Choice Properties Real Estate Investment Trust Reports Results for the Six Months Ended June 30, 2022

TORONTO–(BUSINESS WIRE)–Choice Properties Real Estate Investment Trust (“Choice Properties” or the “Trust”) (TSX: CHP.UN) today announced its consolidated financial results for the three and six months ended June 30, 2022. The 2022 Second Quarter Report to Unitholders is available in the Investors section of the Trust’s website at www.choicereit.ca, and has been filed on SEDAR at www.sedar.com.

We delivered solid operating results this quarter with improved occupancy across our portfolio, advancements in our development initiatives, and successful capital raising,” said Rael Diamond, President and Chief Executive Officer of the Trust. “With a focus on our long-term strategy, we continued to execute on our active mixed-use and industrial development projects and completing two significant industrial transactions in the quarter. We also successfully issued $500 million of 10-year term unsecured debentures and redeemed $300 million of debentures coming due, ensuring that we maintain a strong and flexible capital structure.”

The Trust also announced today that the Science Based Target initiative (SBTi) has validated the Trust’s greenhouse gas (GHG) emissions reduction targets, making Choice Properties one of the first entities in Canada to have net-zero targets approved by the SBTi. Mr. Diamond noted that “Fighting climate change is fundamental to our purpose of creating enduring value for all stakeholders and we are proud to deepen our environmental commitment with these targets.”

2022 Second Quarter Highlights

  • Reported net loss for the quarter of $11.8 million, as compared to net income of $84.6 million in Q2 2021, a decrease of $96.4 million.

    • Net fair value loss on investment properties was $523.8 million on a GAAP basis, and $522.3 million on a proportionate share basis(1) as fair value declines in the retail portfolio, due to capitalization rate expansion from rising interest rates and economic volatility, were partially offset by gains in the industrial portfolio and certain development properties.
  • Reported FFO per unit diluted(1) was $0.242, an increase of $0.004 per unit diluted from Q2 2021
  • Period end occupancy improved to 97.6%, reflecting 420,000 square feet of positive absorption

    • Retail at 97.5%, industrial at 99.2% and mixed-use, residential and other at 87.5%.
  • Same-asset NOI on a cash basis(1) increased by 3.8% from Q2 2021

    • Retail increased by 4.0%.
    • Industrial increased by 3.3%.
    • Mixed-use, residential and other increased by 2.2%.
  • Completed $227.9 million of transactions, including $211.3 million of acquisitions and $16.6 million of dispositions.

    • Including the acquisition of an interest in 251 acres of industrial development land north of the Greater Toronto Area (“GTA”) at a cost of approximately $140 million.
  • Completed the issuance of $500 million of Series R senior unsecured debentures bearing interest at a rate of 6.003% per annum and redeemed $300 million 3.60% Series 10 senior unsecured debentures.
  • Invested $19.7 million of capital in development on a proportionate share basis(1).
  • Transferred $16.0 million of properties under development to income producing status, delivering approximately 108,000 square feet of new GLA on a proportionate share basis.
  • Ended quarter with a strong liquidity position with approximately $1.3 billion of available credit, a $12.0 billion pool of unencumbered properties and Adjusted debt to EBITDAFV(1) of 7.4x.
  • Subsequent to the second quarter, the Trust and Loblaw renewed 42 of 44 retail leases from the initial public offering portfolio expiring in 2023, comprising 2.9 million of 3.1 million square feet, at a weighted extension term of 7.7 years.

(1) Refer to Non-GAAP Financial Measures and Additional Financial Information section.

Summary of GAAP Basis Financial Results

($ thousands except where otherwise indicated)

(unaudited)

 

Three Months

 

Six Months

 

June 30, 2022

 

June 30, 2021

 

Change

 

June 30, 2022

 

June 30, 2021

 

Change

Net income (loss)

 

$

(11,810

)

 

$

84,621

 

 

$

(96,431

)

 

$

375,176

 

 

$

22,423

 

 

$

352,753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per unit diluted

 

 

(0.016

)

 

 

0.117

 

 

 

(0.133

)

 

 

0.519

 

 

 

0.031

 

 

 

0.488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

 

 

313,081

 

 

 

323,936

 

 

 

(10,855

)

 

 

641,130

 

 

 

650,475

 

 

 

(9,345

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value gain (loss) on Exchangeable Units(i)

 

 

569,933

 

 

 

(288,924

)

 

 

858,857

 

 

 

451,197

 

 

 

(506,607

)

 

 

957,804

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value gains (losses) excluding Exchangeable Units(ii)

 

 

(680,426

)

 

 

265,973

 

 

 

(946,399

)

 

 

(379,249

)

 

 

325,193

 

 

 

(704,442

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

129,069

 

 

 

122,655

 

 

 

6,414

 

 

 

242,186

 

 

 

271,287

 

 

 

(29,101

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average Units outstanding – diluted(iii)

 

 

723,593,236

 

 

 

723,265,565

 

 

 

327,671

 

 

 

723,530,507

 

 

 

723,120,099

 

 

 

410,408

 

(i)

Exchangeable Units are recorded at their fair value based on the market trading price of the Trust Units, which results in a negative impact to the financial results when the Trust Unit price rises and a positive impact when the Trust Unit price declines.

(ii)

Fair value gains (losses) excluding Exchangeable Units includes adjustments to fair value of investment properties, real estate securities, and unit-based compensation.

(iii)

Includes Trust Units and Exchangeable Units.

Quarterly Results

Choice Properties reported a net loss of $11.8 million for the second quarter of 2022 as compared to net income of $84.6 million in the second quarter of 2021. This decrease compared to the prior year was primarily due to an $792.6 million unfavourable change in fair values of investment properties driven primarily by the expansion of capitalization rates for retail properties, due to rising interest rates. Choice Properties also recorded a $158.7 million unfavourable adjustment to the fair value of its investment in real estate securities of Allied Properties Real Estate Investment Trust (“Allied”), held by the Trust pursuant to its sale of six office properties to Allied in the first quarter of 2022, due to the decrease in the unit price of Allied . These decreases were partially offset by a $858.9 million favourable change in the fair value of the Trust’s Exchangeable Units, due to the decline in the Trust’s Unit price.

Year-to-date Results

Choice Properties reported net income for the six months ended June 30, 2022 of $375.2 million compared to $22.4 million for the six months ended June 30, 2021. The increase compared to the prior year was mainly due to a $957.8 million favourable change in the adjustment to the fair value of the Trust’s Exchangeable Units due to the decrease in the Trust’s Unit price, coupled with a favourable change in the share of income from equity accounted joint ventures of $101.2 million driven by fair value increases in the Trust’s industrial developments. These increases were partially offset by a $549.1 million unfavourable change in the fair value of investment properties, and a $158.7 million unfavourable adjustment to the fair value of real estate securities due to the decrease in the unit price of Allied.

Summary of Proportionate Share(1) Financial Results

As at or for the period ended

($ thousands except where otherwise indicated)

 

Three Months

 

Six Months

 

June 30, 2022

 

June 30, 2021

 

Change

 

June 30, 2022

 

June 30, 2021

 

Change

Rental revenue(i)

 

$

331,415

 

 

$

338,857

 

 

$

(7,442

)

 

$

676,523

 

 

$

680,465

 

 

$

(3,942

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Operating Income (“NOI”), cash basis(i)(ii)

 

 

231,299

 

 

 

233,188

 

 

 

(1,889

)

 

 

468,576

 

 

 

462,821

 

 

 

5,755

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same-Asset NOI, cash basis(i)(ii)

 

 

223,410

 

 

 

215,247

 

 

 

8,163

 

 

 

446,379

 

 

 

430,455

 

 

 

15,924

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustment to fair value of investment properties(i)

 

 

(522,319

)

 

 

280,801

 

 

 

(803,120

)

 

 

(109,639

)

 

 

341,696

 

 

 

(451,335

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Occupancy (% of GLA)

 

 

97.6

%

 

 

96.9

%

 

 

0.7

%

 

 

97.6

%

 

 

96.9

%

 

 

0.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Funds from operations (“FFO”)(i)

 

 

175,290

 

 

 

171,842

 

 

 

3,448

 

 

 

350,426

 

 

 

342,450

 

 

 

7,976

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO(i) per unit diluted

 

 

0.242

 

 

 

0.238

 

 

 

0.004

 

 

 

0.484

 

 

 

0.474

 

 

 

0.010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted funds from operations (“AFFO”)(i)

 

 

163,708

 

 

 

158,700

 

 

 

5,008

 

 

 

324,457

 

 

 

314,016

 

 

 

10,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AFFO(i) per unit diluted

 

 

0.226

 

 

 

0.219

 

 

 

0.007

 

 

 

0.448

 

 

 

0.434

 

 

 

0.014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AFFO(i) payout ratio – diluted

 

 

81.8

%

 

 

84.3

%

 

 

(2.5

) %

 

 

82.5

%

 

 

85.2

%

 

 

(2.7

) %

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash distributions declared

 

 

133,857

 

 

 

133,767

 

 

 

90

 

 

 

267,693

 

 

 

267,473

 

 

 

220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of Units outstanding – diluted(iii)

 

 

723,593,236

 

 

 

723,265,565

 

 

 

327,671

 

 

 

723,530,507

 

 

 

723,120,099

 

 

 

410,408

 

(i)

Refer to Non-GAAP Financial Measures and Additional Financial Information section.

(ii)

Includes a provision for bad debts and rent abatements.

(iii)

Includes Trust Units and Exchangeable Units.

Quarterly and Year-to-date Results

For the three and six months ended June 30, 2022 Same-Asset NOI, increased by $8.2 million and $15.9 million compared to the prior year, respectively, primarily due to increased revenue from contractual rent steps, higher rental rates and occupancy in the Trust’s retail & industrial portfolio, higher capital recoveries, and a decrease in bad debt expense.

For the three months ended June 30, 2022, Funds from Operations (“FFO”, a non-GAAP measure) was $175.3 million or $0.242 per unit diluted compared to $171.8 million or $0.238 per unit diluted for the three months ended June 30, 2021. For the six months ended June 30, 2022, FFO was $350.4 million or $0.484 per unit diluted compared to $342.5 million or $0.474 per unit diluted for the six months ended June 30, 2021.

For the three and six months ended June 30, 2022 FFO increased by $3.4 million and $8.0 million compared to the prior year, respectively, primarily due to higher Same-Asset NOI, an increase in distribution income and interest income from the investment in units of Allied and promissory note issued to Allied in exchange for properties sold to Allied in Q1 2022. These increases were partially offset by the decrease in transaction net operating income, primarily due to the forgone income from the sale of properties to Allied.

Quarterly Transaction and Financing Activity

The Trust completed $227.9 million of transactions in Q2,

  • Acquired an 85% interest in an additional 97 acre land parcel in Caledon, ON, part of an existing industrial development project for $86.7 million;
  • Acquired a 75% interest in 154 acres of industrial development land in East Gwillimbury, Ontario for $52.8 million, by exercising the equity conversion option on a mezzanine loan advanced to the Rice Group. Loblaw Companies Limited (“Loblaw”) has a ground lease for approximately 100 acres of the site and intends to build a 1.2 million square foot automated, multi-temperature industrial facility;
  • Completed the acquisition of strategic retail assets in Halifax, NS and Burlington, ON for $57.3 million;
  • Acquired the Trust’s partner’s 50% interest in an industrial building in Edmonton, AB for $14.5 million, bringing the Trust’s interest in the building to 100%; and
  • Disposed of a non-core retail asset and a development land asset for aggregate proceeds of $16.6 million.

The Trust continued to invest in its’ development program, with $19.7 million of capital investment during the quarter on a proportionate share basis(1). During the quarter, the Trust transferred 108,000 square feet of retail space from properties under development to income producing properties, at a value of $16.0 million on a proportionate share basis(1).

During the second quarter the Trust completed an issuance, on a private placement basis, of $500 million aggregate principal amount of Series R senior unsecured debentures bearing interest at a rate of 6.003% per annum. The net proceeds from the offering were used to pay for the early redemption of Choice Properties Limited Partnership’s $300 million Series 10 senior unsecured debentures, and to repay a portion of the balance drawn on the Trust’s credit facility. Subsequent to the transaction, the Trust has $1.3 billion of borrowing capacity on its credit facility.

Subsequent Event

Subsequent to the second quarter, the Trust and Loblaw renewed 42 of 44 retail leases from the initial public offering portfolio expiring in 2023, comprising 2.9 million of 3.1 million square feet, at a weighted extension term of 7.7 years.

Outlook

Choice Properties is a leading Real Estate Investment Trust that creates enduring value through the ownership, operation and development of high-quality commercial and residential properties. Our goal is to provide net asset value appreciation through stable net operating income growth and capital preservation, all with a long-term focus. Choice Properties is confident that our business model, stable tenant base, strong balance sheet and disciplined approach to financial management will continue to position us well for future success.

Our diversified portfolio of retail, industrial, residential and mixed-use properties is 97.6% occupied and leased to high-quality tenants across Canada. Our portfolio is primarily leased to necessity-based tenants and logistics providers, who are less sensitive to economic volatility and therefore provide stability to our overall portfolio. This stability is evident in our ability to consistently deliver strong financial and operating results. We continue to experience positive leasing momentum across our portfolio and expect occupancy to remain stable for the remainder of the year as we have substantially addressed our 2022 lease renewal exposure.

Last year we made the strategic decision to focus our time and capital on the opportunities available in our core business of essential retail and industrial, our growing residential platform and our robust development pipeline. We have the ability to achieve scale in these asset classes, allowing us to deliver operating efficiencies, generate further investment opportunities, and attract top talent. This decision led to our strategic sale of six high-quality office properties to Allied in the first quarter. We will no longer be focusing our reporting on office as a stand-alone asset class.

We continue to advance our development program, which provides us with the best opportunity to add high-quality real estate to our portfolio at a reasonable cost and drive net asset value appreciation over time. We have a mix of active development projects ranging in size, scale and complexity, including retail intensification projects, industrial development, and rental residential projects located in urban markets with a focus on transit accessibility. In residential, we continue to progress on the construction of two high-rise residential projects, one of which is in Brampton, Ontario located next to the Mount Pleasant GO Station and the other is in the Westboro neighbourhood of Ottawa, Ontario.

In industrial, we have three active development projects, which we expect will deliver 1.5 million square feet at share of new generation logistics space in the near to medium term. Our industrial project at Horizon Business Park in Edmonton, Alberta, comprising two buildings totaling 0.3 million square feet is progressing, with occupancy on the first building commencing in the second quarter and substantial completion and occupancy of the second building anticipated in the second half of 2023. We commenced construction at our second active industrial site in the quarter, a modern logistics facility located in a prime industrial node in Surrey, British Columbia comprising 0.3 million square feet. In addition, during the quarter we exercised our previously announced equity conversion right from Rice Group to acquire a 75% ownership interest in 154 developable acres of industrial land in East Gwillimbury in the GTA. The development plan for the property is to build a multi-phase industrial park with the potential for approximately 1.8 million total square feet of new generation logistics space. For the first phase of the development, we have entered into an approximately 100-acre land lease with Loblaw, who intends to build a 1.2 million square foot, automated, multi-temperature industrial facility on part of the development site, allowing Loblaw to add capacity and advance its supply chain capabilities. Site preparation on the current and future phases of this site commenced during the quarter.

Beyond our active development projects, we have a substantial pipeline of larger, more complex mixed-use developments and land held for future industrial development, which collectively are expected to drive meaningful net asset value growth in the future. We continue to advance the rezoning process for several mixed-use sites with 11 projects representing over 10.5 million square feet in different stages of the rezoning and planning process. Included in our industrial development pipeline is our future developable industrial land in Caledon, Ontario where we hold an 85% interest in 380 net developable acres, including an additional parcel of land adjacent to this site acquired in the quarter, as well as the second phase of our industrial development in East Gwillimbury, Ontario.

Since the start of the year, concerns over inflation have resulted in a significant increase in interest rates with the Bank of Canada (“BoC”) already raising the overnight rate by 200 basis points, with further rate hikes anticipated for the remainder of 2022. We anticipate that rising interest rates may put further downward pressure on the fair value of properties in the second half of 2022.

Given the current economic environment, we took proactive steps to ensure we maintain our financial strength and stability. We successfully issued $500 million of unsecured debentures in the quarter to increase our liquidity position and further stagger our debt maturity profile. From a liquidity perspective, the Trust has $1.4 billion of available liquidity, comprised of $1.3 billion from the unused portion of the Trust’s revolving credit facility and $42.6 million in cash and cash equivalents, in addition to approximately $12.0 billion in unencumbered assets. For the remainder of the year, we have approximately $128 million of remaining debt obligations coming due for which we have several sources of capital available for refinancing.

Non-GAAP Financial Measures and Additional Financial Information

In addition to using performance measures determined in accordance with International Financial Reporting Standards (“IFRS” or “GAAP”), Choice Properties also measures its performance using certain non-GAAP measures, and provides these measures in this news release so that investors may do the same. Such measures and related per-unit amounts are not defined by IFRS and therefore should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS. Furthermore, the supplemental measures used by management may not be comparable to similar measures presented by other real estate investment trusts or enterprises. The non-GAAP measures included in this news release are defined and reconciled to the most comparable GAAP measure below. Choice Properties believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the Trust for the reasons outlined below.

Non-GAAP Measure

Description

Proportionate Share

  • Represents financial information adjusted to reflect the Trust’s equity accounted joint ventures and financial real estate assets and its share of net income (losses) from equity accounted joint ventures and financial real estate assets on a proportionately consolidated basis at the Trust’s ownership percentage of the related investment.
  • Management views this method as relevant in demonstrating the Trust’s ability to manage the underlying economics of the related investments, including the financial performance and cash flows and the extent to which the underlying assets are leveraged, which is an important component of risk management.

Net Operating Income (“NOI”), Accounting Basis

  • Defined as property rental revenue including straight line rental revenue, reimbursed contract revenue and lease surrender revenue, less direct property operating expenses and realty taxes, and excludes certain expenses such as interest expense and indirect operating expenses in order to provide results that reflect a property’s operations before consideration of how it is financed or the costs of operating the entity in which it is held.
  • Management believes that NOI is an important measure of operating performance for the Trust’s commercial real estate assets that is used by real estate industry analysts, investors and management, while also being a key input in determining the fair value of the Choice Properties portfolio.

NOI, Cash Basis

  • Defined as property rental revenue excluding straight line rental revenue, direct property operating expenses and realty taxes and excludes certain expenses such as interest expense and indirect operating expenses in order to provide results that reflect a property’s operations before consideration of how it is financed or the costs of operating the entity in which it is held.
  • Management believes that NOI is a useful measure in understanding period-over-period changes in income from operations due to occupancy, rental rates, operating costs and realty taxes.

Same-Asset NOI, Cash Basis

 

and

 

Same-Asset NOI, Accounting Basis

  • Same-asset NOI is used to evaluate the period-over-period performance of those properties owned and operated by Choice Properties since January 1, 2021, inclusive.
  • NOI from properties that have been (i) purchased, (ii) disposed, or (iii) subject to significant change as a result of new development, redevelopment, expansion, or demolition (collectively, “Transactions”) are excluded from the determination of same-asset NOI.
  • Same-asset NOI, Cash Basis, is useful in evaluating the realization of contractual rental rate changes embedded in lease agreements and/or the expiry of rent-free periods, while also being a useful measure in understanding period-over-period changes in NOI due to occupancy, rental rates, operating costs and realty taxes, before considering the changes in NOI that can be attributed to the Transactions and development activities.

Funds from Operations (“FFO”)

  • Calculated in accordance with the Real Property Association of Canada’s (“REALpac”) Funds From Operations (FFO) & Adjusted Funds From Operations (AFFO) for IFRS issued in January 2022.
  • Management considers FFO to be a useful measure of operating performance as it adjusts for items included in net income (or net loss) that do not arise from operating activities or do not necessarily provide an accurate depiction of the Trust’s past or recurring performance, such as adjustments to fair value of Exchangeable Units, investment properties, investment in real estate securities, and unit-based compensation. From time to time the Trust may enter into transactions that materially impact the calculation and are eliminated from the calculation for management’s review purposes.
  • Management uses and believes that FFO is a useful measure of the Trust’s performance that, when compared period over period, reflects the impact on operations of trends in occupancy levels, rental rates, operating costs and realty taxes, acquisition activities and interest costs.

Adjusted Funds from Operations (“AFFO”)

  • Calculated in accordance with REALpac’s Funds From Operations (FFO) & Adjusted Funds From Operations (AFFO) for IFRS issued in January 2022.
  • Management considers AFFO to be a useful measure of operating performance as it further adjusts FFO for capital expenditures that sustain income producing properties and eliminates the impact of straight-line rent. AFFO is impacted by the seasonality inherent in the timing of executing property capital projects.
  • In calculating AFFO, FFO is adjusted by excluding straight-line rent adjustments, as well as costs incurred relating to internal leasing activities and property capital projects. Working capital changes, viewed as short-term cash requirements or surpluses, are deemed financing activities pursuant to the methodology and are not considered when calculating AFFO.
  • Capital expenditures which are excluded and not deducted in the calculation of AFFO comprise those which generate a new investment stream, such as constructing a new retail pad during property expansion or intensification, development activities or acquisition activities.
  • Accordingly, AFFO differs from FFO in that AFFO excludes from its definition certain non-cash revenues and expenses recognized under GAAP, such as straight-line rent, but also includes capital and leasing costs incurred during the period which are capitalized for GAAP purposes. From time to time the Trust may enter into transactions that materially impact the calculation and are eliminated from the calculation for management’s review purposes.

AFFO Payout Ratio

  • AFFO payout ratio is a supplementary measures used by Management to assess the sustainability of the Trust’s distribution payments.
  • The ratio is calculated using cash distributions declared divided by AFFO.

Earnings before Interest, Taxes, Depreciation, Amortization and Fair Value (“EBITDAFV”)

  • Defined as net income attributable to Unitholders, reversing, where applicable, income taxes, interest expense, amortization expense, depreciation expense, adjustments to fair value and other adjustments as allowed in the Trust Indentures, as supplemented.
  • Management believes EBITDAFV is useful in assessing the Trust’s ability to service its debt, finance capital expenditures and provide for distributions to its Unitholders.

Total Adjusted Debt

  • Defined as variable rate debt (construction loans, mortgages, and credit facility) and fixed rate debt (senior unsecured debentures, construction loans and mortgages), as measured on a proportionate share basis(1), and does not include the Exchangeable Units which are included as part of Unit Equity on account of the Exchangeable Units being economically equivalent and receiving equal distributions to the Trust Units.
  • Total Adjusted Debt is also presented on a net basis to include the impact of other finance charges such as debt placement costs and discounts or premiums, and defeasance or other prepayments of debt.

Adjusted Debt to EBITDAFV

  • Calculated as Total Adjusted Debt divided by EBITDAFV.
  • This ratio is used to assess the financial leverage of Choice Properties, to measure its ability to meet financial obligations and to provide a snapshot of its balance sheet strength.
  • Management also presents this ratio with Total Adjusted Debt calculated as net of cash and cash equivalents at the measurement date.

The following table reconciles net income (loss) as determined in accordance with GAAP to net income on a proportionate share basis for the three and six months ended June 30, 2022.

 

 

Three Months

 

Six Months

For the periods ended June 30 ($ thousands)

 

GAAP

Basis

 

Consolidation

and

eliminations(i)

 

Proportionate

Share Basis

 

GAAP

Basis

 

Consolidation

and

eliminations(i)

 

Proportionate

Share Basis

Net Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

 

$

313,081

 

 

$

18,334

 

 

$

331,415

 

 

$

641,130

 

 

$

35,393

 

 

$

676,523

 

Property operating costs

 

 

(91,303

)

 

 

(6,176

)

 

 

(97,479

)

 

 

(190,854

)

 

 

(12,938

)

 

 

(203,792

)

 

 

 

221,778

 

 

 

12,158

 

 

 

233,936

 

 

 

450,276

 

 

 

22,455

 

 

 

472,731

 

Other Income and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,983

 

 

 

3,200

 

 

 

5,183

 

 

 

9,474

 

 

 

(743

)

 

 

8,731

 

Investment income

 

 

5,165

 

 

 

 

 

 

5,165

 

 

 

5,165

 

 

 

 

 

 

5,165

 

Fee income

 

 

696

 

 

 

 

 

 

696

 

 

 

1,787

 

 

 

 

 

 

1,787

 

Net interest expense and other financing charges

 

 

(132,233

)

 

 

(4,344

)

 

 

(136,577

)

 

 

(263,036

)

 

 

(6,539

)

 

 

(269,575

)

General and administrative expenses

 

 

(11,145

)

 

 

 

 

 

(11,145

)

 

 

(21,985

)

 

 

 

 

 

(21,985

)

Share of income (loss) from equity accounted joint ventures

 

 

12,470

 

 

 

(12,470

)

 

 

 

 

 

127,066

 

 

 

(127,066

)

 

 

 

Amortization of intangible assets

 

 

(250

)

 

 

 

 

 

(250

)

 

 

(500

)

 

 

 

 

 

(500

)

Acquisition transaction costs and other related expenses

 

 

223

 

 

 

 

 

 

223

 

 

 

(5,013

)

 

 

 

 

 

(5,013

)

Other fair value gains (losses), net

 

 

2,064

 

 

 

 

 

 

2,064

 

 

 

998

 

 

 

 

 

 

998

 

Adjustment to fair value of Exchangeable Units

 

 

569,933

 

 

 

 

 

 

569,933

 

 

 

451,197

 

 

 

 

 

 

451,197

 

Adjustment to fair value of investment properties

 

 

(523,775

)

 

 

1,456

 

 

 

(522,319

)

 

 

(221,532

)

 

 

111,893

 

 

 

(109,639

)

Adjustment to fair value of investment in real estate securities

 

 

(158,715

)

0

 

 

 

 

(158,715

)

 

 

(158,715

)

 

 

 

 

 

(158,715

)

Income (Loss) before income taxes

 

 

(11,806

)

 

 

 

 

 

(11,806

)

 

 

375,182

 

 

 

 

 

 

375,182

 

Income tax expense

 

 

(4

)

 

 

 

 

 

(4

)

 

 

(6

)

 

 

 

 

 

(6

)

Net Income (Loss)

 

$

(11,810

)

 

$

 

 

$

(11,810

)

 

$

375,176

 

 

$

 

 

$

375,176

 

(i)

Adjustments reflect the Trust’s share of net income (losses) from equity accounted joint ventures and financial real estate assets on a proportionately consolidated basis at the Trust’s ownership percentage of the related investment.

 

The following table reconciles net income (loss) as determined in accordance with GAAP to net income on a proportionate share basis for the three and six months ended June 30, 2021:

 

 

Three Months

 

Six Months

For the periods ended June 30 ($ thousands)

 

GAAP

Basis

 

Consolidation

and

eliminations(i)

 

Proportionate

Share Basis

 

GAAP

Basis

 

Consolidation

and

eliminations(i)

 

Proportionate

Share Basis

Net Operating Income

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

 

$

323,936

 

 

$

14,921

 

 

$

338,857

 

 

$

650,475

 

 

$

29,990

 

 

$

680,465

 

Property operating costs

 

 

(96,055

)

 

 

(5,459

)

 

 

(101,514

)

 

 

(196,191

)

 

 

(11,351

)

 

 

(207,542

)

 

 

 

227,881

 

 

 

9,462

 

 

 

237,343

 

 

 

454,284

 

 

 

18,639

 

 

 

472,923

 

Other Income and Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

4,528

 

 

 

(1,670

)

 

 

2,858

 

 

 

8,676

 

 

 

(3,003

)

 

 

5,673

 

Fee income

 

 

926

 

 

 

 

 

 

926

 

 

 

1,965

 

 

 

 

 

 

1,965

 

Net interest expense and other financing charges

 

 

(133,779

)

 

 

(1,964

)

 

 

(135,743

)

 

 

(267,342

)

 

 

(3,891

)

 

 

(271,233

)

General and administrative expenses

 

 

(9,508

)

 

 

 

 

 

(9,508

)

 

 

(19,082

)

 

 

 

 

 

(19,082

)

Share of income from equity accounted joint ventures

 

 

17,774

 

 

 

(17,774

)

 

 

 

 

 

25,843

 

 

 

(25,843

)

 

 

 

Amortization of intangible assets

 

 

(250

)

 

 

 

 

 

(250

)

 

 

(500

)

 

 

 

 

 

(500

)

Other fair value gains (losses), net

 

 

(2,882

)

 

 

 

 

 

(2,882

)

 

 

(2,405

)

 

 

 

 

 

(2,405

)

Adjustment to fair value of Exchangeable Units

 

 

(288,924

)

 

 

 

 

 

(288,924

)

 

 

(506,607

)

 

 

 

 

 

(506,607

)

Adjustment to fair value of investment properties

 

 

268,855

 

 

 

11,946

 

 

 

280,801

 

 

 

327,598

 

 

 

14,098

 

 

 

341,696

 

Income (Loss) before Income Taxes

 

 

84,621

 

 

 

 

 

 

84,621

 

 

 

22,430

 

 

 

 

 

 

22,430

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

(7

)

 

 

 

 

 

(7

)

Net Income (Loss)

 

$

84,621

 

 

$

 

 

$

84,621

 

 

$

22,423

 

 

$

 

 

$

22,423

 

(i)

Adjustments reflect the Trust’s share of net income (losses) from equity accounted joint ventures and financial real estate assets on a proportionately consolidated basis at the Trust’s ownership percentage of the related investment.

 

The following table reconciles net income (loss), as determined in accordance with GAAP, to Net Operating Income, Cash Basis, for the periods ended as indicated.

For the periods ended June 30 ($ thousands)

 

Three Months

 

Six Months

 

 

2022

 

 

 

2021

 

 

Change

 

 

2022

 

 

 

2021

 

 

Change

Net income (loss)

 

$

(11,810

)

 

$

84,621

 

 

$

(96,431

)

 

$

375,176

 

 

$

22,423

 

 

$

352,753

 

General and administrative expenses

 

 

11,145

 

 

 

9,508

 

 

 

1,637

 

 

 

21,985

 

 

 

19,082

 

 

 

2,903

 

Fee income

 

 

(696

)

 

 

(926

)

 

 

230

 

 

 

(1,787

)

 

 

(1,965

)

 

 

178

 

Net interest expense and other financing charges

 

 

132,233

 

 

 

133,779

 

 

 

(1,546

)

 

 

263,036

 

 

 

267,342

 

 

 

(4,306

)

Interest income

 

 

(1,983

)

 

 

(4,528

)

 

 

2,545

 

 

 

(9,474

)

 

 

(8,676

)

 

 

(798

)

Investment income

 

 

(5,165

)

 

 

 

 

 

(5,165

)

 

 

(5,165

)

 

 

 

 

 

(5,165

)

Share of income from equity accounted joint ventures

 

 

(12,470

)

 

 

(17,774

)

 

 

5,304

 

 

 

(127,066

)

 

 

(25,843

)

 

 

(101,223

)

Amortization of intangible assets

 

 

250

 

 

 

250

 

 

 

 

 

 

500

 

 

 

500

 

 

 

 

Transaction costs and other related expenses

 

 

(223

)

 

 

 

 

 

(223

)

 

 

5,013

 

 

 

 

 

 

5,013

 

Other fair value gains (losses), net

 

 

(2,064

)

 

 

2,882

 

 

 

(4,946

)

 

 

(998

)

 

 

2,405

 

 

 

(3,403

)

Adjustment to fair value of Exchangeable Units

 

 

(569,933

)

 

 

288,924

 

 

 

(858,857

)

 

 

(451,197

)

 

 

506,607

 

 

 

(957,804

)

Adjustment to fair value of investment properties

 

 

523,775

 

 

 

(268,855

)

 

 

792,630

 

 

 

221,532

 

 

 

(327,598

)

 

 

549,130

 

Adjustment to fair value of investment in real estate securities

 

 

158,715

 

 

 

 

 

 

158,715

 

 

 

158,715

 

 

 

 

 

 

158,715

 

Income tax expense

 

 

4

 

 

 

 

 

 

4

 

 

 

6

 

 

 

7

 

 

 

(1

)

Net Operating Income, Accounting Basis – GAAP

 

 

221,778

 

 

227,881

 

 

(6,103

)

 

450,276

 

 

454,284

 

 

(4,008

)

Straight line rental revenue

 

 

(210

)

 

 

(2,658

)

 

 

2,448

 

 

 

(721

)

 

 

(7,135

)

 

 

6,414

 

Lease surrender revenue

 

 

(1,886

)

 

 

(1,191

)

 

 

(695

)

 

 

(2,284

)

 

 

(2,315

)

 

 

31

 

Net Operating Income, Cash Basis – GAAP

 

 

219,682

 

 

224,032

 

 

(4,350

)

 

447,271

 

 

444,834

 

 

2,437

 

Adjustments for equity accounted joint ventures and financial real estate assets

 

 

11,617

 

 

 

9,156

 

 

 

2,461

 

 

 

21,305

 

 

 

17,987

 

 

 

3,318

 

Net Operating Income, Cash Basis – Proportionate Share

 

$

231,299

 

 

$

233,188

 

 

$

(1,889

)

 

$

468,576

 

 

$

462,821

 

 

$

5,755

 

The following table reconciles Net Operating Income, Cash Basis to Same-Asset Net Operating Income, Cash Basis, for the periods ended as indicated.

For the periods ended June 30 ($ thousands)

 

Three Months

 

 

2022

 

 

2021

 

Change

Net Operating Income, Cash Basis – Proportionate Share

 

$

231,299

 

$

233,188

 

$

(1,889

)

Transactions NOI, Cash Basis

 

 

7,889

 

 

17,941

 

 

(10,052

)

Same-Asset NOI, Cash Basis

 

$

223,410

 

$

215,247

 

$

8,163

 

The following table reconciles net income, as determined in accordance with GAAP, to Funds from Operations for the periods ended as indicated.

 

 

Three Months

 

Six Months

For the periods ended June 30 ($ thousands)

 

 

2022

 

 

 

2021

 

 

Change

 

 

2022

 

 

 

2021

 

 

Change

Net income (loss)

 

$

(11,810

)

 

$

84,621

 

 

$

(96,431

)

 

$

375,176

 

 

$

22,423

 

 

$

352,753

 

Amortization of intangible assets

 

 

250

 

 

 

250

 

 

 

 

 

 

500

 

 

 

500

 

 

 

 

Transaction costs and other related expenses

 

 

(223

)

 

 

 

 

 

(223

)

 

 

5,013

 

 

 

 

 

 

5,013

 

Other fair value gains (losses), net

 

 

(2,064

)

 

 

2,882

 

 

 

(4,946

)

 

 

(998

)

 

 

2,405

 

 

 

(3,403

)

Adjustment to fair value of Exchangeable Units

 

 

(569,933

)

 

 

288,924

 

 

 

(858,857

)

 

 

(451,197

)

 

 

506,607

 

 

 

(957,804

)

Adjustment to fair value of investment properties

 

 

523,775

 

 

 

(268,855

)

 

 

792,630

 

 

 

221,532

 

 

 

(327,598

)

 

 

549,130

 

Adjustment to fair value of investment property held in equity accounted joint ventures

 

 

(1,456

)

 

 

(11,946

)

 

 

10,490

 

 

 

(111,893

)

 

 

(14,098

)

 

 

(97,795

)

Adjustment to fair value of investment in real estate securities

 

 

158,715

 

 

 

 

 

 

158,715

 

 

 

158,715

 

 

 

 

 

 

158,715

 

Interest otherwise capitalized for development in equity accounted joint ventures

 

 

2,488

 

 

 

944

 

 

 

1,544

 

 

 

2,728

 

 

 

1,965

 

 

 

763

 

Exchangeable Units distributions

 

 

73,221

 

 

 

73,221

 

 

 

 

 

 

146,442

 

 

 

146,442

 

 

 

 

Internal expenses for leasing

 

 

2,323

 

 

 

1,801

 

 

 

522

 

 

 

4,402

 

 

 

3,797

 

 

 

605

 

Income tax expense

 

 

4

 

 

 

 

 

 

4

 

 

 

6

 

 

 

7

 

 

 

(1

)

Funds from Operations

 

$

175,290

 

 

$

171,842

 

 

$

3,448

 

 

$

350,426

 

 

$

342,450

 

 

$

7,976

 

FFO per Unit – diluted(i)

 

$

0.242

 

 

$

0.238

 

 

$

0.004

 

 

$

0.484

 

 

$

0.474

 

 

$

0.010

 

Weighted average Units outstanding – diluted(ii)

 

 

723,593,236

 

 

 

723,265,565

 

 

 

327,671

 

 

 

723,530,507

 

 

 

723,120,099

 

 

 

410,408

 

(i)

FFO payout ratio is calculated as cash distributions declared divided by FFO

(ii)

Includes Trust Units and Exchangeable Units.

The following table reconciles Funds from Operations to Adjusted Funds from Operations for the periods ended as indicated.

 

 

Three Months

 

Six Months

For the periods ended June 30 ($ thousands)

 

 

2022

 

 

 

2021

 

 

Change

 

 

2022

 

 

 

2021

 

 

Change

Funds from Operations

 

$

175,290

 

 

$

171,842

 

 

$

3,448

 

 

$

350,426

 

 

$

342,450

 

 

$

7,976

 

Internal expenses for leasing

 

 

(2,323

)

 

 

(1,801

)

 

 

(522

)

 

 

(4,402

)

 

 

(3,797

)

 

 

(605

)

Straight line rental revenue

 

 

(210

)

 

 

(2,658

)

 

 

2,448

 

 

 

(721

)

 

 

(7,135

)

 

 

6,414

 

Adjustment for proportionate share of straight line rental revenue from equity accounted joint ventures and financial real estate assets

 

 

(541

)

 

 

(306

)

 

 

(235

)

 

 

(940

)

 

 

(652

)

 

 

(288

)

Property capital

 

 

(2,998

)

 

 

(2,280

)

 

 

(718

)

 

 

(5,362

)

 

 

(4,964

)

 

 

(398

)

Direct leasing costs

 

 

(1,358

)

 

 

(1,852

)

 

 

494

 

 

 

(3,157

)

 

 

(2,896

)

 

 

(261

)

Tenant improvements

 

 

(3,320

)

 

 

(3,644

)

 

 

324

 

 

 

(9,437

)

 

 

(7,906

)

 

 

(1,531

)

Adjustment for proportionate share of operating capital expenditures from equity accounted joint ventures and financial real estate assets

 

 

(832

)

 

 

(601

)

 

 

(231

)

 

 

(1,950

)

 

 

(1,084

)

 

 

(866

)

Adjusted Funds from Operations

 

$

163,708

 

 

$

158,700

 

 

$

5,008

 

 

$

324,457

 

 

$

314,016

 

 

$

10,441

 

AFFO per unit – diluted

 

$

0.226

 

 

$

0.219

 

 

$

0.007

 

 

$

0.448

 

 

$

0.434

 

 

$

0.014

 

AFFO payout ratio – diluted(i)

 

 

81.8

%

 

 

84.3

%

 

 

(2.5

) %

 

 

82.5

%

 

 

85.2

%

 

 

(2.7

) %

Distribution declared per Unit

 

$

0.185

 

 

$

0.185

 

 

$

 

 

$

0.370

 

 

$

0.370

 

 

$

 

Weighted average Units outstanding – diluted(ii)

 

 

723,593,236

 

 

 

723,265,565

 

 

 

327,671

 

 

 

723,530,507

 

 

 

723,120,099

 

 

 

410,408

 

(i)

AFFO payout ratio is calculated as cash distributions declared divided by AFFO

(ii)

Includes Trust Units and Exchangeable Units.

Management’s Discussion and Analysis and Consolidated Financial Statements and Notes

Information appearing in this news release is a select summary of results. This news release should be read in conjunction with the Choice Properties 2022 Second Quarter Report to Unitholders, which includes the condensed consolidated financial statements and MD&A for the Trust, and is available at www.choicereit.ca and on SEDAR at www.sedar.com.

Conference Call and Webcast

Management will host a conference call on Friday, July 22, 2022 at 9:00AM (ET) with a simultaneous audio webcast. To access via teleconference, please dial (240) 789-2714 or (888) 330-2454 and enter the event passcode: 4788974. The link to the audio webcast will be available on www.choicereit.ca/events-webcasts.

About Choice Properties Real Estate Investment Trust

Choice Properties is a leading Real Estate Investment Trust that creates enduring value through the ownership, operation and development of high-quality commercial and residential properties.

We believe that value comes from creating spaces that improve how our tenants and communities come together to live, work, and connect. We strive to understand the needs of our tenants and manage our properties to the highest standard. We aspire to develop healthy, resilient communities through our dedication to social, economic, and environmental sustainability. In everything we do, we are guided by a shared set of values grounded in Care, Ownership, Respect and Excellence. For more information, visit Choice Properties’ website at www.choicereit.ca and Choice Properties’ issuer profile at www.sedar.com.

Cautionary Statements Regarding Forward-looking Statements

This news release contains forward-looking statements relating to Choice Properties’ operations and the environment in which the Trust operates, which are based on management’s expectations, estimates, forecasts and projections. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. Therefore, actual outcomes and results may differ materially from those expressed in these forward-looking statements. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, a forward-looking statement speaks only as of the date on which such statement is made. Management undertakes no obligation to publicly update any such statement, to reflect new information or the occurrence of future events or circumstances, except as required by law.

Numerous risks and uncertainties could cause the Trust’s actual results to differ materially from those expressed, implied or projected in the forward-looking statements, including those described in Section 12, “Enterprise Risks and Risk Management” of the Trust’s MD&A for the year ended December 31, 2021, which includes detailed risks and disclosure regarding COVID-19 and its impact on the Trust, and those described in the Trust’s Annual Information Form for the year ended December 31, 2021.

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