Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record-breaking leasing spreads with new deals reaching an all-time high of 52.5%, driving blended leasing spreads of 23.4%.
- Retail portfolio committed occupancy increased to 98.3% in the second quarter, reflecting ongoing demand.
- Successfully leased more than 1.15 million square feet of space in the second quarter, nearly 0.5 million of which were new leases.
- Strong leasing strategy prioritizing essential tenants, with approximately 80% of annualized net rent coming from strong and stable tenants.
- Significant advancements in ESG, with the publication of an annual ESG report illustrating progress in sustainability, ethical governance, and fostering a positive culture.
Negative Points
- Temporary downtime due to prioritizing long-term quality and growth over short-term same-property NOI, leading to a reduction in SPNOI guidance for 2024.
- Higher interest expense net of higher interest income had an unfavorable impact of $0.03 on FFO.
- The construction completion of FourFifty The Well resulted in a temporary FFO drag of approximately $1.5 million due to lease-up phase.
- Market dynamics include tight zoning regulations and high construction costs, contributing to retail space scarcity.
- Some softness in the residential rental market due to an influx of condos, potentially slowing rent growth.
Q & A Highlights
Q: Can you give us a sense of the impact on 2023 same-store NOI from the identified Bad Boy spaces leases?
A: The impact in 2024 is a drag on SPNOI because the leases are written, but the cash won't be coming in until the tenancies are finalized and open. We are reaffirming our 3% SPNOI guidance for 2025, partially due to these leases being rent-paying. However, we don't have a specific quantified amount for the impact for 2024 or the positive influence in 2025 for those 10 leases. (Jonathan Gitlin, President, CEO, Trustee; Dennis Blasutti, CFO)
Q: What would you estimate the NOI and FFO upon stabilization of the combined retail and residential at The Well?
A: We don't disclose the total NOI for The Well. However, for projects delivered in 2023 and 2024, about 80% of the NOI will ramp up this year and nearly 95% into next year. FourFifty The Well is expected to stabilize by the end of this year, reverting from a $0.05 negative to a positive contributor. (Dennis Blasutti, CFO)
Q: Are there any remaining interest capitalization on the residential at The Well?
A: No, our policy is that once we're hotel-ready, we stop capitalizing altogether. So there's no more interest being capitalized there. (Dennis Blasutti, CFO)
Q: Can you talk about some of the trends you're seeing at FourFifty relative to expectations?
A: The lease-up is going according to plan and in line with our pro forma. We are about 75% leased now and expect to be stabilized by the end of October. Rents are holding up to pro forma, and we are pleased with the performance of larger units. (Jonathan Gitlin, President, CEO, Trustee; Dennis Blasutti, CFO)
Q: Was the 135,000 square foot Canadian Tire vacancy anticipated at the start of the year? Are there any other large leases requiring backfill over the next 12 months?
A: We had a sense that we would be getting back that space around January. In terms of other large vacancies, nothing of that scale is expected in the short term. We have about 900,000 square feet in the next five years coming due, which presents great opportunities. (Jonathan Gitlin, President, CEO, Trustee; Dennis Blasutti, CFO)
Q: Can you give us a sense of the trend line for new leasing spreads and tenant willingness to pay in a more challenging economic environment?
A: Our leasing spreads have shown sustained growth over the last few years, and we believe this trend is sustainable. The demand for our space remains strong due to the scarcity of retail space and the profitability of tenant stores. We cater to essential retailers who are defensive and looking to grow their footprints. (Jonathan Gitlin, President, CEO, Trustee; John Ballantyne, COO)
Q: How should we think about the residential portfolio's performance and its impact on same-property NOI growth?
A: Our RioCan Living properties are highly amenitized and part of mixed-use communities, which sets them apart. Even if there is some softness in the overall residential rental market, we believe our properties will perform well due to their location and amenities. (Jonathan Gitlin, President, CEO, Trustee)
Q: Are you seeing any issues on condo closings for RioCan or your JV partners?
A: There is some softness in the market, but it's not as bad as perceived. We have mitigants in place, such as significant deposits and the option to lease out units if necessary. (Jonathan Gitlin, President, CEO, Trustee)
Q: Can you clarify the targeted debt to EBITDA for the REIT over the next two or three years?
A: We expect to be at the high end of our 8 to 9 times net debt to EBITDA range by the end of this year and have a clear path to 8 times by 2025. We have additional levers, such as asset sales, to achieve this target if necessary. (Dennis Blasutti, CFO; Jonathan Gitlin, President, CEO, Trustee)
Q: What drove the change in same-property NOI guidance for this year?
A: The biggest driver is the timing of ramp-up for the 10 leases, but there are also smaller factors such as lease-up assumptions not being fulfilled as quickly as expected. (Jonathan Gitlin, President, CEO, Trustee; Dennis Blasutti, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
