RioCan Real Estate Investment Trust

Good day, ladies and gentlemen, and welcome to the Rio Can Real Estate Investment Trust third 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 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 RioCAN's performance, liquidity, cash flows and profitability. RioCAN's management uses these measures to aid in assessing the Trust's underlying poor 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 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.

Thank you, Jennifer, and good morning to everyone joining us today. We're pleased to share our Q3 2025 results. RioCan's operating momentum accelerated this quarter. Our trio of high retention rates, strong leasing spreads, and quality tenants represent the sustainable, long-term outcome we've strategically built toward. Key performance indicators reflect consistent, sustainable growth, underscoring the strength and resilience of our platforms. Committed occupancy of 97.8%, retail occupancy of 98.4%, and our Q3 retention ratio of 92.7% highlights the value tenants place on space in Rio Can assets. This demand translated into strong performance with commercial same property NOI up 4.6%. RioCan is operating from a position of strength. Our performance is driven by a number of factors, but relies heavily on our focus on tenant quality and disciplined asset management. Premium retail space remains scarce and exceptionally high barriers to entry make meaningful new supply unlikely. At the same time, demand continues to be strong from top tier necessity-based retailers. These retailers are not just getting by, they're focusing on growth. They're proving out their strength and ability to thrive in any economic backdrop. These tenants exemplify the caliber of retailers that comprise RioCan's portfolio. This supply demand imbalance is most acute where RioCan's assets are concentrated. Our properties are in Canada's major markets with an average of 277,000 people and a $155,000 household income within five kilometers. Our strategy is straightforward. We optimize our portfolio by selling assets that don't align with our strategic vision. On the flip side, we invest in those that do. Over the past decade, we've diligently executed this approach and it's yielding measurable success. We are keeping our centers full and generating strong leasing spreads, and we're doing so with high quality tenants. We're in our third quarter of operating under the current tariff environment, and we're pleased, though not at all surprised, to see our portfolio and tenants performing exceptionally well. This is the benefit of a tenant mix that features necessity-based retailers with strong balance sheets that provide everyday needs. Canada remains an attractive market for our tenants, and our centers are ideally located to support their growth. RioCan's leasing spreads remain at record highs. We captured market rent growth across the portfolio, achieving blended leasing spreads of 20.8% this quarter, including 44.1% on new leases. Year-to-date, the average net rent for new leases was $29.58 per square foot, nearly 30% above the average for occupied space. Renewal spreads were also strong at 15.2%. This is especially noteworthy given that an outsized proportion, 48%, were fixed at lower growth rates this quarter. Same property NOI will continue to benefit from this mark-to-market gap. Specifically, there are 10.7 million square feet of leases coming up for renewal at a relatively consistent pace over the next three years. Combined with our success in embedding annual growth in new leases and unlocking fixed options in existing leases, this trajectory is sustainable. We are striking an extremely healthy balance between replacement and retention. we're enhancing tenant quality and rental rates by replacing certain transitional tenants. At the same time, we are retaining strong established tenants to reduce downtime and capital requirements. When opportunities emerge, we secure high quality tenants for our properties. Alternatively, we also like to help our reliable established tenants expand their existing footprints within our assets. We put our platform to work and we help those tenants by seeking out opportunities in adjacent and surrounding space and help them execute on the enhancement and expansion of existing space. We're excited to share a number of examples to demonstrate the strategy at work later this month at our investor day. Our strong quarterly performance goes beyond the numbers. It reflects the quality of our portfolio and the discipline behind our strategy. We previously indicated our plan to repatriate $1.3 to $1.4 billion of capital, which will be infused back into the business over 2025 and 2026, and we remain firmly on track. Progress continues on monetizing our residential rental portfolio. We've sold our interest in six RioCAN living properties, five of which closed in 2025. These five transactions have contributed to the almost $500 million of capital repatriated since the start of this year. Based on the quality and desirability of our Rio Can living assets, we're highly confident in our ability to continue to monetize these assets and to put the capital to work accretively in the numerous capital allocation opportunities we have at our disposal. Our business is rooted in a strong portfolio of favorable retail environment and strong operators. This lends itself to the simplification of our business around our retail core, leveraging our decades of experience to deliver reliable, durable income and growth. Focusing our resources, human and capital, on this core is a logical conclusion that will serve our unit holders well into the future. I'll wrap up in a moment, but before I do, I'd be remiss if I didn't mention that our commitment to excellence was further validated by our impressive performance in the 2025 Grasby assessment. Among other recognitions, we maintain regional sector leader status in the Americas under the retail sector and the first rank among North American retail peers in the standing investment assessment. So as we look ahead, our outlook remains aligned with the guidance we provided in the first quarter. FFO per unit of $1.85 to $1.88, FFO pair ratio of approximately 62%, and commercial same property NOI growth of approximately 3.5%. We continue to see strong demand for high quality, necessity-based retail space in Canada's major markets. Our leasing strategies are fueling organic growth, and our disciplined capital management is amplifying that growth now and for the future. We're excited to share more at our Investor Day on November 18th. Our team is energized, our strategy is clear, and our portfolio is positioned for continued success. Thank you for your time today. I look forward to your questions and to sharing more about our progress in the coming weeks.

Thank you, Jonathan, and good morning to everyone on the call. Our core real estate portfolio continues to deliver strong results, and we continue to simplify our business to focus on this core. FFO, excluding condo gains and excluding HPC-related income, was $0.39 per unit, compared with $0.38 in the prior year. This increase was driven by 4.6% growth and same property income in our core commercial portfolio and the benefit of unit buybacks, partially offset by higher interest expense. Total FFO was also impacted by the following items that are non-core to our business. FFO for the quarter contained $17.5 million of gains related to residential inventory, an increase of $4.8 million, or approximately two cents per unit, compared with Q3 2024. Lower fee and interest income due to residential inventory completions had an impact of one cent. Reduced NOI and fee income related to the former HPC locations had a combined FFO impact of two cents per unit when compared with Q3 2024. Net income for the quarter was impacted by valuation losses of $242.8 million, driven by factors that are not reflective of our core retail portfolio. This amount includes $148 million of net fair value losses on investment properties, comprised predominantly of three categories. The largest component was $95 million related to excess density driven by properties that have been reprioritized. We have a significant amount of long-term density potential in our portfolio. However, given the stagnant land and development market, it is important to ensure that we are maximizing income from the existing retail on our properties. As such, we determined that the redevelopment of properties such as Colossus, Scarborough Centre and Rio Can Hall will not proceed for a number of years. This determination, and commitment to focus on the core retail aspect of these properties removes any ambiguity related to these sites, freeing up our leasing team to maximize retail rents by offering longer lease term to our tenants. The second category, totaling $25 million, relates to assets that are high quality but with lower growth potential attributable to a significant proportion of fixed renewals associated with anchor tenants, such as Walmart. These are similar to assets that we have sold over the last couple of years and represent a minimal proportion of our portfolio. The final category, totaling $28 million, relates to three large Toronto-based residential rental buildings. We have seen weakness in rent growth and occupancy in sub-markets where there is high competition from condo delivery, so we have reduced the stabilized NOI assumption for these buildings. As noted, the valuation losses relate to three categories that are not reflective of our core commercial real estate portfolio. Our NAV per unit at the end of the quarter was $24.19, which is approximately 29% above the current unit price. Going forward, we will focus on compounding NAV by growing income from our core portfolio along with the accretive allocation of the substantial capital we expect to repatriate over the next couple of years. We are rapidly advancing toward a conclusion for the former HPC locations, with asset plans for 12 of the 13 locations. As previously stated, we will only participate in assets where we would expect strong return on capital, and we will not participate in mixed-use redevelopments. The impairment in the quarter writes off our remaining equity in the HBCJV. We have also taken provisions related to our loan and guarantee exposures. We have taken a conservative approach to the accounting for these assets while continuing to pursue all avenues to recover value. With the asset plans in place and the financial provisions recorded, this chapter is substantially behind us. As we focus on our core business, we are winding down our mixed-use construction. Year-to-date, the spending on mixed-use IPP construction was $40 million, with 186,000 square feet delivered. With approximately $70 million remaining to be spent for the balance of the year and our committed capital for development construction in 2026 of only $15 million, we will have significant flexibility going forward to invest capital where it is most secretive. In addition, we have delivered 61,000 square feet of retail infill development. This is an area where we invest in our core portfolio to drive attractive returns through growth in NOI and NAV growth, and will be a continued area of focus. We are repatriating a significant amount of capital to our balance sheet. We expect approximately $1.3 to $1.4 billion of capital from the sales of residential rental buildings and pre-sold condos over the course of 2025 and 2026. So far this year, we have brought in nearly $500 million of capital. $314 million in total asset sales, of which $250 million has been from the sale of five residential assets sold so far this year. bringing the total sold to six buildings, with a sale of a number of others in process. $163 million is from condo closings, resulting in the repayment of $128 million of construction loans and the removal of $323 million of guarantees. We expect the remaining condo units at the end of the year to be valued at approximately $130 million, which is an insignificant amount in the context of RioCamp's balance sheet, putting this program materially behind us. As a result of this and other initiatives, our credit metrics have continued to improve. Our adjusted spot debt to adjusted EBITDA improved to 8.8 times, solidly within our target range of eight to nine times. Our unencumbered asset pool grew to $9.3 billion. Our ratio of unsecured debt to total debt was 64%. And our liquidity was $1.1 billion. Our balance sheet provides us with financial flexibility to take advantage of opportunities as they arise. As I conclude my remarks, it is important to mention that our results are driven by our best in class platform. This includes our team of very talented and hardworking people. Our team has always utilized data that we collect from our vast portfolio to make decisions. Over the past few years, we have been upgrading our ability to leverage this data through the implementation of a new ERP system, migrating our systems to the cloud, and employing analytical reporting and tools. This ensures that our teams have the best information and analysis available as they execute our strategy. Whether it be negotiating a lease, investing in a retail infill project, or buying and selling assets, we ensure that the relevant data is available and the collective knowledge of our organization is brought to bear. We apply a continuous improvement mindset to ensure that we optimize the tools available to our people, driving efficient processes and effective decision-making. With that, I will turn the call over to the moderator for questions.

Of course. 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. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking a question. Our first question comes from the line of Sam Damani with TD Securities. Sam, your line is now open.

Thank you and good morning everyone. Lots going on here at RioCamp and it's exciting to see the next couple years. I just wanted to start off, I think Jonathan or Dennis, one of you mentioned sort of numerous capital allocation opportunities in front of you right now. I wonder if you could be a little bit more specific in terms of what you're seeing and I guess how much capital could be allocated.

Thanks, Sam. Good morning to you. Thanks for joining the call. We are going to elaborate quite a bit more on that at our investor day. So I don't want to put too much emphasis on it today, just leaving something to talk about when we see you next in two weeks from now. But I'll give you the most obvious ones right now, the opportunities that are highly creative and also beneficial. our infill development in our retail scope. So really looking at properties that we own where there is existing retail and we can make it better through the creation of additional retail pads and strips. And we're now at a position where the rents justify the expense of building out those additional square footage. And then the other is obviously NCIB, which we've participated in the past, given where our stock or where our units are trading relative to NAV and what we feel is an immediate FFO return on FFO. We feel it's a pretty obvious place to place money. In addition, of course, there's paying down debt. Those are the three pillars I'd say that we're focused on most, but there are many ancillary ones that we're also focused on and we're going to elaborate on at the investor day. Dennis, do you have anything to add to that?

No, I think that's right. And I think what's also important is to just note what Jonathan didn't mention, which is, you know, we're winding up our mixed-use development program. That's just not a priority for us right now in terms of any large construction at scale. So, yeah, I would agree. Putting money back into our own portfolio, retail portfolio, is a great use of capital right now, and it's hard to ignore the stock price.

Robert Marlayson, Okay, great and I look forward to November 18 next my second question is on I guess the fair valuing the fair value changes you detailed on the quarter just want to be clear, the the 90 odd million dollars. Robert Marlayson, taken on on the density assets. Robert Marlayson, Like what does that leave on the balance sheet for for sort of excess density value recognizing your fair value.

Robert Marlayson, yeah. I'm just trying to look at the number here. There is still value for some of the zoned square footage. I'm just going to go into it here. Our value in pot is about $700 million, about 180 of that is under construction sites. If I do the math quick here, it's just a little over $500 million of total density value still on the balance sheet. When you put that against almost 20 million square feet of zone density, it's a pretty low value on a per square foot basis.

That's great. Thank you, and I'll turn it back.

Thanks, Sam.

Thank you for your question, Sam. Our next question comes from the line of Brad Sturgis with Raymond James. Your line is now open.

Hey, good morning. Just focused on the core commercial portfolio, obviously pretty strong results you continue to see there. Just curious, the renewal rent spreads continue to improve even with a higher proportion of fixed rate options. Do you think you kind of hit a peak at that point, or how do you expect your rent spreads to trend over the next few quarters?

We preached in the prepared remarks about the sustainability of the conditions. I can't predict precisely where our renewal spreads will be, but we do think it's going to be a strong market for landlords like Rio Can, given the strength of our portfolio going forward. I don't see a catalyst to change these conditions in the near or medium term, simply because there is no new supply. And we recognize that the tendencies that we're dealing with are typically very much in demand. in growth mode. So we really do see the ability to continue achieving solid rent spreads. We're not providing specific guidance at this point, but we have said in the past mid-teens, and that's again, a pretty comfortable spot. And so I think it's, you know, if you look at also the opportunity set, as I mentioned in my prepared remarks, we've got over 10 million square feet that will be up for renewal over the next three years on a pretty consistent basis. And there's a significant mark to market. I mean, if you look at the rents that we wrote in Q3, they were over $29. And that compares favorably to the average rents we have across our portfolio, which is in the 2250 range. So that's about a 30% range that we feel very capable of bringing in through a strong renewal process.

Sounds good. And just to follow up to that, just with respect to next year's expires, is there anything that stands out in terms of anomalous or would be unique or would be pretty similar to what you experienced in 2025 and and you know, kind of see that consistent results going forward for next year.

Yeah, I mean, the beauty of scale, Brad, is that we really, we have so many properties with so many tenancies. And even if there is one or two larger renewals coming up that might be like a Walmart renewal with a flat provision, it's offset by so many other renewals that don't have flat provisions or they go to market. So there might be one or two larger or three or four larger tenants that'll come up for renewal that might be a little bit flat. But again, in the scheme of things, they won't change our guidance or outlook. I'll look to John Ballantyne just to see if I've missed anything there.

No, you haven't, Jonathan. And I would also add, you know, again, we're going to sound like a broken record, but we are going to unpack this a little more in our investor day in two weeks. Namely, you know, where we think the market, what the actual mark to market spread is in our existing leases and how that's going to unfold in the same property revenue over the next three years.

Okay, that's great. I'll turn it back. Appreciate it. Thanks, Brad.

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

Hi. Good morning. Just a really quick one on HBC and specifically the Ottawa location. Seems like it's the one asset where plans are still forthcoming. Do you have a sense of the timing of clarity on that asset?

Thanks, Mario. Good morning. There is no defined timeline at this point. We've got a few different options that we are exploring, and we endeavor to keep everyone apprised of how those unfold. But again, as we've always committed, we're not going to put any significant capital into these assets unless there is a logical return that competes with our other capital allocation opportunities.

Okay, and then shifting gears just again really quickly to Rio Can Living. Any notable quotable core change in terms of asset buyer sentiment that we've heard from some peers in terms of the beginning of some institutional interest coming into the multifamily space? So as it pertains to Rio Can Living, are you sensing any incremental demand and how does that change the timeline in terms of selling off the assets?

Timeline's still intact. I would say that the demand for our new built, no rent control, limited capex residential portfolio has been consistent throughout. I don't think there's been significant ebbs and flows in the demand for them. In terms of the profile of buyers, again, we haven't really seen much of a change. We've had a pretty wide spectrum of buyers or interested parties thus far, and that hasn't changed significantly. Uh, so the, the timeline hasn't changed, nor has the outlook, which is favorable and positive for the disposition of the remaining assets.

Andrew any, any other no, John, I think you captured it. Um, as you said, we've got, we've got bid depth, um, both institutional and private and remain confident in our goal.

Right. So, just last question as it pertains to the investor, I'm asking, um. what you may disclose, but is the retail environment today, your confidence level in the portfolio today, such that you feel comfortable disclosing one-year, three-year targets on some of the key metrics, such as FFO, standard ROI, et cetera?

Yeah, we're going to give some pretty thorough outlooks. I think it would be a letdown at Investor Day if we didn't. So we will certainly leave you with a good outlook on the next few years. I promise not to at this point. Thank you. All right. Thanks, Mario.

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

Thanks, operator. Good morning, guys. Congrats on the strong core portfolio results. Thanks, Mike. Just wondering if you could help us think about, you know, Property management and other service fees and interest income have been a fairly significant contributor to your business on the earnings side over the last couple of years, and it is starting to moderate. How should we think about the trajectory of those two line items going forward? Will they continue to moderate as development winds down? The interest income, I imagine there's a bit of a rate component there, probably a little bit less capital invested. Just anything you can do to help us with those line items would be helpful. Thank you.

Sure, I'll start and I'll turn it over to maybe Dennis. I think they will continue to moderate just in the sense that we have slowed down development and a large component of those fees came from development management on behalf of others. In terms of property management fees, we have a set of properties that are co-owned and we are always the manager for those. Whether the number of co-owned properties increases or decreases, I think it'll be a marginal component of those fees going up or down. So I don't think there'll be much to add there. But we are an entrepreneurial organization. We are always looking at ways to continue to use the strengths that we have. And one of those strengths is a very strong platform here at RioCan. And so we'll look at opportunities to utilize that to create fee income. But it's hard to predict at this point what exactly those will be and how much they will be for. So I think you would be appropriately suited just to keep things sort of on a level trajectory going forward. Dennis, I don't know if you have any further comments on that.

Yeah, no, I would agree with that. I think I had mentioned, I think in my prepared remarks, there was a decline related to development management fees and interest income associated with some VTVs on condo property. So I think that is going to moderate and sort of level out. The property management fee should be pretty level on that one.

Okay. And one of the other fee components, I guess, has been a strong contributor over the past couple of years is in the financing arrangement fees. How do we think about that going forward? Is that similar to the development pipeline or is that related to other activities?

I would say it would level off a little bit as well because it was related somewhat to development. We do occasionally do mortgages on behalf of properties that are co-owned, which will add a bit of fees here and there, but I don't see that as a meaningful contributor going forward.

Okay, that's helpful. Thanks so much, guys. Thanks, Mike.

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

Good morning, guys. I was wondering if you could just help a little bit on bridging kind of the current quarter to future quarters in terms of HBC more in line with kind of any incremental capital deployment related to the, I guess, three assets that you own. And the NOI generation, what would maybe be in this quarter versus what will be in future quarters, considering you're going to own more of those income-producing assets?

Dennis? Yeah, sure. So on the three assets that we're backfilling, we had given a guidance range of about $100 to $125 per square foot. equates to approximately $25 million in total for capital outlay on those. So that's the number there. We had messaged that we would see, we had about 8 cents of FFO coming in from HBC in total that was gonna go away. We'll claw back some of that with the acquisition of Georgia and Oakville and the backfills, probably about a penny in 2026, and then about two pennies in 2027 as the tenancies ramp up.

Okay, that's helpful. And then just on the non-recoverable operating costs, they've been a little elevated this year, starting in, I guess, Q4 of 24. Is that one time in nature, or is that a change in kind of the portfolio composition, just trying to understand where those should head over the next year?

John, do you have a thought on that?

Yeah, I actually don't, Matt. We'll take a better look at that and get back to you with an answer.

Okay, fair enough. That's it for me. Thanks, Matt. Thanks, Matt.

Thank you for your questions. There are no questions registered at this time, so as a reminder, it is star 1 to ask a question. All right. I am showing no further questions at this time. I would now like to pass the conference back to President and CEO Jonathan Gitlin.

Thank you everyone for dialing in. We will look forward to seeing you at our Investor Day coming up in two weeks.

Thank you for your participation. You may now disconnect your line.