Plaza Retail REIT Announces Second Quarter 2022 Results

Aug 3, 2022

FREDERICTON, NB, Aug. 3, 2022 /CNW/ - Plaza Retail REIT (TSX: PLZ.UN) ("Plaza" or the "REIT") today announced its financial results for the three and six months ended June 30, 2022.

"We continue to realize positive results and growth from our portfolio of open-air centres, dominated by national tenants in the essential needs, value and convenience categories," said Michael Zakuta, President and CEO. "In the current environment of rising interest rates, we will benefit from our conservative approach to debt financing, supported by our very resilient tenant base. With a balanced debt maturity ladder that consists of mostly fixed-rate debt and nominal floating rate exposure, we are well-positioned." 

Summary of Selected IFRS Financial Results

 

(CAD$000s, except percentages)

Three

Months

Ended

June 30,

2022

Three

Months

Ended

June 30,

2021

$

Change

%

Change

Six

 Months
Ended

June 30,
2022

Six

 Months
Ended

June 30,
2021

$ 
Change

%
Change










Revenues

$27,754

$29,944

($2,190)

(7.3 %)

$55,658

$56,652

($994)

(1.8 %)










Net operating income (NOI)(1)

$17,705

$20,204

($2,499)

(12.4 %)

$34,835

$36,512

($1,677)

(4.6 %)










Net change in fair value of
investment properties

($6,396)

$9,283

($15,679)

-

$6,038

$12,381

($6,343)

--










Profit and total comprehensive
income

$6,968

$19,622

($12,654)

-

$32,800

$31,846

$954

--












(1)

This is a non-GAAP financial measure. Refer to the Non-GAAP Financial Measures defined here and in Part I and VII of the Management's Discussion and Analysis ("MD&A") ending June 30, 2022 for more information on each non-GAAP financial measure.

Quarterly Highlights
  • NOI was $17.7 million, down $2.5 million (12.4%) from the same period in 2021, primarily as a result of $3 million of lease buyouts in NOI in the same period in the prior year, offset by an increase in NOI in the current quarter.
  • Profit and total comprehensive income for the current quarter was $7.0 million compared to $19.6 million in the same period in the prior year. The decrease was mainly due to a decrease in the fair value of investment properties recorded in Q2 2022 as a result of an increase in capitalization rates in the current quarter.
Year-To-Date Highlights
  • NOI was $34.8 million, down $1.7 million (4.6%) from the same period in 2021, primarily as a result of $3.1 million of lease buyouts in NOI in the same period in the prior year, offset by an increase in NOI in the current year.
  • Profit and total comprehensive income for the current year to date was $32.8 million compared to $31.8 million in the same period in the prior year. The increase was mainly due to an increase in the fair value of investment properties of $6.0 million in the current year compared to a fair value increase of $12.4 million in the same period in the prior year mainly due to changes in capitalization rates and appraisals obtained. Profit was also impacted by the increase in NOI, an increase in the share of profit of associates relating to the non-cash fair value adjustment of the underlying properties in the current year, and changes in non-cash fair value adjustments relating to interest rate swaps, the Class B exchangeable LP units, and convertible debentures.

Summary of Selected Non-IFRS Financial Results

 

(CAD$000s, except percentages,
units repurchased and per unit
amounts)

Three
Months
Ended

June 30,
2022

Three
Months
Ended

June 30,
2021

$ 
Change

%
Change

Six

Months

Ended

June 30,

2022

Six

Months

Ended

June 30,

2021

$
Change

%
Change










FFO(1)

$10,264

$13,054

($2,790)

(21.4 %)

$20,420

$22,608

($2,188)

(9.7 %)

FFO per unit(1)

$0.100

$0.127

($0.027)

(21.3 %)

$0.198

$0.220

($0.022)

(10.0 %)

FFO payout ratio(1)

70.2 %

55.2 %

n/a

27.2 %

70.6 %

63.8 %

n/a

10.7 %










AFFO(1)

$8,302

$11,158

($2,856)

(25.6 %)

$17,382

$19,834

($2,452)

(12.4 %)

AFFO per unit(1)

$0.081

$0.108

($0.027)

(25.0 %)

$0.169

$0.193

($0.024)

(12.4 %)

AFFO payout ratio(1)

86.8 %

64.6 %

n/a

34.4 %

83.0 %

72.7 %

n/a

14.2 %










Same-asset NOI(1)

$17,642

$17,221

$421

2.4 %

$34,690

$33,808

$882

2.6 %










Normal course issuer bid – units
repurchased

2,900

6,750

n/a

n/a

5,100

14,600

n/a

n/a










Committed occupancy – including
non-consolidated investments(2)





96.6 %

95.9 %

n/a

0.7 %

Same-asset committed occupancy(3)





96.6 %

95.5 %

n/a

1.2 %










 

(1) This is a non-GAAP financial measure.  Refer to the Non-GAAP Financial Measures defined here and in Part I and VII of the MD&A ending June 30, 2022 for more information on each non-GAAP financial measure.

(2) Excludes properties under development. 

(3) Same-asset committed occupancy excludes properties under development and non-consolidated investments.

Quarterly Highlights
  • FFO & AFFO: For the three months ended June 30, 2022, FFO per unit decreased by $0.027 (21.3%) compared to the same period in the prior year. FFO was impacted by the $3 million of lease buyouts in the same period in the prior year, offset by an increase in NOI, and lower finance costs mainly due to lower interest expense. AFFO per unit decreased by $0.027 (25.0%) compared to the same period in the prior year due to the changes in FFO noted above as well as higher leasing costs in the current period due to increased leasing activity, which will result in increased revenue going forward. Excluding the impact of the prior period lease buyouts, and COVID-related bad debt expense, FFO and FFO per unit would have been 3% higher than the prior year. AFFO and AFFO per unit adjusted for these same items would have been 3% higher than the prior year.
  • Same-asset NOI increased by $421 thousand (2.4%) mainly due to lease-up and rent escalations, as well as lower bad debt expense in the current period and lower operating expense due to timing of operational projects.
Year-To-Date Highlights
  • FFO & AFFO: For the six months ended June 30, 2022, FFO per unit decreased by $0.022 (10.0%) compared to the same period in the prior year. FFO was impacted by the $3.1 million of lease buyouts in the prior year, offset by an increase in NOI, and lower finance costs mainly due to lower interest expense. AFFO per unit decreased by $0.024 (12.4%) compared to the same period in the prior year due to the changes in FFO noted above as well as higher leasing costs in the current year due to increased leasing activity, which will result in increased revenue going forward. Excluding the prior year impact of lease buyouts, and COVID-related bad debt expense, FFO and FFO per unit would have been 5% higher than the prior year. AFFO and AFFO per unit adjusted for these same items would have been 4% higher than the same period in the prior year.
  • Same-asset NOI increased by $882 thousand (2.6%) mainly due to lease-up and rent escalations, as well as lower bad debt expense in the current year and lower operating expense due to timing of operational projects.
Non-GAAP Financial Measures

This press release contains certain non-GAAP financial measures including FFO, AFFO and same-asset NOI. These measures are commonly used by entities in the real estate industry as useful metrics for measuring performance. However, they do not have a standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other publicly traded entities. These measures should be considered as supplemental in nature and not as a substitute for related financial information prepared in accordance with IFRS. For further explanation of non-GAAP measures and their usefulness in assessing Plaza's performance, please refer to the section "Basis of Presentation" in Part I and the section "Explanation of Non-GAAP Measures" in Part VII of the REIT's Management's Discussion and Analysis as at June 30, 2022, which can be found on Plaza's website at www.plaza.ca and on SEDAR at www.sedar.com.

The following tables reconcile the non-GAAP measures FFO, AFFO, and NOI to the most comparable IFRS measures.

Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO)

Plaza's summary of FFO and AFFO for the three and six months ended June 30, 2022, compared to the three and six months ended June 30, 2021 is presented below:


3 Months
Ended

June 30,

2022

3 Months
Ended

June 30,

2021

6 Months

Ended

June 30,

2022

6 Months

Ended

June 30,

 2021

(000s – except per unit amounts and percentage data)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Profit and total comprehensive income for the period
attributable to unitholders

$    7,024

$   18,979

$   32,586

$  31,124

Add (deduct):





Incremental leasing costs included in administrative expenses(7)

532

434

871

750

Debenture issuance costs

-

346

-

346

Amortization of debenture issuance costs(8)

(121)

(118)

(241)

(221)

Distributions on Class B exchangeable LP units included in
   finance costs

84

84

167

167

Deferred income taxes

(305)

7

661

44

Land lease principal repayments

(194)

(190)

(388)

(377)

Fair value adjustment to restricted and deferred units

(269)

157

(158)

239

Fair value adjustment to investment properties

6,396

(9,283)

(6,038)

(12,381)

Fair value adjustment to investments(9)

833

79

(1,557)

189

Fair value adjustment to Class B exchangeable LP units

(1,072)

750

(631)

1,179

Fair value adjustment to convertible debentures

(883)

569

(723)

2,864

Fair value adjustment to interest rate swaps

(1,678)

486

(4,225)

(2,075)

Fair value adjustment to right-of-use land lease assets

194

190

388

377

Equity accounting adjustment(10)

(114)

14

(300)

(155)

Non-controlling interest adjustment(6)

(163)

550

8

538

Basic FFO(1)

$   10,264

$   13,054

$    20,420

$   22,608

Add (deduct):





Non-cash revenue – straight-line rent(5)

19

29

134

175

Leasing costs – existing properties(2) (5)(11)

(1,760)

(1,457)

(2,851)

(2,275)

Maintenance capital expenditures – existing properties(2) (5)(12)

(234)

(504)

(360)

(729)

Non-controlling interest adjustment(6)

13

36

39

55

Basic AFFO(1)

$     8,302

$   11,158

$   17,382

$   19,834

Basic weighted average units outstanding(3)

103,005

102,987

103,005

102,990

Basic FFO per unit(1)

$     0.100

$     0.127

$     0.198

$    0.220

Basic AFFO per unit(1)

$     0.081

$     0.108

$     0.169

$    0.193

Gross distributions to unitholders(4)

$     7,210

$     7,209

$   14,419

$  14,417

Distributions as a percentage of basic FFO(1)

70.2 %

55.2 %

70.6 %

63.8 %

Distributions as a percentage of basic AFFO(1)

86.8 %

64.6 %

83.0 %

72.7 %






Basic FFO(1)

$    10,264

$   13,054

$   20,420

$  22,608

Interest on dilutive convertible debentures

779

779

1,550

1,550

Diluted FFO(1)

$    11,043

$   13,833

$   21,970

$  24,158

Diluted weighted average units outstanding(3)

113,899

113,880

113,898

113,883

Basic AFFO(1)

$      8,302

$   11,158

$   17,382

$  19,834

Interest on dilutive convertible debentures

779

779

1,550

1,550

Diluted AFFO(1)

$      9,081

$   11,937

$   18,932

$  21,384

Diluted weighted average units outstanding(3)

113,899

113,880

113,898

113,883

Diluted FFO per unit(1)

$      0.097

$     0.121

$     0.193

$    0.212

Diluted AFFO per unit(1)

$      0.080

$     0.105

$     0.166

$    0.188








(1)

This is a non-GAAP financial measure.  Refer to the Non-GAAP Financial Measures defined here and in Part I and VII of the REIT's MD&A ending June 30, 2022 for more information on each non-GAAP financial measure.

(2)

Based on actuals.

(3)

Includes Class B exchangeable LP units.

(4)

Includes distributions on Class B exchangeable LP units.

(5)

Includes proportionate share of revenue and expenditures at equity-accounted investments.

(6)

The non-controlling interest ("NCI") adjustment, includes adjustments required to translate the profit and total comprehensive income (loss) attributable to NCI of ($56) thousand and $214 thousand for the three and six months ending June 30, 2022, respectively (June 30, 2021 - $643 thousand and $722 thousand, respectively) to FFO and AFFO for the NCI.

(7)

Incremental leasing costs included in administrative expenses include leasing costs of salaried leasing staff directly attributed to signed leases and that would otherwise be capitalized if incurred from external sources.  These costs are excluded from FFO in accordance with RealPAC's definition of FFO.

(8)

Amortization of debenture issuance costs is deducted on a straight-line basis over the remaining term of the related convertible debentures.  In accordance with RealPAC.

(9)

Fair value adjustment to investments relate to the unrealized change in fair value of equity accounted entities which are excluded from FFO in accordance with RealPAC's definition of FFO.

(10)

Equity accounting adjustment for interest rate swaps includes the change in non-cash fair value adjustments relating to interest rate swaps held by equity accounted entities, which are excluded from FFO in accordance with RealPAC's definition of FFO.

(11)

Leasing costs – existing properties include internal and external leasing costs except to the extent that leasing costs relate to development projects, in accordance with RealPAC's definition of AFFO.  See the Gross Capital Additions Including Leasing Fees note on page 27 of the MD&A.

(12)

Maintenance capital expenditures – existing properties include expenditures related to sustaining and maintaining existing space, in accordance with RealPAC's definition of AFFO.  See the Gross Capital Additions Including Leasing Fees note on page 27 of the MD&A.

Net Property Operating Income (NOI) and Same-Asset Net Property Operating Income (Same-Asset NOI)

 

 

(000s)

3 Months

Ended

June 30,

2022

(unaudited)

3 Months

Ended

June 30,

2021

(unaudited)

6 Months

Ended

June 30,

 2022

(unaudited) 

6 Months

Ended

June 30

2021,

 (unaudited)

Same-asset NOI(1)

$  17,642

$   17,221

$   34,690

$   33,808

Developments and redevelopments transferred to income
producing in 2021 & 2022 ($590 thousand annualized NOI)

120

4

185

(3)

NOI from acquisitions, properties currently under development
and redevelopment ($6.3 million annualized NOI)

965

683

1,721

1,064

Straight-line rent

(17)

(29)

(132)

(175)

Administrative expenses charged to NOI

(1,000)

(846)

(1,730)

(1,541)

Lease buyout revenue

-

3,023

105

3,098

Properties disposed

(5)

148

(4)

261

Total NOI(1)

$  17,705

$   20,204

$   34,835

$   36,512






(1)

This is a non-GAAP financial measure.  Refer to the Non-GAAP Financial Measures defined here and in Part I and VII of the REIT's MD&A for more information on each non-GAAP financial measure.

Cautionary Statements Regarding Forward-looking Information

This press release contains forward-looking statements relating to Plaza's operations, prospects, condition and the environment in which it operates, including that Plaza will benefit from its approach to debt financing in the current environment, supported by its tenant base.  Forward-looking statements are not future guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Plaza to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements contained in this press release, including but not limited to the duration and full impacts of COVID-19 on the business, operations and financial condition of the REIT, its tenants and the economy in general; changes in economic, retail, capital market, or debt market conditions, including recessions and changes in, or the extent of changes in, interest rates and the rate of inflation; and those described in Plaza's Annual Information Form for the year ended December 31, 2021 and Management's Discussion and Analysis for the six months ended June 30, 2022 which can be obtained on the REIT's website at www.plaza.ca or on SEDAR at www.sedar.com. Forward-looking statements are based on a number of expectations and assumptions made in light of management's experience and perceptions of historical trends and current conditions, including the strength and resiliency of Plaza's tenant base and that tenant demand for space continues. Although based upon information currently available to management and what management believes are reasonable expectations and assumptions, there can be no assurances that forward-looking statements will prove to be accurate. Readers, therefore, should not place undue reliance on any forward-looking statements. Plaza undertakes no obligation to publicly update any such statements, except as required by law. These cautionary statements qualify all forward-looking statements contained in this press release.    

Further Information

Information appearing in this press release is a select summary of results. A more detailed analysis of the REIT's financial and operating results is included in the REIT's Management's Discussion and Analysis and Consolidated Financial Statements, which can be found on the REIT's website at www.plaza.ca or on SEDAR at www.sedar.com. 

Conference Call

Michael Zakuta, President and CEO, and Jim Drake, CFO, will host a conference call for the investment community on Thursday, August 4, 2022 at 10:00 a.m. EDT. The call-in numbers for participants are 1-416-764-8659 (local Toronto) or 1-902-704-0254 (local Halifax) or 1-888-664-6392 (toll free, within North America).

A replay of the call will be available until August 11, 2022. To access the replay, dial 1-416-764-8677 (local Toronto) or 1-888-390-0541 (Passcode: 439673). The audio replay will also be available for download on the REIT's website for 90 days following the conference call.

About Plaza

Plaza is an open-ended real estate investment trust and is a leading retail property owner and developer, focused on Ontario, Quebec and Atlantic Canada. Plaza's portfolio at June 30, 2022 includes interests in 253 properties totaling approximately 8.8 million square feet across Canada and additional lands held for development. Plaza's portfolio largely consists of open-air centres and stand-alone small box retail outlets and is predominantly occupied by national tenants. For more information, please visit www.plaza.ca.  

SOURCE Plaza Retail REIT

For further information: Jim Drake, Chief Financial Officer, Plaza Retail REIT, Tel: 902-483-4064; Michael Zakuta, President & Chief Executive Officer, Plaza Retail REIT, Tel: 514-457-7007