RioCan Real Estate Investment Trust (REI-UN) Q3 2026 Earnings Call Transcript

and at www.cedarplus.com. I will now turn the call over to Rio Can's President and CEO, Jonathan Gitlin.

Thank you, Jennifer. Good morning, everyone, and thanks for joining us. We had another strong quarter, but before I get into the results, I'd like to take a step back. Almost a year ago at our 2025 Investor Day, we laid out a clear strategy for Rio Can. We said we'd focus the business on what we do best, owning and operating high-quality, necessity-based retail in Canada's major markets. We said we'd use our independent platform to drive more value from our portfolio. And we committed to disciplined capital allocation and maintaining balance sheet strength. We were doing exactly what we said we would do. The results we are reporting today continue to demonstrate the strength of that strategy. Core FFO per unit increased by 5.1% this quarter. Same property, NOI, grew by 4.2%. And we've effectively completed our $1.3 billion residential capital recycling program. So the message today is pretty simple. The strategy is sound. We're executing on it, and the results are clear. That progress is supported by our proven, independent platform, our culture of excellence, continued innovation, and prudent ESG practices. Successful delivery also requires strong governance and strategic oversight. With that in mind, I'd like to welcome David Schwartz, who was recently appointed to RioCan's Board of Trustees. David brings extensive financial leadership experience and deep expertise in capital markets, strategic transactions, and business growth. His experience building and scaling technology-driven businesses will also bring a valuable perspective to the board. We look forward to benefiting from his insight and experience for many years to come. The fundamentals in Canadian retail real estate continue to be very favourable. Demand for high-quality space is strong. New supply remains limited, and retailers continue to compete for well-located space in Canada's major markets. We believe these conditions are enduring. Our strategy was built to perform in any market condition, but when fundamentals are this strong, the opportunity is even greater, and we are perfectly positioned to capitalize on it through our operating independence, Good morning, everyone. Our blended leasing spread was 17% this quarter and 22.7% over the last 12 months. The rents we're achieving on new leases continue to demonstrate the magnitude of the opportunity embedded within our existing assets. During the quarter, the average rent on new leases was $31.45 per square foot. That's 32% higher than the average rent on occupied space across the portfolio at quarter end. That gap matters. At InvestorDay, we talked about the embedded growth within our existing portfolio and the opportunity to capture it as leases mature. That's exactly what's happening. And because our leases roll over gradually, that opportunity extends well beyond today. Approximately 15% of our leases roll every year, and there remains a meaningful gap between in-place rents and market rents. Today's leasing spreads are tomorrow's same property NOI growth. As those rents commence and annual escalations take effect, leasing will remain an important contributor to growth. We can choose the right tenants on the right terms while minimizing downtime and capital outlay. Our decisions are driven by what creates the most value for our properties and our unit holders. The result is a more productive portfolio, more durable and predictable cash flow, and attractive risk-adjusted returns. We're seeing good examples of that across the business. During the quarter, we completed deals with two national grocery tenants totaling approximately 63,000 square feet. One of these transactions, representing 35,000 square feet, was completed at a 64% increase in rent. In the last 12 months, we've completed 11 grocery renewals, totaling more than 400,000 square feet at an average blended leasing spread of approximately 35%. We've also added nearly 200,000 square feet of new grocery uses to our portfolio. These are necessity-based uses. They're productive co-tenants for current and future retailers, important to the communities we serve, and add value to our properties. And while grocery is an important part of our portfolio, the diversity of our tenant base provides important income protection. We're not overly dependent on any one tenant or retail category. At the same time, our independence gives us the freedom to pursue growth wherever we see the best opportunity to create value. That combination matters. Diversity provides resilience. Independence creates opportunity. And we have the locations where tenants want to be. That leasing strength is translating into earnings. We are reaffirming our core FFO per unit guidance of $1.60 to $1.62. We now expect to finish the year at the high end of that range. The underlying business continues to perform well. We increased our same property NOI growth outlook to 4% to 4.5% last quarter, and we are reaffirming that guidance today. We feel good about where the business is today, and we feel even more positive about the opportunity ahead. Another major commitment we made was to repatriate capital from the monetization of our residential portfolio. We've effectively achieved our $1.3 billion Rio Can Living monetization target, delivering the commitment we made at Investor Day. This doesn't represent the full extent of the opportunity. We retain interests in three highly desirable residential assets, which provide additional opportunities for monetization and accretive capital allocation. We've simplified the business and created capacity to put capital back to work where we have an advantage, retail. This isn't just capital recycling, it's strategy in action. And as that program nears completion, our capital, which includes our growing free cash flow, becomes even more concentrated in our core business. At Investor Day, we also talked about our dynamic approach to capital allocation. The best use of capital can shift as market conditions change. Our job isn't to predict a return in the market. It's to have a clear strategy and the flexibility to direct capital to the opportunities where it can create the greatest long-term value. We're seeing more of these opportunities, and we're putting that flexibility to work. One example from this quarter is our agreement to acquire our partner's 37.5% interest in East Hills and Calgary for approximately $55 million. Following closing, our ownership interest will increase to 77.5%. East Hills is a Costco-anchored property in a densely populated, affluent neighborhood with a strong demand for necessity-based retail. This is exactly the type of opportunity that we're looking for. We don't need to chase growth. We can be patient and put capital to work where we know we have an advantage and where we believe it can deliver the strongest risk-adjusted returns. We have the people, data, relationships, and operating capabilities to unlock that value efficiently. That can mean adding retail density, improving merchandising mix, or repositioning underutilized space. These opportunities can generate highly attractive returns with a fraction of the time. Thank you. The remainder is being invested in high-return retail info projects, including the addition of new retail GLA at nine existing Rio Can sites across the country, as well as the new Costco at Rio Can Burlo. In a market where capital remains expensive, this is a meaningful advantage. We can create growth from the real estate we already own while preserving financial flexibility. That flexibility gives us the ability to act when compelling opportunities emerge. The approach is straightforward. Redeploy our free cash flow and source capital from lower growth or non-core assets into opportunities that increase value and maintain balance sheet strength. Before I wrap up, I want to come back to where I started. Last November, we laid out a clear strategy. Focus on retail. Maximize the value of the portfolio we already own. Simplify the business, maintain balance sheet strength, and allocate capital where we see the best opportunities to create long-term value. Almost a year later, our confidence in that strategy has only grown. We are operating from a position of strength. Tenant demand remains strong. Market rents continue to run well ahead of rents in the portfolio, and we're capturing that growth through our leasing program. We have a focused business with greater earnings visibility, increased financial flexibility, and a clear path to durable cash flow growth. And our independent platform gives us the capabilities to keep finding and executing opportunities across the business. The environment will continue to evolve. That's normal. Our strategy doesn't depend on everything around us staying the same. We have the flexibility to adjust the path without changing the destination. The strategy is sound, the opportunity is strong, and we're executing. We're confident in the business and focused on continuing to create and compound value for our unit holders over the long term. With that, I'll turn it over to Dennis to take you through the financial results in more detail. Thank you very much.

Thank you, Jonathan, and good morning, everyone. I'll start by addressing the broader operating environment, where we continue to see contrasting dynamics. Retail fundamentals remain strong. Tenant demand is resilient, and the supply of quality retail space is limited. At the same time, ongoing inflation concerns continue to drive volatility in interest rates and put pressure on financing costs. Against this backdrop, our focus remains consistent, executing our retail-focused strategy. In this environment, the ability to grow rents, capturing embedded mark-to-market opportunities, is a competitive advantage. As an independent retail REIT, we have a long track record of doing just that, capturing inflation through rent growth. With that context, I'll turn to our financial results. Core FFO in the third quarter was $0.41 per unit, up 5.1% from last year. There were three main drivers. First, commercial same property NOI grew 4.2% and contributed approximately $0.02 per unit. Second, our capital allocation decisions contributed just over $0.01 per unit. This included the impact of acquisitions, net of dispositions of commercial properties, and accretion from unit repurchases under our NCIB program. Third, these benefits were partially offset by lower interest income and higher interest expense. Together, these items reduced core FFO by approximately $0.01 per unit. As outlined in our 2025 Investor Day, we expect interest income to continue to decline as our MES loans are repaid and we redeploy that capital into our business and balance sheet. Year-to-date core FFO was $1.19 per unit. An increase of 2.6% from last year. Looking ahead, we expect 2026 core FFO per unit to be at the high end of our $1.60 to $1.62 guidance range, reflecting strong same property NOI growth and $4 million higher lease cancellation fees compared to last year. Our retail focus strategy is also reflected in our capital allocation decisions. First, we closed on the sale of a Toronto apartment building pivot during the quarter, bringing total proceeds from completed Rio Can Living dispositions to approximately $1.2 billion. Including a $110 million conditional sale, we have effectively achieved our $1.3 billion Rio Can Living capital repatriation target. With three Rio Can Living assets remaining to be sold after this year, we expect the ultimate proceeds to exceed our $1.3 billion target. Second, we continue to invest in retail opportunities where we see attractive risk adjusted returns. Our top capital allocation priority remains investing in our own portfolio. Beyond that, we consider other retail investment opportunities that meet our capital allocation framework. Our decision to acquire additional ownership in East Hills is a good example of our disciplined approach. Importantly, this acquisition is expected to deliver strong risk-adjusted returns and exceed our 9% unlevered IRR hurdle rate. This transaction will result in a modest increase in debt to EBITDA initially. However, we expect the impact on this metric to be neutral once a full year of EBITDA is captured. Third, as our mixed-use development program needs completion, we have repositioned certain residential inventory lands for retail use. This repositioning is a natural extension of our retail focus strategy. As a result of this change in use, $235 million of residential inventory density was transferred to investment properties and properties under development. Over time, we expect these assets to generate more durable and recurring cash flows. I will now turn to the balance sheet. While borrowing costs remain elevated relative to our investor day assumptions, we remain focused on factors that are within our control and continue to manage the balance sheet proactively. During the quarter, we entered into a new $400 million 7.3-year term loan, and the net proceeds were applied against our line, improving liquidity. This new facility is priced inside our line, allowing us to extend our debt maturity profile while lowering our overall borrowing costs. Since Q2, we also extended $400 million of term loans from 2030 to 2032, further improving our debt maturity profile. At quarter end, we met our 70% target of unsecured debt to total debt and increased our unencumbered asset pool to $9.7 billion. We have more than $1.1 billion of liquidity, diversified funding sources, a sustainable payout ratio, and credit metrics in line with our target ranges. Together, these improve our financial flexibility to manage our upcoming debt maturities. As a reminder, our investor day projections assumed a 4.5% cost of debt and reflected the impact of refinancing lower-cost debt through 2028. Since then, the cost of unsecured debentures is approximately $40 Thank you. This is the continued execution of our retail-focused strategy. Retail fundamentals remain strong, and the quality of our portfolio is reflected in our results. Disciplined capital allocation has strengthened our balance sheet and improved our financial flexibility, and our independent retail platform positions us well to continue to capitalize on the strong leasing environment and unlock embedded growth within our portfolio long into the future. Taken together, these elements will enable us to compound value over the long term. With that, I will turn the call back to the operator for questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality, and if you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Sam Dimiani from TD Cohen. Your line is open. Please go ahead.

Thank you very much, and good morning, everyone. Just first off, with the move in interest rates over the last three months, even though they've retraced that a little bit, I'm just wondering what your outlook is for acquisitions and your target debt metrics today versus three months ago.

Good morning, Sam. Thanks for the question. So our outlook on acquisitions is similar to where it was before. Our hurdle rate for any new investment, whether it's acquisitions, development, anything, is a 9% unlevered IRR, which is always looking at our weighted average cost of capital. The cost of capital for Rio Can has gone up as a result of interest rates, for sure, as well as our stock price. But we still are disciplined about achieving that hurdle rate. If acquisitions are available to us that offer that type of output, then we will look at them. But again, we're looking at them in comparison to some of the other options that we have to allocate capital, such as pad developments or paying down debt, which in this kind of environment have a good output as well with respect to our target debt metrics. Again, we have stated before that we are comfortable operating within the envelope of eight to nine times net debt to EBITDA. We are comfortably within that range. Our expectation is as more and more of our non core asset dispositions take place, such as the Rio can living dispositions, those metrics will continue to improve, but staying within that range.

Thank you. That's helpful. And maybe last one for me, just to, do you have a specific outlook for 2027 at this time in the context of your longer-term outlook provided last year?

We're going to provide guidance in Q1, for sure, as we always traditionally do. I would say, though, as I mentioned in my comments earlier, Sam, that the retail landscape looks very good. Rio Can is set up to do well in that environment, and we feel very strong about our capabilities as an independent platform to extract a lot of value and a lot of income growth out of the portfolio. But in terms of specific guidance, we will provide that at a later time.

Okay, great. Thank you, and I'll turn it back.

Thanks, Sam.

Your next question comes from the line of Pammy Burr from RBC Capital Markets. Your line is open. Please go ahead.

Thanks. Good morning. Not sure if maybe I missed this in the disclosure, but just on the lease termination fees, you know, it was a bit larger this quarter. Any call that you can share on what they relate to and maybe any updates on releasing that space? And then I guess the second part to that would be if there's any further lease termination fees anticipated in Q4.

I didn't pick up the last part of the question.

It was lease termination fee. Has this basement backfilled? And do we expect any more outsized over the balance of the year?

All right. Thank you, Olive. Good morning, Pommy. Thank you for that. So the deal that was sort of outsized was relating to our property at 1860 Bayview, where we had a Whole Foods in place. Whole Foods, I don't know what their long-term views on Canada are, but clearly that asset was not in their future. So they did want to remove themselves from their obligations. We negotiated a very good deal with them that would effectively make the backfill, which is now completed with an excellent operator, neutral to us economically. So whatever the lease termination buyout received, whatever we got from lease termination will cover any downtime, any TI, and any landlord's work, and then some. So we feel ultimately that it is a strong use of our platform to take a tenancy that wasn't working well and to replace it with a tenant that will be more suitable and more viable going forward at economic terms that are even more favorable than the prior tenancy. So for us, we're looking at this as a positive, but it was a fairly sizable number. So it's $4 million higher than our average, sort of, than last year's lease bio number.

And probably just on this, the lease buyout gets amortized across Q3 and Q4. So you saw part of it in this quarter, and you'll see the other half of it in the next quarter. And that'll add up to that $4 million annual increase year-on-year of $4 million.

And the catalyst to do the lease buyout was partially due to the fact that the tenant was underperforming, but they also had gone dark in August. So, you know, active asset management, we want to make sure that our spaces are tenanted driving traffic. And clearly that doesn't happen when a tenant isn't operating out of the space.

Okay, got it. So that space was vacant. It wasn't in your occupancy numbers, or it was taken out of your occupancy in the quarter in Q3 on an in-place basis.

But they were paying rent, and the tenancy was valid.

Sorry, Jonathan, you got cut off there. I'm not sure what happened.

Sorry. So the tenant was in place, the lease was valid, and they were paying rent, so they weren't stripped out of occupancy.

Okay.

Okay.

Just coming back to the debt maturities, there's a fair bit rolling over the next couple of years. And with the backup in rates, can you maybe just talk about the refinancing plans, I guess, for at least next year and maybe where you're seeing rates today on both secured and unsecured?

Mm-hmm. So the refinancing plans for next year, I mean, we've got a lot of time, a lot of flexibility. We've got more funds coming in from the sale of Rio Can living assets. We've got $1.1 billion of liquidity. So we're not forced to go to the market now to raise funds if we need to, but we'll gauge the market between now and then to see if it is viable for us to go out and raise some further funds. But even in the absence of that, we will be set to pay off whatever obligations we have due next March. With respect to the interest rate environment right now, look, rates have gone up. We look at the seven or 10-year bond market, and it has gone up probably in the range of 50 basis points, largely due to the underlying Government of Canada bond rates. The spreads have actually been quite tight, and I think that's a reflection of the strength of the industry. So it really is more a question of the underlying bond rates. And that's, you know, due to a lot of geopolitical matters that are beyond my pay grade to understand exactly how they're all going to correct themselves. But the last part of your question was around the difference between secured and unsecured. And right now we're seeing no real difference in rates between secured and unsecured. Okay, got it.

Maybe just last one for me. Just, you know, with your retail occupancy, you know, the committed numbers, again, at another record high, and the spreads are still home again. With, you know, the Canadian consumer just being relatively resilient, notwithstanding that we are still in a bit of a shaky economy, are you seeing any changes at all in terms of the tenant behavior yet? I know Q4 tends probably not to be that quarter where you see it, but I guess I'm just thinking about, you know, maybe 2027 and any scaling back of expansion plans or leasing velocity from tenants, just given where we sit today.

Yeah, I think the evolution of the Canadian tenants, as well as the global tenants, has been nothing short of remarkable in the sense that they have really sensed the Canadian consumers' needs and shifted to more of a discount focus. So if you look at the grocery chains and if you look at hard goods purveyors, they've really leaned into the notion of discount. And I think that's served them very well. And I also think it's served the Canadian consumer very well in this environment that we're in. And so you're seeing still rapid expansion of those discount banners. For grocery, for instance, there's a lot of new discount banners opening up, but there's also a lot of conversions from existing full-line stores into discount. And I think you're going to continue to see that because it actually is supported by the current economic backdrop. There will, of course, always be certain tenancies and businesses that in this type of environment will suffer. But we're in that type of super cycle, as I've mentioned before, that where we do have a struggling tenant, we've got an equal or greater number of viable tenants that want that space and typically at higher rents. So we see still a significant amount of strength in the business operationally. And so it's not of a significant, I mean, everything is a concern to us, I shouldn't be light about it. But we haven't really seen a change in tenant behavior other than them simply evolving to capture the moment. So that's from a macro perspective. From a micro perspective, I mean, as I said, there's always going to be tenants in this kind of environment that might struggle than more so than typical. Oliver, I don't know if there's any specific uses that you're seeing any weakness in at this point. No, nothing that would be of a concern.

Yeah.

So our watch list is de minimis, and we don't see that changing substantially into 2027.

Great. Thanks very much.

I'll turn it back. Thanks, Pommy.

Your next question comes from the line of Lauren Kalmar from Desjardins. Your line is open. Please go ahead.

Thank you. Good morning, everyone. Maybe just quickly circling back on the Whole Foods space or former Whole Foods space. So based on the comments previously, it sounds like in-place occupancy, all else equal would come down, but committed should stay relatively unchanged based on the backfill? Correct. Okay, perfect. And then maybe just going back to the acquisition side of things, One of your partners is undergoing a pretty substantial disposition program. I was wondering if there is any potential interest in acquiring some of the assets that you hold jointly with them.

Do you care to mention the name? I'm not clear on who you mean, Lorne. Oh, sorry, Alan. I know, I was kidding with you. Look, I don't know exactly what their disposition plan entails. They've announced the sale of certain multi-res assets, but the assets we own with them are certainly core to their portfolio. And what's core to them might not necessarily be core to us in the sense that they own a lot of office and our core focus is retail. So it's not something that sort of screams opportunity for us. So, at this point, there haven't been any real significant thoughts given to it.

Okay. And then, just maybe lastly, sticking on the acquisition theme here, obviously, FCR is going away at some point. Do you expect there to be any acquisition opportunities as a result of that deal closing? I guess more likely from the Kingshead side than the Choice side?

Yeah, we've seen a fair bit of opportunity hit the market. There is definitely, you know, Kingset as a private equity organization, I can't speak for them, but typically their MO would be to dispose of the assets over time that they've acquired. So that does present an opportunity. But truthfully, Lauren, we are seeing outside of that sizable one, certain assets hit the market. I mean, in the last year alone, you've seen that sizable asset in the northwestern part of Toronto, Heartland, and you've also seen shops at Don Mills and some others. So you are starting to see people try to take advantage of what is a very strong private market valuation environment. For us, as we've always said, we've got a suite of possibilities when it comes to capital allocation. Right now, there is a very good output for us from investing in our own portfolio and building out strips and pads. But if acquisitions fulfill our objectives of growth, then we will look to those as well. And the good news is that they are available to us should we decide to allocate capital that way. So I think there are some good opportunities. And we've got an excellent investments team led by Andrew Duncan. And they've got their nose to the ground always. So if those opportunities arise, whether they're on market or off market, we will certainly have a look at them. And as we demonstrated, Lauren, just before I finish, on the East Hills transaction, we've also got certain partners that do own retail that might be looking to shift their focus. And where those opportunities arise, we are in a very good position to take advantage of that and avail ourselves of those types of transactions. So we'll definitely be active when it comes to if those opportunities like East Hills arise again.

Okay, perfect. Thank you so much for all the coming. Thanks, Lauren.

Your next question comes from the line of Matt Kornak from National Bank of Canada Capital Markets. Your line is open. Please go ahead.

Good morning, guys. Just wanted to quickly go back to the 162 guidance on core FFO and being at the high end of the range. That would kind of imply 43 cents of core FFO in Q4, and I understand your comments around lease termination income, but there would also kind of be another two cents of pickup from what you did this quarter. Is there anything, I mean, can you give us some direction as to where maybe that pickup would come from? Is it NOI? Is it other fees or something else?

Yeah. Hi. Good morning. Good morning, Matt. I think it is just coming from the base business as the main driver. So as I did mention, there is an amortization of the lease buyout that we mentioned. So half this quarter, half next quarter. So that will repeat itself in the quarter. But otherwise, it's really just coming out of our portfolio.

Thanks, Dennis, and welcome back. Good to hear your voice. And then maybe next one, Lauren, I think, was trying to ask about the well, understanding that may or may not be court allied. We'll see what ultimately happens there. But is that an asset that you'd want more exposure to or that you think there would be institutional interest in should allied ultimately part ways with it?

So again, I'm not going to attempt to speak for Allied, but our view on the well is that it's a very good asset. It's performing exceptionally well, and there has been good activity and momentum on the office side, and then the retail side equal momentum. So we do like the asset. We think it's part of our portfolio that is performing very well. And I think that would be of interest. Again, I can't speak for institutional owners, but I do know that that type of asset would logically fit within the profile of what institutional investors are looking to own, given its core nature, given it's fairly young, so it's got no CapEx requirements for a very long time, and given the types of tenancies that we put in place, that we and Allied have put in place. So I think it is very marketable. But again, the intentions of Allet, I cannot speak to. And for Rio Can, it's a very good asset for us. We're benefiting from its growth and its consistent income.

Okay, fair enough. And then maybe lastly, just in terms of tenant demand, are you seeing, I mean, it's been a core kind of group of tenants that have been targeting your space, but are you seeing kind of new entrance to the market? It's also building on kind of the strength of what you're seeing in the incumbents.

I really do think it's a story of the incumbents, Matt. There are always some new entrants into the market. I mean, here at Young-Eglinton Centre, we're doing a Kiyoki lease, which is something that we've never worked on before, and I know they're expanding in Canada now. But I would say that's not the rule. The rule is that we're really seeing excellent growth from the existing retailers that are either global in nature, like Walmart and Costco and Sephora, or those that are local to Canada. I mean, like Loblaws has done a phenomenal job of growing out their various banners, Canadian Tire with their Sport Check and Mark's Work Warehouse banners, the gyms that we have here in Canada, Dollarama, TGX. They're all doing remarkably well, and they're expressing this performance by trying to grow their footprint, which is, in this kind of environment, very difficult to do. So it sets us up well. But there's no fireworks here in this answer for you, Matt. It really is a lot of the same players. I can look to Oliver Harrison just to see if I've missed anything.

The only thing to add would be that based on the strength of the Canadian retailers, they are looking to introduce new brands into the market. So as an example, TJX for quite some time has been talking about bringing their Sierra brand to Canada. We met with Good Life at the ICSC last week. They're looking at coming out with some new Good Life brands to fill in in markets where they want to grow. So, you know, retailers are definitely looking to continue to increase their footprint, not only through the expansion of their existing banners, but also new banners that they're going to introduce to the market, hopefully sooner than later.

And I guess, is it also a combo of expanding the footprint that they may already have on a site that you have, in addition to maybe trying to target new sites within or add to new sites within your portfolio? By any means possible.

Okay. Fair enough. Thanks, Ed.

Thanks, Matt.

Your next question comes from the line of Tom Callahan from BMO Capital Markets. Your line is open. Please go ahead.

Thanks. Morning, everyone. Recognize official guidance will come early next year here, but Obviously, leasing spreads and organic growth continue to run quite strongly against the assumptions you guys have laid out at the Investor Day last year. I guess, Jonathan, just given the fundamental backdrop you framed, the mark-to-market opportunity on in-place rents, is there any reason to think that this won't again be the case into 2027 in terms of the outperformance on the leasing side?

So, Tom, I don't see a catalyst that would derail the current strength of retail in Canada. I mean, I'll go back to the fundamentals. There is no new supply. There is a significant desire or demand for space, not just in Canada. I want to break this down to where Rio Can owns assets. Our demographic profile is now second to none within Canada, and this is exactly where tenants want to be if they're opening up new stores. And said differently, they would be loathe to give up those locations at any point in their trajectory. So with that fundamental set of circumstances ahead of us, we don't see a catalyst to derail the current state of the market, particularly for Rio Can and its portfolio. So the short answer then would be there's like, no, we don't see any real change in circumstances. Perfect.

Thanks for that. And I guess the last one here, but just a quick follow-up in terms of the acquisition commentary and the opportunities you mentioned, Jonathan, just given the rise in volatility and yields, have you started to see any movement on pricing or not really just kind of give an investor appetite for this type of product?

Yeah, it's an interesting question, Tom, because I know in the US, there's been a lot of movement on cap rates to really keep in stride with the interest rate move. In Canada, we haven't yet seen it. Maybe the market isn't as fluid and there aren't as many data points, though. And so, you know, there's usually an inevitability of that conclusion. Interest rates go up, cap rates get impacted, but we certainly haven't seen it. And that might just be because there is such a significant demand for institutional and non-institutional ownership for retail assets that they're looking at the long-term view on the outputs of those properties. And so far, we haven't seen a real impact. I don't know, Andrew, if you have a different view?

No, John, that's right. I think the answer is, to put it shortly, is not yet. We haven't seen cap rates going up, but I anticipate we'll start to see it shortly.

Awesome. Thanks, guys. I'll pass it back. Appreciate it.

Your next question comes from the line of Mario Sarek from Scotiabank. Your line is open. Please go ahead.

Thank you and good morning. Maybe following up on, Andrew, your last comment on cap rates, not yet. Going up, that infers that you do think that they may start to go up. What do you think the catalyst is for private market cap rates to start moving higher?

Mario, it's a simple answer. It's interest rates, right? It's cost of debt. So that's what I see. And again, the Canadian market is not as prolific as the American market. So buyers can afford not to sell stuff they don't want to. But once they do put it on the market, all the math is being done is a spread to the debt and a longer term return.

Got it. Okay. And so from a Rio Can standpoint, I guess patients, you talked about patients on the acquisition slide a couple times during the call. Is that the right way to think about it in terms of target assets, expecting cap rates to come up? Or how does the kind of opportunity set for acquisitions shift with the expectation of higher cap rates going forward?

So there's a couple of things I'll add to that answer or put into that answer, Mario. First of all, I mean, I think patience or discipline are the appropriate words. We don't have a gun to our head to invest in assets because we do have a suite of opportunities to allocate capital towards, such as our portfolio build-out program, even buying back shares. That's not something we're going to do at this point, but it's something we've participated in in the past, paying down debt. So there are other ways for us to deploy capital that will be strong uses for us. That being said, we have an excellent platform. We've got a platform that can see and then I think unfold opportunities that perhaps others can't when we're faced with certain assets that might be viewed as challenging. And we feel that if those opportunities are in front of us, we will seek to take advantage of them. There aren't a lot of those opportunities in Canada, but we've certainly seen them before and we'll see them again. And those are the types of assets that we can certainly see ourselves acquiring in the future. And then things like East Hills, where we've got partners that just have a shifting view of what they want to own. If we could take advantage of those types of outcomes, we will in the future.

Just on the pad build-out, the returns on that are extremely good. How easy or difficult, I guess, is it to really kind of accelerate that pipeline in terms of capital deployment?

And nothing is easy. I mean, it's when you're we make it sound easy, and we have a team that makes it seem easy. But there's a lot of obstacles that are in front of you when you want to build out pads and strips. One, you need the tenant interest, which thankfully, with our portfolio, it's locational attributes and the market we're in, that's not the hardest thing to garner. But then you also need to get things rezoned. You need to typically deal with other tenancies on the property that might have some rights. And these are things that we're quite good at. We've got a platform that has had years and years of experience of doing those things. So for us, they're obstacles, but they're not insurmountable obstacles. But yeah, everything comes with its challenges. We're just very good at surmounting those challenges.

Okay. Just maybe two more quick ones on my end. Coming back to the well, from a ReelCamp perspective, do you view the well as being two separate asset classes, e-office, and the retail, or do you view the site as homogenous office retail sites?

Yeah, it's a great question. I mean, truthfully, it could be either or. I mean, they do fit well together, the usage. It's always been viewed as a mixed use property where you've got great retail, which feeds great residential, which feeds great office. But that being said, they can absolutely be viewed as different components where if you wanted to, you could, as we've demonstrated with the residential, you can have the residential ownership be entirely different than the retail ownership and then the office ownership. So they have been set up such that they can all be viewed as separate components, but they all do operate in a nice ecosystem. Good word, Dennis. I was going to say synchronicity.

Yeah, that's also a good word. Well done.

Okay. My last one, just more of a higher level question. Ryokai has gone through successfully a transition in the past couple of years with respect to selling the majority of the residential. The conduit inventory is a blip in terms of the NAV today. Occupancy is at a record high. Blended lease spreads are at a record high. When you look out over the next 12 months or 24 months. What's the one or two things that really excite you from this point forward, given what you've accomplished in the last two years with the portfolio?

Yeah, so it's, I mean, really, Mario, it's operating what we've created. So I think we have now taken care of a lot of the things that are, I would call, distractions to the capital markets. And so now we've got a path forward where we can take this very shiny, clean object and operate We've got an excellent team, as I've said, and our portfolio has never looked better. So my excitement is around seeing what that portfolio can produce when there are no other distractions or focus points, and how the capital markets react to this exceptional operational platform and the environment that we see before us in the next year. So it's not, again, it's not an answer full of fireworks. It's basically taking this unbelievable car that we've just tuned up and driving down this highway at a really, really fast clip. Okay.

Your next question comes from the line of Dean Wilkinson from CIBC. Your line is open. Please go ahead.

Thanks. Morning, everybody. Welcome back, Dennis. John, my apologies for my long Vito Corleone-like preamble to this question, but it's kind of what I do. The interest rate environment in that discussion kind of fascinates and perplexes me. Let's call it a little over 360-ish is a number that the 10-year has pierced four or five times in the past two years. We're like 17 basis points above that right now. And during that ensuing period, credit spreads have come in. So what's your view that this whole conversation and potentially myopic focus on it is more a headline than an actual headwind? And what are your views about, you've seen a cycle or two on credit in India? I mean, it doesn't seem as bad as perhaps it's being made out to be, but just interested on your thoughts there.

So I'm picturing you stroking a white cat sitting in a study, and it's your daughter's wedding. So I'm thankful for this opportunity to speak to you, Vito. And only those who love The Godfather will know what I'm talking about. Look, I think that interest rates, they're, of course, a part of our business, and we have balance sheets such that interest rate moves do have an impact. But what we've been saying for quite some time now is that our operational excellence and the output of our portfolio has been extraordinary, and it's offset the amount of interest headwinds that we've had to face, by and large. I mean, just this quarter, if you look at the fact that our same property NOI is about 70 basis points above our guidance level, that has almost offset the 50 basis point rise in interest rates. So when you look at the big picture, Dean, you're quite right. It doesn't have nearly the impact on our business that the reaction to them would suggest they should. So I do think it is a headline, but I can't dismiss it to say that it's not something that we're concerned about. It is, but I do think it gets a lot of play in the views of the investor public.

I'm going to double down on this one, Vito. This is Real Assets 101, as you very well know. We came out with guidance in our investor day of 3.5% same property NOI growth, and we assumed a 4.5% all-in interest rate. As of today, I mean, this thing can move around a bit, but including the compression and spreads, we would be high fours on interest rate. And we're into the, you know, as we've disclosed, four to four and a half percent range on same property in Hawaii. This is the natural hedge that exists in our business. We have a pricing power through the supply-demand dynamics that Jonathan mentioned, where we can capture inflation and offset the interest rate headwinds. And I mean, these interest rates are simply higher than we assumed at our investor day, but they're not terrible, to your point. They're not a killer. We'd rather they didn't go up, but they're not a killer because we are outperforming on the other side. And we have a long history. We've gone back and looked over many years, 15 years plus of capturing inflation in our rents. And we expect to be able to continue to do that.

Yeah, I looked at all of the unsecured real estate debentures issued in the past four or five weeks, and it's well over $2 billion. The term might be a little shorter, four-ish years, but the interest rate's in the mid-fours. So if you did go a little shorter, not suggesting you do that, I think you would land on the figures that you did present. But I guess like everything, it'll get sorted out when people realize that.

Thanks for the discussion, guys. Thank you very much, Dean, or Don.

I am showing no further questions at this time. I would now like to turn the conference back to President and CEO, Jonathan Gitlin.

Thank you very much. Just reiterating, our strategy is sound, the opportunity is strong, and we are executing. We're very confident in our business and continuing Thank you, everyone, for listening in, and we will look forward to speaking to you all again next quarter, if not before.

This concludes today's call. Thank you for attending. You may now disconnect.