RioCan's Leasing Super Cycle Delivers: Guidance Raised, RCL Monetization Nearly Complete

Record occupancy and strong leasing spreads drive SPNOI guidance hike while balance sheet strengthens.

REI-UN.TO · Earnings Call · 2026-08-05

Operating Strength and Guidance Raise

RioCan's second-quarter results underscore that its retail platform is firing on all cylinders. Retail occupancy hit a record 98.8%, and commercial same-property NOI grew 4.3% year-over-year — the fourth straight quarter of 4%+ growth. This momentum prompted management to raise its 2026 SPNOI guidance to 4%-4.5%, from 3.5%-4%. CEO Jonathan Gitlin pointed to the leasing spread as the engine: “Today's leasing spreads are tomorrow's SPNOI growth.” — Jonathan Gitlin, President and CEO · 2026-08-05 Indeed, blended spreads hit 23.1%, with new and renewal spreads of 40.8% and 20.7%, respectively. The company's ability to extract outsized gains was highlighted by the doubling of a GTA grocery store's renewal rent after a 30-year-old lease came to market. Gitlin noted, “The only influence on this outcome was market rents.” — Jonathan Gitlin, President and CEO · 2026-08-05 This "embedded mark-to-market opportunity" — with roughly 30% of leases rolling by 2028 — provides visibility into future growth, a theme consistent with the company's market rent tailwinds. Core FFO per unit rose 5.3% to CAD 0.40, driven by SPNOI, NCIB accretion, and partially offset by higher interest expenses. The payout ratio improved to 73.8% on a trailing basis, approaching the 70% long-term target. Management maintained its core FFO guidance of CAD 1.60-1.62, citing the range's ability to absorb a variety of outcomes — a prudent stance that reflects both confidence and caution.

Capital Recycling and Balance Sheet

The RioCan Living monetization is now effectively complete, with CAD 1.26 billion of assets sold or under contract, hitting the CAD 1.3 billion target. CFO Franca Smith confirmed the dispositions and condo inventory repatriation have reduced unsold units to just CAD 86 million, about 1% of NAV. This Capital recycling is transforming the balance sheet. Unsecured debt now represents 70% of total debt, and the unencumbered asset pool stands at CAD 9.7 billion. The company repaid CAD 500 million in debentures and CAD 91 million in mortgages during the quarter, leaving only CAD 30 million in maturities for the year. Gitlin emphasized that this discipline creates value creation optionality:

Our momentum is strong, continued retailer demand, meaningful embedded growth opportunities and disciplined capital allocation position RioCan to continue growing cash flow and creating value over the long term.
Jonathan Gitlin, President and CEO · 2026-08-05

The market's appetite for RioCan's remaining assets remains robust — the company expects to exceed the CAD 1.3 billion target, including condo inventory. Gitlin also hinted at increasing acquisition interest as cost of capital declines: "As our cost of capital decreases and these opportunities come into view, RioCan feels well positioned to take some of the assets that may become available." This marks a subtle shift from the previous capital allocation bias toward NCIB, which was the dominant theme in earlier quarters.

Embedded Growth and Future Prospects

The company continues to emphasize the structural supply constraint in Canadian retail, supported by high barriers to entry and strong demographics. Oliver Harrison, leasing overseer, noted that blended spreads have been in the mid-20% range for nearly a year, a sustainable level given occupancy. When asked about cap rates, Gitlin acknowledged external market indicators but remained patient: "We are looking at some of the transactions that haven't yet closed... we'll continue to assess that." This Cap rate discipline aligns with the company's focus on organic value creation rather than relying on multiple expansion. Looking ahead, the company's guidance raise reflects confidence, but management is also mindful of macro risks. Gitlin stated, "We feel very good about our path going forward... the backdrop is very strong." The stability of the portfolio — with 88% of tenants in necessity-based retail — provides a defensive cushion. Prior calls echoed this resilience; in February 2026, Gitlin remarked, "RioCan's units are undervalued relative to the future performance perspective we have," a stance that has justified aggressive NCIB activity. The current quarter's NAV increase of CAD 0.23 per unit, driven by higher NOI rather than cap rate compression, demonstrates the quality of earnings growth. In summary, RioCan is executing its stated strategy with precision. The raised SPNOI guidance, near-completion of RCL monetization, and balance sheet strength position it for durable growth. While the story is not a radical pivot, it is a powerful confirmation of the leasing super cycle and disciplined capital allocation that investors have been seeking.