce our workforce by approximately 9.5 percent.
Speaker Change: Corporate restructuring was driven by Rio Can's commitment to responsibly enhancing performance.
Speaker Change: and improve workflow efficiency and optimize resource allocation to align with our business needs.
Speaker Change: This is part of our responsible cost management efforts, which also include a National Procurement Program, advanced technology capabilities, such as an upgraded ERP solution, and, as I previously mentioned, reduced construction spending.
These steps further position WeoKamp for sustained success and resilience.
I'll wrap up now.
Speaker Change: Rio Can has a premier retail portfolio in Canada's most desirable markets.
Speaker Change: The favorable retail real estate dynamics create long-term demand for our properties.
Speaker Change: Our strategy is anchored in building a resilient portfolio that ensures steady growth. Our strategic and patient approach, combined with high quality assets, promotes growth and minimizes risk.
Speaker Change: We have levers to accelerate the repatriation of a tremendous amount of capital. We have several mechanisms to drive growth and we are committed to prudent financial management backed by an excellent team.
Speaker Change: Deliberate repositioning of our portfolio, tenants, and platform has improved efficiency, effectiveness, and resilience.
Speaker Change: Our consistency, vision, and commitment to responsible growth will continue to benefit our unit holders while ensuring their trust's stability. And with that, I'll turn the call over to Dennis.
Dennis: Thank you, Jonathan, and good morning to everyone on the call.
Dennis: Our performance reflects the strength of our high-quality portfolio as constructive supply and demand dynamics continue to drive positive results.
Dennis: These dynamics are reflected in our leasing spreads and high occupancy levels.
Dennis: These metrics, along with the continued improvement of our tenant composition, compound over time to enhance long-term value, portfolio quality, and growth prospects.
Dennis: FFO for the third quarter was $0.46 per unit, up from $0.45 per unit in the prior year quarter.
Dennis: Operational growth and the ramp of development continue to add to our earnings for a combined positive impact of two cents.
Dennis: The income earned from joint ventures, along with various other income items, added two sets.
Dennis: Higher interest expense, net of higher interest income, had a negative impact of 3 cents, of which 1 cent is related to lower capitalized interest.
Dennis: In addition, we sold another 12.5% interest in the 11YV project, resulting in a gain of approximately $11 million.
Dennis: Along with the previous sale this year, the 11 YV disposals have accelerated approximately $180 million of the $800 million of future condo sales revenue we projected at the start of the year.
Dennis: The process of selling this inventory reduces our condo exposure and preserves capital as buyers take on the completion costs and debt obligations associated with the project.
Dennis: Our full year FFO per unit projections will be impacted by approximately three cents per unit in the fourth quarter due to a non-recurring restructuring charge.
Dennis: This was not considered in determining our previously disclosed FFO per unit guidance range.
Dennis: Excluding this charge, we expect to achieve our FFO per unit guidance for the year.
Dennis: All other guidance items included in the Outlook section of our release from last quarter remain unchanged.
Thank you for being here.
Turning now to our balance sheet.
Dennis: Net debt to EBITDA has improved to 9.1x, down from 9.3x at the end of 2023 and 9.5x as at Q3 2023.
Dennis: As previously discussed, we anticipate this measure to continue its downward trend to our target range of 8 to 9 times.
Dennis: This improvement is expected as EBITDA from completed developments ramp up and as condo revenues are realized.
Dennis: In August and September, Rio Can took advantage of a window of stable interest rates and raised $1.05 billion of financing with a 6.4-year weighted average term at a 4.5% weighted average interest rate.
Dennis: The proceeds were used to pay off higher interest rate loans and address near-term mortgage maturity.
collectively with a 5.9% average interest rate.
Dennis: A $148 million CMHC financing with a 10-year term at a fixed rate of 3.97% used to repay a floating rate construction loan.
Dennis: extending a 200 million dollar non-revolving unsecured credit facility to January 31st, 2030 at a 4.47% fixed interest rate.
Dennis: issuing 700 million dollars in unsecured defenders in two series with a weighted average interest rate and term of 4.6 percent and six years respectively.
Dennis: To date, the proceeds that have been used for repay are $300 million, 6.5% 3MT1 debentures that were issued about a year ago, taking advantage of the park hall feature.
Dennis: The aforementioned floating rate construction loan and the $252 million on the revolving unsecured operating line of credit, resulting in the $1.25 billion line being undrawn, bringing our total liquidity to $1.7 billion.
Dennis: Residual proceeds from this financing, supplemented by our line of credit, will be used to repay mortgages over the next few quarters, which will continue to improve our ratio of unsecured to secured debt.
Dennis: Based on current liquidity levels, we will not be required to issue any further debt for the remainder of this year and well into next year, which is important in times of volatility.
Dennis: We have also decreased our weighted average interest rate on total debt from 4.17% to 4.01% and have extended our weighted average terms of maturity from 3.5 years to 4 years.
Dennis: As reflected in our disclosure and highlighted in our comments today, RioCan has a top-quality portfolio and strong balance sheet that provides us with numerous options to maximize long-term value.
Speaker Change: Whether it be selecting the best tenants for our centers, monetizing value through asset sales, or accessing various forms of capital, Riochem will use these options to provide strong returns for our unit holders.
Speaker Change: With that, I will pass the call to the operator for questions.
Thank you for watching!
Speaker Change: Thank you, Dennis. Everyone, if you would like to ask a question, please press star followed by one on your telephone keypad now.
Speaker Change: If you change your mind, please press star followed by two. When preparing to ask you a question, please ensure your device is unmuted locally.
Speaker Change: We have our first question from Sam Damiani with TD Cowen. Your line is open. Please go ahead.
Sam Damiani: Thank you, good morning everyone. Maybe first off, just with the same property NOI growth, you know, you did guide it down a little bit earlier this year with those 10 vacancies temporarily.
Sam Damiani: But it is running around 2 percentage points below your 3% target. So would the shortfall this year, or at least in Q3, be all related to those temporary vacancies? And what would that imply for same property NOI growth to rebound in 2025?
Hi, Sam. Good morning. Thanks for the question.
Speaker Change: The 10 vacancies that we have will have a significant impact on same-property NOI. Of course, it's not all of it. There's going to be a lot of components that go into that statistic.
Speaker Change: But the fact that all of those tenancies will be paying cash rent into next year does mean that there will be significant support for that metric going into 2025.
Speaker Change: So we will offer some more refined guidance as we head into 2025 around same-property NOI. But as we've said for a while now, today's leasing spreads are tomorrow's same-property NOI, so we are establishing the building blocks for a pretty strong future in that regard.
Speaker Change: And I guess just in that vein, are you seeing anything on the horizon, specific lease expiries or tenancy issues that might present, you know, a meaningful offsetting negative against what would otherwise potentially be a rebound?
Speaker Change: At this point, nothing material. Canadian retailers and also a lot of the other international retailers are performing well. I mean, we've picked a list of tenants that is
Speaker Change: So we're still seeing quite a bit of strength. Now, of course, there will be some weakness. I mean, you've seen the beer store, for instance, go through a rapid change in their business model. And we have some of those in our portfolio.
Speaker Change: But as I've said before, Sam, at 98% occupancy or thereabouts, we need these opportunities. You're going to see from those bed bath, those old bed bath spaces and bad boy spaces, that they will transfer into significant growth drivers in our future and a much better qualitative tendency. And so when we do get spaces back, which I'm not suggesting is a significant trend, but when we do, we're taking full advantage of it and it really does improve our outlook.
Thank you.
Speaker Change: The last question for me, the shopping center industry has gone through a ton of change over the last 10 plus years. Now that your occupancy is at an all-time high or a new high.
Speaker Change: How would you compare Rio Can's current leasing strategy to the point in time pre-pandemic when occupancy was at a similar level?
Speaker Change: very confident when we have negotiations with tenants, whether it's about a renewal or about a new space.
Speaker Change: And that really allows us to pick and choose best in class tenants.
Speaker Change: and it allows us to get terms that favor growth going forward. So we're now able to embed annual growth bumps in our leases and again we're getting the best-in-class tenants which really transform our portfolio and we don't need to scramble to fill space anymore. That space is rarely available and when it is we can really take our time and really pick and choose the best-in-class tenants. But I'm happy to turn it over to John or Oliver just to see if there's anything to add to that.
Speaker Change: Yeah, I would just add to that, Sam, you know, we went to great lengths the last three or four years to restructure internally as well.
Speaker Change: with a real focus on customer centrism. And that was setting up a tenant experience team, which we feel like gives a real white glove experience to our tenants.
Speaker Change: be it in how they pay rents, how they see their invoicing, and you know, who they actually deal with to lease or renew space.
Speaker Change: So we've always had great relationships with our tenants, we've always been one of the biggest landlords in Canada. But I think the focus on the tenant experience within our portfolio is really helping us leverage growth in renewal and new lease discussions now.
Thank you.
Thank you.
Speaker Change: That's great. Thank you. I'll turn it back and congrats on the great operating results this quarter.
Thanks, Sam. Have a great day.
Speaker Change: Thank you. The next question is from Lauren Kama with the Jonathan. Your line is open. Please go ahead.
Speaker Change: Thanks. Good morning, everybody. I just wanted to talk about the, just wanted to focus on the Strata sale you guys announced. I believe that's in partnership with Allied. I know they're undergoing a
Speaker Change: a disposition program, and obviously your comments about starting to realize value. I wanted to get a better idea. Is this sort of a one-off, or is this the beginning of the unwinding of the multi-res portfolio?
Speaker Change: What we've said is, for a long time now, we were looking to get enough scale that would give us optionality with respect to our residential portfolio, and we feel that we're coming into that scale now. As well, the market is certainly favorable for these types of assets. We've got a lot of options based on that scale, and we're looking to explore those options now in earnest, and we're certainly in the midst of doing so. There's lots of different avenues that could unfold with respect to the residential portfolio.
Speaker Change: The thing I would add there, and Jonathan mentioned in his comments, but I think it's important to reiterate, this is a billion dollar business.
Speaker Change: asset values in the approximately billion dollars and you know seeing this this sale at the level it's at you know premium to our IFRS value is supportive of the value of that business.
Speaker Change: So, when we think about the NAV of that, those assets within our current balance sheet.
and how that may or may not be recognized.
Speaker Change: in public markets, it does, you know, kind of open up that discussion around what to do with the assets.
Speaker Change: Absolutely. And I mean, I guess, given that most of the assets are 50% owned, does sort of these one-off transactions make the most sense or is there an opportunity to do something with the portfolio in aggregate?
Speaker Change: Well, like I said, Sam, there's plenty of options. There's so many different structures that we have at our disposal, so we're going to explore all of them, but there's not one distinct methodology that we need to focus on.
Speaker Change: Okay, fair enough. I'll move on from that now. Just wanted to touch on the kind of closing charge, and I really appreciate your comments around that. A lot of good color.
Speaker Change: have in the early innings of the stuff that's supposed to close this quarter how has it been going?
So it's, it's
Speaker Change: Going well, I mean, I think, you know, as I've been saying for a while, Lauren, the
Speaker Change: narrative around condos has gone, I mean, as I said before, I recognize that new, new releases or launches are highly problematic. And if any, if you have any unsold inventory, it's very difficult to move in this kind of market. But the stuff that's been sold, given all of our mitigating factors, we feel quite strongly or quite confident that there won't be any significant issues. And that's really been.
Speaker Change: We've seen strong indications that that will unfold with respect to the interim closings that we've got or interim occupancies that we've got coming up in December. There's very little friction on a relative basis to the units that we are intending on occupying over the next 30 to 60 days.
Speaker Change: You know, there's the odd sort of person not showing up to their PDI, there's the odd person saying that they won't be able to close, but this is a very small percentage, like low single digits, which in the scheme of things is actually normal course. We've spoken to our condo developer partners, and for them this is the same type of friction that they would get even before this recent downturn in the market. So that leads us to be pretty confident around the closings that we've got coming up.
Speaker Change: Okay, we like to hear that. And then just last quick one, are you guys expecting any other gains on sale in the fourth quarter that would be included in FFO?
Speaker Change: It turns out like a 11 YB type sale that we had this quarter, I'd say no to that.
Speaker Change: Thank you. The next question is from Mark Rothschild with Chemicor. Your line is open. Please go ahead.
Speaker Change: Great, thanks, and good morning. In regard to new development starts, you've been pretty clear that you're not really looking to do much in the near term. Should we interpret this as more of a view on the market for the next several years, or is this more a change in shifting strategy from where you've been several years ago?
Jonathan Gitlin: Well, I think the market's definitely changed and we've got to be dynamic in our thought processes to ensure that we're building only when it's accretive for our unit holders and it makes sense for us strategically, Mark, but I think pricing where it is and returns relative to some other allocation that we can make with respect to our capital makes it nonsensical in this environment.
Jonathan Gitlin: Things can change, and what I will say, though, is the strategy that we would favor going forward is similar to what we started deploying before we started, I would say, developing less, which is utilizing our strong platform and our great land holdings, but getting outside investors to bear the brunt of the balance sheet burden that development takes.
Jonathan Gitlin: So, I would say that development is still a part of Rio Canada, it would just be done differently and it wouldn't be done in the short term because of the market dynamics.
Speaker Change: Okay, great. Thanks. And maybe just following up to something you discussed earlier in regards to a different question. When you talk about same-property NOI growth and...
give a number of 3% that's achievable.
Speaker Change: Should we assume that that's the size for releasing the 10 vacant stores which should provide an extra boost next year and you get 3% annual separately from that and that will give an additional boost to next year or would that be a big part of that?
Speaker Change: I think the release of those 10 stores along with some other leasing that we've been doing this year will be a big part of
Evening out.
Speaker Change: the statistic. I mean this year we said what we want is an average over the course of time of three percent and this year we certainly dipped below that because of some anomalous store closures but we feel that given the strength of the leasing we've done this year you'll see results that will start to show in next year's same property NOI and between the various years and the CAGR that will arise out of taking a few years in a row we are still very much steadfast behind that objective and the guidance to stay at three percent.
Speaker Change: So, just so I understand, evening out means that if this year is below 3, then as that comes on, it will be well above 3 to average out, to even out to 3.
Speaker Change: Within over a long period of time, but as I said to one of your colleagues previously, we're going to provide more refined guidance as we get into the new year around same property and ROI growth, as well as some other key metrics.
Okay, great. Thanks so much.
No problem, Mark.
Speaker Change: Thank you. The next question is from Mike Markides with BNL. Your line is open. Please go ahead.
Mike Markides: Thanks, operator. Good morning, everybody. I guess first off, congrats on the continued strength and retail leasing and the operation momentum that you guys have. It's great to see. I just want to follow up
Speaker Change: gross profit you expect to realize at Q4 to achieve that $179 to $182 range.
Speaker Change: Yeah, I don't think we've disclosed that quarter by quarter. We have a significant amount of UC2 sales coming in.
Speaker Change: So if you kind of look at our disclosure around the revenue that would come in from UC2 and average that over three or four quarters, that should give you approximately the number, but it is an outsized
Speaker Change: condo sale closing and condo sale revenue in Q4 with all six other courts.
Speaker Change: Okay, no, that's thoughtful. Thanks. And then, it's kind of a technical question, but can you remind me, so, I mean, thanks for your commentary, Jonathan, just in terms of, you know,
See y'all.
Speaker Change: person not showing up for a PDI or saying that they won't close but
Speaker Change: From a cash flow perspective, I guess interim occupancy first, but when interim occupancy takes place, is that when you recognize the sales revenue or is it when the actual condo title is given and the funds are transferred in terms of the purchase price coming in?
Speaker Change: Yeah, it is interim occupancy when that's recognized. And I think from all of the information we have and experience that we've gone through, Mike, there's a very, very, very limited risk of someone taking occupancy and then not closing. The time period in between interim occupancy and closing will vary project to project, but it's really only a matter of two months. And so yeah, that's definitely the accounting treatment and we feel pretty confident.
Thank you.
Speaker Change: Yeah, no, no. Okay, got it. So just from a deleveraging perspective, I guess the debt doesn't get paid down until after you just have a receivable in the interim.
Speaker Change: Yeah, that's correct. So there is a working capital timing point there. Now we do get to count the condo gains in our EBITDA. So from a debt to EBITDA perspective, that sort of helps pull it forward a little bit.
for joining us. Thank you.
Speaker Change: On the 11 YV sale, I totally understand what it does for Rio Cannon and what you guys get there. I guess two questions on that one.
What does the...
Speaker Change: I guess just trying to understand what the purchaser gets in terms of that transaction and what type of return profile, number one. And then number two, is there anything specific to 11YV, just given the benefits to RioCan, why you wouldn't pursue that strategy with the other projects that you have?
Speaker Change: So, Mike, I just want to answer one other point of your last question. We do, once you have interim occupancy, you do get sort of phantom mortgage payments. So, you do get interim revenue while the occupants are in place. So, I just want to clarify that. With respect to 11-YB, we haven't disclosed
a lot around around what the what the purchaser gets.
But it's, you know, again, I think they just.
Speaker Change: they get a decent return for their investment, their earlier investment. And with respect to deploying that same strategy elsewhere,
It's something that we really haven't...
Speaker Change: considered. I think we're happy to do it on 11YB. Our partners there were very happy, or the purchasers of those interests were very happy to do it there as well, but it's not something that we've determined we need to do on a more widespread basis.
Speaker Change: Okay thanks and last one for me just on I mean appreciate your comments on the scale of the resi business and the optionality that you have.
selling a little earlier now than maybe previously anticipated.
Speaker Change: I mean, we're going to get around that. I don't know that we'll quite get to that level, Mike, but we'll certainly get a significant amount of scale. So in terms of that, we'll have more refined guidance around exactly what that NOI target and where we'll get to in 2025. But at this point, I would say that the $50 million to $60 million number is with 26 based on a certain process unfolding.
Speaker Change: were, you know, if that process were to unfold as we had anticipated when I gave that information out in February, we would get there, but
Speaker Change: We'll see what happens to that portfolio between now and then, because with sales of things like Strata, that obviously takes away from that MLI number. So there'll be some puts and takes in there. But I think if we did nothing, and we just want to carry it on, we would hit that number. I think what Jonathan's referred to is potentially options to accelerate that.
by pulling in some of this money early.
Thank you. Bye-bye.
Speaker Change: Okay, recognize that. Thanks so much. That's it for me. Again, congrats on the strong retail leasing. Thanks so much.
Thanks a lot, mate.
Thank you.
Speaker Change: Thank you. The next question is from Pammy Beer with RBC. Your line is open. Please go ahead.
Speaker Change: Thanks. Maybe just coming back to the comment you made around residential monetization.
Speaker Change: Does this imply that maybe, you know, as you sell sort of, you know, maybe one-off assets, you know, I recognize you said that, you know, all options are on the table, but does that maybe imply that maybe a spin out is at the lower end of probabilities or an IPO, one of the options that you had discussed before? And then secondly, when would you think that you'll have an update or maybe a bit more of a fulsome update on this?
Speaker Change: Like I said, we do have a lot of options. Spinout is one of those options in terms of ranking them.
Speaker Change: I'm not going to do that at this point, but given the skill and given the quality of that portfolio, that is one of those options. Again, dispositions individually is an option, private return option, there's a whole myriad of options that we do have with respect to that, or just keeping it within the portfolio where we sort of get recognition for it.
Speaker Change: But it's it's something that we have all of these things are we have the luxury of considering And what was the second part of your question?
Speaker Change: Oh, update. Yeah, I think as we get into 2025, there will be definitely some more clarity around exactly what we intend to do.
Okay.
Speaker Change: I wanted to maybe just touch on property controls because there's obviously been a lot of attention around that from the Competition Bureau. So as you think about maybe some potential changes that might be coming, are there opportunities in the portfolio that maybe could be unlocked if some of this moves forward? And I'm just curious how you expect to manage that with the existing tenant relationships.
Thank you.
Speaker Change: Yeah, look, our relationships with our tenants are of paramount importance to us, and we're obviously not going to alienate a metro by putting a Loblaws right next door. But I do think there are certain subtleties around that where we can allow certain types of retailers that were, I would say, almost like ancillary retailers that were cut off from operating or selling certain things to now sell those certain things that would make them stronger and don't really provide a practical impediment against those whose the restriction was in favour of. So, John or Oliver, do you have any further colour to that?
Speaker Change: No, I think it will open up opportunities for me. More on a smaller nature I would say, you know, to the extent it's a grocery restriction or food restriction, it does give you the ability to do more ancillary uses, ancillary food uses in those shopping centers, like a bulk fund, like an M&M Meats.
Speaker Change: you know, adding food to a pharmacy. Those are all additive to us. They're additive to the sites and they'll help impact traffic, which will help all of the tenants. So yeah, again, as Jonathan said, you know, relationships are important to us.
Speaker Change: We're not going to do anything to sully those, but around the edges it'll definitely be additive.
Speaker Change: Got it. That's helpful. Just with respect to the MES loans, you know, you put some more capital to work there. Can you maybe just talk about, you know, how you're approaching that going forward and how much exposure you're comfortable with?
Speaker Change: Yeah, I think it's a very active part of the business right now that's been quite productive for us. And again, just reminding you that we only do it with properties that we are comfortable owning at the end of the day and with relatively conservative underwriting techniques so that we're really giving, we're on the lower end of loan-to-value in a decent part of the capital stack. And in terms of the growth of that business, I would say right now we're at a pretty steady state and wouldn't get much bigger than what it is right now.
Thanks. Thanks very much, Jonathan. I will pass it back.
Thanks, Bonnie.
Speaker Change: Thank you. The next question is from Mario Sarek with Scotiabank. Your line is open, please go ahead.
Speaker Change: degree of monetization as an internal shift in view in terms of
Speaker Change: Again, in terms of timing and kind of pace of executing on it relative to three months ago or six months ago, and if so, what would you characterize the primary driver of the shift in thinking being?
Speaker Change: I mean, I think this is really just the next chapter in the story that we've been telling for a while now, which even at our investor day in 2022, what we said was,
Speaker Change: At the time, we were going to scale up the portfolio to give us options, and we'll assess what the best options are once we get to, you know, to or close to that scale. And that's where we are now, Mario.
Speaker Change: So I don't think it's a significant shift. I think it's just a further chapter in that same story. And in terms of the timing, you know, we were going to get to that scale in 2026. We're starting to consider those options right now. And I think Strata just indicates…
Speaker Change: the value involved in that portfolio, but also the desire for others to be involved in that type of asset, which is, again, major market, new, low CapEx and no rent control. So there's a lot of attributes to that portfolio that make it highly desirable. And now we've just got to assess what the best
the best path forward is based on all those attributes.
Speaker Change: And ultimately, the Strata process, while it's indicative of value, it started with unsolicited offers.
And so this is something that
Speaker Change: that came to us and our partner was very attractive valuation, again, indicative of the value we have. But when we think about, you know, what we've been saying for a while and looking at options for 2026,
Speaker Change: I mean, we're almost at 2025, so we have to start planning that now and think about it now. The Strata situation is just supportive of value and shows that we've got something that we can really do something with here.
Got it, okay.
Speaker Change: and the multifamily reaps are pretty much taking you on a chin these days because of...
Speaker Change: have announced proposed changes in immigration policy at the federal level. What are your thoughts on the implications for Rio Candidate's portfolio as a result of that announcement, if it does indeed get enacted as suggested?
Speaker Change: we are tracking, we're typically not going to be affected by those changes in policies.
Speaker Change: I think it does cast a bit of a pall over the entire residential space, or the multi-res space, but I think, again, the types of units that we were curating and the type of experience we were curating wasn't significantly geared towards the same people who would be impacted by that legislation.
Speaker Change: Okay, I did notice that the residential occupancy did come down a little bit from post-quarter to November 11th. It went down 140 or 170 basis points.
How broad based was that or was it specific to
and a couple of others.
Speaker Change: It was fairly broad-based. I don't think there was any one municipality or property that weighed into that more than any other and you know I think it was just a moment in time a bit of a soft
Speaker Change: season for lease up, but again, we're confident given the quality of those assets.
Speaker Change: that these things ebb and flow, and this last quarter was a bit of an ebb, but we do, given the quality of those assets, believe that they will begin to flow upwards again. It really does.
Speaker Change: differ. I mean it varies quite dramatically kind of month to month based on trends in various neighborhoods and based on you know if there's competitive product that's opening up in that neighborhood but we again feel that this will trend higher given the
Speaker Change: consistent lack of quality residential and mixed-use products in the neighborhoods where we own properties.
Speaker Change: Okay, one more quick one on Rio Can Living and then one just on the other 95% of your portfolio. Dennis, you mentioned a $1 billion kind of asset value for the residential portfolio. Can you share with us what the debt to gross book value is?
for the Residential Portfolios today.
Speaker Change: Sorry, you broke up at the end there, Mario. Can you say the end part of that question?
Speaker Change: I'm just asking whether you can share with us what the debt-to-grossbook value for real Kent living is today.
Speaker Change: You know, 60% loan to value at the outset of a loan, and then you've got a few years of am in there, so in the neighborhood of 50-50.
Speaker Change: Okay, my last one, just on the 10 vacancies that we've talked about, as opposed to thinking about 2025. Can you share with us what the impact has been on reported Gaines-Stonewide growth year-to-date of 0.4% from those 10 vacancies?
Speaker Change: I don't think I have a specific number around the exact impact of those 10 stores on our same property on a line this year.
Speaker Change: I don't think that we've specifically disclosed that number but it's a significant impact of the Delta between, call it the initial 2% guidance and our current guidance, if that's a way to kind of give you a sense.
Got it. Okay. That's it for me. Thanks, guys.
Thanks.
Speaker Change: Thank you. The next question is from Matt Barnack with National Bank Financial. Your line is open, please.
Speaker Change: Good morning. Dennis, just quickly, you mentioned that Strata proved value. Could you give us the cap rate that that would have transacted at?
Speaker Change: I would have not disclosed that, if I had calculated that.
Thank you very much.
Speaker Change: Okay, fair enough. And then maybe just going to the leasing spreads that you've achieved. In the past, you've also been layering on annual rent escalators on top of those. Would you say that that was consistent in this quarter as well? And kind of what type of escalators are you achieving?
Speaker Change: Yeah, that is consistent and we've been striving to get between two and three percent annual rent escalators in each of our leases.
Speaker Change: Okay. On the restructuring, I think you mentioned in the disclosed MD&A information that it's about $8 million of annual savings going forward, $4 million of which impacts G&A. Will the remainder impact earnings or is it being capitalized and recovered by the tenants currently?
Speaker Change: So we have ongoing cash savings of about $8 million, $4 million of which, so about half, is what will hit the G&A line. So the rest of it was capitalized costs.
Thank you.
Speaker Change: And then on straight line rent, it's been elevated. I assume there's a component of that that relates to the leasing that's been done on the 10 vacancies. Can you give us a sense of the
Speaker Change: how that kind of will translate over the next couple of quarters, but also maybe what additional delta there is above and beyond that straight line rent number for what will come on from those previously vacant stores.
The End
Thank you.
Speaker Change: I don't know if we have that information in our fingertips, we'd have to uh... Yeah Matt, let us circle back to you on that question.
Speaker Change: Okay, and then just a last one for me. On non-recoverable operating costs, it was a little high this quarter. I know it kind of bobs around, but like should we expect that to come back down to kind of somewhere in the $7-$8 million range where it's been historically?
Speaker Change: Yeah, that should normalize and you know kind of depends on in-place oxygen at a point in time and the timing of when
Speaker Change: Those tenants come in line. So even sometimes when we have in-place occupancy up at the end of the quarter, if some of those tenants moved into the latter part of the quarter, that can have an impact. So that's the kind of aspect that would swing that around, but you should expect that to normalize.
There's nothing abnormal, so we'll see there.
and Jeff Walsh. Thank you. Thank you.
Okay, perfect. Thanks.
Thank you.
Speaker Change: Thank you. The next question is from Gaurav Murthy with Green Street Advices. Your line is open, please go ahead.
Thank you and good morning, everyone.
Speaker Change: Just one quick question on dispositions ahead, and you provided quite a bit of color on the call. I'm just wondering where, you know, development land features or factors into the decision-making process, and what's the appetite for development land currently as you're talking to potential buyers?
Speaker Change: We've got over 14 million square feet of zone land in our portfolio and right now I'd say the appetite is
Speaker Change: I'd say mediocre at best. And so for us, we're in no urgency to deal with this land. And in fact, oftentimes, we're going back to various municipalities to get the zoning improved. And that will allow us when the market does turn in our favor, to realize more better value on that land. But right now, I would say the market is not
Speaker Change: not extremely robust for for that and that's I mean I think a byproduct of the fact that there's just not a lot of new builds started.
Speaker Change: Well, thank you for that. I'll turn it back to the operator.
Thank you.
Speaker Change: Thank you. The next question is from Dan Wilkinson with CIBC. Your line is open, please.
Speaker Change: Hi guys, just a few quick ones on the condos which have been sort of beaten over the head a bit here. On the remaining $607 million of sales that you expect through 2026, how much spend do you have left on that?
Speaker Change: Sorry, those sales have already taken place, just to be clear. The $607 million are already pre-sold. Pre-sold, yeah. We're going to close on those. Yeah. So there's no more construction.
Speaker Change: So there's cost. Well, there is still cost to complete because again, like that's six hundred and seven million We've got it's a combination of 11 YB UC2 and a couple of other projects like Burge, we're still in the midst of finalizing construction on some of those in terms of our own
Speaker Change: interest in them because a lot of them are owned with partners or investors. I don't have that specific number, Dean, but I think we can give you some color offline.
Speaker Change: Okay. Can you remind us how to break down our MD&A? Oh, sorry. Sorry, Dean. It's in the neighborhood of $200 million. So we just said we're just going to get that break down. It's on page 43 of our MD&A, so we can go through that with you. But it's in the neighborhood of $200 million.
Speaker Change: Okay, that's good. And can you remind what the development profit on that was expected to be over the course of the next 18 months?
Thank you for watching!
I don't think we've disclosed that specifically to you.
Yeah, I know, I keep asking.
Thank you.
Thank you. Bye.
Speaker Change: Switching over to the RE-ORG, was that largely related to you taking a more conservative view around development or was this just a larger headcount reduction in terms of the build up and rightsizing it?
Thank you. Bye.
Speaker Change: Unfortunately, you faded out for the middle part of that question, Dean, so I'm going to have to get you to ask it again.
Speaker Change: Was the headcount reduction largely related to scaling back developments or was it across the board?
Speaker Change: No, it was across the board, Dean. I mean, it wasn't and it wasn't just a headcount reduction. We really did restructure and reorganize a number of the groups within RioCAN based on just attaining more efficiency and relying on technology. So, it really was an across-the-board thing, but the development
Speaker Change: The trend in development certainly led to a restructuring of that group specifically, but I wouldn't say that that was the only reason for this. There were many different efficiencies that were gained as a result of it.
Okay, that's fair enough. That's all I had, thanks guys.
Thanks a lot, Dean.
Speaker Change #100: Thank you. I'm showing no further questions at this time. I would now like to turn the conference back to President and CEO, Jonathan Gitlin.
Jonathan Gitlin: All right, well, thank you everyone for joining, and we will look forward to speaking to you all again soon. Bye-bye.
Jonathan Gitlin: Thank you. This concludes today's call. Thank you all for joining.