RioCan REIT sees resilience from tenants, even as Q4 net income falls

One of Canada's biggest commercial real estate owners and operators says the sector is struggling with ongoing COVID-19 lockdowns, but most of its tenants have managed to stay open and pay their rent.

RioCan Real Estate Investment Trust said only a quarter of its tenants were closed at the end of 2020 and it classifies almost 80% of them as "strong" or "stable" because 98% of total gross rents billed to these tenants have been collected in cash.

"Most of these tenants are going to survive, and we've collected more than 80% of their rent," said Jonathan Gitlin, the Toronto-based real REIT's president and chief operating officer.

"Some of these tenants, such as restaurants and gyms, while they're vulnerable in the face of COVID, in our minds, they make up a very important part of the retail landscape and we think they will do just fine in the future."

Gitlin's remarks offered a window into how businesses have dealt with the ongoing health crisis.

He is seeing some resiliency despite several companies filing for bankruptcy, downsizing or laying off staff.

Most tenants who sought deferred rents from RioCan have been making payments and RioCan has participated in the federal government's Canada Emergency Commercial Rent Assistance (CECRA) program, by participating with 1,800 of its tenants in the second quarter and another 950 in the third quarter.

Over the six-month CECRA period, RioCan abated about $14.4 million in gross rents, before the government switched to a new program that asks tenants to apply for abatements rather than landlords.

RioCan supports the new program, Gitlin said.

While many RioCan properties house grocery stores and pharmacies that have not had to close for the pandemic, Gitlin said restaurants and movie theatres that have temporarily shutdown won't necessarily see their problems dissipate quickly.

Gitlin believes the number of theatres or amount of space they cover will be reduced "a little bit," but continue to be "high performing in the future."

"The majority of them can be utilized for other things, be it a redevelopment entirely or simply redefining the space as something else, be it retail or industrial," said Gitlin.

"But by and large, we do think that the majority of our theatres will continue to be in existence, and we don't see significant rental pressure going forward on all of our locations, but some of them, we certainly will."

Gitlin sees conditions being "extremely tough" for restaurants.

"But I do think the trend toward eating out at restaurants will reinvigorate itself on the other end of this pandemic and therefore, demand will increase again, and there will be ... opportunity, particularly in some of our very well-located properties, to increase rent over time," he said.

"But again, next year, that won't be the case because they are suffering quite tremendously."

Gitlin's remarks came as RioCan reported its fourth-quarter net income amounted to $65.6 million, down from $150.8 million at the same time last year.

Funds from operations, a key metric in real estate, reached $124.1 million, a fall from $146.1 million last year.

The trust said its FFO per unit amounted to 39 cents per diluted unit for the quarter ended Dec. 31, down from 46 cents per diluted unit previously.

It reported a net loss of $64.8 million for the year, compared to a net income of $775.8 million in the prior year.