RioCan REIT, one of Canada's largest retail landlords, is slashing its monthly distribution to unitholders by one-third amid growing uncertainty about some of its tenants' futures.
Under the new distribution plan, effective January, RioCan's monthly payout will fall to 8 cents per unit from 12 cents, saving the real estate investment trust $152million annually.
RioCan is best known for its suburban shopping plazas and its list of tenants range from movie theatres to retail apparel stores.
Until now, management had resisted calls to slash its distribution, yet there had been speculation it would eventually happen because the real estate investment trust's units were yielding 8 per cent after their price fell sharply this spring.
RioCan's management team changed course late Thursday, attributing the decision in a statement to an "uncertain retail landscape" and the "unknown length and breadth of closures."
"A more conservative payout ratio is important in this undeniably challenging environment despite our well-positioned portfolio, solid base of tenants and deep liquidity," chief executive officer Ed Sonshine said in the statement.
RioCan is not the first REIT to cut its distribution - early in the pandemic, H&R REIT and Morguard REIT slashed their own - but it is one of the best-known names in the sector. And for much of the year, RioCan had put a positive spin on its outlook.
When the REIT reported its most recent quarterly earnings, management said the company collected 93.4 per cent of its billed rent. It added that of all the retailers that had filed for bankruptcy protection, the confirmed closings represented just 0.9 per cent of RioCan's total revenue.
"Now I'm not downplaying the very real struggles within the industry, but I do want to emphasize that to date, the relative impact on RioCan's revenue is far less than what one might believe in light of the ongoing negative retail narrative," chief operating officer Jonathan Gitlin said during the most recent quarterly conference call.
But at the same time, management had also disclosed they created two categories of tenants across its portfolio, and 22 per cent of its net rent was characterized as "potentially vulnerable."
This group includes movie theatres, gyms and sit-down restaurants.
RioCan has been diversifying its portfolio mix away from retail in recent years, largely by getting into residential development that centres on building high-end rental apartments. While this shift will add new revenue streams over time, the buildout is capital-intensive.
In an interview, Mr. Gitlin characterized the payout cut as a "capital allocation decision," adding that it wasn't out of absolute necessity. "It's out of prudence," he said.