Release Date: February 19, 2025
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) achieved record-breaking operational results in 2024, with a committed retail occupancy of 98.7% and a blended leasing spread of 18.7%.
- The Trust completed a higher proportion of condo unit sales than initially projected, with 98% of expected fourth-quarter interim occupancies completed.
- RioCan maintained a low payout ratio and reduced net debt to EBITDA within the target range of 8x to 9x, demonstrating strong financial management.
- The company received an ESG rating upgrade to AA from MSCI and recorded top decile performance for employee engagement for the third consecutive year.
- RioCan's Board of Trustees approved a 4.3% increase in the distribution payout to unitholders for the fourth consecutive year, reflecting confidence in future cash flow growth.
Negative Points
- Concerns exist about the impact of tariffs on the Canadian economy, which could affect RioCan's portfolio despite its resilience.
- The condo market is under strain, although RioCan has managed to presell a significant portion of its inventory.
- Interest expenses, net of interest income, had a negative impact of $0.10 on FFO per unit in 2024.
- The Trust's commercial same-property NOI growth was lower than the long-term target due to tenant churn earlier in the year.
- The average interest rate for 2025 financing activities is expected to be approximately 5%, compared to an average rate on expiring debt of approximately 3%, potentially increasing interest expenses.
Q & A Highlights
Q: Are you having to undertake any alternative arrangements to facilitate the closing of condo units, or are these clean closings?
A: Jonathan Gitlin, President and CEO: The condo closings achieved so far are mostly clean occupancies with very limited exceptions. There were a few delayed occupancies, but minimal nonstandard measures were used to achieve the Q4 numbers.
Q: With net debt-to-EBITDA now at the top end of your target range, do you expect to remain active with the NCIB (Normal Course Issuer Bid) over the balance of the year?
A: Jonathan Gitlin, President and CEO: Our primary objective is to maintain a strong balance sheet. The NCIB will be more opportunistic, depending on capital from asset sales. If we can sell lower growth assets and convert that into our own portfolio, we would take advantage of that.
Q: Is the $70 million to $80 million of condo profits expected this year coming from selling down interest in existing projects, or is it all from unit closings?
A: Jonathan Gitlin, President and CEO: This is all from unit closings.
Q: Regarding the same property NOI guide of 3.5%, are there any large known vacancies or tenant closures factored into that figure?
A: Jonathan Gitlin, President and CEO: The figure reflects normal course operations. Our portfolio and tenant list are in good shape, with no significant vacancies or large national retailers on our watch list.
Q: Can you provide more details on the optionality for the multifamily rental portfolio?
A: Jonathan Gitlin, President and CEO: Options include maintaining the status quo, disposition or spin-out, or diluting our interest by bringing in partners. We will assess these options throughout the year and provide more clarity by our Investor Day in May.
Q: Are the strong renewal and new leasing spreads driven by market rents or the leases expiring?
A: Jonathan Gitlin, President and CEO: It's a combination of factors. Our average rent is below market rent, and our leasing team is bridging that gap. The improved portfolio and demand for brick-and-mortar space also contribute to strong leasing spreads.
Q: How does the decision to buy back units relate to market conditions and asset sales?
A: Jonathan Gitlin, President and CEO: The NCIB is opportunistic and depends on asset sales. The current stock price offers a good FFO yield, making buybacks attractive. If the market recognizes RioCan's value, the NCIB may become less attractive.
Q: How are you planning to use the proceeds from condo sales and dispositions in 2025?
A: Jonathan Gitlin, President and CEO: The majority of proceeds will be used to pay down debt and improve our balance sheet.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
