Smartcentres Real Estate Investment Trust Releases First Quarter Results For 2022

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• Substantive improvement in retail leasing momentum across the portfolio with growth from both existing and new tenants;
• FFO per Unit(1) for Q1 2022 increased by $0.02 or 4.1% as compared to the same period in 2021;
• Progress in zoning approvals on strategic projects, together with improved market conditions, contributed to $237.7 million in incremental property values, leading to net income and comprehensive income for Q1 2022 increasing to $370.1 million compared to $60.6 million for the same period in 2021; from an increase of $1.71 per Unit;
• Total unencumbered assets (1) increased from $5.9 billion at March 31, 2021 to $8.4 billion at quarter end; and
• Continued advancement of non-retail pipeline of 283 projects representing approximately 59 million square feet across the network (41 million square feet at the Trust's share).

TORONTO, May 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 March 31, 2022.

“We ended the 1st quarter with solid performances from all aspects of the business. Operational resilience was demonstrated by solid leasing momentum for both existing and new retail tenants. This is expected to result in occupancy levels further improving over the balance of the year. Our in-place occupancy level was marginally lower than year-end specifically as a result of the previously announced closure of one tenant, Home Outfitters. Of the four locations in our portfolio, three of these locations are close to being leased, while we have active interest in the fourth location. It is reassuring to see a noticeable improvement in leasing activity across Canada. As a further reflection of the improving retail environment, cash collections continue to improve, exceeding 98% for the quarter; we expect these levels to return to pre-Covid levels over the remainder of the year. Our retail portfolio of primarily Walmart-anchored shopping centres is one of the pillars of our company and even during the most difficult days of Covid, has continued to provide us with the strength and stability to help support our pipeline of development projects.

In that regard, (through our residential banner, SmartLiving), our mixed-use intensification program continues to be a source of additional accretive growth, demonstrated by the presale activity at Artwalk and Park Place. Artwalk, 627 residential units in two 38 and 18 storey towers, will be built on a portion of lands previously occupied by Walmart at SmartVMC. Park Place, which includes approximately 1100 units in two stunning 56 and 48 storey towers, will be built on approximately two acres of the 53 acres of western lands at SmartVMC. The Trust recently purchased a 66.67% interest in these lands which represent the western portion of our SmartVMC City Centre. Initial presale interest in these projects has exceeded our expectations and we plan to commence construction of both projects later this year.

In addition, during the quarter, we experienced property value increments exceeding $270.0 million, mainly as a result of progress in the zoning and entitlements' process on several strategic projects together with improved infrastructure and market conditions around them. These additional valuation increases have resulted in the Trust's book value per Unit increasing by $1.71 to $36.03 as compared to last quarter. In addition, Adjusted FFO per Unit(1) increased by $0.03 or 6.1% to $0.52, and net income and comprehensive income per Unit increased by $1.71 to $2.06, as compared to the same quarter in the prior year,” said Mitchell Goldhar, Executive Chairman and CEO of SmartCentres REIT.

“At SmartVMC, currently our highest profile development initiative, but just one of many master-planned projects, we have thus far closed on 1,741 units in the first three Transit City condominium phases, resulting in $0.37 in FFO per Unit(1) and $0.38 in net income and comprehensive income per Unit. In addition, construction is progressing well, and we expect to be completed early next year on the 1,026 units in our sold-out Transit City 4 and 5 towers and the 454-unit Millway rental complex. Excitement around SmartVMC continues as the 120,000 square foot YMCA recently opened to the public and the 22 townhomes that represent the final part of Phases 1&2 are expected to close in the second quarter. We intend to develop approximately 20.0 million square feet of mixed-use space at SmartVMC alone, on which we are also planning a 9-acre park which, over time, will become the focal point of this landmark city centre development.”

Key Business Development, Financial and Operational Highlights for the Three Months Ended March 31, 2022

Mixed-Use Development and Intensification at SmartVMC

• The construction of the world-class YMCA at SmartVMC is complete and the facility opened in April 2022.
  
• Park Place condo pre-development is underway on the 53.0-acre SmartVMC West lands strategically acquired in December 2021. This development is expected to be launched in mid-2022 and council approval is expected to be finalized in June 2022. The Trust's two-thirds interest in the SmartVMC West lands more than doubles the Trust's holdings in the 105-acre SmartVMC city centre development.
  
• Construction continues on the 100% pre-sold Transit City 4 (45 storeys) and 5 (50 storeys) condo towers, representing 1,026 residential units. Good progress is being made above grade with concrete and formwork complete up to the mechanical penthouse for Transit City 4 and level 44 for Transit City 5.
  
• Construction of the purpose-built rental project, The Millway (36 storeys), continues at SmartVMC, with concrete and formwork up to level 33.
  
• As part of Transit City 1 and 2 projects, construction of the 22 townhomes, all of which are pre-sold, is almost complete and delivery is expected in Q2 2022.
  
• ArtWalk condominium sales of 320 units in Phase 1 substantially sold out with construction expected to begin in 2022.
  

Other Business Development

• Leasing continues on the completed first phase of the two-phase, purpose-built residential rental project in Laval, Quebec, with more than 92% of the 171 units leased. Construction of the next phase commenced in October 2021, with a target completion date of Q1 2023.
  
• Occupancy will start in July 2022 for the two purpose-built residential rental towers (238 units) in Mascouche, Quebec, which are under construction with joint venture partner Cogir. More than 100 units have been pre-leased and lease-up pace is in line with expectations.
  
• The Trust completed the construction of its fifth self-storage facility with the opening of its Scarborough East facility in Q4 2021. 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.
  
• Two self-storage facilities in Brampton (Kingspoint) and Aurora are currently under construction. Both facilities are expected to be completed in 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, Markham, Stoney Creek and two locations in Toronto (Gilbert Ave. and Jane St.).
  
• Construction commenced for a new retirement residence and a seniors' apartment project, totalling 402 units, in 2021 with joint venture partner Groupe Sélection at the Trust's Laurentian Place in Ottawa, with completion expected in 2023.
  
• The Trust will be commencing the redevelopment of a portion of its 73-acre Cambridge retail property (which is 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.
  

Financial

• Net income and comprehensive income(1) was $370.1 million as compared to $60.6 million for the same period in 2021, representing an increase of $309.5 million. This increase was primarily attributed to: i) $276.7 million increase in fair value adjustments on revaluation of investment properties, ii) $29.1 million increase in fair value adjustment on financial instruments, iii) $4.9 million increase in Net Operating Income (“NOI”)(2), and iv) $2.4 million decrease in interest expense, and was partially offset by i) $2.7 million increase in supplemental costs, and ii) $0.7 million decrease in interest income.
  
• Key debt metrics include Debt to Aggregate Assets(2)(3) of 42.5%, Interest Coverage Ratio multiple(2) of 3.5X(2), and Adjusted Debt to Adjusted EBITDA multiple(2)(3) of 9.4X. (December 31, 2021 – Debt to Aggregate Assets(2)(3) of 42.9%, Interest Coverage Ratio multiple(2) of 3.4X(2), and Adjusted Debt to Adjusted EBITDA multiple(2)(3) of 9.2X.)
  
• The Trust improved its unsecured/secured debt ratio(2) to 75%/25% (December 31, 2021 – 71%/29%).

• The Trust continues to add to its unencumbered pool of high-quality assets. As at March 31, 2022, this unencumbered portfolio consisted of investment properties valued at $8.4 billion (March 31, 2021 – $5.9 billion).
  
• FFO(2) increased by $8.0 million or 9.4% to $92.2 million as compared to the same period in 2021, primarily due to $4.9 million increase in NOI, $1.9 million net decrease in interest expense, $1.1 million increase in gain on Total Return Swap (“TRS”), $0.5 million decrease in G&A expenses (net), and $0.3 million increase in FFO add back for salaries and related costs attributed to leasing activities, partially offset by $0.7 million decrease in interest income.
  
• Net income and comprehensive income per Unit(1) increased by $1.71 to $2.06 as compared to the same period in 2021, primarily due to the reasons noted above that pertain to net income and comprehensive income.
  
• FFO per Unit(2) increased by $0.02 or 4.1% to $0.51 as compared to the same period in 2021 primarily due to the reasons noted above.
  
• For the three months ended March 31, 2022, FFO with adjustments(2) increased by $8.6 million or 10.2% to $93.2 million as compared to the same period in 2021. FFO per Unit with adjustments(2) increased by $0.03 or 6.1% to $0.52 as compared to the same period in 2021. Excluding SmartVMC West LP Class D Units, FFO per Unit with adjustments increased by $0.05 or 10.2% to $0.54 as compared to the same period in 2021.
  
• Cash flows provided by operating activities(1) increased by $23.3 million or 29.4% to $102.8 million as compared to the same period in 2021. Cash flows provided by operating activities(1) exceeded distributions declared by $20.5 million (three months ended March 31, 2021 – shortfall of $0.2 million).
  
• The Payout Ratio relating to cash flows provided by operating activities for the rolling 12 months ended March 31, 2022 was 81.4%, as compared to 107.5% for the same period in 2021.
  
• For the three months ended March 31, 2022, ACFO(2) of $85.2 million remained unchanged as compared to the same period in 2021.
  
• The Payout Ratio to ACFO(2) for the three months ended March 31, 2022 increased by 3.2% to 96.7% as compared to the same period in 2021, which was primarily due to the items previously identified. Excluding SmartVMC West LP Class D distributions, the Payout Ratio to ACFO(2) for the three months ended March 31, 2022 increased by 0.4% to 93.9% as compared to the same period in 2021.
  
• For the three months ended March 31, 2022, ACFO(2) exceeded distributions declared by $2.8 million (three months ended March 31, 2021 – $5.5 million).
  
• The Payout Ratio to ACFO(2) for the rolling 12 months ended March 31, 2022 was 91.0%, as compared to 92.1% for the same period in 2021. Excluding SmartVMC West LP Class D distributions, the Payout Ratio to ACFO(2) for the rolling 12 months ended March 31, 2022 was 90.4%, as compared to 92.1% for the same period in 2021.
  

Operational

• Rentals from investment properties and other(1) was $202.5 million, as compared to $198.8 million for the same period in 2021, representing an increase of $3.7 million or 1.9%.
  
• In-place and committed occupancy rates were 97.0% and 97.2%, respectively, as at March 31, 2022 (December 31, 2021 – 97.4% and 97.6%, respectively).
  
• Same Properties NOI inclusive of ECL(2) increased by $2.8 million or 2.3% as compared to the same period in 2021. Same Properties NOI excluding ECL(2) decreased by $0.6 million or 0.5% as compared to the same period in 2021.
  

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:

Quarterly Comparison to Prior Year
The following table presents key financial, per Unit, and payout ratio information for the three months ended March 31, 2022 and March 31, 2021:

Operational Highlights

For the three months ended March 31, 2022, net income and comprehensive income (as noted in the table above) increased by $309.5 million as compared to the same period in 2021. This increase was primarily attributed to the following:

• $276.7 million increase in fair value adjustments on revaluation of investment properties, of which: i) $237.7 million relates to the fair value adjustment associated with certain properties under development, and ii) $39.0 million relates to the revaluation of investment properties, principally driven by leasing assumption updates (see details in the“Investment Property” section in the Trust's MD&A);
• $29.1 million increase in fair value adjustment on financial instruments primarily due to i) $22.2 million increase in fair value of interest rate swap agreements, ii) $2.9 million lower fair value loss on Units classified as liabilities, iii) $2.9 million lower fair value loss relating to unit based incentive programs, and iv) $1.1 million higher fair value gain of TRS;
• $4.9 million increase in NOI (see further details in the“Net Operating Income” subsection, including impact of ECL, in the Trust's MD&A);
• $1.9 million decrease in interest expense (see further details in the“Interest Income and Interest Expense” subsection in the Trust's MD&A); and
• $0.5 million decrease 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:

• $2.7 million increase in supplemental costs; and
• $0.7 million decrease in interest income.

FFO Highlights

For the three months ended March 31, 2022, FFO increased by $8.0 million or 9.4% to $92.2 million. This increase was primarily attributed to:

• $4.9 million increase in NOI (see details in the“Net Operating Income” subsection, including impact of ECL, in the Trust's MD&A);
• $1.9 million net decrease in interest expense (see details in the“Interest Income and Interest Expense” subsection in the Trust's MD&A);
• $1.1 million increase in gain on TRS;
• $0.5 million decrease in net general and administrative expense (see details in the“General and Administrative Expense” section in the Trust's MD&A); and
• $0.3 million increase in FFO add back for salaries and related costs attributed to leasing activities;
  

Partially offset by:

• $0.7 million decrease in interest income.
  

For the three months ended March 31, 2022, FFO with adjustments increased by $8.6 million or 10.2% to $93.2 million as compared to the same period in 2021.

ACFO Highlights

For the three months ended March 31, 2022, ACFO was $85.2 million as further described in“Results of Operations” section in the Trust's MD&A.

Development and Intensification Summary

The following table summarizes the 283 identified mixed-use, recurring rental income and development income initiatives, which are included in the Trust's large development pipeline:

As noted in the table above, 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, including:

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:

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

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

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:

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.

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

ACFO and ACFO with adjustments
The following table reconciles cash flows provided by operating activities to ACFO and ACFO with adjustments:

Non-GAAP Measures

The non-GAAP measures used in this Press Release, including but not limited 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 per Unit with adjustments, Transactional FFO, ACFO, Payout Ratio to ACFO, Same Properties NOI, Investment properties – non-GAAP, Debt – non-GAAP, Debt to Gross Book Value, Unencumbered Assets to Unsecured Debt, Weighted Average Interest Rate, 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 months ended March 31, 2022, dated May 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 . 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”,“Net Operating Income”,“Same Properties NOI”,“Adjusted EBITDA” and,“ACFO and ACFO with adjustments”.

Full reports of the financial results of the Trust for the three months ended March 31, 2022 are outlined in the unaudited interim condensed consolidated financial statements and the related MD&A of the Trust for the three months ended March 31, 2022, which are available on SEDAR at . 

Conference Call

SmartCentres will hold a conference call on Thursday, May 12, 2022 at 3:30 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 20103#. 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, May 12, 2022 beginning at 8:30 p.m. (ET) through to 8:30 p.m. (ET) on Thursday, May 19, 2022. To access the recording, please call 1-855-201-2300, enter the conference access code 20103# and then key in the playback access code 0112189#.

About SmartCentres

SmartCentres Real Estate Investment Trust is one of Canada's largest fully integrated REITs, with a best-in-class portfolio featuring 174 strategically located properties in communities across the country. SmartCentres has approximately $11.7 billion in assets and owns 34.7 million square feet of income producing value-oriented retail and first-class office space with 97.2% 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 58.6 million square feet (40.6 million square feet at SmartCentres' share) of space, 28.6 million square feet (18.6 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 these phases have now closed. In addition, the 22 sold-out townhomes that complete this phase of the project, are expected to close in 2022. 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' 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, 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; relatively low and stable interest costs; 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.

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