RioCan REIT’s Q1 2025 Results: Resilience Amid Headwinds

RioCan Real Estate Investment Trust (RIOCF) delivered a robust operational performance in Q1 2025, despite facing significant headwinds from its troubled joint venture with Hudson’s Bay Company (HBC) and softening condominium markets. The REIT’s ability to maintain high occupancy rates, grow residential NOI, and extend debt maturities underscores its financial flexibility. However, challenges tied to HBC’s restructuring and market uncertainty require close scrutiny.

Financial Highlights: Growth and Grief

RioCan’s FFO per unit rose 8.9% year-over-year to $0.49, driven by strong leasing spreads and residential gains. Yet, a $208.8 million valuation loss from its RC-HBC JV dragged net income to a loss of $0.28 per unit, a stark contrast to the $0.43 net income in Q1 2024. The JV’s troubles, stemming from HBC’s CCAA filing (Chapter 15 bankruptcy protection), reduced RioCan’s net investment in the venture to just $41.4 million, down from $248.9 million at year-end 2024.

Operational Strengths: Full Leases and High Occupancy

RioCan’s core operations remain a bright spot:
- Blended leasing spreads hit 17.5%, up from 14% in Q1 2024, with renewals averaging 17.3%—a 580-basis-point jump from 2024.
- Occupancy rates hit record highs: 98% for commercial space and 98.7% for retail, signaling strong tenant demand.
- 1.0 million sq. ft. leased in Q1, including 0.2 million sq. ft. in new leases with necessity-based tenants (e.g., grocery, pharmacy), which are less cyclical.

This performance supports 3.6% same-property NOI growth in commercial assets, aided by 2024 leasing activity and higher rents from retail backfills. Management expects ~3.5% growth for 2025, even as HBC’s woes loom.

Residential Growth: A Key Offset to Headwinds

RioCan’s residential division, RioCan Living, is a critical growth engine:
- Residential NOI rose 17.7% YoY to $7.5 million, with 13 buildings operational (fair value: $0.9 billion).
- $66.1 million in residential sales revenue and $22.2 million in inventory gains in Q1 highlight progress in monetizing this portfolio.
- 96% of Q1 interim condo closings were completed, with 97% of 694 units since Q4 2024 now finalized. Despite this, a $2.9 million provision was taken for potential defaults due to market softness.

Capital Recycling and Balance Sheet Strength

RioCan’s liquidity remains solid at $1.4 billion, supported by a $1.1 billion revolving credit facility and $8.5 billion in unencumbered assets. Strategic moves include:
- $550 million in new senior debentures refinanced at 4.05% interest, extending debt maturity to 3.88 years.
- $60 million in share buybacks (3.2 million units) funded by asset sales, reflecting confidence in undervalued units.

Risks and Challenges

1. HBC’s CCAA Filing: While RioCan has secured guarantees and termination rights for below-market leases, uncertainty around HBC’s restructuring could further strain the JV.
2. Condominium Market Softness: The $2.9 million provision hints at cautious assumptions about final closings, though $362 million of $468 million expected revenue is contractually secured via pre-paid deposits.
3. Economic Volatility: RioCan’s strong balance sheet (Adjusted Debt/EBITDA: 8.96x) positions it to weather macro risks, but prolonged economic weakness could test margins.

Outlook: Navigating a Rocky Road

Management revised 2025 FFO guidance to $1.85–$1.88 per unit (down from $1.89–$1.92), citing the RC-HBC JV’s drag. The 61.2% payout ratio remains within its 55%–65% target, preserving dividend safety.

Conclusion: A Mixed Picture, But Fundamentals Hold

RioCan’s Q1 results reflect a REIT with operational excellence and balance sheet strength, capable of weathering sector-specific storms. Its record occupancy rates, disciplined capital recycling, and extended debt maturity are positives. However, risks tied to HBC and condo markets remain unresolved.

Investors should weigh the $0.04 FFO growth against the $0.70 per unit hit from HBC, while monitoring condo closing trends and HBC’s restructuring progress. At current prices, RioCan’s units trade at a 10.7x P/FFO multiple, offering a 6.2% dividend yield—attractive for income investors willing to accept near-term uncertainty.

The REIT’s diversified portfolio and liquidity buffer suggest it can navigate these challenges, but the path to recovery hinges on stabilizing its joint venture and condo sales. For now, RioCan remains a hold, with upside potential if HBC’s restructuring improves or condo markets rebound.