RioCan Real Estate Investment Trust T.REI.UN

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Globe article: Riocans CEO betting on a big city comeback

RioCan Real Estate Investment Trust is doubling down on its portfolio of urban shopping centres and apartment buildings, getting ready for a tide of residents to return to major cities after the pandemic subsides.

Over the past few years, RioCan has been overhauling its retail business to focus on properties in the Toronto region, investing heavily in redeveloping some of its plazas and other prime real estate into housing, for the most part, as well as some office spaces.

But since the pandemic shuttered urban life, city residents have fled to the suburbs and semi-rural areas in search of more room to work and live. The REIT’s incoming chief executive officer does not see that as a problem.

“Suburbs are getting a little bit stronger, but it doesn’t mean that all of a sudden the urban areas are going to be forgotten about,” said Jonathan Gitlin, who is currently RioCan’s chief operating officer. “Urban markets will maintain their dominance.”

Mr. Gitlin will start his new job Thursday. He succeeds RioCan’s only CEO, founder Ed Sonshine, the disarming and plain-spoken dean of Canadian shopping malls. Mr. Gitlin is taking over at a particularly turbulent time, when the pandemic has decimated bricks-and-mortar retail and boosted suburban living. He will be in charge of improving the REIT’s market value after a rocky year for retail landlords.

Although RioCan’s unit price is recovering from almost 10-year lows, it is still trading 25 per cent lower than in prepandemic months, when its units were going for about $27 apiece. It was forced to slash its monthly dividend to 8 cents a unit from 12 cents to conserve cash, and has said it could use the savings for potential unit buybacks and redevelopment.

Mr. Gitlin said he would not make any promises to increase the dividend back to 12 cents and said he wanted to create “total unitholder return,” where unitholders would reap the benefits of a higher unit price.
 

Part of improving the unit price is getting investors to believe RioCan successfully weathered one of the worst downturns for retailers; that its properties will see the return of customers who have become accustomed to online shopping; and that it has a sound plan to redevelop properties to include housing and offices.

Stay-at-home public-health guidelines decimated restaurants, clothing stores and movie theatres while boosting traffic at grocers, drugstores and big-box stores, all of which are part of RioCan’s roster of tenants. But even with many retailers going bankrupt and being forced to close temporarily, RioCan was able to collect more than 90 per cent of its rents.

Mr. Gitlin said the pandemic made him recognize a diverse portfolio such as RioCan’s is critical given its tenants include retailers that did well during the crisis – big-box chains such as Costco – and ones that did not – movie theatres such as Cineplex .

Now that some of the restrictions are easing, consumers are flocking to stores after months of being cooped up at home. Mr. Gitlin sees that continuing. He said it is not just consumer exuberance but rather what he calls “the desire to grasp control back.”

“I have had disastrous endeavours with online shopping,” he added.

Thursday will mark the end of an era for RioCan and Mr. Sonshine. However, the 74-year-old will still have a prominent voice at his business and will serve as its non-executive chairman for at least two years. Mr. Sonshine said the change will give him more time to spend on other businesses, including as chairman of a small, publicly traded financial services company that he overhauled and running a private venture capital fund for cybersecurity.

“What is retirement? Sit in a chair and watch TV and play golf? That is not for me,” he said, adding that RioCan’s success can be attributed to never being satisfied – some of the advice he has imparted to his successor.

Mr. Gitlin, 48, has spent most of his career at RioCan. He joined the trust in 2005 after working as a commercial real estate lawyer at law firm McCarthy Ttrault.

He was in charge of getting RioCan out of more than 100 small cities across the country. Together with Mr. Sonshine, the duo came up with the plan to focus on major cities and improve their prime real estate near public transportation. Toronto accounts for more than 50 per cent of RioCan’s buildings, followed by Ottawa, Calgary, Edmonton, Vancouver and Montreal.

One of the properties that is ripe for redevelopment is the Hudson’s Bay department store in downtown Vancouver, which RioCan partly owns through its private joint venture with the retail chain’s owner. The six-storey, cream terracotta property was privately being shopped around last year. But Mr. Gitlin said the joint venture is now “looking at ways to change the profile” of the building.

He said he may move RioCan’s corporate headquarters from its spot in midtown Toronto, where it is developing housing near an east-to-west rail line that’s still under construction. Although RioCan has a big presence in midtown Toronto, it will soon be a major player just west of the financial district, where it is working on a mammoth office, residential and retail complex called the Well. Asked if the corporate office could move there, Mr. Gitlin said, “It is tempting.”