CT REIT Announces Strong Fourth Quarter and Year-End 2022 Results

• Announces four new investments totalling $31 million in the quarter
• Nearly 1 million square feet of gross leasable area added to the portfolio in 2022

TORONTO, Feb. 14, 2023 /CNW/ – CT Real Estate Investment Trust (“CT REIT” or “the REIT”) (TSX: CRT.UN) today reported its consolidated financial results for the fourth quarter and year ended December 31, 2022.

“We are very pleased with both our financial results this quarter and the progress that we continue to make with our development pipeline,” said Kevin Salsberg, President and Chief Executive Officer of CT REIT. “Our stable and resilient net lease portfolio, which now totals over 30 million square feet of gross leasable area, along with our strong balance sheet, position us well to navigate this uncertain current market. We continue to work alongside Canadian Tire to source additional opportunities for their store and supply chain networks and are working collaboratively to explore options to surface incremental value at certain well-located urban assets within our collective portfolios.”

New Investment Activity

CT REIT announced four new investments, which will require an estimated $31 million to complete. The investments are, in aggregate, expected to earn a weighted average cap rate of 6.11% and represent approximately 109,000 square feet of incremental gross leasable area (“GLA”).

The table below summarizes the new investments and their anticipated completion dates:

Update on Completed and Previously Announced Investment and Development Activity

CT REIT invested $73 million in projects that were completed in the fourth quarter and added 291,000 square feet of incremental GLA to the portfolio. CT REIT completed the development of a Canadian Tire store in Lloydminster, Alberta, the intensification of four existing Canadian Tire stores in Welland, Ontario, Charlottetown, Prince Edward Island, Chicoutimi, Quebec and La Plaine, Quebec and the development of third-party pads at three existing properties.

The table below provides activity updated on previously announced investments.

Update on Full Year 2022 Investment and Development Activity

In 2022, CT REIT invested approximately $260 million in completed projects and ongoing developments and grew the portfolio by approximately 978,000 square feet of GLA. As of December 31, 2022, CT REIT had 1,280,000 square feet of GLA under development, of which approximately 99.5% is subject to committed lease agreements. These developments represent an investment of approximately $375 million upon completion, of which $130 million has been spent to date.

Financial and Operational Summary

Financial Highlights

Net Income – Net income was $74.7 million for the quarter, a decrease of $50.6 million or 40.4%, compared to the same period in the prior year, primarily due to a decrease in the fair value adjustment on investment properties, partially offset by an increase in net operating income.

Net Operating Income (NOI)* – Total property revenue for the quarter was $135.2 million, which was $5.6 million or 4.4% higher compared to the same period in the prior year. In the fourth quarter, NOI was $106.8 million, which was $5.8 million or 5.8% higher compared to the same period in the prior year. This was primarily due to the acquisition and development of income-producing properties completed in 2022 and 2021, which contributed $1.4 million to NOI growth and rent escalations from Canadian Tire leases, which contributed a further $1.4 million. Same store NOI was $102.4 million, and same property NOI was $104.4 million for the quarter, which was $2.6 million or 2.6%, and $4.6 million or 4.7%, respectively, higher when compared to the prior year. Same store NOI increased primarily due to increased revenue derived from contractual rent escalations, and recovery of capital expenditures and interest earned thereon. Same property NOI increased primarily due to the increase in same store NOI noted, as well as an increase from the intensifications completed in 2022 and 2021.

Funds from Operations (FFO)* – FFO for the quarter was $75.6 million, which was $3.6 million or 5.1% higher than the same period in 2021 primarily due to the impact of NOI variances, partially offset by an increase in the interest on the public debentures and an increase in the prime rate on the CTC Credit Facility and the variable rate mortgage. FFO per unit – diluted (non-GAAP) for the quarter was $0.322 per unit – diluted (non-GAAP), which was $0.014 per unit – diluted (non-GAAP) or 4.5% higher, compared to the same period in 2021, due to the growth of FFO exceeding the growth in the weighted average units outstanding-diluted (non-GAAP).

Adjusted Funds from Operations (AFFO)* â€“ AFFO for the quarter was $68.5 million, which was $4.4 million or 6.8% higher than the same period in 2021 primarily due to the impact of NOI variances, partially offset by an increase in the interest on the public debentures and an increase in the prime rate on the CTC Credit Facility and the variable rate mortgage. AFFO per unit – diluted (non-GAAP) for the quarter was $0.292 per unit – diluted (non-GAAP), which was $0.017 or 6.2% higher, compared to the same period in 2021, due to the growth of AFFO exceeding the growth in the weighted average units outstanding – diluted (non-GAAP).

Distributions – Distributions per unit in the quarter amounted to $0.217, which was 3.3% higher than the same period in 2021 due to increases in the rate of distribution which became effective with the monthly distributions paid in July 2022.

Operating Results

Leasing – CTC is CT REIT’s most significant tenant. As at December 31, 2022, CTC represented 92.3% of total GLA and 91.4% of annualized base minimum rent.

Occupancy â€“ As at December 31, 2022, CT REIT’s portfolio occupancy rate, on a committed basis, was 99.3%.

*NOI, FFO and AFFO are Specified Financial Measures. See below for additional information.

Specified Financial Measures

CT REIT uses specified financial measures as defined by National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure of the Canadian Securities Administrators (“NI 52-112″). CT REIT believes these specified financial measures provide useful information to both management and investors in measuring the financial performance of CT REIT and its ability to meet its principal objective of creating Unitholder value over the long term by generating reliable, durable and growing monthly cash distributions on a tax-efficient basis.

These specified financial measures used in this document include non-GAAP financial measures and non-GAAP ratios, within the meaning of NI 52-112. Non-GAAP financial measures and non-GAAP ratios do not have a standardized meaning prescribed by IFRS, also referred to as generally accepted accounting principles (“GAAP”), and therefore they may not be comparable to similarly titled measures and ratios presented by other publicly traded entities and should not be construed as an alternative to other financial measures determined in accordance with GAAP.

See below for further information on specified financial measures used by management in this document and, where applicable, for reconciliations to the nearest GAAP measures.

Net Operating Income 

NOI is a non-GAAP financial measure defined as property revenue less property expense, adjusted for straight-line rent. The most directly comparable primary financial statement measure is property revenue. Management believes that NOI is a useful key indicator of performance as it represents a measure of property operations over which management has control. NOI is also a key input in determining the fair value of the portfolio of Properties. NOI should not be considered as an alternative to property revenue or net income and comprehensive income, both of which are determined in accordance with IFRS.

Funds From Operations and Adjusted Funds From Operations

Certain non-GAAP financial measures for the real estate industry have been defined by the Real Property Association of Canada under its publications, “REALPAC Funds From Operations & Adjusted Funds From Operations for IFRS” and “REALPAC Adjusted Cashflow from Operations for IFRS”. CT REIT calculates Fund From Operations, Adjusted Funds From Operations and Adjusted Cashflow from Operations in accordance with these publications.

The following table reconciles GAAP net income and comprehensive income to FFO and further reconciles FFO to AFFO:

Funds From Operations 

FFO is a non-GAAP financial measure of operating performance used by the real estate industry, particularly by those publicly traded entities that own and operate income-producing properties. The most directly comparable primary financial statement measure is net income and comprehensive income. FFO should not be considered as an alternative to net income or cash flows provided by operating activities determined in accordance with IFRS. The use of FFO, together with the required IFRS presentations, has been included for the purpose of improving the understanding of the operating results of CT REIT.

Management believes that FFO is a useful measure of operating performance that, when compared period-over-period, reflects the impact on operations of trends in occupancy levels, rental rates, operating costs and property taxes, acquisition activities and interest costs, and provides a perspective of the financial performance that is not immediately apparent from net income determined in accordance with IFRS.

FFO adds back to net income items that do not arise from operating activities, such as fair value adjustments. FFO, however, still includes non-cash revenues related to accounting for straight-line rent and makes no deduction for the recurring capital expenditures necessary to sustain the existing earnings stream.

Adjusted Funds From Operations

AFFO is a non-GAAP financial measure of recurring economic earnings used in the real estate industry to assess an entity’s distribution capacity. The most directly comparable primary financial statement measure is net income and comprehensive income. AFFO should not be considered as an alternative to net income or cash flows provided by operating activities determined in accordance with IFRS.

CT REIT calculates AFFO by adjusting FFO for non-cash income and expense items such as amortization of straight-line rents. AFFO is also adjusted for a reserve for maintaining productive capacity required for sustaining property infrastructure and revenue from real estate properties and direct leasing costs. As property capital expenditures do not occur evenly during the fiscal year or from year to year, the capital expenditure reserve in the AFFO calculation, which is used as an input in assessing the REIT’s distribution payout ratio, is intended to reflect an average annual spending level. The reserve is primarily based on average expenditures as determined by building condition reports prepared by independent consultants.

Management believes that AFFO is a useful measure of operating performance similar to FFO as described above, adjusted for the impact of non-cash income and expense items.

Capital Expenditure Reserve

The following table compares and reconciles recoverable capital expenditures during the 2021-2022 period to the capital expenditure reserve used in the calculation of AFFO:

The capital expenditure reserve is a non-GAAP financial measure and management believes the reserve is a useful measure to understand the normalized capital expenditures required to maintain property infrastructure. Recoverable capital expenditures are the most directly comparable measure that is disclosed in the REIT’s primary financial statements. The capital expenditure reserve should not be considered as an alternative to recoverable capital expenditures, which is determined in accordance with IFRS.

The capital expenditure reserve varies from the capital expenditures incurred due to the seasonal nature of the expenditures. As such, CT REIT views the capital expenditure reserve as a meaningful measure.

FFO per unit – Basic, FFO per unit – Diluted (non-GAAP), AFFO per unit – Basic and AFFO per unit – Diluted (non-GAAP)

FFO per unit – basic, FFO per unit – diluted (non-GAAP), AFFO per unit – basic and AFFO per unit – diluted (non-GAAP) are non-GAAP ratios and reflect FFO and AFFO on a weighted average per unit basis. Management believes these non-GAAP ratios are useful measures to investors since the measures indicate the impact of FFO and AFFO respectively in relation to an individual per unit investment in the REIT. For the purpose of calculating diluted per unit amounts, diluted units include restricted and deferred units issued under various plans and exclude the effects of settling the Class C LP Units with Class B LP Units.

Management believes that FFO per unit ratios are useful measures of operating performance that, when compared period-over-period, reflect the impact on operations of trends in occupancy levels, rental rates, operating costs and property taxes, acquisition activities and interest costs, and provides a perspective of the financial performance that is not immediately apparent from net income per unit determined in accordance with IFRS. Management believes that AFFO per unit ratios are useful measures of operating performance similar to FFO as described above, adjusted for the impact of non-cash income and expense items. The FFO per unit and AFFO per unit ratios are not standardized financial measures under IFRS and should not be considered as an alternative to other ratios determined in accordance with IFRS. The component of the FFO per unit ratios which is a non-GAAP financial measure is FFO and the component of AFFO per unit ratios which is a non-GAAP financial measure is AFFO.

 

Management calculates the weighted average units outstanding – diluted (non-GAAP) by excluding the full conversion of the Class C LP Units to Class B LP Units which is not considered a likely scenario. As such, the REIT’s fully diluted per unit FFO and AFFO amounts are calculated excluding the effects of settling the Class C LP Units with Class B LP Units, which management considers as a more meaningful measure.

AFFO Payout Ratio 

The AFFO payout ratio is a non-GAAP ratio which is a measure of the sustainability of the REIT’s distribution payout. Management believes this is a useful measure to investors since this metric provides transparency on performance. Management considers the AFFO payout ratio to be the best measure of the REIT’s distribution capacity. The AFFO payout ratio is not a standardized financial measure under IFRS and should not be considered as an alternative to other ratios determined in accordance with IFRS. The component of the AFFO payout ratio, which is a non-GAAP financial measure is AFFO and the composition of the AFFO payout ratio is as follows: 

Same Store NOI

Same store NOI is a non-GAAP financial measure which reports the period-over-period performance of the same asset base having consistent GLA in both periods. CT REIT management believes same store NOI is a useful measure to gauge the change in asset productivity and asset value. The most directly comparable primary financial statement measure is property revenue. Same store NOI should not be considered as an alternative to property revenue or net income and comprehensive income, both of which are determined in accordance with IFRS.

Same Property NOI

Same property NOI is a non-GAAP financial measure that is consistent with the definition of same store NOI above, except that same property includes the NOI impact of intensifications. Management believes same property NOI is a useful measure to gauge the change in asset productivity and asset value, as well as measure the additional return earned by incremental capital investments in existing assets. The most directly comparable primary financial statement measure is property revenue. Same property NOI should not be considered as an alternative to property revenue or net income and comprehensive income, both of which are determined in accordance with IFRS.

Acquisitions, Developments and Dispositions NOI

Acquisitions, developments and dispositions NOI is a non-GAAP financial measure that is consistent with the definition of NOI above with respect to new property or dispositions of property not included in same property NOI. CT REIT management believes acquisitions, developments and dispositions NOI is a useful measure to gauge the change in asset productivity and asset value. The most directly comparable primary financial statement measure is property revenue. Acquisitions, developments and dispositions NOI should not be considered as an alternative to property revenue or net income and comprehensive income, both of which are determined in accordance with IFRS.

The following table summarizes the same store and same property components of NOI:

Management’s Discussion and Analysis (MD&A) and audited Consolidated Financial Statements and Notes

Information in this press release is a select summary of results. This press release should be read in conjunction with CT REIT’s MD&A for the year ended December 31, 2022 (Q4 2022 MD&A) and audited Consolidated Financial Statements and Notes for the year ended December 31, 2022, which are both available on SEDAR at http://www.sedar.com and at http://www.ctreit.com.

Note: Unless otherwise indicated, all figures in this press release are as at December 31, 2022, and are presented in Canadian dollars.

Forward-Looking Statements

This press release contains forward-looking statements and information that reflect management’s current expectations related to matters such as future financial performance and operating results. Forward-looking statements are provided for the purposes of providing information about management’s current expectations and plans and allowing investors and others to get a better understanding of our future outlook, anticipated events or results and our operating environment. Readers are cautioned that such information may not be appropriate for other purposes.

Certain statements other than statements of historical facts included in this document may constitute forward-looking information, including, but not limited to, statements concerning the REIT’s ability to complete the investments under the heading “New Investment Activity”, the timing and terms of any such investments and the benefits expected to result from such investments, statements concerning developments, intensifications, results, performance, achievements, and prospects or opportunities for CT REIT. Forward-looking information is based on reasonable assumptions, estimates, analyses, beliefs, and opinions of management made in light of its experience and perception of prospects and opportunities, current conditions and expected trends, as well as other factors that management believes to be relevant and reasonable at the date such information is provided.

By its very nature, forward-looking information requires the use of estimates and assumptions and is subject to inherent risks and uncertainties. It is possible that the REIT’s assumptions, estimates, analyses, beliefs, and opinions are not correct, and that the REIT’s expectations and plans will not be achieved. Although the forward-looking information contained in this press release is based on information, assumptions and beliefs which are reasonable in the opinion of management and complete, this information is necessarily subject to a number of factors that could cause actual results to differ materially from management’s expectations and plans as set forth in such forward-looking information. In addition, the effects of the coronavirus (COVID-19) pandemic remain uncertain.

For more information on the risks, uncertainties and assumptions that could cause the REIT’s actual results to differ from current expectations, refer to section 4 “Risk Factors” of CT REIT’s Annual Information Form for fiscal 2022, and to section 12.0 “Enterprise Risk Management” and 14.0 “Forward-looking Information” of CT REIT’s MD&A for fiscal 2022 as well as the REIT’s other public filings available at http://www.sedar.com and at http://www.ctreit.com.

The forward-looking statements and information contained herein are based on certain factors and assumptions as of the date hereof. CT REIT does not undertake to update any forward-looking information, whether written or oral, that may be made from time to time by it or on its behalf, to reflect new information, future events or otherwise, except as is required by applicable securities laws.

Information contained in or otherwise accessible through the websites referenced in this press release does not form part of this press release and is not incorporated by reference into this press release. All references to such websites are inactive textual references and are for information only.

Additional information about CT REIT has been filed electronically with various securities regulators in Canada through SEDAR and is available at http://www.sedar.com and at http://www.ctreit.com.

Conference Call

CT REIT will conduct a conference call to discuss information included in this news release and related matters at 9:00 a.m. ET on February 15, 2023.  The conference call will be available simultaneously and in its entirety to all interested investors and the news media by dialing 416-340-2217 (Participant passcode: 1956348#) or 1-800-806-5484 or through a webcast at https://www.ctreit.com/English/news-and-events/events-and-webcasts/default.aspx and will be available through replay for 12 months.

About CT Real Estate Investment Trust

CT REIT is an unincorporated, closed-end real estate investment trust formed to own income-producing commercial properties located primarily in Canada. Its portfolio is comprised of over 370 properties totalling more than 30 million square feet of GLA, consisting primarily of net lease single-tenant retail properties located across Canada. Canadian Tire Corporation, Limited is CT REIT’s most significant tenant. For more information, visit ctreit.com.

SOURCE CT Real Estate Investment Trust (CT REIT)

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