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Operator: Good day, ladies and gentlemen, and welcome to the RioCan Real Estate Investment Trust Fourth Quarter 2025 Conference Call and Webcast. As a reminder, this conference call is being recorded. I would like to turn the conference over to Ms. Jennifer Suess, Senior Vice President, General Counsel, ESG and Corporate Secretary. Ms. Suess, you may begin.
Jennifer Suess: Thank you, and good morning, everyone. I am Jennifer Suess, Senior Vice President, General Counsel, ESG and Corporate Secretary of RioCan. Before we begin, I am required to read the following cautionary statement. In talking about our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements concerning RioCan's objectives, its strategies to achieve those objectives as well as statements with respect to management's beliefs, plans, estimates and intentions and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from the conclusions in these forward-looking statements. In discussing our financial and operating performance, and in responding to your questions, we will also be referencing certain financial measures that are not generally accepted accounting principle measures GAAP, under IFRS. These measures do not have any standardized definition prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net earnings or comparable metrics determined in accordance with IFRS as indicators of RioCan's performance, liquidity, cash flows and profitability. RioCan's management uses these measures to aid in assessing the trust's underlying core performance and provides these additional measures so that investors may do the same. Additional information on the material risks that could impact our actual results and the estimates and assumptions we applied in making these forward-looking statements, together with details on our use of non-GAAP financial measures can be found in the financial statements filed yesterday and management's discussion and analysis related thereto, as applicable, together with RioCan's most recent annual information form that are all available on our website and at www.sedarplus.com. I will now turn the call over to RioCan's President and CEO, Jonathan Gitlin.
Jonathan Gitlin: Thank you, Jennifer, and good morning to everyone joining us today. We're pleased to report RioCan's fourth quarter and full year results. At our 2025 Investor Day, we were clear about our priorities, driving growth through our productive retail core and supporting that growth through disciplined strategic capital allocation. We're delivering on those commitments. In the fourth quarter, the strength of RioCan's portfolio and the effectiveness of our retail-focused strategy were once again demonstrated by 4.5% same-property NOI growth. This was propelled by the continued outperformance of our core retail assets. We delivered on our capital allocation priorities, repatriating $742 million of capital to strengthen the balance sheet and support NCIB activity. Net debt to EBITDA was reduced to 8.6x, and we repurchased $179 million of units through 2025 and year-to-date 2026. Our NCIB activity reflects our conviction that the current unit price does not capture the value and earnings power of our business. We're investing in a portfolio with tremendous growth prospects. Our performance is underpinned by a proven future-focused platform. We continue to strengthen our operational and technological capabilities while maintaining top-tier employee engagement results even as we further reduced G&A. RioCan's disciplined execution is complemented by strong ESG performance, including our #1 ranking among North American retail peers in the 2025 GRESB real estate assessment. Taken together, our results reflect the power of our productive retail core, the quality of our assets and a platform that delivers consistent performance. In a market characterized by a shortage of well-located retail space, RioCan continues to deliver consistent and durable growth. RioCan's operating momentum remained strong through the fourth quarter. Retail committed occupancy ended the year at 98.5%. Leasing performance continued to be exceptional with record full year blended leasing spreads of 21.1%. Our 2025 retention ratio of 93.1% underscores the value tenants place on RioCan's locations and its operating capabilities. It also enables us to enhance income quality, improve portfolio resilience while minimizing capital outlay. Commercial same-property NOI growth accelerated to 4.5% in the fourth quarter and totaled 3.6% for the full year, highlighting the consistency and resilience of our cash flows. These results are not coincidental. They are the direct outcome of a portfolio concentrated in Canada's largest and most desirable markets anchored by necessity-based retailers and supported by structurally constrained new supply. We're seeing the benefits of what we believe is a leasing super cycle for our portfolio. This is a time when many long-term leases that were signed in the early 2000s are expiring. Shorter-term leases negotiated during the pandemic are also maturing. This gives us flexibility and discretion to shape our tenant base. We are retaining and resetting rents for high-quality tenants. We're equally deliberate in replacing those tenants that no longer align with our strategic objectives. RioCan is an independent Canadian REIT. Our independence means we are accountable solely to our unitholders with no parent company or sponsoring owner influencing our leasing or operational decisions. This independence, combined with strong retailer demand and the depth and expertise of our leasing team puts us in the advantageous position of being highly selective. We can choose the right tenants on the right terms. Premium retail space in Canada's major markets is scarce. And in my opinion, given the high barriers to entry in the Canadian market, this will be an enduring condition. Retailers are focused on well-located centers with strong demographic attributes and compelling co-tenancies. This precisely describes the centers in RioCan's portfolio. In recent years, we introduced grocery to a significant number of assets. Today, 86% of our sites include a grocery component. This anchors daily traffic and supports consistent performance through all market cycles. Beyond grocery, we're deliberately curating the ideal tenant mix for the communities that we serve. We know these communities well, and we understand the daily needs of their residents. As a result, the vast majority of our portfolio is aligned with necessity-based daily uses, including retailers such as Loblaws, Metro, Sobeys, Shoppers Drug Mart and Dollarama. These are the retailers that fulfill essential everyday shopping needs and drive reliable repeat visits. These attributes create daily use destinations that generate consistent traffic, strong sales productivity and resilient income through all market cycles. Our tenants are not simply maintaining their footprints, they're actively investing and expanding. This sustained demand continues to validate the long-term strength of our retail platform. Our leasing strategy continues to unlock meaningful mark-to-market opportunity throughout our portfolio. In 2025, we completed leases for 5 million square feet. The average net rent for new leases was about $29.65 per square foot, which is approximately 28% higher than our overall average rent. This highlights the mark-to-market growth potential embedded in RioCan's portfolio. This result isn't a one-off. Rents on new leases since 2022 were on average about 27% above those of existing leases. We expect this trend to continue for at least the next 3 years. During this period, we have 10.1 million square feet of leases maturing, hence, my reference to a leasing super cycle. Combined with contractual rent steps and disciplined capital deployment, there is a clear and sustainable runway for continued core FFO growth. As we move into 2026, our business is simpler, focused and exceptionally well positioned to capitalize on favorable retail fundamentals and the significant embedded mark-to-market opportunity within our portfolio. Our leasing momentum, together with long-term contractual rent steps and disciplined capital deployment into the high-return retail opportunities flows directly into the durability and predictability captured in our core FFO. Core FFO provides a clear measure of the durable earnings power of our retail platform. It represents an important evolution in how we reflect the performance of our business. Core FFO captures the recurring earnings generated through leasing execution and disciplined capital deployment while removing items that are not representative of the underlying operating strength of the portfolio. Because it is driven primarily by occupied space, contractual rents and the intentional allocation of capital to high-return uses, core FFO provides a clear line of sight into the stability and predictability of our income. As we look ahead to 2026, we're guiding to same-property NOI growth of 3.5% to 4% and core FFO of $1.60 to $1.62 per unit. This core FFO guidance is in line with the 3-year outlook we provided at Investor Day. In many ways, core FFO best captures what differentiates RioCan today, a high-quality, necessity-based retail portfolio operating in supply-constrained markets where leasing momentum and disciplined capital allocation work together to provide consistent, repeatable results and high risk-adjusted returns. Our outlook reflects confidence in our ability to deliver resilient income, sustainable distributions and long-term value creation. This quarter's performance is not an outlier. It is another clear validation of the strength of our portfolio and our strategy. In closing, RioCan enters 2026 with considerable momentum, an exceptional portfolio and a disciplined strategy that consistently generates results. We're in the midst of a multiyear value creation phase underpinned by visible and sustained growth that we believe is not fully reflected in RioCan's current unit price valuation. Our team remains highly focused. Our capital is positioned to drive ongoing growth and our portfolio is well aligned with the evolving needs of retailers and communities. Thank you for your continued trust and support, and I will hand the call over to Dennis Blasutti, and then look forward to your questions.
Dennis Blasutti: Thank you, Jonathan, and good morning to everyone on the call. I'll start with some additional detail on our 2025 results, and then I'll walk through our 2026 outlook. Starting with FFO. We delivered $1.87 per unit in 2025, near the high end of our guidance range. This performance was underpinned by same-property NOI growth of 3.6%, slightly ahead of guidance, reflecting continued strength in our retail-focused strategy. Record operating KPIs such as 21.1% blended leasing spreads were key drivers. This strong organic growth excludes onetime items such as lease termination fees and highlights the strength of our team and portfolio. Core FFO for the year was $1.55 per unit, in line with our Investor Day projections. We view core FFO as a durable earnings base that we will grow from compounding value as our income grows. We have reached the natural conclusion of our development cycle with several key projects now complete, the capital intensity of our business is moderating. Total development spend in 2025 came in at $254 million, and we expect this to significantly decline next year, which I will touch on later. During the year, we delivered 366,000 square feet of completed developments from PUD to IPP. This included 102,000 square feet of retail. These deliveries included finalization of The Well, parks and crossings new Winners and HomeSense [indiscernible] Dollarama and Service Canada as well as residential projects such as Fort Street Lofts and Queen & Ashbridge. We also made strong progress on capital recycling. We sold $406.6 million of RioCan Living assets and closed $221.7 million of condos for a total of $628.3 million. Subsequent to year-end, we also went firm on the disposition of our Underwood residential building in Calgary for $46.5 million. Taken together, we are halfway towards our $1.3 billion to $1.4 billion target with a number of other assets in negotiations. Through successful condo closings, we have reduced our residual condo balance to $130 million, which is immaterial in the context of RioCan's balance sheet. In addition, we sold $113.4 million of noncore and lower growth commercial assets, bringing the total capital repatriation to $788.2 million. Through this disciplined capital recycling program, we continue to improve our portfolio quality while funding growth and improving our balance sheet. We allocated much of this capital to debt reduction and unit repurchases. As a result, net debt to EBITDA improved to 8.6x, a half turn improvement from the 9.1x at the end of last year and well within our target range. Our balance sheet is in a strong position, supported by a suite of improved credit metrics. We ended the year with $1.5 billion of liquidity. Our ratio of unsecured debt to total debt improved to 63% from 56% last year, which, as a result, increased our unencumbered asset pool by $1 billion to $9.2 billion. We continue to view unit repurchases as an attractive use of capital, particularly when our units traded at a significant discount to our historical norms. At current prices, our units imply a forward multiple of approximately 12x using 2026 core FFO, representing a 20% discount to our long-term historical average of 15x. Our IFRS NAV, which is valued bottom up, also implies a multiple of 15x, consistent with our long-term average. Given the improvements we've made to our business and our positive outlook, we believe this dislocation in our valuation presents a highly attractive entry point for investors. Since the beginning of 2025, we have allocated $179 million to unit repurchases. And since 2022, we have repurchased 19 million units or 6% of the company, reinforcing our focus on long-term value creation for unitholders. Subsequent to year-end, we closed on the previously announced acquisitions from the HPC JV. All backfill tenants at Georgian Mall and Oakville Place are now signed. Total capital for these build-outs is less than previous projections at approximately $20 million or $100 per square foot with a stabilized NOI yield of 20% on cost with annual growth in the leases thereafter. Turning now to our forward-looking targets. Our 2026 guidance is in line with the framework that we outlined at our Investor Day, striking the appropriate balance of opportunity and risk. We expect core FFO per unit of $1.60 to $1.62, representing a growth rate consistent with our Investor Day projections. This is supported by same-property NOI growth of 3.5% to 4%. We have strong visibility into this target given that approximately 75% is contractually secured through rent steps and ramp-up of previously signed leases. With the strong operating backdrop, we expect to steadily grow this high-quality earnings stream. We also continue to see opportunities to invest within our existing portfolio. In 2026, we expect to invest $95 million to $150 million into retail-focused projects, including Yonge Eglinton Center Improvement Plan, the new Costco at Burloak, Georgian Mall and Oakville Place backfills, including the addition of grocery to both those centers, Westgate Shopping Center de-malling in addition of a grocery store and additional infill pad density at Windfield Farms. Consistent with our Investor Day framework, we apply a 9% unlevered IRR hurdle rate for these types of projects. For the projects included in our 2026 plan, we expect to outperform this target with a going-in yield averaging 8% to 9% plus future growth averaging approximately 3%. We expect mixed-use development expenditures of $45 million to $55 million in 2026, a significant decline from prior years. 2026 spending represents a small amount of cost to complete and pipeline advancement costs. Maintenance CapEx is expected to return to normalized levels of approximately $55 million, a decrease of $16 million from 2025. Note that we report our AFFO using a normalized CapEx, so this decrease in spend will not impact our reported AFFO growth rate, which will approximate our FFO growth rate. However, for any of you who use actual CapEx when calculating AFFO results, this lower spend will lead to a higher year-on-year growth rate in this metric. We are reaffirming our target range for net debt to EBITDA of 8 to 9x, a range that when taken together with our suite of balance sheet metrics, results in low financial risk. We continue to manage financial risk by growing our unencumbered asset pool with a percentage of unsecured debt to total debt expected to be in the high 60s by the end of 2026 as we progress toward our 70% target. We also remain focused on maintaining a well-balanced debt ladder and ensuring that we have strong liquidity. Lastly, we continue to advance our RioCan Living disposition program. While execution and timing remain market dependent, the quality of this portfolio gives us confidence to achieve our $1.3 billion to $1.4 billion target. In closing, we have a highly productive retail portfolio that is positioned to deliver resilient durable cash flows. We have the capital to grow and a strong balance sheet that derisks our growth trajectory. As we execute our plan over time, we believe the value of our business will be appropriately reflected in our unit price. With that, I'll turn the call back over to the operator for questions.
Operator: [Operator Instructions] Our first question comes from the line of Sam Damiani with TD Securities.
Sam Damiani: I just want to say it's great to see the results coming in with expectations and the predictability of the new core FFO metric. So it just makes following the company much easier. I guess, first off, just on the guidance for core FFO, it's a very tight range of $1.60 to $1.62. I'm just wondering if there's any reason why you didn't start with a wider range.
Jonathan Gitlin: Thanks for your earlier comment. The reason is because core FFO is quite predictable. It's quite hard to come by additional core FFO, and it's quite hard, we hope to lose core FFO given that it's rooted in a lot of very predictable operational outcomes. And so we felt that it was prudent and also more accurate in giving that tighter guidance range. We felt this would help shape a lot of analyst views as well as investor views, and we have quite a bit of confidence in that tighter range. So that's the backdrop.
Sam Damiani: I appreciate that. And just, I guess, going back to Q4, the core FFO print came in sort of right at sort of the outlook, the guidance, but I think the guidance was technically for -- at a minimum of $1.55 for 2025. Is there any reason why the results didn't exceed the minimum of that guidance for 2025?
Jonathan Gitlin: I think that ultimately, the guidance was in line with what we suggested at Investor Day. It might have been on the lower end of the guidance, but I think it was just a matter of timing on certain income that we had coming in. I don't think there's any technical reasons, Sam, that I can give you at this point. Dennis, I don't know if there's anything you can offer?
Dennis Blasutti: No, I wouldn't expand much on that. I think there's just maybe a bit of timing items on whether it's costs or other things as well. So it's just a few little small things like that. Just -- it was never expected to be that much different than $155 million anyway. So we're just, I think, pleased that it came in as expected.
Sam Damiani: Yes, for sure. And it was a small amount regardless. Last one for me, just on -- and you did address this, Dennis, in your comments, but any more specific commentary you can offer in terms of the quantity and cadence of RioCan Living dispositions in 2026 beyond the under wood, of course?
Jonathan Gitlin: We're feeling good about it, Sam. There's a high quality of assets and therefore, a high degree of interest in those assets. The market will do what the market will do, but we've had a lot of preliminary -- actually, I'd say, advanced discussions on a number of the existing RioCan Living assets. And so we feel quite confident that there's going to be a nice consistent cadence throughout the course of the year. And as Dennis suggested in his remarks earlier, we feel confident that the ultimate target of approximately $1.3 billion is very much achievable whether that falls on either side of '26 or early '27, again, like I said, some of it is market dependent. But as a whole, we feel quite confident that we'll achieve that number.
Operator: Our next question comes from the line of Lorne Kalmar with Desjardins.
Lorne Kalmar: Maybe just sticking with the disposition side, but switching over to the commercial side because you guys have done some good work there. Wondering if you can give us an idea of the quantum of noncore commercial dispositions you expect to do in 2026.
Jonathan Gitlin: We haven't put out guidance in that regard. We are obviously always in -- we're getting a lot of inbounds, Lorne, for what has become a highly sought after product type in necessity-based open-air shopping centers. And really, we've also pruned our portfolio such that we don't have a lot of noncore retail assets. That being said, if there are certain low-growth assets, then we would consider entering into either joint ventures or selling them on a wholesale basis. And -- but we did not provide any specific guidance along the lines of how much we would dispose of any commercial assets.
Lorne Kalmar: Okay. Fair enough. And then I guess with all this repatriation of capital, there are a few levers to pull here. Obviously, debt is a priority. But beyond that, you've been active on the NCIB. Just wondering how you make the capital allocation decision, whether to go on the NCIB or acquisitions or prioritize debt.
Jonathan Gitlin: Well, the first priority is keeping the balance sheet in good shape, Lorne, as we suggested at our Investor Day in November, it's critical for us to have between 8 and 9x net debt-to-EBITDA, along with a whole suite of other debt metrics, including liquidity, including debt service coverage ratios, including unencumbered asset pool. And all of those things we feel are in good shape. And because of that, it permitted us to take some of our additional capital and put it towards NCIB which at this point is such a logical use of capital. It's really a way of giving back to our shareholders. And I really do feel that we are -- and obviously, it's a biased view, but I do believe that RioCan's units are undervalued relative to the future performance perspective we have. And therefore, we thought that buying back units in that type of pricing range was a very prudent use of capital and in line with what we had suggested at our Investor Day. So that was really the decision-making process. There are other uses of capital that Dennis had alluded to in his remarks, such as putting money towards our property, building out pads and strips and also just reshuffling tenancies in certain properties like at Burloak where we've -- we're in the process of erecting a Costco. And I think those will also be part of the decision-making process. But in this type of market, it is definitely -- NCIB stands out as a very clear-cut accretive use of capital.
Dennis Blasutti: So the only thing I'd add there is that I think one thing to kind of think about in this environment is rates have come down with spreads tightening and the underlying is moving to a level where paying down debt is simply not accretive to FFO per unit or value. And so it's something to just sort of think about when we have so many other stronger opportunities from an accretion perspective, that we've kept our range intentionally a little wide to -- on net debt to EBITDA to allow for us to take advantage of opportunities to reinvest in our own portfolio, et cetera. And then really thinking about the balance sheet from a financial risk perspective, anywhere inside that range in conjunction with our ladder and all the other suite of metrics that Jonathan mentioned is a low-risk balance sheet in our view. So we do -- we've intentionally left ourselves flexibility to take advantage of accretive opportunities. Things like acquiring Georgian and Oakville, those are accretive opportunities. We're going to add a ton of value through the re-leasing effort. But at day 1, it is a negative impact on net debt to EBITDA because you have to wait for the EBITDA to ramp up. But 4 quarters later, it's a positive impact, right? So there's -- you can get a timing lag in the metrics. But ultimately, we think buying those assets was -- is going to be a very good -- it's going to bear out to be a very good decision.
Lorne Kalmar: Okay. And then maybe just sticking with that one last one. Is there a reality where you guys go below the 8x net debt to EBITDA? Or you don't see much point in that?
Jonathan Gitlin: Anything is possible. It really depends on what the other opportunities are. But when we have such accretive and logical uses of capital outside of just paying down debt, we are going to take advantage of those. And we see that we have a runway with respect to our stock price being where it is and the availability of capital because of the repatriation of RioCan Living assets. So I think for the foreseeable future, that's where we'll focus our efforts along with some of the other property level improvements and build-outs that I was talking about before. But again, we're committed to that range of 8 to 9x going below that. it's not something in the short to medium term that we see happening.
Operator: Our next question comes from the line of Mike Markidis with BMO.
Michael Markidis: Just a quick question on the reinvestment CapEx of $95 million to $115 million of the existing portfolio. Is that sort of what we should be thinking about what you're capable of delivering? Or is there a potential for that to ramp higher in '27 and '28?
Jonathan Gitlin: So I think it is a fairly good estimate for going forward. It will depend, Mike, on what the opportunity set is in '27 and '28. But right now, I think that as a run rate is a reasonable assessment.
Michael Markidis: Okay. Great. And then, Jonathan, you had mentioned some -- or you alluded to strong demand for the types of asset RioCan owns. What's the acquisition market like out there? I mean, obviously, the pricing is tight. Is there a lot of product available for sale? And if so, would RioCan potentially look at doing -- I mean, I think you mentioned JVs on some noncore assets, but what about on core assets in terms of trying to extend your platform?
Jonathan Gitlin: Sorry, to buy or to sell, Mike?
Michael Markidis: Well, it could go both ways. You could see the JV and then continue to expand.
Jonathan Gitlin: So yes, the market is tight at this point. There's a lot of very strong retail that's held by a lot of very well-heeled entities, whether they're REITs or pension funds. And there's just no push or need to sell them. So you're not seeing a lot of high-quality assets that would fit RioCan's existing high-quality retail profile available to acquire. And when they do become available, they're at cap rates that are extremely tight and they're generally getting those. So that allows me to flip to the other perspective, which is the ability to sell certain interest in assets. And that's something we definitely are exploring where we take, let's say, lower growth assets that are of high quality, bringing in a partner, and we use our platform to create value through a fee stream, but also repatriate capital that we could put to work in a very accretive manner. I think that's something we would avail ourselves of, and we alluded to it in our MD&A that there are certain discussions taking place at this point in time in that regard. And I think that's a model that is definitely -- again, it really -- it shows the strength of RioCan's platform, and I think a lot of partners would covet that type of management oversight. And then once you have that type of partnership, I'm going to use an old term here, but it gives you a bit of a hunting partner, especially if you have a well-heeled institutional partner who has equal sensibility around what is good to own. So I do think if we are -- if we have capital available to us and we have the opportunity to utilize someone else's balance sheet, but we get a fee stream, it certainly makes acquisition a little more palatable. But in today's existing market for us just to go out and buy 100% of a high-quality retail asset, I think it would be very hard pressed to go over our 9% unlevered hurdle because you're just -- if you're finding an asset that has 3% growth, it's not going to be at a 6% cap, it's going to be something lower. So that's the quandary that we'd be in from just a straight-out acquisition perspective. And quite frankly, Mike, just going back to the point I made earlier, I've got an awesome portfolio right in front of me that I know, that I love. And if I could buy a piece of that at what is a much higher yield than what the open market or the private market would permit, I would do that all day long, hence, the $175 million of NCIB that we participated in since early 2025.
Michael Markidis: Okay. Got it. And then last one before I turn it back. I know you said exploring in discussions, that's probably -- you may want to punt this question, but what would be the sort of potential range or quantum of assets that you would be looking to potentially sell to a JV partner?
Jonathan Gitlin: I mean -- again, it's -- it really -- we don't have it in our business plan at this point. So there's no specific number. We would just balance as we always do, the considerations around what could we do with the capital and what the type of accretion would be from a fee stream perspective. And so there's no set quantum, Mike, but we would balance it with all the other considerations. I know it's a bit of a vague answer.
Operator: Our next question comes from the line of Mario Saric with Scotiabank.
Mario Saric: Just sticking to the potential kind of dispositions that are not in the plan. Jonathan, you mentioned or referenced kind of low growth assets as being a possibility relative to your kind of 3-year, 3.5% kind of same Park NOI target, what would you kind of consider as being low growth? And what percentage of the portfolio could that comprise?
Jonathan Gitlin: Yes. So we put out guidance, as you know, Mario, of between 3.5% to 4%. We said at our Investor Day that we -- for us, we expect to get at least 3.5% same-property NOI. And that came through -- those guidance numbers came through a very in-depth review of the entire portfolio, every single property, every single tenancy from bottom up. And it gives us in doing that exercise and in very intense asset management, gives us a good perspective of what assets are going to contribute over the next 3 years and what assets are going to take away from that objective. And thankfully, the vast majority of our portfolio will contribute. There are some, however, that have larger anchor tenants that have, let's say, flat projections going forward. I'll give you, for instance, Walmart, we know that a lot of their historic leases have limited growth, if any. And -- but they're high quality. They're excellent and predictable creators of an income stream, which a lot of institutional investors, I think, would covet in this type of environment. So for us, those don't necessarily contribute to the quantitative output of 3.5%. But from a qualitative perspective, they're good, they're predictable and they're very strong assets with limited risk. So for us, if we could keep a 50% interest, sell a 50% interest and get a fee stream, all of a sudden, it takes a lower growth asset and it makes it a little more aggressively growth oriented because of the fee stream that is attached to it. So for us, that's -- there's a few of those assets in our portfolio, not, as I said, an overwhelming amount because of all the work we've done over the last few years to really curtail the portfolio through dispositions and the addition of excellent properties through developments or acquisitions.
Mario Saric: Okay. And it may or may not be related, but you -- I was hoping you could expand on the commentary pertaining to RioCan's tenant independence. I think you also highlighted that in the letter to unitholders this quarter, perhaps maybe some examples where you think that benefit has been crystallized. Just curious on some expanded thoughts on...
Jonathan Gitlin: Sure. Look, we have a landscape in Canada where we've got a lot of exceptional REITs, but there are some of them that are affiliated with other entities. And operationally, I would have to think that there are certain constraints and limitations around what the landlord could do based on what the interest of the tenants are. We, of course, have similar considerations. We always take into consideration the needs of our tenants long term, but we are the ultimate decision makers. There is absolutely no influence from any other entity other than our own. And I think that does in a growth environment like we're in today, this super cycle that I think we're in, it allows us to really take the governors off and do what is best for our unitholders without having consideration to any other constituents. So it really -- I think it puts us in a very advantageous position going forward relative to some of those that might have to take a much deeper view and consideration of their anchor tenants wishes and desires. And it just means for things like if you have a vista, you can obstruct it a little bit even if -- I would say that if you have an anchor tenant who is a more influential party, they would tell you not to do that, we can go ahead and do that. So there's just -- there's little things like that. But of course, it also allows us to drive rents as aggressively as possible. And I think if you look at some of the sponsored REITs, there are lower rent lifts than we get. And I think that's now starting to be demonstrative of the fact pattern I just talked about.
Mario Saric: Got it. Okay. My last question, more of a qualitative question. Your comment on expected strong blended lease spreads over the next 3 years. You talked about a bit at the Investor Day. How much of that confidence would you say is RioCan specific versus a call on broader market expectations? And kind of can you delve into a couple of the factors or top factors or trends that you think can sustain these types of blended lease spreads for that long, 3 years is not a short time frame?
Jonathan Gitlin: So Mario, I missed the first part of your question. I think you just said general retail fundamentals? Or was there something more specific?
Mario Saric: Sorry, no, I was just -- I was asking about your comment on the call earlier just talking about the expectation for strong blended lease spreads over...
Jonathan Gitlin: Leasing spreads, sure.
Mario Saric: How much of that is RioCan specific versus the broader market?
Jonathan Gitlin: Sure. So I feel very -- I mean, the team feels very confident in our ability to continue to generate leasing spreads. I think it's a byproduct of the fact that, yes, it is a very strong retail market that will impact every on all retail landlords in a similar manner. We just think it will be more acute with RioCan because we do start from a bit of a -- the mark-to-market opportunities are quite evident with our average rents across the portfolio being about 28% lower than what we're getting now on new rents. And so I think that really helps us. I also think we've got a very significant improvements to our portfolio over the last little while and a high demographic profile that tenants are really, really following and in favor of. And I think that allows us to really push rents and get them closer to where the overall market would permit. And I can't speak for our peers, but I certainly know that it gives us a great deal of confidence in capturing that mark-to-market, and that will drive growth for us going forward. We're -- as I said, we've gone through each one of our assets, each one of our tenancies, tenant by tenant, space by space to get a good sense of what we can extract from them. And that's what is rooted in that guidance or at least that's what the guidance is rooted in, and we feel very confident in our ability to capture that going forward.
Operator: Our next question comes from the line of Dean Wilkinson with CIBC.
Dean Wilkinson: Just want to hook back on the leverage, the share buyback and some of the other stuff around that. Would it be fair to say as you drift more towards 8x on net debt to EBITDA that we could see a ramp-up in that share buyback and the $50 million that we've seen so far this year, kind of perhaps that's what you're looking at on a quarterly basis, absent any other opportunities? And is that factored into that guidance number, Dennis?
Jonathan Gitlin: Dennis, do you want to take that?
Dennis Blasutti: Sure. So I don't think we've really spelled out exactly how we would allocate capital. I think we are sort of leaving ourselves the flexibility to allocate capital as based on the opportunities in front of us. So we haven't put a specific number out on NCIB. We did put a number out in our Investor Day, just looking at our ability to allocate excess capital every year as well as we still would have another nearly $700 million of capital coming back from RioCan Living. So certainly, share buybacks would be a priority, but it will be dependent on where the share price sits at a given point in time when the capital is available to us and of course, trading off against -- we're constantly trading off, as you'd imagine, against other opportunities. So that's how I would explain that. I think the volume of capital turn gives you a sense in terms of the sale -- of the asset sales.
Dean Wilkinson: Right, right. I guess the other one to look at then in just terms of retained capital is the distribution and increases. Now that we're looking at a core FFO or core AFFO number, do you have a target payout ratio in mind there on that metric? And how are you thinking about sort of the dividend or distribution as we go forward?
Jonathan Gitlin: So the target payout ratio, we had projected that at Investor Day. And I think that is a number that we fully anticipate sticking with. We -- our dividend or distribution policy is something that is going to be a year-by-year consideration, and it really depends on what else we could do with those funds. For us, it's all about having a high amount of discipline. And we have such great opportunities for that capital at this point. And we feel that the NCIB is just an alternative way of giving back to our unitholders. So it really is going to be a consideration of what other alternatives we have at that point as to whether or not the distribution gets raised. And at this point, we have a pretty robust distribution relative to our peers and given the strength of our portfolio. So we feel pretty confident about it. But it's going to be something that we will revisit next year for sure, and we will make the appropriate recommendation to our Board based on where things sit at that point in time.
Dennis Blasutti: Yes. So the target we put out is, just as a reminder, is approximately 70% core FFO and approximately 80% core AFFO. So I think that's just -- and we should be able to stick in around that range. And then as our income grows, potentially grow the distribution or as Jonathan said, there's other ways to return capital to shareholders and NCIB right now appears to be the more efficient and value-accretive method of doing that. And our yield, we do, as Jonathan said, believe our yield is quite attractive. And it's actually reasonably tax efficient as well. We're about 60% taxable, which matters to some certain unitholders out there.
Dean Wilkinson: For sure. It's a big consideration. Just then the last one for me, just looking at the RioCan Living and obviously, there's been a lot of talk in the condos, all the rest of that stuff. We don't need to go through that. You've got some operating weakness there, which would be expected given the environment that we're in. Are you looking at kind of building some vacancy in the portfolio to allow for potential purchasers to have a bit more of attractive upside there? Or just how are you thinking of managing that over the next 12 months or so given that it's something that you're looking to offload?
Jonathan Gitlin: Sure. I'll start, and I can hand it over to John Ballantyne, if he has any further color. But we operate these assets as though we'll own them forever. We are not creating vacancy. Whatever vacancy you're seeing is a byproduct of a market that is tougher given the face of a lot of condo deliveries, which serve as a competition for some of the RioCan Living assets at this point. But no, we're not going about creating vacancy to create more upside for potential purchasers. Quite frankly, the market is sort of doing that for us. If you could see our occupancy, it has slipped over the last few quarters. And I think that's plenty. But John, do you have any further...
John Ballantyne: No, I would just add to what you said, Jonathan. We're managing these properties very carefully, both on the efficiency basis on the cost, but as well as working incentives and really keeping a close eye on market rates, particularly in the GTA, where it has been very volatile. So no, we're actually looking to maximize the revenues where we can on these properties and making them sale ready.
Operator: Our next question comes from the line of Fred Blondeau with Green Street.
Frederic Blondeau: On the Yorkdale HBC sublease matter, how do you see insolvency proceedings moving ahead now that the court has disallowed the receivers or proposed tenant Fairweather to take up the vacated space?
Jonathan Gitlin: I think the court rendered its decisions. Now we're considering next steps, and we'll keep everyone apprised. But I think at this point, that's all I would comment about it. And again, as we've already suggested, Fred. And from a financial perspective, we've already through a combination of offsets and write-downs, we think it has de minimis impact, if any, on RioCan financially going forward.
Dennis Blasutti: And just a really fast summary on that, Fred, sorry, just a quick summary on just the overall JV, not just the Yorkdale asset. Every other asset is either sold or for sale or we foreclosed on it. So out of the 13 assets, this Yorkdale one is the only one that's sort of left to be dealt with. And as Jonathan said, there is no expected financial impact from this JV going forward. So from our perspective, this chapter is behind us, and the assets have been dealt with or there's a couple that are still in the sale process with a broker. That's easy enough to deal with and really that's in the hands of the creditors. So from a RioCan perspective, this is a closed chapter.
Frederic Blondeau: Yes. Absolutely. But I guess my real question would was more like should a tenant not be found in time? Would there be any damages that the REIT could possibly face and it looks like from your previous answer, like it's pretty much dealt with at the moment.
Jonathan Gitlin: That is correct. No damages that are of any materiality.
Frederic Blondeau: Okay. And one last for me, maybe a bit more -- a bit easier. Given that the Canadian tenant pool is not that deep, I was wondering which particular tenant types would allow for the growth in new lease rents over the next, call it, over the next 2, 3 years?
Jonathan Gitlin: So the Canadian tenant pool, I mean, I think it is pretty deep relative to the amount of retail space we have, if you're comparing it to the United States. We have about 60% of the retail space that they have per capita. And I think I've given that, our tenant pool is pretty deep and growing. And so we think that there's a lot of very strong tenants that are expanding in scope, but also very -- I would say, very intelligently. If you look at a lot of the new stores that we're doing, they are grocery stores, but they're the discount banners for a lot of the existing incumbent grocery stores. So for instance, a lot of the new Loblaws deals we're doing, they're not full-line Loblaws. They are either No Frills or they're TNT. For Sobeys, I'd say the same thing with FreshCo. And that's the theme across our portfolio. We're doing a lot of Dollarama deals, a lot of good life fitness deals or their discount banner. And we're seeing a lot of tenants like TJX thrive in this kind of environment because they do offer -- well, they do offer products that are going to be attainable in any type of economic backdrop. And that's really the type of tenant that we seek out to fill our centers. But Oliver Harrison, do you have any further commentary on some of the other retailers that are really providing strength to our growth profile?
Oliver Harrison: No, it's more of a portfolio opportunity, which is just we also have, as Jonathan said earlier, the leasing super cycle, we do have a number of long-term leases that are now sort of coming to maturity. And as a result, we have a substantial opportunity to bring those up to market. A lot of them are grocers. A lot of them are value retailers that have performed extremely well over the period of time where they've been in this fixed rent structure, which creates a great opportunity for us to maximize the leasing opportunity while still ensuring that they are financially stable.
Operator: Our next question comes from the line of Pammi Bir with RBC.
Pammi Bir: I just want to come back to the comments around the lower CapEx at Georgian Mall and Oakville on some of those replacement tenants. What were some of the drivers there that drove some of the costs down?
Jonathan Gitlin: Well, I think we ended up doing a single tenancy at Oakville, which really spares us of any demising costs. And it was really just some good work by our leasing team and ensuring that the commitment for landlords work and TIs was generally reduced. And I think that's a byproduct of the fact that the space was so desirable that we had a bit of leverage in those negotiations. But then also, it was our construction team who's done a good job of ensuring that we're getting the best possible pricing on any of the landlords work we have to do. So it's a combination of factors. But ultimately, we're very pleased with the result because it attaches to a significant lift in both the tenant quality as well as the income coming in from that space now. So it's a really big win for RioCan, and it's just made bigger by the fact that the costs have been reduced. Did I miss anything, Oliver? Or is that...
Pammi Bir: Great. Okay. Sorry. And just maybe -- I just want to come back to The Well actually. In terms of the retail, it has been a few years. Can you maybe just talk about how the performance has sort of gone relative to maybe your underwriting? And I'm just curious if it might be approaching perhaps in terms of the retail at least that target organic growth guidance that you set for the overall portfolio in the 3.5%, 4% range? Or is it still early days there?
Jonathan Gitlin: Sure. So as expected, the first-generation tenants, we knew there would be some volatility in it or at least some opportunity to play around with that mix to ensure that we ultimately get it right. When you're starting de novo and you're creating a unique space like that, you know that you're going to take some shots on tenancies that just don't work out, and we knew that going in. So our plan when going in had a fairly liberal view on what could happen in terms of certain tenants not working out. And I think what we've seen is actually very much in line with that liberal view. And some of the good news is that it's created so much momentum and specifically over the last year, we've seen so much foot traffic increase that the second-generation tenants that we are bringing in or we expect to bring in over the short term are going to be of higher quality, far more durable and also, I think, more in fitting with that community. So we feel very strongly that we're actually at a good point with the Well, where we're getting to a point where it is close to stabilization. And I think that the -- again, the continued traffic, the continued kind of like attention it gets in that downtown West neighborhood will continue to improve the visits there. And the last thing I'd say is that we've done a good job of filling up the office. We had it leased up, but now we've actually got it occupied. And I think that will also help move some of the retail a little bit more aggressively. But again, we've never relied on the office tenancies to make the retail work. But it's not the worst thing that we get people actually in the offices there. Oliver, do you have any further color on that?
Oliver Harrison: Just that we've been doing this for a long time and having kind of experienced opening up new shopping centers. We were very intentional in terms of the structures that we put in place vis-a-vis a lot of these tenancies, whether it was rent structure, whether it was control options in the landlord's favor. So we've created a situation where we now have the ability to capitalize on the traffic that the site is driving, both from an upgrade from a tenancy perspective, but also significant lifts from a rent perspective. And as a result of that, we're very confident that in addition to improving the tenant mix in the retail at the Well over the short to medium term, it's also going to be a great performer from a same property NOI perspective.
John Ballantyne: Yes. And I would just add to that. In addition to the lifts we're seeing on the tenant side, we are seeing significant ups in both activations, digital signage and parking revenues as well. So as the site traffic -- trapped to the site continues to grow, those revenues are growing as well.
Pammi Bir: That's great. Just last one on -- are these next generation of tenants are more of them on net lease deals as opposed to points? Or are you seeing that at this point still kind of maybe leaning a bit more to percentage rents?
Oliver Harrison: No, it would be a more conventional rent structure, i.e., minimum rent plus additionals, less reliant on percentage rent, save and except for them outperforming their natural breakpoints, but that's not going to happen for a little while.
Operator: Our next question is a follow-up from Sam Damiani with TD Securities.
Sam Damiani: Just had a quick follow-up. I think Dennis your comment that New Yorkdale is kind of the last location being dealt with. But wasn't the Ottawa property also you had some plans there. I'm just curious if those plans are still moving forward or if you've kind of walked away there.
Dennis Blasutti: So we, in fact, could not get to a position where we thought we could get a sufficient return on incremental capital that would be required to move that business plan forward. So it has actually been moved into a sale process.
Operator: I am showing no further questions at this time. I would now like to pass the conference back to President and CEO, Jonathan Gitlin.
Jonathan Gitlin: Thanks very much, and thanks, everyone, for joining. I just wanted to end with saying that RioCan is entering its next chapter from a position of strength. We focused on our retail core, resilient assets, disciplined capital allocation and a platform that is built for the future. We believe the conditions are firmly in place to deliver steady, durable growth and lasting value. Thanks, everyone, and we'll speak to you next quarter.
Operator: That concludes today's call. Thank you for your participation, and have a wonderful rest of your day.