RioCan Real Estate Investment Trust on Tuesday announced that it has agreed to sell its 50% interest in three RioCan Living rental apartment properties for $173.4m.
The deals, expected to close in the third quarter, come just a few months after the sale of RioCan’s interest in Strada, an apartment building in Toronto, to Canadian Apartment Properties REIT for $23.9m.
All of the transactions are part of RioCan’s strategy to create a simplified model focused on its core retail business. Following the close of the agreements, RioCan Living’s portfolio will comprise nine income-producing properties and two under development with a total value of $900m. The firm said there is considerable interest in the remaining multifamily assets.
Green Street News spoke with RioCan chief executive Jonathan Gitlin about the dispositions, the firm’s retail strategy and the future of department stores such as Hudson’s Bay.
How did these transactions come about? Were you specifically looking to get rid of these assets or was it that there happened to be interest from buyers?
It’s a little of both. We are focused on monetizing the RioCan Living portfolio, and we knew there was enhanced interest in these ones. The buyers in a few of the cases are existing partners, who recognize the strength in these buildings and see the strategic benefit in owning 100% of them. These were logical, well-aligned buyers with whom we maintain excellent relationships, so we engaged them directly. At the same time, we conducted thorough discussions. We spoke to others in the market, just to ensure that we were appropriately pricing these assets. We received confirmation that the valuations were in line with expectations and proceeded with the transactions accordingly.
With just nine properties left, is the idea to eventually offload all the remaining RioCan Living properties?
In 12 to 24 months, provided the pricing is in line with our IFRS values,
that is the intention.
For the two properties under development, is RioCan planning to finish those up and sell them as well?
That would be the approach. Additionally, we’ve accumulated a significant amount of density within our portfolio over the past several years, and that density continues to represent substantial intrinsic value for RioCan.
While the current market environment for density is somewhat soft, it will cycle over time. When it does, we will still have the experienced team and the capabilities required to unlock value from these assets. We’ll likely approach it differently by bringing in outside investors rather than using our own balance sheet. RioCan will contribute our land and development expertise, so you will still see RioCan mixed-use developments – just executed with a different capital structure.
In terms of buyer interest, where is it coming from right now? Are you seeing it from institutional investors or private investors, and has that changed much over the last year or two?
I don’t think the profile of buyers has shifted significantly. We continue to see interest from all different stripes and colours – institutions, high-net-worth individuals and investment funds. That diversity speaks to the strength and uniqueness of the RioCan Living product. These are new, purpose-built, mixed-use assets, often anchored by high-performing retail, typically transit-oriented and located in major markets. They require limited capital and are exceptionally well-positioned. It’s a portfolio we’ve carefully curated and built up over time, and its quality and positioning are clearly being recognized by a wide range of investors.
“We continue to see interest from all different stripes and colours – institutions, high-net-worth individuals and investment funds”
With multifamily and retail both being so strong right now, what was the thinking behind just focusing on retail?
We view retail as a durable, demand-driven asset class with sustainable growth potential. It represents the core of our portfolio, and as we continue to refine our asset base, focusing on major markets and stronger demographics, we’re seeing unrelenting tenant demand. That dynamic has already translated into meaningful growth and we’re confident it will continue to do so. With the strength of our platform, we feel very very strongly that we will be able to harness long-term value from our retail assets.
Definitely, and we’ve heard from brokers that bringing retail space online in downtown Toronto is like bringing water to the desert.
And it’s not just downtown Toronto – the suburbs have been exceptionally strong as well. In many cases, it’s the straightforward, open-air, grocery-anchored shopping centres that are driving significant demand. If you look at our performance over the past few quarters, our leasing spreads have consistently been in the high teens. At the same time, our tenant retention – those who renew rather than vacate – has been over 90%. That tells us two important things: tenants are highly motivated to stay and they’re willing to pay a meaningful premium to secure or retain space in our centres. That’s a dynamic we believe will persist well into the future.
There’s been virtually no new retail supply added over the last decade, and we don’t see a material increase on the horizon. It’s a structurally constrained environment, and that’s exactly why we feel so confident about the long-term strength of the retail sector. At the same time, Canadian retailers, particularly those in the grocery and discount segments, like TJX – Winners, HomeSense, Marshalls – Dollarama, and Shoppers Drug Mart, are stronger than ever and continue to seek growth.
Right, and the small-format No Frills especially seem to be popping up everywhere.
They really are. The expansion of the discount grocery network across Canadian markets has been a remarkable trend. What’s encouraging is how much more adaptable these retailers have become. Historically, grocery tenants were quite specific in their requirements – certain square footage, precise frontage-to-depth ratios, a defined number of parking stalls and loading docks. But today, banners like No Frills and FreshCo are demonstrating far greater flexibility in their space needs. That adaptability opens up more opportunities for landlords like RioCan to deliver solutions that meet both tenant needs and evolving community demand.
“Retail evolves – it always has, it always will”
The future of the Hudson’s Bay locations is still up in the air, but has that experience caused any hesitation on RioCan’s part about department stores? Do you think there’s a future for that retail format?
Retail evolves – it always has, it always will. While traditional department stores have become increasingly limited, the concept itself has fundamentally evolved. Legacy retailers like Sears, the Bay and Nordstrom once had a presence in Canada, but their models are no longer viable in today’s market. At the same time, we’re seeing strong performance from retailers like Simons, and more notably, from general merchandisers such as Walmart and Canadian Tire. These are the modern-day department stores – serving the same broad consumer needs, but in a format that’s more aligned with how people shop today. It’s a natural evolution, and a sign of a healthy, adaptive retail landscape.
