RioCan's Q1 shows growth with strong retail demand and strategic tenant diversification boosting profits
Despite a slowdown in Canada's economic growth, the retail leasing market remains robust, according to BNN Bloomberg.
Consistent demand continues to drive rents upward, according to Jonathan Gitlin, the chief executive of RioCan Real Estate Investment Trust.
In an interview, Gitlin highlighted the resilience of the retail market, noting, “It's a very strong retail market right now, there's so much demand.”
This strong demand contributed to RioCan achieving a profit of $128.6m for the first quarter ending March 31, an increase from $118.0m in the same quarter of the previous year.
Gitlin attributes the market's strength to sustained interest from necessity-based retailers like grocers and discount stores. The limited construction of new retail spaces over the last decade has also played a significant role.
“It's been sort of net zero new retail space, or somewhere close to that. And I think that there's really not going to be any new retail built in the next fairly long period of time because it's very expensive to build,” Gitlin explained.
Despite the positive trends, RioCan faced challenges such as the closure of tenants Bad Boy Furniture and rooms + spaces, leading to a slight decrease in retail occupancy from 98.4 per cent in the fourth quarter to 97.7 per cent in the last quarter.
Bad Boy Furniture declared bankruptcy in January, and rooms + spaces have closed most of its locations since its launch last August.
Nevertheless, the demand in the retail sector remains high, as evidenced by a 14 per cent increase in leasing prices for new and renewed leases. RioCan has also successfully signed new lease agreements for six of the ten properties affected by the closures.
Looking ahead, RioCan is optimistic about the grocery sector, having secured several new grocery tenancies, including discount and ethnic grocers.
“Absolutely, I think growth is their mantra right now,” Gitlin stated. He also noted the trend of grocers adapting to denser communities by moving into smaller retail spaces than traditionally used.
Financially, RioCan reported revenue of $303.4m for the last quarter, up from $279.5m in the first quarter of the previous year. The company's funds from operations for the quarter amounted to 45 cents per diluted unit, slightly up from 44 cents per diluted unit a year earlier.
For the upcoming year, RioCan forecasts its funds from operations per unit to range between $1.79 and $1.82.
The company plans to spend between $250m and $300m on mixed-use projects and between $50m and $60m on the construction of retail projects, reflecting its continued investment in the retail and mixed-use sectors.
