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SmartCentres Real Estate Investment Trust Releases Fourth Quarter and Full Year Results for 2022

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

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

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

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

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

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

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

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

Mixed-Use Development and New Growth at SmartVMC

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

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Other Business Development

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

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(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 $33.4 million as at December 31, 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) December 31, 2022 December 31, 2021 December 31, 2020
Portfolio Information      
Number of retail properties 155 155 156
Number of office properties 4 4 4
Number of self-storage properties 6 6 4
Number of residential properties 1 1 1
Number of properties under development 19 17 14
Total number of properties with an ownership interest 185 183 179
       
Leasing and Operational Information(1)      
Gross leasable retail and office area (in thousands of sq. ft.) 34,750 34,119 34,056
Occupied retail and office area (in thousands of sq. ft.) 33,925 33,219 33,039
Vacant retail and office area (in thousands of sq. ft.) 826 900 1,017
In-place occupancy rate (%) 97.6 97.4 97.0
In-place and committed occupancy rate (%) 98.0 97.6 97.3
Average lease term to maturity (in years) 4.2 4.4 4.6
Net annualized retail rental rate (per occupied sq. ft.) ($) 15.53 15.44 15.37
Net annualized retail rental rate excluding Anchors (per occupied sq. ft.) ($) 22.20 22.07 21.89
Mixed-Use Development Information      
Trust’s share of future development area (in thousands of sq. ft.) 41,200 40,600 32,500
Trust’s share of estimated costs of future projects currently under construction, or for which construction is expected to commence within the next five years (in millions of dollars) 10,000 9,800 7,900
Total number of residential rental projects 110 104 96
Total number of seniors’ housing projects 25 27 40
Total number of self-storage projects 33 36 50
Total number of office buildings / industrial projects 8 8 7
Total number of hotel projects 3 3 4
Total number of condominium developments 88 95 72
Total number of townhome developments 7 10 15
Total number of estimated future projects currently in development planning stage 274 283 284
 
Financial Information      
Total assets – GAAP(2) 11,702,153 11,293,248 10,724,492
Total assets – non-GAAP(3)(4) 12,083,941 11,494,377 10,874,900
Investment properties – GAAP(2) 10,250,392 9,847,078 8,850,390
Investment properties – non-GAAP(3)(4) 11,223,796 10,684,529 9,400,584
Total unencumbered assets(3) 8,415,900 6,640,600 5,835,600
Debt – GAAP(2) 4,983,265 4,854,527 5,210,123
Debt – non-GAAP(3)(4) 5,260,053 4,983,078 5,261,360
Debt to Aggregate Assets (%)(3)(4)(5) 43.6 42.9 44.6
Debt to Gross Book Value (%)(3)(4)(5) 52.0 50.8 50.1
Unsecured to Secured Debt Ratio(3)(4)(5) 74%/26% 71%/29% 68%/32%
Unencumbered assets to unsecured debt(3)(4)(5) 2.2X 1.9X 1.9X
Weighted average interest rate (%)(3)(4) 3.86 3.11 3.28
Weighted average term of debt (in years) 4.0 4.8 5.0
Interest coverage ratio(3)(4)(5) 3.1X 3.4X 3.2X
Equity (book value)(2) 6,163,101 5,841,315 5,166,975
Weighted average number of units outstanding – diluted 179,657,455 173,748,819 172,971,603

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

Year-to-Date Comparison to Prior Year

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

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

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

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

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Partially offset by the following:

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

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

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

Partially offset by the following:

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

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

Description Under Construction Construction
expected to
commence within
next 2 years
Active
(Construction
expected to
commence within
next 3–5 years)
Future
(Construction
expected to
commence
after 5 years)
Total
Number of projects in which the Trust has an ownership interest          
Residential Rental 3 22 24 61 110
Seniors’ Housing 1 3 7 14 25
Self-storage 3 7 8 15 33
Office Buildings / Industrial 1 1 6 8
Hotels 3 3
Subtotal – Recurring rental income initiatives 8 32 40 99 179
Condominium developments 2 15 25 46 88
Townhome developments 1 1 2 3 7
Subtotal –
Development income initiatives
3 16 27 49 95
Total 11 48 67 148 274
Trust’s share of project area (in thousands of sq. ft.)          
Recurring rental income initiatives 1,000 4,450 4,300 12,500 22,250
Development income initiatives 400 3,650 4,700 10,200 18,950
Total Trust’s share of project area (in thousands of sq. ft.) 1,400 8,100 9,000 22,700 41,200
Trust’s share of such estimated costs (in millions of dollars) 550 4,450 5,000 (1) 10,000

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

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

Projects under construction
(Location/Project Name)
Type Trust’s
Share (%)
Estimated
initial
occupancy /
closing date
% of
completion
GFA(2)

(sq. ft.)

No.
of units
             
Vaughan / Transit City 4 Condo 25 Q1 2023 87% —  1,026
Vaughan / Transit City 5
Vaughan / The Millway Apartment 50 Q1 2023 73% 458
Brampton / Kingspoint Plaza Self Storage 50 Q1 2023 91% 133,000 969
Pickering (Seaton Lands) Industrial 100 Q1 2023 79% 241,000
Laval Centre Apartment 50 Q2 2023 58% 211
Markham East / Boxgrove Self Storage 50 Q1 2024 38% 133,332 910
Whitby Self Storage 50 Q1 2024 16% 126,135 811
Ottawa SW (1) Retirement Residence 50 Q1 2024 26% 402
Ottawa SW (1) Senior Apartments
Vaughan NW Townhouse 50 Q3 2024 14% 174
             
      In millions of dollars    
Total Capital Spend To Date at 100% (3)   755.2    
Estimated Cost to Complete at 100%   487.8    
Total Expected Capital Spend by Completion at 100% (3)   1,243.0    
Total Capital Spend To Date at Trust’s share (3)   304.1    
Estimated Cost to Complete at Trust’s share   234.9    
Total Expected Capital Spend by Completion at Trust’s share (3)   539.0    

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

Reconciliations of Non-GAAP Measures

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

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

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

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

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

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Quarterly Comparison to Prior Year

  Three Months Ended Three Months Ended  
(in thousands of dollars) December 31, 2022 December 31, 2021  
  GAAP Basis Proportionate
Share
Reconciliation
Total
Proportionate
Share
(1)
GAAP Basis Proportionate
Share
Reconciliation
Total
Proportionate
Share(1)
Variance of
Total
Proportionate
Share(1)
Net rental income and other              
Rentals from investment properties and other 206,223 8,441 214,664 192,850 5,974 198,824 15,840
Property operating costs and other (77,062) (3,779) (80,841) (65,896) (3,144) (69,040) (11,801)
  129,161 4,662 133,823 126,954 2,830 129,784 4,039
Condo and townhome closings revenue and other(2)
Condo and townhome cost of sales and other (10) (181) (191) (67) (67) (124)
  (10) (181) (191) (67) (67) (124)
NOI 129,151 4,481 133,632 126,954 2,763 129,717 3,915
Other income and expenses              
General and administrative expense, net (7,790) (7,790) (8,703) (534) (9,237) 1,447
Earnings from equity accounted investments (113) 113 160,049 (160,049)
Fair value adjustment on revaluation of investment properties 13,377 (1,418) 11,959 420,418 160,289 580,707 (568,748)
Gain (loss) on sale of investment properties 531 531 (64) (64) 595
Interest expense (40,342) (3,846) (44,188) (35,654) (1,355) (37,009) (7,179)
Interest income 5,496 1,408 6,904 2,745 11 2,756 4,148
Supplemental costs (738) (738) (1,125) (1,125) 387
Fair value adjustment on financial instruments (10,873) (10,873) 10,873
Acquisition-related costs (2,791) (2,791) 2,791
Net income and comprehensive income 100,310 100,310 652,081 652,081 (551,771)

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

Year-to-Date Comparison to Prior Year

(in thousands of dollars) Year Ended December 31, 2022 Year Ended December 31, 2021  
  GAAP Basis Proportionate
Share
Reconciliation
Total
Proportionate
Share
(1)
GAAP Basis Proportionate
Share
Reconciliation
Total
Proportionate
Share(1)
Variance of
Total
Proportionate
Share(1)
Net rental income and other              
Rentals from investment properties and other 804,598 28,643 833,241 780,796 21,530 802,326 30,915
Property operating costs and other (301,559) (13,467) (315,026) (294,956) (9,719) (304,675) (10,351)
  503,039 15,176 518,215 485,840 11,811 497,651 20,564
Condo and townhome closings revenue and other(2) 4,524 4,524 76,837 76,837 (72,313)
Condo and townhome cost of sales and other (435) (3,784) (4,219) (56,366) (56,366) 52,147
  (435) 740 305 20,471 20,471 (20,166)
NOI 502,604 15,916 518,520 485,840 32,282 518,122 398
Other income and expenses              
General and administrative expense, net (33,269) (107) (33,376) (31,922) (610) (32,532) (844)
Earnings from equity accounted investments 4,199 (4,199) 211,420 (211,420)
Fair value adjustment on revaluation of investment properties 201,834 624 202,458 491,528 187,728 679,256 (476,798)
Gain (loss) on sale of investment properties 315 (241) 74 27 27 47
Interest expense (148,702) (7,798) (156,500) (144,540) (5,437) (149,977) (6,523)
Interest income 18,036 453 18,489 12,341 75 12,416 6,073
Supplemental costs (4,648) (4,648) (2,618) (2,618) (2,030)
Fair value adjustment on financial instruments 91,246 91,246 (34,227) (34,227) 125,473
Acquisition-related costs (298) (298) (2,791) (2,791) 2,493
Net income and comprehensive income 635,965 635,965 987,676 987,676 (351,711)

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(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.

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

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

Quarterly Comparison to Prior Year

  Three Months Ended Three Months Ended      
(in thousands of dollars, except per Unit amounts) December 31, 2022 December 31, 2021 Variance ($) Variance (%)
Net income and comprehensive income 100,310   652,081   (551,771 ) (84.6 )
Add (deduct):        
Fair value adjustment on revaluation of investment properties(1) (13,377 ) (420,418 ) 407,041   (96.8 )
Fair value adjustment on financial instruments(2)   10,873   (10,873 ) N/R(7)  
(Loss) gain on derivative – TRS 6,221   4,180   2,041   48.8  
Loss (gain) on sale of investment properties (531 ) 64   (595 ) N/R(7)  
Amortization of intangible assets 333   333      
Amortization of tenant improvement allowance and other 2,005   1,608   397   24.7  
Distributions on Units classified as liabilities recorded as interest expense 1,083   1,008   75   7.4  
Distributions on vested deferred units recorded as interest expense 724   1,045   (321 ) (30.7 )
Salaries and related costs attributed to leasing activities(3) 1,514   1,063   451   42.4  
Acquisition-related costs   2,791   (2,791 ) N/R(7)  
Adjustments relating to equity accounted investments:        
Rental revenue adjustment – tenant improvement amortization 98   62   36   58.1  
Indirect interest with respect to the development portion(4) 1,935   1,926   9   0.5  
Fair value adjustment on revaluation of investment properties 1,418   (160,289 ) 161,707   N/R(7)  
Adjustment for supplemental costs 738   1,125   (387 ) (34.4 )
FFO(5) 102,471   97,452   5,019   5.2  
Other non-recurring adjustments(6) (1,910 ) 660   (2,570 ) N/R(7)  
FFO with adjustments(5) 100,561   98,112   2,449   2.5  
Transactional FFO – gain on sale of land to co-owners 7,662   336   7,326   N/R(7)  
FFO with adjustments and Transactional FFO(5) 108,223   98,448   9,775   9.9  

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

Year-to-Date Comparison to Prior Year

(in thousands of dollars, except per Unit amounts) Year Ended
December 31, 2022
Year Ended
December 31, 2021
Variance ($) Variance (%)
Net income and comprehensive income 635,965   987,676   (351,711 ) (35.6 )
Add (deduct):        
Fair value adjustment on revaluation of investment properties(1) (201,834 ) (491,528 ) 289,694   (58.9 )
Fair value adjustment on financial instruments(2) (91,246 ) 34,227   (125,473 ) N/R(7)  
(Loss) gain on derivative – TRS (4,918 ) 5,642   (10,560 ) N/R(7)  
Loss (gain) on sale of investment properties (315 ) (271 ) (44 ) 16.2  
Amortization of intangible assets 1,332   1,331   1   0.1  
Amortization of tenant improvement allowance and other 7,203   7,038   165   2.3  
Distributions on Units classified as liabilities recorded as interest expense 4,293   3,919   374   9.5  
Distributions on vested deferred units recorded as interest expense 2,847   2,424   423   17.5  
Adjustment on debt modification (1,960 )   (1,960 ) N/R(7)  
Salaries and related costs attributed to leasing activities(3) 7,508   5,196   2,312   44.5  
Acquisition-related costs 298   2,791   (2,493 ) (89.3 )
Adjustments relating to equity accounted investments:        
Rental revenue adjustment – tenant improvement amortization 387   360   27   7.5  
Indirect interest with respect to the development portion(4) 7,747   7,050   697   9.9  
Adjustment to capitalized interest with respect to Transit City condo closings(4)   (675 ) 675   N/R(7)  
Fair value adjustment on revaluation of investment properties (624 ) (187,728 ) 187,104   (99.7 )
Loss on sale of investment properties 241     241   N/R(7)  
Adjustment for supplemental costs 4,648   2,618   2,030   77.5  
FFO(5) 371,572   380,070   (8,498 ) (2.2 )
Other non-recurring adjustments(6) 656   3,226   (2,570 ) (79.7 )
FFO with adjustments(5) 372,228   383,296   (11,068 ) (2.9 )
Transactional FFO – gain on sale of land to co-owners 7,662   1,923   5,739   N/R(7)  
FFO with adjustments and Transactional FFO(5) 379,890   385,219   (5,329 ) (1.4 )

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

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

  Three Months Ended December 31 Year Ended December 31
(in thousands of dollars) 2022   2021   Variance ($) 2022   2021   Variance ($)
FFO with adjustments(1) 100,561   98,112   2,449   372,228   383,296   (11,068 )
Adjusted for:            
ECL (710 ) (1,545 ) 835   (3,257 ) 3,706   (6,963 )
Loss (gain) on derivative – TRS (6,221 ) (4,180 ) (2,041 ) 4,918   (5,642 ) 10,560  
FFO sourced from condominium and townhome closings 180   66   114   (680 ) (18,747 ) 18,067  
FFO sourced from SmartVMC West acquisition (371 )   (371 ) (984 )   (984 )
FFO with adjustments excluding impact of ECL, TRS, condominium and townhome closings, and SmartVMC West acquisition (“FFO with adjustments excluding the impact of the TRS and other”)(1) 93,439   92,453   986   372,225   362,613   9,612  

(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 December 31, 2022 Three Months Ended
December 31, 2021
Variance
($)/(%)
Cash flows provided by operating activities 134,668   133,674   994  
Adjustments to working capital items that are not indicative of sustainable cash available for distribution(1) (35,451 ) (48,678 ) 13,227  
Distributions on Units classified as liabilities recorded as interest expense 1,083   1,008   75  
Distributions on vested deferred units recorded as interest expense 724   1,045   (321 )
Expenditures on direct leasing costs and tenant incentives 3,108   2,050   1,058  
Expenditures on tenant incentives for properties under development (646 )   (646 )
Actual sustaining capital expenditures (11,434 ) (10,323 ) (1,111 )
Actual sustaining leasing commissions (800 ) (742 ) (58 )
Actual sustaining tenant improvements (2,587 ) (1,217 ) (1,370 )
Non-cash interest expense, net of other financing costs 10,238   9,594   644  
Non-cash interest income (29,571 ) (7,110 ) (22,461 )
Acquisition-related costs, net   2,791   (2,791 )
Gain on sale of land to co-owners 7,662   336   7,326  
Distributions from equity accounted investments 12,406   (732 ) 13,138  
Adjustments relating to equity accounted investments:      
Cash flows from operating activities including working capital adjustments 1,658   (236 ) 1,894  
Notional interest capitalization(2) 1,935   1,926   9  
Actual sustaining capital and leasing expenditures 1   (103 ) 104  
Non-cash interest expense (3 ) 30   (33 )
ACFO(3) 92,991   83,313   9,678  
Other non-recurring adjustments(4) (1,910 ) 660   (2,570 )
ACFO with adjustments(3) 91,081   83,973   7,108  
       
ACFO(3) 92,991   83,313   9,678  
Distributions declared 82,386   79,725   2,661  
Surplus of ACFO over distributions declared 10,605   3,588   7,017  
       
Payout Ratio Information:      
Payout Ratio to ACFO(3) 88.6 % 95.7 % (7.1)%
Payout Ratio to ACFO with adjustments(3) 90.5 % 94.9 % (4.4)%
Payout Ratio to ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition (Payout Ratio to ACFO with adjustments excluding the impact of the TRS and other)(3)(5) 94.1 % 99.8 % (5.7)%

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

Year-to-Date Comparison to Prior Year

(in thousands of dollars) Year Ended
December 31, 2022
Year Ended
December 31, 2021
Variance
($)/(%)
Cash flows provided by operating activities 370,762   371,624   (862 )
Adjustments to working capital items that are not indicative of sustainable cash available for distribution(1) (2,293 ) (40,796 ) 38,503  
Distributions on Units classified as liabilities recorded as interest expense 4,293   3,919   374  
Distributions on vested deferred units recorded as interest expense 2,847   2,424   423  
Expenditures on direct leasing costs and tenant incentives 9,860   5,927   3,933  
Expenditures on tenant incentives for properties under development 1,897   730   1,167  
Actual sustaining capital expenditures (19,111 ) (17,331 ) (1,780 )
Actual sustaining leasing commissions (2,389 ) (3,071 ) 682  
Actual sustaining tenant improvements (7,796 ) (2,903 ) (4,893 )
Non-cash interest expense, net of other financing costs (9,156 ) 7,160   (16,316 )
Non-cash interest income (26,083 ) (5,307 ) (20,776 )
Acquisition-related costs, net 298   2,791   (2,493 )
Gain on sale of land to co-owners 7,662   1,923   5,739  
Distributions from equity accounted investments (4,784 ) (4,072 ) (712 )
Adjustments relating to equity accounted investments:      
Cash flows from operating activities including working capital adjustments 6,662   23,819   (17,157 )
Notional interest capitalization(2) 7,747   7,050   697  
Adjustment to capitalized interest with respect to Transit City condo closings(2)   (675 ) 675  
Actual sustaining capital and leasing expenditures (329 ) (207 ) (122 )
Non-cash interest expense (12 ) 50   (62 )
ACFO(3) 340,075   353,055   (12,980 )
Other non-recurring adjustments(4) 656   3,226   (2,570 )
ACFO with adjustments(3) 340,731   356,281   (15,550 )
       
ACFO(3) 340,075   353,055   (12,980 )
Distributions declared 329,531   318,753   10,778  
Surplus of ACFO over distributions declared 10,544   34,302   (23,758 )
       
Payout Ratio Information:      
Payout Ratio to ACFO(3) 96.9 % 90.3 % 6.6 %
Payout Ratio to ACFO with adjustments(3) 96.7 % 89.5 % 7.2 %
Payout Ratio to ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition(3)(5) 92.6 % 96.5 % (3.9)%

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

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

  Three Months Ended December 31 Year Ended December 31
(in thousands of dollars) 2022   2021   Variance ($) 2022   2021   Variance ($)
ACFO with adjustments(1) 91,081   83,973   7,108   340,731   356,281   (15,550 )
Adjusted for:            
Loss (gain) on derivative – TRS (6,221 ) (4,180 ) (2,041 ) 4,918   (5,642 ) 10,560  
ACFO sourced from condominium and townhome closings 191   67   124   (305 ) (20,471 ) 20,166  
ACFO sourced from SmartVMC West acquisition (371 )   (371 ) (984 )   (984 )
ACFO with adjustments excluding impact of TRS, condominium and townhome closings, and SmartVMC West acquisition(1) 84,680   79,860   4,820   344,360   330,168   14,192  

(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 December 31, 2022 Three Months Ended December 31, 2021  
  Trust portion
excluding EAI
Equity
Accounted
Investments
Total
Proportionate
Share
(1)
Trust portion
excluding EAI
Equity
Accounted
Investments
Total
Proportionate
Share(1)
Variance of
Total
Proportionate
Share(1)
      (A)     (B) (A–B)
Net base rent 127,941 5,260 133,201 125,037 3,534 128,571 4,630
Property tax and insurance recoveries 42,833 807 43,640 35,020 507 35,527 8,113
Property operating cost recoveries 25,552 1,574 27,126 21,670 960 22,630 4,496
Miscellaneous revenue 4,979 1,171 6,150 7,479 973 8,452 (2,302)
Rentals from investment properties 201,305 8,812 210,117 189,206 5,974 195,180 14,937
Service and other revenues 4,547 4,547 3,606 3,606 941
Earnings from other 371 (371) 38 38 (38)
Rentals from investment properties and other(2) 206,223 8,441 214,664 192,850 5,974 198,824 15,840
Recoverable tax and insurance costs (43,818) (755) (44,573) (36,015) (547) (36,562) (8,011)
Recoverable CAM costs (28,662) (1,311) (29,973) (25,165) (1,051) (26,216) (3,757)
Property management fees and costs (1,090) (314) (1,404) (586) (215) (801) (603)
Non-recoverable operating costs 266 (1,317) (1,051) (2,094) (1,273) (3,367) 2,316
ECL 792 (82) 710 1,603 (58) 1,545 (835)
Property operating costs (72,512) (3,779) (76,291) (62,257) (3,144) (65,401) (10,890)
Other expenses (4,550) (4,550) (3,639) (3,639) (911)
Property operating costs and other(2) (77,062) (3,779) (80,841) (65,896) (3,144) (69,040) (11,801)
Net rental income and other 129,161 4,662 133,823 126,954 2,830 129,784 4,039
Condo and townhome closings revenue
Condo and townhome cost of sales (181) (181) (181)
Marketing and selling costs (10) (10) (67) (67) 57
Net profit on condo and townhome closings (10) (181) (191) (67) (67) (124)
NOI(3) 129,151 4,481 133,632 126,954 2,763 129,717 3,915
Net rental income and other as a percentage of net base rent (%) 101.0 88.6 100.5 101.5 80.1 100.9 (0.4)
Net rental income and other as a percentage of rentals from investment properties (%) 64.2 52.9 63.7 67.1 47.4 66.5 (2.8)
Net rental income and other as a percentage of rentals from investment properties and other (%) 62.6 55.2 62.3 65.8 47.4 65.3 (3.0)
Recovery Ratio (including prior year adjustments) (%) 94.4 115.2 94.9 92.7 91.8 92.6 2.3
Recovery Ratio (excluding prior year adjustments) (%) 91.5 132.8 92.7 92.6 114.9 93.0 (0.3)

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

Year-to-Date Comparison to Prior Year

(in thousands of dollars) Year Ended December 31, 2022 Year Ended December 31, 2021  
  Trust portion
excluding EAI
Equity
Accounted
Investments
Total
Proportionate
Share
(1)
Trust portion
excluding EAI
Equity
Accounted
Investments
Total
Proportionate
Share(1)
Variance of
Total
Proportionate
Share(1)
      (A)     (B) (A–B)
Net base rent 508,023 18,378 526,401 494,992 13,098 508,090 18,311
Property tax and insurance recoveries 171,874 3,029 174,903 169,180 2,354 171,534 3,369
Property operating cost recoveries 93,407 4,681 98,088 83,852 3,389 87,241 10,847
Miscellaneous revenue 15,393 3,804 19,197 17,891 2,689 20,580 (1,383)
Rentals from investment properties 788,697 29,892 818,589 765,915 21,530 787,445 31,144
Service and other revenues 14,652 14,652 14,843 14,843 (191)
Earnings from other 1,249 (1,249) 38 38 (38)
Rentals from investment properties and other(2) 804,598 28,643 833,241 780,796 21,530 802,326 30,915
Recoverable tax and insurance costs (176,876) (3,042) (179,918) (176,239) (2,360) (178,599) (1,319)
Recoverable CAM costs (102,721) (4,535) (107,256) (91,468) (3,364) (94,832) (12,424)
Property management fees and costs (4,288) (1,004) (5,292) (1,469) (688) (2,157) (3,135)
Non-recoverable operating costs (6,465) (4,695) (11,160) (7,246) (3,253) (10,499) (661)
ECL 3,448 (191) 3,257 (3,652) (54) (3,706) 6,963
Property operating costs (286,902) (13,467) (300,369) (280,074) (9,719) (289,793) (10,576)
Other expenses (14,657) (14,657) (14,882) (14,882) 225
Property operating costs and other(2) (301,559) (13,467) (315,026) (294,956) (9,719) (304,675) (10,351)
Net rental income and other 503,039 15,176 518,215 485,840 11,811 497,651 20,564
Condo and townhome closings revenue 4,524 4,524 76,837 76,837 (72,313)
Condo and townhome cost of sales (3,295) (3,295) (56,102) (56,102) 52,807
Marketing and selling costs (435) (489) (924) (264) (264) (660)
Net profit on condo and townhome closings (435) 740 305 20,471 20,471 (20,166)
NOI(3) 502,604 15,916 518,520 485,840 32,282 518,122 398
Net rental income and other as a percentage of net base rent (%) 99.0 82.6 98.4 98.1 90.2 97.9 0.5
Net rental income and other as a percentage of rentals from investment properties (%) 63.8 50.8 63.3 63.4 54.9 63.2 0.1
Net rental income and other as a percentage of rentals from investment properties and other (%) 62.5 53.0 62.2 62.2 54.9 62.0 0.2
Recovery Ratio (including prior year adjustments) (%) 94.9 101.8 95.1 94.5 100.3 94.6 0.5
Recovery Ratio (excluding prior year adjustments) (%) 94.2 100.9 94.4 94.6 103.3 94.8 (0.4)

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

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

Quarterly Comparison to Prior Year

  Three Months Ended Three Months Ended    
(in thousands of dollars) December 31, 2022 December 31, 2021 Variance ($) Variance (%)
Net rental income 129,154   126,987   2,167   1.7  
Service and other revenues 4,547   3,606   941   26.1  
Other expenses (4,550 ) (3,639 ) (911 ) 25.0  
NOI(1) 129,151   126,954   2,197   1.7  
NOI from equity accounted investments(1) 4,481   2,763   1,718   62.2  
Total portfolio NOI before adjustments(1) 133,632   129,717   3,915   3.0  
Adjustments:        
Royalties 299   285   14   4.9  
Straight-line rent (34 ) (154 ) 120   (77.9 )
Lease termination and other adjustments (82 ) (3,476 ) 3,394   N/R(2)  
Net profit on condo and townhome closings(3) 190   108   82   75.9  
Amortization of tenant incentives 2,026   1,725   301   17.4  
Total portfolio NOI after adjustments(1) 136,031   128,205   7,826   6.1  
NOI sourced from:        
Acquisitions (2,161 ) 451   (2,612 ) N/R(2)  
Dispositions 3   (280 ) 283   (101.1 )
Earnouts and Developments (384 )   (384 ) N/R(2)  
Same Properties NOI(1) 133,489   128,376   5,113   4.0  
Add back: ECL (710 ) (1,545 ) 835   (54.0 )
Same Properties NOI excluding ECL(1) 132,779   126,831   5,948   4.7  

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

Year-to-Date Comparison to Prior Year

  Year Ended Year Ended    
(in thousands of dollars) December 31, 2022 December 31, 2021 Variance ($) Variance (%)
Net rental income 502,609   485,879   16,730   3.4  
Service and other revenues 14,652   14,843   (191 ) (1.3 )
Other expenses (14,657 ) (14,882 ) 225   1.5  
NOI(1) 502,604   485,840   16,764   3.5  
NOI from equity accounted investments(1) 15,916   32,282   (16,366 ) (50.7 )
Total portfolio NOI before adjustments(1) 518,520   518,122   398   0.1  
Adjustments:        
Royalties 1,115   960   155   16.1  
Straight-line rent (437 ) (883 ) 446   (50.5 )
Lease termination and other adjustments (214 ) (5,240 ) 5,026   (95.9 )
Net profit on condo and townhome closings(3) (242 ) (20,425 ) 20,183   (98.8 )
Amortization of tenant incentives 7,646   7,614   32   0.4  
Total portfolio NOI after adjustments(1) 526,388   500,148   26,240   5.2  
Less NOI sourced from:        
Acquisitions (7,835 ) 524   (8,359 ) N/R(2)  
Dispositions (9 ) (1,744 ) 1,735   (99.5 )
Earnouts and Developments (4,300 ) (1,142 ) (3,158 ) N/R(2)  
Same Properties NOI(1) 514,244   497,786   16,458   3.3  
Add back: ECL (3,257 ) 3,706   (6,963 ) N/R(2)  
Same Properties NOI excluding ECL(1) 510,987   501,492   9,495   1.9  

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

Adjusted EBITDA

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

  12 Months Ended 12 Months Ended  
(in thousands of dollars) December 31, 2022 December 31, 2021 Variance ($)
Net income and comprehensive income 635,965   987,676   (351,711 )
Add (deduct) the following items:      
Interest expense 156,500   149,977   6,523  
Interest income (18,036 ) (12,341 ) (5,695 )
Amortization of equipment and intangible assets 3,604   3,778   (174 )
Amortization of tenant improvements 7,474   7,872   (398 )
Fair value adjustments on revaluation of investment properties (202,458 ) (679,256 ) 476,798  
Fair value adjustments on revaluation of financial instruments (91,246 ) 34,227   (125,473 )
Fair value adjustment on TRS (4,918 ) 5,642   (10,560 )
Adjustment for supplemental costs 4,648   2,618   2,030  
Gain on sale of investment properties (74 ) (27 ) (47 )
Gain on sale of land to co-owners (Transactional FFO)   1,923   (1,923 )
Acquisition-related costs 298   2,791   (2,493 )
Adjusted EBITDA(1) 491,757   504,880   (13,123 )
Less: Condo and townhome closings (305 ) (20,471 ) 20,166  
Add: ECL (3,257 ) 3,706   (6,963 )
Adjusted EBITDA excluding condo and townhome closings and ECL(1) 488,195   488,115   80  

(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 year ended December 31, 2022, dated February 8, 2023 (the “MD&A), and is incorporated by reference. The information is found in the “Presentation of Certain Terms Including Non-GAAP Measures” and “Non-GAAP Measures” sections of the MD&A, which is available on SEDAR at www.sedar.com. Reconciliations of non-GAAP financial measures to the most directly comparable IFRS measures are found in the following sections of this Press Release: “Proportionately Consolidated Balance Sheets (including the Trust’s interests in equity accounted investments)”, “Proportionately Consolidated Statements of Income and Comprehensive Income (including the Trust’s interests in equity accounted investments)”, “FFO, FFO with adjustments, and FFO with adjustments and Transactional FFO”, “ACFO and ACFO with adjustments”, “Net Operating Income”, “Same Properties NOI”, and “Adjusted EBITDA”.

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

Conference Call

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

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

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

About SmartCentres

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

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

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

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

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

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

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

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