Mr. Gordon Lawlor reports

PROREIT ANNOUNCES FOURTH QUARTER AND FISCAL YEAR 2023 RESULTS

Pro Real Estate Investment Trust today released its financial and operating results for the three-month period (fourth quarter or Q4) and fiscal year (fiscal 2023) ended Dec. 31, 2023.

Fourth quarter and fiscal 2023 highlights:

• Property revenue increased by 2.2 per cent in Q4 year over year and by 2.8 per cent in fiscal 2023 compared with the prior year (fiscal 2022);
• Net operating income (NOI) was up 2.2 per cent in Q4 year over year and up 0.4 per cent for fiscal 2023 compared with fiscal 2022;
• Same-property NOI* was up 7.5 per cent in Q4 year over year and up 1.7 per cent in fiscal 2023 compared with fiscal 2022;
• Sale of seven non-strategic properties for gross proceeds of $26.6-million in fiscal 2023 and sale of three non-core properties for gross proceeds of $26.1-million subsequent to year-end;
• 93.0 per cent of 2023 gross leasable area (GLA) renewed at 45.6 per cent average spread and 43.7 per cent of GLA maturing in 2024 renewed at average spread of 32.8 per cent;
• Occupancy rate at 98.3 per cent at Dec. 31, 2023 (including committed space and excluding an industrial property under redevelopment);
• Total debt (current and non-current) of $515.2-million at Dec. 31, 2023, relatively flat compared with $514.3-million at the same date last year;
• Total debt to total assets was 49.8 per cent at Dec. 31, 2023, compared with 49.6 per cent at the same date last year;
• Adjusted debt to gross book value* was 50.2 per cent at Dec. 31, 2023, compared with 49.7 per cent at the same date last year;
• $43.0-million in available credit facility and $13.2-million in cash at Dec. 31, 2023.

"Throughout 2023, in an uncertain macroeconomic and high-interest-rate environment, we pursued our capital recycling strategy, aimed at rotating capital away from less attractive assets and towards growing our industrial footprint, and continued to manage our balance sheet. With a clear focus on our stated objectives, we ended the year on a strong footing, pleased with our performance from an operational standpoint," said Gordon G. Lawlor, president and chief executive officer, Pro REIT.

"In 2023, we successfully sold seven non-strategic properties for gross proceeds of more than $26.6-million, ending the year with 123 properties with over 82 per cent of our GLA in the industrial sector. Subsequent to year-end, we completed the sale of three non-core properties for gross proceeds of $26.1-million.

"Thanks to robust rental rates and occupancy, we continue to see top line revenue growth. We are particularly pleased to have achieved notable same-property NOI* growth of 7.5 per cent in the fourth quarter of 2023, compared with the same quarter last year -- a testament to our capacity to generate organic growth and to the significant value embedded in our portfolio. On the balance sheet front, adjusted debt to gross book value* held steady at 50.2 per cent at Dec. 31, 2023, and we continue to benefit from limited material mortgage maturities until 2026, while only about 3 per cent of our total debt is at a variable rate.

"I am proud of our strong portfolio, long-standing tenant base and outstanding team built over the past decade. With this solid foundation, we are well positioned to pursue our strategy for growth in the industrial sector in strong secondary markets, and anticipate that the market will stabilize and interest rates will start to come down in the near term. As always, we will continue to manage our balance sheet diligently and maintain disciplined capital allocation to generate sustainable value for all our stakeholders," concluded Mr. Lawlor.

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

Financial results

At Dec. 31, 2023, Pro REIT owned 123 investment properties (including a 50-per-cent ownership interest in 42 investment properties), compared with 130 investment properties (including a 50-per-cent ownership interest in 42 investment properties) at Dec. 31, 2022. In fiscal 2023, the decrease in total properties is a result of the sale of a 100-per-cent interest in seven investment properties. During fiscal 2022, Pro REIT acquired a 50-per-cent interest in 21 investment properties, sold a 50-per-cent interest in 21 other investment properties and sold a 100-per-cent interest in nine other investment properties. At Dec. 31, 2023, total assets amounted to $1.03 billion, compared with $1.04-billion as at Dec. 31, 2022.

For the fourth quarter ended Dec. 31, 2023:

• Property revenue amounted to $25.6-million in Q4 2023, an increase of $0.5-million or 2.2 per cent, compared with $25.1-million for the same prior-year period. The increase was mainly due to contractual increases in rent and higher rental rates on lease renewals, offset by the decrease in the number of properties in the portfolio.
• Net operating income (NOI) amounted to $14.9-million for the quarter, compared with $14.6-million in Q4 2022, an increase of $300,000 or 2.2 per cent. The increase was mainly driven by the same factors impacting property revenue described above.
• Same-property NOI*, which represented 122 properties out of the 123 properties in the portfolio, reached $14.6-million for the quarter, an increase of $1.0-million or 7.5 per cent, compared with the same quarter last year. The increase was largely a result of contractual increases in rent and higher rental rates on lease renewals and new leases across all asset classes, along with higher occupancy rates in the retail and office asset classes, offset by the slight decrease in occupancy in the industrial asset class.
• Net cash flows provided from operating activities for the quarter was $9.5-million, compared with $8.3-million for Q4 2022.
• AFFO* (adjusted funds from operations) totalled $7.6-million for the quarter, down slightly from $7.7-million for Q4 2022.
• AFFO payout ratio -- basic* stood at 89.8 per cent for the quarter, compared with 88.5 per cent for Q4 2022, primarily due to fewer properties owned, as well as higher interest expense and leasing costs, partially offset by contractual increases in rent and higher rental rates on lease renewals.

For the fiscal year ended Dec. 31, 2023:

• Property revenue was $99.9-million for fiscal 2023, an increase of $2.7-million or 2.8 per cent, compared with $97.2-million for fiscal 2022. The increase was mainly due to the same factors impacting the quarterly results described above, plus the changes in the related ownership percentages of the 42 properties purchased and sold in August, 2022.
• Net operating income (NOI) for fiscal 2023 was $57.9-million for the year, an increase of $200,000, compared with $57.7-million for fiscal 2022. The increase was mainly driven by the same factors impacting the quarterly property revenue results described above.
• Same-property NOI* for fiscal 2023, which represented 100 properties out of the 123 properties in the portfolio, was $47.3-million, an increase of $800,000 or 1.7 per cent over last year. The factors impacting the increase were the same as those impacting the quarterly results described above.
• Net cash flows provided from operating activities for the year was $31.7-million, compared with $28.2-million for the previous year.
• AFFO* for fiscal 2023 was $29.4-million, compared with $31.3-million for fiscal 2022, a decrease of $1.9-million or nearly 6.0 per cent, mainly resulting from a decrease in the number of properties owned, as well as temporary vacancy in one industrial property and higher interest expenses for fiscal 2023.
• AFFO payout ratio -- basic* was 92.5 per cent for fiscal 2023, compared with 86.9 per cent for fiscal 2022, primarily due to the same factors impacting the quarterly results, in addition to the impact of a temporary vacancy in one industrial property, which returned to full occupancy in Q4 2023.

For the three months ended Dec. 31, 2023, net income and comprehensive income were negative $100,000, compared with $6.5-million during the same prior-year period. The $6.6-million variance was mainly related to the $5.6-million impact in the non-cash fair market value adjustment on investment properties.

For the 12 months ended Dec. 31, 2023, net income and comprehensive income were $25.9-million, compared with $84.5-million during the same prior-year period. The $58.6-million variance was mainly related to a $55.4-million impact on the non-cash fair value adjustment on investment properties, as well as some one-time general and administrative expenses and increased interest and financing costs in fiscal 2023.

Sustained operating environment

At Dec. 31, 2023, Pro REIT's portfolio totalled 123 investment properties aggregating 6.4 million square feet of GLA, with a weighted average lease term of 4.0 years.

The occupancy rate of the portfolio remains strong at 98.3 per cent as at Dec. 31, 2023 (including committed space and excluding an industrial property under redevelopment).

Pro REIT continues to benefit from a robust operating environment, with 93.0 per cent of 2023 GLA renewed at 45.6 per cent average spread and 43.7 per cent of GLA maturing in 2024 renewed at average spread of 32.8 per cent.

The industrial segment accounted for 82.2 per cent of GLA and 73.0 per cent of base rent at Dec. 31, 2023.

Portfolio transactions

In 2023, Pro REIT sold seven 100-per-cent-owned properties for gross proceeds of more than $26.6-million, as follows.

On April 21, 2023, Pro REIT sold a 50,000-square-foot non-core office property in Amherst, N.S., for gross proceeds of $2.1-million (excluding closing costs), with proceeds of the sale used for general business purposes.

On Aug. 31, 2023, Pro REIT sold two non-core office properties in Ottawa, Ont., 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 with the balance 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 in Sherbrooke, Que., for gross proceeds of about $2.2-million (excluding closing costs). Proceeds of the sale were used to repay approximately $1.5-million of a related mortgage, with the balance used for general business purposes.

On Nov. 27, 2023, Pro REIT sold two non-core retail properties located in Halifax, N.S., and Levis, Que., totalling approximately 49,000 square feet for gross proceeds of approximately $10.9-million (excluding closing costs). Proceeds of the sale were used to repay approximately $4.4-million of related mortgages, with the balance used for general business purposes.

On Dec. 28, 2023, Pro REIT sold a 19,000-square-foot non-core retail property in Quebec City, Que., for gross proceeds of about $2.3-million (excluding closing costs), with proceeds of the sale used for general business purposes.

Subsequent to the fiscal year-end on Feb. 2, 2024, and Feb. 9, 2024, Pro REIT completed the sales of two non-core properties in Upper Tantallon, N.S., and Montreal, Que., totalling approximately 124,000 square feet, for gross proceeds of $20.7-million (excluding closing costs). Proceeds of the sales were used to repay approximately $16.0-million in related mortgages, with the balance used for general business purposes.

On March 18, 2024, Pro REIT sold a non-core retail property in Courtenay, B.C., for gross proceeds of $5.4-million (excluding closing costs). The net proceeds of the sale were used to partially repay a $9.4-million mortgage secured by additional retail properties.

Financing activities

At Dec. 31, 2023, Pro REIT had $43.0-million in available credit facility and $13.2-million in cash.

Total debt (current and non-current) was $515.3-million at Dec. 31, 2023, relatively flat compared with $514.3-million at the same date last year. In fiscal 2023, Pro REIT reduced indebtedness under its credit facility by $20.0-million.

Debt to gross book value* was 50.2 per cent at Dec. 31, 2023, compared with 49.7 per cent at the same date last year. Weighted average interest rate on mortgage debt was 3.88 per cent at Dec. 31, 2023, compared with 3.70 per cent at the same date last year.

On May 26, 2023, Pro REIT issued $35.0-million of unsecured subordinated debentures bearing interest at 8.00 per cent per annum, payable semi-annually in arrears on June 30 and Dec. 31 (beginning Dec. 31, 2023), and maturing in June, 2028, which are convertible at the holder's option at any time before June, 2028, at a conversion price of $7 per unit. The proceeds of the issuance were used to partially repay approximately $33.0-million of the credit facility, with the balance used for general business purposes.

Pro REIT closed on a new mortgage on June 1, 2023, to refinance six industrial properties located in Winnipeg, Man., for $20.5-million. The rate on the new mortgage was fixed at 5.07 per cent for a term of seven years, with the majority of the proceeds used to repay approximately $16.6-million of mortgages maturing in July, 2023.

On June 29, 2023, Pro REIT received a $10.0-million three-year term loan at a rate of 6.79 per cent. Approximately $8.0-million of the proceeds was used to partially repay the credit facility with the balance used for general business purposes.

CEO succession

On Oct. 4, 2022, Pro REIT announced that Mr. Lawlor would succeed James W. Beckerleg as president and CEO of the REIT and would join the REIT's board of trustees, effective April 1, 2023, at which time Mr. Beckerleg was named vice-chair of the board and co-founder, as part of the REIT's CEO succession plan. In June, 2023, Mr. Beckerleg was appointed chair of the board. Mr. Beckerleg had been president and CEO and a trustee of the REIT since 2013. Concurrent with these changes, the REIT also announced that Alison Schafer would be appointed chief financial officer and secretary of the REIT.

Distributions

Distributions to unitholders of 3.75 cents per trust unit of the REIT were declared monthly during the three months ended Dec. 31, 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 (Class B LP units), a subsidiary of the REIT.

On March 19, 2024, Pro REIT announced a cash distribution of 3.75 cents per trust unit for the month of March, 2024. The distribution is payable on April 15, 2024, to unitholders of record as at March 28, 2024.

Strategy

With a focus on high-quality light industrial real estate in Canada, Pro REIT's strategy for growth and value creation is to expand its quality portfolio organically and through disciplined acquisitions, while optimizing its balance sheet and capital allocation. In line with this strategy, Pro REIT is focused on achieving its medium-term goals of reaching $2-billion in assets, industrial base rent of 90 per cent and adjusted debt to gross book value* of 45 per cent 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 fourth quarter and fiscal 2023 results on March 21, 2024, 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 March 28, 2024, by dialling 888-390-0541 or 416-764-8677, and using access code 874185 followed by the pound key.

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

Annual meeting of unitholders

Pro REIT will host its annual meeting on June 4, 2024, at 11 a.m. ET, in Montreal, Que. Additional information regarding the meeting will be contained in the REIT's information circular, which will be prepared in connection with the meeting and available on Pro REIT's website in the investors section under annual meeting and on SEDAR+.

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.