RioCan increases monthly distribution by 4.3% as it scales back new construction amid high demand
RioCan Real Estate Investment Trust expects its lease portfolio to remain resilient despite economic uncertainty from potential tariffs, according to BNN Bloomberg.
Chief executive Jonathan Gitlin stated Wednesday that the company has intentionally structured its portfolio to withstand economic disruptions, including any challenges tariffs may introduce.
Gitlin emphasized that RioCan’s strong tenant selection process has positioned it well.
“We’ve done this purposefully to make sure we’ve got a portfolio that will endure economic shocks, and tariffs might create that, and if they do, we feel confident in the ability of our portfolio and our great tenants to withstand it,” he said.
The company reported a 98.7 percent committed retail occupancy rate last quarter, with 88 percent of its tenants considered financially stable.
Gitlin explained that RioCan evaluates tenants based on their financial health and long-term viability, ensuring they are suited to today’s economic environment.
RioCan has benefited from high demand for its properties, allowing it to increase rental rates.
New leases signed in the quarter ending December 31 were 52.5 percent higher than those of outgoing tenants. On a blended basis, including renewals, the quarter had a 25.5 percent rental spread, while the full year saw an 18.7 percent increase.
The company returned to profitability in the fourth quarter, reporting earnings of $125.6m, a sharp reversal from a $117.7m loss a year earlier. This shift was largely due to a much smaller writedown on the fair value of its properties.
The most recent quarter saw a $29.4m reduction in property values, significantly lower than the $450.4m writedown recorded in the same period last year.
RioCan’s funds from operations per unit rose slightly to $1.78 in 2024, up from $1.77 in 2023. The company expects funds from operations per unit to range between $1.89 and $1.92 this year.
However, Gitlin noted that these projections do not account for any potential impact from tariffs, as their full effects remain uncertain.
“Understandably, there’s been concerns about the impact of tariffs on the Canadian economy. Predicting next steps, or quantifying the impact right now, well it’s virtually impossible,” he said during an earnings call.
Reflecting on past economic downturns, Gitlin recalled that RioCan’s occupancy declined by about one percentage point during the global financial crisis. He believes the company is better positioned now, with a stronger tenant mix.
Additionally, he noted that a slowing economy could lead to lower interest rates, which may offset some economic challenges.
While demand for existing space remains high, RioCan has pulled back on new capital-intensive construction projects due to rising costs and a weakening residential market.
The company completed 43,000 square feet of developments in the last quarter, a significant drop from 272,000 square feet a year earlier.
It plans to complete ongoing projects in 2025, allocating approximately $110m for condo developments, $50m for mixed-use construction, and $70m for retail infill.
With new construction slowing, RioCan is focusing on increasing returns to unitholders. The company announced a 4.3 percent increase in its monthly distribution to 9.65 cents per unit.
