TORONTO — While tariffs would mean a hit to the economy, RioCan Real Estate Investment Trust says its lease portfolio should be resilient to the effects.
The lack of new retail construction and its high occupancy rates means RioCan has been able to be more selective and screen potential tenants for financial health, said chief executive Jonathan Gitlin on Wednesday.
"We've done this purposefully to make sure we've got a portfolio that will endure economic shocks, and tariffs might create that, and if they do, we feel confident in the ability of our portfolio and our great tenants to withstand it."
The company, which reported a 98.7 per cent committed retail occupancy last quarter, also said 88 per cent of tenants are strong and stable.
That means their balance sheets have been screened for their ability to pay the rent, and their business plans have been assessed for longevity, said Gitlin.
"They've got to have a use that we feel is viable, so it's got to be something that we think makes sense in today's environment," he said.
He said the pandemic had also already weeded out many of the weaker retailers, while sectors like apparel that have been struggling have consolidated enough to strengthen.
High demand has also helped RioCan boost rental rates, reporting new leases in the quarter ending Dec. 31 were 52.5 per cent higher than for the outgoing tenants.
On a blended basis, which also factors in lease renewals, the quarter had a 25.5 per cent spread and the year was 18.7 per cent.
Higher rents and especially a smaller writedown on its real estate values helped the company earn $125.6 million in the fourth quarter compared with a loss of $117.7 million a year earlier.
RioCan's swing to profit came as it recorded a $29.4-million reduction in the fair value of its investment properties in the quarter, far less than the $450.4-million writedown a year earlier.
The trust reported funds from operation per unit of $1.78 for 2024 as a whole, up from $1.77 in 2023.
Looking ahead to this year, its outlook is for somewhere between $1.89 and $1.92 of funds from operation per unit.
The outlook doesn't factor in any hit from tariffs because there's so little clarity on what might happen, Gitlin said on an earnings call Wednesday.
"Understandably, there's been concerns about the impact of tariffs on the Canadian economy. Predicting next steps, or quantifying the impact right now, well it's virtually impossible."
Gitlin said that during the global Financial Crisis, RioCan saw about a one percentage point decline in occupancy but it has a better portfolio mix now, while a slowdown in the economy would also likely lead to lower interest rates that could help offset any impacts.
While the company is seeing high demand for its existing space, it has also said it's not initiating new capital-intensive construction projects for the foreseeable future.
The pullback in new construction, which comes amid high costs and a softening in the residential market, can be seen in the 43,000 square feet of developments it completed in the quarter, down from 272,000 a year earlier.
RioCan is still working to complete some projects, with 2025 spending to include about $110 million for condos in progress, $50 million for mixed-use project construction and around $70 million for retail infill.
With a wind-down of new construction, RioCan is focused more on payouts to unitholders. It said it had increased its monthly distribution to unitholders by 4.3 per cent to 9.65 cents per unit.
This report by The Canadian Press was first published Feb. 19, 2025.
Companies in this story: (TSX:REI.UN)
Ian Bickis, The Canadian Press
