Plaza Retail REIT Announces Third Quarter 2022 Results

FREDERICTON, NB, Nov. 10, 2022 /CNW/ - Plaza Retail REIT (TSX: PLZ.UN) ("Plaza" or the "REIT") today announced its financial results for the three and nine months ended September 30, 2022.

"Demand from tenants in the essential needs, value and convenience categories is very robust, and we are seeing the results in our historically high committed occupancy", said Michael Zakuta, President and CEO.  "This demand has also allowed us to continue to improve the quality of our portfolio by leasing to resilient tenants with sustainable offerings.  Despite the challenges of inflation, higher interest rates and construction delays, our business is strong and our outlook positive." 

Summary of Selected IFRS Financial Results
(CAD$000s, except percentages)	Three Months Ended September 30, 2022	Three Months Ended September 30, 2021	$ Change	% Change	Nine  Months Ended September 30, 2022	Nine  Months Ended September 30, 2021	$  Change	% Change
Revenues	$27,609	$26,597	$1,012	3.8 %	$83,267	$83,249	$18	0.2 %
Net operating income (NOI)^(1)	$18,156	$18,079	$77	0.4 %	$52,991	$54,591	($1,600)	(2.9 %)
Net change in fair value of investment properties	($4,235)	$16,010	($20,245)	-	$1,803	$28,391	($26,588)	--
Profit and total comprehensive income	$7,236	$27,908	($20,672)	-	$40,036	$59,754	($19,718)	--

(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 September 30, 2022 for more information on each non-GAAP financial measure.

Quarterly Highlights

• NOI was $18.2 million, up $77 thousand (0.4%) from the same period in 2021, as a result of an increase in NOI from acquisitions, developments and properties transferred to income producing in 2021 and 2022, offset by higher same-asset operating expenses in the current quarter.
• Profit and total comprehensive income for the current quarter was $7.2 million compared to $27.9 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 Q3 2022 as a result of an increase in capitalization rates in the current quarter.

Year-To-Date Highlights

• NOI was $53.0 million, down $1.6 million (2.9%) from the same period in 2021, primarily as a result of $3.1 million of lease termination fees received and included in NOI in the same period in the prior year, partially offset by an increase in NOI in the current year.
• Profit and total comprehensive income for the current year to date was $40.0 million compared to $59.8 million in the same period in the prior year. The decrease was mainly due to an increase in the fair value of investment properties of $1.8 million in the current year compared to a fair value increase of $28.4 million in the same period in the prior year. The fair value change was mainly due to increases in capitalization rates and appraisals obtained. Profit was also impacted by the lease termination fees received and included in the prior year, an increase in administrative expenses, 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 September 30, 2022	Three Months Ended September 30, 2021	$  Change	% Change	Nine Months Ended September 30, 2022	Nine Months Ended September 30, 2021	$ Change	% Change
FFO^(1)	$10,731	$11,324	($593)	(5.2 %)	$31,151	$33,932	($2,781)	(8.2 %)
FFO per unit^(1)	$0.104	$0.110	($0.006)	(5.5 %)	$0.302	$0.329	($0.027)	(8.2 %)
FFO payout ratio^(1)	67.2 %	63.6 %	n/a	5.7 %	69.4 %	63.7 %	n/a	8.9 %
AFFO^(1)	$8,278	$9,446	($1,168)	(12.4 %)	$25,660	$29,280	($3,620)	(12.4 %)
AFFO per unit^(1)	$0.080	$0.092	($0.012)	(13.0 %)	$0.249	$0.284	($0.035)	(12.3 %)
AFFO payout ratio^(1)	87.1 %	76.3 %	n/a	14.1 %	84.3 %	73.9 %	n/a	14.1 %
Same-asset NOI^(1)	$17,957	$18,102	$145	(0.8 %)	$52,597	$51,856	$741	1.4 %
Normal course issuer bid – units repurchased	7,437	7,550	n/a	n/a	12,537	22,150	n/a	n/a
Committed occupancy – including non-consolidated investments^(2)					97.2 %	96.2 %	n/a	1.0 %
Same-asset committed occupancy^(3)					97.0 %	96.2 %	n/a	0.8 %

⁽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 September 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 September 30, 2022, FFO per unit decreased by $0.006 (5.5%) compared to the same period in the prior year. FFO was impacted by an increase in NOI from acquisitions, developments and properties transferred to income producing in 2021 and 2022, offset by a decrease in same-asset NOI due to the timing of certain operating expenses, an increase in finance and administrative expenses and insurance proceeds received in the prior year. AFFO per unit decreased by $0.012 (13.0%) 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 lease termination fees, insurance proceeds and COVID-related bad debt expense in the prior period, FFO and FFO per unit would have been 3% lower than the prior year. AFFO and AFFO per unit adjusted for these same items would have been 9.7% lower than the prior year.
• Same-asset NOI decreased by $145 thousand (0.8%) mainly due to timing of certain operating expenses in the current quarter, somewhat offset by an increase in rental revenue from lease-up and rent escalations.

Year-To-Date Highlights

• FFO & AFFO: For the nine months ended September 30, 2022, FFO per unit decreased by $0.027 (8.2%) compared to the same period in the prior year. FFO was impacted by an increase in NOI from acquisitions, developments and properties transferred to income producing properties in 2021 and 2022, an increase in same-asset NOI, offset by the $3.1 million of lease termination fees received and included in the prior year, an increase in administrative costs and insurance proceeds received in the prior year. AFFO per unit decreased by $0.035 (12.3%) 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 impact of lease termination fees, insurance proceeds and COVID-related bad debt expense in the prior year, FFO and FFO per unit would have been 2% higher than the prior year. AFFO and AFFO per unit adjusted for these same items would have been 1% lower than the same period in the prior year.
• Same-asset NOI increased by $741 thousand (1.4%) mainly due to lease-up and rent escalations, as well as lower bad debt expense in the current year, more than offsetting the increase in operating expenses.

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 September 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 nine months ended September 30, 2022, compared to the three and nine months ended September 30, 2021 is presented below:

(000s – except per unit amounts and percentage data, unaudited)	3 Months Ended September 30, 2022	3 Months Ended September 30, 2021	Change over Prior Period	9 Months Ended September 30, 2022	9 Months Ended September 30, 2021	Change over Prior Period
Profit and total comprehensive income for the period attributable to unitholders	$7,151	$27,756		$39,737	$58,880
Incremental leasing costs included in administrative expenses^(7)	335	322		1,206	1,072
Debenture issuance costs	-	24		-	370
Amortization of debenture issuance costs^(8)	(121)	(118)		(362)	(339)
Distributions on Class B exchangeable LP units included in finance costs	83	83		250	250
Deferred income taxes	(619)	(73)		42	(29)
Land lease principal repayments	(195)	(190)		(583)	(567)
Fair value adjustment to restricted and deferred units	(88)	(25)		(246)	214
Fair value adjustment to investment properties	4,235	(16,010)		(1,803)	(28,391)
Fair value adjustment to investments^(9)	413	(133)		(1,144)	56
Fair value adjustment to Class B exchangeable LP units	(322)	(119)		(953)	1,060
Fair value adjustment to convertible debentures	(237)	(31)		(960)	2,833
Fair value adjustment to interest rate swaps	(41)	(361)		(4,266)	(2,436)
Fair value adjustment to right-of-use land lease assets	195	190		583	567
Equity accounting adjustment^(10)	(29)	(28)		(329)	(183)
Non-controlling interest adjustment^(6)	(29)	37		(21)	575
FFO^(1)	$10,731	$11,324	(593)	$31,151	$33,932	(2,781)
FFO change over prior period - %			(5.2 %)			(8.2 %)
FFO^(1)	$10,731	$11,324		$31,151	$33,932
Non-cash revenue – straight-line rent^(5)	(15)	31		119	206
Leasing costs – existing properties^(2) (5)(11)	(1,687)	(1,325)		(4,538)	(3,599)
Maintenance capital expenditures – existing properties^(2) (5)(12)	(790)	(589)		(1,150)	(1,319)
Non-controlling interest adjustment^(6)	39	5		78	60
AFFO^(1)	8,278	9,446	(1,168)	25,660	29,280	(3,620)
AFFO change over prior period - %			(12.4 %)			(12.4 %)
Weighted average units outstanding - basic^(3)	103,000	102,980		103,003	102,986
FFO per unit - basic^(1)	$           0.104	$           0.110	(5.5 %)	$           0.302	$           0.329	(8.2 %)
AFFO per unit - basic^(1)	$           0.080	$           0.092	(13.0 %)	$           0.249	$           0.284	(12.3 %)
Gross distributions to unitholders^(4)	$           7,209	$           7,207		$         21,628	$         21,624
FFO payout ratio - basic^(1)	67.2 %	63.6 %		69.4 %	63.7 %
AFFO payout ratio - basic^(1)	87.1 %	76.3 %		84.3 %	73.9 %
FFO^(1)	$         10,731	$         11,324		$         31,151	$         33,932
Interest on dilutive convertible debentures	788	788		2,337	2,337
FFO - diluted^(1)	$         11,519	$         12,112	(593)	$         33,488	$         36,269	(2,781)
Diluted weighted average units outstanding^(3)	113,893	113,874		113,896	113,880
AFFO^(1)	$           8,278	$           9,446		$         25,660	$         29,280
Interest on dilutive convertible debentures	788	788		2,337	2,337
AFFO - diluted^(1)	$           9,066	$         10,234	(1,168)	$         27,997	$         31,617	(3,620)
Diluted weighted average units outstanding^(3)	113,893	113,874		113,896	113,880
FFO per unit - diluted^(1)	$           0.101	$           0.106	(4.7 %)	$           0.294	$           0.318	(7.5 %)
AFFO per unit - diluted^(1)	$           0.080	$           0.090	(11.1 %)	$           0.246	$           0.278	(11.5 %)

^(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 September 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 $85 thousand and $299 thousand for the three and nine months ending September 30, 2022, respectively (September 30, 2021 - $152 thousand and $874 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 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 29 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 29 of the MD&A.

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

(000s)	3 Months Ended September 30, 2022 (unaudited)		3 Months Ended September 30, 2021 (unaudited)	9 Months Ended September 30,  2022 (unaudited)	9 Months Ended September 30, 2021 (unaudited)
Same-asset NOI^(1)		$   17,957	$   18,102	$   52,597	$   51,856
Developments and redevelopments transferred to income producing in 2021 & 2022 ($2.0 million stabilized NOI)		513	340	1,459	671
NOI from acquisitions, properties currently under development and redevelopment ($4.9 million stabilized NOI)		448	274	1,408	1,002
Straight-line rent		16	(31)	(116)	(206)
Administrative expenses charged to NOI		(806)	(733)	(2,539)	(2,276)
Lease termination revenue		12	-	117	3,098
Properties disposed		16	127	65	446
Total NOI^(1)		$   18,156	$   18,079	$   52,991	$   54,591

(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, outlook, condition and the environment in which it operates.  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, implied projected by forward-looking statements contained in this press release, including but not limited to any unforeseen impacts from new or renewed pandemic conditions and impacts 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; supply chain constraints; competitive real estate conditions; and  others described in Plaza's Annual Information Form for the year ended December 31, 2021 and Management's Discussion and Analysis for the nine months ended September 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 Friday, November 11, 2022 at 1:30 p.m. EST. 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 November 18, 2022. To access the replay, dial 1-416-764-8677 (local Toronto) or 1-888-390-0541 (Passcode: 721972). 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 September 30, 2022 includes interests in 253 properties totaling approximately 8.9 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

Jim Drake, Chief Financial Officer, Plaza Retail REIT, Tel: [phone]; Michael Zakuta, President & Chief Executive Officer, Plaza Retail REIT, Tel: [phone]