RioCan’s Q1 2025 Results Highlight Resilience in Prime Retail Sector

RioCan Real Estate Investment Trust (RC.E) delivered a mixed but fundamentally strong set of Q1 2025 results, showcasing operational resilience through robust leasing spreads and same-property NOI growth. Despite facing headwinds from its troubled joint venture with Hudson’s Bay Company (HBC), the Trust’s core commercial portfolio and strategic focus on necessity-based assets provided a solid foundation for growth.

Leasing Momentum and Prime Asset Quality

The star of RioCan’s performance was its leasing activity, driven by record-high occupancy rates and strong rental rate growth. The Trust reported a blended leasing spread of 17.5%, marking the fifth consecutive quarter of double-digit gains. This was bolstered by a 17.3% renewal spread, a sharp rise from 11.5% in Q1 2024, as tenants in necessity-based sectors like grocery and healthcare renewed leases at significantly higher rates. New leases also performed well at 18.3%, securing creditworthy tenants in high-demand spaces.

With 98.0% committed occupancy overall and 98.7% for retail, RioCan’s focus on premium, mixed-use properties proved effective. The Trust leased 1.0 million square feet in Q1, including 0.2 million square feet of new leases in necessity-based sectors—a strategy that insulated income from broader economic volatility.

Same-Property NOI Growth and Operational Strength

RioCan’s Commercial Same Property NOI rose 3.6% year-over-year, reflecting the benefits of 2024 leasing activity and tenant relocations to higher-rate spaces. The metric hit $147.88 million in Q1 2025, up from $142.81 million in the prior-year period. This growth aligns with RioCan’s emphasis on necessity-based retail, which accounts for over 80% of its portfolio.

The Trust also advanced its residential strategy, with RioCan Living NOI up 17.7% to $7.5 million, supported by 13 operational buildings. While residential Same Property NOI dipped slightly to $5.09 million, the segment’s growth underscores the diversification benefits of its mixed-use model.

Financial Performance: Strengths and Challenges

Despite operational success, RioCan’s net loss per unit widened to $0.28, driven by $208.8 million in valuation losses from its RC-HBC JV due to HBC’s CCAA filing. However, diluted FFO per unit rose 8.9% to $0.49, reflecting strong cash flow from its core portfolio and residential sales.

The Trust maintained a $1.4 billion liquidity cushion, including a $1.1 billion revolving credit facility, and reduced its debt ratio to 8.96x, within its 8.0x–9.0x target. Debt management was also a priority, with $550 million raised in senior debentures at a competitive 4.05% rate to extend its debt maturity profile to 3.88 years.

Key Risks and Strategic Responses

The RC-HBC JV remains a critical risk, with HBC paying only 70% of its $10 million monthly rent to the JV. RioCan’s net investment in the venture dropped to $41 million, down from $249 million in Q4 2024, as provisions were made for potential defaults. The Trust has hedged risks by securing termination rights for below-market leases and pursuing re-leasing opportunities.

Meanwhile, RioCan is aggressively recycling capital: four residential assets were sold in Q1, and condominium sales at 11YV and U.C. Tower 2 achieved 96% interim closings, with final closings underway. A $2.9 million provision was set aside for potential condo market softness, but the Trust’s focus on prime locations should limit downside exposure.

Outlook and Investment Implications

RioCan lowered its 2025 FFO guidance to $1.85–$1.88 per unit due to JV-related headwinds but reaffirmed its ~62% payout ratio, within its 55%–65% target. The Trust’s $8.5 billion unencumbered asset pool and strong liquidity position provide a buffer against macroeconomic uncertainty.

Investors should weigh RioCan’s operational excellence against its exposure to HBC. While the JV’s valuation losses are a near-term drag, the core portfolio’s 3.5% full-year Same Property NOI growth target and record occupancy suggest long-term stability. The stock’s P/FFO multiple of ~10x (vs. sector averages of ~12x) reflects these concerns but also presents a potential buying opportunity for investors focused on RioCan’s prime asset quality and mixed-use diversification.

Conclusion

RioCan’s Q1 2025 results underscore its ability to capitalize on necessity-based retail demand and high-quality assets, even amid broader sector challenges. While the HBC JV remains a concern, the Trust’s robust cash flows, liquidity, and disciplined capital recycling position it well to weather current headwinds. With a 98% occupancy rate, 17.5% blended leasing spreads, and a 3.6% Same Property NOI growth, RioCan’s fundamentals remain compelling for long-term investors seeking exposure to Canada’s premier retail REIT. The path forward hinges on resolving the HBC issue, but the core business’s resilience suggests the stock could rebound strongly once near-term risks subside.