RioCan Real Estate Investment Trust

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

Thank you and good morning, everyone. I am Jennifer Suess, 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 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 December 31, 2023 and management's discussion and analysis related thereto as applicable together with REOCAN's most recent annual information form that are all available on our website and at www.cdarplus.ca. I will now turn the call over to our President and CEO, Jonathan Gitlin.

Well, thanks so much, Jennifer, and thanks to everyone that's joined REOCAN's senior management team today. First, I want to start with the recognition that RioCan recently celebrated its 30th anniversary. I had the pleasure of marking the occasion by ringing the opening bell at the TSX with our chairman and founder, Ed Sunshine, along with RioCan's senior team. It's actually not really a bell, it's more like pushing a button, but it was very cool in any event. Being Canada's longest standing REIT isn't just a status symbol. Our 30th anniversary provided the opportunity to reflect on how we've curated an irreplaceable portfolio of high-quality properties and leveraged every opportunity to strengthen our assets, foster strategic growth, and create value for our unit holders. So I speak to you today from that position of strength with the perspective and knowledge afforded by a long history and a clear vision for the business. RioCamp's 2023 operating results again reflect the excellence with which we are executing our strategy. We showcased historic operational strength, enhanced efficiency, and achieved our financial objectives. In light of this, we're pleased to announce that RioCamp's Board of Trustees has approved an increase in the annualized distribution to $1.11 per unit. This is the third consecutive annual increase as we provide sustainable distribution growth to our valued unit holders while maintaining our payout ratio targets. I'll take a moment now to share some notable 2023 operational achievements. RioCan superior property fundamentals, coupled with extensive demand for our space, led to outstanding leasing spreads and record occupancy. The consistent delivery of new and diversified NOI from our development projects further contributed to our strong operational performance. Commercial same property NOI growth through the year was 4.8%, which exceeded our 3% annual target and providing the foundation to deliver FFO per unit of $1.77, a 3.5% increase over 2022. Leasing velocity remained a dominant theme as RioCan's high-quality, necessity-based retail portfolio propelled results. New and renewal leasing spreads of 14.7% and 9.8% resulted in a robust, blended leasing spread of 10.7%. New leasing in 2023 generated an average net rent per square foot of $27.75, well above the portfolio average of $21.50 per square foot. This expanding spread indicates a significant growth opportunity as an increasing number of contractual fixed-rate renewals burn off. Retail-committed occupancy reached an all-time high of 98.4%. And 98.4% of retail occupancy positions us exceptionally well. When weaker tenants vacate, these short-term transitions, while creating nominal downtime, present opportunities to backfill with more productive leases. That will happen with tenants such as Rooms and Spaces and Bad Boys who ceased business operations in the first quarter of 2024. We've already leased most of these spaces or have garnered solid interest from strong and stable retailers that will enhance our shopping centers and with rents on average more than 20% higher than the incumbent retailers. These types of failures are not atypical in the year's first quarter. This year, there may be some additional turbulence from the less than 3% of our portfolio comprised of what we characterize as transitional tenants, as these are the types of businesses more susceptible to macroeconomic volatility. We view these as healthy transitions necessary for long-term portfolio health and outsized growth. It's opportunity that represents evolution. Any vacancy that arises allows us to accommodate the significant space requirements of high-growth tenants such as Loblaws, Sobeys, Shoppers Drug Mart, Dollarama, and TJX, along with numerous quick-service restaurants that are seeking to enter the Canadian market, and these are just to name a few categories. The robust demand for our space, coupled with our team's deep experience, will continue to create positive tension in lease negotiations when there is a vacancy. Our ability to capitalize on these opportunities safeguards our occupancy levels and enhances our portfolio's overall productivity and profitability. Our income is further supplemented by our Rio Can Living residential rental portfolio, which generated $21.5 million of net operating income in 2023, an increase of nearly 58% over 2022. With close to 3,000 residential units in operation, we're well on our way to achieving our goal of between $50 to $60 million in residential rental NOI by 2026. Our growth in 2023 was further punctuated by delivering nearly 600,000 square feet of development projects, which are expected to generate more than $27 million of stabilized NOI. These deliveries included the well, where 96% of the commercial space is leased and 91% is in tenant possession. There is no more excellent reflection of RioCan's boldness than the vision and scale of the well. November marked a significant milestone for the project as we celebrated the launch of the retail component with a community ribbon cutting ceremony. A steady stream of tenant openings will continue throughout the first half of 2024, offering diverse experiences innovative and service-oriented tenants, and inspired food offerings. Throughout 2023, we continued to demonstrate the strength of our portfolio, both in terms of asset mix and location. We also showcased our operational agility by pivoting in key areas. This included increasing our focus on debt reduction to help offset the impacts of an abrupt and sustained high interest rate environment. Entering 2024, in the context of today's high and persistently uncertain interest rates, it was important for us to consider our 2024 guidance and the longer-term targets we discussed at our 2022 Investor Day. With the compounding influence of interest rates on FFO, we believe the prudent approach is to focus our FFO outlook on our 2024 guidance rather than the longer term targets we set two years ago under a very different interest rate environment. What is particularly important for me to emphasize is that numerous operational elements factor into our FFO outcomes for which we remain on track. In fact, we've not just met, but in many instances exceeded the operational and balance sheet targets that we established back in 2022. We have seen the benefits of our sustained strong performance in a more normalized interest rate environment. Our cumulative FFO results for 2022 and 2023 were within our five-year target range of 5% to 7%. That said, for 2024, we expect FFO to be in the range of between $1.79 and $1.82. This is strong 2.3% growth in the face of a material increase in interest expense due to the higher for longer interest rate environment we find ourselves in. To drive continued FFO growth and help offset the continued impact of higher interest rates, we're focused on two critical areas, debt reduction and operational performance. We have a clear and proven path forward for both. Strengthening our balance sheet and reducing debt allows us to lower the cost of capital moving forward. We have a well-defined roadmap to do so, starting with utilizing repatriated proceeds from the dispositions of inventory properties. Over the next two and a half years, we anticipate approximately $800 million in inventory proceeds, most of which are earmarked for debt repayment. These aren't speculative inventory sales. They are contractually bound condominium closings. In 2023, we reduced our net debt to EBITDA by 23 basis points, ending the year at 9.28 times. We expect to reduce our net debt to EBITDA ratio to nine times by the end of this year. We plan to drive this ratio down further as additional proceeds are realized. We are also exercising prudence by reducing our construction spending this year relative to what was planned in 2022. This is a proactive measure. By temporarily scaling down construction spending, we allocate capital to highly productive and accretive uses such as debt repayment, providing third-party mortgages, and, where appropriate, opportunistic acquisitions. Operational performance is the second pivotal factor in mitigating the impact of interest rates. Quarter after quarter, starting from our February 2022 investor day, RioCAN's team and portfolio have consistently delivered exceptional operating results. RioCAN's portfolio is at its greatest desirability and defensiveness. This results from our commitment to maintaining a resilient and sought after asset base. Our strategic focus on major markets has resulted in a portfolio concentrated within densely populated areas. Within a five kilometer radius of our assets, the average population is now 260,000 people. with a high average household income of around $140,000. This profile aligns perfectly with the requirements of strong and stable retail tenants. The operating environment remains strong, marked by a supply shortage of available retail space, combined with intense retailer demand for high quality locations, precisely the kind found within RioCAN's portfolio. And while we maintain a steadfast focus on our operations balance sheet and progressing our development pipeline we've also been recognized for our ongoing commitment to sustainability ethical governance and, of course, people and culture. Rio can continue to take steps to mitigate the impact of climate change and has set an overall target to reach net zero greenhouse gas emissions across the value chain by 2050. We are pleased to confirm that our targets were approved by the Science-Based Targets Initiative this year, a significant validation of our commitment. In addition, I'm proud to report that we maintained our first rank amongst our Canadian peers in the 2023 Gresby Real Estate Assessment. Before I turn the call over to my colleague, Dennis, I will reiterate that retail real estate dynamics are in our favor and are producing meaningful long-term demand drivers for our product. We've taken meaningful steps to make our business viable in any backdrop. 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. We have the foundation for a return to outsized growth. The quality of our assets fuels long-term growth and mitigates downside risk. RioCan is operating a best-in-class retail portfolio in the most desirable markets in this great country. We remain committed to prudent financial management, and we have an exceptional team. Importantly, we are delivering our third consecutive distribution increase, which signifies our confidence in RioCan's long-term prospects. The increase also acknowledges our unit holders' ongoing support and loyalty. We believe returning value to our investors through a higher distribution demonstrates our dedication to creating long-term unit holder value. And with that, I'm pleased to turn the call over to Dennis.