Release Date: November 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- RioCan Real Estate Investment Trust (RIOCF, Financial) reported strong leasing activity, finalizing approximately 1.3 million square feet of leases, including 251,000 square feet of new leases, with an average net rent 11% higher than the company's average.
- The company achieved record-high committed and retail occupancy levels of 97.8% and 98.6%, respectively, indicating strong demand for its properties.
- RioCan's strategic focus on high-quality tenancies has led to a 23.9% increase in base rents for re-leased units, enhancing portfolio quality and cash flow growth.
- The company has successfully re-leased all units vacated by failed tenants, such as Bad Boy and Rooms + Spaces, to resilient retailers like Longo's and Winners, demonstrating effective asset management.
- RioCan's financing activities have improved its balance sheet, with a net debt to EBITDA ratio improving to 9.1 times, and the company has raised $1.05 billion in financing at favorable rates to pay off higher interest loans.
Negative Points
- Same-property NOI growth is running below the company's 3% target, partly due to temporary vacancies, indicating potential challenges in achieving projected growth rates.
- The company has halted new construction starts due to market conditions, which may limit future development opportunities and growth potential.
- RioCan's residential occupancy decreased slightly, reflecting potential challenges in maintaining high occupancy levels across its portfolio.
- The company underwent a workforce restructuring, reducing its workforce by approximately 9.5%, which may impact employee morale and operational efficiency.
- There is a significant focus on presold condo units, with potential risks if market conditions worsen, although the company does not view this as a material risk currently.
Q & A Highlights
Q: Can you explain the impact of the 10 vacancies on same-property NOI growth and expectations for 2025?
A: Jonathan Gitlin, President, CEO, & Trustee, explained that the 10 vacancies significantly impacted same-property NOI. However, with all tenancies paying cash rent next year, there will be substantial support for this metric in 2025. The current leasing spreads are expected to bolster future same-property NOI growth.
Q: Are there any significant lease expiries or tenancy issues that might offset potential NOI growth rebound?
A: Jonathan Gitlin stated that there are no material concerns on the horizon. Canadian and international retailers are performing well, and the company has a strong tenant retention ratio of 92%. While some minor weaknesses exist, such as changes in the Beer Store's business model, these are seen as opportunities to improve tenancy quality.
Q: How does RioCan's current leasing strategy compare to pre-pandemic times when occupancy was at similar levels?
A: Jonathan Gitlin noted that the leasing strategy has evolved due to improved portfolio quality and strong market demand. The company now has more confidence in negotiations, allowing them to select best-in-class tenants and secure favorable growth terms. John Ballantyne, COO, added that a focus on tenant experience has strengthened relationships and growth opportunities.
Q: Is the Strata sale a one-off, or does it signal the beginning of unwinding the multi-residential portfolio?
A: Jonathan Gitlin indicated that RioCan is exploring options for its residential portfolio, having reached a scale that provides flexibility. The Strata sale, which was at a premium to IFRS value, supports the portfolio's value and opens discussions on potential strategies.
Q: How are condo closings progressing, and are there any significant risks?
A: Jonathan Gitlin reported that condo closings are proceeding well, with minimal friction. The company is confident in the process, with only a small percentage of buyers facing issues, which is considered normal. The interim closings and occupancies are expected to proceed smoothly.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
