RioCan cuts payouts as COVID-19 challenges outlook for retail real estate

RioCan Real Estate Investment Trust says it is cutting its payouts to unitholders by a third as the COVID-19 pandemic creates an uncertain future for shopping centres.

RioCan, which counts Dollarama, Canadian Tire and Costco among its tenants, says it is slashing its monthly payout to eight cents per unit, down from 12 cents.

The company says the cut will save about $152 million per year, which the company will use for expanding investments in residential real estate, as well as paying down debt and buybacks.

RioCan says the ongoing uncertainty from the pandemic influenced the board's decision to make the cut, which starts with the February payout for January 2021.

The decision comes after RioCan's third quarter report says it collected about 93% of rent billed during the quarter, but that 22% of its tenants were potentially vulnerable to the pandemic, such as movie theatres, gyms and sit-down restaurants.

Chief executive Edward Sonshine says RioCan still has a well-positioned portfolio and solid tenants, and the new baseline for payouts will help the REIT's transformation, as it plans to move out of malls that house hard-hit fashion retailers.

"As RioCan continues to navigate through the uncertain retail landscape created by the COVID-19 pandemic and faces an unknown length and breadth of closures, the board has taken the prudent action of reducing our distribution" Sonshine said in a statement.

"A more conservative payout ratio is important in this undeniably challenging environment."