RioCan Real Estate Investment Trust

Good day, ladies and gentlemen, and welcome to the Rio Can Real Estate Investment Trust third quarter 2023 conference call and webcast. As a reminder, this conference call is being recorded. I will now have to turn the conference over to Ms. Jennifer Seuss, Senior Vice President, General Counsel, ESG, and Corporate Secretary. Ms. Seuss, you may begin.

Thank you, and good morning, everyone. I'm Jennifer Souce, Senior Vice President, General Counsel, ESG, and Corporate Secretary of RioCan. Before we begin, 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 REOCAN's performance, liquidity, cash flows, and profitability. REOCAN'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 applied in 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 September 30, 2023, 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 Gitlin.

Thanks so much, Jennifer, and thanks to everyone that has joined RioCAN's senior management team today. The RioCAN's Q3 operating results, again, reflect the excellence with which we are executing our strategy. However, because I know it's on the top of mind for many of you, I'm going to start today by addressing our guidance. I expect, due to interest rates, REOCAM will end the year at the lower end of our 2023 guidance range of between $1.77 and $1.80. Our long-range targets will need to be revisited if higher for longer interest rates persist, and we're going to provide an update on this in the first quarter of 2024. I'll now turn to our Q3 operating results, and then I'm going to touch on the macroeconomic environment. I'll highlight how RioCAN continues to strategically and responsibly manage every facet of our business over which we have control. Consistent with each successive quarter since our February 2022 investor day, RioCAN's team and portfolio have performed exceptionally well. This performance reflects the quality of our locations and the cycle tested experience of RioCAN's team. Once again, RioCamp's superior property fundamentals and the extensive demand for our space drove standout leasing spreads and record occupancy. Our development deliveries also continued to generate a steady stream of new and diversified NOI. Our key financial indicators for the quarter were strong, with same property NOI growth of 3.7%, exceeding our target and providing the foundation for FFO per unit growth. FFO per unit for the quarter was 45 cents. Leasing velocity remained a dominant theme as RioCAN's high-quality, necessity-based retail portfolio propelled results. Retail committed occupancy reached an all-time high of 98.3%. New and renewal leasing spreads of 21% and 11.2% respectively resulted in a blended leasing spread of 12.9%. The average rent per square foot for new deals was $27.02, well above the average net rent for the portfolio of $21.39. And we believe this expanding mark-to-market spread indicates a significant growth opportunity as an increasing number of contractual fixed-rate renewals start to burn off. You've heard me speak about Canada's tight zoning regulations and the vast gap between replacement costs and market values which makes building new retail a very unlikely proposition. You've also heard me reference the pace of Canada's population growth and the natural gravitation to transit-oriented major market locations to live and to shop. These are the same markets in which retail space is supply constrained and also the same markets in which RioCAN's portfolio is concentrated. In addition, our retail tenants are displaying health and strength, particularly in this inflationary environment. These factors converge, and they drive demand and create positive tension in lease negotiations for our brick-and-mortar spaces. All indicators are that the type of space RioCAN offers will continue to be in short supply and high demand. But our operating results are rooted in factors far more deep-seated than favorable supply-demand dynamics. RioCAN's current strength and stability are a function of years of unwavering discipline in responsibly managing every aspect of our business over which we have control. This focus has resulted in a portfolio and team designed to thrive in promising economic conditions and to deliver strength and stability in downturns. This means we face the current conditions with confidence, and here's why. RioCAN's portfolio has never been more desirable or more defensive. Our major market focus has resulted in a portfolio that's concentrated in densely populated areas. Within a five kilometer radius of our assets, the average population is 260,000 people with a high average household income of $140,000. This demographic profile provides a compelling opportunity for our retail tenants. The quality of RioCamp's tenant base has improved in lockstep with the improvements in our portfolio's demographic profile. Combined with our commitment to resilient retail, the result is a tenant base tailored to offer a mix of convenience and necessity-based goods. We've also invested in our centers to make them even more attractive to tenants and to our customers. The steps we've taken over the last decade and the effective execution of our strategic plan have set up RioCAN to weather the current environment. However, we're not a team known for simply weathering. We're a team that wins, and we understand that winning in these conditions requires hypervigilant discipline and capital allocation, specifically reducing costs associated with traditional expenditures such as G&A, construction, and acquisitions. RioCan hires for grit, and we reward resilience. We encourage creative problem solving, courageous leadership, and continuous innovation. We're well equipped to take the logical and prudent steps required to offset some of the impact of interest rates and to fortify our future. We're increasingly leveraging our national scale to reduce operating costs. We're also driving costs down through system improvements that generate efficiency and allow us to streamline expenses. This includes the 2024 implementation of a new Yardi-based ERP system. Regarding development, we're adding value by moving projects through the entitlement process. but we're taking a conservative stance in activating capital-intensive construction. At the same time, we continue to focus on strengthening our balance sheet. Dennis will expand on the levers through which we'll do this, but for now, I'll emphasize that the 2,605 condominium and townhouse units we currently have under construction are expected to generate combined sales revenue of over $800 million between now and 2026. These proceeds are earmarked for effective uses, including the repayment of debt. Last, in addition to the cost control and responsible balance sheet measures I just referenced, we will continue to take advantage of every revenue driving opportunity presented by the current operating environment. I'll take a few moments to talk about the well. I do this for two reasons. First, this project is emblematic of everything I just spoke about. Namely, RioCAN's ability to effectively manage every aspect of our business over which we have control, while at the same time investing in our future growth. This project demonstrates our resilience, ability to execute, commitment to intelligent diversification, customer centrism, responsible growth, and our ever-present balance of boldness and prudence. There is no more excellent reflection of RioCAN's boldness than the vision and scale of this project. Our prudence is reflected in countless ways, but perhaps none as much as the patience and responsibility we and our partners at Allied demonstrated as we leased this project while in the throes of a global pandemic. We remain steadfast in our commitment to populate this incredible development with the right mix of innovative, experiential, and service-oriented retailers and inspired food service offerings that Toronto has been waiting for. Approximately 96% of the total commercial space at the well is leased, with about 89% in tenant possession. The retail component is 91% leased, with another 2% in late-stage negotiations. On this subject, I'm pleased to announce that Lululemon and Sephora have recently signed leases and will join the well's impressive tenant roster. There's also been exceptional demand at 450, the well, the 592-unit rental residential tower developed by RioCan with our partner WoodBorne. Beyond the well-offering obvious proof points of all that RioCan is capable of, I have a second reason for wanting to focus on this project right now. RioCan and our partner Allied Properties read are on the precipice of introducing the King West community, the GTA, and the world to one of the most ambitious mixed-use developments in Canadian history. By every measure, this is an outstanding architectural achievement, and the accolades we're receiving have fortified our belief that this is precisely the right product for Toronto. Momentum continues to build for our mid-November ribbon-cutting ceremony, and you'll continue to see a cascade of relevant businesses open at the Well in the coming months. The majority of retailers are expected to be open by the end of 2023. On behalf of the incredible team at RioCan, it's an honor to deliver this development We are confident our vision, passion, and expertise will be reflected in all ways. The well is experienced in the weeks, months, and years to come. Before I turn the call over to Dennis, I'm going to reiterate that RioCAN's long-term thesis remains very much intact. Retail real estate dynamics are in our favor and are producing meaningful demand drivers for our product. The fundamental quality of our assets fuels long-term growth and mitigates downside risks. Who knows if interest rates will move up, down, or stabilize? What I do know is that at times like these, RioCan is fortunate to be operating a best-in-class retail portfolio in the major markets of this great country. RioCan is well positioned regardless of the scenario. We've taken significant steps to make our business viable in any backdrop. We're now in a moment where these steps are being tested, and I'm proud to say we're standing up to that test. If interest rates stay higher for longer, It may temper our growth in the short term, but real estate is a long-term investment. Our consistency, vision, and demonstrated commitment to responsible growth will continue to serve our unit holders well, and at the same time, position the trust for continued stability. With that, I'm happy to turn the call over to Dennis.