RioCan profit rises in second quarter on record-breaking leasing spreads, resilient tenant mix
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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 during the same quarter last year. The results were driven by strong leasing activity and a resilient tenant mix, the company said on its earnings call.
Jonathan Gitlin, chief executive of RioCan, noted 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 the Friday call, noting that the average population and household income within a five-kilometre radius of RioCan’s assets has increased by 77 per cent and 45 per cent, respectively, since 2017.
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RioCan said its leasing strategy continues to focus on strong, stable tenants, with approximately 88 per cent of its retail rent derived from these key players.
“This approach, coupled with ongoing market dynamics such as population growth and retail scarcity, has led to impressive occupancy rates,” Gitlin said.
The company’s retail portfolio had a committed occupancy rate of 98.3 per cent 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 out the record-breaking leasing spreads — the difference between new rents and expiring rents for the same space — RioCan achieved in the quarter. “The lease spread on new deals reached an all-time high of 52.5 per cent,” he noted.
Despite “a macroeconomic environment that continues to show weakness and volatility,” the trust projects its funds from operations (FFO) per unit for 2024 will be between $1.79 and $1.82, with an expected FFO payout ratio ranging from 55 per cent to 65 per cent. The company also anticipates development spending on mixed-use projects will come in between $250 million and $300 million for the year.
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Commercial same property net operating income (SPNOI) is projected to increase by two per cent to 2.5 per cent this year. Despite short-term growth being affected by extended build-out times for new tenants, RioCan has reaffirmed its long-term target of three per cent growth for its commercial SPNOI.
Additionally, RioCan revised its projected spending on retail in-fill projects, which involve redeveloping and optimizing retail spaces within existing, established areas.
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“Retail in-fill projects is now expected to be between $30 million to $40 million compared with the $50 million to $60 million range disclosed in Q1 2024 as a result of timing delays related to the municipal permitting processes,” the earnings report said.
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