RioCan Real Estate Investment Trust

Good day, ladies and gentlemen, and welcome to the Real Can Real Estate Investment Trust's third quarter 2024 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 Seuss, Senior Vice President, General Counsel, ESG, and Corporate Secretary. Ms. Seuss, you may begin.

Thank you, and good morning, everyone. I am Jennifer Seuss, 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. 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 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, 2024, and management's discussion and analysis related thereto, as applicable, together with RioCamp's most recent annual information form that are all available on our website and at www.cdrplus.com. I will now turn the call over to RioCamp's President and CEO, Jonathan Gitlin.

Thanks, Jennifer, and thank you all for joining RioCamp's senior management team today. I'm pleased to report that our team has delivered another strong quarter with standout results. We are encouraged by the consistently strong results generated by RioCAN's high-quality, major-market, necessity-focused portfolio. We've maintained positive momentum with leasing activity that enhances stability and fuels future growth. We set new records in leasing results again this quarter. Additionally, our advancement and commitment to responsible growth, sustainability, and ethical governance was reaffirmed by our outstanding performance in the recent GRES assessment where we were ranked number one amongst our peers. At the same time, our financing activities underscore our access to diverse funding and commitment to maintaining ample liquidity and an ever-improving balance sheet. Market fundamentals favor retail real estate, particularly assets of Rio Can's caliber. Premium real estate remains limited, and this will likely persist due to tough zoning laws and high construction costs. Our prime market locations and appealing demographic characteristics draw the best-in-class tenants from Canada and worldwide. Rio Can has the unique combination of a top-tier team and ideal locations in Canada's six largest and most densely populated cities. Let's focus for a second on our demographics. Within a five-kilometer radius of Rio Can's centers, the average population is 273,000. and the average household income is $148,000. Over the past year, these figures have grown by 5%. This setting, along with our strong tenant mix and our ongoing focus on portfolio quality lead to sustained demand. Simply put, it's where relevant retailers need to be. In Q3, we finalized approximately 1.3 million square feet of leases, including 251,000 square feet of new leases. The average net rent of the new leases was $24.51. This is 11% higher than RioCan's average net rent. We're confident the market dynamics will sustain this upward trend each quarter. With heightened leasing demand comes heightened occupancy levels. Committed and retail occupancy reached record highs of 97.8% and 98.6% respectively in the quarter. Our blended leasing spread for the quarter was 14.2%. with renewals at 12.6% and new leases at 24.2%. This is RioCan's third consecutive quarter of double-digit leasing spreads. Alongside these outstanding leasing results, we're very pleased, though not surprised, with the releasing of the 10 vacant units resulting from the failures of Bad Boys and Rooms and Spaces, which occupied 261,000 square feet of space in our centers. With the completion of two deals in the third quarter, all units have now been leased to relevant and resilient retailers, including Longos, Winners, HomeSense, and No Frills. The leases feature 23.9% higher base rents and contractual annual increases. We did what we said we would do. We seized an awesome opportunity to move from lower growth, lower quality leases, to the high quality tenancies you would typically associate with the Rio Can Shopping Center. This outcome further enhances Rio Can's portfolio quality and cash flow growth. We've made the smart decision to focus on high-quality tendencies to drive sustainable growth in FFO and NAS. The long-term benefits of this strategic leasing significantly surpass the short-term downtime needed to prepare these premium spaces. Now, in addition to backfilling these units, we finalized the land lease for 158,000 square foot Costco at Rio Can Center, Burloke. Costco will be transformative to that center, replacing less resilient fashion-focused tenants with an additional strong service-based anchor that will draw significant traffic, attract impactful co-tenants, and enhance the property's net asset value. Additionally, since the beginning of the year, we've signed six new grocery leases representing 117,000 square feet, three of which transformed previously open-air or urban sites into highly valued grocery anchored centers. While Rio Can continues to actively manage its portfolio to drive income quality and asset value, we also remain focused on fortifying our balance sheet. By year-end, we're on track to reach the high end of our long-term adjusted net debt to EBITDA target range of eight to nine times. This goal will be achieved in part to increase EBITDA supported by a steady stream of diversified NOI from strong operations and development deliveries like the wells in Toronto's downtown West. Since Wellington Market opened in May, traffic at the well continues to exceed our expectations. Many new businesses continue to open, driving even more traffic to this vibrant mixed-use center. On the other side of our deleveraging equation, Our strategy includes significantly reducing construction spend. We've halted the start of new construction, and we don't intend to commence physical construction of mixed-use properties anytime soon. We continue to drive value through rezoning and enhancing existing entitlements, but we will not initiate new capital-intensive projects for the foreseeable future. Our roadmap also involves repatriating proceeds from inventory property sales. I'll spend a moment on the condo units that Rio Can has in its inventory. There's been a significant amount of focus on our pre-sold condo units and the associated risks if they don't close. Let me explain to you why we do not view this as a material risk. First, I'll acknowledge that the condo market across Canada is under strain. There are no new product launches and it's very difficult to dispose of unsold inventory in this environment. However, it's important to note that RioCan is not relying on the disposition of unsold inventory to achieve our balance sheet objectives. We've pre-sold approximately 90% of the 2,500 units we will complete through 2026. So we're talking about pre-sold units that are subject to legal binding purchase agreements with buyers who passed credit checks and made average deposits of close to 19% or on average $150,000 each. Many buyers also invested additional funds in unit upgrades. The vast majority of these condo sales were concluded before the market peak and the closing prices are below market value. In addition, interest rates have decreased and will likely continue to do so. This makes carrying costs for our purchasers more viable and will help facilitate transaction closings. I must also remind you that we are through 24% of the inventory sales that we highlighted at the beginning of 2024. To break it all down, out of the approximately $800 million expected from six active condo projects, we've already realized and accelerated $193 million through unit sales and forward selling. These dispositions accelerate revenue, reduce our condo exposure, and preserve capital as purchasers assume the cost to complete and the associated debt. Another $607 million is expected as units close. As they say, the proof will be in the pudding. We are commencing occupancy and closings on a number of projects in Q4 and into the first half of 2025. We will keep you apprised of our progress. When it comes to RioCan's pre-sold condo inventory, I do not perceive a material risk. Our portfolio features many low-cap rate properties that appeal to both institutional and private investors. These assets allow RioCan to use strategies, such as asset dispositions, to further improve financial flexibility when attractive opportunities arise. The growing demand for these assets is evidenced by our recent firm agreement to sell Strata, a residential property in downtown Toronto, at a sale price reflecting a 6% premium over its IFRS carrying value. Selling Strata for a price above IFRS value is just one case that highlights and substantiates the immense value of our residential rental properties, which have an average age of approximately four years are not subject to rent control and have below market debt with average remaining term of eight years. You'll recall that one of our objectives for the RioCan Living portfolio was to create enough scale to provide us with flexibility and options. And we've reached that point with these valuable assets and can now focus on unlocking the inherent value of that portfolio. As we consider our next steps, the market continues to move in a favorable direction. I'll take a minute now to quantify the capital that we are capable of repatriating in the short term. REOCAN living assets are valued at approximately $1 billion. As I mentioned a moment ago, we expect to repatriate over $600 million from inventory sales between now and 2026. Furthermore, we're preserving over $150 million in free cash flow annually. due to our conservative payout ratio. Combining these factors, RioCan has the potential to compile approximately $2 billion between now and 2026 without materially diminishing FFO. This $2 billion represents fuel that we can deploy strategically. For instance, we can rapidly accelerate balance sheet improvement and enhance FFO growth by strategically redeploying the capital Through pay down of existing debt and accretive activities such as unit buyback and portfolio acquisition the flexibility provides Rio can with a very attractive range of options. Our strategy to build a valuable residential portfolio is clearly paying off, we now have the appropriate scale and quality to explore effective pathways to monetize this portfolio. Before turning the call over to Dennis, I'll address our recent restructuring. On October 22nd, we restructured our workforce to optimize the organization and support future growth. As part of this process, we made the difficult decision to reduce our workforce by approximately 9.5%. The corporate restructuring was driven by REOCAN's commitment to responsibly enhancing performance. an improved workflow efficiency and optimized resource allocation to align with our business needs. This is part of our responsible cost management efforts, which also include a national procurement program, advanced technology capabilities, such as an upgraded ERP solution, and, as I previously mentioned, reduced construction spending. These steps further position REOCAN for sustained success and resilience. I'll wrap up now. RioCan has a premier retail portfolio in Canada's most desirable markets. The favorable retail real estate dynamics create long-term demand for our properties. Our strategy is anchored in building a resilient portfolio that ensures steady growth. Our strategic and patient approach, combined with high-quality assets, promotes growth and minimizes risk. We have levers to accelerate the repatriation of a tremendous amount of capital We have several mechanisms to drive growth, and we're committed to prudent financial management backed by an excellent team. The deliberate repositioning of our portfolio, tenants, and platform has improved efficiency, effectiveness, and resilience. Our consistency, vision, and commitment to responsible growth will continue to benefit our unit holders while ensuring their trust stability. And with that, I'll turn the call over to Dennis.