Jonathan Gitlin has hit the ground running during his first few weeks as the president and CEO of RioCan REIT. The trust recently announced a major new development and partnership, and on Tuesday released its Q1 2021 earnings report.
Gitlin added the CEO title to his previous role as president when trust founder Ed Sonshine retired from the role at the end of March. Sonshine remains RioCan’s non-executive chairman.
In its first major announcement under Gitlin, RioCan (REI-UN-T) unveiled its involvement in the new QA Condos mixed-use development on Queen Street East near Coxwell Avenue in Toronto. The project will be developed in a 50/50 partnership with Context and in collaboration with the City of Toronto and Toronto Community Housing (TCHC).
The 3.5-acre site at 1555 Queen St. E. will include:
– a new building to replace the TCHC’s existing 120 apartment units on the site, which will be retained and owned by TCHC;
– 367 new condominium units, 183 market rental units, 50 affordable rental units, and 32 affordable rental units that will be sold to the city upon completion at a pre-determined price;
– and approximately 16,000 square feet of new podium retail space.
Housing for all income levels
The Teeple Architects-designed condo component is already 88 per cent pre-sold. Units in the 17-storey building will range in size from 415 to 1,987 square feet and amenities will include: co-working space; a lobby lounge; a yoga studio; a mezzanine lounge; courtyard gardens; a steam room and sauna; a spin studio; a parcel room; a lobby with concierge; a rooftop party room; a fitness centre; and an outdoor dog run.
The site is currently owned by TCHC, but RioCan and Context are expected to gain title to their portion of the site once a severence is completed. The partners will then proceed with demolition activity. They’ve proceeded with the pre-construction phases of the project in the interim.
“The project will provide vital retail amenities and add much-needed housing for all income levels,” Gitlin said during the May 4 conference call to reveal the first-quarter results.
“In addition, it will contribute to Toronto’s community economic development initiatives, including a $100,000 scholarship fund for affordable rent tenants, a $250,000 economic and social development fund and a minimum of $500,000 in value for job opportunities.”
RioCan has forward purchase obligations to purchase Context’s 50 per cent interest in the retail and residential rental components of the project upon meeting certain pre-determined thresholds, such as reaching certain stabilized net operating income targets, certain time limits or certain planning act compliance requirements.
RioCan’s residential and mixed-use developments
QA Condos forms part of the current pipeline of 1,609 condo and townhouse units under construction or in pre-sale by RioCan and its partners.
All 153 townhome units in phase one of U.C. Towns, and all 503 condo units at U.C. Towers, part of the Windfields retail and residential development in Oshawa, have been sold. Both are in partnership with Tribute Communities.
The REIT also reported more than 98 per cent of residential rents were collected from 1,218 units during Q1 2021 at its occupied apartment buildings at eCentral and Pivot in Toronto, Frontier in Ottawa and Brio in Calgary.
RioCan sold a 50 per cent non-managing interest in its residential rental and retail eCentral/ePlace property and its Rhythm rental apartment development in Ottawa to WoodBourne Capital Management for $156.2 million in the first quarter.
More than 1,450 residential rental units are under construction between six projects. Gitlin expects RioCan will have an additional 1,014 units in different phases of development by 2023.
Development spending for this year is expected to be approximately $500 million. Residential development represents almost 82.8 per cent of RioCan’s 41.8-million-square-foot development pipeline.
“We’ll use our vast pipeline of air rights and we’ll seek out partners to enhance value, reduce our overall development exposure and, equally as important, get paid for our deep and experienced development and residential platforms through equitable fee structures,” Gitlin said during the earnings call.
Capital recycling program
RioCan is one of Canada’s largest REITs. It owns, manages and develops retail-focused and increasingly mixed-use properties.
Its portfolio at the end of 2020 was comprised of 223 properties with an aggregate net leasable area of approximately 38.3 million square feet, including office, residential, retail and 14 development properties.
RioCan’s capital recycling program has involved $543.1 million worth of closed, firm and conditional deals so far in 2021, including $421.2 million in income-producing retail and mixed-use properties. That money will be primarily used to pay down debt, but also to fund new developments.
“Seizing on a sizeable disconnect between private and public market valuations, we’re raising capital efficiently by selling assets,” said Gitlin. “Retail now serves as a very interesting value proposition for a lot of investors, be they syndicators, small pension funds, institutions or even high-net-worth individuals who really like the prospect of retail assets.
“We’re seeing a number of different types of buyers on a number of different types of assets.”
Gitlin said the list of assets RioCan is selling doesn’t come close to reflecting the demand from people wanting to buy assets from the REIT, and valuations are reverting to higher pre-pandemic levels.
“Once we reached our target of 90 per cent major market-focused, we turned the tap off a little bit on our aggressive disposition program in secondary markets,” said Gitlin, though RioCan could become a more aggressive vendor if it sees a benefit.
Other first-quarter RioCan highlights
Here are other highlights from RioCan’s first quarter:
– Net income increased to $106.7 million from $102.8 million in the pre-pandemic first quarter of 2020.
– It executed 1.1 million square feet of new and renewed commercial leases, with a new leasing spread of 14.2 per cent and a blended spread of 8.1 per cent.
– Committed commercial occupancy improved by 10 basis points from the fourth quarter of 2020 to 95.8 per cent.
– It collected 93.9 per cent of commercial rents despite some forced business closures and having restrictions placed on some of those that remained open due to COVID-19.
– It had $1.3 billion of liquidity in the form of cash and cash equivalents and undrawn lines of credit on a proportionate share basis.
– It had an unencumbered asset pool of $8.7 billion.
– Senior vice-president and chief financial officer Qi Tang took part in her final earnings call, as she’ll pursue other opportunities as of May 12. Finance vice-president Franca Smith will serve as interim CFO until Tang’s successor is found.
“Our focus right now is making sure our balance sheet is improved to the point where, when we can turn to more of an offensive posture, our balance sheet is in great shape to make that turn,” Gitlin concluded.