Mr. Jonathan Gitlin reports

RIOCAN REPORTS FOURTH QUARTER AND YEAR END 2023 RESULTS - FFO PER UNIT GROWTH ENABLES ANNUALIZED DISTRIBUTIONS INCREASE OF 2.8% TO $1.11 PER UNIT

RioCan Real Estate Investment Trust today released its financial results for the three months and year ended Dec. 31, 2023.

"RioCan continued to capitalize on Canada's short supply of quality space and robust retailer demand, generating some of the best operational results we have ever seen, and achieved our financial objectives for 2023," said Jonathan Gitlin, president and chief executive officer of RioCan. "Our performance speaks to the reliability and quality of our open air retail, prime locations and foundation of necessity-based retailers. As we celebrate our 30th anniversary, we cement our position as a valuable long-term investment and Canada's premier REIT. RioCan's third consecutive annual distribution increase to unitholders reflects our confidence in delivering continued operational excellence and meaningful value creation."

• Full year FFO (funds from operations) per unit was $1.77, an increase of six cents per unit or 3.5 per cent over the prior year.
  • Commercial same property NOI (net operating income) grew by 4.8 per cent, contributing a nine-cent increase in FFO per unit.
  • NOI from completed commercial developments drove FFO per unit higher by five cents.
  • Residential NOI accounted for three cents per unit of the FFO per-unit increase.
  • Reduced NOI from the sale of commercial properties resulted in a 10-cent reduction in FFO per unit.
  • Higher interest expense, which was partially insulated by hedges, debt reduction impact of property sales proceeds, and higher investment and interest income, resulted in a net five-cent decrease in FFO per unit.
  • Accretion from normal course issuer bid activity resulted in an increase of three cents FFO per unit while all other combined variances accounted for the remaining one-cent increase in FFO per unit.
• Net income for the year of $38.8-million was $198.0-million lower than the prior year due to a fair value loss on investment properties of $450.4-million compared with a $241.1-million fair value loss in 2022. The fair value loss in 2023 was driven by increased capitalization rate assumptions, partially offset by higher stabilized NOI.
• The trust's FFO payout ratio of 60.5 per cent, liquidity of $2.0-billion, unencumbered assets of $8.1-billion, floating rate debt at 6.8 per cent of total debt and staggered debt maturities, all contribute to the trust's financial flexibility and balance sheet strength.

Distribution increase and outlook

• RioCan's board of trustees approved a 2.8-per-cent increase to the monthly distribution to unitholders from nine cents to 9.25 cents per unit commencing with the February, 2024, distribution, payable on March 7, 2024, to unitholders of record as at Feb. 29, 2024. This brings RioCan's annualized distribution to $1.11 per unit and is the third consecutive annual distribution increase as the trust provides sustainable distribution growth to unitholders while maintaining the trust's payout ratio targets.
• For 2024, RioCan anticipates FFO per unit to be within the range of $1.79 to $1.82, commercial SPNOI growth of approximately 3 per cent, and an FFO payout ratio of between 55 per cent to 65 per cent. Development spending on mixed-use projects is expected to be between $250-million to $300-million and spending for the construction of retail projects of $50-million to $60-million.
• The trust continuously reviews its longer-term targets in the context of ever-evolving macroeconomic and business environments. Refer to the outlook section of the MD&A (management's discussion and analysis) for more information.

• Commercial same property NOI grew by 4.8 per cent, driven by contractual rent steps, strong leasing and recovery of provisions for credit losses. The impact of net provision reversals during 2023 contributed 1.2 per cent to this SPNOI growth.
• A record high 98.4-per-cent retail-committed occupancy increased by 50 basis points over last year, underscoring the demand for well-located retail space. When compared with Q3 2023, retail in-place occupancy increased by 40 basis points to 98.0 per cent.
• The blended leasing spread of 10.7 per cent in 2023 comprised new and renewal leasing spreads of 14.7 per cent and 9.8 per cent, respectively. Excluding fixed-rate renewals, the renewal leasing spread would be 11.4 per cent for the year, reflective of the strong leasing environment. New leasing in 2023 generated average net rent per square foot of $27.75, well above the average net rent per occupied square foot of $21.51.
• The trust's strong demographic profile with a population and household income of 260,000 and $140,000, respectively, within a five-kilometre radius of the trust's properties, continues to attract strong and stable tenants which comprise 87.5 per cent of annualized net rent and strengthen the quality of the tenant mix.

RioCan living update

• Continued strong performance and leasing environment for the trust's stabilized properties drove residential same property NOI growth of 13.8 per cent in 2023.
• Total NOI generated from the trust's residential rental operations for 2023 was $21.5-million, an increase of $7.9-million or 57.7 per cent over the prior year.
• RioCan Living has 13 buildings in operation, representing 2,738 residential units. Eleven of these buildings are stabilized and 96.5 per cent leased as at Feb. 13, 2024.
• Occupancy commenced at FourFifty The Well on Aug. 1, 2023. As at Feb. 13, 2024, 45.8 per cent of the units are leased at rents above expectations.
• The 2,573 condominium and townhouse units that are under construction are expected to generate combined sales revenue of over $780.0-million between 2024 and 2026. Of RioCan's six active condominium construction projects, 86 per cent of the total units have been presold, representing 95 per cent of pro forma total revenues.

• For the full year, 599,000 square feet of property under development were completed which are expected to contribute $27.2-million of stabilized cash NOI. Rental income has commenced in 2023 and is expected to ramp up over the course of 2024. Completions include 460,000 square feet related to The Well, comprising 123,000 square feet of purpose-built rental residential and 337,000 square feet of commercial space. In addition, 32 U.C. Towns 2 townhouse units were completed and sold in the quarter, generating a $4.8-million inventory gain.
• As at Feb. 13, 2024, approximately 96 per cent of the total commercial space at The Well is leased with approximately 91 per cent or 1,352,000 square feet (at 100-per-cent ownership interest) in tenant possession. The retail component is 93 per cent leased, with more than half of the space open and operating. The remaining retail tenants will open steadily over the first half of 2024.
• Zoning approvals for 4.0 million square feet of residential inventory were obtained in 2023 including for RioCan Scarborough Centre (Golden Mile phase one and two) in Toronto, RioCan Hall in the entertainment district in downtown Toronto, 83 Bloor St. West, located in the prestigious downtown Toronto neighbourhood of Yorkville and East Hills South Block in Calgary. As cost of financing conditions persist, RioCan does not intend to commence new physical construction of mixed-use properties in 2024.
• Total zoned square footage of 17.4 million at Q4 2023 compares with 15.0 million at Q4 2022, an increase of 2.4 million as newly zoned projects were partially offset by development deliveries. Zoned square footage includes 1.2 million square feet of projects under construction and 1.7 million square feet of shovel ready projects. Value recognized in the trust's properties under development balance for zoned projects, excluding those under construction, is $31.04 per square foot.

Investing and capital recycling

• During 2023, and including the subsequent event period, RioCan executed on capital recycling activities that improved portfolio quality and the balance sheet, summarized as follows:
  • Dispositions: Closed $295.4-million of investment property dispositions, all of which were unencumbered assets, and provided $6.0-million vendor takeback financing.
  • Acquisitions: Closed $263.1-million of total acquisitions to Feb. 13, 2024, which included both debt assumed of $119.6-million, at an average contractual interest rate of 2.68 per cent and a weighted average term of 5.3 years, and a $40.9-million deferred payment.
  • Lending program: Issued $84.1-million of new loans receivable offset by $74.6-million of loans repaid. With the weighted average interest rate on new loans at 11.1 per cent the company expects its lending program to be accretive to FFO, and help partially offset the impact of higher interest rates.
  • Net cash raised from the above capital recycling activities was $177.3-million.
• Dispositions improved our portfolio quality through reducing exposure to secondary markets, enclosed malls and certain tenant categories, including:
  • An enclosed mall in Winnipeg, Man.;
  • Three cinema-anchored centres in Surrey, B.C., Gatineau, Que., and Orillia, Ont.;
  • A non-grocery-anchored centre in Calgary, Alta.
• In addition, the trust sold a 12.5-per-cent interest in the 11YV project, thereby reducing its interest in the project to 37.5 per cent. The resulting gain of $12.1-million was mainly attributable to the value of the underlying residential inventory. Subsequent to year end, RioCan further reduced its interest in the project to 25.0 per cent by selling an additional 12.5 per cent interest.
• Subsequent to year-end, the trust also entered into firm deals to dispose full or partial interests in a number of properties totalling $31.1-million including two secondary market assets, one of which is cinema-anchored, and a piece of non-core development land.
• Strategic acquisitions added to the trust's major market portfolio including new stock residential assets and an urban, grocery-anchored retail asset with development upside. Strategic acquisitions included the following previously announced transactions:
  • A multiphase residential rental asset in Quebec, which included in-place Canada Mortgage and Housing Corp. (CMHC) debt;
  • Land assemblies for development;
  • Purchase of a parking lot lease at a Focus Five2 project to remove a significant encumbrance to development;
  • Two acquisitions closed subsequent to year-end:
    • 50.0-per-cent ownership in an operating and stabilized rental residential property in Calgary, Alta., for $52.9-million, which included $32.7-million of in-place debt at a weighted average contractual interest rate of 1.97 per cent;
    • A 50.0-per-cent managing interest in an urban grocery-anchored centre in Toronto, Ont., which is currently undergoing rezoning to create additional density. The trust will manage the property and the development process, earning fees for these activities. The purchase was settled with $13.2-million cash, the assumption of $46.1-million of in-place debt at a weighted average contractual interest rate of 3.20 per cent, and agreed upon future consideration for density, estimated to be $40.9-million, to be paid as various development milestones are met.
• These capital recycling activities are representative of the trust's continuing strategy to rotate capital away from lower-quality, higher-risk assets to premium quality retail and residential assets in the best markets in Canada. This process, which began a number of years ago, has positioned the trust's portfolio to perform well in any economic environment.

Capital management update

• During 2023, the trust issued $800.0-million of senior unsecured debentures, including $300.0-million of Series AI debentures at a coupon rate of 6.488 per cent, which can be repaid at par on or after Sept. 29, 2024. This feature allows the trust to refinance these debentures in the near term with longer-term debt at lower interest rates and provides the trust with additional flexibility in the current volatile interest rate environment.
• The trust settled a total of $500.0-million of bond forward contracts during 2023 in conjunction with the issuance of $200.0-million Series AG and $300.0-million Series AH senior unsecured debentures on March 6, 2023, and June 26, 2023, respectively. Inclusive of $16.8-million of realized gains from these contracts, the combined weighted average hedged interest rate for these debentures is 5.244 per cent with a combined weighted average term of 5.6 years.
• Since Q3 reporting on Nov. 2, 2023, to Feb. 13, 2024, the trust arranged $608.0-million in permanent financing at a weighted average interest rate of 5.4 per cent, across various financing types including debentures, commercial mortgages and CMHC mortgages.
• Included in that permanent financing were $300.0-million Series AJ senior unsecured debentures issued on Feb. 12, 2024. These debentures were issued at a coupon rate of 5.470 per cent per annum and will mature on March 1, 2030. The proceeds were used to repay, in full, the $300.0-million, 3.29 per cent Series W unsecured debentures upon maturity on Feb. 12, 2024.

• As at Dec. 31, 2023, the trust had $2.0-billion of liquidity. The trust has full availability of its $1.3-billion revolving line of credit in addition to $600-million in undrawn construction lines and other bank loans, and $100-million cash and cash equivalents. Liquidity increased by $415.8-million when compared with the prior year, providing greater flexibility in debt refinancing strategies.
• Pursuant to the terms of its credit agreement, the trust has an option to increase the commitment under its revolving line of credit by $250.0-million.
• RioCan's unencumbered assets of $8.1-billion, which can be used to obtain secured financing to provide additional liquidity at lower interest rates than unsecured debt, generated 55.8 per cent of annual normalized NOI (net operating income).
• Adjusted debt to adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) improved to 9.28 times on a proportionate share basis as at Dec. 31, 2023, compared with 9.51 times as at the end of 2022. The decrease was primarily due to higher adjusted EBITDA, partially offset by higher average total adjusted debt balances.
• As at Dec. 31, 2023, the trust's weighted average term to maturity on a proportionate share basis was 2.97 years. However, inclusive of financing activities completed in early 2024, the weighted average term to maturity as at Feb. 13, 2024, was extended to approximately 3.5 years.
• The trust's exposure to floating rate debt was 6.8 per cent of total debt as at Dec. 31, 2023. Excluding construction loans, floating rate exposure was 3.5 per cent.

Conference call and webcast

Interested parties are invited to participate in a conference call with management on Wednesday, Feb. 14, 2024, at 10 a.m. ET. Participants will be required to identify themselves and the organization on whose behalf they are participating.

Participants who preregister at any time prior to the call will receive an e-mail with dial-in credentials including a login pass code and PIN to gain immediate access to the live call. Those that are unable to preregister may dial in for operator assistance by calling 1-833-950-0062 and entering the access code: 218112.

For those unable to participate in the live mode, a replay will be available at 1-866-813-9403 with access code: 539726.

To access the simultaneous webcast, visit RioCan's website at events and presentations and click on the link for the webcast.

About RioCan Real Estate Investment Trust

RioCan is one of Canada's largest real estate investment trusts. RioCan owns, manages and develops retail-focused, increasingly mixed-use properties located in prime, high-density transit-oriented areas where Canadians want to shop, live and work. As at Dec. 31, 2023, the trust's portfolio comprises 188 properties with an aggregate net leasable area of approximately 32.6 million square feet (at RioCan's interest) including office, residential rental and nine development properties.

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