RioCan Real Estate Investment Trust

Good day, ladies and gentlemen, and welcome to the Rio Can Real Estate Investment Trust First Quarter 2025 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 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. RioCAN'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 March 31, 2025 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.cdarplus.com. I will now turn the call over to RioCAN's President and CEO, Jonathan Gitlin.

Thanks, Jennifer, and thank you to everyone who's joined RioCAN's senior management team for this call. I'm happy to have the opportunity to connect with you all today. I spent some time considering how best to describe the first quarter of 2025, and the word that I landed on was paradoxical. Now, I know it's an unorthodox way to describe a quarter, And it's not a descriptor that I've used before, but it does feel appropriate. It's been a tough quarter, though you wouldn't know it based on results. Rio can continue to produce operational results, demonstrating considerable strength and maintaining historic highs. However, the backdrop, well, it's been, let's say, turbulent. The macro environment is rife with uncertainty, including trade conflicts, economic instability, dampened market and consumer sentiment, and a general risk-off approach to trading. In addition, Canada's longest-standing retailer, Hudson's Bay Company, commenced insolvency proceedings under CCAA. It's a rocky road. As always, RioCan is well-positioned to navigate it. HBC CCAA filing is, of course, generating a lot of intention, including the impact it'll have on the Canadian retail landscape and the impact on RioCan, given our joint venture with Hudson's Bay. The RioCan HBC joint venture was established back in 2015. In the intervening 10 years, RioCan and its portfolio have evolved tremendously. 94% of our rent is now generated from Canada's major markets, and 88% comes from strong, stable tenants concentrated in necessity-based uses. We've also lowered our payout ratio to achieve a leading position within the industry. We have a powerful and resilient business that can absorb these types of curveballs and ensure the sustainability of RioCan's distribution. To place the HPC exposure in context, as of the year end of 2024, The JV represents 4.4% of the trust FFO and 3.3% of its equity. We've written down our investment by $209 million this quarter, which represents the vast majority of the NAV related to the joint venture. As you're aware, the situation is fluid, and it'll take time before there's certainty on the outcome of all of the assets in the JV partnership. At this time, it appears clear that there is no wholesale option that will result in the ongoing continuation of the business on the same scale as HBC operated prior to its CCAA filing. We took a substantial write-down of the equity value of our HBC interest on the basis that we don't foresee an outcome that results in the payment of our current rents. We feel confident in our ability to recover some of the value over time. We believe the market has priced in a downside risk that is more substantial than the probable outcome. I'll explain my rationale. First, our management team took appropriate contingency planning steps to be prepared in the event that HBC was not able to continue operating in its existing form and sought to commence restructuring or insolvency proceedings. In doing so, we were able to evaluate how RioCan might be impacted and identify potential options and alternatives from a legal and business perspective. Now, with the benefit of these prior contingency planning efforts, we're focused on taking appropriate steps within the context of HBC's CCAA proceeding to preserve value, protect RioCAN's rights, and advance RioCAN's strategic interests. Second, this is not our first experience navigating an insolvent entity. Consumer behavior and trends evolve, and it's the nature of retail. While the circumstances surrounding HVC are unique, we've seen and successfully managed through it when other large retailers exited the market. This management team has mitigated risk and created opportunities when retailers like Target and Sears liquidated. We're confident that opportunities exist to preserve value, and we will seize those opportunities. Third, for the Yorkdale and Ottawa properties, where RioCamp provided a guarantee or direct covenant with respect to the JV's mortgages, RioCan secured substantial security interests and lease termination rights in exchange that will enable value preservation. Fourth, the capital structure within the JV allows RioCan flexibility. For the vast majority of properties in the JV, the structure of the property level debt allows RioCan to be judicious around capital expenditures. we will not invest substantial capital that doesn't deliver a return. To summarize, we're confident in RioCAN's ability to preserve some value and income through this situation. Your management team is actively navigating through the process. While the path may not be linear, clarity will emerge in ways, and we look forward to sharing our progress with you. Let's shift now to our outlook for the rest of 2025. There are obviously a number of variables that present challenges with respect to forecasting. That said, we feel that it's important to give our view on how we believe these factors will manifest in RioCAN's 2025 results. We acknowledge that we previously provided 2025 FFO guidance of $1.89 to $1.92 per unit. Well, that guidance was given in a markedly different environment. The guidance included a range that accounted for a balance of risks and opportunities, including a substantial provision for macroeconomic volatility and subsequent retail disruption. Given the information we had available to us at the time, it did not assume a full liquidation of the HBC business, and as a result, did not accommodate for the entire FFO impact. Given the dynamic circumstances in which we're operating, we feel it is prudent to revise that range to $1.85 to $1.88 per unit. Guidance on all other KPIs remains intact, including annual commercial same property NOI growth of approximately 3.5%. I will note that the factors contributing to forecasting challenges have also created an impractical environment for hosting an investor day. So we have postponed the investor day that was initially scheduled for this spring. Rest assured, it is our intention to host an investor day as soon as practical and will provide updated timing shortly. I'll now turn to our Q1 operating results, and as I do, the paradox I spoke about a moment ago will be evident. Despite this environment, our core retail portfolio continued to perform. Every aspect of RioCan's operating fundamentals continue to demonstrate enduring strength and stability. We achieved record-breaking operational results and capitalized on opportunities to transition lower-growth leases to high-quality tenants and to realize the value embedded in our portfolio. A few highlights include committed occupancy remaining at a record high of 98%, with retail committed occupancy at 98.7%. Double-digit blended and new leasing spreads for the fifth consecutive quarter at 17.5%, and 18.3% respectively. Commercial same property NOI growth was 3.6% bolstered by the benefits of high quality backfill leasing activity that was completed in 2024. We also completed $16.7 million in dispositions, including the sale of a Cineplex anchor property and post quarter end, we sold the less productive portion of an open air retail site in Quebec to an industrial developer for $37.5 million. RioCanLiving's residential rental operations generated $7.5 million in NOI in the quarter, an increase of approximately 18% over the same period last year. At the same time, we progressed our strategy to unlock the value in our residential rental portfolio. As I've previously expressed, Rio Can Living's residential rental portfolio is now a substantial and valuable business. You'll recall that one objective we had in building the portfolio was to create sufficient scale to provide options for extracting value. I'm pleased to announce that we're advancing the option we believe will maximize value for our stakeholders. Over the next 12 to 24 months, Provided we can achieve prices that approximate IFRS values, we will sell our interests in RioCan Living residential rental assets, and we're off to a strong start. Strata in downtown Toronto was sold at a price above IFRS value in Q4 2024, and now RioCan has entered into agreements to sell its 50% interest in an additional four RioCan Living assets, all for prices at IFRS value. The first of these is for RioCAN's 50% interest in Brio in Calgary, which is firm and is expected to close in the coming months. The remaining three are conditional. We're also in advanced discussions on certain other assets within the RioCAN living portfolio. We look forward to providing an update on these in the near future. RioCAN living assets are unique. They're new and therefore have low CapEx requirements. They're not subject to rent control and therefore have strong growth profiles. They're in major markets and have transit at their doorsteps. These characteristics are generating interest from buyers and will continue to do so in the future. Upon closing, the proceeds from the sales of any RioCan Living assets will be used accretively to pay down debt and to support our NCIB program. I would like to clarify what this means for RioCan Living going forward. While we're selling our existing residential rental portfolio, RioCan Living will continue to very much be a part of our business. RioCan will remain focused on maximizing value from our extensive mixed-use density pipeline. We'll maintain our internal infrastructure and capabilities to harvest valuable density. When the time is appropriate, we will either build additional mixed-use properties or sell the density. If we choose to build, will pursue this through a structure that minimizes the impact on RioCAN's balance sheet. This involves seeking outside investors to provide the majority of required capital while RioCAN will contribute its land and its expertise. The team that successfully built up and managed RioCAN's formidable portfolio of mixed-use assets will be critical in this strategy. When times are turbulent, foundational strength is paramount. I can say two things for certain. One, these are unquestionably turbulent times. Two, the backbone of RioCAN's platform is stronger than it's ever been. The work we've done in the last 10 years has resulted in a portfolio position for long-term productivity and stability. The strength of RioCAN Foundation has been demonstrated by consistent quarter-over-quarter record-high operating results. While the HBCCCAA filing and current macroeconomic volatility are disruptive and will have an impact, RioCAN's portfolio has evolved such that it is not dependent upon joint ventures or macroeconomic stability for long-term success. The road ahead requires patience, experience, focus, and skill, all attributes that define the RioCAN team. This team is up to meet the challenges that lie ahead. RioCAN's portfolio fundamentals will serve the trust well through this moment and long into the future. We look forward to providing you updates as we progress, and at the same time, continuing to demonstrate the strength of our portfolio through consistently strong operating results. Before turning the call over to Dennis to discuss our balance sheet, I would like to ask John Ballantyne, RioCAN's Chief Operating Officer, to take a few moments to speak to some recent examples that highlight RioCan's ability to extract value from its retail portfolio in a variety of ways.

Thank you, Jonathan. And good morning, everyone. We've worked hard to reposition RioCan's portfolio over the last 10 years. And as a result, we're well positioned to be resilient in the face of economic downturns and to capitalize when the market is strong. The portfolio's quality is evident in the operating results that Jonathan just walked you through. And I'll add that our record occupancy and strong leasing spreads are not a three-month phenomenon. They are a proven recurring trend. To this end, RioCan's rolling 24-month blended leasing spread is 15.2%, bolstered by an incredible 27.4% spread on new deals. Over the next few minutes, I'll highlight some of RioCan's recent tenant and property level wins that demonstrate our ability to maximize growth. I'll start with the 10 rooms and spaces and bad boy boxes that were vacated in the first quarter of 2024. We provided updates as we progressed those backfills, but I feel that a wrap up is appropriate. Each of the 10 boxes has been released to strong covenanted, high traffic generating retailers, including three grocery stores and two TJX banners. Seven of the 10 backfill tenants are open and paying cash rents. Rent for the last three will commence over the next three to six months. In addition to demonstrating our team's ability to quickly replace struggling operators with strong retailers, these backfills also highlight the significant upside rent potential embedded in our portfolio. The average year one rent achieved on the new deals exceeds previous rents by 24%. Factoring in the annual rent growth achieved over the terms of the replacement deals, we achieved an average rent spread of 37.5%. Our ability to add value to our portfolio is not limited to situations where tenants vacate. RioCAN continuously reviews all properties in our portfolio to ensure the highest and best use of land is achieved. There are countless examples of this in RioCAN's history. I'll share two recent ones with you now. The first is RioCAN Centre Burloke in Oakville, Ontario. The property is well anchored by Longo's, Home Depot, and several national food service and experiential brands. However, there's also 170,000 square feet of apparel space that is largely vacant. Of the tenants that are operating in that component, a high percentage are classified by RioCan as transitional and are paying gross or percentage rent. This portion of the site is less productive than the standard we hold for our properties. In keeping with our strategy to maximize the value of our land, we implemented a plan to reinvent the center. This plan includes demolishing the underperforming component of the site to accommodate a new 158,000 square foot Costco scheduled to open in late 2026. To free up the 16 acres of land that Costco requires, RIOCAN is terminating leases with the less productive transitional tenants and relocating the strong stable retailers to existing vacancies elsewhere in the site. The redevelopment will result in an annual NOI increase of $3 million. After deducting the capital required to complete the deal, and valuing the asset at the cap rate premium Costco Anchored Site commands in the market, this translates into $21 million of NAV growth. In addition to this immediate financial return, the dramatic daily increase of consumer traffic flow generated by Costco will drive impactful growth for the entire site for years to come. To this end, the Costco halo effect has already resulted in the completion of 40,000 square feet of new leasing with a TJX banner and a Sephora. both of which are backfilling existing vacancies at significant rent spreads. Our mega Sontra Notre Dame site in Laval, Quebec is a comparable success story. This 510,000 square foot open air center is simply too large for the market and similar to Rio Canberlo contains a historically underperforming 260,000 square foot apparel component. This less productive portion of the site has chronic vacancy and is largely tenanted by gross or percentage rent paying tenants. New tenant demand has not been enough to justify the capital required to re-tenant and improve the aging infrastructure. In recognition of this, and as a means to extract value, Rio can work with its partner, the Harden Group, to negotiate the sale of a 27-acre portion of the site to Rosefellow, a Montreal-based industrial developer for a purchase price of $75 million. This purchase price represents approximately 80% premium to IFRS. The transaction closed on April 22nd. In addition to monetizing an underperforming portion of the site at an impressive land value of $2.8 million per acre, we also fortified the remaining 278,000 square foot retail center. Productive retailers, including the Gap and Banana Republic, were relocated from the disposition lands, and new deals were completed with Sephora and Le'Veon Rose in existing vacant space. We consolidated land parcels through the purchase of buildings occupied by existing retailers, including Couchetard and McDonald's. New pads were developed on existing density to accommodate Service Canada relocation and a new Krispy Kreme bakery. And store expansions were completed with existing tenants Winners, HomeSense, and Dollarama. The reinvented center is 100% occupied and features a strong, stable tenant mix, including grocery, pharmacy, banks, liquor, and value retailers. These uses align with RearCan's strategic direction and are critical for future revenue growth. Taking into consideration the proceeds from the land sale, as well as the capital costs required to sell the land and improve the retail component of the remaining center, the resulting value creation is approximately $30 million at RioCAN's 50% ownership interest. I provided just three examples that illustrate RioCAN's ability to extract value from our retail properties. RioCAN's portfolio is comprised of some of the highest quality real estate in the country. These locations combined with the strength of our strategy and team will continue to generate opportunities for growth and value creation. I'll now turn the call over to Dennis.

Thank you, John, and good morning to everyone on the call. FFO per unit was 49 cents for the quarter, representing a 9% increase compared to the same quarter of the previous year. This increase was driven by strong state property NOI growth and higher condo gains, partially offset by increased interest expense. The quarter included $22 million of condo gains as we continue to progress well on interim closings. As of May 5th, we have interim occupancy for 310 units, or 96% of the expected Q1 amount. Over the last two quarters, we had total interim occupancy of 673 units, a rate of 97%. Final closings are scheduled to begin later this month at UC2 and 11YB, so we will provide a further update in our next release. This quarter's condo gains were positively impacted by an $11 million cost contingency release relating to our UC projects, as construction risk has decreased with the projects nearly complete. Net income for the quarter was impacted by impairment charges relating to our investment in the Rio Can HBCJV of $209 million. This impairment reduced our carrying value of the investment in the JV from $249 million to $41 million, or 0.6% of Rio Can's equity. As disclosed previously, we have provided credit support to the JV in the form of guarantees relating to debt on two assets, totaling $87 million, as well as two mezzanine loans totaling $39 million. RioCan receives security interest in several assets, as well as valuable lease termination rights in exchange for providing this credit support. We have assessed that the security received is sufficient to cover this exposure. The remaining debt in the JV is non-recourse to RioCan, meaning that our exposure is limited to the aforementioned investment carrying value and credit support. RioCan has no obligation to inject further capital into the JV and will remain disciplined in allocating capital to any of the JV assets. We will ensure that any additional investment generates returns that are competitive with alternative uses. Our NAV per unit was $24.62 as at March 31st, compared to $25.16 at December 31st, 2024. The decrease was attributed to the previously mentioned impairment of our investment in the Rio Can HBC joint venture. This was partially offset by retained operating income that we accumulate on our balance sheet each quarter due to our low payout ratio and the effect of NCIB purchases as we repurchased $60 million worth of units at a price below NAV. Even with the JV related write down, our NAV per unit remains at a significant premium to the trading price of our units. Based on yesterday's closing price, our units are trading at a 31% discount to our NAV per unit. Our NAV continues to be supported by the sale of assets, as it has been for the past few years. As of May 5, 2025, RioCan has closed firm and conditional asset sales of $241 million. sold in line with or above IFRS values, and at a weighted average cap rate of 4.3%. This includes four RioCan Living assets and the excess lands at Mega Santra Notre Dame in Laval, Quebec. Once again, highlighting the embedded value in our portfolio. In total, over the last three years, we have closed 40 asset sales for a total of $942.1 million at values that support our IFRS NAV. This is evidence of the continued disconnect between our unit price and private values that we are able to achieve. Our balance sheet continues to be a top priority, with steady improvement across a number of metrics. Net debt to EBITDA for the quarter was 8.96 times, continuing a steady decline. We expect this to continue over the balance of this year and into next, as we close on condos and asset sales. Including the repayment of mortgages subsequent to quarter end, we improved our unsecured debt to total debt ratio to 58.6%, compared with 55.7% at year end, while increasing our unencumbered asset pool by $605 million to $8.8 billion, remaining on track to reach 60% of unsecured debt to total debt by later this year. During the quarter, we raised $550 million unsecured to venture financing at an average rate of 4.05% and an average term of 4.8 years. This was used to repay existing debt, including secured mortgages, while also maintaining $1.4 billion of liquidity. RioCan's core portfolio of well-located necessity-based retail assets continues to demonstrate the ability to grow as our team delivers strong operating and financial results. We are leaning into this core portfolio as we simplify our business with a focus on maintaining strong free cash flow and continuously improving our balance sheet. Our low payout ratio provides us with capital that can be reinvested in this core business to drive growth and support our attractive distribution. Our NAV has been continuously supported through the execution of open market transactions. The disparity between private values as evidenced by these transactions And the public unit price presents a substantial opportunity to acquire a best in class portfolio characterized by strong, reliable and expanding core cash flows at a very attractive discount. With that, I will turn the call over for questions.

Thank you. We will now begin the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. As a reminder, if you're using a speaker phone, please remember to pick up your handset before asking your question. We'll pause here momentarily as questions are registered. Our first question comes from the line of Lauren Kelmar with Desjardins Capital Markets. Your line is now open.

Thanks. Thank you. Good morning and thanks for all of the color around HBC. Maybe I'll digress from that to start and go to the condo side of things. It looks like the trends from Q4 has continued to Q1, a lot of good results there, but there seems to be rumbling bubbling up again. I just wanted to get an idea of what you guys are seeing, if there's any incremental, if you're any more concerned about the closings than you were two, three months ago.

Hey, good morning, Lawrence. The condo market is, I would say, it's tricky, but it is consistent with the guidance we provided. We had in our guidance approximately a 6% default rate built in. We've done better than that, as you could tell from the interim occupancies to date that are closer to coming between 96 and 97%. But we're still holding firm on that 6% default rate because we do think that the remainder of the year, will be um a little less stable and a little less predictable because first of all as you progress onto the list of of um of units uh you're getting now further into the cycle where these units are a little bit later stage meaning that they were sold at a bit of a higher price which means that the differential between those prices and market prices are a little bit um you know they they diverge a little bit but that said the same protections help us in that we have deposits that are fairly significant at 20 or approximately 20 and you know we've got firm commitments from these vendors to close as well or sorry these purchasers to close and um many of these buildings have been pre-approved from a uh for for mortgages so we think the risk profile i mean the overall market tone is is average at best but the risk profile for ryokan living assets is um slightly lower because of those factors okay can you remind us uh which of the buildings have been uh have been pre-approved in terms of the appraisals

sure uh uc tower and um 11 yv and i believe oh verge and verge sorry and verge okay so queen and ashbridge is uh is that looks like the lone one that happened um okay and then maybe just last one from me on the ryokan living side congrats on making some good progress there just trying to get an idea um What does the buyer profile look like? Is it predominantly your existing partners or are there a lot of folks out there looking to acquire a 50% interest in apartment buildings?

It's the latter. There are a lot of people out there looking to acquire this type of asset, which, as I mentioned in my prior notes, are new, no rent control in major markets, transit-oriented, part of bigger mixed-use projects. There's a lot of interest in that type of asset class. So we're seeing a broader spectrum of interest. As we had predicted, it's a great portfolio.

Okay, so fair to assume that not necessarily all of them will be bought up by the JV partners?

That is a fair assumption, Lorne, for sure.

Okay, thank you so much for the call. I'll turn it back.

Thanks a lot.

Thank you for your questions. Our next question comes from the line of Mike Modkus with BMO. Your line is now open.

Morning, Mike. Thank you. Good morning. I was hoping, Dennis, you could give us a little bit more granularity just with respect to the impact of the decrease in your guidance. I think you mentioned that there were some favorable impacts on the development costs. I don't know if that relates to the $11 million contingency release you spoke to, and then how we should be thinking about the flow through of the anticipated FFO loss. Did you just assume that the stores go vacant? Is there any capitalization there? Anything you can offer would be helpful.

Yeah, Mike, so thanks for the question. So what I would say at this point, the way we've done it, it's fairly simple as the situation is fluid. We had disclosed in our March 18th press release an impact of $0.08 per year of FFO impact as the Kind of like the maximum exposure all we've done is annualize that. So we know we have payments through to the end of May based on the quarter proof occupancy rents that we're receiving. So we just take. Kind of an annual rate against that 8 cents and that gives us 5 cents negative impact from through the guidance and then that's offset by a 1 cent favorable on on condo gains. We did have an 11. million dollar favorable cost variance on our condos in the first quarter. We have not taken all of that. In fact, we've taken a quarter of that through the guidance forecast, leaving some incremental risk buffer in the forecast to protect us for the balance of the year, given Jonathan's comments around the condo market.

Got it. Okay. Now that's helpful. I guess as the. I know that the outcome of the HPC JD is is not and sorry I don't want to detract me. Congrats first of all on on the strong results within the corporate player, but it seems to be having along quite nicely there. But just as we go forward, I'm just trying to think of, you know that you've got the potential defaults, but that's going well on the condo side. But what about the 100 million or so of not contracted presale revenue? Because if I look at your disclosure, The timing of UC3 seems to have been bumped up. I'm not sure if that's a typo or not, but what happens in accounting and ethical perspective if those pre-sales don't, or the unsold inventory doesn't get contracted and sits on your books?

Yeah, so what we've done from a forecasting perspective is we have assumed no sales of unsold units until 2027. So none of that unsold revenue is actually in the forecast at this point. So we really have isolated the risk down to defaults on pre-sold units, which would include UC3. That will close over the balance of this year. It should be a little bit later in the year, although construction is going quite well there. Um, and we have, uh, The team, while we give a 6% general guidance, as Jonathan mentioned, we pushed more of that risk or a higher percentage later that year because that particular project is sold at a higher sales price per square foot. So I think just the quick summary is we've accounted for the risk on the pre-sold units and we've assumed no sales of any unsold units. Now we do have some mitigation strategies we're working on in terms of not having a drag there. So we have deals we're working on with some bulk rental situations to rent those units out while the market is in this kind of state of flux.

Okay. In a bulk rental scenario, would that mean you become the landlord and effectively a portion of those condos become income producing?

Yeah, they would become, we would be the landlord. We had to work through the accounting on the exact terms of what those leases are going to be in terms of duration if they were to be income producing versus just staying inventory and this is holding income. So that's something we're working through, but certainly economically we'll work through that. be making some rents there and it would be enough to at minimum offset any kind of FFO drag from having to pay property taxes and maintenance fees, et cetera, on those. So that's how we can protect that situation.

Okay. I will turn it back. Thanks so much. Thanks, Mike.

Thank you for your questions. Our next question comes from the line of Mario Sarek with Scotiabank. Your line is now open.

Good morning. Morning, Mario.

Thank you and good morning. I just, hopefully you can hear me okay. Just on the UnrealCAM Living and just want to clarify, Jonathan, you mentioned that in a resolution, the expectation is within 12 to 24 months that the equity interest will have been sold. Is that correct?

Yes, that's our intention. I mean, it's obviously contingent on the market, but that is our intention.

Got it. Okay. And then does the sale of the four 50% interests, does that indicate that your plan is to kind of piecemeal out the portfolio over time, like individual asset sales? Or is that a subject to change or not certain at this point?

Our plan, Mario, is to maximize value. And if the best way forward is to do it, as you say, piecemeal, then we will do it that way. If there is a broader portfolio opportunity that also allows us to maximize value but minimize execution risk, then we would pursue that. So it really does depend on which avenue maximizes value, whether it is individual or bulk sales.

Okay. And can you share the total estimated kind of gross and net proceeds for the four that are firm slash conditional or provider range?

We will provide an update as soon as those deals get clarified or at least go firm.

Okay. And then just maybe switching over to HBC, I appreciate the, you know, in terms of incremental capital, Going forward, it would require an attractive return on investment. At what point do you think you'll be in a position to identify and think about what the incremental capital outlay on HPC may be?

That's a tough one to predict. We're in the midst of a pretty fluid process. I think what we're going to determine now is the court process unwinds is a better timeline. I guess here would be less than useful, but I do think within the within this year, within 2025, we'll have a much more clear understanding and hopefully by Q3, we'll have a much more clear understanding. As you can imagine, there's a lot of stakeholders involved in this and a lot of them have a voice in how this all comes out. But again, I need to reiterate that point that regardless of the other stakeholders, our obligations and liabilities are ring fenced here and we don't have to go beyond those current obligations. And the only way we would is if there is a logical outcome for RioCAN unit holders. So that will, again, I think become clear throughout the course of the next several months. And our pledge to you is that we'll continue to provide good disclosure around that process. But I can't pinpoint a date at this point, Muriel.

Okay. No, that's fair. I appreciate that. My last one, just on the David Miller- On a core portfolio summit mentioned the course that remain quite strong. Are you seeing any change in tenant behavior and incremental changes in your watch list with respect to the tariff uncertainty that's kind of emerged in the past two, three weeks.

Very limited at this point. We're still seeing strength and growth. I mean, keeping in mind that 88% of our tenants are strong and stable and the brick and mortar profile that they currently have is very much a part of their business. And I think they're looking to grow it. In an economy like this and with some uncertainty around the tariffs, you will see cracks around the edges. But I wouldn't say anything extraordinary. So smaller businesses, some discretionary uses like restaurants and independents. But really, our watch list hasn't changed, nor have the tenants seeking growth. It's been a fairly consistent story over the last number of quarters, and we really don't see a catalyst to have that stop. Because again, just to reiterate, even in the face of a slowing economy, we still have that benefit as retail landlords, particularly where we're positioned, where there's just no space. And so I think wherever we do have space available, Even if there are some, as I said, cracks around the edges, the good news is that we have a fairly robust list of tenants and businesses wanting any space that becomes available. But if you look at even this quarter, you know, I have to emphasize the fact that not only did we have a great leasing spread at 17.5% combined, but our retention ratio was also at 93.5%. And usually those things are at odds with one another. But it just shows that we're driving great rents and we're keeping tenants in. And that's simply because there's a recognition that there's not a lot of alternatives, particularly given the strength of RioCAN's portfolio and the demographic profile we have. So I feel pretty confident that even if there is a little bit of a slowness in the economy, which it seems undoubtedly the case, that the strength of our portfolio will outweigh the potential downside.

Got it. I did notice the high retention ratio. Thanks, Jonathan.

Thanks a lot, Mario.

Mario, just quickly, if you don't mind, I'll come back to that, the question you asked about the gross proceeds. So we disclosed total for closed firm and conditionals of $240 million. There is about $50 million of that is retail assets based on our disclosure. So you can kind of back into about 185 to 190, let's say, of gross proceeds from the real care living sales. So I was being cagey for no reason.

All right. Thanks.

Thank you for your questions. Our next question comes from the line of Tammy Burr with RBC Capital Markets. Your line is now open.

Thanks. Morning, everyone. Morning. Jonathan, I think at the outset, You mentioned using the proceeds from Rio Camp Living to repurchase units or pay down debt. You know, just given where the unit price is and, you know, you acknowledge that it is, you know, below what you think it's excessively discounted on the HVAC fallback, you know, how do you see the split between those two, you know, between the buybacks? and paying down debt, or perhaps just preserving some capital for the reinvestment that you may need, I guess, on some of the HBC space?

Well, I think, first of all, preservation of capital and paying down debt are one and the same. If you pay down debt, that means that you have access to that capital going forward. And as we suggested, the capital required for the HBC space is only going to be utilized if it creates a return for us And I don't think there's going to be immediate need for that other than the three stores in our Oakville Place, Georgian Mall and Tanger outlets where we have control of those assets and we've already got significant tenant interest where we will be putting in some capital to extract that interest or that increase in rents. So I don't think that's a major factor, the HBC sort of capital factor. The other question, though, the other part of your question, Tommy, around paying down debt and buying back shares. Look, the NCIB program is something that we enthusiastically participated in in Q4, and that was really as a result of, or I guess at the beginning of Q1, was really as a result of the fact that we had incremental capital coming in above our business plan to the disposition of some assets. And quite honestly, if that opportunity arises, we will absolutely take advantage of the NCIB program. We're currently trading at a 11% FFO yield. And this is a portfolio that we very much like, know, and trust. And so I think it is a very good place to invest our unit holders money. That said, we also made commitments to get our debt levels and our net debt to EBITDA in a specific level by the end of this year. And we fully intend on fulfilling that commitment. So where there is additional capital that is incremental, we will look to the opportunity to put it in our NCIB program for sure.

Yeah. The only thing I would add as well, Pommy, that's important to remember in terms of having incremental capital to reinvest in our business, our development program is winding down. We're getting condo proceeds back. So that's going to help this year. When we look at 2026, we have, the neighborhood of $20 million only of committed development spend next year. So we have, when we think about our payout ratio and the, 150 million plus dollars that we retain every year after our distributions and maintenance capital obligations, that capital is going to be available to reinvest in the business and effectively focus in on that core business. So capital's going to be there structurally based on how we've set up our payout ratio.

Okay, that's helpful. Just coming back to the THBC, in terms of the write down that you did take, the 209 million, you mentioned some assumptions on releasing it in your disclosure. So can you just expand on that? Like how many storage stores did you, I guess, assume are released or kept, sold, I don't know, demolished, anything you can share on that front?

So we had to, for the purposes of accounting at the quarter, pick a scenario. And while the reality is likely going to be quite different, and as Jonathan said, we will be very disciplined on any capital injection into the business. We effectively ran a scenario where we assumed releasing of all the spaces. So we just treated everything as retail for the purposes of this quarter's valuation. So incorporated rents, capital, downtime, time, et cetera, in the model to come up with a value that is an absent HPC as a tenant situation. And that's all run at our 22% interest. So that's how we had to do it at this point in the process. We will refine that, obviously, as we get into the later parts of this process. Reality is that we probably won't own 22% of all of these assets. We may end up owning 100% of some of them or certainly the ones that Jonathan mentioned in terms of Oakville and Georgian are ones that we certainly think we could see an increased ownership there based on a security interest and a pretty clear path. But the reality is likely to be quite different. We just had to pick a scenario for accounting purposes.

And so I think because the situation is fluid and there's still an ongoing core process, including the lease monetization program and the CISP program, it's too early to give you a better sense of which ones would be demolished and which ones would be released and which ones would be redeveloped. But I think we have plans on every single asset for any different scenario, but we have to wait until the landscape becomes a little bit more clear before we can provide colour on exactly which avenue we would pursue.

Okay, and then just maybe lastly on that, the debt is non-recourse on most of it, except I think with a few properties. being the exception. I mean, there's there's the possibility that frankly you can simply hand back a case.

That possibility exists, yes. I mean, the other possibility is that the debt could be restructured. So this equity that we see on the balance sheet, we've written down the assets, but haven't adjusted any values of the debt as well. So that's the other kind of, I guess, different way this could play out.

Yeah, but we'll be working with all other stakeholders to figure out a path forward, including lenders on the properties.

Thanks very much. I'll turn it back.

Thanks, Tommy.

Thank you for your questions. Our next question comes from the line of Matt Cornett with National Bank Financial. Your line is now open.

Good morning, guys. Just quickly to follow up on the HPC side, can you give us a sense, it may be kind of There's some complexity around the timing and the process, but are you starting to get inbound interest from potential tenants for the space? I know that was a priority of yours to kind of find tenants. Georgian Mall and Opal Place, I think, are probably easier, and I think you alluded to maybe some progress there, but broadly speaking, are you seeing interest in the space at this point?

So it is caught up in the process, Matt, that does prohibit a lot of these tenants from doing having direct discussions with the existing landlords, not just REOCAM, but others as well, because to be part of those processes, you have to sign an NDA, and that does restrict some of the discussions you can have. But informally, we have a sense that there is interest in a lot of the space, but nothing is formalized at this point because of the process.

Okay, makes sense. And then Dennis, I think from an FFO standpoint, it sounds like you've removed the JV would contribute. Should we understand that, let's say in a hypothetical situation where you kept all the assets and they were vacant, that they would essentially be put into kind of properties under development and you'd capitalize interest and not have the cost associated with them or capitalize that cost into the

Repositioning, so we haven't that exact accounting assessment based on. The facts and circumstances of each asset as we go forward and what those plans are. But I would say that past precedent specifically around. Target would imply that what you said is correct.

And then lastly, for me, it looks like, and I don't know if this is a seasonal pickup in leasing activity, but your RioCan Living portfolio occupancy at both 450 The Well as well as the broader portfolio seem to improve from March to May. Is that an indication of you guys being aggressive on the leasing side, or is that the function of just the spring market is looking a little bit better on the multifamily side?

I think historically the spring market always looks a little bit better, so I would say it's seasonality. But it's a great portfolio, and we think that it attracts a lot of interest spring, summer, or fall. But we do think that the uptick in trend this quarter over the last is due to a stronger spring market relative to winter. John, any further thoughts on that? No.

I guess more broadly, I mean, it's obviously there's been a new supply of condo product and newer portfolios are facing market rents that have been a little bit softer, but it seems like you've maintained rent and occupancy is moving higher. Do you think that the concerns around the apartment space are overblown to some extent at this point, or is your portfolio just outperforming the broader universe?

I think our portfolio is outperforming a little bit because of those attributes that I spoke about. But I definitely think there is a little bit of saturation in the market right now. You've got in Toronto alone, 30,000 units being delivered. And then those are mostly in the hands of investors who are really willing to undercut the market just to get someone in their units. And I think that will inevitably have an impact on the broader rental market. But I do think that Rio Can Living's assets are Quite unique in many respects. I've already gone through the attributes, but and I think that'll insulate them a little bit. But we definitely think that growth this year is going to be a little bit slower than growth last year. And occupancy is probably going to be a little slower. I would say it's going to be fairly consistent throughout the year. We don't predict a lot more growth in it as a result of that saturation. So I'm giving you a balanced answer quite intentionally, Matt, because I do think the Toronto market in particular is going to see some short term turbulence. But I think long term, it's an exceptional market and beyond 2025 and beyond. perhaps into a little bit of 2026, you're going to see a lot more volume. And I think if anything, you look at the success we've had on our Rio Can Living dispositions, there's a pretty sizable endorsement from buyers who are paying aggressive cap rates because they view that there is a lot of growth involved in those assets.

The only other thing I would add, Matt, is there's market rents, which seem to have stagnated. But then there's the rents in our portfolio where we had renewals over the last couple of years where we did not increase the rents all the way to market. So in years where we saw 20% growth in market rents, we were raising rents single digits. So that does still leave some catch up for us to make up this year.

And maybe just one last one on the core retail portfolio and your least maturity profile. It seems like for the last couple of quarters, you've been getting 28 net for rents. Last year would have been 25. This year, I think that represents kind of that mid-teen mark to market opportunity. Next year, you have a bit lower. in place rents, is that a function of the potential fixed rate renewals or where those assets are? Or do you expect kind of a bigger spread next year as a result of where those rents are relative to what you've achieved market-wise over the last couple of quarters?

I think it's largely a byproduct of the fixed renewals we have for next year and the nature of the space. But we still feel the market, it's not as a result of us seeing the market change.

The mid team spread or mid to high team spread is we should assume that to be consistent for this year and next, I guess.

Presumably, we provided guns for this year of routines. We'll provide further guidance into next year once it becomes more clear. But we think it's a very strong market and I don't see a catalyst. I mean, even as I said to one of the last analysts, I don't see a catalyst for the retail market to slow, not because I'm saying the economy is going to get markedly better, but rather because I really think that the available space, quality space is so limited and the demand is still very strong. So we really do think it's a very good environment for us. Yeah, makes sense.

And it's been coming through in the results for sure.

Thank you for your questions. Our next question comes from the line of Sam Damiani with TD security. Your line is now open.

Thanks. Thank you. Good morning, everyone. Thank you for One last question to sneak in here, or maybe two. I guess first off, just on the RioCan Living, Jonathan, your opening remarks were such that the business remains part of RioCan. Does that mean that the REIT would see the opportunity to build back up a portfolio of owned apartment buildings as attractive sometime again in the future, or is it more just a development strategy going forward?

It certainly means that we could have an ownership interest, but it's going to be, as I suggested, a lesser ownership interest. Our view is that we've got valuable land that will contribute. We've got very good expertise that will contribute. And if the path forward at the time is logical to build out those assets and retain a minority interest in those assets, then we would absolutely be open to doing that. but it doesn't mean that we wouldn't also look to be a little bit more merchant in our views where we either sell the existing density or we build and then sell our interest. But I think any of those opportunities are open to us. We haven't put definitive parameters around each one saying we will not or we will absolutely do.

Okay. That's helpful. And last one, just on the sale of, or I guess the redevelopment or repositioning of these two properties, which were huge successes, obviously Laval this quarter and then last year with Burloke. John, is there another one or two of these deals that you could bring forth in the next year? These are obviously huge wins.

Absolutely, Sam. It's, you know, we as a team go through the entire portfolio every year in dedicated meetings. We have an asset management team that is constantly going through each one of our assets just to determine not only where there's some hidden opportunities, but where we think the highest and best use isn't being achieved. So there are a whole bunch of these gems. It takes a little while to, I would say, unbury them sometimes. but very pleased on the progress, both of Burlok and the results of the sale in Megasantra Notre Dame. So stay tuned.

Great. Thank you. And I'll turn it back. Looking forward to it. I'll turn it back.

Thank you for your question. Our next question comes from the line of Dean Wilkinson with CIBC. Your line is now open.

Thanks. Thanks. Morning, guys. Jonathan, maybe I just go back to your paradox.

On the paradox, the view that you hit with real can living and the realization that perhaps this is something best you divest of, was that just because you hit a big enough size to do it? Or was perhaps the thought that you've hit a big enough size that maybe real can living was starting to dilute the value of an otherwise healthy lifestyle? Retail portfolio, which is kind of core to your DNA.

I don't think it was. I don't think Rio Can Living could ever be viewed as dilutive to our to our quality. It's an exceptional portfolio. And I think and it's always typically married with good retail uses. So from both the qualitative and quantitative perspective, I definitely think it's a high quality aspect of our portfolio. We wanted scale so that we'd have a number of options, whether it would be a broader spinoff, whether it would be something that we would keep within the portfolio if we were seeing multiple recognition. or maybe it would be a disposition the way we've currently proceeded. And in order to assess that properly, we felt we needed a certain element of scale, which we achieved. And so now that we've done that, we've assessed how best to extract value and the way we proceeded is the best way to extract value. I think we were not seeing any real multiple lift in our unit price as a result of that portfolio being in its current state. And in speaking to a number of investors, there was a recognition that that wasn't going to change. And we're active asset managers and we want to bring value to the table for our unit holders as best we can. So this path forward was in recognition of the fact that we simply weren't getting maximum value in the current status quo. And we wanted to take, I think, prudent action to extract that value. And I also think you can't ignore the fact that when you have the opportunity to sell at a very low cap rate and then buy, let's say, units of Rio Can back at an 11% FFO yield, The math does also help answer the question, but I think it wasn't that. That's more acute. Our view on this was much more larger and strategic than just the fact that we can trade out of one and into another at very accretive returns.

And just on one of your points, Dean, I think what we see here with this sale, as well as concluding on the condo program, which we will do substantially over the balance of this year, we do see a simplified core, very strong, high-performing retail portfolio here.

uh that remains um and i think you would uh agree based on the way you asked your question that that is something that will be attractive to investors yeah it's what you guys have been known for for 30 years so a little little bit of going home um and then maybe just one on the hbc not to let it die are any of those properties separate title or severable so that you could just totally ring fence it and then just like maybe sell it off and let someone else go with it? Or do they have to be dealt with in the totality of sort of the package?

So if you look at it, there's three buckets of properties. One is the ones we've already spoken about where it's Georgia Mall, Oakville Place, and Tanger Outlets, which are actually part of a broader shopping environment that we already own. And we wouldn't want to sever that off and sell it because we think there is a significant amount of value we could extract to add to our existing shopping center. Then there are a number of HPC locations that we own, but they're part of a broader environment. bigger shopping environment that we do not own. And those are severed because there are separate parcels which permitted us to have these long-term ground leases or actual freehold title. And so there we are free to sell or to enter into another arrangement that is long-term. There is flexibility. And then the last bucket are the, I would call them flagship stores in downtown locations, which are standalone stores. So by their very nature, they are severable because there's nothing really to sever them from. So hopefully that gives you a good backdrop.

That does. Perfect. Thanks, guys. Appreciate it. Great.

Thanks, Steve. Thank you for your questions. I am showing no further questions at this time. I would now like to turn the conference back to President and CEO Jonathan Gitlin.

Thanks, everyone, for joining and have a great day.

That concludes today's call. Thank you for joining us and have a wonderful rest of your day.