High occupancy rates boost RioCan's revenue despite halting new builds and cutting workforce
RioCan Real Estate Investment Trust announced a nearly 10 percent reduction in its workforce in October, cutting around 50 employees in a restructuring aimed at increasing efficiency.
These cuts will result in approximately $9m in restructuring charges and are expected to yield about $8 million in annual cash savings. This decision, reported by BNN Bloomberg, aligns with RioCan’s broader cost-saving strategy, including a temporary halt in new construction.
Chief Executive Jonathan Gitlin clarified that the job cuts were not a reaction to the current real estate market or economic climate but rather part of RioCan’s ongoing strategy to adapt to a changing business environment.
“The restructuring that RioCan went through was really just a result of the changing business environment ... and our broader cost-saving strategy, which includes a bunch of things like construction spending slow down,” Gitlin stated during an earnings call.
While RioCan does not plan to start new construction in the near term, it continues to focus on adding value to existing land through up-zoning and other measures.
“We’ve halted the start of new construction, and we don’t intend to commence physical construction on mixed-use properties any time soon,” Gitlin confirmed.
RioCan’s primary retail leasing segment has benefited from the high construction costs that have prompted the company to scale back on new build plans.
“You don’t see a lot of retail being constructed,” Gitlin noted, adding that the high cost of construction and the rents needed to justify new retail development make further projects unlikely.
In the recent quarter, RioCan reported a record 97.8 percent occupancy rate, including a retail committed occupancy of 98.6 percent.
This increase followed the successful leasing of the last 10 vacant spaces left by Bad Boy Furniture and Rooms + Spaces, which had previously affected RioCan’s same-store income.
However, with new leases on these locations bringing in rates 23.9 percent higher, the company anticipates an improvement in this financial indicator next year.
Across the quarter, RioCan saw a new leasing spread of 24.2 percent and a lease renewal spread of 12.6 percent.
RioCan’s residential rental segment also performed well, with a 96.3 percent occupancy rate for the quarter.
Gitlin remarked that while the federal government’s plans to reduce immigration targets could impact the residential market, RioCan’s specific tenant demographic is less likely to be affected by this policy change.
“It does cast a bit of a pall over the entire residential space or the multi-res space,” he said.
“But I think again, the types of units that we were curating, and the type of experience we were curating wasn’t significantly geared toward the same people who would be impacted by that legislation.”
For the third quarter, RioCan reported a net income of $96.9m, a significant turnaround from a $73.5m loss in the same period last year. This improvement was driven by a $159m gain in the fair value of its investment properties.
Revenue rose to $286.3m, up from $271.4m in the third quarter of the previous year.
