RioCan REIT has reported a significant quarterly loss and lowered its full-year earnings forecast, citing the financial fallout from its joint-venture with Hudson’s Bay Company (HBC) as the iconic department-store chain goes through creditor protection.

The trust posted a net loss of 28 cents per unit in the quarter ending March 31, reversing from a profit of 43 cents per unit during the same period in 2024. The loss stems largely from a $208.8-million writedown in the value of RioCan’s interest in its HBC joint-venture, following the troubled retailer’s restructuring move.

All Bay stores across Canada, including those in the joint-venture, are slated to close.

RioCan also reduced its annual funds from operations guidance by four cents, now forecasting between $1.85 and $1.88 per unit, as the impact of the HBC situation offsets gains from its residential portfolio.

The trust indirectly holds a 22% stake in 10 retail properties exclusively tenanted by HBC. The 10 properties include the prime downtown HBC stores in Montreal, Vancouver, Calgary Ottawa. As a result of HBC’s financial instability, RioCan has experienced reduced rent payments and significant uncertainty regarding the long-term viability of these locations. The writedown effectively cut 83% of RioCan’s valuation in the partnership, leaving it at $41.4 million.

Jonathan Gitlin, RioCan’s CEO, told the Canadian Press that the writedown was a result of the information currently available, but he remains confident about the recoverability of separate loans the trust extended to HBC.

“We’ve got secured interests which rank ahead of virtually everyone else in the capital stack,” Gitlin said in an interview with CP. “That gives us a pretty clear path to realizing on that security, so we feel very comfortable,”

Gitlin also confirmed to CP that RioCan has not yet been informed by court-appointed monitor Alvarez & Marsal of the outcome of lease bids on the joint-venture properties, which were due April 30.

“What has been priced into our units is far more dramatic than we think what the actual outcome will be,” he told CP.

He acknowledged that the potential influx of retail space due to HBC’s downsizing could exert downward pressure on lease pricing. However, he said RioCan’s portfolio should be largely insulated thanks to its focus on high-quality, necessity-based tenants like grocery stores.

“There are going to be some independent businesses that will suffer in this kind of environment,” Gitlin told CP.

“If there is some fallout, there is a significant demand in behind that space that will allow us to backfill it quite quickly and with quality tenants.”

Calling the quarter “paradoxical,” Gitlin pointed to RioCan’s strong operational performance despite the financial hit. The trust saw a 17.5% increase in rental rates across new leases and renewals and reported a retail occupancy rate of 98.7%.

Nonetheless, given the broader economic uncertainty, RioCan has opted to postpone its investor day indefinitely.

“Your management team is actively navigating through the process. While the path may not be linear, clarity will emerge in waves, and we look forward to sharing our progress with you,” Gitlin told unitholders on the earnings call.

A court order issued March 21 requires HBC to pay $7 million of the approximately $10 million in monthly occupancy rent due to the RioCan-HBC joint venture. This payment ensures sufficient cash flow to meet expenses, debt service, and fees—including those payable to RioCan, said the REIT in its quarterly earnings report. The remaining $3 million will be recorded as a receivable against the HBC estate, with senior ranking over pre-filing creditors.

RioCan has recorded a $1-million provision for its share of the unpaid rent.

Pictured: Hudson’s Bay store in downtown Montreal that is included in the RioCan-HBC joint-venture.

Photo: Shutterstock

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