Apellis Pharmaceuticals Inc
NASDAQ:APLS
Apellis Pharmaceuticals Inc
In the realm of biotechnology, Apellis Pharmaceuticals Inc. has carved out a niche by pioneering therapies that target the complement system, an integral part of the immune response. Founded in 2009, the company quickly honed in on the inhibition of C3, a protein central to the activation of the complement cascade, which can drive various diseases when dysregulated. Through its proprietary platform, Apellis has developed novel therapeutic candidates that aim to modulate the immune system from an entirely fresh angle. The company focuses on addressing serious medical conditions that currently have limited treatment options, such as age-related macular degeneration (AMD) and paroxysmal nocturnal hemoglobinuria (PNH), by employing targeted therapies to reduce inflammation and improve patient outcomes.
Apellis’s business strategy revolves around a model that not only aims to bring innovative treatments to market but also to establish partnerships that broaden the reach of its technology. The company's flagship drug, Empaveli, received FDA approval for PNH in 2021 and underscores its potential to capture larger market segments within rare disease treatment areas. By investing heavily in research and development, Apellis seeks to expand its pipeline while also collaborating with other firms to enhance its capabilities and share the risks and rewards associated with drug development. Revenue is generated primarily through sales of its approved therapies, as well as milestone payments and royalties from partnerships, setting Apellis on a path poised for growth if it continues to advance its clinical programs successfully.
Earnings Calls
In Q1 2025, RioCan reported a 9% increase in FFO per unit to $0.49, driven by robust same-property NOI growth of 3.6%. Despite macroeconomic uncertainties and Hudson's Bay Company’s CCAA filing impacting operations, RioCan's committed occupancy remained at 98%. The company revised its FFO guidance to $1.85-$1.88 per unit. Notably, RioCan's condo operations generated $22 million in gains, largely influenced by a favorable $11 million cost contingency release. Proceeds from asset sales, totaling $241 million, are expected to enhance liquidity, supporting both debt repayment and unit repurchases at a compelling 11% FFO yield.
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Good day, ladies and gentlemen, and welcome to the RioCan Real Estate Investment Trust First Quarter 2025 Conference Call and Webcast. As a reminder, this conference call is being recorded.
I would now like to turn the conference over to Ms. Jennifer Suess, Senior Vice President, General Counsel, ESG and Corporate Secretary. Ms. Suess, you may begin.
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 for the period ended March 31, 2025, 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.
Thanks, Jennifer, and thank you to everyone who's joined RioCan's senior management team for this call. I'm happy to have the opportunity to connect with you all today. I spent some time considering how best to describe the first quarter of 2025 and the word that I landed on was paradoxical. Now I know it's an unorthodox way to describe a quarter, and it's not a description that I've used before, but it does feel appropriate. It's been a tough quarter, though you wouldn't know it based on results.
RioCan continued to produce operational results, demonstrating considerable strength and maintaining historic highs. However, the backdrop, while it's been, let's say, turbulent. The macro environment is ripe with uncertainty, including trade conflicts, economic instability, dampened market and consumer sentiment and a general risk-off approach to trading. In addition, Canada's longest-standing retailer, Hudson's Bay Company, commenced insolvency proceedings under CCAA. It's a rocky road. As always, RioCan is well positioned to navigate it. HBC CCAA filing is, of course, generating a lot of attention, including the impact it will have on the Canadian retail landscape and the impact on RioCan given our joint venture with Hudson's Bay. The RioCan HBC joint venture was established back in 2015. In the intervening 10 years, RioCan and its portfolio have evolved tremendously.
94% of our rent is now generated from Canada's major markets and 88% comes from strong stable tenants concentrated in necessity-based uses. We've also lowered our payout ratio to achieve a leading position within the industry. We have a powerful and resilient business that can absorb these types of curveballs and ensure the sustainability of RioCan's distribution. To place the HBC exposure in context, as of the year ended 2024, the JV represents 4.4% of the Trust's FFO and 3.3% of its equity. We've written down our investment by $209 million this quarter, which represents the vast majority of the NAV related to the joint venture. As you're aware, the situation is fluid, and it will take time before there's certainty on the outcome of all of the assets in the JV partnership. At this time, it appears clear that there is no wholesale option that will result in the ongoing continuation of the business on the same scale as HBC operated prior to its CCAA filing.
We took a substantial write-down of the equity value of our HBC interest on the basis that we don't foresee an outcome that results in the payment of our current rents. We feel confident in our ability to recover some of the value over time. We believe the market has priced in a downside risk that is more substantial than the probable outcome. And I'll explain my rationale. First, our management team took appropriate contingency planning steps to be prepared in the event that HBC was not able to continue operating in its existing form and sought to commence restructuring or insolvency proceedings.
In doing so, we were able to evaluate how RioCan might be impacted and identify potential options and alternatives from a legal and business perspective. Now with the benefit of these prior contingency planning efforts, we're focused on taking appropriate steps within the context of HBC's CCAA proceeding to preserve value, protect RioCan's rights and advance RioCan's strategic interests. Second, this is not our first experience navigating an insolvent entity. Consumer behavior and trends evolve, and it's the nature of retail. While the circumstances surrounding HBC are unique, we've seen and successfully managed through it when other large retailers exited the market. This management team has mitigated risk and created opportunities when retailers like Target and Sears liquidated. We're confident that opportunities exist to preserve value, and we will seize those opportunities.
Third, for the Yorkdale and Ottawa properties, where RioCan provided a guarantee or direct covenant with respect to the JV's mortgages, RioCan secured substantial security interest and lease termination rights in exchange that will enable value preservation. Fourth, the capital structure within the JV allows RioCan flexibility. For the vast majority of properties in the JV, the structure of the property level debt allows RioCan to be judicious around capital expenditures. We will not invest substantial capital that doesn't deliver a return.
To summarize, we're confident in RioCan's ability to preserve some value and income through this situation. Your management team is actively navigating through the process. While the path may not be linear, clarity will emerge in ways, and we look forward to sharing our progress with you.
Let's shift now to our outlook for the rest of 2025. There are obviously a number of variables that present challenges with respect to forecasting. That said, we feel that it's important to give our view on how we believe these factors will manifest in RioCan's 2025 results. We acknowledge that we previously provided 2025 FFO guidance of $1.89 to $1.92 per unit. While that guidance was given in a markedly different environment. The guidance included a range that accounted for a balance of risks and opportunities, including a substantial provision for macroeconomic volatility and subsequent retail disruption. Given the information we had available to us at the time, it did not assume a full liquidation of the HBC business and as a result, did not accommodate for the entire FFO impact. Given the dynamic circumstances in which we're operating, we feel it is prudent to revise that range to $1.85 to $1.88 per unit.
Guidance on all other KPIs remains intact, including annual commercial same-property NOI growth of approximately 3.5%. I will note that the factors contributing to forecasting challenges have also created an impractical environment for hosting an Investor Day. So we have postponed the Investor Day that was initially scheduled for this spring. Rest assured, it is our intention to host an Investor Day as soon as practical, and we'll provide updated timing shortly.
I'll now turn to our Q1 operating results. And as I do, the paradox I spoke about a moment ago will be evident. Despite this environment, our core retail portfolio continued to perform. Every aspect of RioCan's operating fundamentals continue to demonstrate enduring strength and stability. We achieved record-breaking operational results and capitalized on opportunities to transition lower growth leases to high-quality tenants and to realize the value embedded in our portfolio. A few highlights include committed occupancy remaining at a record high of 98% with retail committed occupancy at 98.7%. Double-digit blended and new leasing spreads for the fifth consecutive quarter at 17.5% and 18.3%, respectively. Commercial same-property NOI growth was 3.6%, bolstered by the benefits of high-quality backfill leasing activity that was completed in 2024.
We also completed $16.7 million in dispositions, including the sale of a Cineplex-anchored property. And post quarter end, we sold a less productive portion of an open-air retail site in Quebec to an industrial developer for $37.5 million. RioCan Living's residential rental operations generated $7.5 million in NOI in the quarter, an increase of approximately 18% over the same period last year. At the same time, we progressed our strategy to unlock the value in our residential rental portfolio. As I've previously expressed, RioCan Living's residential rental portfolio is now a substantial and valuable business. You'll recall that one objective we had in building the portfolio was to create sufficient scale to provide options for extracting value. I'm pleased to announce that we're advancing the option we believe will maximize value for our stakeholders.
Over the next 12 to 24 months, provided we can achieve prices that approximate IFRS values, we will sell our interest in RioCan Living residential rental assets, and we're off to a strong start. Strada in downtown Toronto was sold at a price above IFRS value in Q4 2024. And now RioCan has entered into agreements to sell its 50% interest in an additional 4 RioCan Living assets, all for prices at IFRS values. The first of these is for RioCan's 50% interest in Brio in Calgary, which is firm and is expected to close in the coming months. The remaining 3 are conditional. We're also in advanced discussions on certain other assets within the RioCan Living portfolio. We look forward to providing an update on these in the near future.
RioCan Living assets are unique. They're new and therefore, have low CapEx requirements. They are not subject to rent control and therefore, have strong growth profiles. They're in major markets and have transit at their doorsteps. These characteristics are generating interest from buyers and will continue to do so in the future. Upon closing, the proceeds from the sales of any RioCan Living assets will be used accretively to pay down debt and to support our NCIB program. I would like to clarify what this means for RioCan Living going forward. While we're selling [Technical Difficulty] continue to very much be a part of our business. RioCan will remain focused on maximizing value from our extensive mixed-use density pipeline. We'll maintain our internal infrastructure and capabilities to harvest valuable density. When the time is appropriate, we will either build additional mixed-use properties or sell the density.
If we choose to build, we'll pursue this through a structure that minimizes the impact on RioCan's balance sheet. This involves seeking outside investors to provide the majority of required capital while RioCan will contribute its land and its expertise. The team that successfully built up and managed RioCan's formidable portfolio of mixed-use assets will be critical in this strategy. When times are turbulent, foundational strength is paramount. I can say 2 things for certain. One, these are unquestionably turbulent times. Two, the backbone of RioCan's platform is stronger than it's ever been. The work we've done in the last 10 years has resulted in a portfolio positioned for long-term productivity and stability.
The strength of RioCan's foundation has been demonstrated by consistent quarter-over-quarter record high operating results. While the HBC CCAA filing and current macroeconomic volatility are disruptive and will have an impact, RioCan's portfolio has evolved such that it is not dependent upon joint ventures or macroeconomic stability for long-term success. The road ahead requires patience, experience, focus and skill, all attributes that define the RioCan team. This team is up to meet the challenges that lie ahead. RioCan's portfolio fundamentals will serve the Trust well through this moment and long into the future. We look forward to providing you updates as we progress and at the same time, continuing to demonstrate the strength of our portfolio through consistently strong operating results.
Before turning the call over to Dennis to discuss our balance sheet, I would like to ask John Ballantyne, RioCan's Chief Operating Officer, to take a few moments to speak to some recent examples that highlight RioCan's ability to extract value from its retail portfolio in a variety of ways.
Thank you, Jonathan, and good morning, everyone. We've worked hard to reposition RioCan's portfolio over the last 10 years. And as a result, we're well positioned to be resilient in the face of economic downturns and to capitalize when the market is strong. The portfolio's quality is evident in the operating results that Jonathan just walked you through. And I'll add that our record occupancy and strong leasing spreads are not a 3-month phenomena, they are a proven recurring trend. To this end, RioCan's rolling 24-month blended leasing spread is 15.2%, bolstered by an incredible 27.4% spread on new deals.
Over the next few minutes, I'll highlight some of RioCan's recent tenant and property level wins that demonstrate our ability to maximize growth. I'll start with the 10 Rooms and Spaces and Bad Boy Boxes that were vacated in the first quarter of 2024. We provided updates as we progress those backfills, but I feel that a wrap-up is appropriate. Each of the 10 boxes has been re-leased to strong covenanted high traffic-generating retailers, including 3 grocery stores and 2 TJX banners. 7 of the 10 backfill tenants are open and paying cash rents. Rent for the last 3 will commence over the next 3 to 6 months.
In addition to demonstrating our team's ability to quickly replace struggling operators with strong retailers, these backfills also highlight the significant upside rent potential embedded in our portfolio. The average year 1 rent achieved on the new deals exceeds previous rents by 24%. Factoring in the annual rent growth achieved over the terms of the replacement deals, we achieved an average rent spread of 37.5%. Our ability to add value to our portfolio is not limited to situations where tenants vacate. RioCan continuously reviews all properties in our portfolio to ensure the highest and best use of land is achieved. There are countless examples of this in RioCan's history. I'll share 2 recent ones with you now. The first is RioCan Centre Burloak in Oakville, Ontario. The property is well anchored by Longo's, Home Depot and several national foodservice and experiential brands.
However, there is also 170,000 square feet of apparel space that is largely vacant. Of the tenants that are operating in that component, a high percentage are classified by RioCan as transitional and are paying gross or percentage rent. This portion of the site is less productive than the standard we hold for our properties. In keeping with our strategy to maximize the value of our land, we implemented a plan to reinvent the center. This plan includes demolishing the underperforming component of the site to accommodate a new 158,000 square foot Costco scheduled to open in late 2026. To free up the 16 acres of land that Costco requires, RioCan is terminating leases with the less productive transitional tenants and relocating the strong stable retailers to existing vacancies elsewhere in the site. The redevelopment will result in an annual NOI increase of $3 million. After deducting the capital required to complete the deal and valuing the asset at the cap rate premium a Costco-anchored site commands in the market, this translates into $21 million of NAV growth.
In addition to this immediate financial return, the dramatic daily increase of consumer traffic flow generated by Costco will drive impactful growth for the entire site for years to come. To this end, the Costco halo effect has already resulted in the completion of 40,000 square feet of new leasing with the TJX banner and a Sephora, both of which are backfilling existing vacancies at significant rent spreads. Our Mega Centre Notre-Dame site in Laval, Quebec is a comparable success story. This 510,000 square foot open-air center is simply too large from the market and similar to RioCan Burloak contains a historically underperforming 260,000 square foot apparel component. This less productive portion of the site has chronic vacancy and is largely tenanted by gross or percentage rent paying tenants.
New tenant demand has not been enough to justify the capital required to retenant and improve the aging infrastructure. In recognition of this and as a means to extract value, RioCan worked with its partner, the Harden Group, to negotiate the sale of a 27-acre portion of the site to Rosefellow, a Montreal-based industrial developer for a purchase price of $75 million. This purchase price represents approximately 80% premium to IFRS. The transaction closed on April 22. In addition to monetizing an underperforming portion of the site at an impressive land value of $2.8 million per acre, we also fortified the remaining 278,000 square foot retail center. Productive retailers, including The Gap and Banana Republic were relocated from the disposition lands and new deals were completed with Sephora and La Vie En Rose in existing vacant space.
We consolidated land parcels through the purchase of buildings occupied by existing retailers, including Couche-Tard and McDonald's. New pads were developed on existing density to accommodate Service Canada relocation and a new Krispy Kreme bakery. And store expansions were completed with existing tenants, Winners, HomeSense and Dollarama. The reinvented center is 100% occupied and features a strong stable tenant mix, including grocery, pharmacy, banks, liquor and value retailers. These uses align with RioCan's strategic direction and are critical for future revenue growth. Taking into consideration the proceeds from the land sale as well as the capital costs required to sell the land and improve the retail component of the remaining center, the resulting value creation is approximately $30 million at RioCan's 50% ownership interest.
I provided just 3 examples that illustrate RioCan's ability to extract value from our retail properties. RioCan's portfolio is comprised of some of the highest quality real estate in the country. These locations, combined with the strength of our strategy and team will continue to generate opportunities for growth and value creation.
I'll now turn the call over to Dennis.
Thank you, John, and good morning to everyone on the call. FFO per unit was $0.49 for the quarter, representing a 9% increase compared to the same quarter of the previous year. This increase was driven by strong same-property NOI growth and higher condo gains, partially offset by increased interest expense. The quarter included $22 million of condo gains as we continue to progress well on interim closings. As of May 5, we have interim occupancy for 310 units or 96% of the expected Q1 amount. Over the last 2 quarters, we had total interim occupancy of 673 units, a rate of 97%. Final closings are scheduled to begin later this month at UC 2 and 11YV, so we will provide a further update in our next release. This quarter's condo gains were positively impacted by an $11 million cost contingency release relating to our UC projects as construction risk has decreased with the projects nearly complete.
Net income for the quarter was impacted by impairment charges relating to our investment in the RioCan HBC JV of $209 million. This impairment reduced our carrying value of the investment in the JV from $249 million to $41 million or 0.6% of RioCan's equity. As disclosed previously, we have provided credit support to the JV in the form of guarantees relating to debt on 2 assets totaling $87 million as well as 2 mezzanine loans totaling $39 million. RioCan received security interest in several assets as well as valuable lease termination rights in exchange for providing this credit support. We have assessed that the security received is sufficient to cover this exposure. The remaining debt in the JV is nonrecourse to RioCan, meaning that our exposure is limited to the aforementioned investment carrying value and credit support.
RioCan has no obligation to inject further capital into the JV and will remain disciplined in allocating capital to any of the JV assets. We will ensure that any additional investment generates returns that are competitive with alternative uses. Our NAV per unit was $24.62 as at March 31 compared to $25.16 at December 31, 2024. The decrease was attributed to the previously mentioned impairment of our investment in the RioCan HBC joint venture. This was partially offset by retained operating income that we accumulate on our balance sheet each quarter due to our low payout ratio and the effect of NCIB purchases as we repurchased $60 million worth of units at a price below NAV. Even with the JV-related write-down, our NAV per unit remains at a significant premium to the trading price of our units.
Based on yesterday's closing price, our units are trading at a 31% discount to our NAV per unit. Our NAV continues to be supported by the sale of assets as it has been for the past few years. As of May 5, 2025, RioCan has closed firm and conditional asset sales of $241 million, sold in line with or above IFRS values and at a weighted average cap rate of 4.3%. This includes 4 RioCan Living assets and the excess lands at Mega Centre Notre-Dame in Laval, Quebec, once again highlighting the embedded value in our portfolio. In total, over the last 3 years, we have closed 40 asset sales for a total of $942.1 million at values that support our IFRS NAV. This is evidence of the continued disconnect between our unit price and private values that we are able to achieve.
Our balance sheet continues to be a top priority with steady improvement across a number of metrics. Net debt-to-EBITDA for the quarter was 8.96x, continuing its steady decline. We expect this to continue over the balance of this year and into next as we close on condos and asset sales. Including the repayment of mortgages subsequent to quarter end, we improved our unsecured debt to total debt ratio to 58.6% compared with 55.7% at year-end, while increasing our unencumbered asset pool by $605 million to $8.8 billion, remaining on track to reach 60% of unsecured debt to total debt by later this year. During the quarter, we raised $550 million of unsecured debenture financing at an average rate of 4.05% and an average term of 4.8 years. This was used to repay existing debt, including secured mortgages, while also maintaining $1.4 billion of liquidity.
RioCan's core portfolio of well-located necessity-based retail assets continues to demonstrate the ability to grow as our team delivers strong operating and financial results. We are leaning into this core portfolio as we simplify our business with a focus on maintaining strong free cash flow and continuously improving our balance sheet. Our low payout ratio provides us with capital that can be reinvested in this core business to drive growth and support our attractive distribution. Our NAV has been continuously supported through the execution of open market transactions. The disparity between private values as evidenced by these transactions and the public unit price presents a substantial opportunity to acquire a best-in-class portfolio characterized by strong, reliable and expanding core cash flows at a very attractive discount.
With that, I will turn the call over for questions.
[Operator Instructions] Our first question comes from the line of Lorne Kalmar with Desjardins Capital Markets.
Thanks for all the color around HBC. Maybe I'll digress from that to start and go to the condo side of things. It looks like the trend from Q4 has continued to Q1, a lot of good results there, but there seems to be rumbling, bubbling up again. I just wanted to get an idea of what you guys are seeing, if there's any incremental -- if you're any more concerned about the closings than you were 2, 3 months ago?
The condo market is, I would say, it's tricky, but it is consistent with the guidance we provided. We had in our guidance approximately a 6% default rate built in. We've done better than that, as you could tell from the interim occupancies to date that are closer to kind of between 96% and 97%. But we're still holding firm on that 6% default rate because we do think that the remainder of the year will be a little less stable and a little less predictable, because, first of all, as you progress on to the list of units, you're getting now further into the cycle where these units are a little bit later stage, meaning that they were sold at a bit of a higher price, which means that the differential between those prices and market prices are a little bit -- they diverge a little bit.
But that said, the same protections help us in that we have deposits that are fairly significant at 20% or approximately 20%. And we've got firm commitments from these vendors to close as well -- or sorry, these purchasers to close. And many of these buildings have been preapproved from a -- for mortgages. So we think the risk profile -- I mean, the overall market tone is average at best, but the risk profile for RioCan Living assets is slightly lower because of those factors.
Okay. And can you remind us which of the buildings have been preapproved in terms of the appraisals?
Sure. U.C. Tower and 11YV, and I believe Verge -- and Verge, sorry.
And Verge. Okay. So Queen & Ashbridge is looks like the lone one that happened. Okay. And then maybe just last one from me on the RioCan Living side. Congrats on making some good progress there. Just trying to get an idea, what does the buyer profile look like? Is it predominantly your existing partners? Or are there a lot of folks out there looking to acquire a 50% interest in apartment buildings?
It's the latter. There are a lot of people out there looking to acquire this type of asset, which, as I mentioned in my prior notes, are new, no rent control in major markets, transit-oriented part of bigger mixed-use projects. There are -- there's a lot of interest in that type of asset class. So we're seeing a broader spectrum of interest as we had predicted. It is such a great -- it's a great portfolio.
Okay. So fair to assume that not necessarily all of them will be bought up by the -- by the JV partners?
That is a fair assumption, Lorne, for sure.
Our next question comes from the line of Mike Markidis with BMO.
I was hoping, Dennis, you could give us a little bit more granularity just with respect to the impact of -- or the decrease in your guidance. Just sort of -- I think you mentioned that there were some favorable impacts on the development costs. I don't know if that relates to the $11 million contingency release you spoke to. And then how we should be thinking about the flow-through of the anticipated FFO loss from HBC to just assume that the stores go vacant? Is there any capitalization there? Anything you can offer would be helpful.
Yes, Mike. So thanks for the question. So what I would say at this point, the way we've done it is fairly simple as the situation is fluid. We have -- we had disclosed in our March 18 press release an impact of 8% -- $0.08 per year of FFO impact as the kind of like the maximum exposure. All we've done is annualize that. So we know we have payments due to the end of May based on the court approved occupancy rents that we're receiving. So we just take kind of an annual rate against that $0.08, and that gives us $0.05 negative impact from HBC through the guidance. And then that's offset by a $0.01 favorable on condo gains. We did have an $11 million favorable cost variance on our condos in the first quarter. We have not taken all of that. In fact, we've taken 1/4 of that through the guidance forecast, leaving some incremental risk buffer in the forecast to protect us for the balance of the year, given Jonathan's comments around the condo market.
Got it. Okay. No, that's helpful. I guess as the -- I know that the outcome of the HBC JV is not -- and sorry, I don't want to distract you. Congrats, first of all, on the strong results within the core portfolio, it seems to be coming along quite nicely there. But just as we go forward, I'm just trying to think of the -- you've got the potential defaults, but that's going well on the condo side. But what about the $100 million or so of not contracted presale revenue? Because if I look at your disclosure, the timing of UC 3 seems to have been bumped up. I'm not sure if that's a typo or not. But like what happens from an accounting and FFO perspective if those presales don't -- or the unsold inventory doesn't get contracted and sits on your books?
Yes. So what we've done from a forecasting perspective is we have assumed no sales of unsold units until 2027. So there's -- none of that unsold revenue is actually in the forecast at this point. So we really have isolated the risk down to defaults on presold units, which would include UC 3. That will close over the balance of this year. It should be a little bit later in the year, although construction is going quite well there. And we have the team, while we give a 6% general guidance, as Jonathan mentioned, we pushed more of that risk or a higher percentage later in the year because that particular project is sold at a higher -- sorry, a higher sales price per square foot. So I think just the quick summary is we've accounted for the risk on the presold units, and we've assumed no sales of any unsold units. Now we do have some mitigation strategies we're working on in terms of not having a drag there. So we have deals we're working on bulk rental situations to rent those units out while the market is in this kind of state of flux.
Okay. And in a bulk rental scenario, would that mean you become the landlord and effectively a portion of those condos become income producing?
Yes, they would become -- we would be the landlord. We have to work through the accounting on the exact terms of what those leases are going to be in terms of duration if they were to be income producing versus just staying inventory and this is holding income. So that's something we're working through. But certainly, economically, we'll be making some rents there. It would be enough to, at minimum, offset any kind of FFO drag from having to pay property taxes and maintenance fees, et cetera, on those. So that's how we can protect that situation.
Our next question comes from the line of Mario Saric with Scotiabank.
Just hopefully, you can hear me okay. Just on the RioCan Living, I just want to clarify, Jonathan, you mentioned that on a resolution, the expectation is within 12 to 24 months that the equity interest will have been sold. Is that correct?
Yes, that's our intention. I mean it's obviously contingent on market -- on the market, but that is our intention.
Got it. Okay. And then does the sale of the 4 50% interest, does that indicate that your plan is to kind of piecemeal out the portfolio over time, like individual asset sales? Or is that to change or not certain at this point?
Our plan, Mario, is to maximize value. And if the best way forward is to do it, as you say, piecemeal, then we will do it that way. If there is a broader portfolio opportunity that also allows us to maximize value, but minimalize execution risk, then we would pursue that. So it really does depend on which avenue maximizes value, whether it is individual or bulk sales.
Got it. Okay. And can you share the total estimated kind of gross and net proceeds for the 4 that are firm/conditional or provide a range?
We will provide an update as soon as those deals get clarified or at least go firm.
Okay. And then just maybe switching over to HBC. I appreciate the -- in terms of incremental capital going forward, it would have to require or it would require an attractive return on investment. And at what point do you think you'll be in a position to kind of identify and kind of think about what the incremental capital outlay on HBC may be?
That's a tough one to predict. We're in the midst of a pretty fluid process. I think what we're going to determine now as the court process unwinds is a better time line. A guess here would be less than useful, but I do think within the -- within this year, within 2025, we'll have a much more clear understanding. And hopefully, by Q3, we'll have a much more clear understanding. As you can imagine, there's a lot of stakeholders involved in this and a lot of them have a voice in how this all comes out. But again, I need to reiterate that point that regardless of the other stakeholders, our obligations and liabilities are ring-fenced here, and we don't have to go beyond those current obligations. And the only way we would is if there is a logical outcome for RioCan's unitholders. So that will, again, I think, become clear throughout the course of the next several months. And our pledge to you is that we'll continue to provide good disclosure around that process, but I can't pinpoint a date at this point, Mario.
Okay. That's fair. I appreciate that. My last one, just on the core portfolio. As some have mentioned, the core stats remain quite strong. Are you seeing any change in tenant behavior, any incremental changes in your watch list with respect to the tariff uncertainty that's kind of emerged in the past 2 to 3 weeks?
Very limited at this point. We're still seeing strength in growth. I mean, keeping in mind that 88% of our tenants are strong and stable and the brick-and-mortar profile that they currently have is very much a part of their business, and I think they're looking to grow it. In an economy like this and with some uncertainty around the tariffs, you will see cracks around the edges. But I wouldn't say anything extraordinary. So smaller businesses, some discretionary uses like restaurants and independents. But really, our watch list hasn't changed nor have the tenants seeking growth. It's been a fairly consistent story over the last number of quarters, and we really don't see a catalyst to have that stop, because, again, just to reiterate, even in the face of a slowing economy, we still have that benefit as retail landlords, particularly where we're positioned, where there's just no space.
And so I think wherever we do have space available, even if there are some, as I said, cracks around the edges, the good news is that we have a fairly robust list of tenants and businesses wanting any space that becomes available. But if you look at even this quarter, I have to emphasize the fact that not only did we have great leasing spreads at 17.5% combined, but our retention ratio was also at 93.5%. And usually, those things are at odds with one another. But it just shows that we're driving great rents and we're keeping tenants. And that's simply because there's a recognition that there's not a lot of alternatives, particularly given the strength of RioCan's portfolio and the demographic profile we have. So I feel pretty confident that even if there is a little bit of a slowness in the economy, which it seems undoubtedly the case that our -- the strength of our portfolio will outweigh those -- the potential downside.
Got it. Yes. I did notice the high retention ratio.
Mario, just quickly, if you don't mind, I'll come back to that -- the question you asked about the gross proceeds. So we disclosed total foreclosed firm and conditionals of [ $240 million ]. There's about $50 million of that is retail assets based on our disclosure. So you can kind of back into about $185 million to $190 million, let's say, of gross proceeds from the RioCan Living sales.
So I was being cagey for no reason.
Our next question comes from the line of Pammi Bir with RBC Capital Markets.
Jonathan, I think at the outset you mentioned using the proceeds from RioCan Living to -- sorry, to repurchase units or pay down debt. Just given where the unit price is and you acknowledge that it is below or you think it's successfully discounted on the HBC pullback. How do you see the split between those 2 between the buyback and paying down debt or perhaps just preserving some capital for the reinvestment that you may need, I guess, on some of the HBC space?
Well, I think, first of all, preservation of capital and paying down debt are one and the same. If you pay down debt, that means that you have access to that capital going forward. And as we suggested, the capital required for the HBC space is only going to be utilized if it creates a return for us. And I don't think there's going to be an immediate need for that other than the 3 stores in our Oakville Place, Georgian Mall and Tanger Outlets where we have control of those assets, and we've already got significant tenant interest where we will be putting in some capital to extract that interest or that increase in rent. So I don't think that's a major factor, the HBC sort of capital factor.
The other question, though, the other part of your question, Pammi, around paying down debt and buying back shares. Look, the NCIB program is something that we enthusiastically participated in, in Q4, and that was really as a result of -- or I guess, at the beginning of Q1 was really as a result of the fact that we had incremental capital coming in above our business plan through the disposition of some assets. And quite honestly, if that opportunity arises, we will absolutely take advantage of the NCIB program. We're currently trading at an 11% FFO yield. And this is a portfolio that we very much like, know and trust. And so I think it is a very good place to invest our unitholders' money. That said, we also made commitments to get our debt levels and our net debt-to-EBITDA in a specific level by the end of this year, and we fully intend on fulfilling that commitment. So where there is additional capital that is incremental, we will look to the opportunity to put it in our NCIB program for sure.
Yes. The only thing I would add as well, Pammi, that's important to remember, in terms of having incremental capital to reinvest in our business, our development program is winding down. We're getting condo proceeds back. So that's going to help this year. When we look at 2026, we have in the neighborhood of $20 million only of committed development spend next year. So we have -- when we think about our payout ratio and the $150 million plus that we retain every year after our distributions and maintenance capital obligations, that capital is going to be available to reinvest in the business and effectively focus in on that core business. So capital is going to be there structurally based on how we've set up our payout ratio.
Okay. That's helpful. Just coming back to the HBC. In terms of the write-down that you did take, the $209 million, you mentioned some assumptions on re-leasing in your disclosure. So can you just expand on that? Like how many stores did you, I guess, assume are re-leased or kept sold, I don't know, demolished. Anything you can share on that front?
So we had to, for the purposes of accounting at the quarter, pick a scenario. And while the reality is likely going to be quite different and as Jonathan said, we will be very disciplined on any capital injection into the business. We effectively ran a scenario where we assumed re-leasing of all the spaces. So we just treated everything as retail for the purposes of this quarter's valuation. So incorporated rents, capital downtime, et cetera, in the model to come up with a value that is an absent HBC as a tenant situation. And that's all run at our 22% interest. So that's how we had to do it for -- at this point in the process. We will refine that, obviously, as we get into the later parts of this process. Reality is that we probably won't own 22% of all of these assets. We may end up owning 100% of some of them or certainly, the ones that Jonathan mentioned in terms of Oakville and Georgian are ones that we certainly think we could see an increased ownership there based on a security interest and a pretty clear path. But the reality is likely to be quite different. We just had to pick a scenario for accounting purposes.
Yes. And so I think because the situation is fluid and there's still an ongoing court process, including the lease monetization program and the [ SIS ] program, it's too early to give you a better sense of which ones would be demolished and which ones would be re-leased and which ones would be redeveloped. But I think we have plans on every single asset for any different scenario, but we have to wait until the landscape becomes a little bit more clear before we can provide color on exactly which avenue we would pursue.
Okay. And then just maybe lastly on that, the debt is nonrecourse on most of it, except I think with a few properties being the exception. I mean there's the possibility that, frankly, you can simply hand back the keys.
That possibility exists. Yes.
I mean the other possibility is that the debt could be restructured. So this equity that we see on the balance sheet, we've written down the assets but haven't adjusted any values of the debt as well. So that's the other kind of, I guess, different way this could play out.
Yes. But we'll be working with all other stakeholders to figure out the path forward, including lenders on the properties.
Our next question comes from the line of Matt Kornack with National Bank Financial.
Just quickly to follow up on the HBC side. Can you give us a sense -- it may be kind of -- there's some complexity around the timing and the process, but are you starting to get inbound interest from potential tenants for the space? I know that was a priority of yours to kind of find tenants. Georgian Mall and Oakville Place, I think, are probably easier, and I think you alluded to maybe some progress there. But broadly speaking, are you seeing interest in the space at this point?
So it is caught up in the process, Matt, that does prohibit a lot of these tenants from doing direct -- having direct discussions with the existing landlords, not just RioCan, but others as well. Because to be part of those processes, you have to sign an NDA and that does restrict some of the discussions you can have. But we are -- like informally, we have a sense that there is interest in a lot of the space, but nothing is formalized at this point because of this process.
Okay. Makes sense. And then, Dennis, I think from an FFO standpoint, it sounds like you've removed, the JV would contribute. Should we understand, let's say, in a hypothetical situation where you kept all the assets and they were vacant that they would essentially be put into kind of properties under development and you'd capitalize interest and and not have the costs associated with them or capitalize that cost into the repositioning?
So we haven't made that exact accounting assessment based on the facts and circumstances of each asset as we go forward and what those plans are. But I would say that past precedent specifically around Target would imply that what you said is correct.
And then lastly for me, it looks like -- and I don't know if this is a seasonal pickup in leasing activity, but your RioCan Living portfolio occupancy at both [ 450 ] [indiscernible], as well as the broader portfolio seemed to improve from March to May. Is that an indication of you guys being aggressive on the leasing side? Or is that a function of just the spring market is looking a little bit better on the multifamily side?
I think historically, spring market always looks a little bit better. So I would say it's seasonality. But it's a great portfolio, and we think that it attracts a lot of interest spring, summer or fall. But we do think that the uptick in trend this quarter is, over the last is due to a stronger spring market relative to winter. John, any further thoughts on that?
No.
Yes, I mean -- I guess more broadly, I mean, obviously, there's been a new supply of condo product and newer portfolios are facing market rents that has been a little bit softer. But it seems like you've maintained rents and occupancy is moving higher. Do you think that the concerns around the apartment space are overblown to some extent at this point? Or is your portfolio just outperforming the broader universe?
I think our portfolio is outperforming a little bit because of those attributes that I spoke about. But I definitely think there is a little bit of saturation in the market right now. You've got in Toronto alone, 30,000 units being delivered, and then those are mostly in the hands of investors who are really willing to undercut the market just to get someone in their units. And I think that will inevitably have an impact on the broader rental market. But I do think that RioCan Living's assets are quite unique in many respects. I've already gone through the attributes, but -- and I think that will insulate them a little bit. But we definitely think that growth this year is going to be a little bit slower than growth last year, and occupancy is probably going to be a little -- I would say it's going to be fairly consistent throughout the year.
We don't predict a lot more growth in it as a result of that saturation. So I'm giving you a balanced answer quite intentionally, Matt, because I do think the Toronto market, in particular, is going to see some short-term turbulence. But I think long-term, it's an exceptional market. And beyond 2025 and perhaps into a little bit of 2026, you're going to see a lot more volume. And I think if anything, you look at the success we've had on our RioCan Living dispositions, there's a pretty sizable endorsement from buyers who are paying aggressive cap rates because they view that there is a lot of growth involved in those assets.
The only other thing I would add, Matt, is there's market rents, which seem to have stagnated. But then there's the rents in our portfolio where we had renewals over the last couple of years where we did not increase the rents all the way to market. So in years where we saw 20% growth in market rents, we were raising rents single digits. So that does still leave some catch-up for us to make up this year.
And maybe just one last one on the core retail portfolio and your lease maturity profile. It seems like for the last couple of quarters, you've been getting [ 28 ] net for rents. Last year, it would have been [ 25 ]. This year, I think that represents kind of that mid-teen mark-to-market opportunity. Next year, you have a bit lower in-place rents. Is that a function of potential fixed rate renewals or where those assets are? Or do you expect kind of a bigger spread next year as a result of where those rents are relative to what you've achieved market rent-wise over the last couple of quarters?
I think it's largely a byproduct of the fixed renewals we have for next year and the nature of the space, but we still feel the market -- it's not as a result of us seeing the market change.
The mid-teens spread or mid- to high teens spread is we should assume that to be consistent for this year and next, I guess, presumably?
We provided guidance for this year of mid-teens. We'll provide further guidance into next year once it becomes more clear. But we think it's a very strong market, and I don't see a catalyst. I mean, even -- as I said to one of the last analysts, I don't see a catalyst for the retail market to slow, not because I've been saying the economy is going to get markedly better, but rather because I really think that the available space, quality space is so limited and the demand is still very strong. So we really do think it's a very good environment for us.
Yes. Makes sense and it's been coming through in the results for sure.
Our next question comes from the line of Sam Damiani with TD Securities.
One last question to sneak in here or maybe 2. I guess, first off, just on the RioCan Living, Jonathan, your opening remarks were such that the business remains part of RioCan. Does that mean that the REIT would see the opportunity to build back up a portfolio of owned apartment buildings as attractive sometime again in the future? Or is it more just a development strategy going forward?
It certainly means that we could have an ownership interest, but it's going to be, as I suggested, a lesser ownership interest. Our view is that we've got valuable land that will contribute. We've got very good expertise that will contribute. And if the path forward at the time is logical to build out those assets and retain a minority interest in those assets, then we would absolutely be open to doing that. But it doesn't mean that we wouldn't also look to be a little bit more merchant in our views where we either sell the existing density or we build and then sell our interest. But I think any of those opportunities are open to us. We haven't put definitive parameters around each one saying we will not or we will absolutely do.
Okay. That's helpful. And last one, just on the sale of or I guess, the redevelopment or repositioning of these 2 properties, which were huge successes, obviously, Laval this quarter and then last year with Burloak. John, is there another 1 or 2 of these deals that you could bring forth in the next year? Like these are obviously huge wins.
Absolutely, Sam. It's -- we, as a team, go through the entire portfolio every year in dedicated meetings. We have an asset management team that is constantly going through each one of our assets just to determine not only where there's some hidden opportunities, but where we think the highest and best use isn't being achieved. So there are a whole bunch of these gems. It takes a little while to, I would say, unbury them sometimes, but very pleased on the progress, both of Burloak and the results of the sale in Mega Centre Notre-Dame. So stay tuned.
Our next question comes from the line of Dean Wilkinson with CIBC.
Jonathan, maybe I'd just go back to your paradox. On the paradox, the view that you hit with RioCan Living and the realization that perhaps this is something best you divest of, was that just because you hit a big enough size to do it? Or was perhaps the thought that you've hit a big enough size that maybe RioCan Living was starting to dilute the value of an otherwise healthy retail portfolio, which is kind of core to your DNA?
I don't think it was -- I don't think RioCan Living could ever be viewed as dilutive to our quality. It's an exceptional portfolio. And I think -- and it's always typically married with good retail uses. So from both a qualitative and quantitative perspective, I definitely think it's a high-quality aspect of our portfolio. We wanted scale so that we'd have a number of options, whether it would be a broader spin-off, whether it would be something that we would keep within the portfolio if we were seeing multiple recognition or maybe it would be a disposition the way we've currently proceeded. And in order to assess that properly, we felt we needed a certain element of scale, which we achieved. And so now that we've done that, we've assessed how best to extract value and the way we proceeded is the best way to extract value.
I think we were not seeing any real multiple lift in our unit price as a result of that portfolio being in its current state. And in speaking to a number of investors, there was a recognition that, that wasn't going to change. And we're active asset managers, and we want to bring value to the table for our unitholders as best we can. So this path forward was in recognition of the fact that we simply weren't getting maximum value in the current status quo, and we wanted to take, I think, prudent action to extract that value. And I also think you can't ignore the fact that when you have the opportunity to sell at a very low cap rate and then buy, let's say, units of RioCan back at an 11% FFO yield, the math does also help answer the question. But I think it wasn't that, that's more acute. Our view on this was much more larger and strategic than just the fact that we can trade out of one and into another at very accretive returns.
And just on one of your points, Dean, I think what we see here with this sale as well as concluding on the condo program, which we will do substantially over the balance of this year, we do see a simplified core, very strong, high-performing retail portfolio that remains. And I think you would agree based on the way you asked your question that, that is something that will be attractive to investors.
It's what you guys have been known for, for 30 years. So a little bit of going home. And then maybe just one on the HBC, not to let it die. Are any of those properties separate title or severable so that you could just totally ring-fence it and then just like maybe sell it off and let someone else go with it? Or do they have to be dealt within the totality of sort of the package?
So if you look at it, there's 3 buckets of properties. One is the ones we've already spoken about where it's Georgian Mall, Oakville Place and Tanger Outlets, which are actually part of a broader shopping environment that we already own. And we wouldn't want to separate that off and sell it because we think there is a significant amount of value we could extract to add to our existing shopping center. Then there are a number of HBC locations that we own, but they're part of a broader, bigger shopping environment that we do not own. And those are separate because they are separate parcels, which permitted us to have these long-term ground leases or actual freehold title. And so there, we are free to sell or to enter into another arrangement that is long-term. There is flexibility. And then the last bucket are the -- I would call them flagship stores in downtown locations, which are stand-alone stores. So by their very nature, they are severable because there's nothing really to sever them from. So hopefully, that gives you a good backdrop.
That does. Perfect.
I am showing no further questions at this time. I would now like to turn the conference back to President and CEO, Jonathan Gitlin.
Thanks, everyone, for joining, and have a great day.
That concludes today's call. Thank you for joining us, and have a wonderful rest of your day.