Mr. Gordon Lawlor reports

PROREIT ANNOUNCES THIRD QUARTER 2023 RESULTS

Pro Real Estate Investment Trust has released its financial and operating results for the three-month period (Q3 or third quarter) ended Sept. 30, 2023.

Third quarter of fiscal 2023 highlights:

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

"While the real estate market continues to face certain macroeconomic challenges, we maintained our operating momentum in the third quarter of 2023, a testament to our properties and platform," said Gordon Lawlor, president and chief executive officer of Pro REIT.

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

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

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

"We continue to manage our balance sheet prudently, having reduced our debt level by $14.4-million in the current quarter, while maintaining our adjusted debt to gross book value* to 50.0 per cent at Sept. 30, 2023. Our mortgage maturity exposure is limited, with approximately $25-million and $27-million, respectively, for each of the remainder of 2023 and all of 2024.

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

* Non-IFRS (international financial reporting standards) measures.

Financial results

At Sept. 30, 2023, Pro REIT owned 126 investment properties (including a 50-per-cent ownership interest in 42 investment properties), compared with 132 investment properties (including a 50-per-cent ownership interest in 42 investment properties) at Sept. 30, 2022. Total assets amounted to $1.05-billion as at Sept. 30, 2023, compared with $1.04-billion as at Sept. 30, 2022, an increase of $10.0-million or 1.0 per cent.

For the three-month period ended Sept. 30, 2023:

• Property revenue amounted to $24.1-million, which was relatively flat compared with the same period last year, mainly resulting from the decrease in number of properties, the change in the related ownership percentages of the 42 properties purchased and sold in August, 2022, and the nine properties sold in September, 2022, offset by contractual increase in rent and higher rental rates on lease renewals.
• NOI amounted to $14.1-million, compared with $14.8-million in the same period in 2022, a decrease of 5.1 per cent, mainly driven by the impact of the net decrease in properties owned and related ownership percentages over the last 12-month period.
• Same-property NOI* was $11.9-million, down $100,000 or 1.2 per cent, compared with the same prior-year period, primarily attributable to a temporary vacancy at one Montreal 102,000-square-foot industrial property, which was fully leased as of Oct. 1, 2023, and a transitional vacancy of 90,400 square feet in the industrial segment, offset by contractual increases and higher rental rates across all classes; excluding the impact of the 102,000-square-foot temporary vacancy, overall same-property NOI* for the three-month period ended Sept. 30, 2023, increased by $200,000 or 1.7 per cent.
• Net cash flows provided from operating activities was $11.0-million, which was relatively flat compared with the third quarter of 2022, largely because of the timing of cash receipts and settlement of payables.
• AFFO* (adjusted funds from operations) totalled $7.0-million, compared with $7.9-million in the same period last year, a decrease of 11.3 per cent, mainly resulting from the above-mentioned temporary vacancy, a decrease in properties owned and related ownership percentages, and an increase in variable interest rates on the credit facility, as well as increased weighted average interest rates on mortgage debt, offset by contractual increase in rent and higher rental rates on lease renewals.
• AFFO payout ratio -- basic* was 96.9 per cent, compared with 85.7 per cent for the same period in the prior year, primarily resulting from the above-mentioned AFFO variance explanations.

For the nine-month period ended Sept. 30, 2023:

• Property revenue amounted to $74.3-million, an increase of $2.1-million or 3.0 per cent, compared with $72.1-million for the same period last year, mainly resulting from the decrease in number of properties, the change in the related ownership percentages of the 42 properties purchased and sold in August, 2022, and the nine properties sold in September, 2022, offset by contractual increase in rent and higher rental rates on lease renewals.
• NOI amounted to $43.0-million, which was relatively flat compared with $43.2-million in the same period in 2022, mainly due to the net decrease in properties owned and related ownership percentages over the last 12-month period.
• Same-property NOI* reached $35.6-million, up $200,000 or 0.7 per cent, compared with the same prior-year period, for the same reasons as the three-month same-property NOI*; excluding the impact of the 102,000-square-foot temporary vacancy, overall same-property NOI* for the nine-month period ended Sept. 30, 2023, increased by $1.0-million or 2.8 per cent.
• Net cash flows provided from operating activities was $22.2-million, up from $19.9-million in the first nine months of 2022, an increase of 11.7 per cent, largely as a result of the timing of cash receipts and settlement of payables.
• AFFO* totalled $21.8-million, compared with $23.6-million in the same period last year, a decrease of 7.5 per cent, mainly resulting from the above-mentioned temporary vacancy, a decrease in properties owned and related ownership percentages and an increase in variable interest rates on the credit facility, as well as increased weighted average interest rates on mortgage debt, offset by contractual increase in rent and higher rental rates on lease renewals.
• AFFO payout ratio -- basic* was 93.5 per cent, compared with 86.4 per cent for the same period in the prior year, primarily resulting from the above-mentioned AFFO variance explanations.

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

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

Managing the balance sheet

As at Sept. 30, 2023, Pro REIT had $46.0-million available on its credit facility, in addition to $11.4-million in cash.

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

The weighted average interest rate on mortgage debt was 3.76 per cent at Sept. 30, 2023, compared with 3.69 per cent at the same date last year.

Total debt (current and non-current) was $474.5-million at Sept. 30, 2023. Adjusted debt to gross book value* was 50.0 per cent at Sept. 30, 2023.

Sustained operating environment

At Sept. 30, 2023, Pro REIT's portfolio totalled 126 properties aggregating 6.4-million square feet of GLA with a weighted average lease term of 4.0 years. Approximately 88.8 per cent of leases maturing in 2023 have been renewed at a positive average spread of 43.9 per cent and approximately 17.9 per cent of GLA maturing in 2024 has been renewed at 29.7 per cent average spread.

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

The industrial segment accounted for 81.3 per cent of GLA and 71.7 per cent of base rent at Sept. 30, 2023.

Portfolio transactions

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

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

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

Subsequent to the quarter-end, on Oct. 31, 2023, Pro REIT entered into a binding agreement with a third party purchaser to sell one non-core retail property totalling approximately 4,500 square feet for gross proceeds of approximately $2.2-million, excluding closing costs. Proceeds of the sale (net of a $500,000 vendor takeback mortgage) will be used for general business purposes. The closing of the sale is scheduled for Q4 2023 and is subject to standard closing conditions.

Distributions

Distributions to unitholders of 3.75 cents per trust unit of the REIT were declared monthly during the three months ended Sept. 30, 2023, representing distributions of 45 cents per unit on an annual basis. Equivalent distributions are paid on the Class B limited partnership units of Pro REIT LP, a subsidiary of the REIT.

On Oct. 20, 2023, Pro REIT announced a cash distribution of 3.75 cents per trust unit for the month of October, 2023. The distribution is payable on Nov. 15, 2023, to unitholders of record as at Oct. 31, 2023.

Strategy

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

Investor conference call and webcast details

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

The conference call will also be accessible via live webcast on Pro REIT's website.

About Pro Real Estate Investment Trust

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

We seek Safe Harbor.