RioCan REIT’s Q1 2025 Results: Navigating Retail Headwinds with Resilience

RioCan Real Estate Investment Trust (RioCan REIT) delivered a mixed but ultimately resilient performance in its Q1 2025 results, balancing strong commercial real estate fundamentals against significant headwinds from its troubled joint venture with Hudson’s Bay Company (HBC). The REIT’s ability to maintain occupancy rates near record highs and drive residential growth highlights its operational discipline, even as macroeconomic pressures weigh on its balance sheet. Here’s what investors need to know.

Key Financial Highlights

• FFO Growth Amid Challenges: RioCan reported Funds from Operations (FFO) per unit of $0.49, a 8.9% increase from Q1 2024. The rise was fueled by higher residential inventory gains and strong leasing activity in its core commercial portfolio. However, the Trust revised its full-year 2025 FFO guidance downward to $1.85–$1.88 per unit (from an earlier $1.89–$1.92) due to a $208.8 million valuation loss tied to the RioCan-HBC Joint Venture (RC-HBC JV). This adjustment reflects the impact of HBC’s CCAA bankruptcy filing, which has depressed asset valuations and re-leasing assumptions for single-tenant properties.
• Payout Ratio Stability: The FFO payout ratio held steady at 61.2%, comfortably within RioCan’s long-term target of 55%–65%. This signals disciplined capital allocation, even as the Trust faces near-term earnings headwinds.

Operational Strengths: A Fortress Balance Sheet and Leasing Momentum

• Commercial NOI Growth: Same-property NOI for commercial assets rose 3.6% year-over-year, driven by necessity-based retail tenant relocations and strong leasing spreads. Blended leasing spreads averaged 17.5% (up 18.3% for new leases and 17.3% for renewals), marking the fifth straight quarter of double-digit growth.
• Occupancy Rates at Record Levels: Retail committed occupancy hit a 98.7% record, while overall occupancy reached 98.0%, underscoring the stability of RioCan’s prime portfolio.
• Residential Momentum: RioCan Living’s NOI jumped 17.7% year-over-year to $7.5 million, supported by 13 operational buildings. The segment’s fair value of $0.9 billion highlights its growing importance as a diversification play.

Strategic Challenges: The RC-HBC JV Overhang

The RC-HBC JV remains RioCan’s Achilles’ heel. The valuation loss of $0.70 per unit in Q1 2025 stems from reduced assumptions about re-leasing single-tenant properties at current rates, as well as HBC’s financial distress. While RioCan has $1.4 billion in liquidity and $8.5 billion in unencumbered assets to buffer against risks, the joint venture’s unresolved issues could linger into 2026. Management’s focus on capital recycling—such as selling four assets for IFRS-aligned values—provides a tactical offset, but the path to full recovery remains unclear.

Conclusion: A Buy with a Discounted Horizon

RioCan’s Q1 results paint a picture of a REIT with operational excellence in its core business but exposed to sector-specific risks. Investors should weigh two key factors:
1. Near-Term Pain vs. Long-Term Gain: The RC-HBC JV’s drag on earnings is temporary, but its resolution could unlock value. With HBC’s restructuring ongoing, patience may be rewarded.
2. Balance Sheet Strength: RioCan’s liquidity ($1.4B) and unencumbered assets ($8.5B) position it to weather volatility and capitalize on opportunities, such as distressed property purchases.

The Bottom Line: At current valuations, RioCan offers an attractive entry point for investors willing to look beyond the HBC-related noise. Its robust fundamentals, prime portfolio, and disciplined strategy justify a hold-to-buy stance, provided the stock price remains below $28–$30, where it trades at a discount to its pre-pandemic peak. While the path to full recovery hinges on HBC’s turnaround, RioCan’s defensive positioning and residential growth make it a compelling long-term play in Canada’s retail real estate sector.

Data as of Q1 2025. Always consult a financial advisor before making investment decisions.