Second Quarter of Fiscal 2023 Highlights
- Property revenue increased by 5.1% in Q2 year-over-year
- Net operating income (NOI)* up 1.3% in Q2 year-over-year
- Same Property NOI* up 0.8% in Q2 year-over-year; up 3.9% excluding a temporary vacancy (see Table 4)
- Net income and comprehensive income of
$1.7 million in Q2, compared to$12.0 million in the same quarter last year $42.0 million available on undrawn credit facility, in addition to$15.8 million in cash, atJune 30, 2023 - AFFO Payout Ratio – Basic* of 97.3%, up from 86.5% in Q2 2022
- Debt to Gross Book Value* of 50.9% at
June 30, 2023 , compared to 51.3% at same date last year - Occupancy rate of 99.0%, including committed occupancy, at
June 30, 2023 - Approximately 85.0% of gross leasable area ("GLA") maturing in 2023 has been renewed at 43.2% average spread
"Our results for the second quarter of 2023 reflect both our solid operating environment and the strength of our balance sheet," said Gordon Lawlor, President and Chief Executive Officer of PROREIT.
"With a 99% occupancy rate, we continue to benefit from very favorable leasing activity, including 85% of 2023 maturing GLA renewed at 43.2% positive average rental rate spread. Without the temporary vacancy of a 102,000 square foot industrial property, which has been fully re-leased at an average positive spread of 55%, Same Property NOI (Adjusted for One Temporary Vacancy)* growth amounted to 3.9% in the second quarter of 2023, compared to the same prior year period. The full impact of this compelling lease-up will be reflected in our fourth quarter results for this fiscal year.
"During the second quarter, we significantly increased our Available Liquidity* to approximately
"We remain committed to increasing our footprint in the light industrial sector, mindful that current macro-economic factors, including the high-interest rate environment, present certain challenges. Guided by a clear strategy for growth and sound capital allocation, we intend to further maximize long-term value to benefit all our stakeholders," concluded Mr. Lawlor.
* | Measures followed by the suffix "*" in this release are non-IFRS measures. See "Non-IFRS Measures". |
===
Financial Results
Table 1 - Financial Highlights
(CAD $ thousands except unit, per unit amounts and unless otherwise | 3 Months | 3 Months | 6 Months | 6 Months |
Financial data | ||||
Property revenue | $ 24,945 | $ 23,724 | $ 50,223 | $ 48,054 |
Net operating income (NOI) (1) | $ 14,450 | $ 14,270 | $ 28,990 | $ 28,350 |
Same Property NOI (1) | $ 11,939 | $ 11,847 | $ 24,209 | $ 23,519 |
Net income and comprehensive income | $ 1,742 | $ 11,969 | $ 14,790 | $ 58,491 |
Total assets | $ 1,057,548 | $ 1,041,296 | $ 1,057,548 | $ 1,041,296 |
Debt to Gross Book Value (1) | 50.90 % | 51.26 % | 50.90 % | 51.26 % |
Interest Coverage Ratio (1) | 2.5x | 2.9x | 2.6x | 2.9x |
Debt Service Coverage Ratio (1) | 1.5x | 1.6x | 1.6x | 1.6x |
Debt to Annualized Adjusted EBITDA Ratio (1) | 10.3x | 10.2x | 10.1x | 10.2x |
Weighted average interest rate on mortgage debt | 3.75 % | 3.40 % | 3.75 % | 3.40 % |
Net cash flows provided from operating activities | $ 619 | $ 2,200 | $ 11,201 | $ 8,929 |
Funds from Operations (FFO) (1) | $ 7,270 | $ 7,836 | $ 12,218 | $ 15,945 |
Basic FFO per unit (1)(2) | $ 0.1203 | $ 0.1296 | $ 0.2022 | $ 0.2638 |
Diluted FFO per unit (1)(2) | $ 0.1187 | $ 0.1272 | $ 0.1989 | $ 0.2592 |
Adjusted Funds from Operations (AFFO) (1) | $ 6,990 | $ 7,862 | $ 14,804 | $ 15,675 |
Basic AFFO per unit (1)(2) | $ 0.1156 | $ 0.1301 | $ 0.2450 | $ 0.2593 |
Diluted AFFO per unit (1)(2) | $ 0.1142 | $ 0.1276 | $ 0.2410 | $ 0.2548 |
AFFO Payout Ratio – Basic (1) | 97.3 % | 86.5 % | 91.8 % | 86.8 % |
AFFO Payout Ratio – Diluted (1) | 98.5 % | 88.2 % | 93.4 % | 88.3 % |
(1) | Non-IFRS measure. See "Non-IFRS Measures". |
(2) | Total basic units consist of trust units of the REIT and Class B LP Units (as defined herein). Total diluted units also includes deferred trust units and restricted trust units issued under the REIT's long-term incentive plan. |
PROREIT owned 129 investment properties (including a 50% ownership interest in 42 investment properties) at
For the three-month period ended
- Property revenue amounted to
$24.9 million , an increase of$1.2 million or 5.1%, compared to$23.7 million for the same prior year period, mainly resulting from the change to the number of properties in the portfolio and their related ownership percentages during the twelve-month period endedJune 30, 2023 . - Same Property NOI* reached
$11.9 million , an increase of$0.1 million or 0.8%, compared to the same prior year period, primarily attributable to an increase in occupancy in both the office and retail asset classes and higher rents, partially offset by a decrease in occupancy in the industrial asset class resulting from a temporary vacancy at oneMontreal 102,000 square foot property, which has been fully re-leased. Excluding the impact of this temporary vacancy, overall Same Property NOI (Adjusted for One Temporary Vacancy)* for the three-month period endedJune 30, 2023 increased$0.5 million or 3.9%. - NOI* amounted to
$14.5 million , compared to$14.3 million in the same period in 2022, an increase of 1.3% mainly driven by the impact of the net property acquisitions and related ownership percentages over the last twelve-month period. - Net cash flows provided from operating activities reached
$0.6 million , compared to$2.2 million in the second quarter of 2022, a decrease of 71.9%, largely as a result of the timing of cash receipts and settlement of payables. - AFFO* totaled
$7.0 million , compared to$7.9 million in the same period last year, a decrease of 11.1%. - AFFO Payout Ratio – Basic* was 97.3%, compared to 86.5% for the same period in the prior year, primarily resulting from the above-mentioned temporary vacancy, and increased interest costs.
For the six-month period ended
- Property revenue amounted to
$50.2 million , an increase of$2.2 million or 4.5%, compared to$48.1 million for the same prior year period, mainly resulting from the change to the number of properties in the portfolio and their related ownership percentages during the twelve-month period endedJune 30, 2023 . - Same Property NOI* reached
$24.2 million , an increase of$0.7 million or 2.9%, compared to the same prior year period, as a result of the same factors as the three-month Same Property NOI*. Excluding the impact of the temporary vacancy, overall Same Property NOI (Adjusted for One Temporary Vacancy)* for the six-month period endedJune 30, 2023 increased$1.1 million or 4.6%. - NOI* amounted to
$29.0 million , compared to$28.4 million in the same period in 2022, an increase of 2.3% mainly driven by the impact of the net property acquisitions and related ownership percentages over the last twelve-month period. - Net cash flows provided from operating activities reached
$11.2 million , compared to$8.9 million in the first half of 2022, an increase of 25.4%, largely as a result of the timing of cash receipts and settlement of payables. - AFFO* totaled
$14.8 million , compared to$15.7 million in the same period last year, a decrease of 5.6%. - AFFO Payout Ratio – Basic* was 91.8%, compared to 86.8% for the same period in the prior year, primarily resulting from the above-mentioned temporary vacancy, and increased interest costs.
TABLE 2 - Reconciliation of net operating income to net income and comprehensive income
(CAD $ thousands) | 3 Months | 3 Months | 6 Months | 6 Months |
Net operating income(1) | 14,450 | 14,270 | 28,990 | 28,350 |
General and administrative expenses | 1,278 | 1,324 | 4,796 | 2,526 |
Long-term incentive plan expense | 395 | (1,201) | 976 | (276) |
Depreciation of property and equipment | 108 | 99 | 213 | 188 |
Amortization of intangible assets | 93 | 93 | 186 | 186 |
Interest and financing costs | 5,473 | 4,804 | 10,604 | 9,516 |
Distributions - Class B LP Units | 157 | 159 | 314 | 318 |
Fair value adjustment - Class B LP Units | (964) | (1,807) | (992) | (861) |
Fair value adjustment - investment properties | 6,250 | (833) | (1,401) | (41,134) |
Fair value adjustment - derivative financial instrument | 21 | – | 21 | – |
Other income | (748) | (677) | (1,583) | (1,139) |
Other expenses | 398 | 340 | 819 | 535 |
Debt settlement costs | 53 | – | 53 | – |
Transaction costs | 194 | – | 194 | – |
Net income and comprehensive income | $ 1,742 | $ 11,969 | $ 14,790 | $ 58,491 |
(1) | Non-IFRS measure. See "Non-IFRS Measures". |
For the three months ended
For the six months ended
Solid Balance Sheet
PROREIT had
With
Debt to Gross Book Value* was 50.90% at
During the quarter, PROREIT strengthened its Available Liquidity* to approximately
During the quarter, PROREIT also refinanced six industrial properties located in
Robust Operating Environment
At
Occupancy (including committed occupancy) remained strong at 99.0% at
The industrial segment accounted for 80.5% of GLA and 70.6% of base rent at
Portfolio Transactions
On
On
CEO Succession
Effective
Sustainability
On
Distributions
Distributions to unitholders of
On
Strategy
While focusing on high-quality light industrial real estate in
Investor Conference Call and Webcast Details
PROREIT will hold a conference call to discuss its second quarter 2023 results on
The conference call will also be accessible via live webcast on PROREIT's website at www.proreit.com or at https://app.webinar.net/3bKp1kNX4ZG.
About PROREIT
PROREIT (TSX:PRV.UN) is an unincorporated open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of
For more information on PROREIT, please visit the website at: https://proreit.com.
Non-IFRS Measures
PROREIT's consolidated financial statements are prepared in accordance with International Reporting Standards ("IFRS"), as issued by the
As a complement to results provided in accordance with IFRS, PROREIT discloses and discusses in this press release (i) certain non-IFRS financial measures, including: adjusted earnings before interest, tax, depreciation and amortization ("Adjusted EBITDA"); annualized adjusted earnings before interest, tax, depreciation and amortization ("Annualized Adjusted EBITDA"); adjusted funds from operations ("AFFO"); Available Liquidity; funds from operations ("FFO"); gross book value ("Gross Book Value"); net operating income ("NOI"); Same Property NOI; Same Property NOI (Adjusted for One Temporary Vacancy); and (ii) certain non-IFRS ratios, including: AFFO Payout Ratio – Basic; AFFO Payout Ratio – Diluted; Basic AFFO per Unit; Diluted AFFO per Unit; Basic FFO per Unit; Diluted FFO per Unit; Debt to Gross Book Value; Debt Service Coverage Ratio; Interest Coverage Ratio; Debt to Annualized Adjusted EBITDA Ratio. These non-IFRS measures are not defined by IFRS and do not have a standardized meaning under IFRS. PROREIT's method of calculating these non-IFRS measures may differ from other issuers and may not be comparable with similar measures presented by other income trusts. PROREIT has presented such non-IFRS measures and ratios as management believes they are relevant measures of PROREIT's underlying operating and financial performance. For information on the most directly comparable IFRS measures, composition of the non-IFRS measures, a description of how PROREIT uses these measures and an explanation of how these measures provide useful information to investors, refer to the "Non-IFRS Measures" section of PROREIT's management's discussion and analysis for the three and six months ended
TABLE 3 - Reconciliation of Same Property NOI to net operating income (as reported in the consolidated financial statements)
(CAD $ thousands) | 3 Months | 3 Months | 6 Months | 6 Months |
Property revenue | $ 24,945 | $ 23,724 | $ 50,223 | $ 48,054 |
Property operating expenses | 10,495 | 9,454 | 21,233 | 19,704 |
NOI (net operating income) as reported in the financial statements (1) | 14,450 | 14,270 | 28,990 | 28,350 |
Straight-line rent adjustment | (457) | (105) | (578) | (223) |
NOI after straight-line rent adjustment (1) | 13,993 | 14,165 | 28,412 | 28,127 |
NOI (1) sourced from: | ||||
Acquisitions | (2,066) | (287) | (4,147) | (572) |
Dispositions | 12 | (2,031) | (56) | (4,036) |
Same Property NOI (1) | $ 11,939 | $ 11,847 | $ 24,209 | $ 23,519 |
Number of same properties | 105 | 105 | 105(2) | 105(2) |
(1) | Non-IFRS measure. See "Non-IFRS Measures". |
(2) | Includes 21 properties 50% owned at |
TABLE 4 - Same Property NOI and Same Property NOI by asset class, adjusted to exclude the NOI of the temporary vacancy of one industrial property:
(CAD $ thousands) | 3 Months | 3 Months | 6 Months | 6 Months |
Same Property NOI (1) | $ 11,939 | $ 11,847 | $ 24,209 | $ 23,519 |
NOI of the temporary vacancy of 1 industrial property | 141 | (218) | (81) | (442) |
Same Property NOI (Adjusted for One Temporary Vacancy) (1) | $ 12,080 | $ 11,629 | $ 24,128 | $ 23,077 |
Industrial (excluding 1 temporary vacant property) (2) | $ 8,103 | $ 7,832 | $ 16,184 | $ 15,537 |
Retail Office | 2,798 | 2,740 | 5,595 | 5,471 |
Office | 1,179 | 1,057 | 2,349 | 2,069 |
Same Property NOI (Adjusted for One Temporary Vacancy) (1) | $ 12,080 | $ 11,629 | $ 24,128 | $ 23,077 |
(1) | Non-IFRS measure. See "Non-IFRS Measures". |
(2) | Includes 21 properties 50% owned at |
TABLE 5 - Reconciliation of AFFO and FFO to net income and comprehensive income
(CAD $ thousands except unit, per unit amounts and unless otherwise | 3 Months | 3 Months | 6 Months | 6 Months |
Net income and comprehensive income for the period | $ 1,742 | $ 11,969 | $ 14,790 | $ 58,491 |
Add: | ||||
Long-term incentive plan | (29) | (1,745) | (700) | (1,055) |
Distributions - Class B LP Units | 157 | 159 | 314 | 318 |
Fair value adjustment - investment properties | 6,250 | (833) | (1,401) | (41,134) |
Fair value adjustment - Class B LP Units | (964) | (1,807) | (992) | (861) |
Fair value adjustment - derivative financial instrument | 21 | – | 21 | – |
Amortization of intangible assets | 93 | 93 | 186 | 186 |
FFO (1) | $ 7,270 | $ 7,836 | $ 12,218 | $ 15,945 |
Deduct: | ||||
Straight-line rent adjustment | $ (457) | $ (105) | $ (578) | $ (223) |
Maintenance capital expenditures | (174) | (232) | (359) | (511) |
Stabilized leasing costs | (592) | (446) | (1,098) | (838) |
Add: | ||||
Long-term incentive plan | 424 | 544 | 1,676 | 779 |
Amortization of financing costs | 253 | 265 | 439 | 523 |
Accretion expense - derivative financial instrument | 19 | – | 19 | – |
Debt settlement costs | 53 | – | 53 | – |
Transaction costs | 194 | – | 194 | – |
CEO Succession plan costs | – | – | 2,240 | – |
AFFO (1) | $ 6,990 | $ 7,862 | $ 14,804 | $ 15,675 |
Basic FFO per unit (1)(2) | $ 0.1203 | $ 0.1296 | $ 0.2022 | $ 0.2638 |
Diluted FFO per unit (1)(2) | $ 0.1187 | $ 0.1272 | $ 0.1989 | $ 0.2592 |
Basic AFFO per unit (1)(2) | $ 0.1156 | $ 0.1301 | $ 0.2450 | $ 0.2593 |
Diluted AFFO per unit (1)(2) | $ 0.1142 | $ 0.1276 | $ 0.2410 | $ 0.2548 |
Distributions declared per | $ 0.1125 | $ 0.1125 | $ 0.2250 | $ 0.2250 |
AFFO Payout Ratio – Basic (1) | 97.3 % | 86.5 % | 91.8 % | 86.8 % |
AFFO Payout Ratio – Diluted (1) | 98.5 % | 88.2 % | 93.4 % | 88.3 % |
Basic weighted average number of units (2)(3) | 60,447,230 | 60,447,230 | 60,429,395 | 60,447,230 |
Diluted weighted average number of units (2)(3) | 61,234,171 | 61,625,646 | 61,426,665 | 61,510,654 |
(1) | Non-IFRS measure. See "Non-IFRS Measures". |
(2) | FFO and AFFO per unit is calculated as FFO or AFFO, as the case may be, divided by the total of the weighted average number of basic or diluted units, as applicable, added to the weighted average number of Class B LP Units outstanding during the period. |
(3) | Total basic units consist of trust units of the REIT and Class B LP Units. Total diluted units also includes deferred trust units and restricted trust units issued under the REIT's long-term incentive plan. |
TABLE 6 - Reconciliation of Adjusted EBITDA to net income and comprehensive income
(CAD $ thousands) | 3 Months | 3 Months | 6 Months | 6 Months |
Net income and comprehensive income | $ 1,742 | $ 11,969 | $ 14,790 | $ 58,491 |
Interest and financing costs | 5,473 | 4,804 | 10,604 | 9,516 |
Depreciation of property and equipment | 108 | 99 | 213 | 188 |
Amortization of intangible assets | 93 | 93 | 186 | 186 |
Fair value adjustment - Class B LP Units | (964) | (1,807) | (992) | (861) |
Fair value adjustment - investment properties | 6,250 | (833) | (1,401) | (41,134) |
Fair value adjustment - derivative financial instrument | 21 | – | 21 | – |
Distributions - Class B LP Units | 157 | 159 | 314 | 318 |
Straight-line rent | (457) | (105) | (578) | (223) |
Long-term incentive plan expense | 395 | (1,201) | 976 | (276) |
CEO succession plan costs | – | – | 2,240 | – |
Transaction costs | 53 | – | 53 | – |
Debt settlement costs | 194 | – | 194 | – |
Adjusted EBITDA (1) | $ 13,065 | $ 13,178 | $ 26,620 | $ 26,205 |
(1) | Non-IFRS measure. See "Non-IFRS Measures". |
TABLE 7 - Calculation of Debt to Annualized Adjusted EBITDA Ratio
(CAD $ thousands) | 3 Months | 3 Months | 6 Months | 6 Months |
Debt(1) | $ 487,055 | $ 503,135 | $ 487,055 | $ 503,135 |
Convertible Debentures, face value | 35,000 | – | 35,000 | – |
Credit facility(1) | 18,000 | 32,000 | 18,000 | 32,000 |
Total Debt (1), Convertible Debentures, face value and credit facility(1) | $ 540,055 | $ 535,135 | $ 540,055 | $ 535,135 |
Adjusted EBITDA (2) | $ 13,065 | $ 13,178 | $ 26,620 | $ 26,205 |
Annualized Adjusted EBITDA (2) | $ 52,260 | $ 52,712 | $ 53,240 | $ 52,410 |
Debt to Annualized Adjusted EBITDA Ratio (2) | 10.3x | 10.2x | 10.1x | 10.2x |
(1) | Excluding unamortized financing costs. |
(2) | Non-IFRS measure. See "Non-IFRS Measures". |
TABLE 8 - Calculation of the Interest Coverage Ratio
(CAD $ thousands) | 3 Months | 3 Months | 6 Months | 6 Months |
Adjusted EBITDA (1) | $ 13,065 | $ 13,178 | $ 26,620 | $ 26,205 |
Interest expense | $ 5,293 | $ 4,538 | $ 10,314 | $ 8,986 |
Interest Coverage Ratio (1) | 2.5x | 2.9x | 2.6x | 2.9x |
(1) | Non-IFRS measure. See "Non-IFRS Measures". |
TABLE 9 - Calculation of the Debt Service Coverage Ratio
(CAD $ thousands) | 3 Months | 3 Months | 6 Months | 6 Months |
Adjusted EBITDA (1) | $ 13,065 | $ 13,178 | $ 26,620 | $ 26,205 |
Interest expense | 5,293 | 4,538 | 10,314 | 8,986 |
Principal repayments | 3,267 | 3,566 | 6,607 | 7,155 |
Debt Service Requirements | $ 8,560 | $ 8,104 | $ 16,921 | $ 16,141 |
Debt Service Coverage Ratio (1) | 1.5x | 1.6x | 1.6x | 1.6x |
(1) | Non-IFRS measure. See "Non-IFRS Measures". |
TABLE 10 - Calculation of Gross Book Value and Debt to Gross Book Value
(CAD $ thousands except unit, per unit amounts and unless otherwise |
|
| |
Total assets, including investment properties stated at fair value | $ 1,057,548 | $ 1,041,296 | |
Accumulated depreciation on property and equipment and intangible assets | 3,451 | 2,642 | |
Gross Book Value (1) | $ 1,060,999 | $ 1,043,938 | |
Debt (2) | 487,055 | 503,135 | |
Convertible Debentures, face value | 35,000 | - | |
Credit facility (2) | 18,000 | 32,000 | |
Total Debt(2), Convertible Debentures, face value and Credit facility (2) | $ 540,055 | $ 535,135 | |
Debt to Gross Book Value (1) | 50.90 % | 51.26 % |
(1) | Non-IFRS measure. See "Non-IFRS Measures". |
(2) | Excluding unamortized financing costs. |
TABLE 11- Calculation of Available Liquidity
(CAD $ thousands) |
|
|
| |
Cash per condensed consolidated interim financial statements | $ 15,795 | $ 10,827 | $ 3,802 | |
Undrawn revolving credit facility | 42,000 | 23,000 | 28,000 | |
Available Liquidity (1) | $ 57,795 | $ 33,827 | $ 31,802 |
(1) | Non-IFRS measure. See "Non-IFRS Measures". |
Forward-Looking Statements
This press release contains forward-looking statements and forward-looking information (collectively, "forward-looking statements") within the meaning of applicable securities legislation, including statements relating to certain expectations, projections, growth plans and other information related to PROREIT's business strategy and future plans. Forward-looking statements are based on a number of assumptions and are subject to a number of risks and uncertainties, many of which are beyond PROREIT's control, that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking statements.
Forward-looking statements generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "expect", "intent", "estimate", "anticipate", "believe", "should", "plans", or "continue", or similar expressions suggesting future outcomes or events. Forward-looking statements contained in this press release include, without limitation, statements pertaining to the execution by PROREIT of its growth strategy, the future financial and operating performance of PROREIT, the proposed increase of PROREIT's footprint in the light industrial sector, the proposed sale of two non-core office properties for gross proceeds of
PROREIT's objectives and forward-looking statements are based on its current assumptions about future events, including that (i) PROREIT will receive financing on favourable terms; (ii) the future level of indebtedness of PROREIT and its future growth potential will remain consistent with PROREIT's current expectations; (iii) there will be no changes to tax laws adversely affecting PROREIT's financing capacity or operations; (iv) the impact of the current economic climate and the current global financial conditions on PROREIT's operations, including its financing capacity and asset value, will remain consistent with PROREIT's current expectations; (v) the performance of PROREIT's investments in
Without limiting the foregoing, the medium-term targets of PROREIT are based on PROREIT's current business plan and strategies and are not intended to be a forecast of future results. The medium-term targets contemplate the REIT's historical growth and certain assumptions including but not limited to (i) current global capital market conditions, (ii) access to capital, (iii) interest rate exposure, (iv) availability of high-quality industrial properties for acquisitions, (v) dispositions of retail and office properties, and (vi) capacity to finance acquisitions on an accretive basis.
Although PROREIT believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct, and since forward-looking statements inherently involve risks and uncertainties, undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such forward-looking statements. The forward-looking statements contained in this news release are expressly qualified in their entirety by this cautionary statement. All forward-looking statements in this press release are made as of the date of this press release. PROREIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise, except as required by law.
Additional information about these assumptions and risks and uncertainties is contained under "Risk Factors" in PROREIT's latest annual information form and "Risk and Uncertainties" in PROREIT's management's discussion and analysis for the three and six months ended
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