RioCan Real Estate Investment Trust

Good day, ladies and gentlemen, and welcome to the RioCAN Real Estate Investment Trust Second 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 statements. In talking about our financial and operating performance, and in responding to your questions, we may make forward-looking statements, including statements concerning REOCAN'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 REOCAM's performance, liquidity, cash flows and profitability. REOCAM'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 risk 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 filed yesterday 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.cedarplus.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 today. I'm pleased to report that RioCan delivered another quarter of results that demonstrate the strength of our platform, the resilience of our properties, and the effectiveness of our strategy. We continue to strengthen our business through simplification and disciplined capital allocation. There's a sustained demand for high-quality, necessity-based retail space in Canada's major markets. Approximately 85% of our properties feature a grocery component. This means that RioCAN centers naturally serve as convenient destinations for daily shopping needs. RioCAN is operating from a position of strength. This is evidenced by new leasing spreads, which reached an impressive 51.5%. Blended leasing spreads were 20.6% this quarter, highlighting the quality of our assets and retailers and the depth of our tenant relationships. This leasing momentum supported same property NOI growth of 4% after normalizing for prior year provision and CAM and tax adjustments. Our team executed 1.3 million square feet of leases in the second quarter, including 1.2 million square feet of renewal. We continue to capitalize on the opportunity to market our leases while simultaneously improving tenant quality. 72% of the second quarter renewals were done at market rents with a 23.5% lended spread. At the same time, we retained best-in-class essential retailers including eight grocery anchors. We aim to strike an appropriate balance between replacement and retention. We're replacing certain transitional tenants to enhance quality and rent growth. At the same time, we're retaining strong established tenants to mitigate downtime and capital requirements. Given the leasing spread and occupancy achieved, we're confident this balance has been struck. These outcomes are not coincidental. They are intentional and they are sustainable. They are driven by our focus on tenant quality, asset strength, and customer centricity. We are the landlord of choice for Canada's leading retailers, including top-tier grocery operators. Our independence from any single tenant gives us the flexibility to select the most strategic and complementary retailer for each asset. This drives strong co-tenancy. We continue to see a virtuous cycle. Strong retailers drive traffic, which attracts more productive, high quality tenants, which in turn enhances net asset value and supports predictable, stable revenue with embedded growth. Our committed retail occupancy remains exceptionally high at 98.2%. This figure represents a slight decrease from 98.7% in the previous quarter primarily attributed to the closure of three HBC locations. As we've demonstrated time and gain, this is an opportunity for growth. Vacancy allows us to convert less productive retail space into traffic-driving tenancies. Realtons operational growth is sustainable. The retail sector is experiencing strength. Demand continues to be strong from top-tier necessity-based retailers that thrive in any economic backdrop. Their margins are well protected, allowing them to absorb market rents. At the same time, there's a scarcity of premium retail space and exceptionally high barriers to entry for new construction. This supply-demand imbalance is most acute where RioCan's portfolio is concentrated. Our properties are located in Canada's major markets with an average of 277,000 people and $155,000 household income within a five kilometer radius. This demographic strength combined with limited supply will consistently make RioCan's offering extremely compelling. We're leaning into our strength by creating new retail space. $55 to $60 million is being allocated this year to retail intensification across existing properties. We own the land, it's zoned, and we have the momentum, capability, and tenant demand required for successful execution. Recent examples of this include numerous TJX, Sephora, and Chick-fil-A locations. Turning now to financial highlights, funds from operation per unit increased to 47 cents up 9.3% year-over-year. This growth was driven by strong operating performance, reduced G&A expenses, residential inventory gains, and accretion from unit buybacks. We're committed to maintaining a strong balance sheet. Our adjusted debt to adjusted EBITDA improved 8.88 times, and our liquidity position is ample at $1.3 billion. Over the course of 2025 and 2026, we anticipate repatriating $1.3 to $1.4 billion in capital to our balance sheet. This will be achieved through the sale of Rio Can living assets valued at $1 billion at the start of this year and the completion of pre-sold condominium transactions. Our capital recycling strategy continues to yield results. As of August 7th, Year-to-date closed dispositions total $230.4 million, consistent with IFRS values and at a weighted average cap rate of 4.3%. This figure reflects the previously announced sales of four Rio Can living assets. Including last year's sale of Strata, this brings the total Rio Can living residential rental dispositions to five, and we have a conditional commitment on the sale of a sixth. year-to-date dispositions also include lower growth assets, such as a Cineplus anchor property in Edmonton and the less productive portion of an open-air retail site in Quebec. In addition to monetizing the Rio Can Living residential rental portfolio, we're making tangible progress towards the conclusion of our condominium program. As of August 7th, the construction loans at UC Tower 2 and 3 have been fully repaid using final closings proceeds. The 11YV loan will be fully repaid by the end of this month. Interim closings have commenced on schedule at Queen and Ashbridge and UC Tower 3. Interim closings at RioCamp's last active condo project, Verge, will commence in the third quarter. The disposition of the Rio Can living assets and the conclusion of our condo program is part of our broader effort to simplify our business and focus on our high-performing, productive retail core. And importantly, it enables balance sheet improvement and the redeployment of capital into our portfolio, either directly into our core retail business or through our NCIB program. With regards to the NTIB program, in the second quarter, we acquired and canceled 2.3 million units at a weighted average price of $17.25 per unit. This brings the total number of units acquired and canceled to 5.6 million at an average price of $17.99 for a total cost of $100.1 million year to date. We view the purchase of our own units as a highly attractive investment. RioCan's unit price is undervalued. It doesn't reflect the underlying value of our platform and its future prospects. We see this as a unique opportunity to acquire a leading portfolio characterized by strong, reliable, and expanding core cash flows at a very attractive discount. The Canadian retail landscape is evolving, and RioCan is exceptionally well-positioned. The availability of high-quality retail space remains limited while necessity-based tenants continue to generate steady demand. Our strategy is working. We're consistently delivering record-breaking operational results, simplifying our business, and enhancing our financial health and flexibility. We have a team built for stability and growth, a productive retail core, strong balance sheets, efficient infrastructure, and a simplified business model. We are confident in the fundamental strength of our platform. Before I conclude, I'd like to take a moment to recognize Bonnie Brooks and Richard Dancero, who have recently stepped down from our Board of Trustees. We sincerely appreciate their years of insightful guidance and unwavering support, and we wish them continued success in the years to come. I'd also like to recognize RioCan's talented team whose dedication and expertise continues to drive unit holder value. RioCamp's team and portfolio fundamentals will serve the trust well now and long into the future. Our core retail portfolio has never been stronger, and we are well positioned to capitalize on the opportunities ahead. We look forward to hosting an investor day in November of this year. In the meantime, we'll continue to demonstrate the strength of our portfolio through consistently strong operating results. Thank you.