RioCan Freezes New Projects During Virus; Rents Slump

(Bloomberg) -- RioCan Real Estate Investment Trust is freezing new and early stage projects to cut costs during the coronavirus pandemic as rent collected in April slid.

The move will save one of Canada's largest retail landlords C$100 million to C$150 million ($71 million to $107 million) in development spending in 2020, RioCan said in its first quarter report Tuesday.

The Toronto-based REIT said in a separate investor presentation that it collected 55% of its rent in April. The company expects 28% to still be received and has agreed to deferrals for 17% of its tenants. It has C$30 million in security deposits and C$5 million of letters of credit available to help offset rents in the event of unresolved defaults.

“We are confident that virtually all of the tenants we are busy serving default notices upon will indeed pay what they own under the contract,” Chief Executive Officer Ed Sonshine said on the investor call. “Let's remember a lease is a contract.”

He added the RioCan believes that most of the 15% of its tenant base that are smaller independent retailers will survive, helped by RioCan and the government's rental assistance program.

Social Interaction

RioCan reported that funds from operations dipped slightly in the quarter and net income fell 47%. And it withdrew guidance for same-property net operating income growth for 2020 because of the Covid-19 crisis.

“Although the ultimate impact of the health crisis is difficult to predict, RioCan is well positioned to withstand challenges and adversity with a solid foundation based on its major markets focused portfolio and defensive property and tenant make-up,” RioCan said in the report.

Sonshine threw cold water on the theory that the pandemic will permanently change everything about how people interact, such as reducing restaurant outings or cementing the work-from-home experiment.

“I'm a great believer in human nature and our basic drives for social interaction,” he said.

RioCan reported:

Net income fell 47.1% to C$102.8 million from the comparable period due to higher fair value gains on investment properties in the first quarter of 2019.
Funds from operations were C$0.46 per unit in the first quarter versus C$0.47 a year ago
Same property net operating income growth of 3.0% versus 1.7% a year ago
Occupancy of 97.3% versus 97.5%