Q4 2024 RioCan Real Estate Investment Trust Earnings Call
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Speaker Change: Good day, ladies and gentlemen, and welcome to the Rio can real estate investment Trust fourth quarter 2024 conference call and webcast.
Speaker Change: As a reminder, this conference call is being recorded.
Jennifer: I would now like to turn the conference over to MS. Jennifer <unk> Senior Vice President General Counsel, ESG and corporate Secretary Ms Juice, you may begin.
Jennifer: Thank you and good morning, everyone I'm, Jennifer Davis Senior Vice President General Counsel, ESG and corporate Secretary of Rio can before we begin I'm required to read the following cautionary statement in talking about our financial and operating performance and in responding to your questions. We may make.
Jennifer: Word looking statements, including statements concerning Rio cans objectives, its strategies to achieve those objectives as well as statements with respect to management's beliefs plans estimates N attention and similar statements concerning anticipated future events results circumstances performance or expectations that are not historical fact these statements are based on our current estimate.
Jennifer: And are subject to risks and uncertainties that could cause our actual results to differ materially from the conclusions in these forward looking statements in discussing our financial and operating performance and then responding to your question. We will also be referencing certain financial measures that are not generally accepted accounting principle measures GAAP under Ifr F. These measures do not have.
Jennifer: Any standardized definition prescribed by EIOPA RF and are therefore unlikely to be comparable to similar measures presented by other reporting issuers.
Jennifer: non-GAAP measures should not be considered as alternatives to net earnings are comparable metrics determined in accordance with ifr at as indicators of REO cans performance liquidity cash flows and profitability Rio Can's management uses these measures to aid in assessing the trusts underlying core performance and provides these additional measures. So that investors may do the same additional information.
Jennifer: On the material risks that could impact our actual results and the estimates and assumptions we applied in making these forward looking statements together with detailed on our use of non-GAAP financial measures can be found in the financial statements for the period ended December 31, 2024, and management's discussion and analysis related there too.
Jennifer: Together with Rio cans. Most recent annual information form that are all available on our website and at Www Dot SEDAR plus dot Com I will now turn the call over to you Rio cans, President and CEO Jonathan deadline.
Jonathan Deadline: Thanks, Jennifer and thank you all for joining <unk> senior management team today.
Jennifer: 2024, Mark <unk> 30th anniversary.
Jennifer: This milestone provided the opportunity to demonstrate that we put together and youre pleased with the portfolio of high quality properties.
Jennifer: 2024 was a watershed year for Rio Ken featuring numerous record breaking results for the trust.
Jennifer: We leverage every opportunity to strengthen our assets foster strategic growth and create value.
Jennifer: We invested in making our business even more fit for the future.
Jennifer: We achieved this through technological advancements in our strategic restructuring designed to optimize the organization and support future growth.
Jennifer: I speak to you today from a position of strength with the insights and knowledge gained from our extensive history clear vision improvement results.
I'll spend some time today on packing our results in the context of our strategy and the backdrop in which we're operating.
Jennifer: The consistent theme throughout as we did what we said we would do.
Jennifer: We achieved record breaking operational results and capitalized on opportunities to transition lower growth leases into high quality tenancies.
Jennifer: We completed a higher proportion of the condo unit sale and initially projected and we continued to drive value through rezoning and enhancing existing entitlements and committed that we will not initiate new capital intensive construction projects for the foreseeable future.
Jennifer: We access diverse funding sources kept our payout ratio low maintained ample liquidity and reduced our net debt to EBITDA within our target range of eight to nine times.
Jennifer: Throughout these achievements, we upheld our commitment to responsible growth sustainability and ethical governance.
Jennifer: <unk>, receiving an ESG rating upgrades to double a from MSCI.
Jennifer: And recording top desk outperformance for employee engagement for the third consecutive year.
Jennifer: We have long noted the scarcity and premium retail space, particularly the kind that comprises Rio cans portfolio.
Jennifer: Stringent zoning laws and elevated construction costs are likely to perpetuate the situation.
Jennifer: And operating environment characterized by limited retail space and intense demand for high quality locations creates a protective marketplace favoring a platform of <unk> caliber.
Speaker Change: Rio can has the unique combination of a top tier team an ideal locations within Canada sixth largest and most densely populated cities now.
Jennifer: 94% of our income is generated from these major markets.
Jennifer: Please the trust perfectly positioned to take advantage of the existing market dynamics.
Jennifer: It's taking an intense focus on heavy lifting to get to this point and it's paying dividends and here's why.
Jennifer: The locations, where we're concentrated have exceptional demographics and growing population.
Jennifer: This creates meaningful demand drivers for our space and attracts top tier tenants. These factors in turn lead to exceptional operational outcomes such as those we have delivered.
Jennifer: The quest for retail space or more precisely Rio cans space resulted in a committed retail occupancy of 98, 7% and a blended leasing spread of 18, 7% for the year.
Jennifer: 2024 had four consecutive quarters of double digit leasing spreads.
Jennifer: We finalized approximately $4 8 million square feet of leases, including one 5 million square feet of new leases.
Jennifer: The average net rent of the new leases was $26 17.
Jennifer: This is 17% higher than Rio Kansas average net rent.
Jennifer: We also further enhanced our income quality during the year was 88% of our rental revenue now coming from a strong and stable tenants. These.
Jennifer: These retailers drug consistent traffic enhanced cross shopping experience provides sturdy and growing income and increase asset value.
Jennifer: Understandably there has been concerns about the impact of tariffs on the Canadian economy.
Jennifer: Predicting next steps or quantifying the impact right now while it's virtually impossible.
Jennifer: However, I can say that the successful execution of <unk> strategy has resulted in a portfolio of assets and tenants that while not totally immune to the impact of tariffs are certainly well suited to withstand that.
Jennifer: Any accompanying economic downturn.
Jennifer: It's taken extensive efforts to improve the resilience and growth profile of our portfolio.
Jennifer: These improvements are to ensure predictability and stability and precisely these types of situations.
Jennifer: We also recognized that the condo market is currently under strain.
Jennifer: First it's important to note that we're not relying on the disposition of unsold inventory to achieve our balance sheet objectives.
Jennifer: That said, there's been a significant amount of attention paid to the condo units in Rio Kim inventory that have been pre sold.
Jennifer: When it comes to these pre sold units I do not perceive a material risk.
Jennifer: In our last earnings call. It was mentioned that the proof will be in the pudding when it came to our ability to close condominiums in a challenged market.
Jennifer: While I am pleased to report that we achieved significant success with our condo and townhouse interim occupancies.
Jennifer: 98% of the 372 expected fourth quarter interim Occupancies have been completed.
Jennifer: <unk> expects approximately $530 million of sales revenue from the remaining units and our five active condominium construction projects.
Jennifer: Approximately $430 million of the expected revenue.
Jennifer: 85% of units have been pre sold.
Jennifer: The vast majority of these condos were sold before the market peaked and the closing prices are below current market value.
Jennifer: They are also subject to legal purchase agreements with buyers, who pass credit checks and maize average deposits of close to 20% or an average of $160000 each all of which motivates buyers to complete their purchases.
Jennifer: In concert with the factor I, just mentioned our performance, thus far augurs well for the remainder of our pre sold condo units.
Jennifer: For ryokan livings rental portfolio, you'll recall the one objective was to create sufficient scale to provide flexibility and options.
Jennifer: This objective was achieved in 2024 with Rio can living assets valued at over $930 million.
Jennifer: The sale of strata for a price above <unk> value in Q4, 2024 highlights and substantiate the immense value of our residential rental properties.
Jennifer: As we consider our next steps will continue to benefit from the robust NOI generated by the portfolio residential rental operations delivered five 1% same property NOI growth in 2024.
Jennifer: Ultimately the Rio can living platform, while the rental or condo serves as a strategic lever to strengthen Rio cans balance sheet and portfolio and amplify growth in the near future.
Speaker Change: Before turning the call over to Dennis I want to emphasize that we aren't just encouraged by the consistently strong results generated by Rio <unk> high quality major market necessity focused portfolio.
Speaker Change: Our confidence in the fundamental strength of <unk> portfolio and platform has led us to buy 3.2 million Rio can units at a weighted average price of $18 51 per unit for a cost of $60 million.
Speaker Change: The belief is that the market price of reoccurring unit does not accurately reflect the intrinsic value and prospects of the business, making the purchase of our own units or said better our own portfolio.
Speaker Change: Really attractive investment.
Speaker Change: We funded the unit buyback through the sale of two lower growth assets.
Speaker Change: <unk> 2024 results again demonstrate our excellent execution of a sound strategy.
Speaker Change: We've shown operational strength improved efficiency and achieved our financial objectives.
Speaker Change: We've maintained an accelerated positive momentum through fortifying activity that enhances the trust stability and fuels future growth.
Speaker Change: Consequently, we are pleased to announce a real cans board of trustees has approved a four 3% increase in the distribution payout for our valued unitholders for the fourth consecutive year.
Speaker Change: Starting with the February distribution, which was paid in March annual distributions will be increased to $1 16 per unit.
Speaker Change: With our solid foundation and promising growth prospects, we anticipate continued cash flow growth for our unit holders and sustained performance in 2025 and beyond.
Speaker Change: While acknowledging significant macroeconomic volatility introduces a certain level of uncertainty based on what we currently know we expect 2025 <unk> to be in the range of $1 89 to $1 92, and commercial same property NOI growth of approximately three 5%.
Speaker Change: We also expect to maintain a payout ratio of approximately 60%.
Speaker Change: We look forward to sharing additional details regarding our vision and strategy in an investor day, which will be held on May 21 2025.
Speaker Change: To conclude I'll revisit some of the themes from todays discussion.
Speaker Change: Rio can has a premier retail portfolio and Canada's most desirable markets fail.
Speaker Change: Favorable retail real estate dynamics create long term demand for our properties. Our strategy is anchored in a resilient retail portfolio that ensure steady growth and minimize risk.
Speaker Change: We have several mechanisms to drive growth and to accelerate the repatriation of a tremendous amount of capital.
Speaker Change: We're committed to prudent financial management backed by an excellent team.
Speaker Change: The deliberate repositioning of our portfolio tenants and platform has enhanced efficiency effectiveness and resilience, our consistency vision and commitment to responsible growth will continue to benefit our unit holders, while ensuring the trust stability and with that I will turn the call.
Dennis: All over to Dennis.
Dennis: Thank you Jonathan and good morning to everyone on the call.
Dennis: This morning, I will focus on providing additional detail on our 2024 results and then our 2025 guidance.
Dennis: 2024 was a very strong year for Rio can driven by a record high operating kpis.
Dennis: This enabled us to achieve our <unk> guidance for the year with Evercore adjusted per unit of $1 81.
Dennis: This figure was adjusted for $7 $9 million of restructuring costs that were not factored into our 2020 for guidance.
Dennis: These organizational structure changes brought us to a streamlined target operating model that aligns with our key priorities and takes advantage of our technology upgrades.
Dennis: Commercial same property NOI growth, excluding the impacts of the pandemic related provisions from prior years was two 2% for the year.
Dennis: As previously mentioned this was lower than our long term target of 3% due to tenant churn earlier in the year that was backed dealt with better tenants at higher rents.
Dennis: We have already seen this metric recover with commercial espirito Oi growth of three 5% in the fourth quarter of 2024, and we expect this to remain strong in 2025.
Dennis: <unk> for the year also benefited from development deliveries, which added four cents per unit.
Dennis: Inventory gains contributed an additional five <unk> per unit in 2024, when compared to 2023.
Dennis: These increases were partially offset by the disposition of lower quality assets net of acquisition of high quality assets, which reduced <unk> per unit by four sets.
Dennis: This is a short term impact that we believe will drive growth and value going forward.
Dennis: In addition interest expense net of interest income had an impact of 10 cents or <unk> <unk> per unit.
Dennis: 2024 saw continued improvement in our net debt to EBITDA as we remain committed to strengthening our balance sheet.
Dennis: We finished the year at $8 98 times inside of our target range of eight to nine times.
Dennis: This has continued its downward trend from 951 times at the end of 2022 to $9. Two eight times at the end of 2023 and now below nine times at the end of 2024, and we expect this steady decline to continue.
Dennis: Our balance sheet strength is further supported by other credit metrics, including weighted average term to maturity improved from three years to $3 seven years, the ratio of unsecured debt to total debt improved from 54% to 56% with a clear path for continued improvement.
Dennis: And we have maintained strong liquidity of $1 7 billion.
Dennis: Overall, our 2024 forest and fortified balance sheet put us in a position to deliver further growth in 2025 and beyond.
Dennis: This brings us to our 2025 guidance for which I will provide further details on the underlying assumptions.
Dennis: Our <unk> per unit guidance of $1 89 to $1 92 sets is underpinned by commercial same property NOI growth of approximately three 5%.
Dennis: I want to reiterate that our guidance does not incorporate the impacts of potential tariffs and resulting impacts on the economy as those impacts remain uncertain.
Dennis: That said, we have been through economic disruption many times over Rio cats history, and our portfolio and tenant mix have never been better positioned to weather whatever the springs.
Dennis: We have high confidence in our Aspira why guidance as the benefits of 'twenty 'twenty four leasing activity will be reflected in 2025.
Dennis: This confidence is supported by three key factors first about half of this growth is driven by contractual rent increases.
Dennis: Another quarter of this growth is driven by the full year in place occupancy effect of leases that were signed in 2024.
Dennis: The remainder is expected to be driven predominantly by 2025 lease activities with low to mid teens blended leasing spreads while committed occupancy is expected to stay at approximately 98%.
Dennis: NOI ramp up from development completions will further bolster 2025 <unk> as we see the full year effect of many of our past deliveries.
Dennis: Condo gains are expected to be in the range of $70 million to $80 million in 2025. These gains relate to pre sold units from UC towers, two and 311, yv verge and clean and ask bridge projects.
Dennis: At the end of 2024, we had approximately $530 million of revenue expected to be received or are in progress condo projects, which includes approximately $430 million for pre sold units.
Dennis: We expect to recognize $350 million of this in 2025, all of which are pre sold as we have not assumed any revenues from unsold units in this 2025 guidance.
Dennis: This leaves about $180 million that we were recognized in future years $80 million of which is for pre sold units.
Dennis: We have also maintained cost discipline as our revenues grow.
Dennis: We expect our G&A expense as a percentage of rental revenue to be approximately 4% in 2025, a steady improvement from four 2% in 2023 and four 1% in 2024.
Dennis: The increases in <unk> will be partially offset by interest expense as our plan assumes an average interest rate for 2025 financing activities of approximately 5%.
Dennis: Graduate average rate on expiring debt of approximately 3%.
Dennis: Our payout ratio is expected to be approximately 60% in 2025, which incorporates the impact of the four 3% distribution increase announced today.
Dennis: This is well within our long term target range of 55% to 65% and is the lowest payout ratio among our peers.
Dennis: We expect to be in a position to sustainably increased distributions for the foreseeable future while remaining in this range.
Dennis: This payout ratio allows us to retain approximately $150 million of equity capital each year after funding our distribution and maintenance capital expenditures.
Dennis: This $150 million is available to be reinvested in our business compounding value over the long term.
Dennis: During 2025, we expect to invest in our business as follows.
Dennis: $105 million to $115 million toward the construction in progress condo projects as we near completion of our condo development.
Dennis: $45 million to $55 million toward construction of mixed use projects as we finalize many of these projects.
Dennis: $65 million to $75 million on retail infill projects that will add designee and value to existing retail sites.
Dennis: The $40 million to $45 million for pipeline investment initiatives in our vast land bank, adding value across approximately 20 projects.
Dennis: Looking out further committed development spend dropped to $12 9 million in 2026, and essentially zero in 2027 and beyond.
Dennis: Turning to our balance sheet, we expect our net debt to EBITDA to steadily decline to the mid <unk> by the end of the year with further declines in 'twenty six.
Dennis: Our intention is to continue to pay down mortgages. This year to reach a 60 40 unsecured to secured debt ratio by the end of the year.
Dennis: We are already well on our way with our 2025 financing activities, having raised $550 million of debentures. This year at an average interest rate of 4.05%.
Dennis: These funds were used to pay down expiring debt, leaving approximately $450 million of debt maturities for the balance of 2025.
Dennis: Based on our current liquidity levels, we can meet our repayment obligations for the balance of this year without the requirement to raise any more debt as we have the option to use our undrawn lines.
Dennis: This flexibility allows us to optimize our financing activities and reduce risks in this time of volatility and uncertainty.
Dennis: Overall, <unk> is well positioned to have another strong year in 2025.
Dennis: Our portfolio balance sheet and team put us on our front foot going forward.
Dennis: We think our unit holders for their continued support and look forward to delivering strong total unit holder return well into the future.
Dennis: With that I will turn the call over for questions.
Dennis: Thank you Dennis.
Dennis: We will now begin the question and answer session.
Dennis: If you would like to ask a question you may do so by dialing star followed by one on your telephone keypad.
Dennis: Again press star one to queue for questions.
Dennis: If for any reason you would like to remove your question from the queue or your question has been answered. Please press star two.
Dennis: As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Dennis: I will pause here briefly ask questions.
Speaker Change: The first question is from the line of Lorne Kalmar with Desert Desjardin. Please go ahead.
Dennis: Yeah.
Lorne Kalmar: Thanks, Good morning, everyone and congrats on a nice finish to the year.
Lorne Kalmar: Just on the condo closing side, obviously, good to see some numbers around that and look to be pretty successful.
Lorne Kalmar: I was just wondering are you having to undertake any I guess I'd call them alternative arrangements to facilitate the closing of some of these or are these clean closings.
Lorne Kalmar: Hey, good morning, Lauren it's Jonathan Thank you for your kind words, the condo closings that we've achieved so far with subject to very limited exceptions have been Queen clean Occupancies. There are there were a couple where we delayed the occupancies are a few that we delayed the occupancies, but very limited.
Lorne Kalmar: <unk> or sort of non standard measures were utilized in achieving.
Lorne Kalmar: The numbers that we've achieved in Q4.
Lorne Kalmar: Is there anything to indicate that that would change over the balance of 2025 or no.
Lorne Kalmar: Hard to say.
Lorne Kalmar: I don't think it will be and if it is I mean, you're talking margins here youre not talking trends so where.
Where we've got great partners that typically have a lengthy experience in dealing with closing condo units in all different types of environments and they've got a number of different methods that they use to ensure successful closings.
Lorne Kalmar: They've been informing us that it's unlikely that we'll have to use.
Lorne Kalmar: Many of those but it is a volatile market, so we'll wait and see but we.
Lorne Kalmar: We feel confident that the vast majority of the closings will be very much standard in there for them.
Speaker Change: Okay, that's good to hear.
Speaker Change: And then obviously you guys were a little active on the CIB, which was nice to see with the net debt to EBITDA now kind of at the top end of your target range you guys expect to remain active over the balance of the year or was this kind of a one off type of.
One off type of event JV activity.
Speaker Change: Our principal objective is to make sure our balance sheet is in good shape, particularly in this kind of environment and we will always look to.
Speaker Change: Make sure we achieve our objectives with respect to net debt to EBITDA and we've already stated that we want to get that into the mid in the mid range between eight and nine times and so if we can achieve that the NCI be would be more opportunistic meaning that if we see the opportunity to sell lower growth assets.
Speaker Change: A lot of what we just recently sold and convert that into our own portfolio I think that is something we would definitely.
Speaker Change: That would take advantage of but again it would only arise if we have the capital coming in through those alternative methods right now our business plan has us really I mean, the guidance. We've provided does not take into consideration any additional sales of assets. So if we were to sell assets and have that opportunity then NCI.
Speaker Change: We certainly saw it seems like a terrific use of capital.
Speaker Change: Okay. Thank you so much for the color. Thanks a lot.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Thank you. The next question is from the line of Pam <unk> with RBC. Please go ahead.
Speaker Change: Thanks, Good morning.
Speaker Change: Maybe coming back to the condo conversation the $70 million to $80 million of profits that you expect this year is any of that coming from selling down interest in any of the existing projects like what we saw last year I guess on 11 Y V or is this just all on the unit closings. This is all on unit closings bombing and good morning.
Speaker Change: Good morning.
Speaker Change: Yes.
Speaker Change: Okay, and then just on the on that same property NOI guide three 5%.
Speaker Change: Look I think the operating metrics are moving quite strongly is there any large known vacancies or any sort of tenant closures in that figure.
Speaker Change: And I'm curious if you're if you have.
Speaker Change: You have any comments regarding tenants on the watch list at this stage.
Speaker Change: No that figure is normal course operations, we feel pretty strong that our portfolio is in very good shape. Our list of tenants is in very good shape and so we don't have any significant gyrations or big vacancies baked into that number and in terms of tenants on the watch list. It's in the normal course army, where we have some.
Speaker Change: Smaller retailers who are.
Speaker Change: In the normal course.
Speaker Change: They will come in and out of Vogue and some of them are not doing as well, but again. These are around the edges. We don't have any large national retailers on our watch list, but happy to turn it over to John for any additional commentary on that yes, I actually don't have any additional commentary on that balmy. It really nobody on our watch list at this point in time.
Speaker Change: Jim.
Speaker Change: Which is always nice to say it.
Speaker Change: The front end of the year, so yes all.
Speaker Change: All good.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Okay. That's good to hear last one for me just in terms of the Optionality on the on the multifamily rental portfolio. What can you share in terms of maybe how you're thinking about that at this stage.
Speaker Change: <unk>, maybe options you are leading towards.
Speaker Change: And maybe when we get me a bit more of a definitive update on that.
Speaker Change: Sure the options as we stated before our status quo. It's a great portfolio is doing very well for us.
Speaker Change: Same property NOI coming out of that portfolio, we predict to be higher than that coming out of our retail portfolio. So very stable asset base and we feel that the the NAV per unit based on that portfolio is very strong and will only get stronger as the market for those types of assets gets tighter and tighter are the other options are doing.
Speaker Change: What we did with strata, which is just a disposition.
Or spin out of some kind, whether it's private or public vehicle and then of course, there's just basically diluting our interest down by bringing in other partners. Those are the options available to us theres definitely some that we favor over others and we're going to assess that throughout the course of the year and figure out what the best way forward.
Speaker Change: But for now again, it's a very strong portfolio that we're very happy to have and it is only growing.
Speaker Change: So in terms of when there'll be more color I think by the time, we have our investor day in late May we will be able to provide a little more clarity on exactly what the plan is going forward, but with respect to the guidance we provided pommie.
Speaker Change: There is no significant assumption around what we're doing with these assets.
Speaker Change: Thanks, very much I will turn it back.
Speaker Change: Problem.
Speaker Change: Thank you.
Speaker Change: Question is from the line of Matt <unk> with National Bank of Canada. Please go ahead.
Speaker Change: Hey, guys good morning.
Speaker Change: Just with regards to the renewal and new leasing spreads that you've achieved in your guidance.
Speaker Change: It sounds like you're still guiding for kind of low to mid teens, but the rents in place on your 2025 and 2026.
Speaker Change: Maturity they are a little lower and you've been consistently in that kind of 25 to $28 is is that.
Speaker Change: Composition issue.
Speaker Change: In terms of what's maturing and where it's maturing are or is there potential upside to the kind of the spread that you're talking about on the guidance.
Speaker Change: Yes, I think we every year, we surprised ourselves in our leasing team has outperformed when it comes to leasing spreads in 2025 might be no exception to that that's our hope, but we have gone through every lease expiry and we've come up with the assumptions that we think are reasonable.
Speaker Change: And depending on the environment, we might in fact outperform but we feel that the guidance. We provided is again suitable guidance for this kind of environment.
Speaker Change: Okay Fair enough and then similarly on occupancy.
Speaker Change: She then kind of record highs here, there's still is a gap between in place and committed figures, but is it feasible to see.
Speaker Change: Kind of reaching that in place that's already the committed figure or have we reached kind of a frictional.
Speaker Change: Ceiling in terms of where you can get to on occupancy.
John: Yes, Mark its John downtime, Yes, you will see that tighten up over the year.
Speaker Change: A lot of the leasing we did last year.
Okay.
Speaker Change: Right.
Speaker Change: Hello.
Speaker Change: Please standby briefly as we reconnect the audio.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Once again, please standby as we reconnect audio.
Speaker Change: Great.
Speaker Change: Yes.
Speaker Change: I only have one in for Scott.
Speaker Change: Apparently.
Speaker Change: I think I have your stuff.
Speaker Change: Yeah.
Speaker Change: I think I can hear you guys.
Speaker Change: Not sure if it was my issue or your issue.
Speaker Change: System issue, but we apologize for that John has provided some of his answer but I'm going to give it back to them just to make sure that there was clarity on that.
Speaker Change: Just I'll repeat what I said Margaret I hope I can repeat what I said, so you will see.
Speaker Change: A bit of shrinkage between the in place occupancy in the committed occupancy based on a lot of larger box deals. We did last year, mainly grocery users do take longer to fixture out and for the tenants to.
Speaker Change: To build out their space. So over 2025, the in place occupancy will get closer to our committed occupancy we do expect our occupancy to grow a little bit as well.
Speaker Change: Thanks.
Speaker Change: Okay. No that's fair and then maybe a last quick one for Dennis on the accounting side.
Speaker Change: Can you give us a sense of where our straight line rent will trend I know that you're converting kind of.
Speaker Change: Some of these leases to cash rent over the year, but it was a bit high.
Speaker Change: This quarter than I think we were forecasting.
Speaker Change: I think at which it will trend down slightly.
Speaker Change: In 2025 as those.
Speaker Change: This is compared to cash as as you'd expect so I think youre going to see it has come down slightly but not all that material.
Speaker Change: Okay.
Speaker Change: Okay fair enough thanks, guys.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Mark Rothschild with Canaccord Genuity. Please go ahead.
Speaker Change: Thanks, Dan.
Speaker Change: Hey, guys, maybe just following up with some of the discussion on the renewal spreads.
Speaker Change: <unk> actually been quite strong and better than most or all of your peers and in fact the guidance.
Speaker Change: Continuing.
Speaker Change: New York is that coming from just where market rents or is there anything regarding the leases that are expiring that are impacting that or is that just simply what the gap is between market and in place for your portfolio.
Speaker Change: I think it's a combination of all those things we have a lot of our average rent across the portfolio is about $22 and it's well below what we think of market rent is so we're trying to bridge that gap and every renewal or new lease discussion, we have and I think our leasing team is doing a good job. Moreover, our portfolio has improved substantially so we think that that is.
Speaker Change: A good catalyst for a lot of tenants seeking great space theyre going to be after our space and I think willing to pay for it.
Speaker Change: And finally I think it's just the reflection of the fact that there is.
Speaker Change: A lot of need for brick and mortar retail space and so we are we're having.
Speaker Change: Competition on a lot of the space that we have available which is quite limited as you can see from our occupancy numbers and that allows us to drive rents. So it really is a concert.
Speaker Change: A number of different elements that come together to make for a pretty good market.
Speaker Change: Okay.
Speaker Change: Okay, great. Thanks, and maybe just one more you spoke about.
Speaker Change: Buying back units.
Speaker Change: It seemed like it hence more on what you sell.
Speaker Change: Lower yielding assets, maybe that arent core to what extent is it also impacted by the market as far as what the discount to NAV is obviously the REIT market has been.
Speaker Change: Somewhat soft is that does that play a factor in this decision like would you maybe say in the near term to allocate more capital to the buybacks debt, reducing leverage or to raising distributions.
Speaker Change: If the unit price remains where it is.
Speaker Change: Again.
Speaker Change: The primary objective is to make sure our balance sheet is strong so that will always be our first priority with respect to the distribution as long as we can maintain a payout ratio within that Oh without.
Speaker Change: Of that approximately 60% bandwidth then we'll we'll do what we can to raise our distribution and provide some sort of reward to our unit holders, but again that will only come if we if we can maintain that consistent payout ratio. So it really <unk>.
Speaker Change: CIB for US is opportunistic and it is based on what we can where we can recycle out of assets and put that money back into our own assets, which we all feel very strongly about their growth prospects, but of course, mark that does depend on the stock price right now at the current pricing.
Speaker Change: Youre looking at in F F O yield of 10% or an <unk> yield of 9%. That's a really good number and we feel very strongly about taking advantage of that wallet exists if that if the market turns and comes to its senses to realize the inherent value in Rio can.
Speaker Change: And we trade closer to what we feel our NAV has been the NCI be opportunity does not become as attractive as it currently is so I hope that provides you with color, but in the current state of affairs, we very much like the opportunity to buy back our own portfolio.
Speaker Change: Yeah.
Speaker Change: Okay, great. Thanks, so much thank you.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Sam Damiani with TD Securities. Please go ahead.
Speaker Change: Okay.
Sam Damiani: Thanks, Good morning, and congratulations to everyone on a great finish to the year a great operational results. Thanks.
Speaker Change: First question for me is just on I think the comment Jonathan.
Sam Damiani: Just wanted to comment Jonathan you made earlier.
Speaker Change: Heard it correctly there.
Speaker Change: No dispositions built into guidance, but does that mean like theres not a in any intention to dispose more.
Speaker Change: Assets, either in or outside the real kind of living portfolio in 2025.
Speaker Change: I wouldn't say that it's.
Speaker Change: Like such a straightforward answer Sam there is.
Speaker Change: Don't want to make any assumptions on market driven activities and so we've been quite conservative in our viewpoints I mean.
Speaker Change: If you're ever going to sell an asset whether it's a reoccurring living asset or just a straightforward income producing property in our retail portfolio.
Speaker Change: It's just it's hard to assume what you're going to sell in a market is as volatile as this although we do think that our assets are very strong and there is a sizable market part we didn't want to make any assumptions and we feel that the core business is very strong and will produce very good results without having to do anything on that.
Speaker Change: Disposition side, so we haven't put any of those assumptions into our business plan that said, we are assessing all of our options with respect to Rio can living as I've made clear and if we come to a conclusion that we feel we will execute on in 2025, it will have an <unk>.
Speaker Change: <unk> on the outcome of the year, probably a positive one but again, we'll we'll provide more clarity on that as the year comes into play. So I wouldn't give you like a binary answer like absolutely not we wouldn't sell or transact or monetize any of the Rio can living assets front I'm also not in a position to say that we absolutely would such that we.
Speaker Change: We would put it into our assumptions for the year.
Speaker Change: Got it makes sense.
Speaker Change: And our next question is just on the new leasing spreads, which are which once again, where we're.
Speaker Change: Pretty fantastic over 50% just like in Q2.
Speaker Change: You, maybe enlighten us as to how that metric is calculated as it is it measured on a same space basis or is it kind of apples and oranges, but based on the spaces leased and the spaces vacated.
Speaker Change: Just curious if that they'll how how representative that is of kind of the broader portfolio.
Speaker Change: Going forward I recognize there was an anomaly with the Canadian tire at least in Q2, I assume be yogurt goods and center lease may have driven the spread up in Q4.
John: Hey, Sam it's John Yeah, I mean, it's a very basic calculation, we just compare that.
John: Rent paid by the previous tenant at the end of their term versus the rents paid at the beginning of the term for the new tenants.
John: No.
John: Our other anomalous deals in there I would say, yes, there was a few but I would say that that's kind of a standard for the market right now and again as Jonathan said, there is such a mark to market between our average rent per square foot and what we believe market to be you can expect more of these quote unquote anomalous deals to happen.
Speaker Change: Okay, Great. That's helpful and last one for me I guess, just on the distribution bump, which was great to see especially in conjunction with the buybacks, but choosing to increase it over 4% this year versus just under 3% last year.
John: Was there a reason to go to that extra extra bump.
John: Is that okay.
Speaker Change: A piece of it which you will see I think sustainable.
Speaker Change: It's really just a reflection of our <unk> growth and again, if we can keep within that 60% approximately 60% payout ratio Sam.
Speaker Change: We will we will look to or recommend to our board that we raise distributions lockstep. So.
Speaker Change: There was no real science behind why it was 3% last year and four 6%. This year I think it's really just.
Speaker Change: It's just a product of how.
Speaker Change: How are F O F F O group.
Speaker Change: So long term range of 55 to 65 for grant.
Speaker Change: Yes.
Speaker Change: That's why we'll continue to do it if we can stay within that range.
Okay.
Speaker Change: That's great. Thank you I'll turn it back thanks, Tim.
Thank you.
Speaker Change: Next question is from the line of Mario <unk> with Scotia Capital. Please go ahead.
Speaker Change: Hi, good morning, just.
Speaker Change: A couple of quick follow ups from me.
Speaker Change: On the leasing the lease spreads in 'twenty five I continue to appreciate the extra disclosure you provide on.
Speaker Change: The lease removals between fixed rate and markedly deals in Q4, it looks like 91% of the reasons give or take went to market rate compared to 71% for Q4, what does that percentage look like.
Speaker Change: Five in terms of that low to.
Speaker Change: Mid teen lending spreads.
Speaker Change: Yes, that's going to it's going to stay in and around that 30% to 35% range that we've seen.
Speaker Change: Last few years Mario of course, we can have anomalies quarter to quarter. So there can be volatility in that metric.
Speaker Change: And on a quarter to quarter basis, but it's kind of like a rolling 12 month basis should be in around that 30% 35%.
Speaker Change: John did mention that there are some of the anomalies that we have in front of us over the next few years.
Speaker Change: In 2025 could be around getting some of those fixed renewals back and being able to take those to market.
That's a good opportunity for us in that cohort.
Speaker Change: Got it okay.
Speaker Change: My second question, just look to Ken living book value looks like it came down $2 billion.
Speaker Change: Quarter over quarter to 0.9 billion, which presumably includes me say Australia do.
Speaker Change: During the quarter.
Speaker Change: Were there any changes in terms.
Speaker Change: Cap rates discount rates.
Speaker Change: Cost in Hawaii.
Speaker Change: Sequentially.
Speaker Change: Yes, So I think the first thing I would mention is that.
Speaker Change: That number that was in our press release actually excludes the pipe value related to particularly acute create ashford. So that's part of the.
Speaker Change: Part of the change there was of course, the sales strategies, you mentioned add some kind of small fluctuations in our.
Speaker Change: Are valuations that.
Speaker Change: That was.
Speaker Change: It was related to just performance as this year up vacancy rates and a few things there which.
Speaker Change: What should be around $30 million.
Speaker Change: Okay.
Speaker Change: I think when they have equity in Q3 was $415 million almost equal on an apples to apples comparison that number would be closer to three times.
Speaker Change: Yes, that's about right.
Speaker Change: Alright, thanks, guys.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Rohit Gaurav with BMO capital markets. Please go ahead.
Okay.
Speaker Change: Thank you good morning.
Speaker Change: So a couple of quick ones for me.
Speaker Change: And in fact, all CASM guidance. So it doesn't factor in the impact of that which I know can be tough to predict but tablet done any sensitive sensitivity analysis to gauge potential events and how are you thinking about adjustments if tariffs do come into play.
Speaker Change: Sure. So we as you said, we specifically did not include any tariff adjustments eight hour.
Speaker Change: And our.
Speaker Change: Outlook.
Speaker Change: It.
Speaker Change: It's really hard to predict I think in different analyst reports that I've seen are different electronics reports I've seen it probably more than 15 different potential scenarios.
Speaker Change: If we look at economic downturns historically for Rio CAD.
Speaker Change: Like for example back to the Great financial crisis, we would've seen about 100 basis points decline in occupancy at that time with that said our portfolio of tenant mix is much better now than it was then so we would deal but we could see some impacts there.
Speaker Change: The offset or call it a bit of a natural hedge that we have in our income is that all of the predictions that I've seen around a slowdown in the economy are often accompanied with a decrease in interest rates, which would then have a pretty nice offset any any impacts there. So.
Speaker Change: It's very hard to predict we certainly run a lot of scenario analysis as you can imagine internally.
Speaker Change: But part of it is our portfolio is in great shape, our tenant mix is in great shape and.
There is a natural they are offset with interest rates to think about as well.
Speaker Change: Got it thank you and second one on proceeds from condensate incentives position. So you have already completed $32 million and disposition of last year and have more underperforming conditional agreements.
Speaker Change: Where do you see those proceeds going.
Speaker Change: And just on the condensate side I know, a big chunk and go towards paying off construction loans. So what's the what's the plan for the rest and train two and five.
Speaker Change: Right now our business plan has the majority of that going to just pay down debt and improve our balance sheet.
Speaker Change: Okay got it thank you I'll turn back.
Speaker Change: Thanks.
Speaker Change: Sure.
Thank you.
Speaker Change: I'm showing no further questions at this time.
Speaker Change: I'd now like to turn the conference back to President and CEO Jonathan Gatlin.
Speaker Change: Thanks, everyone for tuning in and we'll look forward to seeing you all at our next get together in May.
Speaker Change: Yes.
Speaker Change: This concludes today's conference call. Thank you all for your participation you may now disconnect your lines.
Speaker Change: Okay.