Riocan Reit (($TSE:REI.UN)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Despite the challenges presented by the insolvency of Hudson’s Bay Company (HBC) and the necessary revision of funds from operations (FFO) guidance, RioCan Real Estate Investment Trust delivered a strong operational performance. The company reported record-high occupancy rates and notable net operating income (NOI) growth, demonstrating resilience amidst macroeconomic volatility. RioCan’s successful asset sales and robust balance sheet further underscore its capability to navigate current economic challenges.
Strong Operational Performance
RioCan achieved record-breaking operational results, with committed occupancy reaching a record high of 98%. Retail committed occupancy was even higher at 98.7%, and the company reported double-digit blended and new leasing spreads for the fifth consecutive quarter, at 17.5% and 18.3% respectively. These figures highlight RioCan’s ability to maintain high occupancy and favorable leasing conditions.
Residential Rental NOI Growth
The company’s residential rental operations, under RioCan Living, generated $7.5 million in NOI, marking an 18% increase over the same period last year. This growth in residential rental income underscores the strength of RioCan’s diversified portfolio and its ability to capitalize on the residential market.
Successful Asset Dispositions
RioCan completed $16.7 million in asset dispositions, including the sale of a Cineplex anchor property. Additionally, post quarter-end, the company sold a less productive portion of an open-air retail site in Quebec for $37.5 million. These strategic sales are part of RioCan’s ongoing efforts to optimize its portfolio and strengthen its financial position.
Debt Reduction and Strong Balance Sheet
The company improved its unsecured debt to total debt ratio to 58.6% and increased its unencumbered asset pool by $605 million to $8.8 billion, maintaining $1.4 billion of liquidity. This financial strategy reflects RioCan’s commitment to maintaining a strong balance sheet and ensuring financial flexibility.
FFO Per Unit Growth
RioCan reported a 9% increase in FFO per unit, reaching $0.49 compared to the same quarter of the previous year. This growth in FFO per unit indicates the company’s effective management and operational efficiency.
Hudson’s Bay Company Insolvency Impact
The insolvency filing of Hudson’s Bay Company led to a $209 million write-down of RioCan’s investment in the joint venture, impacting the company’s net income. This significant write-down reflects the challenges posed by HBC’s financial difficulties.
Revised FFO Guidance
RioCan revised its 2025 FFO guidance from $1.89-$1.92 per unit to $1.85-$1.88 per unit, primarily due to the anticipated impact of HBC’s insolvency proceedings. Despite these challenges, the company remains focused on its core retail portfolio, which continues to perform strongly with a committed occupancy rate of 98% and a commercial same-property NOI growth of 3.6%.
Forward-Looking Guidance
During the earnings call, RioCan provided significant guidance regarding its financial outlook and strategic initiatives. The company plans to divest its interests in RioCan Living’s residential rental assets within the next 12 to 24 months, with proceeds aimed at reducing debt and supporting the NCIB program. RioCan also emphasized its strategic focus on maintaining strong free cash flow and enhancing its balance sheet, with a goal to achieve an unsecured debt to total debt ratio of 60% by the end of the year.
In summary, despite the challenges posed by the HBC insolvency, RioCan Real Estate Investment Trust has demonstrated strong operational performance and strategic financial management. The company’s record-high occupancy rates, NOI growth, and successful asset dispositions highlight its resilience and adaptability in a volatile economic environment. With a focus on maintaining a strong balance sheet and strategic divestitures, RioCan is well-positioned to navigate future challenges and capitalize on growth opportunities.