RioCan working with tenants to retool for post-pandemic life

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Millicent Wong
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What was a necessity for a retail tenant six months ago — click-and-collect or home delivery — may not be as important today

RioCan Real Estate Investment Trust Headquarters in Toronto. RioCan Real Estate Investment Trust Headquarters in Toronto. Photo by Peter J Thompson/National Post files

One of Canada’s largest retail property providers says it is taking active steps to help its tenants adapt to life after the pandemic as consumers return to old habits and face new challenges from rising inflation.

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“Consumers have struggled to regain control of how they receive their goods,” said Jonathan Gitlin, chief executive officer of RioCan Real Estate Investment Trust, in an interview Tuesday following the release of the company’s second-quarter earnings. That means what was a necessity for a retail tenant six months ago — click-and-collect or home delivery — may not be as important now.

“They don’t necessarily prefer goods to be delivered to their doorstep, and retailers have completely transitioned to a model where customers come to their stores to collect their goods,” Gitlin said.

To that end, he said, the REIT has been working with tenants to adapt their properties to the new reality.

“We’re helping our tenants evolve the space, whether that’s by changing the way lanes are set up in the parking lots…or changing the way loading works, or changing the way.” change how the signage works. We’re doing things to help our tenants reopen and thrive,” he said.

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It’s one of the tactics that make the company confident that it can weather any turmoil that inflation might wreak on the retail sector.

“This (inflation) is a concern, but we don’t think it will affect the long-term viability of our largest tenants given their long and strong track record and sizeable balance sheets,” Gitlin said in a conference call with analysts earlier Tuesday.

We’re doing things to help our tenants reopen and thrive

Jonathan Gitlin

RioCan on Monday reported net income for the second quarter of $78.5 million, up from $145.3 million for the same period last year, but reported an increase in revenue to 308.4 from $297.7 million million dollars.

The Company attributed the decrease in net income in part to a loss of $42.3 million at fair value on investment property, compared to a gain of $22.9 million at fair value in the same quarter of 2009 previous year.

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Working capital also increased, totaling $131.7 million, or 43 cents per diluted unit, from $127.5 million, or 40 cents per diluted unit, a year ago.

The Trust said its occupancy rate for the quarter was 97.2 percent, up from 96.1 percent year-on-year, with the increase reflecting an improving retail landscape in recent months.

The company said many of its properties have so-called “need-based anchor tenants” — retailers like grocery stores, liquor stores and pharmacies — who have proven immune to the economic downturn.

While other businesses filed for bankruptcy, reduced their footprint and struggled to get online, these tenants were largely immune to pandemic-related closures and would also prove resilient to inflation.

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Contract commitments and a tightening supply due to the limited amount of retail space that has been built in recent years also speak in his favour.

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RioCan said it is seeing “intense competition” for space and a surge in prices for its properties.

“If you look at the list of major retailers in Canada, be it Loblaw, Empire, Canadian Tire, Metro, they’re all trying to expand their store count right now,” said John Ballantyne, RioCan’s chief operating officer, on the conference call on Tuesday .

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“Not that much retail has been built in the last five years and I doubt there’s a ton built in the last three years, so we’re definitely benefiting from that demand,” he added.

Gitlin also addressed the current construction environment, saying it has been “inflationary” for many years. However, he said RioCan has ways to mitigate the increased costs as they expand or remodel their malls, potentially delaying construction if conditions are not favorable while the centers remain open and bring revenue to shareholders.

RioCan shares closed up almost two percent at $21.03 in Toronto.

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