MONTREAL, May 10, 2023
/CNW/ - PRO Real Estate Investment Trust ("PROREIT" or the "REIT")
(TSX: PRV.UN) today reported its financial and operating results
for the three-month period ("first quarter" or "Q1") ended
March 31, 2023.
First Quarter of Fiscal 2023 Highlights
- Property revenue increased by 3.9% in Q1 year-over-year
- Net operating income (NOI)* up 3.3% in Q1
year-over-year
- Same Property NOI* up 4.9% in Q1 year-over-year
- Net income and comprehensive income of $13.0 million in Q1, compared to $46.5 million in the same quarter last year
- Net cash flows provided from operating activities reached
$10.6 million, an increase of 57.3%
year-over-year
- AFFO payout ratio* of 87.0%, flat year-over-year
- Debt to Gross Book Value* of 49.2% at March 31, 2023, compared to 51.2% at same date
last year
- Occupancy rate of 98.6% at March 31,
2023
- 68.5% of gross leasable area ("GLA") maturing in 2023 renewed
at 40.9% average spread
"We are pleased to have started 2023 on solid footing,
delivering consistent results from both an operational and
financial standpoint," said Gordon
Lawlor, President and Chief Executive Officer of
PROREIT.
"These results continue to reflect the quality of our portfolio
and our sound strategic positioning in the industrial sector, which
accounts for 69.5% of base rent. With a strong occupancy rate
of 98.6%, our ability to generate consistent organic growth is also
evidenced by our Same Property NOI* growth of 4.9% in the first
quarter of 2023 and the successful renewals of 68.5% of GLA
maturing in 2023 at an average positive lease rate spread of
40.9%.
"We remain focused on strengthening both our portfolio and
balance sheet. After quarter-end, we disposed of one non-core
office property and will continue to recycle assets to maximize
long-term value as we look to capitalize on potential acquisition
opportunities in the industrial sector. We are also pleased to
report that our Debt to Gross Book Value* is down to 49.2% and that
we continue to benefit from our well-staggered debt profile with
limited material maturities until 2026.
"On the ESG front, I am delighted to report that we just
released our 2022 ESG report. We made significant strides
during the year, establishing clear priorities with measurable
goals and introducing new initiatives to increase our impact in all
three areas. As we move forward on this journey, we endeavour to
make further progress with the information we track and share with
our stakeholders.
"As I take the helm of PROREIT, reinforced by a cohesive
management team with a proven track record, I am excited by the
opportunities that lay ahead as we pursue our ambition to reach
$2 billion in assets in the medium term, while remaining
mindful that current macro-economic factors, including the
high-interest rate environment, present certain challenges.
"On a final note, it has been an honour working along-side
Jim Beckerleg to build this REIT
into what it is today. I am grateful for his mentorship and am keen
to continue to benefit from his real estate and capital markets
expertise as he provides ongoing oversight as a member of the
Board," concluded Mr. Lawlor.
* Measures followed by
the suffix "*" in this release are non-IFRS measures. See "Non-IFRS
Measures".
|
Financial Results
Table 1- Financial
Highlights
(CAD $ thousands except unit, per unit amounts and
unless otherwise stated)
|
3 Months
Ended
March 31
2023
|
3 Months
Ended
March 31
2022
|
Financial data
|
|
|
Property
revenue
|
$
25,278
|
$
24,330
|
Net operating income
(NOI) (1)
|
$
14,540
|
$
14,080
|
Same Property NOI
(1)
|
$
12,437
|
$
11,855
|
Net income and
comprehensive income
|
$
13,048
|
$
46,522
|
Total assets
|
$
1,054,881
|
$
1,032,176
|
Debt to Gross Book
Value (1)
|
49.22 %
|
51.21 %
|
Interest Coverage Ratio
(1)
|
2.7x
|
2.9x
|
Debt Service Coverage
Ratio (1)
|
1.6x
|
1.6x
|
Debt to Annualized
Adjusted EBITDA Ratio (1)
|
9.6x
|
10.2x
|
Weighted average
interest rate on mortgage debt
|
3.70 %
|
3.40 %
|
Net cash flows provided
from operating activities
|
$
10,582
|
$
6,729
|
Funds from Operations
(FFO) (1)
|
$
4,948
|
$
8,108
|
Basic FFO per unit
(1)(2)
|
$
0.0819
|
$
0.1341
|
Diluted FFO per unit
(1)(2)
|
$
0.0805
|
$
0.1321
|
Adjusted Funds from
Operations (AFFO) (1)
|
$
7,814
|
$
7,813
|
Basic AFFO per unit
(1)(2)
|
$
0.1293
|
$
0.1293
|
Diluted AFFO per unit
(1)(2)
|
$
0.1271
|
$
0.1273
|
AFFO Payout Ratio –
Basic (1)
|
87.0 %
|
87.0 %
|
AFFO Payout Ratio –
Diluted (1)
|
88.5 %
|
88.4 %
|
(1) Non–IFRS measure. See
"Non–IFRS Measures".
|
(2) Total basic units consist
of trust units of the REIT and Class B LP Units (as defined
herein). Total diluted units also includes deferred trust units and
restricted trust units issued under the REIT's long–term incentive
plan.
|
PROREIT owned 130 investment properties (including a 50%
ownership interest in 42 investment properties) at
March 31, 2023, compared to 120 investment
properties it owned at 100% at March 31, 2022. Total
assets amounted to $1.05 billion
as at March 31, 2023, compared to $1.03 billion as at
March 31, 2022, an increase of $20 million or 1.9%.
During the twelve-month period ended March 31, 2023,
PROREIT acquired a 50% interest in 21 investment properties,
sold a 50% interest in 21 other investment properties and sold
a 100% interest in 11 investment properties.
For the first quarter ended March
31, 2023:
- Property revenue amounted to $25.3
million, an increase of $0.9
million or 3.9%, compared to $24.3
million for the same prior year period. The increase was
principally due to the incremental revenues from the net increase
in the number of properties and related ownership percentages
during the twelve-month period ended March
31, 2023.
- Same Property NOI* reached $12.4
million, an increase of $0.6
million or 4.9%, compared to the same prior year period. The
increase is attributed to the rise in occupancy in the industrial
and office asset classes for the three-month period ended
March 31, 2023 and certain
contractual rent increases and higher rental rates on lease
renewals in the industrial asset class compared to the same period
in 2022.
- NOI* amounted to $14.5 million,
compared to $14.1 million in the same
period in 2022, an increase of 3.3% mainly driven by the impact of
the net property acquisitions and related ownership percentages
over the last twelve-month period.
- Net cash flows provided from operating activities reached
$10.6 million, compared to
$6.7 million in the first quarter of
2022, an increase of 57.3%, largely as a result of the timing of
cash receipts and settlement of payables.
- AFFO* totaled $7.8 million
and remained flat compared to the same period last year.
- AFFO Payout Ratio – Basic* stood at 87.0%, which
remained flat compared to the same prior year period.
TABLE 2- Reconciliation of net operating income to net income
and comprehensive income
(CAD $ thousands)
|
3 Months
Ended
March 31
2023
|
3 Months
Ended
March 31
2022
|
Net operating income
(1)
|
14,540
|
14,080
|
General and
administrative expenses
|
3,518
|
1,202
|
Long–term incentive
plan expense
|
581
|
925
|
Depreciation of
property and equipment
|
105
|
89
|
Amortization of
intangible assets
|
93
|
93
|
Interest and financing
costs
|
5,131
|
4,712
|
Distributions – Class B
LP Units
|
157
|
159
|
Fair value adjustment –
Class B LP Units
|
(28)
|
946
|
Fair value adjustment –
investment properties
|
(7,651)
|
(40,301)
|
Other income
|
(835)
|
(462)
|
Other
expenses
|
421
|
195
|
Net income and comprehensive
income
|
$
13,048
|
$
46,522
|
(1) Non–IFRS measure. See
"Non–IFRS Measures".
|
For the three months ended March 31, 2023, net income and
comprehensive income amounted to $13.0 million, compared to $46.5 million during the same prior year
period. The $33.5 million
variance mainly relates to the $32.7 million impact of the non-cash fair
market value adjustment on investment properties, one-time CEO
retirement costs of about $2.2 million, included in general and
administrative expenses, and approximately $1.0 million of additional long-term incentive
plan expense related to the accelerated vesting of certain LTIP
units in connection with the CEO retirement in Q1 2023.
Solid Balance Sheet
PROREIT is committed to progressively improving its balance
sheet, including its Debt to Gross Book Value* ratio and its cash
position and sources of funds available. PROREIT maintains
diversified debt maturities appropriate for the overall debt level
of its portfolio.
As at March 31, 2023, PROREIT had
$15.5 million available on its credit
facility. Debt to Gross Book Value* was 49.2% at March 31, 2023, down from 51.2% at the same date
last year.
The weighted average interest rate on mortgage debt was 3.70% at
March 31, 2023, compared to 3.40% at the same date last
year.
Operating Performance
At March 31, 2023, PROREIT's portfolio totaled
130 properties aggregating 6.5 million square feet with a
weighted average lease term of 4.1 years. Approximately 68.5%
of leases maturing in 2023 are renewed at a positive average spread
of 40.9%.
Occupancy rate remained strong at 98.6% as at March 31,
2023, up slightly compared to 98.5% a year earlier.
The industrial segment accounted for 80% of GLA and 69.5% of
base rent at March 31, 2023.
CEO Succession
Effective April 1, 2023, as part of PROREIT's
succession plan, Gordon G. Lawlor succeeded
James W. Beckerleg as President and Chief Executive
Officer of the REIT and joined PROREIT's Board of Trustees.
Simultaneously, Mr. Beckerleg was named Vice Chair of the
Board and Co-Founder. Mr. Beckerleg had been President and
Chief Executive Officer and a Trustee of PROREIT since 2013.
Concurrently with these changes, Alison
Schafer was appointed Chief Financial Officer and Secretary
of the REIT.
Subsequent Events
On April 21, 2023, PROREIT sold a
50,000 square foot non-core office property for gross proceeds of
$2.1 million (excluding closing
costs). Proceeds of the sale were used for general corporate
purposes.
On April 25, 2023, PROREIT
received a commitment letter to refinance six industrial properties
located in Winnipeg, Manitoba for
$20.5 million. The rate on the
new mortgages was fixed at 5.07% with a term of seven years. The
refinancing is expected to close in June 2023. Proceeds of the
refinancing will be used to repay approximately $16.6 million of mortgages maturing in
July 2023 with the balance to be used for general corporate
purposes.
Sustainability
In 2022, PROREIT established a Steering Committee responsible
for the daily management of its ESG program and to ensure the
REIT's long-term sustainability. In its 2022 ESG report released on
May 10, 2023, PROREIT outlines its
priorities, initiatives and goals, along with the progress made to
achieve those goals. PROREIT's ESG report is available on the
Sustainability page of its website.
Distributions
Distributions to unitholders of $0.0375 per trust unit of the REIT were declared
monthly during the three months ended March
31, 2023, representing distributions of $0.45 per unit on an annual basis.
Equivalent distributions are paid on the Class B limited
partnership units of PRO REIT Limited Partnership ("Class B LP
Units"), a subsidiary of the REIT.
On April 20, 2023, PROREIT
announced a cash distribution of $0.0375 per unit for the month of April 2023. The distribution is payable on
May 15, 2023 to unitholders of record
as at April 28, 2023.
Investor Conference Call and Webcast Details
PROREIT will hold a conference call to discuss its first quarter
2023 results on May 11, 2023, at 9:00 a.m. EDT.
There will be a question period reserved for financial analysts. To
access the conference call, please dial 888-664-6383 or
416-764-8650. A recording of the call will be available until
May 18, 2023 by dialing 888-390-0541 or 416-764-8677
and using access code: 490928#
The conference call will also be accessible via live webcast on
PROREIT's website at www.proreit.com or at
https://app.webinar.net/7oeZqNez54y.
Annual Meeting of Unitholders
PROREIT will host its annual meeting on June 6, 2023,
at 11:00 a.m. (Montreal time)
at the Ritz-Carlton Hotel, Room Ritz and Carlton, 1228 Sherbrooke
Street West in Montreal, Quebec.
An audio webcast of the meeting will also be available at
https://app.webinar.net/qVWoBqg7pz2.
About PROREIT
PROREIT (TSX:PRV.UN) is an unincorporated open-ended real estate
investment trust established pursuant to a declaration of trust
under the laws of the Province of Ontario. Founded in 2013, PROREIT owns a
portfolio of high-quality commercial real estate properties in
Canada, with a strong industrial
focus in robust secondary markets.
For more information on PROREIT, please visit the website at:
https://proreit.com.
Non-IFRS Measures
PROREIT's consolidated financial statements are prepared in
accordance with International Reporting Standards ("IFRS"), as
issued by the International Accounting Standards Board. In addition
to reported IFRS measures, industry practice is to evaluate real
estate entities giving consideration, in part, to certain non-IFRS
financial measures, non-IFRS ratios and other specified financial
measures (collectively, "non-IFRS measures"). Without limitation,
measures followed by the suffix "*" in this press release are
non-IFRS measures.
As a complement to results provided in accordance with IFRS,
PROREIT discloses and discusses in this press release (i) certain
non-IFRS financial measures, including: adjusted earnings before
interest, tax, depreciation and amortization ("Adjusted EBITDA");
annualized adjusted earnings before interest, tax, depreciation and
amortization ("Annualized Adjusted EBITDA"); adjusted funds from
operations ("AFFO"); funds from operations ("FFO"); gross book
value ("Gross Book Value"); net operating income ("NOI"); Same
Property NOI; and (ii) certain non-IFRS ratios, including: AFFO
Payout Ratio – Basic; AFFO Payout Ratio – Diluted; Basic AFFO per
Unit; Diluted AFFO per Unit; Basic FFO per Unit; Diluted FFO per
Unit; Debt to Gross Book Value; Debt Service Coverage Ratio;
Interest Coverage Ratio; Debt to Annualized Adjusted EBITDA Ratio.
These non-IFRS measures are not defined by IFRS and do not have a
standardized meaning under IFRS. PROREIT's method of calculating
these non-IFRS measures may differ from other issuers and may not
be comparable with similar measures presented by other income
trusts. PROREIT has presented such non-IFRS measures and ratios as
management believes they are relevant measures of PROREIT's
underlying operating and financial performance. For information on
the most directly comparable IFRS measures, composition of the
non-IFRS measures, a description of how PROREIT uses these measures
and an explanation of how these measures provide useful information
to investors, refer to the "Non-IFRS Measures" section of PROREIT's
management's discussion and analysis for the three months ended
March 31, 2023, dated May 10, 2023, available on PROREIT's SEDAR
profile at www.sedar.com, which is incorporated by reference into
this press release. As applicable, the reconciliations for each
non-IFRS measure are outlined below. Non-IFRS measures should not
be considered as alternatives to net income, cash flows provided by
operating activities, cash and cash equivalents, total assets,
total equity, or comparable metrics determined in accordance with
IFRS as indicators of PROREIT's performance, liquidity, cash flow
and profitability.
Reconciliation of Same Property NOI to net operating income
(as reported in the consolidated financial statements)
(CAD $ thousands)
|
3 Months
Ended
March 31
2023
|
3 Months
Ended
March 31
2022
|
Property
revenue
|
$
25,278
|
$
24,330
|
Property operating
expenses
|
10,738
|
10,250
|
NOI (net operating
income) as reported in the financial statements
(1)
|
14,540
|
14,080
|
Straight-line rent
adjustment
|
(121)
|
(118)
|
NOI after
straight-line rent adjustment (1)
|
14,419
|
13,962
|
|
|
|
NOI (1)
sourced from:
|
|
|
Acquisitions
|
(1,982)
|
-
|
Dispositions
|
-
|
(2,107)
|
Same Property NOI
(1)
|
$
12,437
|
$
11,855
|
Number of same properties
|
107(2)
|
107(2)
|
(1)
Non-IFRS measure. See "Non–IFRS Measures".
|
(2)
Includes 21 properties 50% owned at March 31, 2023 (100% owned at
March 31, 2022). The comparative period has been updated to reflect
50% ownership.
|
Reconciliation of AFFO and FFO to net income and comprehensive
income
(CAD $ thousands except unit, per unit amounts and
unless otherwise stated)
|
3 Months
Ended
March 31
2023
|
3 Months
Ended
March 31
2022
|
Net income and comprehensive income for the
period
|
$
13,048
|
$
46,522
|
Add:
|
|
|
Long–term incentive plan
|
(671)
|
689
|
Distributions – Class B LP Units
|
157
|
159
|
Fair value adjustment – investment properties
|
(7,651)
|
(40,301)
|
Fair value adjustment – Class B LP Units
|
(28)
|
946
|
Amortization of intangible assets
|
93
|
93
|
FFO (1)
|
$
4,948
|
$
8,108
|
Deduct:
|
|
|
Straight–line rent adjustment
|
$
(121)
|
$
(118)
|
Maintenance capital expenditures
|
(185)
|
(279)
|
Stabilized leasing costs
|
(506)
|
(392)
|
Add:
|
|
|
Long–term incentive plan
|
1,252
|
236
|
Amortization of financing costs
|
186
|
258
|
CEO
succession plan costs
|
2,240
|
-
|
AFFO (1)
|
$
7,814
|
$
7,813
|
Basic FFO per unit
(1)(2)
|
$
0.0819
|
$
0.1341
|
Diluted FFO per unit
(1)(2)
|
$
0.0805
|
$
0.1321
|
Basic AFFO per unit
(1)(2)
|
$
0.1293
|
$
0.1293
|
Diluted AFFO per unit
(1)(2)
|
$
0.1271
|
$
0.1273
|
Distributions declared per Unit and Class B LP
unit
|
$
0.1125
|
$
0.1125
|
AFFO Payout Ratio – Basic
(1)
|
87.0 %
|
87.0 %
|
AFFO Payout Ratio – Diluted
(1)
|
88.5 %
|
88.4 %
|
Basic weighted average number of units
(2)(3)
|
60,447,230
|
60,447,230
|
Diluted weighted average number of units
(2)(3)
|
61,469,854
|
61,394,385
|
(1) Non–IFRS measure.
See "Non–IFRS Measures".
|
(2) FFO and AFFO per
unit is calculated as FFO or AFFO, as the case may be, divided by
the total of the weighted average number of basic or diluted units,
as applicable, added to the weighted average number of Class B LP
Units outstanding during the period.
|
(3) Total basic units
consist of trust units of the REIT and Class B LP Units. Total
diluted units also includes deferred trust units and restricted
trust units issued under the REIT's long–term incentive
plan.
|
Reconciliation of Adjusted EBITDA to net income and comprehensive
income
(CAD $ thousands)
|
3 Months
Ended
March 31
2023
|
3 Months
Ended
March 31
2022
|
Net income and
comprehensive income
|
$
13,048
|
$
46,522
|
Interest and financing
costs
|
5,131
|
4,712
|
Depreciation of
property and equipment
|
105
|
89
|
Amortization of
intangible assets
|
93
|
93
|
Fair value adjustment –
Class B LP Units
|
(28)
|
946
|
Fair value adjustment –
investment properties
|
(7,651)
|
(40,301)
|
Distributions – Class B
LP Units
|
157
|
159
|
Straight–line
rent
|
(121)
|
(118)
|
Long–term incentive
plan expense
|
581
|
925
|
CEO succession plan
costs
|
2,240
|
-
|
Adjusted EBITDA (1)
|
$
13,555
|
$
13,027
|
(1) Non–IFRS measure.
See "Non–IFRS Measures".
|
Calculation of Debt to Annualized Adjusted EBITDA Ratio
(CAD $ thousands)
|
3 Months
Ended
March 31
2023
|
3 Months
Ended
March 31
2022
|
Debt, excluding
unamortized financing costs
|
$
476,364
|
$
507,856
|
Credit facility,
excluding unamortized financing costs
|
44,500
|
22,000
|
Debt, excluding
unamortized financing costs
|
$
520,864
|
$
529,856
|
|
|
|
Adjusted EBITDA
(1)
|
13,555
|
13,037
|
Annualized Adjusted EBITDA
(1)
|
$
54,220
|
$
52,148
|
Debt to Annualized Adjusted EBITDA Ratio
(1)
|
9.6x
|
10.2x
|
(1) Non–IFRS measure.
See "Non–IFRS Measures".
|
Calculation of the Interest Coverage Ratio
(CAD $ thousands)
|
3 Months
Ended
March 31
2023
|
3 Months
Ended
March 31
2022
|
Adjusted EBITDA
(1)
|
$
13,555
|
$
13,027
|
Interest expense
|
$
5,021
|
$
4,448
|
Interest Coverage Ratio
(1)
|
2.7x
|
2.9x
|
(1) Non–IFRS measure.
See "Non–IFRS Measures".
|
Calculation of the Debt Service Coverage Ratio
(CAD $ thousands)
|
3 Months
Ended
March 31
2023
|
3 Months
Ended
March 31
2022
|
Adjusted EBITDA
(1)
|
$
13,555
|
$
13,027
|
Interest expense
|
5,021
|
4,448
|
Principal
repayments
|
3,340
|
3,589
|
Debt Service Requirements
|
$
8,361
|
$
8,037
|
Debt Service Coverage Ratio
(1)
|
1.6x
|
1.6x
|
(1) Non–IFRS measure.
See "Non–IFRS Measures".
|
Calculation of Gross Book Value and Debt to Gross Book
Value
(CAD $ thousands except unit, per unit amounts and
unless otherwise stated)
|
3 Months
Ended
Mar 31
2023
|
3 Months
Ended
Mar 31
2022
|
Total assets, including
investment properties stated at fair value
|
$
1,054,881
|
$ 1,032,176
|
Accumulated
depreciation on property and equipment and intangible
assets
|
3,251
|
2,450
|
Gross Book Value
(1)
|
1,058,132
|
1,034,626
|
Debt, excluding
unamortized financing costs
|
476,364
|
507,856
|
Credit facility,
excluding unamortized financing costs
|
44,500
|
22,000
|
Debt
|
$
520,864
|
$
529,856
|
Debt to Gross Book
Value (1)
|
49.22 %
|
51.21 %
|
(1) Non–IFRS measure. See
"Non–IFRS Measures".
|
Forward-Looking Statements
This press release contains forward-looking statements and
forward-looking information (collectively, "forward-looking
statements") within the meaning of applicable securities
legislation, including statements relating to certain expectations,
projections, growth plans and other information related to REIT's
business strategy and future plans. Forward-looking statements are
based on a number of assumptions and are subject to a number of
risks and uncertainties, many of which are beyond PROREIT's
control, that could cause actual results and events to differ
materially from those that are disclosed in or implied by such
forward-looking statements.
Forward-looking statements contained in this press release
include, without limitation, statements pertaining to the execution
by PROREIT of its growth strategy, the future financial and
operating performance of PROREIT, and the proposed refinancing of
certain properties. PROREIT's objectives and forward-looking
statements are based on certain assumptions, including that (i)
PROREIT will receive financing on favourable terms; (ii) the future
level of indebtedness of PROREIT and its future growth potential
will remain consistent with the REIT's current expectations; (iii)
there will be no changes to tax laws adversely affecting PROREIT's
financing capacity or operations; (iv) the impact of the current
economic climate and the current global financial conditions on
PROREIT's operations, including its financing capacity and asset
value, will remain consistent with PROREIT's current expectations;
(v) the performance of PROREIT's investments in Canada will proceed on a basis consistent with
PROREIT's current expectations; and (vi) capital markets will
provide PROREIT with readily available access to equity and/or
debt.
The forward-looking statements contained in this news release
are expressly qualified in their entirety by this cautionary
statement. All forward-looking statements in this press release are
made as of the date of this press release. PROREIT does not
undertake to update any such forward-looking information whether as
a result of new information, future events or otherwise, except as
required by law.
Additional information about these assumptions and risks and
uncertainties is contained under "Risk Factors" in PROREIT's latest
annual information form and "Risk and Uncertainties" in PROREIT's
management's discussion and analysis for the three months ended
March 31, 2023, which are available
under PROREIT's profile on SEDAR at www.sedar.com.
SOURCE PROREIT