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.