PRV.UN Pro Real Estate Investment Trust

MONTREAL, Nov. 8, 2023 /CNW/ - PRO Real Estate Investment Trust ("PROREIT" or the "REIT") (TSX: PRV.UN) today reported its financial and operating results for the three-month period ("Q3" or "third quarter") ended September 30, 2023.

Third Quarter of Fiscal 2023 Highlights

• Property revenue remained relatively flat in Q3 year-over-year
• Same Property NOI* down 1.2% in Q3 year-over-year, but up 1.7% excluding a temporary vacancy (see Table 4)
• Net income and comprehensive income of $11.3 million in Q3, compared to $19.5 million in the same quarter last year
• Net operating income ("NOI") of $14.1 million in the third quarter, a decrease of 5.1% year-over-year, mainly driven by sales of non-core properties and ownership changes
• $46.0 million in available credit facility and $11.4 million in cash at September 30, 2023
• Pay down of debt and credit facility of $14.4 million from Q2 2023
• Occupancy rate of 98.2% at September 30, 2023
• Approximately 88.8% of gross leasable area ("GLA") maturing in 2023 has been renewed at 43.9% average spread and approximately 17.9% of GLA maturing in 2024 has been renewed at 29.7% average spread

"While the real estate market continues to face certain macro-economic challenges, we maintained our operating momentum in the third quarter of 2023, a testament to our properties and platform" said Gordon Lawlor, President and Chief Executive Officer of PROREIT.

"As we execute on our strategy to focus on the industrial sector, we have successfully sold four non-core properties for total proceeds of approximately $13.4 million, to date this year, and have entered into binding agreements to sell two additional non-strategic retail properties for total proceeds of approximately $10.9 million, expected to close in the fourth quarter of 2023, subject to standard closing conditions. At September 30, 2023, our industrial segment accounted for 81.3% of our portfolio's GLA.

"With a persistent high occupancy rate and high renewals at favourable spreads across all asset classes, our portfolio remains resilient. In addition, we are well-positioned to capitalize on future growth in markets where we have a strong presence, like Halifax, which is experiencing rapid population growth and is poised to receive major investment as a result of that surge.  We also look forward to incremental cash flows resulting from our organic growth and GLA renewal.

"Previously, we announced a temporary 102,000 square foot vacancy would impact our industrial asset class this quarter, but the property has been fully leased since October 1, 2023, with the full benefits to be reflected in the fourth quarter of 2023, more specifically on our NOI, AFFO Payout Ratio *, and Same Property NOI*.

"We continue to manage our balance sheet prudently, having reduced our debt level by $14.4 million in the current quarter, while maintaining our Adjusted Debt to Gross Book Value* to 50.0% at September 30, 2023. Our mortgage maturity exposure is limited, with approximately $25 million and $27 million respectively, for each of the remainder of 2023 and all of 2024.

"Our primary focus remains the sound execution of our strategy, including the optimization of capital allocation, in order to maximize long-term value for the benefit of all our stakeholders," concluded Mr. Lawlor.

Financial Results
Table 1- Financial Highlights

At September 30, 2023, PROREIT owned 126 investment properties (including a 50% ownership interest in 42 investment properties), compared to 132 investment properties (including a 50% ownership interest in 42 investment properties) at September 30, 2022. Total assets amounted to $1.05 billion as at September 30, 2023, compared to $1.04 billion as at September 30, 2022, an increase of $10.0 million or 1.0%.

For the three-month period ended September 30, 2023:

• Property revenue amounted to $24.1 million, which was relatively flat compared to the same period last year, mainly resulting from the decrease in number of properties, the change in the related ownership percentages of the 42 properties purchased and sold in August 2022 and the nine properties sold in September 2022, offset by contractual increase in rent and higher rental rates on lease renewals.
• NOI amounted to $14.1 million, compared to $14.8 million in the same period in 2022, a decrease of 5.1%, mainly driven by the impact of the net decrease in properties owned and related ownership percentages over the last twelve-month period.
• Same Property NOI* was $11.9 million, down $0.1 million or 1.2%, compared to the same prior year period, primarily attributable to a temporary vacancy at one Montreal 102,000 square foot industrial property, which was fully leased as of October 1, 2023, and a transitional vacancy of 90,400 square feet in the industrial segment, offset by contractual increases and higher rental rates across all classes; excluding the impact of the 102,000 square foot temporary vacancy, overall Same Property NOI* for the three-month period ended September 30, 2023 increased by $0.2 million or 1.7%.
• Net cash flows provided from operating activities was $11.0 million, which was relatively flat compared to the third quarter of 2022, largely because of the timing of cash receipts and settlement of payables.
• AFFO* totaled $7.0 million, compared to $7.9 million in the same period last year, a decrease of 11.3%, mainly resulting from the above-mentioned temporary vacancy, a decrease in properties owned and related ownership percentages and an increase in variable interest rates on the credit facility, as well as increased weighted average interest rates on mortgage debt, offset by contractual increase in rent and higher rental rates on lease renewals.
• AFFO Payout Ratio – Basic* was 96.9%, compared to 85.7% for the same period in the prior year, primarily resulting from the above-mentioned AFFO variance explanations.

For the nine-month period ended September 30, 2023:

• Property revenue amounted to $74.3 million, an increase of $2.1 million or 3.0%, compared to $72.1 million for the same period last year, mainly resulting from the decrease in number of properties, the change in the related ownership percentages of the 42 properties purchased and sold in August 2022 and the nine properties sold in September 2022, offset by contractual increase in rent and higher rental rates on lease renewals.
• NOI amounted to $43.0 million, which was relatively flat compared to $43.2 million in the same period in 2022, mainly due to the net decrease in properties owned and related ownership percentages over the last twelve-month period.
• Same Property NOI* reached $35.6 million, up $0.2 million or 0.7%, compared to the same prior year period, for the same reasons as the three-month Same Property NOI*; excluding the impact of the 102,000 square foot temporary vacancy, overall Same Property NOI* for the nine-month period ended September 30, 2023 increased by $1.0 million or 2.8%.
• Net cash flows provided from operating activities was $22.2 million, up from $19.9 million in the first nine months of 2022, an increase of 11.7%, largely as a result of the timing of cash receipts and settlement of payables.
• AFFO* totaled $21.8 million, compared to $23.6 million in the same period last year, a decrease of 7.5%, mainly resulting from the above-mentioned temporary vacancy, a decrease in properties owned and related ownership percentages and an increase in variable interest rates on the credit facility, as well as increased weighted average interest rates on mortgage deb, offset by contractual increase in rent and higher rental rates on lease renewals.
• AFFO Payout Ratio – Basic* was 93.5%, compared to 86.4% for the same period in the prior year, primarily resulting from the above-mentioned AFFO variance explanations.

TABLE 2- Reconciliation of net operating income to net income and comprehensive income

For the three months ended September 30, 2023, net income and comprehensive income amounted to $11.3 million, compared to $19.5 million during the same prior year period. The $8.3 million variance is primarily due to the $10.0 million impact of the non-cash fair market value adjustment on investment properties.

For the nine months ended September 30, 2023, net income and comprehensive income amounted to $26.1 million, compared to $78.0 million during the same prior year period. The $52.0 million variance largely relates to the $49.7 million impact of the non-cash fair market value adjustment on investment properties.

Managing our Balance Sheet

As at September 30, 2023, PROREIT had $46.0 million available on its credit facility, in addition to $11.4 million in cash.

With approximately $25.0 million of maturing mortgages remaining for 2023 and approximately $27 million for 2024, PROREIT continues to benefit from a well-staggered debt profile with limited material maturities until 2026. In addition, only 2.7% of total debt is at a variable rate.

The weighted average interest rate on mortgage debt was 3.76% at September 30, 2023, compared to 3.69% at the same date last year.

Total debt (current and non-current) was $474.5 million at September 30, 2023. Adjusted Debt to Gross Book Value* was 50.0% at September 30, 2023.

Sustained Operating Environment 

At September 30, 2023, PROREIT's portfolio totaled 126 properties aggregating 6.4 million square feet of GLA with a weighted average lease term of 4.0 years. Approximately 88.8% of leases maturing in 2023 have been renewed at a positive average spread of 43.9% and approximately 17.9% of GLA maturing in 2024 has been renewed at 29.7% average spread .

Occupancy rate remained strong at 98.2% as at September 30, 2023, up from 97.9% a year earlier. As previously announced, a 102,000 square foot industrial property located in Montreal, Quebec, which had a temporary vacancy in Q2 2023, has been fully occupied as of October 1, 2023 and was leased at an average positive spread of 55% under long-term leases with annual rent steps.

The industrial segment accounted for 81.3% of GLA and 71.7% of base rent at September 30, 2023.

Portfolio Transactions

On August 31, 2023, PROREIT sold two non-core office properties totaling approximately 60,000 square feet for gross proceeds of $9.1 million, excluding closing costs. Proceeds of the sale were used to repay approximately $5.7 million of related mortgages and the balance was used for general business purposes including a repayment of approximately $1.0 million under the REIT's credit facility.

On September 28, 2023, PROREIT sold a 3,000 square foot non-core retail property for gross proceeds of approximately $2.2 million, excluding closing costs. Proceeds of the sale were used to repay approximately $1.5 million of a related mortgage and the balance was used for general business purposes.

Subsequent to quarter-end, on October 20, 2023, PROREIT entered into a binding agreement with a third-party purchaser to sell one non-core retail property totaling approximately 45,000 square feet for gross proceeds of $8.7 million, excluding closing costs. The purchaser will assume a $4.4 million mortgage with respect to the property that was to mature in September 2027, with the balance of the proceeds to be used for general business purposes. The closing of the sale is scheduled for Q4 2023 and is subject to standard closing conditions.

Subsequent to quarter-end, on October 31, 2023, PROREIT entered into a binding agreement with a third-party purchaser to sell one non-core retail property totaling approximately 4,500 square feet for gross proceeds of approximately $2.2 million, excluding closing costs. Proceeds of the sale (net of a $0.5 million vendor take-back mortgage) will be used for general business purposes.The closing of the sale is scheduled for Q4 2023 and is subject to standard closing conditions.

Distributions

Distributions to unitholders of $0.0375 per trust unit of the REIT were declared monthly during the three months ended September 30, 2023, representing distributions of $0.45 per unit on an annual basis. Equivalent distributions are paid on the Class B limited partnership units of PRO REIT Limited Partnership ("Class B LP Units"), a subsidiary of the REIT.

On October 20, 2023, PROREIT announced a cash distribution of $0.0375 per trust unit for the month of October 2023. The distribution is payable on November 15, 2023 to unitholders of record as at October 31, 2023.

Strategy

While focusing on high-quality light industrial real estate in Canada, PROREIT's strategy is to create value by growing its quality portfolio organically and through disciplined acquisitions, while optimizing its balance sheet and capital allocation. With this clear strategy for growth and value creation, PROREIT's continued focus is on achieving its medium-term goals of reaching $2 billion in assets, 90% industrial base rent and 45% Adjusted Debt to Gross Book Value* in the next three to five years. These medium-term goals are based on the REIT's current business plan and strategies and are not intended to be a forecast of future results. See "Forward-Looking Statements".

Investor Conference Call and Webcast Details

PROREIT will hold a conference call to discuss its third quarter 2023 results on November 9, 2023, at 9:00 a.m. ET. There will be a question period reserved for financial analysts. To access the conference call, please dial 888-664-6383 or 416-764-8650. A recording of the call will be available until November 16, 2023 by dialing 888-390-0541 or 416-764-8677 and using access code: 637054#.

The conference call will also be accessible via live webcast on PROREIT's website at www.proreit.com or at https://app.webinar.net/AjraQXaeOy7

About PROREIT

PROREIT (TSX:PRV.UN) is an unincorporated open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. Founded in 2013, PROREIT owns a portfolio of high-quality commercial real estate properties in Canada, with a strong industrial focus in robust secondary markets.

For more information on PROREIT, please visit the website at: https://proreit.com.

Non-IFRS Measures

PROREIT's consolidated financial statements are prepared in accordance with International Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board. In addition to reported IFRS measures, industry practice is to evaluate real estate entities giving consideration, in part, to certain non-IFRS financial measures, non-IFRS ratios and other specified financial measures (collectively, "non-IFRS measures"). Without limitation, measures followed by the suffix "*" in this press release are non-IFRS measures.

As a complement to results provided in accordance with IFRS, PROREIT discloses and discusses in this press release (i) certain non-IFRS financial measures, including: Adjusted Debt, adjusted earnings before interest, tax, depreciation and amortization ("Adjusted EBITDA"); adjusted funds from operations ("AFFO"); annualized adjusted earnings before interest, tax, depreciation and amortization ("Annualized Adjusted EBITDA"); Available Liquidity; funds from operations ("FFO"); gross book value ("Gross Book Value"); Same Property NOI and (ii) certain non-IFRS ratios, including: Adjusted Debt to Annualized Adjusted EBITDA Ratio; Adjusted Debt to Gross Book Value; AFFO Payout Ratio – Basic; AFFO Payout Ratio – Diluted; Basic AFFO per Unit; Diluted AFFO per Unit; Basic FFO per Unit; Diluted FFO per Unit; Debt Service Coverage Ratio; and Interest Coverage Ratio. These non-IFRS measures are not defined by IFRS and do not have a standardized meaning under IFRS. PROREIT's method of calculating these non-IFRS measures may differ from other issuers and may not be comparable with similar measures presented by other income trusts or issuers. PROREIT has presented such non-IFRS measures and ratios as management believes they are relevant measures of PROREIT's underlying operating and financial performance. For information on the most directly comparable financial measure disclosed in the primary financial statements of the REIT, composition of the non-IFRS measures, a description of how PROREIT uses these measures and an explanation of how these measures provide useful information to investors, refer to the "Non-IFRS Measures" section of PROREIT's management's discussion and analysis for the three and nine months ended September 30, 2023, dated November 8, 2023, available on PROREIT's SEDAR+ profile at www.sedarplus.ca, which is incorporated by reference into this press release. As applicable, the reconciliations for each non-IFRS measure are outlined below. Non-IFRS measures should not be considered as alternatives to net income, cash flows provided by operating activities, cash and cash equivalents, total assets, total equity, or comparable metrics determined in accordance with IFRS as indicators of PROREIT's performance, liquidity, cash flow and profitability.

Table 3 - Reconciliation of Same Property NOI to net operating income (as reported in the consolidated financial statements)

Table 4 - Same Property NOI and Same Property NOI by asset class, adjusted to exclude the NOI of the temporary vacancy of one industrial property

Table 5 - Calculation of Available Liquidity

Table 6 - Reconciliation of AFFO and FFO to net income and comprehensive income

Table 7 - Reconciliation of Adjusted EBITDA to net income and comprehensive income

Table 8 - Calculation of Adjusted Debt to Annualized Adjusted EBITDA Ratio

Table 9 - Calculation of the Interest Coverage Ratio

Table 10 - Calculation of the Debt Service Coverage Ratio

Table 11 - Calculation of Adjusted Debt

Table 12 - Calculation of Gross Book Value and Adjusted Debt to Gross Book Value

Forward-Looking Statements

This press release contains forward-looking statements and forward-looking information (collectively, "forward-looking statements") within the meaning of applicable securities legislation, including statements relating to certain expectations, projections, growth plans and other information related to REIT's business strategy and future plans. Forward-looking statements are based on a number of assumptions and are subject to a number of risks and uncertainties, many of which are beyond PROREIT's control, that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking statements.

Forward-looking statements contained in this press release include, without limitation, statements pertaining to the execution by PROREIT of its growth strategy, the future financial and operating performance of PROREIT, and the proposed sale of two non-strategic retail properties for total proceeds of approximately $10.9 million and the timing thereof. PROREIT's objectives and forward-looking statements are based on certain assumptions, including that (i) PROREIT will receive financing on favourable terms; (ii) the future level of indebtedness of PROREIT and its future growth potential will remain consistent with the REIT's current expectations; (iii) there will be no changes to tax laws adversely affecting PROREIT's financing capacity or operations; (iv) the impact of the current economic climate and the current global financial conditions on PROREIT's operations, including its financing capacity and asset value, will remain consistent with PROREIT's current expectations; (v) the performance of PROREIT's investments in Canada will proceed on a basis consistent with PROREIT's current expectations; and (vi) capital markets will provide PROREIT with readily available access to equity and/or debt.

The medium-term goals of the REIT disclosed under "Strategy" are based on the REIT's current business plan and strategies and are not intended to be a forecast of future results. The medium-term goals contemplate the REIT's historical growth and certain assumptions including but not limited to (i) current global capital market conditions, (ii) access to capital, (iii) interest rate exposure, (iv) availability of high-quality industrial properties for acquisitions, (v) dispositions of retail and office properties, and (vi) capacity to finance acquisitions on an accretive basis.

The forward-looking statements contained in this news release are expressly qualified in their entirety by this cautionary statement. All forward-looking statements in this press release are made as of the date of this press release. PROREIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise, except as required by law.

Additional information about these assumptions and risks and uncertainties is contained under "Risk Factors" in PROREIT's latest annual information form and "Risk and Uncertainties" in PROREIT's management's discussion and analysis for the three and nine month periods ended September 30, 2023, which are available under PROREIT's profile on SEDAR+ at www.sedarplus.ca.

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