RioCan Raises Distribution Amid Strong Demand for Retail Space

RioCan Raises Distribution Amid Strong Demand for Retail Space

Toronto-Based REIT Also Takes Quarterly Loss, Reduces Construction Spending

Canada’s oldest real estate investment trust hiked its dividend 2.8% as Toronto-based RioCan envisions strong growth in the retail sector.

Jonathan Gitlin, president and chief executive of RioCan, said the REIT continues to capitalize on Canada’s short supply of space and strong retail demand.

“We showcased historic operational strength, enhanced efficiency and achieved our financial objectives,” said Gitlin on a call with analysts. “This is the third consecutive annual increase as we provide sustainable distribution growth.”

The REIT saw retail occupancy rise to 98.4% for the fourth quarter that ended Dec. 31. That was up from 97.9% a year earlier. Spreads for new leases were up 13.2%.

RioCan recorded a loss of $117.7 million in the quarter compared to $5 million a year earlier, based on asset writedowns.

The REIT took a fair value loss on investment properties of $450.4 million in 2023 compared to a fair value loss of $241.1 million in 2022. The fair value loss in 2023 was driven by increased capitalization rate assumptions, partially offset by higher stabilized net operating income.

Gitlin told analysts the REIT is “exercising prudence” by reducing construction spending in 2023 relative to the previous year.

“This is a proactive measure. By temporarily scaling down construction spending, we allocate capital to highly productive and accretive uses such as debt repayment, providing third-party mortgages and more appropriate opportunistic acquisitions,” he said.

Residential Business

The REIT has continued growing its residential component known as RioCan Living that has 13 operating buildings representing 2,738 residential units. Eleven buildings are stabilized, and 96.5% are leased as of Feb. 13.

RioCan has slowed down its disposition program designed to focus on major markets and in 2023 it sold $295.4 million in assets.

Gitlin was asked by an analyst with CIBC World Markets what it would take to get the REIT to increase construction. Gitlin noted a lot of their projects are complicated, so decisions are multifaceted

“Interest rates and construction costs are significant elements to it. But there’s also predictability in the timing of the construction process, which we’re working with as best we can to get a little more clarity on that, and then there’s also just decisions around how else to allocate proceeds or funds at this point in time,” said the RioCan CEO.

Mark Rothschild, an analyst with Canaccord Genuity, said the steady growth at RioCan was offsetting the rise in interest rates.

“Operating fundamentals remain solid, and while there are growing concerns about a slowing economy, this does not appear to be a near-term factor in leasing,” said Rothschild in a note on RioCan.

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