SRU.UN:CC - SmartCentres Real Estate Investment Trust Releases Fourth Quarter and Full Year Results for 2022

February, 08 2023 06:22 PM Smartcentres Real Estate Investment Trust

Operational

Shopping centre leasing activity remains strong, with industry-leading occupancy levels of 98% in Q4 2022, representing a 40 basis point increase as compared to the same period 2021
Same Properties NOI ⁽¹⁾ for the quarter increased by $5.1 million or 4.0% as compared to Q4 2021, and for the full year increased by $16.5 million or 3.3% as compared to 2021
Net rental income and other for the quarter increased by $2.2 million or 1.7% as compared to Q4 2021, and for the full year increased by $16.8 million or 3.5% as compared to 2021

Mixed-use Development

In excess of three million square feet of construction activity is currently underway, principally high rise residential on existing shopping centre sites in Toronto, Montreal, and Ottawa
Construction of the Transit City 4 & 5 condominium towers is in the final stages of completion with closings scheduled to commence in March 2023. All 1,026 units have been pre-sold and construction costs are on budget
Construction of the Millway, a 458-unit purpose-built rental apartment building, is also in the final stages of completion, with initial tenants taking occupancy and rent commencement later this month

Financial

FFO ⁽¹⁾ with adjustments excluding the impact of the TRS for the quarter increased by $1.0 million or 1.1% as compared to Q4 2021, and for the full year increased by $9.6 million or 2.7% as compared to 2021
Payout Ratio to ACFO ⁽¹⁾ with adjustments excluding the impact of the TRS and other for the year ended December 31, 2022 improved by 3.9 % to 92.6% as compared to 2021 and for the quarter improved by 5.7% to 94.1% as compared to Q4 2021
Payout Ratio to cash flows provided by operating activities for the year ended December 31, 2022 increased by 3.1% to 88.9% as compared to 2021 and for the quarter increased by 1.6% to 61.2% as compared to Q4 2021
As a result of fair value adjustments to property valuations and condo and townhouse closings that occurred in 2021, net income and comprehensive income for the quarter decreased by $551.8 million or 84.6% as compared to Q4 2021, and for the year decreased by $351.7 million or 35.6% as compared to 2021

TORONTO, Feb. 08, 2023 (GLOBE NEWSWIRE) -- SmartCentres Real Estate Investment Trust (“SmartCentres”, the “Trust” or the “REIT”) (TSX: SRU.UN) is pleased to report its financial and operating results for the quarter and year ended December 31, 2022.

“Walmart is a very strong anchor tenant in good times, and an even stronger one in tough times. Hence, customer traffic to our Walmart-anchored shopping centre portfolio continues to gain momentum which, in turn, is generating steadily increasing levels of leasing activity that began earlier in 2022.” said Mitchell Goldhar, Executive Chairman and CEO of SmartCentres.

“We anticipate this trend will continue into 2023 and that it will have a positive impact on both our occupancy and earnings levels. We are pleased with the noticeable increase in leasing activity in the fourth quarter and the associated improvement in cash collections.”

“We are particularly proud of our progress on the eleven mixed-used development initiatives that are currently under construction. These projects have expected completion dates in 2023 and 2024, upon which they are expected to begin contributing FFO ⁽¹⁾ . The development initiatives span multiple asset classes, including condos, rental apartments, seniors’ apartments, townhouses, self-storage, industrial, and retirement residences. As at December 31, 2022, the total cumulative amount of capital deployed on these projects was $755.2 million ($304.1 million at the Trust’s share), with approximately $487.8 million remaining until completion ($234.9 million at the Trust’s share),” noted Mr. Goldhar.

“Among these developments are significant projects at our flagship Vaughan Metropolitan Centre. These include two 45-storey and 50-storey condominium towers at Transit City nearing completion after 36 months. These units are sold out and the final stages of construction are rapidly nearing the finish line, on time and on budget. Closings are expected to commence in March 2023. In addition, The Millway, a 458-unit, 36-storey rental apartment tower, is also proceeding on time and on budget with initial occupancy and rent commencement expected to begin later this month. The first phase of our Artwalk condominium project is also sold out and construction is expected to commence in the second half of 2023.”

“We are also pleased to note that, as promised, we published our inaugural ESG report during the fourth quarter of 2022. Our business remains strong and well-positioned for growth in the coming years. Nevertheless, with changing economic conditions, we plan on applying prudent discipline when assessing development and other initiatives. Our focus remains on the long term, including the development of mixed-use projects on our strategically located real estate, which we are confident will extract deeply embedded value for many years to come,” added Mr. Goldhar.

(1) Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For additional information, please see “Non-GAAP Measures” in this Press Release.

Key Business Development, Financial and Operational Highlights for the Year Ended December 31, 2022

Mixed-Use Development and New Growth at SmartVMC

Park Place condo pre-development is underway on the 53.0 acre SmartVMC West lands strategically acquired in December 2021. Pre-sales for this development have commenced. The Trust’s acquisition in December 2021 of a two-thirds interest in the SmartVMC West lands more than doubled the Trust’s holdings in the 105 acre SmartVMC city centre development.
Construction nears completion on the 100% pre-sold Transit City 4 (45 storeys) and 5 (50 storeys) condo towers, representing 1,026 residential units. Concrete, formwork and building envelope have been completed for both towers, with interior finishes ongoing. First closings are expected to commence in March 2023.
Construction of the purpose-built rental project, The Millway (36 storeys), nears completion at SmartVMC. Formwork, concrete and building envelope have been completed, with interior finishes underway. Initial occupancy is expected to commence in February 2023.
ArtWalk condominium sales of 320 released units in Phase 1 are sold out with construction expected to begin in the second half of 2023.

Other Business Development

Occupancy in the completed first phase of the two-phase, purpose-built residential rental project in Laval, Quebec, ended the year with 98% of the 171 units leased. Pre-leasing has commenced on the next phase and construction continues, with a target completion date of Q2 2023.
Initial occupancy in the two purpose-built residential rental towers (238 units) in Mascouche, Quebec began in July 2022, with the final floor opened in November. More than 147 units have been leased and current lease-up activity is in line with initial expectations.
All of the five developed and operating self-storage facilities (Toronto (Leaside), Vaughan NW, Brampton, Oshawa South and Scarborough East) have been very well-received by their local communities, with current occupancy levels ahead of expectations. A sixth facility, Aurora, opened in December 2022.
Three self-storage facilities in Whitby, Markham and Brampton (Kingspoint) are currently under construction, with Brampton (Kingspoint) expected to be completed in early 2023. Additional self-storage facilities have been approved by the Board of Trustees and the Trust is in the process of obtaining municipal approvals in Stoney Creek and two locations in Toronto (Gilbert Ave. and Jane St.). In addition, the municipal approval process is underway in New Westminster and Burnaby, British Columbia.
Construction continues on a new retirement residence and a seniors’ apartment project, totalling 402 units, at the Trust's Laurentian Place in Ottawa, with completion expected in Q1 2024.
By way of a Minister’s Zoning Order, the Trust has permissions that would allow for the redevelopment of the 73-acre Cambridge retail property (which is subject to a leasehold interest with Penguin) including various forms of residential, retail, office, institutional and commercial uses providing for the creation of a vibrant urban community with the potential for over 12 million square feet of development.
The Trust, together with its partner, Penguin, has also commenced preliminary siteworks for the 215,000 square foot retail project on Laird Drive in Toronto, that is expected to feature a flagship 190,000 square foot Canadian Tire store together with 25,000 square feet of additional retail space. Canadian Tire is expected to take possession in 2024.

Financial

Net income and comprehensive income ⁽¹⁾ was $636.0 million in 2022 compared to $987.7 million in 2021, representing a decrease of $351.7 million. This decrease was primarily attributed to: i) $476.8 million decrease in fair value adjustment on revaluation of investment properties; and ii) $20.2 million decrease in net profit on condo and townhome unit closings; and was partially offset by i) $125.5 million increase in fair value adjustments on financial instruments; and ii) $20.6 million increase in net rental income and other mainly due to higher base rent in 2022.
Net income and comprehensive income per Unit ⁽¹⁾ in 2022 decreased by $2.14 or 37.7% to $3.54 as compared to the same period in 2021, primarily due to the reasons as noted above.
As at December 31, 2022, the Trust increased its unsecured/secured debt ratio ⁽²⁾⁽³⁾ to 74%/26% (December 31, 2021 – 71%/29%).
The Trust continues to add to its unencumbered pool of high-quality assets. As at December 31, 2022, this unencumbered portfolio consisted of investment properties was valued at $8.4 billion (December 31, 2021 – $6.6 billion).
The Trust’s fixed rate/variable rate debt ratio ⁽²⁾⁽³⁾ was 82%/18% as at December 31, 2022 (December 31, 2021 – 89%/11%).
FFO per Unit with adjustments excluding the impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition ⁽²⁾ was $2.14 (year ended December 31, 2021 – $2.09).
During the quarter, 693,900 additional notional TRS Units were added at a weighted average price of $26.37 per Unit.
For the year ended December 31, 2022, there was a surplus of cash flows provided by operating activities ⁽¹⁾ over distributions declared of $41.2 million (year ended December 31, 2021 – surplus of $52.9 million).
The Payout Ratio relating to cash flows provided by operating activities for the year ended December 31, 2022 was 88.9%, as compared to 85.8% for the year ended December 31, 2021.
For the year ended December 31, 2022, there was a surplus of ACFO ⁽²⁾ over distributions declared of $10.5 million (year ended December 31, 2021 – surplus of $34.3 million).
The Payout Ratio to ACFO ⁽²⁾ for the year ended December 31, 2022 was 96.9%, as compared to 90.3% for the year ended December 31, 2021. Excluding the impact of TRS, condominium and townhome closings, and SmartVMC West acquisition, the Payout Ratio to ACFO ⁽²⁾ for the year ended December 31, 2022 was 92.6%, as compared to 96.5% for the year ended December 31, 2021.

Operational

Rentals from investment properties and other ⁽¹⁾ was $804.6 million, as compared to $780.8 million in 2021, representing an increase of $23.8 million or 3.0%, primarily due to: (i) the acquisition of an additional interest in investment properties in Q1 2022; (ii) higher rental income from Premium Outlets locations in both Toronto and Montreal; and (iii) additional self-storage facility and parking rental revenue.
Same Properties NOI inclusive of ECL ⁽²⁾ increased by $16.5 million or 3.3% in 2022 as compared to 2021. Same Properties NOI excluding ECL ⁽²⁾ increased by $9.5 million or 1.9% in 2022 as compared to the prior year.
In-place occupancy rate and occupancy rate with committed deals were 97.6% and 98.0%, respectively, as at December 31, 2022 (December 31, 2021 – 97.4% and 97.6%, respectively).

Subsequent Event

The Trust together with an entity, PCVP, which is classified as investment in associates, entered into an agreement to dispose approximately 6.4 acres of land located in Vaughan, Ontario (VMC) to an unrelated party, which closed in February 2023, for gross proceeds of $95.6 million that was satisfied with cash. The Trust’s share of such proceeds was $58.4 million, comprised of $42.3 million relating to the Trust’s two-thirds share of the 4.3 acres of land on western part of SmartVMC which were previously consolidated in the Trust’s consolidated financial statements and presented as assets held for sale at December 31, 2022, and $16.1 million relating to the Trust’s 50% share of 2.1 acres of land on eastern part of SmartVMC which were previously recorded in equity accounted investments. Proceeds from the sale were primarily used by the Trust to reduce indebtedness.

Key consolidated operational, mixed-use development and financial information shown in the table below includes the Trust’s proportionate share of equity accounted investments:

(in thousands of dollars, except per Unit and other non-financial data)
December 31, 2022
December 31, 2021
December 31, 2020
Portfolio Information



Number of retail properties
155
155
156
Number of office properties
4
4
4
Number of self-storage properties
6
6
4
Number of residential properties
1
1
1
Number of properties under development
19
17
14
Total number of properties with an ownership interest
185
183
179




Leasing and Operational Information ⁽¹⁾



Gross leasable retail and office area (in thousands of sq. ft.)
34,750
34,119
34,056
Occupied retail and office area (in thousands of sq. ft.)
33,925
33,219
33,039
Vacant retail and office area (in thousands of sq. ft.)
826
900
1,017
In-place occupancy rate (%)
97.6
97.4
97.0
In-place and committed occupancy rate (%)
98.0
97.6
97.3
Average lease term to maturity (in years)
4.2
4.4
4.6
Net annualized retail rental rate (per occupied sq. ft.) ($)
15.53
15.44
15.37
Net annualized retail rental rate excluding Anchors (per occupied sq. ft.) ($)
22.20
22.07
21.89
Mixed-Use Development Information



Trust’s share of future development area (in thousands of sq. ft.)
41,200
40,600
32,500
Trust’s share of estimated costs of future projects currently under construction, or for which construction is expected to commence within the next five years (in millions of dollars)
10,000
9,800
7,900
Total number of residential rental projects
110
104
96
Total number of seniors’ housing projects
25
27
40
Total number of self-storage projects
33
36
50
Total number of office buildings / industrial projects
8
8
7
Total number of hotel projects
3
3
4
Total number of condominium developments
88
95
72
Total number of townhome developments
7
10
15
Total number of estimated future projects currently in development planning stage
274
283
284

Financial Information



Total assets – GAAP ⁽²⁾
11,702,153
11,293,248
10,724,492
Total assets – non-GAAP ⁽³⁾⁽⁴⁾
12,083,941
11,494,377
10,874,900
Investment properties – GAAP ⁽²⁾
10,250,392
9,847,078
8,850,390
Investment properties – non-GAAP ⁽³⁾⁽⁴⁾
11,223,796
10,684,529
9,400,584
Total unencumbered assets ⁽³⁾
8,415,900
6,640,600
5,835,600
Debt – GAAP ⁽²⁾
4,983,265
4,854,527
5,210,123
Debt – non-GAAP ⁽³⁾⁽⁴⁾
5,260,053
4,983,078
5,261,360
Debt to Aggregate Assets (%) ^(3)(4)(5)
43.6
42.9
44.6
Debt to Gross Book Value (%) ^(3)(4)(5)
52.0
50.8
50.1
Unsecured to Secured Debt Ratio ^(3)(4)(5)
74%/26%
71%/29%
68%/32%
Unencumbered assets to unsecured debt ^(3)(4)(5)
2.2X
1.9X
1.9X
Weighted average interest rate (%) ⁽³⁾⁽⁴⁾
3.86
3.11
3.28
Weighted average term of debt (in years)
4.0
4.8
5.0
Interest coverage ratio ^(3)(4)(5)
3.1X
3.4X
3.2X
Equity (book value) ⁽²⁾
6,163,101
5,841,315
5,166,975
Weighted average number of units outstanding – diluted
179,657,455
173,748,819
172,971,603

(1)   Excluding residential and self-storage area.
(2)   Represents a GAAP measure.
(3)   Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For additional information, please see “Non-GAAP Measures” in this Press Release.
(4)   Includes the Trust’s assets held for sale and the Trust’s proportionate share of equity accounted investments.
(5)   As at December 31, 2022, cash-on-hand of $33.4 million was excluded for the purposes of calculating the applicable ratios (December 31, 2021 – $80.0 million, December 31, 2020 – $754.4 million).

Year-to-Date Comparison to Prior Year

The following table presents key financial, per Unit, and payout ratio information for the year ended December 31, 2022 and December 31, 2021:

(in thousands of dollars, except per Unit information)

2022

2021
Variance

(A)
(B)
(A–B)
Financial Information



Rentals from investment properties and other ⁽¹⁾

804,598

780,796

23,802
Net base rent ⁽¹⁾

508,023

494,992

13,031
Total recoveries ⁽¹⁾

265,281

253,032

12,249
Miscellaneous revenue ⁽¹⁾

15,393

17,891

(2,498)
Service and other revenues ⁽¹⁾

14,652

14,843

(191)
Earnings from other ⁽¹⁾

1,249

38

1,211
Net income and comprehensive income ⁽¹⁾

635,965

987,676

(351,711)
Net income and comprehensive income excluding fair value adjustments ⁽²⁾⁽³⁾

342,261

342,609

(348)
Cash flows provided by operating activities ⁽¹⁾

370,762

371,624

(862)
Net rental income and other ⁽¹⁾

502,604

485,840

16,764
NOI from condominium and townhome closings and other adjustments ⁽²⁾

305

20,471

(20,166)
NOI ⁽²⁾

518,520

518,122

398
Change in net rental income and other ⁽²⁾

3.5 %

5.4%
(1.9)%
Change in SPNOI ⁽²⁾

3.3 %

3.5%
(0.2)%
Change in SPNOI excluding ECL ⁽²⁾

1.9 %
(2.0)%

3.9%




FFO ^(2)(3)(4)(5)

371,572

380,070

(8,498)
Other adjustments

656

3,226

(2,570)
FFO with adjustments ^(2)(3)(4)

372,228

383,296

(11,068)
Adjusted for:



ECL

(3,257 )

3,706

(6,963)
Loss (gain) on derivative – TRS

4,918

(5,642)

10,560
FFO sourced from condominium and townhome closings

(680 )

(18,747)

18,067
FFO sourced from SmartVMC West acquisition

(984 )

—

(984)
FFO with adjustments excluding impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition ^(2)(3)(4)

372,225

362,613

9,612




FFO with adjustments and Transactional FFO ^(2)(3)(4)

379,890

385,219

(5,329)




ACFO ^(2)(3)(4)(5)

340,075

353,055

(12,980)
Other adjustments

656

3,226

(2,570)
ACFO with adjustments ^(2)(3)(4)

340,731

356,281

(15,550)
Adjusted for:



Loss (gain) on derivative – TRS

4,918

(5,642)

10,560
ACFO sourced from condominium and townhome closings

(305 )

(20,471)

20,166
ACFO sourced from SmartVMC West acquisition

(984 )

—

(984)
ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition ^(2)(3)(4)

344,360

330,168

14,192




Distributions declared

329,531

318,753

10,778
Surplus of cash flows provided by operating activities over distributions declared ⁽²⁾

41,231

52,871

(11,640)
Surplus of ACFO over distributions declared ⁽²⁾

10,544

34,302

(23,758)
Surplus of ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition over distributions declared ⁽²⁾

14,829

11,415

3,414
Units outstanding ⁽⁶⁾

178,133,853

178,091,581

42,272
Weighted average – basic

178,121,149

172,447,334

5,673,815
Weighted average – diluted ⁽⁷⁾

179,657,455

173,748,819

5,908,636




Per Unit Information (Basic/Diluted)



Net income and comprehensive income ⁽¹⁾
$3.57/$3.54
$5.73/$5.68
$-2.16/$-2.14
Net income and comprehensive income excluding fair value adjustments ⁽²⁾⁽³⁾
$1.92/$1.91
$1.99/$1.97
$-0.07/$-0.06




FFO ^(2)(3)(4)(5)
$2.09/$2.07
$2.20/$2.19
$-0.11/$-0.12
Other non-recurring adjustments
$0.00/$0.00
$0.02/$0.02
$-0.02/$-0.02
FFO with adjustments ^(2)(3)(4)
$2.09/$2.07
$2.22/$2.21
$-0.13/$-0.14
FFO with adjustments excluding impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition ^(2)(3)(4)
$2.16/$2.14
$2.10/$2.09
$0.06/$0.05




FFO with adjustments and Transactional FFO ^(2)(3)(4)
$2.13/$2.11
$2.23/$2.22
$-0.10/$-0.11
Distributions declared
$ 1.850
$1.850





Payout Ratio Information



Payout Ratio to cash flows provided by operating activities

88.9 %

85.8%

3.1%
Payout Ratio to ACFO ^(2)(3)(4)(5)

96.9 %

90.3%

6.6%
Payout Ratio to ACFO with adjustments ^(2)(3)(4)

96.7 %

89.5%

7.2%
Payout Ratio to ACFO with adjustments excluding impact of TRS, condominium and townhome sales, and SmartVMC West acquisition ^(2)(3)(4)

92.6 %

96.5%
(3.9)%

(1)   Represents a GAAP measure.
(2)   Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For additional information, please see “Non-GAAP Measures” in this Press Release.
(3)   Includes the Trust’s proportionate share of equity accounted investments.
(4)   See “Other Measures of Performance” for a reconciliation of these measures to the nearest consolidated financial statement measure.
(5)   The calculation of the Trust’s FFO and ACFO and related payout ratios, including comparative amounts, are financial metrics that were determined based on the REALpac White Paper on FFO issued in January 2022 and REALpac White Paper on ACFO issued in February 2019, respectively. Comparison with other reporting issuers may not be appropriate. The payout ratio to FFO and the payout ratio to ACFO are calculated as declared distributions divided by FFO and ACFO, respectively
(6)   Total Units outstanding include Trust Units and LP Units, including Units classified as liabilities. LP Units classified as equity in the consolidated financial statements are presented as non-controlling interests.
(7)   The diluted weighted average includes the vested portion of the deferred units issued pursuant to the deferred unit plan.

Operational Highlights
For the three months ended December 31, 2022, net income and comprehensive income (as noted in the table above) decreased by $551.8 million as compared to the same period in 2021. This decrease was primarily attributed to the following:

$568.7 million decrease in fair value adjustments on revaluation of investment properties, including adjustments relating to assets held for sale, primarily due to increase in fair value of certain properties under development in Q4 2021 as a result of changes in the market and the progress made on planning entitlements (see details in the “Investment Property” section in the Trust’s MD&A); and
$7.2 million increase in interest expense (see further details in the “Interest Income and Interest Expense” subsection in the Trust’s MD&A);

Partially offset by the following:

$10.9 million increase in fair value adjustment on financial instruments primarily due to fluctuations in the Trust’s Unit price;
$4.1 million increase in interest income mainly due to higher interest rates;
$3.9 million increase in NOI (see further details in the “Net Operating Income” subsection in the Trust’s MD&A);
$2.8 million decrease in acquisition-related costs related to the SmartVMC West acquisition in 2021; and
$1.4 million decrease in general and administrative expenses (net) (see further details in the “General and Administrative Expense” section in the Trust’s MD&A).

For the year ended December 31, 2022, net income and comprehensive income (as noted in the table above) decreased by $351.7 million as compared to the same period in 2021. This decrease was primarily attributed to the following:

$476.8 million decrease in fair value adjustments on revaluation of investment properties primarily due to increase in fair value of certain properties under development in Q4 2021 as a result of changes in the market and the progress made on planning entitlements (see details in the “Investment Property” section in the Trust’s MD&A);
$6.5 million increase in interest expense (see further details in the “Interest Income and Interest Expense” section in the Trust’s MD&A); and
$2.8 million increase in supplemental costs and in general and administrative expenses (net) (see further details in the “General and Administrative Expense” section in the Trust’s MD&A);

Partially offset by the following:

$125.5 million increase in fair value adjustment on financial instruments primarily due to fluctuations in the Trust’s Unit price and increase in fair value adjustments pertaining to interest rate swap agreements due to fluctuation in the interest rate (see further details in the “Debt” subsection in the Trust’s MD&A);
$6.1 million increase in interest income mainly due to higher interest rates; and
$2.5 million decrease in acquisition-related costs related to the SmartVMC West acquisition in 2021.

Development and Intensification Summary
The following table summarizes the 274 identified mixed-use, recurring rental income and development income initiatives, which are included in the Trust’s large development pipeline:

Description
Under Construction
Construction expected to commence within next 2 years
Active (Construction expected to commence within next 3–5 years)
Future (Construction expected to commence after 5 years)
Total
Number of projects in which the Trust has an ownership interest





Residential Rental
3
22
24
61
110
Seniors’ Housing
1
3
7
14
25
Self-storage
3
7
8
15
33
Office Buildings / Industrial
1
—
1
6
8
Hotels
—
—
—
3
3
Subtotal – Recurring rental income initiatives
8
32
40
99
179
Condominium developments
2
15
25
46
88
Townhome developments
1
1
2
3
7
Subtotal – Development income initiatives
3
16
27
49
95
Total
11
48
67
148
274
Trust’s share of project area (in thousands of sq. ft.)





Recurring rental income initiatives
1,000
4,450
4,300
12,500
22,250
Development income initiatives
400
3,650
4,700
10,200
18,950
Total Trust’s share of project area (in thousands of sq. ft.)
1,400
8,100
9,000
22,700
41,200
Trust’s share of such estimated costs (in millions of dollars)
550
4,450
5,000
– ⁽¹⁾
10,000

(1) The Trust has not fully determined the costs attributable to future projects expected to commence after five years and as such they are not included in this table.

The following table provides additional details on the Trust’s 11 development initiatives that are currently under construction (in order of estimated initial occupancy/closing date):

Projects under construction (Location/Project Name)
Type
Trust’s Share (%)
Estimated initial occupancy / closing date
% of completion
GFA ⁽²⁾ (sq. ft.)
No. of units







Vaughan / Transit City 4
Condo
25
Q1 2023
87%
—
1,026
Vaughan / Transit City 5
Vaughan / The Millway
Apartment
50
Q1 2023
73%
—
458
Brampton / Kingspoint Plaza
Self Storage
50
Q1 2023
91%
133,000
969
Pickering (Seaton Lands)
Industrial
100
Q1 2023
79%
241,000
—
Laval Centre
Apartment
50
Q2 2023
58%
—
211
Markham East / Boxgrove
Self Storage
50
Q1 2024
38%
133,332
910
Whitby
Self Storage
50
Q1 2024
16%
126,135
811
Ottawa SW ⁽¹⁾
Retirement Residence
50
Q1 2024
26%
—
402
Ottawa SW ⁽¹⁾
Senior Apartments
Vaughan NW
Townhouse
50
Q3 2024
14%
—
174










In millions of dollars


Total Capital Spend To Date at 100% ⁽³⁾

755.2


Estimated Cost to Complete at 100%

487.8


Total Expected Capital Spend by Completion at 100% ⁽³⁾

1,243.0


Total Capital Spend To Date at Trust’s share ⁽³⁾

304.1


Estimated Cost to Complete at Trust’s share

234.9


Total Expected Capital Spend by Completion at Trust’s share ⁽³⁾

539.0

(1)   Figure represents capital spend of both retirement residence and senior apartments projects.
(2)   GFA represents Gross Floor Area.
(3)   Total capital spent to date and total expected capital spend by completion include land value.

Reconciliations of Non-GAAP Measures

The following tables reconcile the non-GAAP measures to the most comparable GAAP measures for the three months and year ended December 31, 2022 and the comparable periods in 2021. Such measures do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures disclosed by other issuers.

Proportionately Consolidated Balance Sheets (including the Trust’s interests in equity accounted investments)

The following table presents the proportionately consolidated balance sheets, which includes a reconciliation of the Trust’s proportionate share of equity accounted investments:

(in thousands of dollars)
Year Ended December 31, 2022
Year Ended December 31, 2021

GAAP Basis
Proportionate Share Reconciliation ⁽¹⁾
Total Proportionate Share ⁽²⁾
GAAP Basis
Proportionate Share Reconciliation ⁽¹⁾
Total Proportionate Share ⁽²⁾
Assets






Non-current assets






Investment properties
10,208,071
957,354

11,165,425
9,847,078
837,451

10,684,529
Equity accounted investments
680,999
(680,999
)
—
654,442
(654,442
)
—
Mortgages, loans and notes receivable
238,099
(76,994
)
161,105
345,089
(69,576
)
275,513
Other financial assets
171,807
—

171,807
97,148
—

97,148
Other assets
83,230
8,977

92,207
80,940
7,465

88,405
Intangible assets
43,807
—

43,807
45,139
—

45,139

11,426,013
208,338

11,634,351
11,069,836
120,898

11,190,734
Current assets






Assets held for sale
42,321
16,050

58,371
—
—

—
Residential development inventory
40,373
113,207

153,580
27,399
67,828

95,227
Current portion of mortgages, loans and notes receivable
86,593
—

86,593
71,947
—

71,947
Amounts receivable and other
57,124
(7,033
)
50,091
49,542
(8,637
)
40,905
Prepaid expenses, deposits and deferred financing costs
14,474
15,807

30,281
12,289
13,118

25,407
Cash and cash equivalents
35,255
35,419

70,674
62,235
7,922

70,157

276,140
173,450

449,590
223,412
80,231

303,643
Total assets
11,702,153
381,788

12,083,941
11,293,248
201,129

11,494,377
Liabilities






Non-current liabilities






Debt
4,523,987
212,928

4,736,915
4,176,121
93,465

4,269,586
Other financial liabilities
277,400
—

277,400
326,085
—

326,085
Other payables
17,265
—

17,265
18,243
—

18,243

4,818,652
212,928

5,031,580
4,520,449
93,465

4,613,914
Current liabilities






Current portion of debt
459,278
63,860

523,138
678,406
35,086

713,492
Accounts payable and current portion of other payables
261,122
105,000

366,122
253,078
72,578

325,656

720,400
168,860

889,260
931,484
107,664

1,039,148
Total liabilities
5,539,052
381,788

5,920,840
5,451,933
201,129

5,653,062
Equity






Trust Unit equity
5,126,197
—

5,126,197
4,877,961
—

4,877,961
Non-controlling interests
1,036,904
—

1,036,904
963,354
—

963,354

6,163,101
—

6,163,101
5,841,315
—

5,841,315
Total liabilities and equity
11,702,153
381,788

12,083,941
11,293,248
201,129

11,494,377

(1) Represents the Trust’s proportionate share of assets and liabilities in equity accounted investments.
(2) This column contains non-GAAP measures because it includes figures that are recorded in equity accounted investments. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For additional information, please see “Non-GAAP Measures” in this Press Release.

Proportionately Consolidated Statements of Income and Comprehensive Income (including the Trust’s Interests in Equity Accounted Investments)
The following tables present the proportionately consolidated statements of income and comprehensive income, which include a reconciliation of the Trust’s proportionate share of equity accounted investments:

Quarterly Comparison to Prior Year


Three Months Ended
Three Months Ended

(in thousands of dollars)
December 31, 2022
December 31, 2021


GAAP Basis
Proportionate Share Reconciliation
Total Proportionate Share ⁽¹⁾
GAAP Basis
Proportionate Share Reconciliation
Total Proportionate Share ⁽¹⁾
Variance of Total Proportionate Share ⁽¹⁾
Net rental income and other







Rentals from investment properties and other
206,223
8,441
214,664
192,850
5,974
198,824
15,840
Property operating costs and other
(77,062 )
(3,779 )
(80,841 )
(65,896)
(3,144)
(69,040)
(11,801)

129,161
4,662
133,823
126,954
2,830
129,784
4,039
Condo and townhome closings revenue and other ⁽²⁾
—
—
—
—
—
—
—
Condo and townhome cost of sales and other
(10 )
(181 )
(191 )
—
(67)
(67)
(124)

(10 )
(181 )
(191 )
—
(67)
(67)
(124)
NOI
129,151
4,481
133,632
126,954
2,763
129,717
3,915
Other income and expenses







General and administrative expense, net
(7,790 )
—
(7,790 )
(8,703)
(534)
(9,237)
1,447
Earnings from equity accounted investments
(113 )
113
—
160,049
(160,049)
—
—
Fair value adjustment on revaluation of investment properties
13,377
(1,418 )
11,959
420,418
160,289
580,707
(568,748)
Gain (loss) on sale of investment properties
531
—
531
(64)
—
(64)
595
Interest expense
(40,342 )
(3,846 )
(44,188 )
(35,654)
(1,355)
(37,009)
(7,179)
Interest income
5,496
1,408
6,904
2,745
11
2,756
4,148
Supplemental costs
—
(738 )
(738 )
—
(1,125)
(1,125)
387
Fair value adjustment on financial instruments
—
—
—
(10,873)
—
(10,873)
10,873
Acquisition-related costs
—
—
—
(2,791)
—
(2,791)
2,791
Net income and comprehensive income
100,310
—
100,310
652,081
—
652,081
(551,771)

(1) This column contains non-GAAP measures because it includes figures that are recorded in equity accounted investments. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For additional information, please see “Non-GAAP Measures” in this Press Release.
(2) Includes additional partnership profit and other revenues.

Year-to-Date Comparison to Prior Year

(in thousands of dollars)
Year Ended December 31, 2022
Year Ended December 31, 2021


GAAP Basis
Proportionate Share Reconciliation
Total Proportionate Share ⁽¹⁾
GAAP Basis
Proportionate Share Reconciliation
Total Proportionate Share ⁽¹⁾
Variance of Total Proportionate Share ⁽¹⁾
Net rental income and other







Rentals from investment properties and other
804,598
28,643
833,241
780,796
21,530
802,326
30,915
Property operating costs and other
(301,559 )
(13,467 )
(315,026 )
(294,956)
(9,719)
(304,675)
(10,351)

503,039
15,176
518,215
485,840
11,811
497,651
20,564
Condo and townhome closings revenue and other ⁽²⁾
—
4,524
4,524
—
76,837
76,837
(72,313)
Condo and townhome cost of sales and other
(435 )
(3,784 )
(4,219 )
—
(56,366)
(56,366)
52,147

(435 )
740
305
—
20,471
20,471
(20,166)
NOI
502,604
15,916
518,520
485,840
32,282
518,122
398
Other income and expenses







General and administrative expense, net
(33,269 )
(107 )
(33,376 )
(31,922)
(610)
(32,532)
(844)
Earnings from equity accounted investments
4,199
(4,199 )
—
211,420
(211,420)
—
—
Fair value adjustment on revaluation of investment properties
201,834
624
202,458
491,528
187,728
679,256
(476,798)
Gain (loss) on sale of investment properties
315
(241 )
74
27
—
27
47
Interest expense
(148,702 )
(7,798 )
(156,500 )
(144,540)
(5,437)
(149,977)
(6,523)
Interest income
18,036
453
18,489
12,341
75
12,416
6,073
Supplemental costs
—
(4,648 )
(4,648 )
—
(2,618)
(2,618)
(2,030)
Fair value adjustment on financial instruments
91,246
—
91,246
(34,227)
—
(34,227)
125,473
Acquisition-related costs
(298 )
—
(298 )
(2,791)
—
(2,791)
2,493
Net income and comprehensive income
635,965
—
635,965
987,676
—
987,676
(351,711)

FFO, FFO with adjustments, and FFO with adjustments and Transactional FFO

The following tables reconciles net income and comprehensive income to FFO, FFO with adjustments, and FFO with adjustments and Transactional FFO:

Quarterly Comparison to Prior Year


Three Months Ended
Three Months Ended


(in thousands of dollars, except per Unit amounts)
December 31, 2022
December 31, 2021
Variance ($)
Variance (%)
Net income and comprehensive income
100,310

652,081

(551,771
)
(84.6
)
Add (deduct):




Fair value adjustment on revaluation of investment properties ⁽¹⁾
(13,377
)
(420,418
)
407,041

(96.8
)
Fair value adjustment on financial instruments ⁽²⁾
—

10,873

(10,873
)
N/R ⁽⁷⁾

(Loss) gain on derivative – TRS
6,221

4,180

2,041

48.8

Loss (gain) on sale of investment properties
(531
)
64

(595
)
N/R ⁽⁷⁾

Amortization of intangible assets
333

333

—

—

Amortization of tenant improvement allowance and other
2,005

1,608

397

24.7

Distributions on Units classified as liabilities recorded as interest expense
1,083

1,008

75

7.4

Distributions on vested deferred units recorded as interest expense
724

1,045

(321
)
(30.7
)
Salaries and related costs attributed to leasing activities ⁽³⁾
1,514

1,063

451

42.4

Acquisition-related costs
—

2,791

(2,791
)
N/R ⁽⁷⁾

Adjustments relating to equity accounted investments:




Rental revenue adjustment – tenant improvement amortization
98

62

36

58.1

Indirect interest with respect to the development portion ⁽⁴⁾
1,935

1,926

9

0.5

Fair value adjustment on revaluation of investment properties
1,418

(160,289
)
161,707

N/R ⁽⁷⁾

Adjustment for supplemental costs
738

1,125

(387
)
(34.4
)
FFO ⁽⁵⁾
102,471

97,452

5,019

5.2

Other non-recurring adjustments ⁽⁶⁾
(1,910
)
660

(2,570
)
N/R ⁽⁷⁾

FFO with adjustments ⁽⁵⁾
100,561

98,112

2,449

2.5

Transactional FFO – gain on sale of land to co-owners
7,662

336

7,326

N/R ⁽⁷⁾

FFO with adjustments and Transactional FFO ⁽⁵⁾
108,223

98,448

9,775

9.9

(1)   Fair value adjustment on revaluation of investment properties is described in “Investment Properties” in the Trust’s MD&A.
(2)   Fair value adjustment on financial instruments comprises the following financial instruments: units classified as liabilities, Earnout options, deferred unit plan (“DUP”), equity incentive plan (“EIP”), long term incentive plan (“LTIP”), TRS, interest rate swap agreement(s), and loans receivable and Earnout options recorded in the same period in 2021. The significant assumptions made in determining the fair value and fair value adjustments for these financial instruments are more thoroughly described in the Trust’s consolidated financial statements for the year ended December 31, 2022. For details, please see discussion in “Results of Operations” in the Trust’s MD&A.
(3)   Salaries and related costs attributed to leasing activities of $1.5 million were incurred in the three months ended December 31, 2022 (three months ended December 31, 2021 – $1.1 million) and were eligible to be added back to FFO based on the definition of FFO, in the REALpac White Paper published in January 2022, which provided for an adjustment to incremental leasing expenses for the cost of salaried staff. This adjustment to FFO results in more comparability between Canadian publicly traded real estate entities that expensed their internal leasing departments and those that capitalized external leasing expenses.
(4)   Indirect interest is not capitalized to properties under development and residential development inventory of equity accounted investments under IFRS but is a permitted adjustment under REALpac’s definition of FFO. The amount is based on the total cost incurred with respect to the development portion of equity accounted investments multiplied by the Trust’s weighted average cost of debt.
(5)   Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For additional information, please see “Non-GAAP Measures” in this Press Release.
(6) Represents adjustments relating to $1.9 million of reversal of costs associated with COVID-19 vaccination centres (three months ended December 31, 2021 – $0.7 million of costs associated with COVID-19 vaccination centres).
(7)   N/R – Not representative.

Year-to-Date Comparison to Prior Year

(in thousands of dollars, except per Unit amounts)
Year Ended December 31, 2022
Year Ended December 31, 2021
Variance ($)
Variance (%)
Net income and comprehensive income
635,965

987,676

(351,711
)
(35.6
)
Add (deduct):




Fair value adjustment on revaluation of investment properties ⁽¹⁾
(201,834
)
(491,528
)
289,694

(58.9
)
Fair value adjustment on financial instruments ⁽²⁾
(91,246
)
34,227

(125,473
)
N/R ⁽⁷⁾

(Loss) gain on derivative – TRS
(4,918
)
5,642

(10,560
)
N/R ⁽⁷⁾

Loss (gain) on sale of investment properties
(315
)
(271
)
(44
)
16.2

Amortization of intangible assets
1,332

1,331

1

0.1

Amortization of tenant improvement allowance and other
7,203

7,038

165

2.3

Distributions on Units classified as liabilities recorded as interest expense
4,293

3,919

374

9.5

Distributions on vested deferred units recorded as interest expense
2,847

2,424

423

17.5

Adjustment on debt modification
(1,960
)
—

(1,960
)
N/R ⁽⁷⁾

Salaries and related costs attributed to leasing activities ⁽³⁾
7,508

5,196

2,312

44.5

Acquisition-related costs
298

2,791

(2,493
)
(89.3
)
Adjustments relating to equity accounted investments:




Rental revenue adjustment – tenant improvement amortization
387

360

27

7.5

Indirect interest with respect to the development portion ⁽⁴⁾
7,747

7,050

697

9.9

Adjustment to capitalized interest with respect to Transit City condo closings ⁽⁴⁾
—

(675
)
675

N/R ⁽⁷⁾

Fair value adjustment on revaluation of investment properties
(624
)
(187,728
)
187,104

(99.7
)
Loss on sale of investment properties
241

—

241

N/R ⁽⁷⁾

Adjustment for supplemental costs
4,648

2,618

2,030

77.5

FFO ⁽⁵⁾
371,572

380,070

(8,498
)
(2.2
)
Other non-recurring adjustments ⁽⁶⁾
656

3,226

(2,570
)
(79.7
)
FFO with adjustments ⁽⁵⁾
372,228

383,296

(11,068
)
(2.9
)
Transactional FFO – gain on sale of land to co-owners
7,662

1,923

5,739

N/R ⁽⁷⁾

FFO with adjustments and Transactional FFO ⁽⁵⁾
379,890

385,219

(5,329
)
(1.4
)

(1)   Fair value adjustment on revaluation of investment properties is described in “Investment Properties” in the Trust’s MD&A.
(2)   Fair value adjustment on financial instruments comprises the following financial instruments: units classified as liabilities, Earnout options, DUP, EIP, LTIP, TRS, interest rate swap agreement(s), and loans receivable and Earnout options recorded in the same period in 2021. The significant assumptions made in determining the fair value and fair value adjustments for these financial instruments are more thoroughly described in the Trust’s consolidated financial statements for the year ended December 31, 2022. For details, please see discussion in “Results of Operations” in the Trust’s MD&A.
(3)   Salaries and related costs attributed to leasing activities of $7.5 million were incurred in the year ended December 31, 2022 (year ended December 31, 2021 – $5.2 million) and were eligible to be added back to FFO based on the definition of FFO, in the REALpac White Paper published in January 2022, which provided for an adjustment to incremental leasing expenses for the cost of salaried staff. This adjustment to FFO results in more comparability between Canadian publicly traded real estate entities that expensed their internal leasing departments and those that capitalized external leasing expenses.
(4)   Indirect interest is not capitalized to properties under development and residential development inventory of equity accounted investments under IFRS but is a permitted adjustment under REALpac’s definition of FFO. The amount is based on the total cost incurred with respect to the development portion of equity accounted investments multiplied by the Trust’s weighted average cost of debt.
(5)   Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For additional information, please see “Non-GAAP Measures” in this Press Release.
(6)   Represents adjustments relating to $0.7 million of costs associated with COVID-19 vaccination centres (year ended December 31, 2021 – $0.9 million of compensation costs relating to previous CEO and $2.3 million of costs associated with COVID-19 vaccination centres).
(7)   N/R – Not representative.

The following table presents FFO excluding anomalous transactions for the years ended December 31, 2022:


Three Months Ended December 31
Year Ended December 31
(in thousands of dollars)
2022

2021

Variance ($)
2022

2021

Variance ($)
FFO with adjustments ⁽¹⁾
100,561

98,112

2,449

372,228

383,296

(11,068
)
Adjusted for:






ECL
(710
)
(1,545
)
835

(3,257
)
3,706

(6,963
)
Loss (gain) on derivative – TRS
(6,221
)
(4,180
)
(2,041
)
4,918

(5,642
)
10,560

FFO sourced from condominium and townhome closings
180

66

114

(680
)
(18,747
)
18,067

FFO sourced from SmartVMC West acquisition
(371
)
—

(371
)
(984
)
—

(984
)
FFO with adjustments excluding impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition (“FFO with adjustments excluding the impact of the TRS and other”) ⁽¹⁾
93,439

92,453

986

372,225

362,613

9,612

The following table reconciles cash flows provided by operating activities to ACFO and ACFO with adjustments:

Quarterly Comparison to Prior Year

(in thousands of dollars)
Three Months Ended December 31, 2022
Three Months Ended December 31, 2021
Variance ($)/(%)
Cash flows provided by operating activities
134,668

133,674

994

Adjustments to working capital items that are not indicative of sustainable cash available for distribution ⁽¹⁾
(35,451
)
(48,678
)
13,227

Distributions on Units classified as liabilities recorded as interest expense
1,083

1,008

75

Distributions on vested deferred units recorded as interest expense
724

1,045

(321
)
Expenditures on direct leasing costs and tenant incentives
3,108

2,050

1,058

Expenditures on tenant incentives for properties under development
(646
)
—

(646
)
Actual sustaining capital expenditures
(11,434
)
(10,323
)
(1,111
)
Actual sustaining leasing commissions
(800
)
(742
)
(58
)
Actual sustaining tenant improvements
(2,587
)
(1,217
)
(1,370
)
Non-cash interest expense, net of other financing costs
10,238

9,594

644

Non-cash interest income
(29,571
)
(7,110
)
(22,461
)
Acquisition-related costs, net
—

2,791

(2,791
)
Gain on sale of land to co-owners
7,662

336

7,326

Distributions from equity accounted investments
12,406

(732
)
13,138

Adjustments relating to equity accounted investments:



Cash flows from operating activities including working capital adjustments
1,658

(236
)
1,894

Notional interest capitalization ⁽²⁾
1,935

1,926

9

Actual sustaining capital and leasing expenditures
1

(103
)
104

Non-cash interest expense
(3
)
30

(33
)
ACFO ⁽³⁾
92,991

83,313

9,678

Other non-recurring adjustments ⁽⁴⁾
(1,910
)
660

(2,570
)
ACFO with adjustments ⁽³⁾
91,081

83,973

7,108





ACFO ⁽³⁾
92,991

83,313

9,678

Distributions declared
82,386

79,725

2,661

Surplus of ACFO over distributions declared
10,605

3,588

7,017





Payout Ratio Information:



Payout Ratio to ACFO ⁽³⁾
88.6
%
95.7
%
(7.1)%
Payout Ratio to ACFO with adjustments ⁽³⁾
90.5
%
94.9
%
(4.4)%
Payout Ratio to ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition (Payout Ratio to ACFO with adjustments excluding the impact of the TRS and other) ⁽³⁾⁽⁵⁾
94.1
%
99.8
%
(5.7)%

(1)   Adjustments to working capital items include, but are not limited to, changes in prepaid expenses and deposits, accounts receivables, accounts payables and other working capital items that are not indicative of sustainable cash available for distribution.
(2)   See the “Indirect interest with respect to the development portion” as presented in the “Funds From Operations” subsection in the Trust’s MD&A.
(3)   Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For additional information, please see “Non-GAAP Measures” in this Press Release.
(4)   Represents adjustments relating to $1.9 million of reversal of costs associated with COVID-19 vaccination centres (three months ended December 31, 2021 – $0.7 million of costs associated with COVID-19 vaccination centres).
(5)   For the three months ended December 31, 2022, excludes $2.7 million of distributions declared in connection with SmartVMC West LP Class D Units (three months ended December 31, 2021 – $0.04 million).

Year-to-Date Comparison to Prior Year

(in thousands of dollars)
Year Ended December 31, 2022
Year Ended December 31, 2021
Variance ($)/(%)
Cash flows provided by operating activities
370,762

371,624

(862
)
Adjustments to working capital items that are not indicative of sustainable cash available for distribution ⁽¹⁾
(2,293
)
(40,796
)
38,503

Distributions on Units classified as liabilities recorded as interest expense
4,293

3,919

374

Distributions on vested deferred units recorded as interest expense
2,847

2,424

423

Expenditures on direct leasing costs and tenant incentives
9,860

5,927

3,933

Expenditures on tenant incentives for properties under development
1,897

730

1,167

Actual sustaining capital expenditures
(19,111
)
(17,331
)
(1,780
)
Actual sustaining leasing commissions
(2,389
)
(3,071
)
682

Actual sustaining tenant improvements
(7,796
)
(2,903
)
(4,893
)
Non-cash interest expense, net of other financing costs
(9,156
)
7,160

(16,316
)
Non-cash interest income
(26,083
)
(5,307
)
(20,776
)
Acquisition-related costs, net
298

2,791

(2,493
)
Gain on sale of land to co-owners
7,662

1,923

5,739

Distributions from equity accounted investments
(4,784
)
(4,072
)
(712
)
Adjustments relating to equity accounted investments:



Cash flows from operating activities including working capital adjustments
6,662

23,819

(17,157
)
Notional interest capitalization ⁽²⁾
7,747

7,050

697

Adjustment to capitalized interest with respect to Transit City condo closings ⁽²⁾
—

(675
)
675

Actual sustaining capital and leasing expenditures
(329
)
(207
)
(122
)
Non-cash interest expense
(12
)
50

(62
)
ACFO ⁽³⁾
340,075

353,055

(12,980
)
Other non-recurring adjustments ⁽⁴⁾
656

3,226

(2,570
)
ACFO with adjustments ⁽³⁾
340,731

356,281

(15,550
)




ACFO ⁽³⁾
340,075

353,055

(12,980
)
Distributions declared
329,531

318,753

10,778

Surplus of ACFO over distributions declared
10,544

34,302

(23,758
)




Payout Ratio Information:



Payout Ratio to ACFO ⁽³⁾
96.9
%
90.3
%
6.6
%
Payout Ratio to ACFO with adjustments ⁽³⁾
96.7
%
89.5
%
7.2
%
Payout Ratio to ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition ⁽³⁾⁽⁵⁾
92.6
%
96.5
%
(3.9)%

(1)   Adjustments to working capital items include, but are not limited to, changes in prepaid expenses and deposits, accounts receivables, accounts payables and other working capital items that are not indicative of sustainable cash available for distribution.
(2)   See the “Indirect interest with respect to the development portion” as presented in the “Funds From Operations” subsection in the Trust’s MD&A.
(3)   Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For additional information, please see “Non-GAAP Measures” in this Press Release.
(4)   Represents adjustments relating to $0.7 million of costs associated with COVID-19 vaccination centres (year ended December 31, 2021 – $0.9 million of compensation costs relating to previous CEO, and $2.3 million of costs associated with COVID-19 vaccination centres).
(5)   For the year ended December 31, 2022, excludes $10.7 million of distributions declared in connection with SmartVMC West LP Class D Units (year ended December 31, 2021 – $0.04 million).

The following table presents ACFO excluding anomalous transactions for the years ended December 31, 2022:


Three Months Ended December 31
Year Ended December 31
(in thousands of dollars)
2022

2021

Variance ($)
2022

2021

Variance ($)
ACFO with adjustments ⁽¹⁾
91,081

83,973

7,108

340,731

356,281

(15,550
)
Adjusted for:






Loss (gain) on derivative – TRS
(6,221
)
(4,180
)
(2,041
)
4,918

(5,642
)
10,560

ACFO sourced from condominium and townhome closings
191

67

124

(305
)
(20,471
)
20,166

ACFO sourced from SmartVMC West acquisition
(371
)
—

(371
)
(984
)
—

(984
)
ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition ⁽¹⁾
84,680

79,860

4,820

344,360

330,168

14,192

The following tables summarize NOI, related ratios and recovery ratios, provide additional information, and reflect the Trust’s proportionate share of equity accounted investments, the sum of which represent a non-GAAP measure:

Quarterly Comparison to Prior Year

(in thousands of dollars)
Three Months Ended December 31, 2022
Three Months Ended December 31, 2021


Trust portion excluding EAI
Equity Accounted Investments
Total Proportionate Share ⁽¹⁾
Trust portion excluding EAI
Equity Accounted Investments
Total Proportionate Share ⁽¹⁾
Variance of Total Proportionate Share ⁽¹⁾



(A)


(B)
(A–B)
Net base rent
127,941
5,260
133,201
125,037
3,534
128,571
4,630
Property tax and insurance recoveries
42,833
807
43,640
35,020
507
35,527
8,113
Property operating cost recoveries
25,552
1,574
27,126
21,670
960
22,630
4,496
Miscellaneous revenue
4,979
1,171
6,150
7,479
973
8,452
(2,302)
Rentals from investment properties
201,305
8,812
210,117
189,206
5,974
195,180
14,937
Service and other revenues
4,547
—
4,547
3,606
—
3,606
941
Earnings from other
371
(371 )
—
38
—
38
(38)
Rentals from investment properties and other ⁽²⁾
206,223
8,441
214,664
192,850
5,974
198,824
15,840
Recoverable tax and insurance costs
(43,818 )
(755 )
(44,573 )
(36,015)
(547)
(36,562)
(8,011)
Recoverable CAM costs
(28,662 )
(1,311 )
(29,973 )
(25,165)
(1,051)
(26,216)
(3,757)
Property management fees and costs
(1,090 )
(314 )
(1,404 )
(586)
(215)
(801)
(603)
Non-recoverable operating costs
266
(1,317 )
(1,051 )
(2,094)
(1,273)
(3,367)
2,316
ECL
792
(82 )
710
1,603
(58)
1,545
(835)
Property operating costs
(72,512 )
(3,779 )
(76,291 )
(62,257)
(3,144)
(65,401)
(10,890)
Other expenses
(4,550 )
—
(4,550 )
(3,639)
—
(3,639)
(911)
Property operating costs and other ⁽²⁾
(77,062 )
(3,779 )
(80,841 )
(65,896)
(3,144)
(69,040)
(11,801)
Net rental income and other
129,161
4,662
133,823
126,954
2,830
129,784
4,039
Condo and townhome closings revenue
—
—
—
—
—
—
—
Condo and townhome cost of sales
—
(181 )
(181 )
—
—
—
(181)
Marketing and selling costs
(10 )
—
(10 )
—
(67)
(67)
57
Net profit on condo and townhome closings
(10 )
(181 )
(191 )
—
(67)
(67)
(124)
NOI ⁽³⁾
129,151
4,481
133,632
126,954
2,763
129,717
3,915
Net rental income and other as a percentage of net base rent (%)
101.0
88.6
100.5
101.5
80.1
100.9
(0.4)
Net rental income and other as a percentage of rentals from investment properties (%)
64.2
52.9
63.7
67.1
47.4
66.5
(2.8)
Net rental income and other as a percentage of rentals from investment properties and other (%)
62.6
55.2
62.3
65.8
47.4
65.3
(3.0)
Recovery Ratio (including prior year adjustments) (%)
94.4
115.2
94.9
92.7
91.8
92.6
2.3
Recovery Ratio (excluding prior year adjustments) (%)
91.5
132.8
92.7
92.6
114.9
93.0
(0.3)

(in thousands of dollars)
Year Ended December 31, 2022
Year Ended December 31, 2021


Trust portion excluding EAI
Equity Accounted Investments
Total Proportionate Share ⁽¹⁾
Trust portion excluding EAI
Equity Accounted Investments
Total Proportionate Share ⁽¹⁾
Variance of Total Proportionate Share ⁽¹⁾



(A)


(B)
(A–B)
Net base rent
508,023
18,378
526,401
494,992
13,098
508,090
18,311
Property tax and insurance recoveries
171,874
3,029
174,903
169,180
2,354
171,534
3,369
Property operating cost recoveries
93,407
4,681
98,088
83,852
3,389
87,241
10,847
Miscellaneous revenue
15,393
3,804
19,197
17,891
2,689
20,580
(1,383)
Rentals from investment properties
788,697
29,892
818,589
765,915
21,530
787,445
31,144
Service and other revenues
14,652
—
14,652
14,843
—
14,843
(191)
Earnings from other
1,249
(1,249 )
—
38
—
38
(38)
Rentals from investment properties and other ⁽²⁾
804,598
28,643
833,241
780,796
21,530
802,326
30,915
Recoverable tax and insurance costs
(176,876 )
(3,042 )
(179,918 )
(176,239)
(2,360)
(178,599)
(1,319)
Recoverable CAM costs
(102,721 )
(4,535 )
(107,256 )
(91,468)
(3,364)
(94,832)
(12,424)
Property management fees and costs
(4,288 )
(1,004 )
(5,292 )
(1,469)
(688)
(2,157)
(3,135)
Non-recoverable operating costs
(6,465 )
(4,695 )
(11,160 )
(7,246)
(3,253)
(10,499)
(661)
ECL
3,448
(191 )
3,257
(3,652)
(54)
(3,706)
6,963
Property operating costs
(286,902 )
(13,467 )
(300,369 )
(280,074)
(9,719)
(289,793)
(10,576)
Other expenses
(14,657 )
—
(14,657 )
(14,882)
—
(14,882)
225
Property operating costs and other ⁽²⁾
(301,559 )
(13,467 )
(315,026 )
(294,956)
(9,719)
(304,675)
(10,351)
Net rental income and other
503,039
15,176
518,215
485,840
11,811
497,651
20,564
Condo and townhome closings revenue
—
4,524
4,524
—
76,837
76,837
(72,313)
Condo and townhome cost of sales
—
(3,295 )
(3,295 )
—
(56,102)
(56,102)
52,807
Marketing and selling costs
(435 )
(489 )
(924 )
—
(264)
(264)
(660)
Net profit on condo and townhome closings
(435 )
740
305
—
20,471
20,471
(20,166)
NOI ⁽³⁾
502,604
15,916
518,520
485,840
32,282
518,122
398
Net rental income and other as a percentage of net base rent (%)
99.0
82.6
98.4
98.1
90.2
97.9
0.5
Net rental income and other as a percentage of rentals from investment properties (%)
63.8
50.8
63.3
63.4
54.9
63.2
0.1
Net rental income and other as a percentage of rentals from investment properties and other (%)
62.5
53.0
62.2
62.2
54.9
62.0
0.2
Recovery Ratio (including prior year adjustments) (%)
94.9
101.8
95.1
94.5
100.3
94.6
0.5
Recovery Ratio (excluding prior year adjustments) (%)
94.2
100.9
94.4
94.6
103.3
94.8
(0.4)

(1)   This column contains non-GAAP measures because it includes figures that are recorded in equity accounted investments – that are not explicitly disclosed and/or presented in the consolidated financial statements for the years ended December 31, 2022 and December 31, 2021. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For additional information, please see “Non-GAAP Measures” in this Press Release.
(2)   As reflected under the column “Trust portion excluding EAI” in the table above, this amount represents a GAAP measure.
(3)   Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For additional information, please see “Non-GAAP Measures” in this Press Release.

Same Properties NOI
NOI (a non-GAAP financial measure) from continuing operations represents: i) rentals from investment properties and other revenues less property operating costs and other expenses, and ii) net profit from condominium sales. Disclosing the NOI contribution from each of same properties, acquisitions, dispositions, Earnouts and Development activities highlights the impact each component has on aggregate NOI. Straight-line rent, lease terminations and other adjustments, and amortization of tenant incentives have been excluded from Same Properties NOI, as have NOI from acquisitions, dispositions, Earnouts and Development activities, and ECL. This has been done in order to more directly highlight the impact of changes in occupancy, rent uplift and productivity.

Quarterly Comparison to Prior Year


Three Months Ended
Three Months Ended


(in thousands of dollars)
December 31, 2022
December 31, 2021
Variance ($)
Variance (%)
Net rental income
129,154

126,987

2,167

1.7

Service and other revenues
4,547

3,606

941

26.1

Other expenses
(4,550
)
(3,639
)
(911
)
25.0

NOI ⁽¹⁾
129,151

126,954

2,197

1.7

NOI from equity accounted investments ⁽¹⁾
4,481

2,763

1,718

62.2

Total portfolio NOI before adjustments ⁽¹⁾
133,632

129,717

3,915

3.0

Adjustments:




Royalties
299

285

14

4.9

Straight-line rent
(34
)
(154
)
120

(77.9
)
Lease termination and other adjustments
(82
)
(3,476
)
3,394

N/R ⁽²⁾

Net profit on condo and townhome closings ⁽³⁾
190

108

82

75.9

Amortization of tenant incentives
2,026

1,725

301

17.4

Total portfolio NOI after adjustments ⁽¹⁾
136,031

128,205

7,826

6.1

NOI sourced from:




Acquisitions
(2,161
)
451

(2,612
)
N/R ⁽²⁾

Dispositions
3

(280
)
283

(101.1
)
Earnouts and Developments
(384
)
—

(384
)
N/R ⁽²⁾

Same Properties NOI ⁽¹⁾
133,489

128,376

5,113

4.0

Add back: ECL
(710
)
(1,545
)
835

(54.0
)
Same Properties NOI excluding ECL ⁽¹⁾
132,779

126,831

5,948

4.7

(1)   Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For additional information, please see “Non-GAAP Measures” in this Press Release.
(2)   N/R – Not representative.
(3)   Includes marketing costs.

Year-to-Date Comparison to Prior Year


Year Ended
Year Ended


(in thousands of dollars)
December 31, 2022
December 31, 2021
Variance ($)
Variance (%)
Net rental income
502,609

485,879

16,730

3.4

Service and other revenues
14,652

14,843

(191
)
(1.3
)
Other expenses
(14,657
)
(14,882
)
225

1.5

NOI ⁽¹⁾
502,604

485,840

16,764

3.5

NOI from equity accounted investments ⁽¹⁾
15,916

32,282

(16,366
)
(50.7
)
Total portfolio NOI before adjustments ⁽¹⁾
518,520

518,122

398

0.1

Adjustments:




Royalties
1,115

960

155

16.1

Straight-line rent
(437
)
(883
)
446

(50.5
)
Lease termination and other adjustments
(214
)
(5,240
)
5,026

(95.9
)
Net profit on condo and townhome closings ⁽³⁾
(242
)
(20,425
)
20,183

(98.8
)
Amortization of tenant incentives
7,646

7,614

32

0.4

Total portfolio NOI after adjustments ⁽¹⁾
526,388

500,148

26,240

5.2

Less NOI sourced from:




Acquisitions
(7,835
)
524

(8,359
)
N/R ⁽²⁾

Dispositions
(9
)
(1,744
)
1,735

(99.5
)
Earnouts and Developments
(4,300
)
(1,142
)
(3,158
)
N/R ⁽²⁾

Same Properties NOI ⁽¹⁾
514,244

497,786

16,458

3.3

Add back: ECL
(3,257
)
3,706

(6,963
)
N/R ⁽²⁾

Same Properties NOI excluding ECL ⁽¹⁾
510,987

501,492

9,495

1.9

(1)   Represents a non-GAAP measure. The Trust’s method of calculating non-GAAP measures may differ from other reporting issuers’ methods and, accordingly, may not be comparable. For additional information, please see “Non-GAAP Measures” in this Press Release.
(2)   N/R – Not representative.
(3)   Includes marketing costs.

Adjusted EBITDA

The following table presents a reconciliation of net income and comprehensive income to Adjusted EBITDA:


12 Months Ended
12 Months Ended

(in thousands of dollars)
December 31, 2022
December 31, 2021
Variance ($)
Net income and comprehensive income
635,965

987,676

(351,711
)
Add (deduct) the following items:



Interest expense
156,500

149,977

6,523

Interest income
(18,036
)
(12,341
)
(5,695
)
Amortization of equipment and intangible assets
3,604

3,778

(174
)
Amortization of tenant improvements
7,474

7,872

(398
)
Fair value adjustments on revaluation of investment properties
(202,458
)
(679,256
)
476,798

Fair value adjustments on revaluation of financial instruments
(91,246
)
34,227

(125,473
)
Fair value adjustment on TRS
(4,918
)
5,642

(10,560
)
Adjustment for supplemental costs
4,648

2,618

2,030

Gain on sale of investment properties
(74
)
(27
)
(47
)
Gain on sale of land to co-owners (Transactional FFO)
—

1,923

(1,923
)
Acquisition-related costs
298

2,791

(2,493
)
Adjusted EBITDA ⁽¹⁾
491,757

504,880

(13,123
)
Less: Condo and townhome closings
(305
)
(20,471
)
20,166

Add: ECL
(3,257
)
3,706

(6,963
)
Adjusted EBITDA excluding condo and townhome closings and ECL ⁽¹⁾
488,195

488,115

80

The non-GAAP measures used in this Press Release, including but not limited to, FFO per Unit, Unencumbered Assets, NOI, Debt to Aggregate Assets, Interest Coverage Ratio, Adjusted Debt to Adjusted EBITDA, Unsecured/Secured Debt Ratio, FFO, FFO with adjustments, FFO with adjustments excluding impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition, FFO per Unit with adjustments, Fixed Rate to Variable Rate Debt Ratio, Transactional FFO, ACFO, ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition, Payout Ratio to ACFO, Same Properties NOI, Total assets – non-GAAP, Investment properties – non-GAAP, Debt – non-GAAP, Debt to Gross Book Value, Unencumbered Assets to Unsecured Debt, Weighted Average Interest Rate, and Total Proportionate Share, do not have any standardized meaning prescribed by International Financial Reporting Standards (“IFRS”) and are therefore unlikely to be comparable to similar measures presented by other issuers. Additional information regarding these non-GAAP measures is available in the Management’s Discussion and Analysis of the Trust for the year ended December 31, 2022, dated February 8, 2023 (the “MD&A), and is incorporated by reference. The information is found in the “Presentation of Certain Terms Including Non-GAAP Measures” and “Non-GAAP Measures” sections of the MD&A, which is available on SEDAR at www.sedar.com . Reconciliations of non-GAAP financial measures to the most directly comparable IFRS measures are found in the following sections of this Press Release: “Proportionately Consolidated Balance Sheets (including the Trust’s interests in equity accounted investments)”, “Proportionately Consolidated Statements of Income and Comprehensive Income (including the Trust’s interests in equity accounted investments)”, “FFO, FFO with adjustments, and FFO with adjustments and Transactional FFO”, “ACFO and ACFO with adjustments”, “Net Operating Income”, “Same Properties NOI”, and “Adjusted EBITDA”.

Full reports of the financial results of the Trust for the year ended December 31, 2022 are outlined in the consolidated financial statements and the related MD&A of the Trust for the year ended December 31, 2022, which are available on SEDAR at www.sedar.com .

Conference Call

SmartCentres will hold a conference call on Thursday, February 9, 2023 at 3:00 p.m. (ET). Participating on the call will be members of SmartCentres’ senior management.

Investors are invited to access the call by dialing 1-855-353-9183 and then keying in the participant access code 14567#. You will be required to identify yourself and the organization on whose behalf you are participating.

A recording of this call will be made available Thursday, February 9, 2023 beginning at 8:30 p.m. (ET) through to 8:30 p.m. (ET) on Thursday, February 16, 2023. To access the recording, please call 1-855-201-2300, enter the conference access code 14567# and then key in the playback access code 0113004#.

About SmartCentres

SmartCentres Real Estate Investment Trust is one of Canada’s largest fully integrated REITs, with a best-in-class portfolio featuring 185 strategically located properties in communities across the country. SmartCentres has approximately $11.7 billion in assets and owns 34.8 million square feet of income producing value-oriented retail and first-class office space with 98.0% occupancy, on 3,500 acres of owned land across Canada.

SmartCentres continues to focus on enhancing the lives of Canadians by planning and developing complete, connected, mixed-use communities on its existing retail properties. The publicly announced $14.9 billion intensification program ($10.0 billion at SmartCentres' share) represents the REIT’s current major development focus on which construction is expected to commence within the next five years. This intensification program consists of rental apartments, condos, seniors’ residences and hotels, to be developed under the SmartLiving banner, and retail, office, and storage facilities, to be developed under the SmartCentres banner.

SmartCentres' intensification program is expected to produce an additional 56.1 million square feet (41.2 million square feet at SmartCentres’ share) of space, 27.2 million square feet (18.5 million square feet at SmartCentres’ share) of which has or will commence construction within the next five years. From shopping centres to city centres, SmartCentres is uniquely positioned to reshape the Canadian urban and urban-suburban landscape.

Included in this intensification program is the Trust’s share of SmartVMC which, when completed, is expected to include approximately 20.0 million square feet of mixed-use space in Vaughan, Ontario. Final closings of the first three phases of Transit City Condominiums began ahead of budget and ahead of schedule in August 2020 and all 1,741 units, in addition to the 22 townhomes that complete these phases, have now closed. The fourth and fifth sold-out phases representing 1,026 units are currently under construction and are expected to close in the first half of 2023.

Certain statements in this Press Release are "forward-looking statements" that reflect management's expectations regarding the Trust's future growth, results of operations, performance and business prospects and opportunities. More specifically, certain statements including, but not limited to, statements related to SmartCentres’ expectations relating to cash collections, SmartCentres’ expected or planned development plans and joint venture projects, including the described type, scope, costs and other financial metrics and the expected timing of construction and condominium closings and statements that contain words such as "could", "should", "can", "anticipate", "expect", "believe", "will", "may" and similar expressions and statements relating to matters that are not historical facts, constitute "forward-looking statements". These forward-looking statements are presented for the purpose of assisting the Trust's Unitholders and financial analysts in understanding the Trust's operating environment and may not be appropriate for other purposes. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management.

However, such forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including risks associated with potential acquisitions not being completed or not being completed on the contemplated terms, public health crises such as the COVID-19 pandemic, real property ownership and development, debt and equity financing for development, interest and financing costs, construction and development risks, and the ability to obtain commercial and municipal consents for development. These risks and others are more fully discussed under the heading “Risks and Uncertainties” and elsewhere in SmartCentres’ most recent Management’s Discussion and Analysis, as well as under the heading “Risk Factors” in SmartCentres’ most recent annual information form. Although the forward-looking statements contained in this Press Release are based on what management believes to be reasonable assumptions, SmartCentres cannot assure investors that actual results will be consistent with these forward-looking statements. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. These forward-looking statements are made as at the date of this Press Release and SmartCentres assumes no obligation to update or revise them to reflect new events or circumstances unless otherwise required by applicable securities legislation.

Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information may include, but are not limited to: a stable retail environment; a continuing trend toward land use intensification, including residential development in urban markets and continued growth along transportation nodes; access to equity and debt capital markets to fund, at acceptable costs, future capital requirements and to enable our refinancing of debts as they mature; that requisite consents for development will be obtained in the ordinary course, construction and permitting costs consistent with the past year and recent inflation trends.

For more information, please visit www.smartcentres.com or contact:

Mitchell Goldhar

Peter Slan

Executive Chairman and CEO

Chief Financial Officer

SmartCentres

(905) 326-6400 ext. 7674

(905) 326-6400 ext. 7571

mgoldhar@smartcentres.com

pslan@smartcentres.com

Company Name:	Smartcentres Real Estate Investment Trust
Stock Symbol:	SRU.UN:CC
Market:	TSXC
Website:	smartcentres.com

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