Good morning, everyone, and thank you for joining us today for RioCan Real Estate Investment Trust 2025 Investor Day. My name is Jennifer Suess, and for the last eight years, I've had the privilege of working as RioCan's Senior Vice President, General Counsel, Head of ESG, and Corporate Secretary. Every day in my position, I have the privilege of having a front-row seat to the incredible results being achieved by each department in our organization. I am thrilled to be able to give you a behind-the-scenes look today at our industry-leading team and the strategy underlying all that we do at RioCan. Before we get started, I note that we'll be making some forward-looking statements in today's presentation. You can see the full disclosure on the screens beside me, or if you'd like more details, please visit our website at www.riocan.com.
Investor Day gives us the chance to take you deeper into our strategy, performance, and long-term value creation shaping our future. On behalf of RioCan's senior leadership team, we are excited to give you a transparent and forward-looking view of the business today. First, we'll hear from RioCan's President and Chief Executive Officer, Jonathan Gitlin, who will take the stage to provide the vision for our organization and an overview of today's discussion. After Jonathan, we'll hear from our Chief Financial Officer, Dennis Blasutti, who will demonstrate that the value of our business lies in our core retail portfolio and how we are driving growth from this strong core. He will also briefly take you through the financial framework surrounding the strategy being presented here today.
Next, John Ballantyne, our Chief Operating Officer, and Oliver Harrison, our Senior Vice President of Leasing and Tenant Experience, will together share how we have driven and will continue to drive growth through our high-performing retail portfolio. Following that, Jonathan will moderate a tenant fireside chat featuring Greg Hicks, President and CEO of Canadian Tire, Michael Medline, former President and CEO of Empire Company Limited, and Todd Barkley, President of Casual Brands and Government Relations at Recipe Unlimited. They will discuss just a few examples of the many strategic collaborations between RioCan and Canada's top retailers, illustrating how these partnerships deliver sustained and mutual value to our unit holders. Afterwards, our Chief Investment Officer, Andrew Duncan, will outline our plans to accelerate growth through accretive capital allocation.
Dennis will then return to the stage to present key operational and performance metrics, as well as our goals and targets for the future. Jonathan will then wrap up our prepared remarks and invite your questions to RioCan's senior leadership team, whether you're here in person or joining us online. As a reminder, today's event is being webcast live and is also available through RioCan's website. A replay and related presentation materials will be available following today's event. Now let's get started. It is my pleasure to introduce you to RioCan's Chief Executive Officer and President, Jonathan Gitlin.
Thank you, Jennifer. Thank you, everyone. I've been with RioCan for 20 years. I've seen a whole lot of cycles. I've had too many roles within RioCan to even actually remember at this point. I'm going to tell you that I'm well positioned to say that never before have I had more conviction and belief behind the future of this business. My hope is that by the end of the day, you will all agree with me. First, I want to thank all of you. I know that there are a lot of competing priorities. I know that you've got a lot on your plate. There's a lot of companies that you're following. We are grateful for your time today, for coming down to this magnificent facility we call The Well and spending the day with us and our team.
The fact that you're here is gratifying for us. What we intend to do today is not waste a moment of your time. I also want to thank the RioCan team. It's an incredible team. You're going to see a lot of them today, both during the formal presentations and thereafter. I want to thank them for helping put this day together, which is no small feat. I also want to thank them for the bigger matter, which is really fueling all the strategies that we talk about today. I'm very proud of this team. I'm very proud of RioCan, and it is really an honor to be the captain of this wonderful ship. I also want to thank our Board of Trustees, led by our founder, Ed Sonshine. This is a tremendous board, seasoned board, and it's a win-win.
You see, we as a management team get wonderful guidance from this board, and you as our unit holders get wonderful governance from this board. We are all thrilled to have them at our side. Today, the message is simple. It is very clear. Our business is built for long-term core FFO growth of 5%. We have the right portfolio and the necessary capital to achieve this goal. Backed by simple, retail-focused strategies, we are entering our next phase of growth with confidence and with momentum. I will break down how we get to 5%. It starts with same property NOI growth of at least 3.5% going forward. My colleagues, John Ballantyne and Oliver Harrison, are going to share details of how we will achieve this. The key takeaway is this: it is a secure source of growth for RioCan. Capital recycling will generate an additional 1.5% core FFO growth.
Andrew Duncan, our Chief Investment Officer, will share the details, but the key point is that we have a significant amount of capital coming into us, and we will reinvest it into our core business to create durable cash flows with strong risk-adjusted returns. In the near term, refinancings will temporarily moderate this growth. Our outlook for 2026 through 2028 reflects core FFO growth of at least 3.5%. Dennis Blasutti will show you why this is a short-term adjustment, not a shift in our trajectory. Our growth strategy is rooted in our competitive strengths. At the foundation is our productive retail core. This focus on retail gives us resilience and confidence in our growth plans. Next, our disciplined capital allocation framework ensures that every dollar is deployed to deliver high-risk-adjusted returns. Underpinning everything is our proven operating platform.
With the strength of our core retail platform and more than 30 years of proven success, we're confident in our strategy to deliver sustained growth and long-term value for all of our unit holders. I talked about our strong retail productive core and it generating 3.5% growth. What does this mean exactly? When I think about my conviction in our retail, I think about three things. I think about Canada as a place to do business. I think about retail as an asset class, and then I think about RioCan within this context. First, I want to talk about Canada for a moment. It's often something that we take for granted, but this country is a remarkable place in which to do business. There are things that we benefit from as a proudly Canadian company that I want to highlight for a moment.
Canada has strong demographics. It has got resilient consumer spending. It has got political stability, a secure investment environment, and we benefit from being proximate to the United States, which gives us incredible retail innovation and incredible retailers that come from the United States, set up in Canada, and provide best practices for conducting retail in this country. Now, these conditions are structural. They are enduring, and they give me a great deal of faith in the future of retail within Canada. Next, I will talk about retail as an asset class. Why are we excited to be a part of this asset class? I took Grade 11 Economics, which qualifies me to make this statement: when supply is low and demand is high, conditions favor those who hold the product. I got a B in that class. There is a great combination here.
Available square footage continues to be low, and barriers to entry are very high. Let me talk to you about the supply constraints for a moment and why they're going to be enduring. First of all, I'm sure many of you are familiar with how difficult it is to get a permit to build anything in this country, and particularly in Toronto. Secondly, it's very expensive to build new retail in this city or in this country. Thirdly, even if you were able to do so, to find a parcel of land that is suitable for good, productive retail is a very, very difficult thing. I think that these supply constraints are here to stay. I think that there are also demand elements that are also enduring. You see, in Canada, we do have a clear reliance on brick-and-mortar retail. It's a vital part of the Canadian consumer experience.
Our retailers firmly recognize that a good brick-and-mortar retail strategy complements an online strategy, and they work very well as components together, particularly for Canadians' daily needs. Let me talk to you a little bit about Canadian retailers and why, again, I feel so strongly about the future of Canadian retail. Let's take you back 10, 15 years ago. If we were having a conversation then about, let's say, grocery expansion in Canada, it would have been an entirely different conversation. Were I speaking with the head of, let's say, Sobeys at that point in time, the conversation would have been simple and not so productive. They would have come to us and said, "We need space." We would have said, "Fantastic." They would have said, "That space must be between 35,000 and 45,000 sq ft. It has to have the dimensions of an iPad, a certain frontage-to-depth ratio.
It has to have a certain number of parking spots up front, a certain number of loading docks in the back, and it has to cater to our one banner being Sobeys. Now, fast forward 15 years, and I would say that this is an entirely different conversation, much more beneficial for us, the providers of space, because now the conversation is one that is littered with flexibility. Retailers like Sobeys now have four or five or even six different banners, which means that they've got a lot more use for different kinds of retail space. Their space requirements have become far less rigid, far more flexible. This means that the types of space within our portfolio that they would want has broadened out significantly. A great example of this is at our RioCan center in Colossus up in Vaughan, where we had a—I'll say the name.
It's a four-letter word in RioCan, but we had a Bed Bath & Beyond space that we've now repurposed into a Longo's. And that Longo's is thriving, and the rents they pay are far superior. What they do for that center is much greater than what a Bed Bath would have done. The importance is that they now will take a space that is in line and an old box space like that. This is great for the future of retail landlords. Another great example is gyms. I don't have to remind you that 15 years ago, a gym would have been a tenant of last resort for a portfolio of RioCan stature. Now that is entirely different. You see, LA Fitness, Good Life, these are tremendous occupiers of space. They do it right. They look good. They pay their rent. They've got great covenants.
The retail paradigm continues to evolve. They continue to innovate. It continues to be better and better to be a retail landlord. RioCan is ready to win. I talked about it before. I said, "What about RioCan in this retail context within Canada?" We are in a strong position. We are in a favorable market. We have a high-quality portfolio, and dare I say, probably the highest quality that it has been in the history of RioCan. We have done a lot of heavy lifting to get to this point. We have done this through selling weaker assets. We have simplified and strengthened the portfolio by developing newer assets, by acquiring strong assets, and most importantly, by repositioning a lot of our existing assets, which John, Oliver, and Andrew will speak to you about later. This sets us up to take advantage of an incredible set of circumstances in the retail space.
We fashioned our portfolio to meet market demands. We've got 173 properties, all of them productive. There are no weak links in our portfolio. We benefit from a very strong demographic profile. I will remind you that we have worked very hard to make 94% of our income come from the markets that matter, the major markets within Canada. We've got a strong, high-quality tenant mix. This is where Canadians want to shop. As a result, we are poised to continue this wonderful leasing momentum that you've seen over the last number of quarters. Bottom line, people, we've got the right tenants. They want to be in RioCan spaces, and they don't want to give up our spaces. Bringing this all together, we're in a very powerful position with the right backdrop and the right asset class in a terrific country.
That is why my confidence, my conviction behind a 3.5% growth from our retail core is easy when it is fueled by these facts. Now I want to dig into capital management. We have been selling off non-core parts of our business, which lead to an influx of capital. What are we going to do with this capital? As we stated, our first priority is strengthening our balance sheet. Dennis is going to walk you through what that means. We are committing to a net debt to EBITDA of 8x-9 x going forward, among many other critical financial KPIs. We have got a defined framework, a very disciplined dynamic where we are investing capital to achieve at least a 9% unlevered IRR. There are a host of options to achieve this, but the best are rooted in our existing portfolio.
What does this mean? If we look to our portfolio, there are lots of opportunities to better the portfolio through infill developments in our existing centers. We also have the opportunity to buy back units. We have already done this. We will continue to do this. As our units currently trade below NAV, it is a very simple and obvious choice. Both of these initiatives help our net asset value per unit. They help SPNOI, and they create and contribute to the 5% core FFO growth per year target that we have spoken about today. A plan is only going to take us as far as the people and the platform supporting it. Platform is everything. Ours is powered by our people, our processes, and the ability to leverage data.
I emphasize this point because it's a theme that you're going to hear consistently throughout the day from all of our team members. Let me remind you first and foremost that we are independent and we are large. These factors give us flexibility. We are not beholden to anyone other than you, our unit holders. We've got a strong combination of both data and experience. Thirty years of built-up data, thirty years of experience. When you put these together, it allows us to make meaningful decisions in all aspects of our business, whether it's leasing, procurement, marketing strategies, portfolio management through acquisitions and dispositions. These are excellent sets of facts that make me very confident in our wonderful platform going forward.
Before I get off the stage, I want to leave you today feeling very confident that we can produce 5% core FFO growth, focusing on our strong productive retail, allocating ongoing capital effectively, and leveraging our scale, our people, our processes, our technology, or said differently, our platform, so that we can execute on everything that we speak about today. Now, I'm going to invite my colleague Dennis up to the stage, who's going to share a couple of points that will set the context and bring some clarity to the presentation. Without further ado, Dennis Blasutti.
Okay, great. Thank you, Jonathan, and thanks to all of you for being with us here today. We really appreciate you taking the time. My name is Dennis Blasutti, and I've been the CFO at RioCan for the last four years.
Since I've joined, the market has been interesting, to say the least. In the fall of 2021, when I started, we were nearing the end of a global pandemic. Then we had a glorious six weeks in early 2022. The pandemic was over. Everything was looking up. Those were good times. Shortly thereafter, we saw record inflation and interest rate volatility that we had not seen in a generation. Also over that time, I've observed that RioCan has the portfolio and the platform to weather these storms and thrive. Going forward, I'm excited to share what this platform can really do. Now, as Jonathan mentioned, I'm going to take a couple of minutes to go through two concepts that are pervasive throughout the presentations: our core FFO and our capital allocation framework. Throughout the morning, you hear us reference core FFO.
This is the high-quality, durable income that our portfolio generates. This is a shift from our previous FFO, which included non-recurring items such as condo gains. This will not be surprising to you, as we have been talking about a simplified business model for quite some time. The core FFO baseline that we will grow from is at least CAD 1.55 for 2025. Let me walk you through it. What is included in this metric is the predictable and growing income from our commercial portfolio. What is excluded? Our condo gains and HBC. Over the last several years, we have generated a lot of FFO from our condo program. However, as we have discussed over the last few quarters, we have decided not to continue with this line of business and hence have removed it from the core.
We've also excluded from core FFO the income related to the HBC JV, as these large single-tenant assets are not reflective of our core portfolio. It is important to note that the items that we've excluded from core FFO are low-value cash flows. These make up an immaterial amount of our net asset value. We haven't valued these items in our NAV and neither have you. As discussed on our Q3 conference call, there is no value related to HBC in our NAV, and the condos represent only 1.8%. This condo value is nominal, and it won't be lost. This will be repatriated to the balance sheet over time. We are selling our RioCan Living apartment portfolio, and that capital is also being repatriated to the core net asset value.
You'll notice that there was no impact from the sale of this portfolio on core FFO, as cap rates on these assets are similar to our cost of debt. What I'm saying is that our core business generates high-value, durable cash flows that represent the majority of our net asset value. This view on NAV reaffirms our strategy to simplify our business with a focus on a productive retail core. We will grow this NAV as we grow our income and improve our assets, compounding value for many years to come. Next, I want to take you through our capital allocation framework. In the coming sections, you'll hear John and Oliver discuss case studies where we have invested in our portfolio. You'll hear Andrew speak about the number of opportunities we have to deploy capital creatively. All of these investment decisions are made using a consistent framework.
The ultimate goal of this framework is to ensure that we're allocating capital to opportunities that earn the highest risk-adjusted return. This is a balanced framework that considers balance sheet priorities, financial returns, and operational fit. When it comes to capital allocation, it all starts with having a strong balance sheet. Our balance sheet ensures that we have the flexibility to manage risks and pursue opportunities. We manage this across a number of metrics. We are committed to maintaining our investment-grade balance sheet, which ensures we have continued access to low-cost debt capital. We are reaffirming our target net debt to EBITDA range of 8x-9 x. This range strikes the right balance between managing risk while leaving room to pursue opportunities. Our FFO payout ratio is targeted at approximately 70%.
This ensures that we retain cash flow to reinvest in our business, as previously demonstrated, while providing a sustainable distribution. We expect this payout ratio to decline as our FFO grows. The remaining three metrics on the page ensure that we are always able to meet our obligation and take advantage of opportunities. Now, our capital allocation framework is applied to all investment decisions, whether it be reinvesting in our portfolio or pursuing external opportunities. Our hurdle rate for these investments is 9% unlevered IRR. This target is based on a WAC calculation that takes into account our current unit price. This means that all investment opportunities have to compete with buying back our own stock. As I previously mentioned, maintaining a strong balance sheet is a top priority for us. Once that's taken care of, we can allocate capital to other initiatives.
Andrew will walk through examples of these options and demonstrate the application of this framework. Okay, that's all for me at this point. Hopefully, this has given you some context around these two key elements as we go through the rest of the presentations. With that, I will hand the floor to John and Oliver, who will demonstrate why we have so much confidence in our same property and why growth.
Thank you, Dennis, and good morning, everyone. Just by way of quick introduction, I'm John Ballantyne. I've actually worked at RioCan for the entire 31 years of the company's history. I'm joined here by Oliver Harrison, our Senior Vice President of Leasing and Tenant Experience. Oliver's been around for over 26 years now. Together, we've been with RioCan for the ownership of every asset and literally the signing of every lease.
has been said, albeit mainly by our wives, that we actually know the portfolio better than we know our own kids. And while that is not technically true, we do put this experience to good use, leading a team of 350 incredible people who manage our industry-leading properties every day. We are here today to talk about how we drive growth through our productive retail portfolio. We have a clear growth target. We are committed to achieving at least 3.5% same property NOI growth over the next three years. This objective is grounded in discipline and a defined strategy. What you will leave with here today is a clear understanding of exactly how we generate this growth. Our confidence in this guidance is rooted in the quality of our portfolio and our team's commitment to extract and accelerate every opportunity for revenue growth.
Both are amplified by today's supply-constrained retail environment that Jonathan highlighted earlier. This translates into durable, protected income and sustainable growth. RioCan's portfolio is designed to meet the everyday shopping needs of Canadians. Think about your regular errand run: groceries, drugstore, LCBO, grabbing a few quick items from Canadian Tire, a Costco visit. For those with young kids, Dollarama. For those with teenagers, of course, Sephora. We own and manage over 32 million sq ft of perfectly located space, and this space is essentially full. 94% of our rent comes from communities with the demographic profile every necessity-based retailer is looking for. Within 5 km of our properties, the average population is 277,000 people, and the average household income is CAD 155,000. To say it simply, our properties are where tenants need to be, and this drives high retention, strong leasing spreads, and consistent rent growth. Our success reflects deliberate choices. We are intentional about investing in prime locations and partnering with leading tenants.
I'm going to briefly expand upon a point that John just brought up, and that is our outstanding tenants. The foundation of our exceptional portfolio is built on the strength and composition of our tenant base: grocery, pharmacy, liquor, fitness, and value retailers are the tenants Canadians use every day. It is that daily shopping traffic that drives tenant success, translating into rent growth and long-term value creation for RioCan. Let me be clear. This does not happen by accident. We are meticulous in how we manage our tenant composition to produce exceptional shopping experiences. Our rent roll is well-diversified, with no tenant representing more than 5% of our overall portfolio. Additionally, we leverage our data to optimize our retail offering. What that means is every property is evaluated and receives a merchandising mix score.
This score helps us determine the retail use or tenant that will best complement the other tenants in our shopping center. We believe this approach creates standout retail experiences, enhances foot traffic, maximizes tenant productivity, and drives long-term value. Our commitment to tenant quality provides the foundation for our merchandising strategy. By prioritizing the right tenant mix and leveraging data-driven insights, we ensure that each property reaches its full potential. Let's take a moment to see this approach in action with our grocery leasing efforts. Our grocery leasing results show how intentional merchandising creates measurable value. Most people are familiar with the headlines. The grocery industry is expanding quickly because of rising population and changing consumer preferences. As a result, top grocery retailers are aggressively seeking new ways to expand their business. We recognize grocery as the main co-tenancy category and have expanded the grocery selection across our portfolio.
Let's take a moment to look at this. Over the past two years, we've completed 10 grocery deals totaling 230,000 sq ft at centers which previously did not feature a grocery component. In addition to materially improving foot traffic, these transactions achieved an average premium of 24% over the prior rents on these spaces. Furthermore, over the past five years, we've grown the percentage of our portfolio with a grocery component by 10%. We've achieved this by leveraging our strong partnerships with national Canadian grocers, Sobeys, Loblaws, Metro, and major retailers like Costco and Walmart, which allocate a significant portion of their space to grocery. Converting these centers to grocery-anchored sites not only increases foot traffic and revenue, but also reduces implied cap rates by 25-50 basis points, directly and positively affecting NAV.
Our objective over the next three years is to increase the percentage of our centers with a grocery store from 85% to at least 90%. This includes two upcoming deals with grocers at Oakville Place and Georgian Mall, which will fill spaces previously occupied by HBC. Adding a grocery anchor will not only boost daily foot traffic at these centers, but will also increase annual gross rent by CAD 4 million compared to HBC, resulting in an invested return on capital of 14%. To be clear, our grocery leasing program is more than a portfolio strategy. It is a catalyst for sustained growth, resilience, and community connection.
The strength of our portfolio and quality of our tenants provides us with secure income and the ability to maximize growth through leasing activity and strategic asset management. Our portfolio continues to outperform every operational KPI that matters.
The numbers on the screens speak for themselves. Setting new records in occupancy, retention, and leasing spreads quarter after quarter is no longer an exception. It has become our standard. Today's stable, well-capitalized, diversified tenant base is tomorrow's predictable income. Today's leasing spreads are tomorrow's same property NOI growth. I'll now spend some time to unpack the components of our same property NOI growth. The foundation of the growth is in place. It's the quality of our portfolio, strong market fundamentals, and strategic asset management. Approximately 65% of our same property NOI growth target is locked in. It's contractual income embedded in our leases with no execution risk. This component of our growth is the result of a decade-long program to strengthen our tenant profile and incorporate annual increases into new and renewing leases.
Roughly 30% of our same property NOI growth is tied to incremental revenue from renewing 10.7 million sq ft of expiring leases over the next three years. Our confidence in achieving this target is grounded in our track record, namely the 15% average renewal spread achieved over the past 18 months. We view this aspect of our growth as not only highly reliable, but also a potential opportunity for overachievement. The remaining 5% of our same property NOI growth will be driven by strategies focused on increasing occupancy, adding retail GLA within our existing centers, unlocking fixed lease options, and generating additional ancillary revenue across the portfolio. These initiatives not only secure the minimum required to achieve 3.5% annual same property NOI growth, but also create meaningful upside potential to outperform our guidance.
We have a data-driven approach to identify and achieve the revenue potential of every lease in RioCan's portfolio. We developed Northstar, a proprietary analytics platform that gives us portfolio-level visibility and insight. Northstar empowers our asset-level strategies. It consolidates data across all of our 4,200 retail spaces and provides a clear assessment of the growth potential in each property. It identifies any barriers to growth, but more importantly, it highlights the greatest opportunities. This allows us to get the biggest bang for our buck, prioritizing capital and resources on initiatives that work hardest to accelerate growth and maximize asset value. The platform quantifies the gap between current and market rents, identifies contractual constraints, and surfaces opportunities to unlock embedded growth. For example, it quantified the mark-to-market gap across the 10.7 million sq ft of lease expiries that I mentioned earlier.
Eliminating this mark-to-market gap will yield an average annualized same property NOI increase of CAD 10 million. Based upon this aggressive but achievable renewal strategy, our average portfolio rent will increase by 10% over the next three years. This is meaningful progress on our ultimate target of realizing the 25%-30% mark-to-market opportunity embedded within the portfolio. In addition to providing target rents for new leases and market renewals, the platform identifies obstacles to future growth, such as fixed-rate renewal options. Twenty-five percent of our income comes from tenants with fixed-rate options.
Solutions initiated by Northstar in these cases key in on the immediate needs of retailers that can be leveraged to unlock market rents, including providing the tenant with additional locations or expanded footprints, granting additional lease options to tenants that have limited remaining lease term, unlocking prohibited uses like food uses for non-grocer tenants, contributing capital at an acceptable return to RioCan towards tenant renovations, and in some cases, it may even mean compensating tenants to terminate leases when the rent is significantly below market. Northstar also flags opportunities to leverage retailer demand, enhance our merchandising mix, and grow ancillary revenues.
We develop actions based on these insights, including converting gross and percentage rent leases to triple-net structures, eliminating tenant restrictions to execute upon the 1 million sq ft of retail expansion opportunities identified across 60 of our existing sites, and also identifying and ultimately disposing of assets that have unlockable growth or rents that already materially exceed market. We use Northstar to transform visibility into action. It helps us focus on the assets with the highest yield potential and the strategies that deliver the greatest impact today and long-term growth tomorrow. In short, we are translating future mark-to-market opportunities into growth today. We'll now walk you through a few property-level examples of how this platform-driven insight translates into strategies and ultimately enhances growth. We've picked a few case studies that highlight how we're leveraging retailer demand for space to transform and elevate our centers.
Yonge Eglinton Centre is an excellent example of our ability to leverage quality locations, strong retailer demand, and strategic asset management to unlock embedded growth potential. The asset is located at the intersection of Yonge and Eglinton Avenue in Midtown Toronto. The center benefits from outstanding demographics with a population of 217,000 people and an average household income of CAD 260,000 within a 3 km radius. The demographic profile and daily traffic conditions will further improve with the opening of the Eglinton Crosstown LRT in late 2025. I'm not guaranteeing that, but that's rare.
I'll take the over.
The 19 km line will connect the existing Yonge Line to the east and west ends of the city, making Yonge Eglinton a central transit hub in the heart of Toronto. The improved transit infrastructure has also spurred considerable residential development in the area.
This perfect storm of infrastructure improvement and population growth has created considerable demand from retailers for space in the Yonge Eglinton Centre, the only full-service shopping center in the node. Leveraging the power of Northstar, Yonge Eglinton Centre was identified as a high-priority asset due to its substantial embedded growth potential combined with near-term lease maturities. It was through this lens we determined that re-merchandising and renovating represented the optimal approach to capitalize on this potential and embarked on the following initiatives. Metro, our grocery anchor, was undersized and quickly running out of term. With only seven years remaining on their current lease and no renewal options, there was a risk of them losing this high-performing location.
We effectively addressed these requirements by negotiating a new lease that provided for a 50% expansion, a 150% increase in annual rent, annual escalations, and an increased contribution to the center's common area costs. To accommodate the expansion, LCBO was relocated and rightsized into more efficient space, also at higher rents. Building off of this momentum, we secured a 10,000 sq ft RBC branch to replace an underperforming apparel retailer that occupied prime Yonge Street-facing space at a rent increase of 400%. As part of this agreement, the bank also secured a lease for 30,000 sq ft of office space in the Yonge Eglinton Centre. An existing lease with Toys R Us was terminated to facilitate the relocation of Good Life Fitness. This achieved their objective to double in size and renovate the site to their modern urban prototype. The existing Winners was expanded into the former Good Life space.
This fulfilled TJX's desire to double the location size while providing them with an opportunity to modernize this already highly productive store. Less productive space in the center's retail court is being consolidated to accommodate a new lease to Jump Plus. Jump Plus is an Apple licensed offering the full range of Apple products, accessories, and technical support. Finally, the food hall, which will be directly connected to the new transit station, has been fully renovated and re-merchandised. The enhanced space and food offering is designed to meet the needs of increased visitors both at the center and the Yonge Eglinton area. The reimagined Yonge Eglinton Centre is expected to deliver a 16% unlevered IRR on RioCan's CAD 19 million investment and add approximately CAD 23 million to NAV at the current IFRS cap rate.
Upon completion, the renovated and re-merchandised Yonge Eglinton Centre exemplifies the growth potential embedded in RioCan's portfolio, as well as our team's capability to identify and capitalize on such opportunities.
Now let's take a look at RioCan Centre Burloak, another example of our team's ability to unlock growth, in this case by successfully repositioning an underperforming asset. RioCan Burloak is an open-air center at Burloak Drive in the QEW in Oakville, Ontario. It's anchored by Longo's, Home Depot, as well as various national food service and experiential brands. Approximately 170,000 sq ft of the site consisted of underperforming retail space. This portion of the site has historically underachieved and was a constant drag on same property NOI growth. The merchandising mix and existing format of the site simply could not support market rents.
To drive sustained NOI growth and create long-term value, we executed a strategic repositioning of this underperforming portion of the site. This strategy can be summed up with one word: Costco. We have an extensive relationship with Costco, including nine operating locations across our portfolio. Because of this, we knew they were looking to supplement an undersized store within the market with their largest size prototype. We also understood the immense value a Costco would bring to this site. Costco is an ideal tenant. Anyone who's been to a Costco on a Saturday and tried to find parking, lined up at their gas bar, understands the tremendous amount of traffic a Costco drives. The numbers are compelling. A typical Costco attracts over 3 million visitors each year and generates average annual sales of CAD 450 million.
We worked with Costco to free up the 14 acres of land required to accommodate their new 160,000 sq ft store. To unlock the land, they needed RioCan to terminate leases with less productive tenants. The more productive retailers were relocated elsewhere on the site, and the underperforming component of the site was demolished. We also negotiated a waiver of a food restrictive held by the site's existing grocer, Longo's. We accomplished this by leveraging both our relationship with the retailers as well as their mutual demand for new locations. In exchange for gaining the ability to operate at Burloak, Costco relaxed a similar restriction to allow a new Longo's store at our Colossus center in Vaughan. Truly a win-win for RioCan. The new Costco store is currently in the early stages of construction and will be fully operational in the second half of 2026.
Burloak's NOI will increase by CAD 3 million annually, which translates to CAD 21 million of NAV growth after factoring in the required capital investment and the cap rate premium associated with a Costco-anchored site. In addition to this immediate financial return, the dramatic daily increase of consumer traffic generated by Costco will drive growth over the entire site for years to come. This Costco halo effect has already resulted in 40,000 sq ft of new leases with TJX and Sephora, both of which are replacing underperforming retailers at 180% higher average rents. Ultimately, this is another example of our team's ability to unlock, identify, and accelerate embedded growth. Here's what Oliver and I will leave you with today. We have a rock-solid foundation, and we're driving growth at a record-setting pace. We have the right locations, the strongest tenants, data-driven asset management, relentless execution.
Yonge Eglinton Centre and RioCan Burloak are just two of countless examples in our portfolio that underscore why we stand here today confident in our ability to deliver at least 3.5% same property NOI growth over the next three years and beyond. Now we're going to kick it back to Jonathan to lead our tenant panel.
Thanks. I'll be here. Oh, I can't hear me. Okay. So good to be here with friends and partners. You might have overheard us. Apparently, we were so exuberant to see one another that we were so loud that everyone in here could hear us while we were in the green room. I guess I now realize that curtains don't represent full walls.
I'm thrilled to be here with Greg Hicks, President and Chief Executive Officer of Canadian Tire, Michael Medline, the former President and CEO of Empire, and now the new-to-be, I guess, future President and CEO of Woodbridge. Congratulations on that. Todd Barkley, the President of Casual Brands and Government Relations at Recipe Unlimited. The commonality here is that all three of the companies that these folks represent are very strong and enduring partners of RioCan. The concept here is just a number of different questions that cover a gamut of subject matter. I'm going to start with you, Greg. Canadian Tire operates a whole lot of banners, different formats. How are you guys adjusting your real estate approach to maintain scale where we're in a marketplace where, as I mentioned before, space is pretty scarce?
Yeah. Thanks for having me.
Nice to be here. I think the most important word in that question was scale. When we all look in our industry globally, there is lots of disruption. Call it the last 5, 10 years, maybe. Most of the disruption being led by scale players. Winners and losers are emerging, and it is mostly the scale players that are on the winning end of that spectrum. We have developed a business strategy that attempts to combat that in the way in which we can. That is an announcement of a new business strategy. We call it True North.
It has us putting all of those banners and businesses that you mentioned into a system, a retail system, and changing the operating model of the business so that we move more from a hold co to an operating company, an operating company that really rallies around our privileged first-party data, our understanding of Canadians' life in Canada. Data is pretty important in retail today. I know my peers believe that too. That business strategy is about aggregating the scale that we've created for ourselves. We think that's really important from a real estate standpoint, from a partnership standpoint with RioCan for a couple of reasons.
One would be we're giving some of our businesses, think Sport Chek, think Mark's, important tenants of yours, scale that they couldn't otherwise create on their own, whether that be our ability to kind of use this capability around first-party data to engage members, to move them around our system, and give them access to a loyalty program that has a household penetration rate that is quite large in the country, akin to Amazon Prime in the U.S. We think that helps grow sales, the four-wall kind of unit economics, which just allows us to be more successful in the properties that we have, given the scarcity in the market, hopefully allows us to be a strong tenant going forward with stronger economics.
Secondly, I think one of the things that we're very focused on is thinking about the role that each one of those banners plays in that system. If you take Sport Chek and Mark's as examples, these are businesses that we believe can play critical, critical roles for us in customer acquisition in a younger demographic. We've long been great partners for big brands, number one distributor in this country for big brands like Nike and The North Face and Levi's and a few more. I think as they've all started to dial back in D2C and come back to wholesale with innovation, they come back to a partner that can give them some growth and some strength. That also leads to the disrupting brands. We're Hoka's biggest distributor in this country, On's biggest distributor. We have great relationships with Carhartt, Timberland.
They all bring in a different demographic. We think that's good not only for our business, but for you in terms of bringing in a different demographic with some innovation to the power centers and developments you have. Big believers in real estate. We believe we've got three investable store formats now for the first time, I think, in my career. Generally speaking, we think bigger is better, but each one of these formats have an opportunity to kind of go back into the network, given scarcity, and be a better retailer, be a better tenant.
Yeah, that's a great answer. Win-win because my family's now fully latched onto this whole Hoka craze. I think we're in the midst of they're very ugly, but man, are they comfortable.
I think we're in the midst of buying like seven or eight pairs at Sport Chek, of course. There you have it. Michael Fresco has been on a tear. I mean, everywhere I look, I see a new Fresco opening up, whether it's taking over an older Sobeys store or just opening up a fresh Fresco. You're one of the leading discount banners in Canada. First of all, share how successful that growth has been. I want to ask you, how has RioCan supported that growth strategy?
Yeah. Again, like Greg said, thanks, Jonathan, for having me here today. If everyone could not tell my great CEO, Mark Holly, at my REIT that I'm here today, that would probably be good. We need all sorts of partners. We have a great REIT that's well-run.
RioCan has always been a great partner for me when I was at Canadian Tire and at Empire. Eddie's here, right?
Yep.
Eddie and now Jonathan. Thank you. One of the biggest decisions, the hardest decisions I had to make when I first came into Empire and had to turn it around was to fix our banners in Western Canada. We even have more banners than you do, Greg. The hardest decision I had to make was to take our discount banner Fresco and put it in a new market in Western Canada. We had to do it really quickly because we had fallen behind in terms of discount. There was a real opportunity in Western Canada. We did, I think, in retrospect, it does not look like a hard decision.
Fresco has been knocking the cover off the ball in Ontario and in Wett, but also growing fast in Western Canada and very, very strong. We had to move very quickly. We had to convert some Safeway stores. We had to do a lot of greenfield. RioCan was an unbelievable partner because they understood our business rationale and our strategy. They move quickly. I mean, you just I'll talk about that one later, but they can move incredibly quickly, and they're very customer-centric. We were able to put up 50-something Frescos in a record amount of time, many of them RioCan properties. We were incredibly happy. We have a great relationship with RioCan.
Let me tell you, I guess seven or eight years ago, I'd be in a room like this, and I'd be asked about whether Brix & Mortar was here to stay, and it was all going to go online. I can tell you Brix & Mortar are here to stay. I'm more convinced of that than I even was at any time in my career. There's room for e-commerce. Greg will tell you about that, and I can too. That ability to connect with your customers, especially in the grocery business where location is so important, is key. Your company, Jonathan, has been a great partner in that. That's been a huge success.
Yeah. Thank you for that. I can tell you firsthand, just the conversions that we've done from Safeways to Frescos, like we just did at Glenmore Landing out in Calgary, makes a huge difference to the center, but also to the shoppers going in there. It looks good. It's bright. You've done a tremendous job.
Yeah. You were smart, right? You didn't just say, "Okay, we want the full service." You were willing to look at whatever made sense for that area, for that demographic, for the customer. As long as you're following the customer, you're going to make good decisions. I think that RioCan was ahead of the game on that.
Yeah. No, we welcome it. I think it's a great evolution. Thank you. Todd, restaurants, I mean, usually one would say that they feel the impact of an economic slowdown first. Yet Canadians still love to dine. I mean, I can't do without my Swiss Chalet for very long. How is Recipe optimizing your offering in this topsy-turvy economic environment? Of course, I'll ask the question, how does RioCan's approach to tenant mix and having a national platform strengthen your ability to succeed despite some economic headwinds?
Similar comments to start. Thanks so much, Jonathan, for having me here. Similar to my peers, I so much appreciate the strategic relationship that we have with RioCan.
Thank you.
It is great to be here today. I guess I'll start by acknowledging your comments. I mean, certainly the restaurant industry is typically on the leading edge if there is something that's happening from an economic perspective. No doubt, coming out of the pandemic, it certainly has been a very challenging economic situation for restaurants across the country.
I also sit on the board of Restaurants Canada and the Vice Chair, so very familiar with what's happening in the industry. I would say that many are in a challenged situation. I would also acknowledge what you're talking about in that we are social creatures, and we love to go out and celebrate and dine with our friends and family and celebrate occasions. Recipe as an organization has definitely been able to take advantage through these changing times to actually be in a very, very good position. As much as it has been a challenge for the industry overall, Recipe is in a very good place. Many of the brands that we represent, that we own, are in a position of growth. We have great relationships with RioCan as it relates to looking for opportunities for growth.
However, what I would say, though, is that growth in some cases looks a little bit different. I mean, you talked about e-commerce, Michael. Certainly, through the pandemic, the way that folks trade into restaurants has changed. Prior to the pandemic, really, if you're looking for eating in your home, it may be pizza, perhaps Chinese food in Swiss Chalet. Certainly, that changed with the development and the proliferation of various different aggregators. It is changing how we're looking at real estate. We absolutely want to grow. We believe in bricks and mortar. We know that it's important for guests to be coming to our restaurants. Typically now what we're looking for are sites that provide great access, obviously, and in some cases a little bit smaller. Swiss Chalet is an example. Many years ago, it might have been a 6,000 or 8,000 sq ft restaurant.
We're now looking at building 4,000-5,000 sq ft restaurants, which certainly has changed the dynamic. You asked about how RioCan is helping with that. In working with the group that I work with, the team, all of them constantly talk about how RioCan is so progressive and proactive. You are attentive to our business. You understand our business. Not only are you helping us to solve and create solutions for our business and, I mean, effectively our industry in many ways, but you also have great assets, right? We appreciate the partnership that we have. Thank you very much.
Thank you for those comments. I appreciate you just reinforcing the comments I made earlier about nothing happens without a strong platform. I am very proud of what we have at RioCan. Just talking about bricks and mortar, and I'll throw this out, Greg, to you. I mean, the oldest saying in RioCan is location, location, location. I think when it comes to store performance, location, and the demographics surrounding that store, really meaningful things. Can you comment on that and how much the demographics and the locations matter when you're choosing a growth plan?
Yeah. I mean, it's critical. I think you'll hear all of us talk about the fact that from a capability perspective, data in a modern retail organization is the currency. It's the lifeblood of what makes you successful or not. We put a pile of energy, effort, capital, resources behind developing a set of data. Predominantly, it's about a 360 view of the customer and all of the touchpoints that we have for life in Canada with our membership.
It is also about making much more intelligent decisions around our real estate. We are 100% convicted, as per Michael's comments too, that in real estate, we are a landlord as well, obviously with CT REIT. I come back to that scale requirement again. CT REIT is very strong in secondary markets across Canada. They have a really good understanding of the demography and all of those things around those markets, which is a big portion of our sales. We complement that strength to give ourselves scale with a partner like RioCan, who has an unbelievable understanding of the demography and vector markets across Canada. I think that is kind of the why we work together. Once we have that why foundation, I think that the how is pretty simple.
In order to understand and for you to be able to flex your capability, we need to be communicating. It is probably a simple statement, but I think it is profound. Your team and you understand our business strategy. By understanding our business strategy, you can plug your understanding of these markets into our business strategy. Teams work really, really well together. They get creative. They can move with speed, as was earlier mentioned. I think that, or not I think. I know that that relationship extends to the CEO's offices. He does a way better job than I do at this, but he will reach out. Probably two times a year, we will get together. Our offices are right across the street. I will go there. He will come to our place. We will have a coffee.
We'll talk about what we're seeing with the customer, the markets, the data. It just gives us a better understanding. I think that tone from the top is really important. I know that the prosperity of both of our companies is important to each of us, but we're both proud Canadians. Prosperity of this country is important. We endeavor to work together to do our part on that front.
Yeah. Sorry, go ahead. Greg's comment as it relates to data and location, demographics, similar. We use a lot of data to make decisions. We have made the strategic decision at Recipe to actually employ an AI group specifically looking at locations for real estate.
Feeding the data in terms of the locations, which ones have done well, using that data to then make determinations around where we should go moving forward, as well as looking at those sites that perhaps have underperformed and why. Rather than just looking at population, perhaps some other demographics, in-outs, etc., we're looking at even more data and feeding into a system to help us to make those decisions.
Yeah. I mean, we're fixated on demography. I mean, we've taken our demographic profile up to a point where we now have 277,000 people living within a 5 km radius of any one of our properties, average household income of CAD 155,000. This is something, again, that we've worked towards. The reason we do that is because we want sticky tenants.
Like, Michael, we were talking earlier about Fresco and how you have brought Fresco to the customer in the appropriate markets. I am sure in the business of grocery, demographics really is everything where you do a lot of research behind what demographics exist and what kind of product type you want to place in that market.
Yeah. I mean, obviously, I have always been keen on data. Now we have such access to, we have one of the cleanest pools of data probably of any retailer in the country, at least. The ability, and when I was at Canadian Tire, it was the same. They were very, very strong in terms, especially at real estate, in terms of understanding the customer and actually being able to predict what the sales are going to be.
You're not always right on, but it's pretty darn and I'm sure you've even gotten better since then. We're really good at it too. That use of data is key. I'm just thinking, Jonathan, that I was thinking that when everyone's talking, I liked what Todd and Greg were saying in terms of doing business with you. We have a lot of landlords, okay? We got 1,700 sites across the country. We've got lots of landlords. We don't have a lot of partners. I think there's a big difference between being a landlord. I would never call RioCan a landlord, although I guess legally you are. You're a partner.
What does that mean to be a good partner is understanding and being able to share the data that we have with the data that you have, is to understand what we're grappling with, understand that not only do we need good sites and location is so key, as we were saying, but which banner should we put in there? We got a lot of choices. We got Farm Boy. We got Sobeys, Safeway, Longo's, Foodland. They each have their role to play. Then communicating all the time. Greg said it right, that RioCan is really good at talking to us all the time and trying to help us. While understanding the business, communicating, "Look, we got this site here. Wouldn't this be good? Because there's a Keg going in here or a Sport Chek going in there.
Wouldn't this augment it? I think it is the speed. I think that Greg knows I always talk about velocity. Speed to market is absolutely key. Recently, I could not believe it. We were looking for a Longo's, and RioCan came with the Colossus property. How quickly that went from an idea to right now an operating store, I think it was one of the fastest I have seen in my career. Understanding the business, communication, and then moving quickly, I think that is the key to a good partnership. Trust. There is a huge trust between us and our great REITs. The trust with a third party like RioCan would be right at the top of the list of partners. That is really important.
I am blushing. Those are wonderful comments. I think they ring true for us as well because we also view you as partners. You speak about having a Keg or a Sports Shed in a shopping center, and that's a meaningful thing. I mean, in the restaurant industry, you want a certain type of co-tenancy. You want a vibrant community to be a part of. How vital is it? I mean, I'll start with you, Todd, to have the right kind of tenant mix. How's RioCan doing in that regard and kind of upping its game to make sure that you always are put with the right kinds of other businesses?
It's absolutely critical, the tenant mix, no doubt about it. For various different reasons, both in relation to anchor tenants, as I sit next to two gentlemen who obviously are behemoths in the world of retail in Canada, knowing that those tenants are going to be drawing various different individuals into these retail nodes for us is super critical. I would say, though, that I think that maybe Swiss Chalet and the Olive Garden are also anchor tenants in some ways, certainly as we drive guests to our locations as well. Absolutely, it's super critical to the decisions that we make. Also, as it relates to working with your teams around strategically where we'll be placed within the specific developments, one of the key things that's really critical for us is parking, as it is, I'm sure, probably for my colleagues here too.
Typically, as people trade into restaurants, 70% of the trade is in the dinner hour, right? The ability to access the locations and have co-tenants that perhaps maybe are not using that same parking space or perhaps the same entrance and exit is absolutely critical to what we are looking for and what we are working towards. I mentioned it, but back to Michael's comments. I mean, we have a partnership with your organization where we strategically know what we are both ultimately trying to accomplish. That strategic relationship helps us to move forward, to your point, very quickly. Velocity is so important. One thing I would also mention too, that one of the amazing things I always feel about RioCan too is when we call, you answer. This is something that is critically important, but it is the truth. We appreciate that.
I appreciate that. Our team has electric shock buttons that attach to them that if they do not pick up, they get electrocuted. I am glad that is working out. That is great. You are the anchors. It is a bit different than Todd's perspective because you almost create that tenant mix, you are the key to that tenant mix. What do you look for in the smaller tenants that accompany your stores?
Yeah. I think it gets back to that demography. Again, I think it is so easy now to rifle in. You rhymed off a bunch of stats in terms of household income. Not just for us, it is household income. It is how debt burdened the household is will determine kind of the average spend, the age, the stage, etc. For us, the more the merrier. We do not, fortunately, suffer a lot of competition head-on.
It's not a kind of a frontal assault. It's on the flanks. I think when you've got completed procurement and, I guess, a catalog that goes to market that fights on all fronts, we just encourage and we encourage the data to tell us who would be great co-tenants. We would love to always get that first Saturday morning trip. That's becoming more and more difficult. We'll gladly take the second trip. There's not a lot of restrictions that we think are important to us in terms of cohabitation. I think that that's maybe the beauty and the curse of the businesses in which we operate. Again, I think it just comes back to your data. I mean, RioCan knows retail. I think that's critically important. They know all facets of it. We're not educating them on our business strategy.
We're usually more educated around a development from RioCan than our own data has when we're looking for a leased space. I think that just comes back to the complementing each other's strengths again.
Right. Todd, you heard that instruction. We need to get Rescue to buy a breakfast place so that the first Saturday trip will happen at some of our shopping centers. I spoke about it. Before I wrap this up, I want to dive into this. I spoke about it in my introduction. It's something we often take for granted, but that's doing business in Canada. I think I could speak for all of us to say that we are proud Canadian businesses. We're tied to the communities here. We all make significant investments to grow our business within this country.
I've sort of shared with our audience why I think Canada is such a great place to operate. I would love to get each of your thoughts, starting with you, Michael, and just why you think Canada is a great country. Again, it's important to point this out because we don't always get the best billing as a country in which to do business. I actually think from our perspectives, it's pretty remarkable. Do you agree?
Yeah. I mean, oddly, I'm more optimistic now than I was five years ago. We had a lost decade of productivity. I think that we needed a wake-up call in terms of getting down to business and making it easier for us to do business so that we can give great jobs and offer great jobs to people. That's what happens. We talk about small businesses.
These large businesses employ a lot of people. At Empire, we employ 129,000 people across the country, second largest non-governmental employer after Loblaws. It is really, really important. Productivity is a huge issue in this country. I mean, we are projected over the next 40 years to be the worst in terms of productivity. Why am I so excited? I think we have the capabilities, if government and business can get their acts together, to be right up near the top. I think we needed that, what would you say, electric shock treatment. We are doing our bits. I mean, we are putting in, we have put in CAD 2 billion into construction over the last, into real estate over the last five years. We put in 100 projects annually. We have turned over 40% of our network.
We renovated or moved in the last five years. I think that these three companies are into Canada, right? It is hard to think of other companies that are more Canadian than the companies we work with. I think that it is not just going to come. This is a great country, but we have to be able to invest in it and believe in it and make it easier for people to get jobs and to do business. I think we are going to do that. I am optimistic like you are, John. We are always optimistic. I was thinking when you are talking about co-tenancies, I am all about brand. It is all about who you want to be located with. I am sitting next to some great Canadian brands here. That is who I would like to be connected with.
I do not need a marijuana store right next to my stores all the time. That is really important. Thanks for asking the question.
Greg, your thoughts?
Yeah. I mean, yeah, similar to Michael, the productivity is, what was it, the break the glass situation, right? I have the same level of optimism for the prosperity of the nation. I think maybe it has been a wake-up call. Maybe it has kind of been dormant or latent for quite some time. I am struck by the amount of peers that I meet, that I know, that I engage with, who really believe in this nation. I think that is different. I think there is much more patriotism here in Canadian business. I think Canadian business has, for the most part, started to wake up.
If you set a lofty objective, which I think we have at Canadian Tire, that we do play a role in building a stronger nation, we have a purpose that says we're here to make life in Canada better, and you live by that purpose, you make tougher choices, which we're doing at Canadian Tire, I'm sure we're all doing. I see tough choices being made across all Canadian business. For us at Canadian Tire, I truly believe that Canadians would miss us if we're gone. One in 20 Canadians have worked at Canadian Tire. Four thousand local companies rely on us for business. For every dollar we make, Canadian businesses make CAD 14. We need to play our part making those tough choices to ensure our sustainability going forward as an organization. We need to make the investments that drive employment.
We need to drive inefficiencies out of our back office so our frontline team members can continue to serve Canadians the way they deserve. We can generate that kind of ecosystem of employment. I think if more and more Canadian businesses start to think about their role in driving the productivity of this nation, which I am seeing in spades, I think we're in a good place.
I will applaud you, as I've done in private, with your acquisition of, I would say, one of the most historic matters in Canadian history, which is the stripes. I thank God it has fallen into the responsible hands of a strong Canadian constituent like Canadian Tire. Again, for so many reasons, I applaud you for that acquisition. Todd, from your perspective, which is broader than just your role at Recipe because you are involved with Restaurant Canada, how do you feel from the restaurateur's perspective about the prospects within Canada?
I too am incredibly encouraged. It is tough to follow these two gentlemen. I totally agree with everything that they have said. As I reflect on the business that I am blessed to work with, 140 years of tradition and business involvement in Canada, we are investing in our brands, to your point, Michael. We are employing young Canadians, to your point, Greg. One of my son's first jobs was at Canadian Tire. I think a lot about that. My first job, I was a dishwasher and fry guy at Swiss Chalet, right? It is amazing how your life can come full circle. I absolutely believe in this country. I believe in investing in this country.
We are growing in this country. As I mentioned earlier, we just recently acquired the rights to Olive Garden in Canada. We're constantly looking at more opportunities. Who knows? Maybe stay tuned on your breakfast idea. There is tremendous opportunity in this great land. I too am optimistic. I feel as though we're starting to head in the right direction. We have a lot of work to do in our industry as it relates to productivity. Certainly, I think probably if you take a look at the restaurant industry, we may, if not last, be close to last. There's a lot that needs to happen in terms of investing in productivity within our industry. I believe in Canada, there's lots of growth here. Looking forward to a very bright future for all of us.
That's awesome. I love the statements. I agree with them all. It is in our name. RioCan stands for Canadian. We are proudly Canadian. We love being up here with equally proudly Canadian businesses and business leaders. I thought all those comments were exceptional. I do feel I deserve a royalty if you end up creating a new breakfast dinner.
Okay. No problem.
Yeah.
We will work it out backstage.
Yeah. We will work on that. I will draw up a contract. I just wanted to thank you for taking time, for being here to speak to our investors. I think it is a wonderful partnership that we, RioCan, do not take for granted. Michael, you used the term customer-centric. It is one of our fundamental principles at RioCan. It is the reason we do answer the phone when you call. It is the reason we do get out in front of new development opportunities.
Because we are here for our unit holders and we are here for our tenants to ensure that we are one step ahead and always providing you with the right route to success. Your success means our success. I am incredibly proud to see what each of you continue to accomplish. Again, thank you for your time being here today.
Thanks for having us.
That's great.
Thanks so much.
Oh, yes, I have to announce that we wanted to give you guys a 15-minute break and come back soon. We have got some great stuff lined up for the latter part of the event.
Welcome back. I hope everyone had some time to grab something during the break. Great stuff so far. Hope everyone's excited. For those of you who do not know me, my name is Andrew Duncan, and I am the Chief Investment Officer at RioCan.
I've had the pleasure of being part of the RioCan team for the past 13 years. I'm excited today because I get to talk to you about what I work on every day. That is how we are amplifying growth through disciplined capital allocation. That's Investor Day speak for how we spend our money to deliver growth. As Jonathan mentioned earlier, an important part of meeting our goals over the next three years will be to deliver 1.5% FFO per unit growth through a creative capital allocation. I'm going to take the next 15 minutes to explain to you how we're going to do that. Okay, let's unpack how we're going to achieve that growth. I think about this as a simple equation. We take our capital management strategy, we add it to our investment framework, and that equals us using our capital to deliver the highest risk-adjusted returns.
We make this simple by leveraging our people, our process, and our technology like Northstar, which is not an old hockey team from Minnesota, but our incredible proprietary analytics platform. Let's get started by talking about where the money is going to come from. As you heard earlier, we are bringing back CAD 1.3 billion-CAD 1.4 billion of capital in 2025 and 2026. Most of this cash is coming from the sale of our residential rental assets and proceeds from our condo program. This breaks down as CAD 1 billion from RioCan Living assets and CAD 400 million from condo proceeds. We are very proud of the residential businesses we have built over the last 15 years. We have delivered healthy mid-teen levered returns on RioCan Living assets that we have sold so far in 2025. Our condo program has earned us an impressive CAD 250 million of gains over the last 10 years.
We used our land bank and our expertise in a low interest rate environment to take advantage of this past real estate cycle. We were bold, and we made money. Now we're going to recycle that cash back into our core business and strengthen our balance sheet and invest in growth. Now that you know where the CAD 1.3 billion-CAD 1.4 billion is coming from, your next question is likely how much progress we have made so far in 2025. As you may know, we have sold six of the 14 assets in the RioCan Living portfolio. What you don't know is that we have another one of our larger RioCan Living properties under conditional contract. I'm also pleased to update you that we're in advanced discussions with interested parties regarding two additional RioCan Living assets. Bottom line, our RioCan Living sale program has great momentum.
These are in-demand assets with a deep pool of bidders. As such, we remain confident in our ability to sell the remainder of the portfolio. Now let's talk about the other piece of the puzzle, our condo proceeds. In the first nine months of 2025, we have collected CAD 256 million in revenue from our condo projects. We are confident that we will bring in the rest of the forecasted proceeds by the end of 2026. I also want to highlight we've significantly de-risked two of our remaining condo investments as we fully repaid our construction loans at the 11YB and UC Tower projects. The punchline here is, year to date, we have brought back CAD 500 million of our CAD 1.3 billion-CAD 1.4 billion target. Keep in mind, the year is not over yet. That is great progress.
It is clear we are paying down debt and have money to spend on growth in 2026. What cash will we have to invest in growth in future years? Do we have any other sources of capital beyond the CAD 1.3 billion-CAD 1.4 billion? The answer is yes. We have two other sustainable sources of cash that we can invest in our growth going forward. The first is our retained cash flow. Dennis is up next, and he's going to break that down in a bit more detail. Sneak peek, we have CAD 130 million-CAD 150 million of levered cash that we can use to invest every year. The second source is additional asset monetization. That's a mouthful. Again, this is Investor Day speak for selling assets to invest in growth. Selling assets and investing the proceeds really help us with two of our large goals.
First, it generates cash we can use in our various growth opportunities. Second, it helps us achieve our same property NOI growth targets. As you recall, John and Oliver signed us up to deliver at least 3.5% same property NOI growth over the next three years. I am very confident that we're going to get that done. To do that, we need to be selective about what assets we're going to sell. This is where Northstar provides us with a big competitive advantage. Northstar is really good at identifying which assets are not helping us to deliver the growth we need.
Some examples of the type of assets that Northstar has identified for disposition are non-core assets, such as smaller, standalone office assets, fully optimized assets like open-air retail properties where the income is not growing due to longer-term flat leases, or finally, low-yield assets like development lands that have little or no holding income. If we can get the right price for these properties, it's a win-win. It allows us to reinvest the proceeds in growth and helps us to achieve our same property NOI goals. That is where the money's coming from. To recap, here's the list: CAD 1 billion from RioCan Living sales, CAD 400 million from condo proceeds, CAD 400 million from retained cash flows. That is the CAD 130 million -150 million every year for the next three years, and any additional cash from strategic dispositions. Now the fun stuff.
Let's talk about how we're going to spend that capital to achieve our growth targets. We spent some time early today talking about the capital management strategy. Let's dig into that a little bit deeper for a second. Dennis already walked you through balance sheet priorities, so my job is to focus on our strategic growth levers and our investment options. We think about our investment options in two buckets: reinvesting in our business and investing in high-value market-driven opportunities. Ways we reinvest in our business is through initiatives such as retail infill projects, which I will discuss shortly, and leasing capital. These investments leverage our operational strength and are a sustainable source of growth. We can also reinvest in our business by buying back our units. What better way to invest than by buying a piece of a preeminent retail REIT at a discount?
We also have the option to invest in retail acquisitions that complement our core portfolio. I will discuss our acquisition strategy in a bit more detail later on. We think about our investment options as a menu that we order from to deliver on our goals. It's important to reiterate that each opportunity is assessed through a disciplined capital allocation framework to ensure it meets our investment criteria. Let's spend a couple of minutes to look at one of the best options we have in the menu: retail infill. Delivering retail infill projects makes a ton of sense for us. We are building on land we already own in locations that are already proven retail nodes. We can pre-lease this space to mitigate risk, and these are typically quick builds. This is not new to us. We've been executing retail infill projects for years.
You might ask, "Great, how much can you do?" Valentine stole my thunder earlier and already told you that we have identified approximately 1 million sq ft of future retail infill opportunities in our portfolio. Not all that square footage is feasible today, but we are confident this is a sustainable investment option that we can take advantage of for years to come. We have talked about our framework a couple of times now. Let's look at how a retail infill project performs when we run it through the framework. A project with at least 9% unlevered IRR will achieve all the framework's financial goals. It will be both FFO and NAV accretive, and it will improve net debt to EBITDA once the income ramps up. Operationally, a retail infill will definitely improve the portfolio.
It is quick to deliver, and as I mentioned earlier, we can pre-lease some or all the space to mitigate risk. As you can see, this type of project does very well when running through our framework. A great example of where we're executing retail infill projects in the portfolio is at East Hills. East Hills is one of our newest unenclosed retail centers in Calgary. This asset is just under 1 million sq ft and is anchored by a Costco and a Walmart. It is located in one of the fastest-growing parts of Calgary and has a great existing tenant roster. We are delivering 38,000 sq ft of new retail infill projects on this site in 2025 and 2026. Sorry, 2026 and 2027. We are excited to be building new retail space for some great tenants like Sephora, Bank of Montreal, and Value Village.
On top of what we're delivering right now, there is an additional 250,000 sq ft of retail infill opportunity available on lands we already own at East Hills. This is a perfect example of a low-risk investment option that we can invest in for years to come. Let's switch gears a bit and talk about another one of our investment options: our retail acquisition strategy. We are always looking to acquire properties to add to our portfolio that have the following characteristics: attractive demographics that generally fit our portfolio, properties where we believe rents are under market so we can use our platform intelligence to drive rent growth and add value. This is an instance where using Northstar really helps refine our underwriting. Finally, assets where we can apply our operational excellence to shrink the property's bottom line.
We know the market for enclosed retail assets is tight right now. Everybody wants to add grocery-anchored retail assets to their portfolio. We are thrilled that the market is finally seeing the value in an asset class that we've believed in for the last 30-plus years. In summary, we will look for acquisitions that will have the right characteristics and meet our 9% unlevered IRR hurdle rate. Before I finish talking about investment options, I want to spend some time talking about our development strategy going forward. As we've talked previously, our current projects are winding down, and we do not plan on commencing construction of any large mixed-use projects. This does not mean we've forgotten about the immense potential of our pipeline. We are actively managing that pipeline and will continue to look for ways to unlock its potential value.
This means looking at opportunities to zone and sell and advance approvals on sites that have near-term monetization potential. Our development sites are in Canada's most desired markets, where demand will be strongest in a healthy development cycle. We are continuing to unlock this value by leveraging our in-house development team and are doing it without spending a lot of money. Given the strength of our core retail portfolio, we are in a strong position to take a long view on development. Any near-term monetization potential is all upside, as we have not assumed any development land sales in the projections that we're providing you with today. Simply put, when the land market turns, RioCan is in the best position to benefit. We are now back where we started.
As I said before, an important part of meeting our goals over the next three years will be to deliver 1.5% FFO per unit growth through a creative capital allocation. To recap, we know where the money's coming from. We have a menu of incredible investment options to spend it on, and we have the right capital management strategy and a balanced investment framework to deliver the highest risk-adjusted returns. This is how we're going to deliver a 1.5% FFO per unit growth through a creative capital allocation. Thanks very much for your time this morning. It is now my pleasure to hand it over to Dennis. He's going to pull all these numbers together and talk to you about our financial objectives. I'm betting he's also going to tell you we're undervalued.
Hey, thank you very much, Andrew. I'm back again. As Andrew said, I'm going to try to just wrap things up by pulling all the numbers together, looking at our financial targets and our net asset value. There's a lot of numbers in my section, no surprise. What we've done is we're putting an appendix to this presentation on our website that's going to have all of the assumptions and targets that we go through today. Our financial objectives are simple and straightforward. We try to deliver competitive risk-adjusted returns for our unit holders, and we will leverage our core competencies to drive income growth both organically and through accretive capital allocation. This income adds value to a portfolio that will continuously compound for many years. We will manage risk by maintaining a strong balance sheet, but a strong balance sheet is more than just defensive.
It gives us financial flexibility to take advantage of growth opportunities when they arise. As our team has outlined, our growth in core FFO and AFFO is driven by a simple, straightforward plan. Our retail core will drive at least 3.5% same property NOI growth in which we have high confidence. This will be supplemented by 1.5% growth from capital allocation as we redeploy our retained cash flows and some of the capital from asset sales to creative uses. We've acknowledged that there will be a headwind of 1.5% from interest expense over the next three years, which is expected to be alleviated thereafter. Overall, this is an achievable plan with most of the drivers in our control. We've also assumed that growth in core FFO and core AFFO will be equal for this model.
It is worth noting we have an opportunity to outperform by controlling our maintenance CapEx while our FFO grows. Just a quick reminder of what we went through earlier. Core FFO is forecasted to be at least CAD 1.55 per unit for 2025, and it is from this base that we expect to grow over the next three years. Core FFO excludes the low-value cash flows from condos and the HBC JV. The largest component of this growth is driven by same property NOI. As John and Oliver discussed, our team is highly confident in this component. 65% of this is contractual, so it is locked in. The remaining 35% comes mostly from lease mark-to-market, with leasing spreads in the mid-teens. Again, this is high-confidence growth given this operating environment. There is a limited supply of quality retail space available, and there is strong demand from tenants who are looking to grow their businesses.
Andrew went through the various options that we have to deliver an additional 1.5% growth from a creative capital allocation. A large component of this is simply from reinvesting in our own portfolio. Buying back our own units is also an attractive opportunity right now. Over the next couple of slides, I'm going to run through the sources of capital for this component. Over the next three years, we expect to retain CAD 70 million-CAD 80 million of free cash flow per year. If we lever this at 45%, this results in CAD 130 million-CAD 150 million per year that we can invest on average on a leveraged neutral basis. Andrew spoke about the CAD 1.3 billion-CAD 1.4 billion of capital from the sale of RioCan Living and closing of condos. About CAD 1 billion of that will naturally reduce debt as mortgages are transferred to buyers and construction loans are repaid.
This leaves CAD 400 million that can be allocated to the various options discussed. When we pull all these pieces together, we have on average CAD 200 million-CAD 250 million per year to invest. Just to break that down one more time, we have CAD 130 million-CAD 150 million from retained cash flow, and we're assuming on average CAD 70 million-CAD 100 million per year to invest by allocating some of that CAD 400 million mentioned on the previous slide. This capital is going to be deployed at or above our hurdle rate of 9% unlevered IRR. For modeling purposes, we've assumed an achievable 7% going in yield on these investments, with the balance of return coming from growth. This yield, after deducting interest expense and allowing for some time lag, will drive the 1.5% of incremental growth.
Finally, we have opportunities for additional asset sales, such as the potential sales of development lands, which will be upside to this plan. Now, the reality is that there will be a 1.5% headwind from interest expense over the next three years. The interest on existing debt over the next three years is 3.2%, which compares to assumption on refinancing of 4.5%. The actual interest rates are market-driven, so we provided a sensitivity in the appendix. Now, I've once heard it said that financing is temporary, but assets are forever. Starting in 2029, the weighted average interest rates are in line or slightly above today's rates. In addition, over the next three years, our plan has us reducing our debt by 10%. For this reason, we remain confident in our long-term trajectory.
As we near the end of our presentation, it is important to remember that our core income is what forms our net asset value. This core NAV reflects the resilient cash flows that are generated from our top-quality portfolio. We will grow our NAV as we grow our income and improve the assets, compounding value for many years to come. As we discussed, the FFO that's excluded from the core is low-value cash flow that represents a very small proportion of our NAV. There is no value reflected for HBC in our NAV, and condos represent only 1.8%. We will be generating significant capital by selling our RioCan Living apartment portfolio and repatriating that capital to the core. Our core business is highly valuable, delivering durable and growing cash flows. We value our business at CAD 24 per unit.
This is determined bottom-up with value supported by over CAD 1 billion of asset sales over the last three years. This value implies a multiple of 15 times using core FFO per unit. This is very reasonable in a historical context. Our multiple averaged 15 times for the decade ending March 2020. Now, of course, there are differences between that time period and today. For example, the cost of debt was lower at that time, but not that much lower. Rates have recently stabilized and credit spreads have tightened. However, the most important differences are the differences in our portfolio. RioCan's portfolio today is significantly higher quality on every metric. We have shifted our focus to major markets with improved demographics. We have improved our asset and tenant mix. This deliberate shift has driven the strong operating KPIs we have discussed today, and we are achieving higher organic growth from our portfolio.
All of these items typically imply a higher multiple than historical. Our net asset value today is 25% higher than our unit price. This is an opportunity to buy a best-in-class portfolio for value. Now, of course, a multiple is simply a reflection of future prospects, and we have demonstrated many of those today. Our business is set up to deliver growth and compound value for many years to come. We have a strong retail core portfolio that is the foundation of this growth. We have significant capital that will strengthen our balance sheet and finance growth opportunities, and we have the platform, the people, the processes, and the technology to execute this plan with excellence. With that, I'll wrap up and pass the floor back to Jonathan for closing remarks.
I love this mouthpiece, this microphone thing. I think I want to get one full-time. I can either instruct a spin class, tell you what the weather's going to be. It's a good look. I want to thank Jennifer. I want to thank Dennis. I want to thank John, Oliver, Andrew for their valuable insights today. Before we invite my fellow RioCan leaders onto the stage to do a bit of a Q&A, both in person and online, I wanted to close our formal remarks with a few key thoughts. Today's theme is strengthen retail, durable growth. That's exactly what RioCan is poised to achieve. We've got the right portfolio, the necessary capital, and a focused strategy anchored in our competitive advantages. We have a proven track record spanning more than 30 years. We are well-positioned to deliver. The market environment, as I said before, is very favorable. Our team is ready, and the stage is set.
RioCan has all the tools to drive sustained growth. I wanted to thank you all again for your time, for being here today. We are going to take a very brief break just to set up the stage for a Q&A session with myself and the rest of the senior team. Thanks, everyone. Just a few minutes, if you will, while we set things up. Thank you.
Up until this point, we have done all the talking today, but now it is your turn. If you are here in person and you would like to ask a question, please raise your hand, and someone with a microphone will come right to where you are. If you are online, please submit your question as indicated on the screen, and I and the rest of the senior leadership team at RioCan will be happy to answer you.
Before we get started on the questions, I also wanted to, I mean, you have seen most of us up here today, but I also wanted to introduce you to a couple of key members of our senior leadership team that you have not been introduced to: Terry Andrinopoulos, our Senior Vice President of People and Brand, and Franca Smith, our Senior Vice President of Finance. Now, open to questions. Hey, Mike. Nice to see you.
Nice to see you, Jonathan.
Thank you.
I just want to first off congratulate the team on an excellent presentation. I thought it was very well done, so congrats.
Thank you.
As always, an analyst is going to ask financial questions, so Dennis, over to you. I guess two things. Can you help me understand 3.5% SPNOI growth and why that only drops down to 3.5% core retail FFO growth would be number one? Number two, how much of the CAD 1.0 billion that's left of capital recycling from the 13-14, what's the assumption on allocation of that capital over the next couple of years?
Mr. Dingit? Okay.
Yes, go ahead.
Yeah, I think it's really kind of a levered-unlevered kind of question on that dropping down. I think we've just sort of, for this kind of a model, taken a relatively simplified assumption. I think we've put out at least 3.5% kind of performance coming from our core business. I think there's various opportunities to outperform there, whether it's actual operating performance and outperforming on our operating metrics and also just managing our cash flow and our costs.
In terms of the allocation of the remaining asset sales, as I mentioned in the presentation, we're naturally putting a good chunk of that to debt pay down. We want to take care of those balance sheet metrics as a first priority. Once those are taken care of, the residual, and we've assumed, I mean, we kind of added up over three years, it's in the neighborhood of CAD 300 million being allocated to other opportunities. We'll evaluate that as we go through time. If there's a really great opportunity, we may decide to go a little up on the leverage, not outside the range, in the short term to invest. Typically what we see is that the credit metrics sort of catch up as the income ramps.
Thank you.
Thank you. Just echoing Mike's comments, congratulating the team on a great presentation. On the 1.5% from cap allocation, I think you've made it pretty clear on how you expect to do that in 2026 through 2028. Beyond that, obviously you have the retained capital, but I was just wondering, you talked about not assuming any land dispositions beyond 2028. Where does the additional capital come from in order to get to that CAD 200 million-CAD 250 million of capital to deploy in 2028 and beyond?
I'll start by saying that, and thanks, Lorne, for your comments. We do have retained earnings every year that will form part of that. We also have been quite active in recycling assets that are not residential. When we have lower growth retail assets, we sell those and we can reinvest that capital.
We said we took a conservative approach to the density that we have created and continue to fortify through some of the initiatives that Andrew and his team have taken to get what was once zoned property to be better zoned in today's environment. We have not relied on any of that having significant value going forward, but our view is over time and specifically in places as vibrant as Toronto or Vancouver or Montreal, there will eventually be value in that density. We plan on fully taking advantage of that value when it arises. It does not form part of our plan, as I said, but you asked beyond 2028. The truth is, who knows what will be the situation beyond that period of time.
I would not be shocked, given the way real estate has historically cycled in the Canadian markets, that there will be inherent value and significant value in that type of holding going forward. Andrew, anything to add?
No, I think you nailed it, John. I think it is to Lauren's question. We have got the retained earnings. We do some capital recycling. We will continue to do that, and we will be open to opportunities to recycle the capital and the higher risk-adjusted returns.
Thank you.
One other quick one just to show you guys that the analysts can think of other things other than financials, Mike. Just on the, you guys talked about the gyms, right? I feel like that became a bit of a non-sequitur in COVID, and I guess that seems to have changed. Can you maybe just help us understand why now that has become such a highly desirable tenant for RioCan and maybe for Canadian retail landlords more broadly?
Sure. I'm going to hand that one over to Oliver, who's so much closer to these tenants than I am and makes a lot of property-level decisions. Go ahead, Oliver.
Thanks, John. I thought you were going to say that because I've been working out. Appreciate it. Look, I think fundamentally what it comes down to is how people have, from a lifestyle perspective, changed the priority that they put on fitness as part of their daily habits. We see it across all of the different fitness gym clubs that exist in our portfolio, from Good Life, LA Fitness, to even Sweat and Tonic here at The Well, where demand continues to grow at an all-time high.
The other thing I think that's very unique about fitness clubs, which make them very desirable for tenants from a tenancy perspective, is the amount of traffic that they drive. Like a typical Good Life will bring in 800,000 visits a year to one club. When you think about the power and the compounding effect of all of those people coming four times a week to your center, the amount of traffic that drives, which other tenants feed off of, they really become a very compelling offering and certainly one that we've been prioritizing over the last while.
I think they've also done a great job of broadening their offering. The gyms aren't what they were once, right? They're social clubs now. You've got approachable price points. You've got more luxury price points. I think it's way more approachable to the vast majority of Canadians. They can find something or a gym that's going to suit what they need.
Yeah, I think it's a great point, Terry. When I think of Altea Active, which we opened up at an old Canadian Tire on Carling Avenue in Ottawa, I visited it a couple of months ago, and this is not your parents' gym. This is literally a country club. They have got so many different offerings, and they bring in such a varying demographic into one building. I think that's totally different than it would have been 10 years ago or 15 years ago, where the only audience that they were focused on were people like Oliver, who just continues to work out, as opposed to those seeking other lifestyle attributes. No problem.
Sam? Okay. I'll go ahead. Thank you. Thanks again for the presentation. It was extremely well done and very informative. I wanted to ask about just on the same property NOI growth target, I think it was a three-year target of 3.5%. How would that change over the long term? Is there anything unusual that you're building into your three-year outlook that might not be recurring beyond 2028?
It was at least 3.5%, Sam. I'm going to hand that one over to John Ballantyne. I would say what it does not include is actually some of the upside potential, quite frankly, that we're going to see over the next three years and beyond. When we built out the North Star platform, we took it as to what can we unlock now, what growth can we start working on in the future.
It really identified, as I said in the prepared statements, 75% of our portfolio is unlocked, and we can drive as much growth as we can through it. I say this without the participants of the tenant panel here anymore. I do not think they are. We are now in a landlord's market. There is serious thirst for space from retailers in this supply-constrained environment. We have taken a hard look at exactly what we can free up now, but it is the future opportunity. What we can unlock through leveraging this demand, we feel like is where we are going to overachieve. Quite frankly, that is going to go well beyond the three years.
You have certainly uncovered some gold mine at Danforth and Yonge Eglinton Centre and a couple others. Some other examples that you see contributing maybe beyond the next couple of years, some other areas where you can unearth, unlock some mark-to-market that might be otherwise trapped?
As I said earlier, posting these spreads is no longer anomalous. It is becoming our norm. Even in the larger rent spreads that we posted in the last bunch of quarters, like last quarter we did renewal spreads of 15% plus, we actually did have some anomalous fixed rents in there as well, which pulled that growth down. These opportunities are going to come up. The team has done a really great job of just deep diving into the portfolio to, again, understand how they can leverage that growth that seemingly was unlocked at one point in time to provide retailers with what they need today.
The Metro deal that Oliver spoke about at Yonge Eglinton Centre, what kind of got lost a little bit was that they still had seven years left in their lease term. In order to keep that location now, they knew they were running out of term. They had to lock in now. That got accelerated through. We're going to see a bunch more examples like that.
We're going to see a couple on the bus tour as well for those that are coming.
Maybe one more for me. Just on the debt targets of 8x-9 x. What would determine whether or not you're at the top end or the bottom end of that range in any given quarter or year? And sort of what's your real target more specifically? But also bigger picture, why did you choose eight times as a minimum as opposed to something lower?
Dennis?
Yeah, sure. So I think we really tried to, and we did some soul searching on this, is what's the right balance to be able to have capital to invest and have credit metrics that we felt were solid. At below nine times, we're starting to get into that towards that, call it triple B high kind of range, which seems to be a good place to be in the Canadian market, combined with a number of other metrics we have, like our mix of unsecured and secured debt. We really kind of went through this. Part of it was when we did a lot of the analysis and we looked at the opportunity set.
We have opportunities to put capital to work that is, frankly, much more accretive than just paying down debt. We have to try and find that right balance between growth opportunities and managing our credit metrics. We feel very comfortable with this kind of suite of credit metrics that we have that will be able to access quite attractive debt capital.
Thank you.
Thanks.
We have a question over there.
Yeah. I think you put emphasis on the at least a few times throughout this presentation with regards to the same property NOI growth. It sounds like maybe there is some upside on the rental spreads side. Can you give us a sense as to where you are forecasting occupancy to be and if there are any additions through recoveries? Maybe if you could give an upside potential to that at least.
Sure, John.
Yeah, again, I think occupancy seems full now, but every week we are leasing up space that may have been structurally vacant three years ago. I think where there is going to be significant upside over the next few years is where we play around with some of those metrics. Our retention ratio right now is between 92% and 93%. Tenants do not want to leave, but we may want some tenants to leave, and we may want to take back space. We spoke earlier that it is a fairly easy proposition if we can buy back a lease at very low rents to then turn it around and lease it at market. Sam just mentioned Danforth, where we were actually fortunate to get a Lowe's back, which was on an old Target/Zeller's lease at extremely under-market rents. We literally tripled the rents there.
That's where I see having flexibility and dealing with both our merchandising mix and the contracts in place is where we're going to realize that growth.
I would also add to that, Matt, that we're working hard to make it cheaper for our tenants to occupy our space. We feel that that creates a translation from what would have otherwise gone to CAM and taxes right into growth potential for net rents. As you know, tenants, retailers, they look at their gross occupancy costs. They do not differentiate between gross rents and net rents. We're running the business as efficiently as ever. We're always looking for opportunities to run it more efficiently. As we find that balance and make it a finer balance, we feel that some of the gross occupancy costs will start to fuel higher net rents.
Savings and gross occupancy costs flow into net rents. That will, of course, dictate higher same property NOI. Of course, we have a very vibrant program of finding other ways to make money outside of rents. I think Oliver will talk to those on the bus later about ancillary revenue and using properties like this as literal billboards, which just create enhanced revenue. That is around the edges, but it adds up on a portfolio as vast and well-positioned as ours.
Thanks. Maybe a quick follow-up. The value of land underneath your centers is both a blessing and a curse. If you are trying to expand, it becomes very low yield to purchase. Are you seeing, with kind of some dislocations in the Toronto land market or maybe Canadian land market, that you can get assets for the value of the retail today with maybe getting long-term upside on land, or are vendors just sticking to what they thought the prior valuations were?
I'm going to hand this one over to Andrew.
Thanks, John. Thanks for the question. I think your first premise is more correct, is the fact that landowners that own maybe covered land plays are holding on to previous values still based on what they thought it was worth in the land market maybe two or three years ago. We'll see if that continues. We're very close to the market on the retail side. We watch every transaction. We want to make sure we're close to the market and can take advantage of opportunities when they come up. I'm not yet seeing people trade retail assets with zone density on it for exactly the value of the retail, to your point.
I want to pull a question out of 2023. There would be a whole panel on ESG. Now that's been, let's say, call it right-sized, yet there's still we have to report it. You guys do, and so do we. As we appreciate Jennifer's work on your ESG reporting and sustainability, how do you going forward continue to report and line things up so you can improve on your carbon scores while maintaining your financial targets of, and I assume it's by reducing energy or water usage, but what operations can you put into place to continue to get the data you need in this reporting that's required nowadays?
Yeah, it's finding that I'm going to hand this one over to Jennifer, who lives and breathes this, but it is really finding that nexus between initiatives that are both good for the environment and also good for our business. I think we've done a very good job of curtailing our activities to do that. I want to hand it over to Jennifer, who's closer to this than I am.
Thank you. Exactly correct. We embed ESG in our strategy right across the organization. We apply the same rigor to any ESG initiative that we would to any capital allocation activity. It has to drive value for our unit holders. It's not enough simply to reduce emissions, although that is critical. You'll continue to see year-over-year improvement and progress in our reduction of emissions.
You can read all about it in our latest report, which we're very proud of. We were placed first in North America among all of our North American retail peers in the retail sector of the Americas because of our energy reduction. As importantly, you can also continue to see it being implemented in ways that do generate value and property enhancements. A great example of that is our implementation of over 300 EV charging stations in our properties. Those drive income. They're located at over 40 of our properties right across the country. You'll hear more about that on our bus tour. Looking at groundbreaking community partnerships with our national tenants that are focused on the exact same metrics that we are, and again, are there to drive value for them and for the REIT and for all of our unit holders.
Happy to go into lots of detail. I could probably sit here for an hour and fill your ears with it, but we can connect afterwards, and I'm happy to send you our report as well.
You started off talking about increased focus, less residential, and also a key point of discussion was the strong leasing spreads. Can you maybe expand on how the leasing spreads vary by the different retail property types you're in? With the increased focus, is there an area, whether it's outlet centers or enclosed malls, that maybe would be less of an area of growth or even an area to exit for RioCan?
Thanks for the question, Mark. I think really we're seeing leasing spreads being strong really across the entire portfolio. I do not think there's any province, region, city that is outclassing another.
I think when you have a portfolio as vast as RioCan's, those opportunities for growing lease rates pop up all over the portfolio. In terms of enclosed malls, it's a very small part of our portfolio. Even there, we're seeing very good leasing spreads. Largely, we're just seeing it out of the very strong, well-positioned, open-air, necessity-based retail assets that fuel our portfolio. John, anything to add?
No, the only thing I would add is enclosed centers historically have had lower growth. I would say, again, with tenant demand for space, you're seeing a lot of kind of non-enclosed mall tenants now incorporating themselves into malls. Oliver spoke earlier. We're putting a couple of grocery stores into Oakville and Georgian Malls, into the old HBC space. We're seeing a lot more of that. Essentially, enclosed centers are becoming enclosed, essential-based grocery strip centers. They're just inside. We're driving huge rents out of that as well.
I'll add too, Mark. We're setting ourselves up for future success too. Some of the initiatives we're taking now, the negotiations we're having with tenants on renewals or when we do new leases are not just economic. The nature of their renewals has changed. We've really made it part of our business to make fixed renewals a four-letter word at RioCan. In fact, we'd like to avoid renewals at all.
As the portfolio, as we move on year over year, you're going to see a number of these fixed-rate renewals start to fall off and as a percentage of our overall portfolio start to diminish, which gives us the opportunity to just drive more mark-to-market opportunities and create in the future even higher leasing spreads because we can get rents that are representative of today's market.
Maybe just a follow-up on that as far as growth. Residential development, obviously, right now is not an area that many people are looking to undertake, but that will come back at some point. RioCan has a lot of sites that would allow for that. Is that something RioCan will be open to in the future, or will it just be sold off to maybe other more focused residential developers?
We've got some very key ingredients that make us a logical participant. We've got great land, and we've got a great team. What we do not want to do is draw down on our balance sheet too dramatically. I think if opportunities arise where we can utilize our great land, utilize our great team, and not have any significant implications on our balance sheet, we would be participants, but again, non-financial or a lower financial aspect of that sort of initiative going forward. I also think, as you had mentioned, there is great opportunity simply to sell that land or those land holdings and take that money and utilize it for some of the initiatives we were talking about today. Hey, Mario.
Hi. Thank you for hosting us. More of a, I guess, a philosophical question maybe for Jonathan. In terms of corporate initiatives that may be kind of flying under the radar today that you're working on, spending a lot of time on that may not necessarily impact results over the next two to three years, but could have a profound impact on the company and results 20 downwards. Is there anything that's worth highlighting?
That's an awesome question, and I think I've got an awesome answer for you. That really is driving forward our culture and the people at RioCan. I don't think enough attention is paid on, I talked about the strength of a platform, and that really is driven by people.
The initiatives that we've taken over the last four or five years to ensure that our people are compensated properly, are treated well, it's been profound, and it's made a huge difference in just the way we operate and the results that we achieve. I'm really, really proud of the fact that we do an employee engagement survey every year. Not only do we get high scores, that goes to that same, but we get 99% participation, 98%, 99% participation, which means that whether they hate it or love it, people are really willing to express their thoughts about working at RioCan. That's the kind of accountable culture that I really had thought about and dreamt about when I got to take on this position. I think it really does add a huge amount of value. There's the economic value because turnover sucks, right?
You have to retrain people, and you got to go out and hire people, and that takes a lot of time, effort, and money. There is also the intrinsic value of just keeping that same corporate knowledge intact and keeping people that know the business and love the business focused on that business. I think that advancement in our culture and just the employee base being as motivated and engaged as they are has made and will continue to make a profound difference at RioCan.
Can I make a plug for technology since you are talking about platform?
Yes, you can.
Because no one ever gets to plug technology and reports to me. The teams mentioned data. Again, if we are talking platform, leveraging our data is incredibly powerful. One of the things we've been really focused on, we've implemented a new ERP system, we've moved everything to the cloud, we've done all the things that you need to do to make sure that everyone has access to data. If the team's going out and negotiating a lease, they've got access. If Andrew's team's going out to buy a property, they've got all that access. Implementing those tools makes it just faster, more seamless, better forecasting, et cetera.
I think this is another piece that we're putting a lot of effort in. We've put a lot of money in as well. You've seen it in our reports in terms of implementing these technologies. We're seeing that pay off. We get better insights when we're going into these negotiations. I think that is probably another kind of, again, it's under the radar. It does not pop up in the KPIs per se, but it is something that we are really focused on.
I applaud you for linking technology and philosophy to something that we are talking here.
Maybe just as a follow-up, when you collectively got together to put out kind of the 2026 to 2028 forecast, is there an item within the forecast where you sat back and thought, "Okay, this is going to be a challenge to achieve"? If so, what was it and what are the controls in place in order to really mitigate the risk of not achieving the goal?
Yeah, I can start on that one, Mario. When we started this conversation probably about a year ago, what are some of the key themes? We spoke about same property NOI, and we said we wanted to set a lofty target. At first, it was, "Okay, we've said 3%, maybe we should stick to 3%." We said 3.5%. I would say that there was at first a bit of hesitation around that. The more we dug into it and the more we started looking at our own data and using the tools like John and Oliver had spoken about, Project Northstar, to really dig into it, the conviction around that number and also continuously saying at least 3.5% was well-founded. I think it fueled a really good conversation and a really good process that allowed us to put that number out without any hesitation.
I would say that when we started this process, there was probably a little bit of hesitation, but it was a wonderful act of self-discovery when we really dug into our portfolio, we really dug into our data, and now it allows us to sit up here and say with conviction, "We believe in that number hands down."
Thank you. Yeah, just on the tenant growth, lots of retailers have expanded at a pretty good clip in recent years, taking advantage of the availability of space in the market. Now, RioCan's portfolio is essentially full. Many other retail portfolios are essentially full. Are you seeing tenant expansion plans slow down because of capacity limits, or are retailers out there looking to continue a similar pace that would need an acceleration of new development, and can RioCan participate in that new greenfield development opportunity?
Oliver, I'll let you start with this one.
The first answer to your second question is yes, we can absolutely participate in it. We still see extraordinary demand across all categories and all regions that we are looking to grow. We just wrapped up, I guess it wasn't that recently, but three weeks ago, we wrapped up the ICSE conference in Toronto where we sat down with all of our current tenants, prospective tenants, and they are still extremely interested and motivated to grow their footprint. They are getting more creative in terms of how they're doing in that. It's not only, "Hey, guys, show me what you have currently available." It's, "What about this space? I know there's tenants leaving three years from now.
Can we get an opportunity to sit down and talk to you guys about buying an option on that space?" Which John joked earlier that we've been involved in every single lease transaction that this company's done. The environment right now continues to be the best that we've seen it. When you've got retailers proactively sort of investigating opportunities of occupied space that they want to be in multiple years from now, I mean, it does really speak to the strength of the operating environment that we're dealing with.
Yeah, the one thing I would add, Sam, is that the limited amount of space right now does serve as a barrier to entry from retailers that don't operate in Canada yet. We heard rumors a couple of years ago that Aldi was really kicking the tires seriously.
I think, A, there was not an opportunity for them to grow and scale quickly. B, I think the other grocers within Canada responded to those rumors and started taking difficult urban space, smaller footprints that they typically would not take. That is definitely, again, we do want to welcome as many retailers as we can, but I think that has limited the amount of new retailers to the country.
Thank you.
I think that concludes the Q&A segment, but it should not conclude this dialogue. What I mean by that is, look, one of the hallmarks of this management team in RioCan, I hope you know, is that we are always available. We recognize the importance of having open dialogue with the analyst community and, of course, with our investor community.
The people up on the stage, the vast team who many of you will meet later today or you may have already met, are available to you because this business is dynamic. It changes all the time. Our tenants' needs change all the time. Our focus is, while again, fairly consistent, the interior focuses of RioCan do evolve. We are always open for conversations around that business, one of which we are very proud of. I think we speak from a great deal of experience and knowledge. Please do feel free to always reach out to our open channels at RioCan. It would be our pleasure to speak to you. Now, to conclude, no one can leave yet because we are in an awesome place, The Well. I would say one of the best things about The Well is Wellington Market.
What we have done is lined up effectively a satellite Wellington Market on this floor where we have brought up some of the best offerings of some of the best little restaurants down in the Wellington Market so that we can all enjoy some lunch together. We have a lot of great members of the RioCan team here. Please, as I said, the dialogue remains open. They are all subject matter experts, and they would all be happy to chat with you while you eat that awesome lunch. For those of you who are participating in our bus tour, again, we promise to keep it informative. We promise to keep it lively. Of course, it will be highlighted with some pretty awesome properties. We hope that as many of you as possible can participate in that.
I will be, again, repetitive in saying I am grateful, we are grateful for your time today, for being here with us, for learning a little bit more about RioCan and its people. Thank you very, very much, and have a great day. Lunch is that way.