Riocan Reit (($TSE:REI.UN)) has held its Q3 earnings call. Read on for the main highlights of the call.
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RioCan REIT’s recent earnings call revealed a mixed sentiment, highlighting both strengths and challenges. The company showcased robust operational performance with high occupancy rates and impressive leasing spreads. However, concerns were raised due to significant valuation losses, issues with the HBC partnership, and a decline in fee and interest income.
Strong Leasing and Occupancy Rates
RioCan reported impressive leasing and occupancy metrics, with a committed occupancy of 97.8% and retail occupancy at 98.4%. The Q3 retention ratio stood at 92.7%. Leasing spreads reached record highs, with a blended leasing spread of 20.8% and new leases achieving 44.1%, underscoring the strong demand for RioCan’s properties.
Commercial Same-Property NOI Growth
The company experienced a 4.6% increase in commercial same-property net operating income (NOI), reflecting the robust performance and demand for its properties. This growth highlights RioCan’s ability to capitalize on the market’s appetite for premium retail spaces.
Successful Capital Repatriation
RioCan successfully repatriated nearly $500 million of capital in 2025, contributing to their target of $1.3 to $1.4 billion by 2026. This strategic move is part of their broader plan to optimize their portfolio and strengthen their financial position.
Positive GRESB Assessment
The company maintained its regional sector leader status in the Americas under the retail sector and ranked first among North American retail peers in the standing investment assessment, reflecting its commitment to sustainability and operational excellence.
High Demand for Necessity-Based Retail Space
RioCan continues to see strong demand for high-quality, necessity-based retail space, particularly in Canada’s major markets. This demand is a testament to the company’s strategic focus on essential retail offerings.
Valuation Losses
The company reported valuation losses of $242.8 million, primarily driven by $148 million in net fair value losses on investment properties and $28 million related to three large Toronto-based residential rental buildings. These losses pose a significant challenge to RioCan’s financial health.
Challenges with HBC Partnership
The impairment related to former HBC locations led to a write-off of the remaining equity in the HBC-JV, impacting funds from operations (FFO) and necessitating significant provisions. This partnership challenge underscores the risks associated with joint ventures.
Reduced Fee and Interest Income
A decline in fee and interest income due to the completion of residential inventory impacted FFO by $0.01 per unit. This reduction highlights the financial pressures RioCan faces in maintaining its income streams.
Stagnant Land and Development Market
RioCan reprioritized several properties due to a stagnant land and development market, affecting long-term density potential and causing a $95 million valuation loss. This stagnation presents a hurdle for future growth prospects.
Forward-Looking Guidance
Looking ahead, RioCan maintains its guidance with FFO per unit expected to be between $1.85 to $1.88 and a FFO payout ratio of approximately 62%. The company anticipates commercial same-property NOI growth of approximately 3.5%. RioCan plans to repatriate $1.3 billion to $1.4 billion of capital back into the business over 2025 and 2026, having already repatriated nearly $500 million from asset sales this year. These strategic plans underscore RioCan’s focus on optimizing its portfolio and maintaining a strong foundation through disciplined asset management.
In summary, RioCan’s earnings call highlighted a blend of strong operational performance and significant challenges. While the company enjoys high occupancy rates and successful capital repatriation, it faces hurdles with valuation losses and partnership challenges. Looking forward, RioCan’s strategic focus on high-value assets and disciplined management aims to sustain its growth trajectory.