RioCan Real Estate Investment Trust (REI-UN-T) experienced strong leasing activity and rate increases during the first three months of the year and that momentum continues.
“The first quarter of this year has been a testament to the sustained demand and attractive growth prospects for RioCan’s high-quality retail portfolio,” RioCan president and chief executive officer Jonathan Gitlin said during a May 8 conference call to review the trust’s financial and operational performance.
“Retail space remains scarce and in the current conditions it’s unlikely that any meaningful amount of new supply will be added to the market. At the same time, we’re witnessing substantial population growth, particularly in Canada’s major markets.
“This backdrop, coupled with our emphasis on portfolio quality over the years, has put us in a position to fuel long-term organic growth.”
Large leasing spreads
RioCan completed more than 1.33 million square feet of leases during the first quarter, including 482,000 square feet of new leases.
Strong demand drove the blended leasing spread to 14 per cent, including a new leasing spread of 19.7 per cent and a renewal spread of 11.7 per cent.
Illustrating the buoyancy of retail real estate in this country, RioCan joined other Canadian REITs in reporting healthy retail leasing renewal spreads in its first quarter.
Primaris reported a 7.4 per spread, First Capital’s was 11 per cent and Crombie’s was 11.6 per cent.
The average net rent of the new RioCan leasing activity was $23.62 per square foot, an eight per cent increase over RioCan’s average net rent.
“Our leasing efforts are particularly noteworthy as they include the immediate backfill of a significant portion of the vacancies that came online in the quarter, primarily due to the failure of Bad Boy and Rooms + Spaces,” Gitlin said. “These tenants previously occupied 10 locations in our shopping centres.
“As of May 7, six of the 10 locations have been leased at significantly higher base rents, higher embedded year-over-year growth and with far fewer restrictions. Negotiations are advanced for the majority of the remaining four locations.”
Gitlin said RioCan is negotiating favourable terms that support sustained growth and future flexibility, including embedded annual rent increases.
New lease agreements
RioCan finalized three new lease agreements with grocery stores during the first quarter at RioCan Hall in Toronto, RioCan Colossus Centre in Vaughan, Ont., and Grant Crossing in Ottawa. The stores encompassed 65,000 square feet and the average net rents were 50.3 per cent higher than those previously paid for those spaces.
A 32,000-square-foot Food Basics opened last month in a space formerly occupied by Home Outfitters at RioCan Centre Kingston in Kingston, Ont.
“When RioCan units do become available, we’re perfectly positioned to select relevant and resilient tenants that enhance the cross-shopping opportunities of our centres and contribute to higher rents,” Gitlin said.
“Vacancies also allow us to accommodate the increasing space requirements of tenants such as Loblaws, Metro, Shoppers Drug Mart, Dollarama and TJX.”
RioCan’s committed retail occupancy rate was 97.9 per cent to close the first quarter.
“The most significant impact of our new leasing activity for the first quarter will be realized in 2025,” Gitlin said. “The addition of grocery and critical service tenants yields significantly better long-term results.”
More retail openings coming at The Well
The retail component of The Well, a flagship mixed-use development in Toronto’s downtown west, is 94 per cent leased. More than half of the space is open and operational and the majority of the remaining retail tenants will commence operations in the coming months.
This includes Wellington Market, which will be fully licensed and house more than 50 food and beverage merchants, when it opens at the end of this month.
Negotiations are nearing completion for a land lease with Costco to redevelop a large portion of RioCan Centre Burloak in Oakville, Ont., a large power centre built in the early 2000s. Gitlin called Costco an exceptional tenant that will draw traffic to the rest of the centre.
“It takes away a significant amount of risk that you can have with a lot of these medium and smaller boxes. There were a few too many of them on that site.
“So for us, it was a no-brainer. Financially, it works quite well for us and any time we can have a Costco, from what we’ve seen at other sites, they make for a tremendous co-tenant.”
Increased net income
RioCan’s net income was $128.6 million in the first quarter, up from $118 million in the previous quarter.
The trust had $1.55 billion in liquidity and unencumbered assets valued at $8.11 billion at the end of the quarter.
RioCan Living has 14 buildings with 3,072 residential units in operation, 12 of which are stabilized. The construction of 526 suites at FourFifty The Well is complete and 55.9 per cent of the units were leased at rents in line with expectations as of May 7.
There were 54,000 square feet of properties under development that were transferred to income-producing properties during the first quarter.
Dispositions and acquisitions
Closed property dispositions in Q1 included a cinema-anchored property and an open-air centre for combined proceeds of $19.1 million. Non-core residential inventory development land was sold for $12 million.
RioCan also sold a 12.5 per cent interest in the 11YV residential project in the first quarter, reducing its interest in the project to 25 per cent and resulting in a gain of $12.2 million.
Total acquisitions of $157.1 million, including those previously announced, closed in the first quarter.
RioCan owns, manages and develops retail-focused, and increasingly, mixed-use properties.
Its portfolio was comprised of 188 properties with an aggregate net leasable area of approximately 32.6 million square feet (at RioCan’s interest), including office, residential rental and nine development properties as of March 31.
The trust has 17 million square feet zoned for development in its pipeline.
“The dynamics of retail real estate are in our favour, creating long-term demand for our products,” Gitlin said to conclude his remarks.
“Our consistency, vision and demonstrated commitment to responsible growth will continue to benefit our unit-holders while ensuring the trust’s stability.”