SmartCentres Real Estate Investment Trust Releases Third Quarter Results for 2022


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 properties155 155 156 
Number of office properties4 4 4 
Number of self-storage properties6 6 5 
Number of residential properties1 1 1 
Number of properties under development19 17 15 
Total number of properties with an ownership interest185 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 projects107 104 97 
Total number of seniors’ housing projects25 27 39 
Total number of self-storage projects35 36 46 
Total number of office building projects8 8 7 
Total number of hotel projects3 3 4 
Total number of condominium developments89 95 73 
Total number of townhome developments8 10 15 
Total number of estimated future projects currently in development planning stage275 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 – diluted179,644,083 173,748,819 173,535,843 

(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 adjustments669 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 – TRS4,900 (392)5,292 
FFO sourced from condominium and townhome closings216 (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 adjustments669 1,706 (1,037)
ACFO with adjustments(2)(3)(4)81,729 92,048 (10,319)
Adjusted for:   
Loss (gain) on derivative – TRS4,900 (392)5,292 
ACFO sourced from condominium and townhome closings244 (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 declared82,382 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 – basic178,123,918 172,285,503 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 activities84.9%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 adjustments2,566 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 – TRS11,138 (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 adjustments2,566 2,566  
ACFO with adjustments(2)(3)(4)249,651 272,309 (22,658)
Adjusted for:   
Loss (gain) on derivative – TRS11,138 (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 declared247,145 239,028 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 – basic178,118,504 172,266,602 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 activities101.4%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 Rental29 20 58 107 
Seniors’ Housing4 8 13 25 
Self-storage12 7 16 35 
Office Buildings 1 7 8 
Hotels  3 3 
Subtotal – Recurring rental income initiatives45 36 97 178 
Condominium developments23 20 46 89 
Townhome developments2 1 5 8 
Subtotal – Development income initiatives25 21 51 97 
Total70 57 148 275 
Trust’s share of project area (in thousands of sq. ft.)        
Recurring rental income initiatives5,600 3,900 11,900 21,400 
Development income initiatives5,100 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, 2022December 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 properties10,211,384 924,031 11,135,415 9,847,078 837,451 10,684,529 
Equity accounted investments646,393 (646,393) 654,442 (654,442) 
Mortgages, loans and notes receivable281,128 (79,910)201,218 345,089 (69,576)275,513 
Other financial assets289,477  289,477 97,148  97,148 
Other assets82,495 7,600 90,095 80,940 7,465 88,405 
Intangible assets44,140  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 inventory31,891 105,544 137,435 27,399 67,828 95,227 
Current portion of mortgages, loans and notes receivable144,490  144,490 71,947  71,947 
Amounts receivable and other61,573 (9,064)52,509 49,542 (8,637)40,905 
Prepaid expenses, deposits and deferred financing costs50,187 19,141 69,328 12,289 13,118 25,407 
Cash and cash equivalents19,475 35,847 55,322 62,235 7,922 70,157 
 307,616 151,468 459,084 223,412 80,231 303,643 
Total assets11,862,633 356,796 12,219,429 11,293,248 201,129 11,494,377 
             
Liabilities            
Non-current liabilities            
Debt4,746,915 193,003 4,939,918 4,176,121 93,465 4,269,586 
Other financial liabilities265,462  265,462 326,085  326,085 
Other payables17,283 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 debt412,945 57,456 470,401 678,406 35,086 713,492 
Accounts payable and current portion of other payables278,711 106,291 385,002 253,078 72,578 325,656 
 691,656 163,747 855,403 931,484 107,664 1,039,148 
Total liabilities5,721,316 356,796 6,078,112 5,451,933 201,129 5,653,062 
             
Equity            
Trust Unit equity5,111,730  5,111,730 4,877,961  4,877,961 
Non-controlling interests1,029,587  1,029,587 963,354  963,354 
 6,141,317  6,141,317 5,841,315  5,841,315 
  Total liabilities and equity11,862,633 356,796 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 other196,678 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)
NOI127,197 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 investments1,101 (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 income5,714 (375)5,339 2,599 22 2,621 2,718 
Supplemental costs (643)(643) (526)(526)(117)
Fair value adjustment on financial instruments11,767  11,767 1,836  1,836 9,931 
Acquisition-related costs25  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 other597,497 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)
NOI372,575 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 investments4,312 (4,312) 51,371 (51,371)  
Earnings from other(3)878 (878)     
Fair value adjustment on revaluation of investment properties188,457 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 income12,540 (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 instruments91,246  91,246 (23,354) (23,354114,600 
Acquisition-related costs(298) (298)   (298
Net income and comprehensive income535,655  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 income3,548 178,051 (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 properties112 (149)261 N/R(7) 
Amortization of intangible assets333 333   
Amortization of tenant improvement allowance and other1,961 1,662 299 18.0 
Distributions on Units classified as liabilities recorded as interest expense1,083 969 114 11.8 
Distributions on vested deferred units recorded as interest expense718 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 amortization98 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 properties241  241 N/R(7) 
Adjustment for supplemental costs643 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 income535,655 335,595 200,060 59.6 
Add (deduct):        
Fair value adjustment on revaluation of investment properties(1)(188,457) (71,110(117,347N/R(7) 
Fair value adjustment on financial instruments(2)(91,24623,354 (114,600N/R(7) 
(Loss) gain on derivative – TRS(11,1381,462 (12,600N/R(7) 
Loss (gain) on sale of investment properties216 (335551 N/R(7) 
Amortization of intangible assets999 999   
Amortization of tenant improvement allowance and other5,198 5,430 (232(4.3
Distributions on Units classified as liabilities recorded as interest expense3,210 2,910 300 10.3 
Distributions on vested deferred units recorded as interest expense2,123 1,381 742 53.7 
Adjustment on debt modification(1,960 (1,960N/R(7) 
Salaries and related costs attributed to leasing activities(3)5,994 4,133 1,861 45.0 
Acquisition-related costs298  298 N/R(7) 
Adjustments relating to equity accounted investments:        
Rental revenue adjustment – tenant improvement amortization289 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) (675675 N/R(7) 
Fair value adjustment on revaluation of investment properties(2,042(27,43925,397 (92.6
Loss on sale of investment properties241  241 N/R(7) 
Adjustment for supplemental costs3,910 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 (1,587N/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 activities97,011 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 expense1,083 969 114 
Distributions on vested deferred units recorded as interest expense718 433 285 
Expenditures on direct leasing costs and tenant incentives2,391 1,233 1,158 
Expenditures on tenant incentives for properties under development267  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 income2,755 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 adjustments1,208 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 declared82,382 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 activities243,800 237,950 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 expense3,210 2,910 300 
Distributions on vested deferred units recorded as interest expense2,123 1,381 742 
Expenditures on direct leasing costs and tenant incentives6,752 3,877 2,875 
Expenditures on tenant incentives for properties under development2,543 730 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 income3,488 1,803 1,685 
Acquisition-related costs, net298  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 adjustments5,004 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 declared247,145 239,028 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 rent127,576 4,727 132,303 125,125 3,362 128,487 3,816 
Property tax and insurance recoveries39,191 718 39,909 41,416 626 42,042 (2,133
Property operating cost recoveries20,200 1,150 21,350 19,149 826 19,975 1,375 
Miscellaneous revenue4,683 975 5,658 4,573 672 5,245 413 
Rentals from investment properties191,650 7,570 199,220 190,263 5,486 195,749 3,471 
Service and other revenues5,028  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
ECL306 (35)271 (684)14 (670941 
Property operating costs(64,421)(3,567)(67,988)(66,655)(2,214)(68,869881 
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)(73,768750 
Net rental income and other127,227 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)(17,29817,294 
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 rent380,082 13,118 393,200 369,955 9,564 379,519 13,681 
Property tax and insurance recoveries129,041 2,222 131,263 134,160 1,847 136,007 (4,744
Property operating cost recoveries67,855 3,107 70,962 62,182 2,429 64,611 6,351 
Miscellaneous revenue10,414 2,633 13,047 10,412 1,716 12,128 919 
Rentals from investment properties587,392 21,080 608,472 576,709 15,556 592,265 16,207 
Service and other revenues10,105  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 )(142,0376,692 
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
ECL2,656 (1092,547 (5,2554 (5,2517,798 
Property operating costs(214,390)(9,688(224,078(217,817(6,575(224,392314 
Other expenses(10,107) (10,107(11,243 (11,2431,136 
Property operating costs and other(2)(224,497)(9,688(234,185(229,060(6,575(235,6351,450 
Net rental income and other373,000 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(56,10252,988 
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 income127,199 123,608 3,591 2.9 
Service and other revenues5,028 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:        
Royalties305 266 39 14.7 
Straight-line rent(22)(640)618 (96.6)
Lease termination and other adjustments12 (824)836 N/R(2) 
Net profit on condo and townhome closings(3)244 (6,444)6,688 N/R(2) 
Amortization of tenant incentives2,090 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) 
Dispositions1 (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 income372,577 358,892 13,685 3.8 
Service and other revenues10,105 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:        
Royalties816 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 incentives5,625 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: ECL2,547 (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 income1,187,736 383,975 803,761 
Add (deduct) the following items:      
Interest expense152,339 153,843 (1,504)
Interest income(15,285)(13,733)(1,552)
Yield maintenance costs 11,954 (11,954)
Amortization of equipment and intangible assets3,676 4,955 (1,279)
Amortization of tenant improvements7,231 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 costs5,035 2,084 2,951 
Loss (gain) on sale of investment properties521 (116)637 
Gain on sale of land to co-owners (Transactional FFO)336 1,587 (1,251)
Acquisition-related costs3,089 166 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:

Mitchell GoldharPeter Slan
Executive Chairman and CEOChief Financial Officer
SmartCentresSmartCentres
(905) 326-6400 ext. 7674(905) 326-6400 ext. 7571
mgoldhar@smartcentres.com pslan@smartcentres.com