Q1 2025 RioCan REIT Earnings Call
Investment Trust Trust Trust Trust Trust
Speaker Change: Good day, ladies and gentlemen, and welcome to the RioCan Real Estate Investment Trust first quarter, 2025 Conference Call and Webcast. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Miss Jennifer Suess, Senior Vice President General Counsel, ESG, and Corporate Secretary, Mrs. B. May begin.
Speaker Change: Thank you and good morning everyone. I am Jennifer Suess, Senior Vice President, General Counsel, ESG and Corporate Secretary of RioCan.
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 strategy 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.
Speaker Change: to differ materially from the conclusions in these forward-looking statements. 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 principal measures, gap 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 earning or comparable metrics determined in accordance with IFRS as indicators of RioCan's performance, liquidity, cash flows, and profitability
Riocamp's management: RioCan's management uses these measures to aid in assessing the trust underlying core performance and provides these additional measures so that investors may do the same
Riocamp's management: 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 together with details on our use of non-GAAP financial measures can be found in the financial statements for the period ended March 31st 2025 and management discussion and analysis related there to, as applicable, together with RioCan's most recent annual information form that are all available on our website and at www.speedartplus.com I will now turn the call over
Director to RioCan's President and CEO , Jonathan Gitlin.
Jonathan Gitlin: Thanks, Jennifer, and thank you to everyone who's joined RioCan's senior management team for this call.
Jonathan Gitlin: I'm happy to have the opportunity to connect with you all today. I spent some time considering how best to describe the first quarter of 2025, and the word that I landed on was paradoxical.
Jonathan Gitlin: I know it's an unorthodox way to describe a quarter, and it's not a descriptor that I've used before, but it does feel appropriate. It's been a tough quarter, though you wouldn't know it based on results.
Jonathan Gitlin: RioCan continue to produce operational results demonstrating considerable strength and maintaining historic highs. However, the backdrop, well, it's been, let's say, turbulent.
Jonathan Gitlin: The macro environment is ripe with uncertainty including trade complex, economic instability, dampened market and consumer sentiment, and a general risk off approach to trading.
Jonathan Gitlin: In addition, Canada's longest standing retailer, Hudson's Bay Company, commenced in solvency receiving under CCAA.
Jonathan Gitlin: It's a rocky road. As always, RioCan is well positioned to navigate it.
Jonathan Gitlin: HBCCC AA filing is of course generating a lot of intention including the impact it'll have on the Canadian retail landscape and the impact on RioCan given our joint venture with Hudson's Bay
Jonathan Gitlin: The RioCan HBC Joint Venture was established back in 2015. In the intervening 10 years, RioCan and its portfolio have evolved tremendously.
Jonathan Gitlin: 94% of our rent is now generated from Canada's major markets and 88% comes from strong, stable tenants concentrated in the facility-based uses
Jonathan Gitlin: We've also lowered our payout ratio to achieve a leading position within the industry. We have a powerful and resilient business that can absorb these types of curveballs and ensure the sustainability of RioCan's distribution. . .
Jonathan Gitlin: We've written down our investment by $209 million as quarter which represents the vast majority of the NAB related to the joint venture.
Jonathan Gitlin: As you're aware, the situation is fluid and it'll take time before there's certainty on the outcome of all of the assets in the JV partnership.
Jonathan Gitlin: At this time, it appears clear that there is no wholesale option that will result in the ongoing continuation of the business on the same scale as HBC operated prior to its CCAA filing.
Jonathan Gitlin: We took a substantial write down of the equity value of our HBC interest on the basis that we don't foresee an outcome that results in the payment of our current rents.
Jonathan Gitlin: We feel confident in our ability to recover some of the value over time. We believe the market has priced in a downside risk that is more substantial than the probable outcome. Now I'll explain my rationale.
Jonathan Gitlin: First, our management team took appropriate contingency planning steps to be prepared in the event that HBC was not able to continue operating in its existing form and sought to commence restructuring or insolvency proceedings.
Jonathan Gitlin: In doing so, we were able to evaluate how RioCan might be impacted and identify potential options and alternatives from a legal and business perspective.
Jonathan Gitlin: Now, with the benefit of these prior contingency planning efforts, we're focused on taking appropriate steps within the context of HBC, CCWA proceeding to preserve value, protect RioCan's rights, and advance RioCan's strategic interests.
Jonathan Gitlin: Second, this is not our first experience navigating an insolvence entity.
Jonathan Gitlin: Consumer Behavior and Trend Devolve, and It's the Nature of Retail
Jonathan Gitlin: While the circumstances surrounding HBC are unique, we've seen and successfully managed through it when other large retailers exited the market.
Jonathan Gitlin: This management team has mitigated risk and created opportunities when retailers like Target and Sears liquidate it We're confident that opportunities exist to preserve value and we will seize those opportunities
Jonathan Gitlin: Third, for the Yorkdale and Ottawa properties where RioCan provided a guarantee or direct covenant with respect to the JV's mortgages, RioCan secured substantial security interests and lease termination rights in exchange that will enable value preservation.
Fourth, the capital structure within the JV allows ryokan flexibility.
Jonathan Gitlin: For the vast majority of properties in the JV, the structure of the property level debt allows RioCan to be judicious around capital expenditures. We will not invest substantial capital that doesn't deliver a return.
Jonathan Gitlin: To summarize, we're confident in RioCan's ability to preserve some value and income through this situation. Your management team is actively navigating through the process.
Jonathan Gitlin: While the path may not be linear, clarity will emerge in ways and we look forward to sharing our progress with you.
Jonathan Gitlin: Let's shift now to our outlook for the rest of 2025. There are obviously a number of variables to present challenges with respect to forecasting.
Jonathan Gitlin: That said, we feel that it's important to give our view on how we believe these factors will manifest in RioCan's 2025 results.
Jonathan Gitlin: We acknowledge that we previously provided 2025 FFO guidance of $1.89 to $1.92 per unit, while that guidance was given in a markedly different environment.
Jonathan Gitlin: The guidance included a range that accounted for a balance of risks and opportunities, including a substantial provision for macroeconomic volatility and subsequent retail disruption.
Jonathan Gitlin: Given the information we had available to us at the time, it did not assume a full liquidation of the HBC business and as a result did not accommodate for the entire FFO impact.
Jonathan Gitlin: Given the dynamic circumstances in which we're operating, we feel it is prudent to revise that range to $1.85 to $1.88 per unit.
Jonathan Gitlin: Guidance on all other KPIs remains intact, including annual commercial same property NOI growth of approximately three and a half percent.
Jonathan Gitlin: I will note that the factors contributing to forecasting challenges have also created an impractical environment for hosting an investor day.
Jonathan Gitlin: So, we have postponed the investor day that was initially scheduled for this spring. Rest assured, it is our intention to host an investor day as soon as the product is cold and will provide updated timing shortly.
Jonathan Gitlin: I'll now turn to our Q1 operating results and as I do, the paradox I spoke about a moment ago will be evident.
Jonathan Gitlin: Despite this environment, our core retail portfolio continued to perform. Every aspect of RioCan's operating fundamentals continue to demonstrate enduring strength and stability.
Jonathan Gitlin: We achieved record-breaking operational results and capitalized on opportunities to transition lower growth leases to high quality tenants and to realize the value embedded in our portfolio.
Jonathan Gitlin: A few highlights include committed occupancy remaining at a record high of 98% with retail committed occupancy at 98.7%.
Jonathan Gitlin: Double digits blended and new leasing spreads for the fifth consecutive quarter at 17.5% and 18.3% respectively.
Jonathan Gitlin: Commercial, same property, NOI growth was 3.6% bolstered by the benefits of high-quality back-to-leasing activity that was completed in 2024.
Jonathan Gitlin: We also completed $16.7 million in dispositions, including the sale of a Cineplex anchor property and post-quarter end. We sold the less productive portion of an open-air retail site in Quebec to an industrial developer for $37.5 million.
Jonathan Gitlin: RioCan Living's residential rental operations generated $7.5 million in NOI in the quarter, an increase of approximately 18% over the same period last year.
Jonathan Gitlin: At the same time, we progressed our strategy to unlock the value in our residential rental portfolio.
Jonathan Gitlin: As I've previously expressed, RioCan Living's residential rental portfolio is now a substantial and valuable business.
Jonathan Gitlin: You will recall that one objective we had in building the portfolio was to create sufficient scale to provide options for extracting value.
Jonathan Gitlin: I'm pleased to announce that we're advancing the option we believe will maximize value for our stakeholders.
Jonathan Gitlin: Over the next 12 to 24 months, provided we can achieve prices that approximate IFRS values, we will sell our interest in RioCan living residential rental assets, and we're off to a strong start.
Jonathan Gitlin: Strada in downtown Toronto was sold at a price above IFRS value in Q4 2024 And now RioCan has entered into agreements to sell its 50% interest in an additional four RioCan living assets, all for prices at IFRS values.
Jonathan Gitlin: The first of these is for RioCan's 50% interest in Rio in Calgary, which is firm and is expected to close in the coming months.
Jonathan Gitlin: We're also in advanced discussions on certain other assets within the RioCan living portfolio. We look forward to providing an update on these in the near future.
Jonathan Gitlin: RioCan living assets are unique. They're new and therefore have low cap ex requirements. They're not subject to rank control and therefore have strong growth profiles.
Jonathan Gitlin: They're in major markets and have transit at their doorsteps. These characteristics are generating interest from buyers and will continue to do so in the future.
Jonathan Gitlin: Upon closing, the proceeds from the sales of any RioCan living assets will be used accretively to pay down debts and to support our NCIV program.
Jonathan Gitlin: I would like to clarify what this means for RioCan living going forward. While we're selling our existing residential rental portfolio, RioCan living will continue to very much be a part of our business.
Jonathan Gitlin: RioCan will remain focused on maximizing value from our extensive mixed-use density pipeline.
Jonathan Gitlin: will maintain our internal infrastructure and capabilities to harvest valuable density. [inaudible]
Jonathan Gitlin: When the time is appropriate, we will either build additional makeshies properties or sell the density to be.
Jonathan Gitlin: If we choose to build, we'll pursue this to a structure that minimizes the impact on RioCan's balance sheet.
Jonathan Gitlin: This involves seeking outside investors to provide the majority required capital while RioCan will contribute its land and its expertise.
Jonathan Gitlin: The team that successfully built up and managed RioCan's formidable portfolio of mixed use access will be critical in this strategy.
Jonathan Gitlin: When times of turbulence, foundational strength is paramount. I can say two things for certain. One, these are unquestionably turbulent times.
Jonathan Gitlin: 2. The backbone of RioCan's platform is stronger than it's ever been [inaudible]
Jonathan Gitlin: The work we've done in the last ten years has resulted in a portfolio position for long-term productivity and stability.
Jonathan Gitlin: The strength of RioCan Foundation has been demonstrated by consistent quarter-over-quarter record high operating results.
Jonathan Gitlin: While the HPC CCAA filing and current macroeconomic volatility are disruptive and will have an impact, RioCan's portfolio has evolved, such that it is not dependent upon joint ventures or macroeconomic stability for long-term success.
Jonathan Gitlin: The road ahead requires patience, experience, focus, and skill. All attributes that define the RioCan team.
Jonathan Gitlin: This team is up to meet the challenges that lie ahead.
Jonathan Gitlin: RioCan's portfolio fundamentals will serve the trust well through this moment and long into the future.
Jonathan Gitlin: We look forward to providing you updates as we progress and at the same time, continuing to demonstrate the strength of our portfolio through consistently strong operating results.
Speaker Change: Before turning the call over to Dennis to discuss our balance sheet, I would like to ask John Ballantyne, RioCan's Chief Operating Officer to take a few moments to speak to some recent examples with highlight RioCan's ability to extract value from its retail portfolio in a variety of ways.
John Ballantyne: Thank you, Jonathan, and good morning, everyone. We've worked hard to reposition RioCan's portfolio over the last ten years, and as a result, we're well positioned to be resilient in the face of economic downturns and to capitalize on the market is strong.
Speaker Change: The portfolio's quality is evident in the operating results where Jonathan just walked you through, and a lie that our record occupancy and strong leasing spreads are not a three-month phenomenon, they are a proven recurring trend [inaudible]
Speaker Change: To this end, RioCan's ruling 24-month blended leasing spread is 15.2%, bolstered by an incredible 27.4% spread on new deals.
Speaker Change: Over the next few minutes, I'll highlight some of RioCan's recent tenant and property-level wins that demonstrate our ability to maximize growth.
Speaker Change: I'll start with the 10 rooms and spaces and bad boy boxes that were vacated in the first quarter of 2024.
Speaker Change: We provided updates as we progressed those backpills, but I feel that a wrap-up is appropriate
Speaker Change: Each of the ten boxes has been released to strong covenants and high traffic generating retailers including three grocery stores and two TJX banners.
Speaker Change: Seven of the ten backdoor tenants are open and paying cash rents
Speaker Change: Rent for the last three will commence over the next three to six months.
Speaker Change: In addition to demonstrating our team's ability to quickly replace struggling operators with strong retailers, these factils also highlight the significant upside rent potential embedded in our portfolio.
Speaker Change: The average year one rent achieved on the New Deals exceeds previous rents by 24%.
Speaker Change: Factoring in the annual rent growth achieved over the terms of the replacement deals, we achieved an average rent spread of 37.5%.
Speaker Change: Our ability to add value to our portfolio is not limited to situations where tenants vacate [inaudible]
Speaker Change: RioCan continuously reviews all properties in our portfolio to ensure the highest and best use of land is achieved.
Speaker Change: There are countless examples of those in RioCan history. I'll share two recent ones with you now. The first is RioCan Center Burlock in Oakville, Ontario [inaudible]
Speaker Change: The property is well anchored by logos, home depot, and several national food service and experiential brands.
Speaker Change: However, there's also 170,000 square feet of apparel space that is largely vacant [inaudible]
Speaker Change: Of the tenants that are operating in that component, a high percentage are classified by RioCan as transitional and are paying gross or percentage rents.
Speaker Change: This portion of the site is less productive than the standard we hold for our properties. In keeping with our strategy to maximize the value of our land, we implemented a plan to reinvent the center.
Speaker Change: This plan includes demolishing the underperforming component of the site to accommodate a new 158,000 square foot Costco, scheduled to open in late 2026.
Speaker Change: To free up the 16 acres of land that Costco requires, RioCan is terminating leases with the less productive transitional tenants and relocating the strong stable retailers to existing vacancies elsewhere in the site.
Speaker Change: The redevelopment will result in an annual NOI increase of $3 million. After deducting the capital required to complete the deal, invalidating the asset at the capric premium across Coincred site commands in the market, this translates into $21 million of NAV growth.
Speaker Change: In addition to this immediate financial return, the dramatic daily increase of consumer traffic flow generated by Costco will drive impactful growth for the entire site for years to come.
Speaker Change: To this end, the Costco Halo Effect has already resulted in the completion of 40,000 square feet of new easing with the TJX banner and a Sephora, both of which are back-filling existing vacancies at significant rent spreads.
Speaker Change: Our Megasantra Notre Dame site in Le Valco back is a comparable success story.
Speaker Change: This 510,000 square foot open air center is simply too large for the market and similar to RioCan Burlock contains a historically underperforming 260,000 square foot apparel
Speaker Change: This less productive portion of the site has chronic vacancy and is largely tentative by gross or percentage rent paying tenants [inaudible]
Speaker Change: New tenant demand has not been enough to justify the capital required to retain it and improve the aging infrastructure.
Speaker Change: In recognition of this, and as a means to extract value, RioCan work with its partner, the Harden Group, to negotiate the sale of a 27 acre portion of the site to Rosefellow, a Montreal-based industrial developer for a purchase price of $75 million.
This purchase price represents approximately 80% premium to I for S.
The transaction closed on April 22nd.
Speaker Change: In addition to monetizing an underperforming portion of the site at an impressive land value of $2.8 million per acre, we also fortified the remaining 278,000 square foot retail center.
Speaker Change: Productive retailers, including the Gap and Banana Republic, were relocated from the disposition lands, and new deals were completed with Sephora and Leveon Rose in existing vacant space.
Speaker Change: We consolidate land parcels through the purchase of buildings occupied by existing retailers, including
Speaker Change: New pads were developed on existing density to accommodate service Canada relocation and a new Krispy Kreme Bakery.
Speaker Change: And Star expansions were completed with Existing Tenants, Winners, Homesense, and Dollar Emma.
Speaker Change: The reinvented center is 100% occupied and features a strong stable tenant mix including grocery, pharmacy, banks, liquor and value retailers.
Speaker Change: These uses a line of RioCan's strategic direction and are critical for future revenue growth.
Speaker Change: Taking into consideration the proceeds from the land sale, as well as the capital cost required to sell the land and improve the retail component of the remaining center, the resulting value of creation is approximately $30 million at RioCan's 50% ownership interest.
Thank you very much.
Speaker Change: I provided just three examples that illustrate RioCan's ability to extract value from our retail properties.
Speaker Change: RioCan's portfolio is comprised of some of the highest quality real estate in the country.
Speaker Change: These locations combined with the strength of our strategy and team will continue to generate opportunities for growth and value creation. I'll now turn the call over to Dennis.
Dennis: Thank you, John , and good morning to everyone on the call. Ethical per unit was 49 cents for the quarter, representing a 9% increase compared to the same quarter of the previous year. This increase was driven by strong same property and a wide growth and higher condo gains, partially offset by increased interest expense.
Dennis: The quarter included $22 million of condo gains as we continue to progress well on inter-closings.
Dennis: Over the last two quarters, we had total interm occupancy of 673 units, a rate of 97%.
Dennis: Final closings are scheduled to begin later this month at UC2 and 11YB, so we will provide a further update in our next release.
Dennis: This quarter's condo gains were positively impacted by an $11 million cost contingency release relating to our UC projects as construction risk has decreased with the project nearly complete.
Dennis: Net income for the quarter was impacted by impairment charges relating to our investment in the RioCan HBCJV of $209 million.
Dennis: This impairment reduced our current value of the investment in the J.B. from $249 million to $41 million or 0.6% of RioCan's equity.
Dennis: As the schools previously, we have provided credit support to the JB in the form of guarantees relating to debt onto assets, totaling $87 million, as well as two mezzanine loans, totaling $39 million.
Dennis: RioCan received security interest in several assets as well as valuable lease termination rights and exchange for providing this credit support.
Dennis: We have assessed that the security received is sufficient to cover this exposure.
Dennis: The remaining debt in the JB is non-recourse to RioCan, meaning that our exposures limited to the aforementioned investment carrying value and credit support.
Dennis: RioCan has no obligation to inject further capital into the JV and will remain disciplined in allocating capital to any of the JV assets.
Dennis: We will ensure that any additional investment generates returns that are competitive with alternative uses.
Dennis: Our now pre-unit was $24.62 as at March 31st, compared to $25.16 at December 31st, 2024.
Dennis: The decrease was attributed to the previously mentioned impairment of our investment in the RioCan and HPC Joy Venture.
Dennis: This was partially offset by retained operating income that we accumulate on our balance sheet each quarter due to our loan pay or ratio and the effect of NCIB purchases as we repurchased $60 million worth of units at a price below nap.
Dennis: Even with the JB-related write-down, our now pre-unit remains at a significant premium to the trading price of our units.
Dennis: Based on yesterday's closing price, our units are trading at a 31% discount to our nav per unit.
Thank you.
Dennis: Are now continues to be supported by the sale of assets as it has been for the past few years.
Dennis: This includes four RioCan living assets and the excess land that make a central note to them in the vocal action. Once again, highlighting the embedded value in our portfolio.
Dennis: In total, over the last three years, we have closed 40-asset sales for a total of $942.1 million at values that support our IFRS nap.
Dennis: This is evidence of the continued disconnect between our unit price and private values that we are able to achieve.
Dennis: Our balance sheet continues to be a top priority with steady improvement across the number of metrics.
Dennis: Net debt to EBITDA for the quarter was 8.96 times, continuing its steady decline.
Dennis: We expect this to continue over the balance of this year and into next as we close on condos and asset sales.
Dennis: Including the repayment of mortgages, subsequent to quarter-end, we improved our unsecured debt to total debt ratio to 58.6%.
Dennis: Compared with 55.7% a year-end, while increasing our unencumbered asset pool by $605 million to $8.8 billion, remaining on track to reach 60% of unsecured debt to total debt violated this year.
Dennis: During the quarter, we raised $550 million unsecured to venture financing at an average rate of 4.05% and an average term of 4.8 years. This was used to repay existing debt, including secured mortgages, while also maintaining $1.4 billion of liquidity. [inaudible]
Dennis: RioCan's corporate folio of well-located necessity-based retail assets continues to demonstrate the ability to grow as our team delivers strong operating and financial results.
Dennis: We are leaning into this core portfolio as we simplify our business, with a focus on maintaining strong free cash flow and continuously improving our balance sheet.
Dennis: Our lone pay-a-racial provides us with capital that can be reinvested in this core business to drive growth and support our attractive distribution.
Dennis: Arnav, as they continuously supported through the execution of open market transactions. [inaudible]
Dennis: The disparity between private values as evidenced by these transactions and the public unit price presents a substantial opportunity to acquire a best-in-class portfolio characterized by strong, reliable and expanding core cash flows at a very attractive discount.
With that, I will turn the call over for questions.
and the rest of the team. Thank you. Thank you.
Dennis: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad.
Dennis: As a reminder, if you're using a speaker phone, please remember to pick up your handset before asking your question.
We'll pause here momentarily as questions are registered. Let's start.
Speaker Change: Our first question comes from the line of Lorne Kalmar with the Deschardines Capital Market.
Your line is now open. Thanks.
Lauren Kalmar: Thank you, good morning, and thanks for all of the color around HPC. Maybe I'll digress from you back to start in.
Lauren Kalmar: Go to the condo side of things. It looks like, you know, the trends in Q4s contain the Q1 lot of good results there, but there seems to be rumbling, bubbling up again. I just wanted to get an idea of what you guys are seeing if there's any incremental, if you're any more concerned. What are you doing?
Lauren Kalmar: about the closings that you were in two, three months ago.
Speaker Change: Hey, good morning, Lauren. The condom market is, I would say, um...
Speaker Change: It's tricky, but it is consistent with the guidance we provided. We had…
Speaker Change: in our guidance, approximately a 6% default rate built in. We've done better than that, as you can tell from the intermoaccupancies to date that are closer to between 96 and 97%, but we're still holding firm on that 6% default rate, because we do think that the remainder of the year will be a little less stable and a little less predictable, because first of all, as you progress onto the list of units,
Speaker Change: You're getting now further into the cycle where these units are a little bit later stage, meaning that they were sold at a bit of a higher price, which means that the differential between those prices and market prices are a little bit, you know, they diverge a little bit But that said, the same protections help us in that we have deposits that are fairly significant at 20% or approximately 20% And you know, we've got firm commitments from these vendors to close as well, or sorry, these purchasers to close [inaudible]
Speaker Change: And many of these buildings have been pre-approved for mortgages. So we think the risk profile, I mean, the overall market tone is average at best, but the risk profile for RioCan living assets is slightly lower because of those factors.
Speaker Change: Okay, can you remind us which of the buildings have been had it pre-approved in terms of the appraisals?
Speaker Change: Sure, UC Tower, and 11YV, and I believe it's okay to overt and overt, sorry.
Speaker Change: Invert, okay. So Queen and Asperger's, it looks like the lone one that happened.
Speaker Change: Okay, and then maybe just last one from me on the RioCan living side that congrats on making some good progress there. Just trying to get an idea.
Speaker Change: What does the buyer follow quite? Is it predominantly your existing partners or are there a lot of folks out there looking to acquire an interest in apartment buildings?
Speaker Change: It's the the ladder. There are a lot of people as they're looking through acquire this type of asset which as I mentioned in the in my prior notes are new no rank control in major markets transit oriented part of bigger mix use projects.
Speaker Change: There's a lot of interest in that type of asset class, so we're seeing a broader spectrum of interest as we had predicted. It is such a great portfolio.
Speaker Change: Okay, so, so fair to assume that not necessarily all of them will be bought up by the by the J.B. partners. That is a fair assumption, Lauren, for sure.
Speaker Change: Okay, thank you so much for the call and I'll turn it back. Thanks a lot.
Thank you for your questions [inaudible]
Speaker Change: Our next question comes from the line of Mike Markis with BMO.
It's now open. Morning, Mike.
Thank you.
Dennis: Good morning. I hope you can give us a little bit more granularity just with respect to the impact of...
Dennis: for the decrease in your guidance, just sort of, I think you mentioned that there were some favorable impacts on the development costs. I don't know if that relates to the $11 million contingency, really, as you spoke to. And then how we should be thinking about the flow through of the anticipated effort or loss.
Dennis: from HPC to just assume that the stores go vacant. Is there any capitalization there? Anything you can offer would be helpful.
Dennis: Yeah, Mike, so thanks the question. So what I would say at this point, the way we've done it is fairly simple as the situation is fluid.
Dennis: We had disclosed in our March 18th press release an impact of…
8% sense per year of FFO impact as the...
Dennis: kind of like the maximum exposure. All we've done is annualize that. So we know we have payments to to the end of May based on the quarter proof occupancy rents.
Dennis: that we're receiving, so we just take kind of an annual rate against that $0.08 and that gives us $0.05 negative impact from HPC through the guidance, and then that's offset by a $0.01 favorable on Kornagans.
million-dollar favorable cost variance on our condos.
Dennis: In the first quarter, we have not taken all of that. In fact, we've taken a quarter of that through the guidance forecast, leaving some incremental risk buffer in the forecast forecast for the bells of the year, given Jonathan's comments around the cotton market.
Thank you.
Thank you.
Got it. Okay, now that's helpful. Thank you.
I guess as the... [inaudible]
Speaker Change: I know that the outcome of the HPC JD is not, I'm sorry, I don't want to distract him, because first of all, on the strong results within the corporate point, but seems to be having a long quite nicely there.
Speaker Change: But just as we go forward, I'm just trying to think of, you know, you've got the potential people, but that's going well on the condo side. But what about the $100 million or so of not contracted pre-so revenue? Because if I look at your disclosure,
Speaker Change: The timing of UC3 seems to have been bumped up. I'm not sure if that's a type of or not, but what happens when accounting and ethical perspective is if those presells don't, or the unsold inventory doesn't get contracted and sits on your books.
Speaker Change: Yeah, so what we've done from a forecasting perspective is we have assumed no sales of unsold units until 2027.
Speaker Change: So there's none of that unsold revenue is actually in the forecast at this point so we really have isolated the the risk down to default on pre-sold units.
Speaker Change: which would include UC-3. That will pose over the balance of this year. It should be a little bit later in the year, although construction is going quite well there. And we have...
Jonathan Gitlin: The team, while we give a 6% general guidance, as Jonathan mentioned, we push more of that risk of higher percentage of the later of the year because that particular project is sold at a higher sales price per square foot.
Jonathan Gitlin: So, I think, you know, just, the quick summary is, we've accounted for the risk on the, on the pre-sold units, and we've assumed no sales of honey and sold units.
Jonathan Gitlin: Now, we do have some communications strategies we're working on in terms of, you know, not having a drag there, so we have deals we're working on with some.
Jonathan Gitlin: Rent those years out while the market is in this kind of slow flux.
Thank you very much.
Speaker Change: Okay, and in a bulk rental scenario, what that means, you become the landlord and effectively a portion of those condos become income producing?
Speaker Change: Yeah, they would become, we would be the landlord, we have to work through the accounting on the exact terms of what those leases are going to be in terms of duration if they were to be taken pretty sick first of just
Speaker Change: Staying in mentoring, and this is holding income, so that's how they were working together, but certainly out [inaudible]
Economically, we'll be making some rents there, it would...
Speaker Change: be enough to at minimum offset any kind of FFO drag from having to pay, you know, property taxes and make it seem, et cetera, on those. So that's how we can protect that situation.
Thank you.
Speaker Change: Okay, I will turn it back. Thanks so much. Thanks. Thanks.
Thank you.
Thank you for your questions.
Speaker Change: Our discussion comes from a line of Mario Saric with Squishy Bank
Mario Sarek: Your line is now open. Hi, good morning. Morning, Marianne. Thank you and good morning. I just...
Speaker Change: Well, so you can hear me okay? Just on the Unreal Can Living and just want to clarify, Jonathan, you mentioned that in a resolution, the expectation is we can talk 24 months that the equity interest will have been sold, is that correct?
Speaker Change: Yes, that's our intention. I mean, it's obviously contingent on market, you know, on the market, but that is our intention.
Thank you for watching.
Speaker Change: Okay, and then does the sale of the four 50% interest?
Speaker Change: The vet indicate that your plan is to kind of piecemeal out the portfolio over time, like individual asset sales.
Speaker Change: Or is it necessary to change or not certain at this point? [inaudible]
Speaker Change: Our plan, Mario, is to maximize value, and if the best way forward is to do it, as you say, piecemeal, then we will do it that way. If there is a broader portfolio opportunity that also allows us to maximize value, but minimize execution risk, then we would pursue that, so it really does depend on which avenue maximizes value, whether it is individual or bulk sales.
Speaker Change: Okay, and can you share the total estimated growth in that proceeds for the four that are for them slash conditional or provide a range?
Speaker Change: We will provide an update as soon as those deals get clarified or at least go firm.
Speaker Change: Okay, and then just maybe switching over to HBC, I appreciate the...
in terms of incremental capital.
Speaker Change: Going forward that you would have to require or it would require an attractive return on investment. What point do you think you'll be in a position to kind of identify and kind of think about what the incremental capital of the HBC may be?
Speaker Change: That's a tough one to predict. We're in the midst of a pretty fluid process.
Speaker Change: I think what we're going to determine now is the court process on lines is a better timeline.
Thank you.
Speaker Change: Within this year, within 2025, we'll have a much more clear understanding and hopefully by Q3 we'll have a much more clear understanding. As you can imagine, there's a lot of stakeholders involved in this and a lot of them have a voice in how this all comes out. But again, I need to reiterate that point that regardless of the other stakeholders. There's a lot of stakeholders involved in this and a lot of others.
Speaker Change: Our obligations and liabilities are ring-fenced here and we don't have to go beyond those current obligations And the only way we would is if there is a logical outcome for RioCan share unit holders So that will again I think become clear with the throughout the course of the next
Speaker Change: Several months and our pledge to you is that we'll continue to provide good disclosure around that process, but I can't pinpoint a date at this point in your round.
Thank you.
Muriel: Okay, that's where I appreciate that. My last one just on me.
on the core portfolio. [inaudible]
Speaker Change: As some have mentioned, the course that's remained quite strong. Are you seeing any change in ten of behavior, any incremental changes in your watch list with respect to the Tariff uncertainty that's kind of merged in the past two, three weeks? [inaudible]
Speaker Change: Very limited at this point, we're still seeing strength and growth. I mean, keeping in mind that 88% of our tenants are strong and stable and the brick and mortar profile that they currently have is very much a part of their business and I think they're looking to grow it.
Speaker Change: In an economy like this, and with some uncertainty around the tariffs, you will see contracts around the edges, but I wouldn't say anything extraordinary, so smaller businesses, some discretionary uses like restaurants and independent and independent.
Speaker Change: But really, our watchlist hasn't changed nor have the tenant's seeking growth [inaudible]
Speaker Change: It's been a fairly consistent story over the last number of quarters and we really don't see a catalyst to have that stop because again, just to reiterate, even in the face of a slowing economy, we still have that benefit as retail landlords, particularly where we're positioned, where there's just no space. And so I think wherever we do have space available we're going to have space available.
not a lot of alternatives.
Speaker Change: Particularly given the strength of RioCan's portfolio and the demographic profile we...
we have.
Speaker Change: Got it. Yeah, I did notice the high retention ratio. Thanks, Jonathan.
Speaker Change: Thank you for having me, Mario. Just quickly, if you don't mind, I'll come back to that the question you asked about the gross proceeds, so we disclosed total for a closed firm and conditionals of 240 million dollars. Here's a bout.
Speaker Change: $50 million of that is retail assets based on our discloser so you can kind of back into about $185 to $190, let's say, of close proceeds from the real care living sales. So I was being cagey for no reason. I have to go back.
Thank you very much.
All right, thanks.
Thank you for your questions.
Speaker Change: Our next question comes from the line of Pammi Bir with RBC Capital Market. The line is now open.
Thanks, I'm warning everyone. Jonathan, I think at the outset,
Speaker Change: You mentioned using the proceeds from RioCan Living to re-purchase units.
Speaker Change: Okay, down death, you know, just giving over the unit prices and, you know, not even acknowledge that it is.
Thank you very much.
Speaker Change: Paul Beck, you know, how do you see the split between those two, you know, between the buyback and paying down debt? Or perhaps just preserving some capital for the reinvestment that you may need, I guess, on some of the HPC space?
Speaker Change: Well, I think, first of all, preservation of capital and paying down debt are one and the same. If you pay down debt, that means that you have access to that capital going forward. And as we suggested, the capital required for the HBC space is only going to be utilized if it were created to return for us.
Speaker Change: And I don't think there's going to be immediate needs for that other than the three stores in our Oakville Place, George and Mall and Tanger Outlets where we have control of those assets and we've already got significant.
Standard Interest
Speaker Change: where we will be putting in some capital to extract that interest or that increase in rent.
Speaker Change: So I don't think that's a major factor to the HBC capital factor. The other question, though, the other part of your question is on the around paying down debt and buying back shares. Look, the NTIB program is something that we enthusiastically participated in in Q4, and that was really as a result of August of the year.
Speaker Change: was really as a result of the fact that we had incremental capital coming in above our business plan to the disposition of some assets.
Speaker Change: And, quite honestly, if that opportunity arises, we will absolutely take advantage of the NCRB program. We're currently trading at a 11% FFO yield, and this is a portfolio that we very much like, know, and trust. And so I think it is a very good place to invest our unit holders money. That said, we also made commitments to get our debt levels and our net debt, the EBITDA, in a specific level by the end of this year. And we fully intend on filling that commitment.
Speaker Change: So where there is additional capital that is incremental, we will look to the opportunity to put it in our NTIB program.
Thank you. Thank you.
Speaker Change: Yeah, the only thing I would add is, well, Pammi, that's important to remember, in terms of having incremental capital to reinvest in our business. Our development program is winding down. We're getting condol proceeds back, so that's going to help this year. When we look at 2026.
Speaker Change: We have the neighborhood of $20 million only of committed development spend next year, so we have, when we think about our payout ratio and the $150 million plus dollars that we retain every year after our...
Speaker Change: Distributions and Maintenance Capital obligations, that capital is going to be available to reinvest in the business and effectively, you know, focus in on that core business. So, capital is, you know, going to be there structurally based on how we've set up our our pay a ratio. [inaudible]
Speaker Change: Okay, that's helpful. Just coming back to the THBC, in terms of the right time that you did take the $209 million, you mentioned some assumptions on releasing it in your disclosure. So can you just expand on that? How many stories did you assume are released or...?
Speaker Change: Captain Solve, I don't know, demolished anything you can share on that front.
while the reality is likely going to be quite different.
Speaker Change: into the business. We effectively ran a scenario where we assume releasing of all the spaces, so we just treated everything as retail for the purposes of this quarter's valuation, so incorporated rents.
Speaker Change: Capital, Downtown, Time, et cetera, in the model to come up with a value that is an absent HBC as a tenant situation and that's all run that are 22% interest.
Speaker Change: So that's how we had to do it at this point in the process. We will refine that obviously as we get into the later parts of this process.
Speaker Change: If we probably won't own 22% of all of these assets, we may end up owning 100% of some of them or...
Speaker Change: Certainly the ones that Jonathan mentioned in terms of Oakville and Georgian are ones that we certainly think we could see an increased ownership there based on a security interest and a pretty clear path. But the reality is likely to be quite different. We just had to pick a scenario for accounting purposes.
Speaker Change: Yeah, and so I think because the situation is fluid in the stolen ongoing core process, including the lease monetization program and the system program, it's it's too early to give you a better sense of which ones would be demolished and which ones would be released and which ones would be developed.
Speaker Change: But I think we have plans on every single asset for any different scenario but we have to wait until the landscape becomes a little bit more clear before we can provide color on exactly which avenue we would pursue.
Speaker Change: Okay, and then just maybe lastly, on that, you know, the debt is not a recourse on most of it except I think with the two properties being the exception. I mean, there's the possibility that frankly, you can simply end back in case.
Bye.
That possibility exists, yes.
Speaker Change: I mean, the other possibilities that the debt could be restructured, so this equity that we see on the ballot sheet, we've written down the assets, but haven't adjusted any values of the debt as well. So that's the other kind of, I guess, different way to just play out. Yeah, but we'll be working with all other stakeholders to pay for, including lenders on the properties. [inaudible]
Thanks very much. I'll I'll turn it back. Thanks, fine.
Thank you for your questions.
Our next question comes from the line of Matt Kornack, [inaudible]
with National Bank Financial. [inaudible]
Do you want to sign with them please? What are they?
Speaker Change: Good morning, guys. Just quickly to follow up on the HPC side. Can you give us a sense? It may be kind of...
Speaker Change: There's some complexity around the timing and the process, but are you starting to get inbound interest from potential tenants for the space? I know that was the priority of yours.
Speaker Change: to kind of find tenants, Georgian Mall and Oakville Place I think are probably easier and I think you're alluded to maybe some progress there but broadly speaking are you seeing interest in the space at this point?
Speaker Change: Discussions you can have, but we are informally we have a sense that there is interest in a lot of the space but nothing is formalized at this point because of this process.
Thank you very much.
Speaker Change: that JV would contribute, should we understand the, let's say in a hypothetical situation where you kept all the assets and they were vacant, that they would essentially be put into kind of properties under development and you'd capitalize interest and not have to cost associated with them or capitalize that cost into the repositioning.
Speaker Change: So we haven't that exact accounting assessment based on the facts and circumstances of each asset as we go forward in what those plans are, but I would say that past precedent specifically around target would imply that what you said is correct.
Speaker Change: And then lastly, for me, it looks like, and I don't know if this is a-
Speaker Change: Seasonal Pickup and Leasing Activity, but your RioCan living portfolio occupancy at both 450 to well as well as the broader portfolio seem to improve from March to May. Is that an indication of you guys being aggressive on the leasing side or is that the function of just the spring market is looking a little bit better on the multi-family side?
Speaker Change: I think it's historically supermarket always looks a little bit better so I would say it's seasonality But it's a great portfolio and we think that it attracts a lot of interest spring summer or fall but we do think that the uptick and trend
Speaker Change: This quarter is over the last is due to a stronger spring market relative to winter.
John and the further thoughts on that? Yeah, no, not at all
, , , , , ,
Speaker Change: I guess more broadly and obviously there's been a new supply of condo product in New Report for you as they're facing.
Speaker Change: Overblown to some extent at this point, or is your portfolio just outperforming the broader universe?
Speaker Change: I think our portfolio is not performing a little bit because of those attributes that I spoke about but I definitely think there is a little bit of saturation in the market right now. You've got in Toronto alone 30,000 units being delivered and then those are mostly in the hands of investors who are really willing to undercut the market just to get someone in their units. And I think that will inevitably have an impact on the broader rental market. Thank you very much.
Speaker Change: quite unique in many respects. I've already gone through the attributes and I think that'll insulate them a little bit, but we definitely think that growth this year is going to be a little bit slower than growth last year. And occupancy is probably going to be a little, I would say it's going to be fairly consistent throughout the year. We don't predict a lot more growth in it as a result of that saturation. So I'm giving you a balanced answer quite intentionally Matt because I do think the Toronto market in particular is going to see some short but it's going to be going to be a little bit slower than the Toronto market in particular. So I'm giving you a balanced answer. I'm giving you a balanced answer.
Speaker Change: Term, Turbulence, but I think long-term, it's an exceptional market and you'll be on 2025.
Speaker Change: Perhaps into a little bit of 2026, you're going to see a lot more volume and I think if anything you look at the success we've had on our RioCan Living Dispositions, there's a pretty sizable endorsement from buyers who are paying aggressive cap rates because they view that there's a lot of growth involved in those assets. [inaudible] I'm sorry, I'm sorry, I'm sorry, I'm sorry
Speaker Change: The only other thing I would add, Matt is there's, you know, there's market rents which seem to have stagnated, but then there's the rents in our portfolio where we had renewals over the last couple of years where we did not increase.
Speaker Change: The rents all the way to market so when in years when we saw 20% growth in market rents we were raising rents single digits, so that does still leave some catch up for us to make up this year.
[inaudible]
Speaker Change: And maybe just one last one on the core retail portfolio and your least maturity profile. It seems like for the last couple of quarters you've been getting 28 net for rent and last year it would have been 25. This year I think that represents kind of that mid-teen market market opportunity. Next year you have a bit lower.
Speaker Change: in place rents. Is that a function of the potential fixed rate noodles, or where those assets are, or do you expect kind of a bigger spread the next year as a result of where those rents are relative to what you've achieved market rentalized over the last couple of quarters?
Speaker Change: I think it's largely a byproduct of the fixed renewals we have for next year and the nature of the space, but we still feel the market. It's not as a result of us seeing the market change.
Thank you.
Speaker Change: The mid-teen spread or mid-to-high teen spread is we should assume that to be consistent for this year and next thing up.
presently.
We provide a guns for this year of routines.
Thank you very much.
Speaker Change: And we'll provide further guidance into next year once it becomes more clear.
Speaker Change: But we think it's a very strong market and I don't see a catalyst. I mean, even with as I said to one of the last analysts, I don't see a catalyst for the retail market to slow not because I've been saying the economy is going to get marketly better but rather because I really think that
Speaker Change: The available space, quality space is so limited, and the demand is still very strong, so we really do think it's a very good environment for us.
Speaker Change: Yeah, Nick Ernst, and it's been coming through in the results for sure.
Thank you for your questions.
Sam Damiani: Our next question comes from the line of Sam Damiani with TD Securities [inaudible]
Your line is now open. Thanks.
Sam Damiani: Thank you. Good morning, everyone. Thank you for one last question to sneak in here or maybe two. I guess first off, just on the RioCan living Jonathan, your opening remarks were such that the business remains part of RioCan.
Sam Damiani: Does that mean that the rate would see the opportunity to build back up portfolio of own department buildings as attractive sometime again in the future? Or is it more just a development strategy going forward?
Sam Damiani: It certainly means that we could have an ownership interest, but it's going to be, as I suggested, a lesser ownership interest. Our view is that we've got valuable land that will contribute. We've got very good expertise that will contribute. And if the, you know, if the path forward at the time is logical to build out those assets and retain a minority interest in those assets, then we would absolutely be open to doing that. [inaudible]
Sam Damiani: that we wouldn't also look to be a little bit more merchant in our views where we are to sell the existing density, or we build and then sell our interests. But I think any of those opportunities are open to us. We haven't put definitive parameters around each one's name. We will not or we will absolutely do.
Speaker Change: Okay, that's helpful. And last one, just on the sale of, or I guess the...
Speaker Change: Redevelopment or repositioning of these two properties which were a huge success is obviously LaValle, this quarter and then last year with Boraloke, John , is there another one or two of these deals that you could bring forth in the next year, like these are obviously huge wins.
Speaker Change: Absolutely, Sam, as a team, go through the entire portfolio every year.
Speaker Change: in dedicated meetings. We have an asset management team that is constantly going through each one of our assets just to determine not only where there's some hidden opportunities, but where we think the highest and best use isn't being achieved. So there are a...
Speaker Change: A whole bunch of these gems. It takes a little while to, I would say, unbarry them sometimes, but very pleased on the on the progress, both the burlok and the result of the sale and in the mega-sign for Notre-Dame
So, stay tuned.
Speaker Change: Great, thank you and I'll turn it back. I'm looking forward to it. I'll turn it back.
Thank you for your question.
Speaker Change: Our next question comes from a line of Dean Wilkinson with CIBC.
Your line is now open. Thanks.
Dean Wilkinson: Thanks, morning, guys. Jonathan, maybe I just go back to your paradox on the paradox.
Speaker Change: The view that you hit with RioCan Living and the realization that perhaps this is something best you divest of
Speaker Change: Was that just because you hit a big enough size to do it? Or was perhaps the thought that you've hit a big enough size that maybe RioCan living was starting to dilute the value of an otherwise healthy retail portfolio, which is kind of core to your DNA?
Speaker Change: I don't think it was, I don't think RioCan live in could ever be viewed as dilutive to our quality, it's an exceptional
Speaker Change: Portfolio, and I think it's always typically married with good retail uses.
Speaker Change: So from both the qualitative and quantitative perspective, I definitely think it's a high quality aspect of our portfolio. We wanted scale so that we'd have a number of options, whether it would be a broader spinoff, whether it would be something that we would keep within the portfolio if we were seeing multiple recognition, or maybe it would be a disposition the way we've currently proceeded. And in order to assess that properly, we felt we needed a certain element of scale which we achieved. And so now that we've done that.
Speaker Change: We've assessed how best to extract value and the way we've proceeded is the best way to extract value You know, I think I think we were not seeing any real multiple lift in our unit price as a result of that portfolio being in its current in its current state and in speaking to a number of investors, there was a recognition that that wasn't going to change and were active asset managers and we want to bring value to the table for our unit holders as best we can. So this path forward was in recognition of the fact that we simply
Speaker Change: We weren't getting maximum value in the current status quo, and we wanted to take, I think, prudent action to extract that value. And I also think you can't ignore the fact that when you have the opportunity to sell at a very low cap rate, and then buy, let's say, units of RioCan back at an 11% FFO yield.
Speaker Change: The map does also help answer the question, but I think it wasn't that. That's more acute. Our view on this was much more larger and strategic than just the fact that we can trade out of one and into another at very creative returns.
Dean Wilkinson: And just on one of your points, Dean, I think what we see here is what this sale, as well as concluding on the condo program, which we will do substantially over the bounds of this year, we do see a...
Dean Wilkinson: A simplified, core, very strong, high-performing retail portfolio that remains. And I think you would agree based on the way you ask your question, that that is something that will be attractive to investors.
Dean Wilkinson: It's what you guys have been known for for 30 years, so a little bit of going home.
Speaker Change: And then maybe just one on the HBC not to let it die. Are any of those properties separate title or severable so that you could just totally ring fence it and just like maybe sell it off and let someone else go with it or do they have to be dealt with in the totality of sort of the packet?
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Speaker Change: So, if you look at this three buckets of properties, one is the ones we were already spoken about where it's George Amal, Oakville Place, and Tanger outlets which are actually part of a broader shopping environment that we already own and we wouldn't want to sever that off and sell it because we think there's a significant amount of value we could extract to add to our existing shopping center. Then there are a number of HPC locations that we own, but they're part of a broader, bigger shopping environment that we do not own. [inaudible]
Speaker Change: And those are separate because there are separate parcels which permitted us to have these long-term ground leases or actual freehold title and so there we are free to sell or to enter into another arrangement that is long-term, there is flexibility. And then the last bucket are the I would call them flagship stores and downtown locations which are standalone stores so by their very nature they are separable because there's nothing really to sever them from. [inaudible]
So, hopefully that gives you a good backdrop, please.
That does. Perfect. Thanks, guys. Appreciate it. Great. Thanks, Dean.
Thank you for your time.
Thank you for your questions.
Speaker Change: I am showing no further questions at this time. I would now like to turn the conference back to President and CEO Jonathan Gitlin.
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