RIOCF Q3 2025 Earnings Call
Operator: Good day, ladies and gentlemen, and welcome to the RioCan Real Estate Investment Trust Third Quarter 2025 Conference Call and Webcast. As a reminder, this conference call will one. I am Jennifer Suess, senior vice president general counsel, ESG and corporate secretary of RioCan. Before we begin,
Jennifer Suess: I am required to read the following cautionary statement. 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 objective its strategies to achieve those objectives, as well as statements with respect to management's beliefs, plan estimates, intentions, and similar statements concerning anticipated future events results, circumstances, performance, definition prescribed by IFRS and are therefore unlikely to be comparable similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net earnings or comparable metrics determined in accordance with IFRS as indicators of RioCan's performance, liquidity, cash flows and profit RioCan's management uses these measures to aid in assessing In making these forward-looking statements, together with details on our use of non-GAAP financial measures, can be found in the financial statements filed yesterday and management's discussion and analysis related thereto as applicable, together with RioCan's most recent annual information form, that are all available on our website and at www.sedarplus.com. I will now turn the call over to RioCan's President and CEO, Jonathan Gitlin.
Jonathan Gitlin: Thank you, Jennifer, and good morning to everyone joining us today. We are pleased to share our Q3 2025 results. RioCan's operating momentum accelerated this reflect con Q3 retention ratio of 92.7% highlights the value tenants place on space in RioCan assets. This demand translated into strong performance with commercial same property NOI up 4.6%. RioCan is operating from a position of strength. Our performance is driven by a number of factors but relies heavily on our focus on tenant quality and disciplined asset manage from top-tier necessity-based retailers. These retailers are not just getting by. They are focusing on growth. They are proving out their strength and ability to thrive in any economic backdrop. These tenants exemplify the caliber of retailers that can comprise RioCan's portfolio. This supply-demand imbalance is most acute where RioCan's assets are concentrated. Our properties are in Canada's major markets with an average 277,000 people and a $155,000 household income within five kilometers. Our strategy is straightforward. We optimize our portfolio by selling For the current environment, and we are pleased though not at all surprised, to see our portfolio and tenants performing exceptionally well. This is the benefit of a tenant mix that features necessity-based retailers with strong balance sheets, that provide everyday needs. Canada remains an attractive market for our tenants, and our centers are ideally located to support their growth. RioCan's leasing spreads remain at record highs. We There are 10.7 million square feet of leases coming up for renewal at a relatively consistent pace over the next three Combined with our at the same time, we are retaining strong established tenants to reduce downtime and capital requirements. high-quality tenants for our properties. When opportunities emerge, we Alternatively, we also like to help our reliable established tenants expand their existing footprints within our assets. We put our platform to work and we help those tenants by seeking out opportunities in adjacent and surrounding space and help them execute on the enhancement and expansion of existing space. We are excited to share a number of examples to demonstrate this strategy at work later this month at our Investor Day. Our strong quarterly performance beyond the numbers. It reflects the quality of our portfolio, and the discipline behind our strategy. We previously indicated our plan to repatriate Interest in six Based on the quality and desirability of our RioCan Living assets, we are highly confident in our ability to continue to monetize these assets and to put the capital to work accretively in the numerous capital allocation opportunities we have at our disposal. Our business is rooted in a well into the future. I will wrap up in a moment. But before I do, I would be remiss if I did not mention that our commitment to excellence was further validated by our impressive performance in the 2025 GRESB assessment. Among other recognitions, we maintain regional sector leader status in The Americas under the retail sector and the first rank among North American retail peers in the standing investment assessment. So as we look at our outlook remains aligned with the guidance we provided in the first quarter. FFO per unit of $1.85 to point eight Quality. Necessity-based retail space, and Canada's major markets. Our leasing strategies are fueling organic growth, and our disciplined capital management is amplifying my growth now and for the future. We are excited to share more at our Investor Day on November 18. Our team is energized. Our strategy is clear and our portfolio is positioned continued success. Thank you for your time today. I look forward to your questions. And This increase was driven by 4.6% growth in same property income in our core commercial portfolio the benefit of unit buyback. Partially offset by high interest expense. Total FFO was also impacted by the following items that are not compared with Q3 2024. Lower fee and interest income due to residential inventory completions had an impact of 1%. Reduced NOI and fee income related to the former HPC locations had a combined FFO impact of 2¢ per unit compared with Q3 2024. It is a $148 million of net fair value losses We have a significant amount of long-term debt potential in our portfolio. However, given the stagnant land and development market, it is important to ensure that we are maximizing income from the existing retail on our properties. As such, freeze. Removes any ambiguity related to these sites. Freeing up our leasing team to maximize retail rents by offering longer lease term to our tenants. The second category attributable to a significant totaling $25 million relates to assets that are high quality but with lower growth potential proportion of fixed renewals so relates to three large Toronto-based residential rental buildings. We have seen weakness in rent growth and occupancy in submarkets where there is high competition from condo delivery. We have reduced the stable was $24.19. Which is approximately 29% above the current unit price. Going forward, we will focus on compounding NAV by and for the four HBC locations. With asset plans for 12 of the 13 location. As previously we will only participate in stated, assets where we would expect strong return on capital. And Actual provisions record recorded. This chapter is substantially With a 186 thousand square feet delivered, With approximately $70 million remaining to be spent for the balance of the year, and our committed capital for development construction in 2026 of only $15 million we will have significant flexibility going forward to invest capital where it is most accretive. In addition, we have delivered 61,000 square feet of retail infill development. This is an area where we invest in our core portfolio to drive attractive returns through growth in NOI and NAV growth. And will be a continued area of focus. We expect approximately $1.3 billion to $1.4 billion of capital We are repatriating a significant amount of capital to our balance sheet. from the sales of residential rental buildings and pre-sold condos over the course of 2025 and 2026. So far this year, we have brought in nearly $500 million of capital. $314 million in total asset sales, of which $250 million has been from the sale of five residential assets sold so far this year. Bringing the total sold to six buildings. With the sale of a number of others in process. A hundred and sixty-three million is from condo closings, resulting in the repayment of a $128 million of construction loans point three million of guarantees. and the removal of three hundred and We expect the remaining condo units at the end of the year to be valued at approximately a 100 continue to improve. Our adjusted spot debt to adjusted EBITDA improved to 8.8 times solidly within our target range of eight to nine times. Our unencumbered asset pool grew to $9.3 billion. Our ratio of unsecured debt to total was 64%. Our liquidity was $1.1 billion. Our balance sheet provides us with financial flexibility take advantage of opportunities as they arise. As I conclude my remarks, is important to mention that our result are driven by our best in class platform. This includes our team of very talented and hardworking people. ERP system migrating our systems to the cloud, and employing analytical reporting and tools. This ensures that our teams have the best information analysis available as they execute our strategy. Whether it be negotiating a lease, investing in a retail infill project, or buying and selling assets, we ensure that the relevant data is available and the collective knowledge of our organization is brought to bear. We apply a continuous improvement mindset to ensure that we the tools available to our people driving efficient processes and effective decision making. With that, I will turn the call over to the moderator for questions.
Operator: Of course. We will now begin the question and answer session. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset Our first question comes from the line of Sam Damiani with TD Securities. Sam, your line is now open.
Sam Damiani: Thank you, and good morning, everyone. next couple of years. Lots going on here at RioCan, and it is exciting to see you in next I just wanted to start off. I think, Jonathan or Dennis, one of you mentioned in numerous capital allocation opportunities in front of you right now. I wonder if rate quite a bit more on that at our investor day. So I do not want to, put too much emphasis on it today, just leaving something to talk about when we see you next in two weeks from now. But I will give you the most obvious ones. Right now, the opportunity that are highly accretive and also beneficial scope. So really looking at properties that we own are infill development, in our retail where there is existing retail, and we can make it better through the creation of additional retail pads and strips. And we are now at a position where the rents justify the, the expense of building out those those, additional square footage. And then the other is obviously NCIB, which we have participated in the past given where our stock or where our units are trading. Relative to NAV and, you know, what we we feel is an immediate FFO Return on for that?
Dennis Blasutti: No. I think that is right. And I think what is also important is to just note what what Jonathan did not mention, which is you know, we are we are winding up our mixed-use development program. That is just not a priority for us. Right now in terms of any large construction at scale. So yeah, I would agree. Putting money back into our own portfolio, retail portfolio is a is a great use of capital right now, and it is hard to ignore the stock price.
Sam Damiani: Okay. Great. And I look forward to, November 18. Next my second question is on, I guess, the fair valuing or the fair value changes you detailed on the quarter. Just Want to be clear. The the 90 odd million dollars take taken on the on the density asset Footage?
Dennis Blasutti: I am just gonna go into it here. Math quick here. It is just call a little over $500 million of total density value still on the balance sheet. When you kinda put that against you know, almost 20 million square feet of of zone density It is a pretty low value on a per square foot basis.
Sam Damiani: That is great. Thank you, and I will turn it back.
Jonathan Gitlin: Thanks, Sam. Thanks.
Operator: Thank you for your question, Sam. Our next question comes from the line of Brad Sturges with Raymond James. Your line is now
Brad Sturges: Renewal rent spreads. Continue to improve even with a higher proportion of fixed rate auctions. Do you think you you kind of hit a peak at that point? Or how do you expect your rent spreads to trend over the next few quarters?
Jonathan Gitlin: You know, we preached in the in the prepared remarks about the sustainability of the conditions. I cannot predict precisely where our renewals spreads will be, but we do think it is gonna be a strong market for landlords like RioCan given the strength of our portfolio going forward. I do not see a catalyst to change these conditions in the near or medium term simply because there no new supply, and we recognize that the tenants that we are dealing with are typically very much in, in in growth mode. So we really do see the ability to continue achieving solid rent spreads. We are not providing specific guidance at this point, but we have said in the past mid-teens, and that is, again, a a pretty comfortable spot. And so I think it is, it is you know, the if you look at also the opportunity said, as I mentioned in my prepared remarks, we have got over ten million square feet that will be up for renewal over the next three years on a pretty consistent basis. And there is a significant mark to market. I mean, if you look at the rents that we wrote Q3, they were over $29, and that compares favorably to the average rents we have across our portfolio, which is in the $22.50 range. So that is about a 30% range that we feel very capable of bringing in through a a strong renewal process.
Brad Sturges: Sounds good. And just a follow-up to that. Just with respect to next year's expires, is there anything that stands out in terms of anomalous or would be unique or would be pretty similar to what you experienced in 2025? And and know, kinda see that consistent results going forward. For next year.
Jonathan Gitlin: Yeah. I mean, beauty of scale, Brad, is that we really, we have so many properties with so many tenancies. And even if there is one or two larger renewals coming up that might be like a Walmart renewal with flat, with a flat provision, It is offset by so many other renewals that do not have flat provisions or they go to market. So there might be one or two larger or three or four larger tenants that will come the scheme of things, they will not change our guidance or outlook. for renewal that might be a little bit flat. But, again, I will look to John Ballantyne just to see if I have missed anything there.
John A. Ballantyne: No. You have not, Jonathan. And, I would also add, you know, again, we are gonna sound like a broken record, but we are going to unpack this a little more in our Investor Day in two weeks. is in our existing leases. Namely, you know, where we think the mark what the actual mark to market And how that is gonna unfold in the same property revenue over the next, three years.
Brad Sturges: Okay. That is great. I will turn it back. Appreciate it.
Jonathan Gitlin: Thanks, Brad.
Operator: You for your questions. Our next question comes from the line of Mario Saric with Scotiabank. Your line is now open.
Mario Saric: Hi. Good morning. Just a really quick one on each HPC and specifically the Ottawa location. Seems like it is the one asset where plans are still forthcoming. Do you have a sense of, the timing of clarity on that asset?
Jonathan Gitlin: Thanks, Mario. Good morning. There there is no defined timeline at this point. We have got a few different options that we are exploring, and we endeavor to keep everyone apprised of how those unfold. But, you know, again, as we have always unless there is committed, we are not gonna put any significant capital into these assets a logical return that competes with our other capital allocation opportunities.
Mario Saric: Okay. And then, shifting gears you know, some institutional interest coming into the multifamily space. So as it pertains to RioCan Living or something, any incremental demand how does that change the timeline in terms of so so I do not know if the acid.
Jonathan Gitlin: Timeline is still intact. I would say that the demand for our new builds, rent control, limited CapEx Residential portfolio has been consistent throughout. I do not think there has been significant ebbs and flows. Flows in the in the demand for them. In terms of the profile of buyers, we have not really seen much of a change. We have had a pretty wide spectrum of buyers or interested parties thus far, and that has not changed So the the timeline both institutional and private. We remain confident in our goal.
Mario Saric: Right. Oh, and so just last question. As it pertains to the Investor Day, I am asking what you may disclose. But is the retail environment today your confidence level in the portfolio today such that you feel comfortable disclosing one year, three year targets on some of the key metrics? Such as FFO, same store NOI, etcetera.
Jonathan Gitlin: Yeah. We are we are gonna give some pretty thorough outlooks. I think it would be a letdown at Investor Day if we did not. So we we will certainly leave you with a good outlook on the next, few years. Okay. Promise not to this point. Alright. Thanks, Mario.
Operator: Thank you for your questions. Our next question comes from the line of Michael Markidis with BMO. Your line is now open.
Michael Markidis: Thanks, operator. Good morning, guys. Congrats on the strong core portfolio results. Thanks, Just wondering if you could help us think about property management and other service fees and interest income have been a fairly significant contributor to your your business on the earnings side over the last couple of years, and it is starting to moderate. How should we think about the trajectory those two line items going forward?
Jonathan Gitlin: I will start an In terms of property management fees, co-owned, and we are always the manager for we have a, a a set of of properties that are those. Whether the number of co-properties increases or decreases, I think would be a marginal marginal component of those fees going up or down. So I do not think they will be much much to add there. But we are an entrepreneurial organization. We are always looking at ways to continue to use the strengths that we have. And one of those strengths is a very strong platform here at RioCan. And so we will look to at opportunities to utilize that to create fee income. But it is it is hard to predict at this point what exactly those will be and how much they will be for. So I I think I think, you would be a to speed. Be pretty level. On that one.
Michael Markidis: Okay. And one of the other fee a little bit as well. Because it was there there was a layer somewhat to development. We do occasionally do mortgages on behalf of properties that are co-owned. Which will add a bit of fees here and there. But not I do not see that as a meaningful contributor going forward.
Michael Markidis: Okay. That is helpful. Thanks so much, guys.
Jonathan Gitlin: Thanks, Mike.
Operator: You for your question. Our next question comes from the line of Matt Kornack with National Bank of Canada. Your line is now open. Hey, good morning.
Matt Kornack: Good morning, guys. I was wondering if you could just help a little bit on bridging kind of the current quarter more in line with to future quarters in terms of HPC kind of any incremental capital deployment related to the, I guess, three assets that you own? And the NOI generation, what would maybe be in this quarter versus what will be in future quarters considering your more of those income-producing assets.
Jonathan Gitlin: Dennis?
Dennis Blasutti: Yeah. Sure. So on the three assets that we are backfilling, we had given a a guidance range of about a 100 to a $120 per square foot. Equates to approximately $25 million. In total for capital outlay on those. So that is that is the the number there. You know, we had messaged that we would see you know, we had about 8¢ of FFO coming in you know, from from HBC. For you know, in total, that that was gonna go away. We will claw back some of that with the acquisition of George and and Oakville and and the backfills. Probably about a penny in in 2026. And then about 2 pennies in 2027 as the tendencies ramp up.
Matt Kornack: Okay. That is helpful. And then just on the nonrecoverable operating costs, they have been a little elevated this year starting in, I guess, Q4 2024. Is that onetime in nature? Or is that a change in kind of the portfolio Just trying to understand where those should head over. The next year.
Jonathan Gitlin: John, do have a thought on that?
John A. Ballantyne: Yeah. I actually do not, Matt. We will, we will take a better look at that and get back to you with an answer.
Matt Kornack: Okay. Fair enough. That is it for me. Thanks, guys.
Jonathan Gitlin: Thanks, Matt.
Operator: Thank you for your questions. There are no questions registered at this time. So as a reminder, it star one to ask a question. Alright. I am showing no further questions at this time. I would now like to pass the conference back to President and CEO Jonathan Gitlin.
Jonathan Gitlin: Thank you, everyone, for dialing in. We will look forward seeing you at our Investor Day. Coming up in two weeks.
Operator: Thank you for your participation. You may now disconnect your line.