RioCan Real Estate Investment Trust

Good day, ladies and gentlemen, and welcome to the Rio Can Real Estate Investment Trust's fourth quarter 2022 conference call. At this time, all participants are in a listen-only mode. After management's presentation, there will be a question and answer session, and instructions will follow at that time. I would now like to hand the conference call over to Jennifer Seuss, Senior Vice President, General Counsel, ESG, and Corporate Secretary. You may begin.

Thank you and good morning, everyone. I'm Jennifer Seuss, Senior Vice President, General Counsel, ESG, and Corporate Secretary of RioCan. Before we begin, I would like to draw your attention to the presentation materials that we will refer to in today's call, which were posted together with the MD&A and financials on RioCan's website yesterday evening. Before turning the call over, 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 objectives, its strategies 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. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause our actual results 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 principle measures, GAAP under IFRS. 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. 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 profitability. RioCamp's management uses these measures to aid in assessing the trust's underlying core performance and provides these additional measures so that investors may do the same. Additional information on the material risks that could impact our actual results and the estimates and assumptions we apply to 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 December 31st, 2022, 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.cdar.com. I will now turn the call over to our President and CEO, Jonathan Dillon.

Thanks so much, Jennifer, and thanks to everyone that's taking the time to join us today. You've got RioCAN's senior management team around the table, and much like the rest of 2022, the fourth quarter demonstrated our portfolio's quality, our tenants' resilience, and our team's extraordinary depth and capability. By every measure, RioCAN's well-positioned assets, strong, stable tenant mix, and delivery of developments drove strong results in 2022. These results reflect our focus on the pillars that support our five-year plan, resilient retail, customer centrism, intelligent diversification, and responsible growth. And when I think about 2022, the word that comes to mind is significant. It was a year marked by significant challenges and disruption, including pandemic-related restrictions at its start and extreme inflation and interest rate increases as the year progressed. At the same time, it was a year of significant advancements for RioCan. At our February Investor Day last year, we introduced our strategic roadmap with five-year financial growth targets. We set ambitious goals and I'm pleased to share that despite ongoing economic turbulence, our 2022 performance has us on the right track to achieve our targets. Our major market necessity-based portfolio generated strong operating results. The results reflect years of prudent dispositions of lower growth assets and the strengthening and diversification of our portfolio and income. These moves have set us up for the delivery of sustainable growth as we progress into the next four years of our strategic plan. Our development program also had an unprecedented year of fueling growth. I'll speak more about this in a minute, but our program achieved a watershed moment with the value of projects we completed in 2022 outpacing what we spent. Let's first dive into our operating results, We're impressive in any conditions, but even more so in the face of 2022's market dynamics. Our commitment to resilient retail and customer centrism is yielding results. Rio Can's assets are located in Canada's major markets in densely populated areas with high average household incomes of $135,000 and an average population of 250,000 people within a five-kilometer radius. The portfolio has never been more defensive, with approximately 86.5 percent of our net rent generated from strong and stable tenants. Same property NOI for the year grew by 4.3 percent. We achieved the higher end of our guidance range with FFO per unit of $1.71, an increase of 7 percent. When we strip out restructuring expenses, FFO per unit was $1.73. New and renewed leases totaled 5 million square feet. We ended the year with retail committed occupancy of 97.9% and a renewal retention ratio of 91.5%. Tenant retention reached a new high of 93.5% in the fourth quarter. The blended leasing spread for the year was 9%. New leasing spreads of 12.3% bolstered this result. Rent per square foot for new leasing in the fourth quarter was $24.10, above the average net rent for the portfolio of just below $21. The combination of high retention, leasing spreads, and rising average net rent allows us to take tenant failures, such as was recently announced by Bed Bath & Beyond, in stride. I'm going to pause for a moment here to address some questions you'll likely have about the impact of Bed Bath & Beyond and its recent CCAA filing. First, I'll tell you that this outcome was very well forecast and we took proactive steps to mitigate and address it. I'll also tell you that it was factored in when we developed our 2023 guidance. RioCAN has 13 bed bath locations. Most are in conventional midsize boxes that are in high demand. Over the past several months, RioCAN has been in discussions with numerous tenants that have expressed interest in the spaces, all of whom serve as strong traffic drivers. Once there's clarity on the CCAA process, we expect to fill the vacated spaces quickly, and in most cases, at higher rents. In the interim, we have two mitigants against the immediate impact. First, we'll receive occupation rent through the liquidation process, which is expected to take eight to 12 weeks. We'll work towards finalizing new leases during this time, and in doing so, minimize downtime. And second, in addition to the mechanisms under the Canadian CCAA process, We also have an indemnity from the U.S. parent. We will pursue all remedies available to us with vigor. And moving back to the bigger picture, our results demonstrate that tenants value the space and service RioCan provides. They'll continue to covet our space, particularly in the supply-constrained environment. This allows us to be confident in our ability to find compelling replacement tenants that enhance the retail mix at our shopping centers, as we have always done. It also augurs well for RioCAN's long-term sustainable growth. We continue to see the transactional value of our portfolio. The hallmark of RioCAN's disposition program back in 2021 was raising efficient capital by opportunistically capitalizing on the clear disconnect between public and private market valuations. And in 2022, we shifted to strategically disposing assets to enhance the quality of the portfolio. RioCan raised close to $460 million in equity through asset sales in the year. The 2022 dispositions included secondary market assets and two enclosed centers, the sale of which improved our overall portfolio quality and generated capital that can be recycled into more productive uses. 2022 also saw significant advancements for RioCan Living's residential rental portfolio with the delivery of our Latitude and Strata buildings in the first quarter, the completion of Luma and Rhythm in Ottawa in the last half of the year, and the acquisition of Market Laval back in February. RioCan Living currently has approximately 2,200 completed purpose-built residential rental units. The units are spread across 10 buildings in Toronto, Montreal, Ottawa, and Calgary. Supply is constrained in these markets and there's an increase in demand due to the return to in-person studies, increased immigration, low unemployment, and cooling home sales. Leasing velocity continues to be excellent. Tenants are drawn to well-located, amenity-rich rental accommodations with easy access to transit. The eight RioCAN living buildings that have reached stabilization are 95.7% leased, and lease-up is progressing very well at LUMA and Rhythm. At the end of 2022, Rio Can Living also had 2,575 condominium and townhouse units under construction. Of the six active condo construction projects, 85% of the units have been presold, representing 95% of pro forma revenues. All presales have sizable deposits associated with them. Between 2023 and 2026, these projects are expected to generate combined sales revenue of over $860 million. Proceeds from selling condos and townhomes combined with capital repatriated from asset dispositions gives us the flexibility to self-fund higher-value mixed-use development projects, strengthen our balance sheet, and opportunistically repurchase REOCAN units at attractive levels with any excess proceeds. RioCan's intelligent diversification continues to progress as the development team executes numerous mixed-use projects in major markets across Canada. In the year, we completed 651,000 square feet of high-quality developments and two condo and townhouse projects with a combined value of over $688 million, outpacing our spending, which was approximately $427 million. We expect to deliver similar amounts of square footage and value in 2023. Now, in our press release, we highlighted five projects that we are focused on as part of our next wave of development, aptly called the Focus Five. These five projects are all large-scale, transit-oriented, mixed-use developments in the GTA. Each has scale that provides options to create value through development, partnerships, and air ride sales, which will drive growth for years to come. We also have a zone development pipeline of 15 million square feet and have submitted applications for an additional 8 million square feet of mixed-use developments, all in the GTA. We create value by advancing projects through the zoning process and take a disciplined approach to determine further investment once they're shovel-ready. We also made significant advancements in our commitment to responsible growth. Our balance sheet remains strong. We ended the year with $1.5 billion in liquidity and an $8.3 billion unencumbered asset pool. We tactically leveraged this unencumbered pool and refinanced with secured mortgages for the most cost-effective capital. We unveiled a new ESG strategy and a plan to introduce science-based targets for our operations. Other accomplishments in 2022 include ranking first among our Canadian peers in the 2022 Gresby Real Estate Assessment maintaining our first place rank among Canadian peers in the Gresby Public Disclosure Assessment with an A rating for a fourth consecutive year, and increasing the number of properties achieving BOMA-BEST certifications such that over 65% of the gross leaseable area of RioCAN's portfolio across Canada is now BOMA-BEST certified. We were also recognized as one of Greater Toronto's top employers and achieved outstanding engagement results of 90% in our annual employee engagement survey, something we are all very proud of. We continue to lead the way in integrating responsible growth and ESG best practices in everything we do. These efforts lead to immediate results and also serve to bolster sustainable success. Now, as I said when I started, RioCAN's 2022 performance was significant. It demonstrated our strengths, which allow us to look beyond short-term turbulence and focus on successful outcomes for the long term. We enter 2023 with signs pointing to an economic slowdown. However, we enter the year from a position of strength, well-positioned to overcome the current volatility while staying in the course of driving future growth and value creation. We're poised to succeed in any environment and to benefit from the favorable supply-demand dynamics within the Canadian retail real estate sector. At the same time, our established development platform continues to fuel future growth. Balancing heightened uncertainty with the strength of our foundation and continued demand for our prime locations, we expect our FFO per unit to range between $1.77 and $1.80 for 2023. This is in line with our five-year target compounded annual growth of 5 to 7 percent. We anticipate same property NOI growth of 3 percent and an FFO payout ratio of between 55 to 65 percent. Development spending for 2023 is expected to be between $400 million to $450 million. With reinforced confidence in our competitive advantage, I'm pleased to announce another distribution increase. RioCAN's Board of Trustees has approved a 6% increase to its monthly distributions to unit holders from $0.085 to $0.09 per unit, beginning with the distribution declared in February 2023 and payable in March of 2023, bringing RioCAN's annualized distribution to $1.08 per unit. This increase is aligned with the goal of delivering consistent, sustainable growth for our unit holders, which we communicated in our Investor Day last year. We face the future confident that we've strategically and responsibly managed every aspect of our business over which we have control. Our efforts over the years set RioCan up for success and our focus remains on the long term. We're confident in our growth trajectory and the ongoing demand for our scarce and high quality real estate. The objectives in our five year plan were established with purpose and conviction that in concert with RioCan's many differentiating attributes, are achievable in almost any environment. With that, I'm going to turn the call over to Dennis to take you through our balance sheet and provide insight into how it continues to support our quality and growth.