RioCan Real Estate Investment Trust, one of the largest retail landlords in Canada, is in discussions with “three to four” Canadian and international tech companies about a potential partnership that could see RioCan get more involved in the logistics business. 

“We have not come to any conclusions about selecting a company. But we are in conversation with three to four that can help us perfect a couple of things, specifically, how we can tie portions of our property into that last piece of logistical delivery,” RioCan CEO Ed Sonshine said in an interview with The Logic Thursday. 

RioCan owns 221 retail and mixed-use properties primarily in urban and suburban parts of Toronto and Ottawa. The company’s tenants include large chains like Whole Foods Market, Cineplex, Canadian Tire, Walmart and Costco, but also smaller retailers like MEC and Bed, Bath & Beyond. 

Sonshine believes the long-term future of REITs with portfolios that still consist largely of retailers lies in their ability to turn existing space they own, like parking lots at shopping centres and strip malls, into distribution centres that are at the “last leg” of a delivery chain. 

“We have wonderful locations in the inner city, and in suburbs. We want someone that can take the space that we own and create a smart system where you can either have people within a five-kilometre radius pick up items that they’ve ordered, or act as a distribution centre to a company that delivers within a five-kilometre radius,” he said. “We want a tech company to effectively be our tenant as part of a logistics chain.” 

In May, the real estate giant launched Curbside Collect, a contactless item-pickup program for customers, akin to a drive-through. Sonshine said part of why he is in conversation with select tech companies—which he declined to name—is to help RioCan’s smaller retail tenants set up Curbside Collect in a more technologically savvy way. 

There’s some precedent to what Sonshine is proposing. Simon Property Group, the largest mall owner in the U.S., was reportedly in talks last summer with Amazon over turning some of its department stores, formerly or currently housed by Sears and JCPenney, into Amazon distribution hubs. Part of the advantage of using malls as storage facilities is they tend to be located in areas that are densely populated, making them ideal pickup spots for the last stage of an e-commerce-delivery cycle. 

This is where Sonshine believes RioCan’s advantage lies. “We are sitting on prime real estate in some of the best neighbourhoods in the country. I’m not too worried about some of our retail tenants going out of business—the question is, what can we do with that space in the long run?” 

Sonshine, who is retiring from his position as CEO next March after what will be 27 years, said he expects the company to have signed a deal with a large tech company “by 2021.”

In quarterly earnings posted Thursday, RioCan saw its net income plunge $60 million to $117.6 million year over year for the period ended September 30, as the COVID-19 pandemic forced some of its tenants to defer rent payments. 

The composition of RioCan’s portfolio has changed over the years to incorporate more service-oriented businesses like nail salons, gyms and movie theatres, and fewer retailers. Yet 90.2 per cent of its tenants are still in the retail space, which Sonshine acknowledged has been difficult for the company since the start of the pandemic. He said industrial REITs—owners of warehouses and factories—are currently the strongest operators in the real estate space, but that RioCan’s existing properties are “far too valuable” to be converted into warehouse use.

“I think that as cities continue to densify, and traffic continues to be a problem, there’s opportunity in the delivery business for spaces like ours to play a role in the logistics chain. I’m not saying we’re getting into the logistics business immediately, but there’s certainly potential there.”