SmartCentres Real Estate Investment Trust Releases First Quarter Results for 2023

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, 2023.

“We are pleased with to report a strong start to 2023,” said Mitchell Goldhar, Executive Chair and CEO of SmartCentres. “Once again, the resiliency of our value-oriented retail portfolio and the strong draw of Walmart and our other anchor tenants resulted in solid customer traffic at our centres and drove a healthy $5.5 million increase in net rental income(1) compared to the first quarter of last year. At 98%, our in-place and committed occupancy rate is industry leading. We expect to continue to deliver strong occupancy levels and solid rental income for the balance of the year.”

“In addition to the strength of our core retail business, our mixed-use development business also continues to deliver strong results. We are delighted with the progress we have made on our Transit City 4 and Transit City 5 condominium projects at the Vaughan Metropolitan Centre,” said Mr. Goldhar. “During the quarter, we closed on the first 194 units in Transit City 4, resulting in net profits – at the REIT’s share – of $4.1 million or $0.02 of FFO per Unit(1). The remaining 832 units at these two towers are expected to close over the balance of the year, primarily in Q2 and Q3.”

“During the quarter, we also completed our self-storage development at our Kingspoint Plaza in Brampton. Our previously announced industrial project for Bad Boy Furniture in Pickering is also now complete, although occupancy commenced just after the end of Q1.”

“We currently have 10 mixed-use development initiatives that are under construction. Collectively, these projects have an estimated total development cost, at the REIT’s share, of $532.5 million, of which $216.6 million is required to complete construction. We remain confident that we have ample liquidity available not only to complete these projects, but also to commence several new initiatives where construction is expected to begin later in the year. These new projects include Phase I of our sold-out Art Walk condominium tower at the VMC, a large retail project in Leaside, and several new self-storage locations.”

“Despite a more challenging economic environment for launching new development initiatives, we remain nimble and we are continuing to move forward with a smaller number, but impactful projects,” continued Mr. Goldhar. “As always, we are focused on the long term, which includes advancing new entitlements and zoning applications for multiple opportunities within our large network of retail centres. We are confident that the intensification on these strategically-located properties will be highly complementary to our existing retail centres and will deliver strong returns to unitholders for many years to come.”

(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.

Selected Consolidated Operational, Mixed-Use Development and Financial InformationKey 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)
As at	March 31, 2023	December 31, 2022		March 31, 2022
Portfolio Information (Number of properties)
Retail properties	155	155		155
Office properties	4	4		4
Self-storage properties	8	6		6
Residential properties	1	1		1
Properties under development	20	19		19
Total number of properties with an ownership interest	188	185		185
Leasing and Operational Information(1)
Gross leasable retail and office area (in thousands of sq. ft.)	34,777	34,750		34,664
In-place and committed occupancy rate (%)	98.0	98.0		97.2
Average lease term to maturity (in years)	4.2	4.2		4.4
Net annualized retail rental rate excluding Anchors (per occupied sq. ft.) ($)	22.47	22.20		22.17
Mixed-Use Development Information
Trust’s share of future development area (in thousands of sq. ft.)	40,275	41,200		40,600
Financial Information
Investment properties(2)	10,264,253	10,250,392		10,244,143
Total unencumbered assets(3)	8,653,321	8,415,900		8,364,500
Debt to Aggregate Assets (%)(3)(4)(5)	43.2	43.6		42.5
Adjusted Debt to Adjusted EBITDA(3)(4)(5)	10.0X	10.3X		9.4X
Weighted average interest rate (%)(3)(4)	3.89	3.86		3.09
Weighted average term of debt (in years)	3.9	4.0		4.7
Interest coverage ratio(3)(4)(5)	2.9X	3.1X		3.5X
Weighted average number of units outstanding – diluted	179,891,028	179,657,455		179,590,588
Three Months Ended		March 31, 2023		March 31, 2022
Financial Information
Rentals from investment properties and other(2)		210,594		202,828
Net income and comprehensive income(2)		112,861		370,110
FFO(3)(4)(6)		97,133		92,235
AFFO(3)(4)(6)		88,601		85,700
Cash flows provided by operating activities(2)		81,931		102,819
Net rental income and other(2)		124,821		120,719
NOI(3)(4)		133,468		123,868
Change in net rental income and other(3)		3.4	%	3.7	%
Change in SPNOI(3)(4)		4.3	%	2.3	%
Net income and comprehensive income per Unit(2)		$0.63/$0.63		$2.08/$2.06
FFO per Unit(3)(4)(6)		$0.55/$0.54		$0.52/$0.51
FFO with adjustments per Unit(3)(4)		$0.51/$0.51		$0.51/$0.50
AFFO per Unit(3)(4)(6)		$0.50/$0.49		$0.48/$0.48
AFFO with adjustments per Unit(3)(4)		$0.46/$0.46		$0.47/$0.47
Payout Ratio to AFFO(3)(4)(6)		93.0	%	96.1	%
Payout Ratio to AFFO with adjustments(3)(4)		99.9	%	97.9	%
Payout Ratio to cash flows provided by operating activities		100.6	%	80.1	%

   

(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 March 31, 2023, cash-on-hand of $29.7 million was excluded for the purposes of calculating the applicable ratios (December 31, 2022 – $33.4 million, March 31, 2022 – $60.0 million).
(6)	The calculation of the Trust’s FFO and AFFO and related payout ratios, including comparative amounts, are financial metrics that were determined based on the REALpac White Paper on FFO and AFFO issued in January 2022. Comparison with other reporting issuers may not be appropriate. The payout ratio to AFFO is calculated as declared distributions divided by AFFO.

Development and Intensification SummaryThe following table provides additional details on the Trust’s 10 development initiatives that are currently under construction (in order of estimated initial occupancy/closing date):

Projects under construction (Location/Project Name)	Type	Trust’s Share (%)	Estimated initial occupancy / closing date	% of completion	GFA(2)(sq. ft.)	No.of units
Vaughan / Transit City 4	Condo	25	Q1 2023	88 %	—	498
Vaughan / Transit City 5			Q2 2023	88 %		528
Vaughan / The Millway	Apartment	50	Q1 2023	81 %	—	458
Pickering (Seaton Lands)	Industrial	100	Q2 2023	77 %	241,000	—
Laval Centre	Apartment	50	Q3 2023	70 %	—	211
Markham East / Boxgrove	Self Storage	50	Q1 2024	44 %	133,332	910
Whitby	Self Storage	50	Q1 2024	38 %	126,135	811
Ottawa SW(1)	Retirement Residence	50	Q3 2024	29 %	—	402
Ottawa SW(1)	Senior Apartments
Vaughan NW	Townhouse	50	Q3 2024	15 %	—	174
			In millions of dollars
Total Capital Spend to Date at 100%(3)				785.3
Estimated Cost to Complete at 100%				447.1
Total Expected Capital Spend by Completion at 100%(3)				1,232.4
Total Capital Spend to Date at Trust’s share(3)				315.9
Estimated Cost to Complete at Trust’s share				216.6
Total Expected Capital Spend by Completion at Trust’s share(3)				532.5

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

Reconciliations of Non-GAAP MeasuresThe following tables reconcile the non-GAAP measures to the most comparable GAAP measures for the three months ended March 31, 2023 and the comparable periods in 2022. Such measures do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures disclosed by other issuers.

Net Operating Income (including the Trust’s Interests in Equity Accounted Investments)

(in thousands of dollars)	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
	GAAP Basis		Proportionate Share Reconciliation		Total Proportionate Share(1)		GAAP Basis		Proportionate Share Reconciliation		Total Proportionate Share(1)
Net rental income and other
Rentals from investment properties and other	210,594		8,056		218,650		202,828		6,187		209,015
Property operating costs and other	(85,123	)	(4,137	)	(89,260	)	(82,109	)	(3,013	)	(85,122	)
	125,471		3,919		129,390		120,719		3,174		123,893
Condo and townhome closings revenue and other(2)	—		24,833		24,833		—		6		6
Condo and townhome cost of sales and other	(650	)	(20,105	)	(20,755	)	—		(31	)	(31	)
	(650	)	4,728		4,078		—		(25	)	(25	)
NOI	124,821		8,647		133,468		120,719		3,149		123,868

(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.

Same Properties NOI

	Three Months Ended		Three Months Ended
(in thousands of dollars)	March 31, 2023		March 31, 2022
NOI	124,821		120,719
NOI from equity accounted investments(1)	8,647		3,149
Total portfolio NOI before adjustments(1)	133,468		123,868
Adjustments:
Lease termination	(412	)	(242	)
Non-recurring items and other adjustments(2)	(1,560	)	1,110
Total portfolio NOI after adjustments(1)	131,496		124,736
Less NOI sourced from:
Acquisitions	(1,787	)	(925	)
Dispositions	2		5
Earnouts and Developments	(707	)	(145	)
Same Properties NOI(1)	129,004		123,671

(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)	Includes non-recurring items such as one-time adjustments relating to COVID ECL and vaccination centre costs, NOI from condo and townhome closings, royalties, straight-line rent and amortization of tenant incentives.

Reconciliation of FFO

(in thousands of dollars)	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Net income and comprehensive income	112,861		370,110
Add (deduct):
Fair value adjustment on investment properties and financial instruments(1)	(22,008	)	(289,327	)
Gain on derivative – TRS	1,296		1,605
(Gain) loss on sale of investment properties	(22	)	122
Amortization of intangible assets and tenant improvement allowance	2,395		1,992
Distributions on Units classified as liabilities and vested deferred units	2,004		1,721
Salaries and related costs attributed to leasing activities(2)	2,080		1,826
Adjustments relating to equity accounted investments(3)	(1,473	)	4,186
FFO(4)	97,133		92,235
Add (deduct) non-recurring adjustments:
Gain on derivative – TRS	(1,296	)	(1,605	)
FFO sourced from condominium and townhome closings	(3,816	)	24
Transactional FFO – loss on sale of land to co-owner	(1,008	)	—
FFO with adjustments(4)	91,013		90,654

(1)	Includes fair value adjustments on revaluation of investment properties and financial instruments. Fair value adjustment on revaluation of investment properties is described in “Investment Properties” in the Trust’s MD&A. Fair value adjustment on financial instruments comprises the following financial instruments: units classified as liabilities, DUP, EIP, TRS, interest rate swap agreement(s), and LTIP recorded in the same period in 2022. 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 months ended March 31, 2023. For details, please see discussion in “Results of Operations” in the Trust’s MD&A.
(2)	Salaries and related costs attributed to leasing activities of $2.1 million were incurred in the three months ended March 31, 2023 (three months ended March 31, 2022 – $1.8 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.
(3)	Includes tenant improvement amortization, indirect interest with respect to the development portion, fair value adjustment on investment properties, loss (gain) on sale of investment properties, and adjustment for supplemental costs.
(4)	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.

Reconciliation of AFFO

(in thousands of dollars)	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
FFO(1)	97,133		92,235
Add (Deduct):
Straight-line of rents	50		(76	)
Adjusted salaries and related costs attributed to leasing	(2,080	)	(1,826	)
Actual sustaining capital expenditures, leasing commissions, and tenant improvements	(6,502	)	(4,633	)
AFFO(1)	88,601		85,700
Add (deduct) non-recurring adjustments:
Gain on derivative – TRS	(1,296	)	(1,605	)
FFO sourced from condominium and townhome closings	(3,816	)	24
Transactional FFO – loss on sale of land to co-owner	(1,008	)	—
AFFO with adjustments(1)	82,481		84,119
Distribution declared	82,405		82,339
Payout Ratio to AFFO(1)	93.0	%	96.1	%
Payout Ratio to AFFO with adjustments(1)	99.9	%	97.9	%

  

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

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

	Rolling 12 Months Ended
(in thousands of dollars)	March 31, 2023		March 31, 2022
Net income and comprehensive income	378,711		1,297,224
Add (deduct) the following items:
Net interest expense	142,243		136,425
Amortization of equipment, intangible assets and tenant improvements	11,370		3,769
Fair value adjustments on investment properties and financial instruments	(32,186	)	(943,573	)
Fair value adjustment on TRS	(5,226	)	6,734
Adjustment for supplemental costs	4,709		5,281
Gain (loss) on sale of investment properties	(219	)	106
Gain (loss) on sale of land to co-owners (Transactional FFO)	—		336
Acquisition-related costs	298		2,791
Adjusted EBITDA(1)	499,700		509,093

(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, AFFO, AFFO with adjustments, AFFO with adjustments per Unit, Payout Ratio to AFFO, Payout Ratio to AFFO with adjustments, 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, FFO per Unit with adjustments, Transactional FFO, Same Properties NOI, Debt to Gross Book Value, 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 months ended March 31, 2023, dated May 10, 2023 (the “MD&A), and is incorporated by reference. The information is found in the “Presentation of Certain Terms Including Non-GAAP Measures” and “Non-GAAP Measures” sections of the MD&A, which is available on SEDAR at www.sedar.com. Reconciliations of non-GAAP financial measures to the most directly comparable IFRS measures are found in “Reconciliations of Non-GAAP Measures” of this Press Release.

Full reports of the financial results of the Trust for the three months ended March 31, 2023 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, 2023, which are available on SEDAR at www.sedar.com.

Conference Call

SmartCentres will hold a conference call on Thursday, May 11, 2023 at 3:00 p.m. (ET). Participating on the call will be members of SmartCentres’ senior management.

Investors are invited to access the call by dialing 1-855-353-9183 and then keying in the participant access code 16803#. 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 11, 2023 beginning at 8:30 p.m. (ET) through to 8:30 p.m. (ET) on Thursday, May 18, 2023. To access the recording, please call 1-855-201-2300, enter the conference access code 16803# and then key in the playback access code 0113265#.

About SmartCentres

SmartCentres Real Estate Investment Trust is one of Canada’s largest fully integrated REITs, with a best-in-class portfolio featuring 188 strategically located properties in communities across the country. SmartCentres has approximately $11.7 billion in assets and owns 34.8 million square feet of income producing value-oriented retail and first-class office space with 98.0% in-place and committed occupancy, on 3,500 acres of owned land across Canada.

SmartCentres continues to focus on enhancing the lives of Canadians by planning and developing complete, connected, mixed-use communities on its existing retail properties. The publicly announced $16.0 billion intensification program ($10.8 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 55.5 million square feet (40.3 million square feet at SmartCentres’ share) of space, 26.6 million square feet (17.9 million square feet at SmartCentres’ share) of which has or will commence construction within the next five years. From shopping centres to city centres, SmartCentres is uniquely positioned to reshape the Canadian urban and urban-suburban landscape.

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

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

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

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

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

Mitchell Goldhar	Peter Slan
Executive Chairman and CEO	Chief Financial Officer
SmartCentres	SmartCentres
[phone] ext. 7674	[phone] ext. 7571
[e-mail]	[e-mail]