SmartCentres Real Estate Investment Trust Releases Third

Operational

  • Shopping centre leasing activity continues to improve with occupancy levels, inclusive of committed deals, increasing to 98.1% in Q3 2022, representing a 50 basis point increase from Q2 2022
  • Same Properties NOI inclusive of ECL(1) increased by $3.9 million or 3.1% in Q3 2022 as compared to the same period in 2021. Same Properties NOI excluding ECL(1) increased by $3.0 million or 2.3% in Q3 2022 as compared to the same period in 2021
  • Net rental income and other increased by $3.6 million or 2.9% for the three months ended September 30, 2022 as compared to the same period in 2021

Mixed-use Development

  • In excess of three million square feet of construction activity is currently underway, principally on high rise residential projects in Toronto, Montreal, and Ottawa
  • Construction progressing on time and on budget on 241,000 square feet of industrial space for the 16-acre Phase 1 development in Pickering, of which 53% has already been pre-leased to a leading Canadian furniture retailer
  • Construction of Transit City 4 & 5 condominium towers is in the final stages of completion with closings scheduled to commence in Q1 2023. All 1,026 units have been pre-sold
  • Construction of the Millway, a 454-unit purpose-built rental apartment building, is also in the final stages of completion, with initial tenants expected to begin occupancy in Q1 2023

Financial

  • FFO with adjustments and excluding impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition(1) was $93.8 million for the three months ended September 30, 2022, which remained virtually unchanged as compared to $93.9 million for the same period in 2021
  • Net income and comprehensive income was $3.5 million for the three months ended September 30, 2022, as compared to $178.1 million for the same period in 2021, representing a decrease of $174.6 million, which was primarily attributed to a $177.7 million decrease in fair value adjustments on revaluation of investment properties

TORONTO, Nov. 11, 2022 (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 ended September 30, 2022.

“Customer traffic to our Walmart-anchored shopping centre portfolio continues to gain post-pandemic 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 that this trend will continue into 2023 and will have a positive impact on both our occupancy and earnings levels. We are pleased with the noticeable increase in leasing activity in the third quarter and the associated improvement in cash collections.

Our development business is progressing well, with over 735,000 square feet (approximate) of municipal approvals received for residential and mixed-uses in this quarter alone. This brings 6,000,000 square feet of potential on-site growth so far this year. Current projects under construction include over 400,000 square feet of self-storage space across three properties, more than 1,000 condominium units and a further 174 townhomes, over 900 residential rental suites in three separate projects, and a further 413 seniors housing units. Construction has also commenced on a 241,000 square foot industrial project. We expect each of these projects to begin contributing to FFO(1) during 2023 or 2024.

In the immediate term, the next two 45-storey and 50-storey condominium towers at Transit City are sold out and construction is progressing on time and on budget. Closings are expected to commence early in 2023. In addition, The Millway, a 454-unit, 36-storey rental tower, is also proceeding on time and on budget with initial occupancy and rent commencement expected to begin early in 2023. Also, the first phase of our Artwalk condominium project is sold out and construction is expected to commence by spring 2023.

We are also pleased to confirm that we expect to publish our inaugural ESG report in the coming weeks. With respect to the changing economic conditions, we plan on applying discipline when assessing new opportunities for growth. Our focus remains on the long term, including the development of mixed-use projects on our strategically located shopping centre sites which will extract deeply embedded value wherever possible 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 Three Months Ended September 30, 2022

Mixed-Use Development and Intensification 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 continues on budget on the 100% pre-sold Transit City 4 (45 storeys) and 5 (50 storeys) 1,026-suite condo towers. Concrete and formwork have been completed for both towers, with building envelope and interior finishes ongoing. Closings are expected to commence in early 2023.
  • Construction of the purpose-built rental project, the Millway (36 storeys), continues at SmartVMC. Both formwork and concrete have been completed. Building envelope is ongoing with interior finishes underway. Initial occupancy and rent commencement are expected in spring 2023.
  • ArtWalk condominium sales of 320 released units in Phase 1 are sold out (construction expected to begin early in 2023).

Other Business Development

  • The Trust completed the purchase of approximately 38 acres of industrial lands in Pickering, adjacent to Hwy 407, on which the Trust received approval to build 241,000 square feet of industrial space for the 16 acre Phase 1 development, of which 53% has already been pre-leased to a leading Canadian furniture retailer, with completion currently scheduled for 2023.
  • Leasing continues on the completed first phase of the two-phase, purpose-built residential rental project in Laval, Quebec, with more than 99% of the 171 units rented. Construction continues on the next phase that commenced in October 2021, with a target completion date of Q2 2023.
  • Initial occupancy and rent commencement in the two purpose-built residential rental towers (238 units) in Mascouche, Quebec began in July 2022. More than 130 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 well-received by their local communities; current occupancy levels are ahead of expectations.
  • Three self-storage facilities in Markham, Brampton (Kingspoint) and Aurora are currently under construction and on budget, with the latter two facilities expected to be completed in late 2022. Additional self-storage facilities have been approved by the Board of Trustees and the Trust is in the process of obtaining municipal approvals in Whitby, Stoney Creek and two locations in Toronto (Gilbert Ave. and Jane St.). In addition, the municipal approval process is underway in New Westminster and on a newly acquired property in 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.
  • The Trust intends to commence the redevelopment of a portion of its 73 acre Cambridge retail property (which is subject to a leasehold interest with Penguin) which is now zoned for 12.0 million square feet of residential and commercial uses. Over the coming years, this high profile property will transform into a vibrant urban city center away from the GTA, but strategically within its orbit.
  • The Trust, together with its partner, Penguin, have also commenced preliminary siteworks for the 215,000 square feet 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 $3.5 million as compared to $178.1 million for the same period in 2021, representing a decrease of $174.6 million. This decrease was primarily attributed to: i) $177.7 million decrease in fair value adjustment on revaluation of investment properties; ii) $4.3 million increase in interest expense; iii) $2.3 million decrease in net operating income; iv) $2.2 million increase in general and administrative expenses (net); v) $0.6 million net income decrease relating to other items; and was partially offset by vi) $9.9 million increase in fair value adjustments on financial instruments; and vii) $2.7 million increase in interest income.
  • The Trust increased its unsecured/secured debt ratio(2)(3) to 77%/23% (December 31, 2021 – 71%/29%).
  • The Trust continues to add to its unencumbered pool of high-quality assets. As at September 30, 2022, this unencumbered portfolio consisted of investment properties valued at $8.4 billion (September 30, 2021 – $6.0 billion).
  • The Trust’s fixed rate/variable rate debt ratio(2)(3) was 83%/17% as at September 30, 2022 (December 31, 2021 – 89%/11%).
  • FFO with adjustments excluding impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition(2) was $93.8 million as compared to $93.9 million in the same period last year.
  • During the quarter, 941,990 additional notional Units were added at a weighted average price of $27.42 per Unit to the Total Return Swap.
  • Net income and comprehensive income per Unit(1) decreased by $1.01 or 98% to $0.02 as compared to the same period in 2021, primarily resulting from fair value adjustments on revaluation of investment properties in amount of $177.7 million or $0.99 per Unit.
  • FFO with adjustments excluding impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition per Unit(2) was $0.54, which remained the same as compared to the same period in 2021.
  • Cash flows provided by operating activities(1) increased by $0.7 million or 0.7% to $97.0 million as compared to the same period in 2021. Surplus of cash flows provided by operating activities(1) over distributions declared amounted to $14.6 million (three months ended September 30, 2021 – surplus of $16.6 million).
  • The Payout Ratio relating to cash flows provided by operating activities for the rolling 12 months ended September 30, 2022 was 86.6%, as compared to 96.8% for the same period ended September 30, 2021. The Payout Ratio relating to cash flows provided by operating activities for the rolling 24 months ended September 30, 2022 was 91.3%, as compared to 95.8% for the same period ended September 30, 2021.
  • For the three months ended September 30, 2022, ACFO(2) decreased by $9.3 million or 10.3% to $81.1 million as compared to the same period in 2021.
  • For the three months ended September 30, 2022, there was a shortfall of ACFO(2) over distributions declared of $1.3 million (three months ended September 30, 2021 – surplus of $10.7 million).
  • The Payout Ratio to ACFO(2) for the rolling 12 months ended September 30, 2022 was 98.9%, as compared to 90.1% for the same period ended September 30, 2021. Excluding SmartVMC West LP Class D distributions, the Payout Ratio to ACFO(2) for the rolling 12 months ended September 30, 2022 was 96.7%, as compared to 90.1% for the same period ended September 30, 2021.
  • The Payout Ratio to ACFO(2) for the rolling 24 months ended September 30, 2022 was 94.4%, as compared to 91.0% for the same period ended September 30, 2021. Excluding SmartVMC West LP Class D distributions, the Payout Ratio to ACFO(2) for the rolling 24 months ended September 30, 2022 was 93.3%, as compared to 91.0% for the same period ended September 30, 2021.

Operational

  • Rentals from investment properties and other(1) was $196.7 million, as compared to $195.2 million for the same period in 2021, representing an increase of $1.5 million or 0.8%, primarily due to the acquisition of an additional interest in investment properties in Q1 2022, higher rental income from Premium Outlets locations in both Toronto and Montreal, additional self-storage facility and parking rental revenue, and higher miscellaneous revenue.
  • In-place and committed occupancy rates were 97.6% and 98.1%, respectively, as at September 30, 2022 (June 30, 2022 – 97.2% and 97.6%, respectively).
  • Same Properties NOI inclusive of ECL(2) increased by $3.9 million or 3.1% as compared to the same period in 2021. Same Properties NOI excluding ECL(2) increased by $3.0 million or 2.3% as compared to the same period in 2021.

Subsequent Event

  • Subsequent to September 30, 2022, certain mortgages receivable with Penguin in the amount of $101.4 million were repaid in cash and the proceeds were primarily used to repay a portion of the balance outstanding on the Trust’s revolving operating facility.

(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)   Net of cash-on-hand of $150.0 million as at September 30, 2022 for the purposes of calculating the applicable ratios.


Selected Consolidated Operational, Mixed-Use Development and Financial Information

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) September 30, 2022   December 31, 2021   September 30, 2021  
Portfolio Information            
Number of retail properties 155   155   156  
Number of office properties 4   4   4  
Number of self-storage properties 6   6   5  
Number of residential properties 1   1   1  
Number of properties under development 19   17   15  
Total number of properties with an ownership interest 185   183   181  
Leasing and Operational Information(1)            
Gross leasable retail and office area (in thousands of sq. ft.) 34,685   34,119   34,225  
Occupied retail and office area (in thousands of sq. ft.) 33,843   33,219   33,312  
Vacant retail and office area (in thousands of sq. ft.) 842   900   913  
In-place occupancy rate (%) 97.6   97.4   97.3  
Committed occupancy rate (%) 98.1   97.6   97.6  
Average lease term to maturity (in years) 4.3   4.4   4.5  
Net annualized retail rental rate (per occupied sq. ft.) ($) 15.52   15.44   15.40  
Net annualized retail rental rate excluding Anchors (per occupied sq. ft.) ($) 22.40   22.07   21.91  
Mixed-Use Development Information            
Trust’s share of future development area (in thousands of sq. ft.) 39,500   40,600   32,200  
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) 9,800   9,800   7,700  
Total number of residential rental projects 107   104   97  
Total number of seniors’ housing projects 25   27   39  
Total number of self-storage projects 35   36   46  
Total number of office building projects 8   8   7  
Total number of hotel projects 3   3   4  
Total number of condominium developments 89   95   73  
Total number of townhome developments 8   10   15  
Total number of estimated future projects currently in development planning stage 275   283   281  
(in thousands of dollars, except per Unit and other non-financial data) September 30, 2022   December 31, 2021   September 30, 2021  
Financial Information            
Total assets – GAAP(2) 11,862,633   11,293,248   10,191,592  
Total assets – non-GAAP(3)(4) 12,219,429   11,494,377   10,382,086  
Investment properties – GAAP(2) 10,211,384   9,847,078   8,892,656  
Investment properties – non-GAAP(3)(4) 11,135,415   10,684,529   9,623,548  
Total unencumbered assets(3) 8,383,900   6,640,600   6,002,800  
Debt – GAAP(2) 5,159,860   4,854,527   4,539,594  
Debt – non-GAAP(3)(4) 5,410,319   4,983,078   4,647,648  
Debt to Aggregate Assets (%)(3)(4)(5) 43.7   42.9   44.5  
Debt to Gross Book Value (%)(3)(4)(5) 52.1   50.8   50.4  
Unsecured to Secured Debt Ratio(3)(4)(5) 77%/23%   71%/29%   70%/30%  
Unencumbered assets to unsecured debt(3)(4)(5) 2.1X   1.9X   1.9X  
Weighted average interest rate (%)(3)(4) 3.67   3.11   3.25  
Weighted average term of debt (in years) 4.2   4.8   5  
Interest coverage ratio(3)(4)(5) 3.3X   3.4X   3.3X  
Adjusted Debt to Adjusted EBITDA (net of cash)(3)(4)(5) 10.0X   9.2X   8.5X  
Adjusted Debt to Adjusted EBITDA (net of cash and TRS)(3)(4)(5) 9.8X   9.1X   8.5X  
Fixed Rate to Variable Rate Debt Ratio(3)(4)(5) 83%/17%    89%/11%   94%/6%  
Equity (book value)(2) 6,141,317   5,841,315   5,268,176  
Weighted average number of units outstanding – diluted 179,644,083   173,748,819   173,535,843  

(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 proportionate share of equity accounted investments.
(5)   As at September 30, 2022, cash-on-hand of $150.0 million was excluded for the purposes of calculating the applicable ratios (December 31, 2021 – $80.0 million, September 30, 2021 – $50.0 million).

Quarterly Comparison to Prior Year

The following table presents key financial, per Unit, and payout ratio information for the three months ended September 30, 2022 and September 30, 2021:

(in thousands of dollars, except per Unit information) September 30, 2022   September 30, 2021   Variance  
  (A)   (B)   (A–B)  
Financial Information            
Rentals from investment properties and other(1) 196,678   195,171   1,507  
Net base rent(1) 127,576   125,125   2,451  
Total recoveries(1) 59,391   60,565   (1,174 )
Miscellaneous revenue(1) 4,683   4,573   110  
Service and other revenues(1) 5,028   4,908   120  
Net income and comprehensive income(1) 3,548   178,051   (174,503 )
Net income and comprehensive income excluding fair value adjustments(2)(3) 83,927   90,691   (6,764 )
Cash flows provided by operating activities(1) 97,011   96,298   713  
Net rental income and other(1) 127,197   123,617   3,580  
NOI from condominium and townhome closings and other adjustments(2) (244 ) 6,444   (6,688 )
NOI(2) 130,986   133,333   (2,347 )
Change in net rental income and other(2) 2.9 % 9.2 % (6.3 )%
Change in SPNOI(2) 3.1 % 6.6 % (3.5 )%
Change in SPNOI excluding ECL(2) 2.3 % (1.0 )% 3.3 %
       
FFO(2)(3)(4)(5) 88,403   97,887   (9,484 )
Other adjustments 669   1,706   (1,037 )
FFO with adjustments(2)(3)(4) 89,072   99,593   (10,521 )
Adjusted for:      
ECL (271 ) 670   (941 )
Loss (gain) on derivative – TRS 4,900   (392 ) 5,292  
FFO sourced from condominium and townhome closings 216   (5,922 ) 6,138  
FFO sourced from SmartVMC West acquisition (154 )   (154 )
FFO with adjustments excluding impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition(2)(3)(4) 93,763   93,949   (186 )
       
ACFO(2)(3)(4)(5) 81,060   90,342   (9,282 )
Other adjustments 669   1,706   (1,037 )
ACFO with adjustments(2)(3)(4) 81,729   92,048   (10,319 )
Adjusted for:      
Loss (gain) on derivative – TRS 4,900   (392 ) 5,292  
ACFO sourced from condominium and townhome closings 244   (6,444 ) 6,688  
ACFO sourced from SmartVMC West acquisition (154 )   (154 )
ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition(2)(3)(4) 86,719   85,212   1,507  
       
Distributions declared 82,382   79,683   2,699  
Surplus of cash provided by operating activities over distributions declared(2) 14,629   16,615   (1,986 )
(Shortfall) surplus of ACFO over distributions declared(2) (1,322 ) 10,659   (11,981 )
Surplus of ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition over distributions declared(2) 4,337   5,529   (1,192 )
Units outstanding(6) 178,126,285   172,287,950   5,838,335  
Weighted average – basic 178,123,918   172,285,503   5,838,415  
Weighted average – diluted(7) 179,678,009   173,644,091   6,033,918  
(in thousands of dollars, except per Unit information) September 30, 2022   September 30, 2021   Variance  
  (A)   (B)   (A–B)  
             
Per Unit Information (Basic/Diluted)            
Net income and comprehensive income(1) $0.02/$0.02   $1.03/$1.03   $-1.01/$-1.01  
Net income and comprehensive income excluding fair value adjustments(2)(3) $0.47/$0.47   $0.53/$0.52   $-0.06/$-0.05  
             
FFO(2)(3)(4)(5) $0.50/$0.49   $0.57/$0.56   $-0.07/$-0.07  
Other adjustments $0.00/$0.01   $0.01/$0.01   $-0.01/$0.00  
FFO with adjustments(2)(3)(4) $0.50/$0.50   $0.58/$0.57   $-0.08/$-0.07  
Adjusted for:            
ECL(8) $0.00/$0.00   $0.00/$0.00   $0.00/$0.00  
Loss (gain) on derivative – TRS $0.03/$0.03   $0.00/$0.00   $0.03/$0.03  
FFO sourced from condominium and townhome closings $0.00/$0.00   $-0.03/$-0.03   $0.03/$0.03  
FFO units impact from SmartVMC West LP Class D Units $0.01/$0.01   $0.00/$0.00   $0.01/$0.01  
FFO with adjustments excluding impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition(2)(3)(4) $0.54/$0.54   $0.55/$0.54   $-0.01/$0.00  
             
Distributions declared $0.463   $0.463   $—  
             
Payout Ratio Information            
Payout Ratio to cash flows provided by operating activities 84.9 % 82.7 % 2.2 %
Payout Ratio to ACFO(2)(3)(4)(5) 101.6 % 88.2 % 13.4 %
Payout Ratio to ACFO with adjustments(2)(3)(4) 100.8 % 86.6 % 14.2 %
Payout Ratio to ACFO with adjustments excluding impact of TRS, condominium and townhome sales, and SmartVMC West acquisition(2)(3)(4) 91.9 % 93.5 % (1.6 )%
             

(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 “Non-GAAP Measures” in this Press Release 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.  
(8)   The impact of ECL on FFO per Unit is less than $0.01 and therefore it is shown as $0.00 in the table above for the three months ended September 30, 2022.


Year-to-Date Comparison to Prior Year

The following table presents key financial, per Unit, and payout ratio information for the nine months ended September 30, 2022 and September 30, 2021:

(in thousands of dollars, except per Unit information) September 30, 2022   September 30, 2021   Variance  
  (A)   (B)   (A–B)  
Financial Information            
Rentals from investment properties and other(1) 597,497   587,946   9,551  
Net base rent(1) 380,082   369,955   10,127  
Total recoveries(1) 196,896   196,342   554  
Miscellaneous revenue(1) 10,414   10,412   2  
Service and other revenues(1) 10,105   11,237   (1,132 )
Net income and comprehensive income(1) 535,655   335,595   200,060  
Net income and comprehensive income excluding fair value adjustments(2)(3) 253,910   260,400   (6,490 )
Cash flows provided by operating activities(1) 243,800   237,950   5,850  
Net rental income and other(1) 372,575   358,886   13,689  
NOI from condominium and townhome closings and other adjustments(2) 496   20,538   (20,042 )
NOI(2) 384,888   388,405   (3,517 )
Change in net rental income and other(2) 3.8 % 4.7 % (0.9 )%
Change in SPNOI(2) 3.3 % 3.4 % (0.1 )%
Change in SPNOI excluding ECL(2) 5.5 % (2.1 )% 7.6 %
       
FFO(2)(3)(4)(5) 269,102   282,620   (13,518 )
Other adjustments 2,566   2,566    
FFO with adjustments(2)(3)(4) 271,668   285,186   (13,518 )
Adjusted for:      
ECL (2,547 ) 5,251   (7,798 )
Loss (gain) on derivative – TRS 11,138   (1,462 ) 12,600  
FFO sourced from condominium and townhome closings (860 ) (18,813 ) 17,953  
FFO sourced from SmartVMC West acquisition (613 )   (613 )
FFO with adjustments excluding impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition(2)(3)(4) 278,786   270,162   8,624  
       
FFO with adjustments and Transactional FFO(2)(3)(4) 271,668   286,773   (15,105 )
       
ACFO(2)(3)(4)(5) 247,085   269,743   (22,658 )
Other adjustments 2,566   2,566    
ACFO with adjustments(2)(3)(4) 249,651   272,309   (22,658 )
Adjusted for:      
Loss (gain) on derivative – TRS 11,138   (1,462 ) 12,600  
ACFO sourced from condominium and townhome closings (496 ) (20,538 ) 20,042  
ACFO sourced from SmartVMC West acquisition (613 )   (613 )
ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition(2)(3)(4) 259,680   250,309   9,371  
       
Distributions declared 247,145   239,028   8,117  
Shortfall of cash flows provided by operating activities over distributions declared(2) (3,345 ) (1,078 ) (2,267 )
(Shortfall) surplus of ACFO over distributions declared(2) (60 ) 30,715   (30,775 )
Surplus of ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition over distributions declared(2) 12,535   11,281   1,254  
Units outstanding(6) 178,126,285   172,287,950   5,838,335  
Weighted average – basic 178,118,504   172,266,602   5,851,902  
Weighted average – diluted(7) 179,644,083   173,535,843   6,108,240  
(in thousands of dollars, except per Unit information) September 30, 2022   September 30, 2021   Variance  
  (A)   (B)   (A–B)  
             
Per Unit Information (Basic/Diluted)            
Net income and comprehensive income(1) $3.01/$2.98   $1.95/$1.93   $1.06/$1.05  
Net income and comprehensive income excluding fair value adjustments(2)(3) $1.43/$1.41   $1.51/$1.50   $-0.08/$-0.09  
             
FFO(2)(3)(4)(5) $1.51/$1.50   $1.64/$1.63   $-0.13/$-0.13  
Other adjustments $0.02/$0.01   $0.02/$0.01   $0.00/$0.00  
FFO with adjustments(2)(3)(4) $1.53/$1.51   $1.66/$1.64   $-0.13/$-0.13  
Adjusted for:            
ECL $-0.01/$-0.01   $0.03/$0.03   $-0.04/$-0.04  
Loss (gain) on derivative – TRS $0.06/$0.06   $-0.01/$-0.01   $0.07/$0.07  
FFO sourced from condominium and townhome closings $0.00/$0.00   $-0.11/$-0.10   $0.11/$0.10  
FFO units impact from SmartVMC West LP Class D Units $0.04/$0.04   $0.00/$0.00   $0.04/$0.04  
FFO with adjustments excluding impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition(2)(3)(4) $1.62/$1.60   $1.57/$1.56   $0.05/$0.04  
             
FFO with adjustments and Transactional FFO(2)(3)(4) $1.53/$1.51   $1.66/$1.65   $-0.13/$-0.14  
Distributions declared $1.39   $1.39   $—  
             
Payout Ratio Information            
Payout Ratio to cash flows provided by operating activities 101.4 % 100.5 % 0.9 %
Payout Ratio to ACFO(2)(3)(4)(5) 100.0 % 88.6 % 11.4 %
Payout Ratio to ACFO with adjustments(2)(3)(4) 99.0 % 87.8 % 11.2 %
Payout Ratio to ACFO with adjustments excluding impact of TRS, condominium and townhome sales, and SmartVMC West acquisition(2)(3)(4) 92.1 % 95.5 % (3.4 )%
             

(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 “Non-GAAP Measures” in this Press Release 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 September 30, 2022, net income and comprehensive income decreased by $174.5 million as compared to the same period in 2021. This decrease was primarily attributed to the following:

  • $177.7 million decrease in fair value adjustments on revaluation of investment properties (see details in the “Investment Property” section in the Trust’s MD&A);
  • $4.3 million increase in interest expense (see further details in the “Interest Income and Interest Expense” subsection in the Trust’s MD&A);
  • $2.3 million decrease in NOI (see further details in the “Net Operating Income” subsection in the Trust’s MD&A);
  • $2.2 million increase in general and administrative expenses (net) (see further details in the “General and Administrative Expense” section in the Trust’s MD&A);
  • $0.5 million higher loss on sale of investment properties; and
  • $0.1 million increase in supplemental costs;

Partially offset by the following:

  • $9.9 million increase in fair value adjustment on financial instruments primarily due to: i) $12.8 million higher fair value gains on those Units classified as liabilities due to fluctuation in the Trust’s Unit price, ii) $3.9 million higher fair value gains relating to unit-based incentive programs due to fluctuation in the Trust’s Unit price, and partially offset by: iii) $5.3 million higher fair value loss of TRS due to fluctuation in the Trust’s Unit price, and iv) $1.5 million decrease in fair value adjustments of interest rate swap agreements (see further details in the “Debt” subsection in the Trust’s MD&A); and
  • $2.7 million increase in interest income mainly due to higher interest rates.

For the nine months ended September 30, 2022, net income and comprehensive income increased by $200.1 million as compared to the same period in 2021. This increase was primarily attributed to the following:

  • $114.6 million increase in fair value adjustment on financial instruments primarily due to: i) $63.1 million higher fair value gains on those Units classified as liabilities due to fluctuation in the Trust’s Unit price, ii) $40.6 million increase in fair value adjustments pertaining to interest rate swap agreements (see further details in the “Debt” subsection in the Trust’s MD&A), iii) $23.5 million higher fair value gains relating to unit-based incentive programs also due to fluctuation in the Trust’s Unit price, and partially offset by: iv) $12.6 million higher fair value loss on the TRS due to fluctuation in the Trust’s Unit price;
  • $92.0 million increase in fair value adjustments on revaluation of investment properties, of which: i) $237.7 million increase relates to the fair value adjustment associated with certain properties under development, ii) $251.2 million decrease relates to cap rate changes, iii) $14.2 million increase relates to gain from acquisition, and iv) $91.3 million increase relates to the revaluation of investment properties, principally driven by leasing and assumption updates (see details in the “Investment Property” section in the Trust’s MD&A);
  • $1.9 million increase in interest income mainly due to higher interest rates; and
  • $0.7 million decrease in interest expense (see further details in the “Interest Income and Interest Expense” section in the Trust’s MD&A);

Partially offset by the following:

  • $3.5 million decrease in NOI (see further details in the “Net Operating Income” subsection in the Trust’s MD&A);
  • $2.4 million increase in supplemental costs;
  • $2.3 million increase in general and administrative expenses (net) (see further details in the “General and Administrative Expense” section in the Trust’s MD&A);
  • $0.5 million higher loss on sale of investment properties; and
  • $0.3 million increase in acquisition-related costs.

Development and Intensification Summary
The following table summarizes the 275 identified mixed-use, recurring rental income and development income initiatives, which are included in the Trust’s large development pipeline:

  Underway   Active   Future      
Description (Construction underway or expected to commence within next 2 years)   (Construction expected to commence within next 3–5 years)   (Construction expected to commence after 5 years)   Total  
Number of projects in which the Trust has an ownership interest                
Residential Rental 29   20   58   107  
Seniors’ Housing 4   8   13   25  
Self-storage 12   7   16   35  
Office Buildings   1   7   8  
Hotels     3   3  
Subtotal – Recurring rental income initiatives 45   36   97   178  
Condominium developments 23   20   46   89  
Townhome developments 2   1   5   8  
Subtotal – Development income initiatives 25   21   51   97  
Total 70   57   148   275  
Trust’s share of project area (in thousands of sq. ft.)                
Recurring rental income initiatives 5,600   3,900   11,900   21,400  
Development income initiatives 5,100   3,500   9,500   18,100  
Total Trust’s share of project area (in thousands of sq. ft.) 10,700   7,400   21,400   39,500  
Trust’s share of such estimated costs (in millions of dollars) 5,750   4,050   (1)   9,800  

(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 Trust is currently working on initiatives for the development of many properties for which final municipal approvals have been obtained or are being actively pursued. Completion, milestone or occupancy dates of each of the projects described below may be delayed or adversely impacted as a result of, among other things, restrictions or delays related to the COVID-19 pandemic.

  1. the development of up to 5.3 million square feet of predominately residential space, in various forms, at Highway 400 & Highway 7, in Vaughan, Ontario, with a rezoning application submitted in December 2019 and a site plan application for the first four residential buildings totalling 1,742 units submitted in October 2020. Currently working with the City of Vaughan on advancement of Weston & Highway 7 Secondary Plan;
  2. the development of up to 5.0 million square feet of predominately residential space, in various forms over the long term, in Pickering, Ontario, with the zoning for five towers with a gross floor area of approximately 1,400,000 square feet and site plan application for a three-tower mixed-use phase, approximating 700,000 square feet, approved by Council in June 2022;
  3. the development of up to 5.5 million square feet of predominately residential space, in various forms, at Oakville North in Oakville, Ontario, with the official plan and zoning amendment applications for an initial two-tower 587-unit residential phase submitted in April 2021;
  4. the development of up to 2.6 million square feet of predominately residential space, in various forms, at the Westside Mall in Toronto, Ontario, with a zoning application for the first 35-storey mixed-use tower submitted in Q1 2021, and targeting site plan application by the end of the year;
  5. the development of up to 1.5 million square feet of residential space in various forms on the Trust’s undeveloped lands at the Vaughan NW property in Vaughan, Ontario. Approximately 60% of the 174 draft plan approved townhomes have been pre-sold and construction is soon expected to commence. Rezoning application for a seniors’ apartment building and separate retirement residence, both of which are to be developed in partnership with Revera, along with three other residential buildings, was approved by Council in June 2022;
  6. the development of up to 1.5 million square feet of residential space, in various forms, in Pointe-Claire, Quebec, with the first phase, a two-tower rental project, being actively pursued, but subject to the urban planning revision process by the city of Pointe-Claire;
  7. the development of up to 200,000 square feet of residential townhomes at Oakville South in Oakville, Ontario;
  8. the intensification of the Toronto StudioCentre (“StudioCentre”) in Toronto, Ontario (zoning allows for up to 1.2 million square feet);
  9. the development of four high-rise purpose-built residential rental buildings comprising approximately 1,700 units with Greenwin, in Barrie, Ontario, for which a zoning application was approved by Barrie City Council in January 2021 with the site plan approved for Phase 1 by Barrie City Council in June 2021. An application for a building permit was submitted in July 2021. Environmental Risk Assessment was approved for the entire site in September 2021 and the application of Certificate of Property Use was submitted in February 2022 and approved in September 2022;
  10. the development of a 35-storey high-rise purpose-built residential rental tower containing 437 units, on Balliol Street in midtown Toronto, Ontario, with zoning and site plan applications submitted in September 2020. A second submission of these applications was made in July 2021. A third submission of these applications was made in March 2022. Zoning approval was received in July 2022 and site plan approval is expected in Q4 2022;
  11. the development of up to 1,600 residential units, in various forms, in Mascouche, Quebec, with the first phase consisting of 238 units in two 10-storey rental towers approved by municipal council in August 2020. Construction began in April 2021, and the first four floors opened in July 2022 and another five floors have since opened, with the last floor scheduled to open in November 2022. Construction of a second phase is expected to commence in Q2 2023;
  12. the development of residential density at the Trust’s shopping centre at 1900 Eglinton Avenue East in Scarborough, Ontario, with rezoning applications for the first two residential towers (46 and 48 storeys) submitted in January 2021. Site plan application for both buildings was submitted in December 2021;
  13. the development of the first phase, 46-unit rental building, which is part of a multi-phase master plan in Alliston, Ontario, with a rezoning application approved by Council in December 2020 and a site plan application submitted in May 2020. The site plan application was resubmitted in March 2021 and again in July 2021 and approved in July 2022. The building permit application was submitted in October 2021 and a partial permit was received in September 2022;
  14. besides the eight self-storage projects completed or under construction, there are six additional self-storage facilities in Ontario and British Columbia with the Trust’s partner, SmartStop, in Stoney Creek, Toronto (2), Whitby, New Westminster and Burnaby with zoning and/or site plan approval obtained or applications well underway. Project agreements for another three locations are being finalized;
  15. the Q4 2020 acquisition of an additional 33.33% interest (new ownership structure of 66.66% held by the Trust and 33.33% held by Penguin) in 50 acres of adjacent land to the Trust’s Premium Outlets Montreal in Mirabel, Quebec, for the ultimate development of residential density of up to 4,500 units. Site plan applications for the first phase rental building with 168 units expected to be submitted in Q4 2022. Master plan of development for the site is subject to approval;
  16. the development of a new residential block consisting of a 155-unit building in Phase 1 and approximately 345 rental units in Phases 2 and 3 at Laval Centre in Quebec. The application for architecture approval for Phase 1 and Phase 2 (155 units) was submitted in Q4 2021 and approved in Q3 2022;
  17. the Trust has commenced the redevelopment of a portion of its 73-acre Cambridge retail property (subject to a leasehold interest with Penguin) which now allows various forms of residential, retail, office, institutional and commercial uses providing for the creation of a vibrant urban community with the potential for over 12.0 million square feet of development on the overall property once completed;
  18. the development of a retirement living residence at the Trust’s shopping centre at Bayview and Major Mackenzie in Richmond Hill, Ontario, with a rezoning application for a nine-storey retirement residences building submitted in Q1 2021 and a site plan application submitted in Q4 2021, to be developed in partnership with the existing partner and Revera;
  19. the development of 1.5 million square feet of residential density adjacent to the new South Keys light rail train station at the Trust’s Ottawa South Keys Centre, consistent with current zoning permissions. Site plan application for the first phase rental complex with 446 units was submitted and deemed complete in Q4 2021 and work is ongoing on a second submission to respond to agency comments on the application;
  20. the development of up to 900,000 square feet of predominately residential space on Yonge St. in Aurora, Ontario, with rezoning applications for the entire site and site plan submitted for Phase 1 in July 2021 and resubmitted in April 2022;
  21. the Q4 2020 acquisition of a 50% interest in a property in downtown Markham for the development of a 243,000 square foot retirement residence with Revera. The rezoning application was submitted in December 2020, and an appeal was filed in July 2022 for the initial Official Plan Amendment & Zoning By-law Amendment submission;
  22. the development of approximately 900,000 square feet of residential density on the Trust’s Parkway Plaza Centre in Stoney Creek, Ontario, with an application for a Phase 1 development for a two-tower (20 and 15 storeys), 400,000 square foot, 520-unit condo project submitted in Q4 2021; and
  23. during the second quarter of 2022, the Trust completed the purchase of approximately 38 acres of industrial lands in Pickering, adjacent to Hwy 407, on which the Trust received approval to build 241,000 square feet of space for the 16-acre Phase 1 development, of which 53% has already been pre-leased, and completion is currently scheduled for 2023.

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) September 30, 2022 December 31, 2021
  GAAP Basis   Proportionate Share Reconciliation   Total Proportionate Share(1)   GAAP Basis   Proportionate Share Reconciliation   Total Proportionate Share(1)  
Assets                        
Non-current assets                        
Investment properties 10,211,384   924,031   11,135,415   9,847,078   837,451   10,684,529  
Equity accounted investments 646,393   (646,393 )   654,442   (654,442 )  
Mortgages, loans and notes receivable 281,128   (79,910 ) 201,218   345,089   (69,576 ) 275,513  
Other financial assets 289,477     289,477   97,148     97,148  
Other assets 82,495   7,600   90,095   80,940   7,465   88,405  
Intangible assets 44,140     44,140   45,139     45,139  
  11,555,017   205,328   11,760,345   11,069,836   120,898   11,190,734  
                         
Current assets                        
Residential development inventory 31,891   105,544   137,435   27,399   67,828   95,227  
Current portion of mortgages, loans and notes receivable 144,490     144,490   71,947     71,947  
Amounts receivable and other 61,573   (9,064 ) 52,509   49,542   (8,637 ) 40,905  
Prepaid expenses, deposits and deferred financing costs 50,187   19,141   69,328   12,289   13,118   25,407  
Cash and cash equivalents 19,475   35,847   55,322   62,235   7,922   70,157  
  307,616   151,468   459,084   223,412   80,231   303,643  
Total assets 11,862,633   356,796   12,219,429   11,293,248   201,129   11,494,377  
                         
Liabilities                        
Non-current liabilities                        
Debt 4,746,915   193,003   4,939,918   4,176,121   93,465   4,269,586  
Other financial liabilities 265,462     265,462   326,085     326,085  
Other payables 17,283   46   17,329   18,243     18,243  
  5,029,660   193,049   5,222,709   4,520,449   93,465   4,613,914  
                         
Current liabilities                        
Current portion of debt 412,945   57,456   470,401   678,406   35,086   713,492  
Accounts payable and current portion of other payables 278,711   106,291   385,002   253,078   72,578   325,656  
  691,656   163,747   855,403   931,484   107,664   1,039,148  
Total liabilities 5,721,316   356,796   6,078,112   5,451,933   201,129   5,653,062  
                         
Equity                        
Trust Unit equity 5,111,730     5,111,730   4,877,961     4,877,961  
Non-controlling interests 1,029,587     1,029,587   963,354     963,354  
  6,141,317     6,141,317   5,841,315     5,841,315  
  Total liabilities and equity 11,862,633   356,796   12,219,429   11,293,248   201,129   11,494,377  

(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.

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

(in thousands of dollars) Three Months Ended September 30, 2022   Three Months Ended September 30, 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 196,678   7,570   204,248   195,171   5,486   200,657   3,591  
Property operating costs and other (69,451 ) (3,567 ) (73,018 ) (71,554 ) (2,214 ) (73,768 ) 750  
  127,227   4,003   131,230   123,617   3,272   126,889   4,341  
Condo and townhome closings revenue and other(2)   7   7     23,904   23,904   (23,897 )
Condo and townhome cost of sales and other (30 ) (221 ) (251 )   (17,460 ) (17,460 ) 17,209  
  (30 ) (214 ) (244 )   6,444   6,444   (6,688 )
NOI 127,197   3,789   130,986   123,617   9,716   133,333   (2,347 )
                             
Other income and expenses                            
General and administrative expense, net (10,696 ) (3 ) (10,699 ) (8,435 ) (71 ) (8,506 ) (2,193 )
Earnings from equity accounted investments 1,101   (1,101 )   14,302   (14,302 )    
Earnings from other(3) 284   (284 )          
Fair value adjustment on revaluation of investment properties (92,557 ) 411   (92,146 ) 79,015   6,509   85,524   (177,670 )
Loss (gain) on sale of investment properties (112 ) (241 ) (353 ) 149     149   (502 )
Interest expense (39,175 ) (1,553 ) (40,728 ) (35,032 ) (1,348 ) (36,380 ) (4,348 )
Interest income 5,714   (375 ) 5,339   2,599   22   2,621   2,718  
Supplemental costs   (643 ) (643 )   (526 ) (526 ) (117 )
Fair value adjustment on financial instruments 11,767     11,767   1,836     1,836   9,931  
Acquisition-related costs 25     25         25  
Net income and comprehensive income 3,548     3,548   178,051     178,051   (174,503 )
                             

(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.
(3)   Represents SmartVMC West’s operating results.

Year-to-Date Comparison to Prior Year

(in thousands of dollars) Nine Months Ended September 30, 2022   Nine Months Ended September 30, 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 597,497   21,080   618,577   587,946   15,556   603,502   15,075  
Property operating costs and other (224,497 ) (9,688 ) (234,185 ) (229,060 ) (6,575 ) (235,635 ) 1,450  
  373,000   11,392   384,392   358,886   8,981   367,867   16,525  
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 (425 ) (3,603 ) (4,028 )   (56,299 ) (56,299 ) 52,271  
  (425 ) 921   496     20,538   20,538   (20,042 )
NOI 372,575   12,313   384,888   358,886   29,519   388,405   (3,517 )
                             
Other income and expenses                            
General and administrative expense, net (25,479 ) (107 ) (25,586 ) (23,219 ) (76 ) (23,295 (2,291
Earnings from equity accounted investments 4,312   (4,312 )   51,371   (51,371 )    
Earnings from other(3) 878   (878 )          
Fair value adjustment on revaluation of investment properties 188,457   2,042   190,499   71,110   27,439   98,549   91,950  
Loss on sale of investment properties (216 ) (241 ) (457 ) 91     91   (548
Interest expense (108,360 ) (3,952 ) (112,312 ) (108,886 ) (4,082 ) (112,968 ) 656  
Interest income 12,540   (955 ) 11,585   9,596   64   9,660   1,925  
Supplemental costs   (3,910 ) (3,910 )   (1,493 ) (1,493 (2,417
Fair value adjustment on financial instruments 91,246     91,246   (23,354 )   (23,354 114,600  
Acquisition-related costs (298 )   (298 )       (298
Net income and comprehensive income 535,655     535,655   335,595     335,595   200,060  
                             

(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.
(3)   Represents SmartVMC West’s operating results.

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) September 30, 2022   September 30, 2021   Variance ($)   Variance (%)  
Net income and comprehensive income 3,548   178,051   (174,503 ) (98.0 )
Add (deduct):                
Fair value adjustment on revaluation of investment properties(1) 92,557   (79,015 ) 171,572   N/R(7)  
Fair value adjustment on financial instruments(2) (11,767 ) (1,836 ) (9,931 ) N/R(7)  
(Loss) gain on derivative – TRS (4,900 ) 392   (5,292 ) N/R(7)  
Loss (gain) on sale of investment properties 112   (149 ) 261   N/R(7)  
Amortization of intangible assets 333   333      
Amortization of tenant improvement allowance and other 1,961   1,662   299   18.0  
Distributions on Units classified as liabilities recorded as interest expense 1,083   969   114   11.8  
Distributions on vested deferred units recorded as interest expense 718   433   285   65.8  
Salaries and related costs attributed to leasing activities(3) 2,216   1,431   785   54.9  
Acquisition-related costs (25 )   (25 ) N/R(7)  
Adjustments relating to equity accounted investments:                
Rental revenue adjustment – tenant improvement amortization 98   98      
Indirect interest with respect to the development portion(4) 1,996   1,706   290   17.0  
Adjustment to capitalized interest with respect to Transit City condo closings(4)   (205 ) 205   N/R(7)  
Fair value adjustment on revaluation of investment properties (411 ) (6,509 ) 6,098   (93.7 )
Loss on sale of investment properties 241     241   N/R(7)  
Adjustment for supplemental costs 643   526   117   22.2  
FFO(5) 88,403   97,887   (9,484 ) (9.7 )
Adjustments:                
Other adjustments(6) 669   1,706   (1,037 ) (60.8 )
FFO with adjustments(5) 89,072   99,593   (10,521 ) (10.6 )

(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 unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 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 $2.2 million were incurred in the three months ended September 30, 2022 (three months ended September 30, 2021 – $1.4 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 (three months ended September 30, 2021 – $0.9 million of compensation costs relating to previous CEO and $0.8 million of non-recurring 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) Nine Months Ended September 30, 2022   Nine Months Ended September 30, 2021   Variance ($)   Variance (%)  
Net income and comprehensive income 535,655   335,595   200,060   59.6  
Add (deduct):                
Fair value adjustment on revaluation of investment properties(1) (188,457 )  (71,110 (117,347 N/R(7)  
Fair value adjustment on financial instruments(2) (91,246 23,354   (114,600 N/R(7)  
(Loss) gain on derivative – TRS (11,138 1,462   (12,600 N/R(7)  
Loss (gain) on sale of investment properties 216   (335 551   N/R(7)  
Amortization of intangible assets 999   999      
Amortization of tenant improvement allowance and other 5,198   5,430   (232 (4.3
Distributions on Units classified as liabilities recorded as interest expense 3,210   2,910   300   10.3  
Distributions on vested deferred units recorded as interest expense 2,123   1,381   742   53.7  
Adjustment on debt modification (1,960   (1,960 N/R(7)  
Salaries and related costs attributed to leasing activities(3) 5,994   4,133   1,861   45.0  
Acquisition-related costs 298     298   N/R(7)  
Adjustments relating to equity accounted investments:                
Rental revenue adjustment – tenant improvement amortization 289   298   (9 (3.0
Indirect interest with respect to the development portion(4) 5,812   5,124   688   13.4  
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 (2,042 (27,439 25,397   (92.6
Loss on sale of investment properties 241     241   N/R(7)  
Adjustment for supplemental costs 3,910   1,493   2,417   N/R(7)  
FFO(5) 269,102   282,620   (13,518 (4.8
Adjustments:                
Other adjustments(6) 2,566   2,566      
FFO with adjustments(5) 271,668   285,186   (13,518 (4.7
Transactional FFO – gain on sale of land to co-owners   1,587   (1,587 N/R(7)  
FFO with adjustments and Transactional FFO(5) 271,668   286,773   (15,105 (5.3

(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 unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 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 $6.0 million were incurred in the nine months ended September 30, 2022 (nine months ended September 30, 2021 – $4.1 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 $2.6 million of costs associated with COVID-19 vaccination centres (nine months ended September 30, 2021 – $0.9 million of compensation costs relating to previous CEO and $1.7 million of non-recurring costs associated with COVID-19 vaccination centres).
(7)   N/R – Not representative.

The following table presents FFO excluding anomalous transactions for the three and nine months ended September 30, 2022:

  Three Months Ended September 30   Nine Months Ended September 30  
(in thousands of dollars) 2022   2021   Variance ($)   2022   2021   Variance ($)  
FFO with adjustments(1)         89,072           99,593           (10,521 )         271,668           285,186           (13,518 )
Adjusted for:            
ECL         (271 )         670           (941 )         (2,547 )         5,251           (7,798 )
Loss (gain) on derivative – TRS         4,900           (392 )         5,292           11,138           (1,462 )         12,600  
FFO sourced from condominium and townhome closings         216           (5,922 )         6,138           (860 )         (18,813 )         17,953  
FFO sourced from SmartVMC West acquisition         (154 )         —           (154 )         (613 )         —           (613 )
FFO with adjustments excluding impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition(1)         93,763           93,949           (186 )         278,786           270,162           8,624  

(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.

ACFO and ACFO with adjustments

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 September 30, 2022   Three Months Ended September 30, 2021   Variance ($)/(%)  
Cash flows provided by operating activities 97,011   96,298   713  
Adjustments to working capital items that are not indicative of sustainable cash available for distribution(1) 12,287   421   11,866  
Distributions on Units classified as liabilities recorded as interest expense 1,083   969   114  
Distributions on vested deferred units recorded as interest expense 718   433   285  
Expenditures on direct leasing costs and tenant incentives 2,391   1,233   1,158  
Expenditures on tenant incentives for properties under development 267     267  
Actual sustaining capital expenditures (2,655 ) (4,078 ) 1,423  
Actual sustaining leasing commissions (660 ) (474 ) (186 )
Actual sustaining tenant improvements (1,755 ) (439 ) (1,316 )
Non-cash interest expense, net of other financing costs (18,147 ) (13,623 ) (4,524 )
Non-cash interest income 2,755   2,042   713  
Acquisition-related costs, net (25 )   (25 )
Distributions from equity accounted investments (15,231 ) (1,770 ) (13,461 )
Adjustments relating to equity accounted investments:      
Cash flows from operating activities including working capital adjustments 1,208   7,851   (6,643 )
Notional interest capitalization(2) 1,996   1,706   290  
Adjustment to capitalized interest with respect to Transit City condo closings(3)   (205 ) 205  
Actual sustaining capital and leasing expenditures (58 ) (16 ) (42 )
Non-cash interest expense (125 ) (6 ) (119 )
ACFO(3) 81,060   90,342   (9,282 )
Other adjustments(4) 669   1,706   (1,037 )
ACFO with adjustments(3) 81,729   92,048   (10,319 )
       
ACFO(3) 81,060   90,342   (9,282 )
Distributions declared 82,382   79,683   2,699  
(Shortfall) surplus of ACFO over distributions declared (1,322 ) 10,659   (11,981 )
       
Payout Ratio Information:      
Payout Ratio to ACFO(3) 101.6 % 88.2 % 13.4 %
Payout Ratio to ACFO with adjustments(3) 100.8 % 86.6 % 14.2 %
Payout Ratio to ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition(3)(5) 91.9 % 93.5 % (1.6 )%

(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 (three months ended September 30, 2021 – $0.9 million of compensation costs relating to previous CEO and $0.8 million of non-recurring costs associated with COVID-19 vaccination centres).
(5)   For the three months ended September 30, 2022, excludes $2.7 million of distributions declared in connection with SmartVMC West LP Class D Units (three months ended September 30, 2021 – $nil).

Year-to-Date Comparison to Prior Year

(in thousands of dollars) Nine Months Ended September 30, 2022   Nine Months Ended September 30, 2021   Variance ($)/(%)  
Cash flows provided by operating activities 243,800   237,950   5,850  
Adjustments to working capital items that are not indicative of sustainable cash available for distribution(1) 33,159   7,882   25,277  
Distributions on Units classified as liabilities recorded as interest expense 3,210   2,910   300  
Distributions on vested deferred units recorded as interest expense 2,123   1,381   742  
Expenditures on direct leasing costs and tenant incentives 6,752   3,877   2,875  
Expenditures on tenant incentives for properties under development 2,543   730   1,813  
Actual sustaining capital expenditures (7,677 ) (7,008 ) (669 )
Actual sustaining leasing commissions (1,589 ) (2,329 ) 740  
Actual sustaining tenant improvements (5,209 ) (1,686 ) (3,523 )
Non-cash interest expense, net of other financing costs (27,100 ) (2,434 ) (24,666 )
Non-cash interest income 3,488   1,803   1,685  
Acquisition-related costs, net 298     298  
Gain on sale of land to co-owners   1,587   (1,587 )
Distributions from equity accounted investments (17,190 ) (3,340 ) (13,850 )
Adjustments relating to equity accounted investments:      
Cash flows from operating activities including working capital adjustments 5,004   24,055   (19,051 )
Notional interest capitalization(2) 5,812   5,124   688  
Adjustment to capitalized interest with respect to Transit City condo closings(2)   (675 ) 675  
Actual sustaining capital and leasing expenditures (330 ) (104 ) (226 )
Non-cash interest expense (9 ) 20   (29 )
ACFO(3) 247,085   269,743   (22,658 )
Other adjustments(4) 2,566   2,566    
ACFO with adjustments(3) 249,651   272,309   (22,658 )
       
ACFO(3) 247,085   269,743   (22,658 )
Distributions declared 247,145   239,028   8,117  
(Shortfall) surplus of ACFO over distributions declared (60 ) 30,715   (30,775 )
       
Payout Ratio Information:      
Payout Ratio to ACFO(3) 100.0 % 88.6 % 11.4 %
Payout Ratio to ACFO with adjustments(3) 99.0 % 87.8 % 11.2 %
Payout Ratio to ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition(3)(5) 92.1 % 95.5 % (3.4 )%

(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 $2.6 million of costs associated with COVID-19 vaccination centres (nine months ended September 30, 2021 – $0.9 million of compensation costs relating to previous CEO, and $1.7 million of non-recurring costs associated with COVID-19 vaccination centres).
(5)   For the nine months ended September 30, 2022, excludes $8.0 million of distributions declared in connection with SmartVMC West LP Class D Units (nine months ended September 30, 2021 – $nil).

The following table presents ACFO excluding anomalous transactions for the three and nine months ended September 30, 2022:

  Three Months Ended September 30   Nine Months Ended September 30  
(in thousands of dollars)  2022   2021   Variance ($)   2022   2021   Variance ($)  
ACFO with adjustments(1)         81,729           92,048           (10,319 )         249,651           272,309           (22,658 )
Adjusted for:            
Loss (gain) on derivative – TRS         4,900           (392 )         5,292           11,138           (1,462 )         12,600  
ACFO sourced from condominium and townhome closings         244           (6,444 )         6,688           (496 )         (20,538 )         20,042  
ACFO sourced from SmartVMC West acquisition         (154 )         —           (154 )         (613 )         —           (613 )
ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition(1)         86,719           85,212           1,507           259,680           250,309           9,371  

(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.

Net Operating Income

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 September 30, 2022   Three Months Ended September 30, 2021      
  Trust portion excluding EAI   Equity Accounted Investments   Total Proportionate Share(1)   Trust portion excluding EAI   Equity Accounted Investments   Total Proportionate Share(1)   Variance(1)  
          (A)           (B)   (A–B)  
                             
Net base rent 127,576   4,727   132,303   125,125   3,362   128,487   3,816  
Property tax and insurance recoveries 39,191   718   39,909   41,416   626   42,042   (2,133
Property operating cost recoveries 20,200   1,150   21,350   19,149   826   19,975   1,375  
Miscellaneous revenue 4,683   975   5,658   4,573   672   5,245   413  
Rentals from investment properties 191,650   7,570   199,220   190,263   5,486   195,749   3,471  
Service and other revenues 5,028     5,028   4,908     4,908   120  
Rentals from investment properties and other(2) 196,678   7,570   204,248   195,171   5,486   200,657   3,591  
                             
Recoverable tax and insurance costs (39,910 ) (729 ) (40,639 ) (43,200 ) (582 ) (43,782 ) 3,143  
Recoverable CAM costs (21,767 ) (1,283 ) (23,050 ) (20,179 ) (824 ) (21,003 (2,047
Property management fees and costs (1,258 ) (237 ) (1,495 ) (422 ) (173 ) (595 (900
Non-recoverable operating costs (1,792 ) (1,283 ) (3,075 ) (2,170 ) (649 ) (2,819 (256
ECL 306   (35 ) 271   (684 ) 14   (670 941  
Property operating costs (64,421 ) (3,567 ) (67,988 ) (66,655 ) (2,214 ) (68,869 881  
Other expenses (5,030 )   (5,030 ) (4,899 )   (4,899 (131
Property operating costs and other(2) (69,451 ) (3,567 ) (73,018 ) (71,554 ) (2,214 ) (73,768 750  
Net rental income and other 127,227   4,003   131,230   123,617   3,272   126,889   4,341  
Condo and townhome closings revenue   7   7     23,904   23,904   (23,897
Condo and townhome cost of sales   (4 ) (4 )   (17,298 ) (17,298 17,294  
Marketing and selling costs (30 ) (217 ) (247 )   (162 ) (162 (85
Net profit on condo and townhome closings (30 ) (214 ) (244 )   6,444   6,444   (6,688
NOI(3) 127,197   3,789   130,986   123,617   9,716   133,333   (2,347
                             
Net rental income and other as a percentage of net base rent (%) 99.7   84.7   99.2   98.8   97.3   98.8   0.4  
Net rental income and other as a percentage of rentals from investment properties (%) 66.4   52.9   65.9   65.0   59.6   64.8   1.1  
Net rental income and other as a percentage of rentals from investment properties and other (%) 64.7   52.9   64.3   63.3   59.6   63.2   1.1  
Recovery Ratio (including prior year adjustments) (%) 96.3   92.8   96.2   95.6   103.3   95.7   0.5  
Recovery Ratio (excluding prior year adjustments) (%) 93.3   92.9   93.3   95.0   102.0   95.2   (1.9
                             

(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 unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2022 and September 30, 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.

Year-to-Date Comparison to Prior Year

(in thousands of dollars) Nine Months Ended September 30, 2022   Nine Months Ended September 30, 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 380,082   13,118   393,200   369,955   9,564   379,519   13,681  
Property tax and insurance recoveries 129,041   2,222   131,263   134,160   1,847   136,007   (4,744
Property operating cost recoveries 67,855   3,107   70,962   62,182   2,429   64,611   6,351  
Miscellaneous revenue 10,414   2,633   13,047   10,412   1,716   12,128   919  
Rentals from investment properties 587,392   21,080   608,472   576,709   15,556   592,265   16,207  
Service and other revenues 10,105     10,105   11,237     11,237   (1,132
Rentals from investment properties and other(2) 597,497   21,080   618,577   587,946   15,556   603,502   15,075  
                             
Recoverable tax and insurance costs (133,058 ) (2,287 (135,345 (140,224 (1,813  ) (142,037 6,692  
Recoverable CAM costs (74,059 ) (3,224 (77,283 (66,303 (2,313 (68,616 (8,667
Property management fees and costs (3,198 ) (690 (3,888 (883 (473 (1,356 (2,532 )
Non-recoverable operating costs (6,731 ) (3,378 (10,109 (5,152 (1,980 (7,132 (2,977
ECL 2,656   (109 2,547   (5,255 4   (5,251 7,798  
Property operating costs (214,390 ) (9,688 (224,078 (217,817 (6,575 (224,392 314  
Other expenses (10,107 )   (10,107 (11,243   (11,243 1,136  
Property operating costs and other(2) (224,497 ) (9,688 (234,185 (229,060 (6,575 (235,635 1,450  
Net rental income and other 373,000   11,392   384,392   358,886   8,981   367,867   16,525  
Condo and townhome closings revenue   4,524   4,524     76,837   76,837   (72,313
Condo and townhome cost of sales   (3,114 (3,114   (56,102 (56,102 52,988  
Marketing and selling costs (425 ) (489 (914   (197 (197 (717
Net profit on condo and townhome closings (425 ) 921   496     20,538   20,538   (20,042
NOI(3) 372,575   12,313   384,888   358,886   29,519   388,405   (3,517
                             
Net rental income and other as a percentage of net base rent (%) 98.1   86.8   97.8   97.0   93.9   96.9   0.9  
Net rental income and other as a percentage of rentals from investment properties (%) 63.5   54.0   63.2   62.2   57.7   62.1   1.1  
Net rental income and other as a percentage of rentals from investment properties and other (%) 62.4   54.0   62.1   61.0   57.7   61.0   1.1  
Recovery Ratio (including prior year adjustments) (%) 95.1   96.7   95.1   95.1   103.6   95.2   (0.1 )
Recovery Ratio (excluding prior year adjustments) (%) 94.5   96.3   94.5   95.2   106.4   95.4   (0.9 )

(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 unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2022 and September 30, 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) September 30, 2022   September 30, 2021   Variance ($)   Variance (%)  
Net rental income 127,199   123,608   3,591   2.9  
Service and other revenues 5,028   4,908   120   2.4  
Other expenses (5,030 ) (4,899 ) (131 ) 2.7  
NOI(1) 127,197   123,617   3,580   2.9  
NOI from equity accounted investments(1) 3,789   9,716   (5,927 ) (61.0 )
Total portfolio NOI before adjustments(1) 130,986   133,333   (2,347 ) (1.8 )
                 
Adjustments:                
Royalties 305   266   39   14.7  
Straight-line rent (22 ) (640 ) 618   (96.6 )
Lease termination and other adjustments 12   (824 ) 836   N/R(2)  
Net profit on condo and townhome closings(3) 244   (6,444 ) 6,688   N/R(2)  
Amortization of tenant incentives 2,090   1,819   271   14.9  
Total portfolio NOI after adjustments(1) 133,615   127,510   6,105   4.8  
                 
NOI sourced from:                
Acquisitions (2,000 ) (7 ) (1,993 ) N/R(2)  
Dispositions 1   (427 ) 428   N/R(2)  
Earnouts and Developments (787 ) (153 ) (634 ) N/R(2)  
Same Properties NOI(1) 130,829   126,923   3,906   3.1  
Add back: ECL (243 ) 690   (933 ) N/R(2)  
Same Properties NOI excluding ECL(1) 130,586   127,613   2,973   2.3  

(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

  Nine Months Ended   Nine Months Ended          
(in thousands of dollars) September 30, 2022   September 30, 2021   Variance ($)   Variance (%)  
Net rental income 372,577   358,892   13,685   3.8  
Service and other revenues 10,105   11,237   (1,132 ) (10.1 )
Other expenses (10,107 ) (11,243 ) 1,136   10.1  
NOI(1) 372,575   358,886   13,689   3.8  
NOI from equity accounted investments(1) 12,313   29,519   (17,206 ) (58.3 )
Total portfolio NOI before adjustments(1) 384,888   388,405   (3,517 ) (0.9 )
                 
Adjustments:                
Royalties 816   675   141   20.9  
Straight-line rent (403 ) (729 ) 326   (44.7 )
Lease termination and other adjustments (133 ) (1,764 ) 1,631   (92.5 )
Net profit on condo and townhome closings(3) (496 ) (20,538 ) 20,042   (97.6 )
Amortization of tenant incentives 5,625   5,894   (269 ) (4.6 )
Total portfolio NOI after adjustments(1) 390,297   371,943   18,354   4.9  
                 
Less NOI sourced from:                
Acquisitions (5,125 ) 104   (5,229 ) N/R(2)  
Dispositions (12 ) (1,465 ) 1,453   (99.2 )
Earnouts and Developments (3,030 ) (544 ) (2,486 ) N/R(2)  
Same Properties NOI(1) 382,130   370,038   12,092   3.3  
Add back: ECL 2,547   (5,251 ) 7,798   N/R(2)  
Same Properties NOI excluding ECL(1) 384,677   364,787   19,890   5.5  

(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:

              Rolling 12 Months Ended    
(in thousands of dollars) September 30, 2022   September 30, 2021   Variance ($)  
Net income and comprehensive income 1,187,736   383,975   803,761  
Add (deduct) the following items:            
Interest expense 152,339   153,843   (1,504 )
Interest income (15,285 ) (13,733 ) (1,552 )
Yield maintenance costs   11,954   (11,954 )
Amortization of equipment and intangible assets 3,676   4,955   (1,279 )
Amortization of tenant improvements 7,231   7,948   (717 )
Fair value adjustments on revaluation of investment properties (771,207 ) (85,059 ) (686,148 )
Fair value adjustments on revaluation of financial instruments (69,234 ) 41,331   (110,565 )
Fair value adjustment on TRS (6,958 ) 1,462   (8,420 )
Adjustment for supplemental costs 5,035   2,084   2,951  
Loss (gain) on sale of investment properties 521   (116 ) 637  
Gain on sale of land to co-owners (Transactional FFO) 336   1,587   (1,251 )
Acquisition-related costs 3,089   166   2,923  
Adjusted EBITDA(1) 497,279   510,397   (13,118 )
Less: Condo and townhome closings (394 ) (36,623 ) 36,229  
Add: ECL (4,041 ) 10,486   (14,527 )
Adjusted EBITDA excluding condo and townhome closings and ECL(1) 492,844   484,260   8,584  

(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.

Non-GAAP Measures

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 three and nine months ended September 30, 2022, dated November 11, 2022 (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 three and nine months ended September 30, 2022 are outlined in the unaudited interim condensed consolidated financial statements and the related MD&A of the Trust for the three and nine months ended September 30, 2022, which are available on SEDAR at www.sedar.com.  

Conference Call

SmartCentres will hold a conference call on Monday, November 14, 2022 at 2:00 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 86995#. 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 Monday, November 14, 2022 beginning at 8:30 p.m. (ET) through to 8:30 p.m. (ET) on Monday, November 21, 2022. To access the recording, please call 1-855-201-2300, enter the conference access code 86995# and then key in the playback access code 0112654#.

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 $11.9 billion in assets and owns 34.7 million square feet of income producing value-oriented retail and first-class office space with 98.1% 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. Project 512, a publicly announced $15.2 billion intensification program ($9.8 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 57.0 million square feet (39.5 million square feet at SmartCentres’ share) of space, 27.8 million square feet (18.1 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. Construction of the first five sold-out phases of Transit City Condominiums that represent 2,789 residential units continues to progress. 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 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 and occupancy levels, expectations relating to the SmartLiving platform, SmartCentres’ expected or planned development plans and joint venture projects, including the described type, scope, costs and other financial metrics including expected yields 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, and construction and permitting costs are consistent with the past year and recent inflation trends.

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