RioCan reports Q2 earnings of $122.4 million and record-breaking leasing spreads

By
Millicent Wong
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RioCan Real Estate Investment Trust today reported earnings of $122.4 million for the second quarter of 2024, up from $112 million in the same quarter last year. The results were driven by strong leasing activity and a stable tenant mix, the company said in its earnings call.

RioCan CEO Jonathan Gitlin pointed to the strength of the company's portfolio, emphasizing its defensive characteristics in densely populated Canadian cities. “Our portfolio has never been more desirable or more defensive,” Gitlin said on Friday's conference call, noting that the average population and average household income within five kilometers of RioCan's assets have increased 77 percent and 45 percent, respectively, since 2017.

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RioCan said its leasing strategy continues to focus on strong, stable tenants and that approximately 88 percent of its retail rents come from these key players.

“This approach, combined with ongoing market dynamics such as population growth and retail shortages, has resulted in impressive occupancy rates,” Gitlin said.

The company's retail portfolio had a contracted occupancy rate of 98.3 percent in the second quarter, with more than 1.15 million square feet of space leased during the quarter, half a million of which were new leases.

Gitlin also pointed to the record-breaking rent spreads – the difference between new and expiring rents for the same space – that RioCan achieved this quarter. “The rent spread on new leases reached an all-time high of 52.5 percent,” he noted.

Despite “a macroeconomic environment that continues to show weakness and volatility,” the trust forecasts earnings per unit (FFO) of between $1.79 and $1.82 for 2024, with an expected FFO payout ratio of between 55 and 65 percent. The company also expects development spending on mixed-use projects to be between $250 million and $300 million in the year.

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Commercial real estate net operating income (SPNOI) is expected to grow by two to 2.5 percent this year. Although near-term growth will be impacted by longer build-out times for new tenants, RioCan has reiterated its long-term target of three percent growth for its commercial SPNOI.

In addition, RioCan has revised its planned spending on retail infill projects, which involve redeveloping and optimizing retail space in existing, established areas.

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“Due to delays related to municipal approval processes, retail infill projects are now expected to be in the range of $30 million to $40 million, compared to the range of $50 million to $60 million announced in the first quarter of 2024,” the earnings report said.

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