TORONTO, ONTARIO — (Marketwire) — 08/04/11 — Primaris Retail REIT (TSX: PMZ.UN) is pleased to report positive operating results for the second quarter of 2011. These results have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Prior year-s results have been restated to conform to this change.
President and CEO, John Morrison, commented “The second quarter of 2011 and was significant for Primaris as we completed the largest transaction in the eight year history of our company. The acquisition of five shopping centres from Ivanhoe Cambridge for $572 million dollars increased gross leasable area by 23%. We are very pleased with this investment as we are adding a strong mix of shopping centres and retailers to our portfolio. The purchase was financed by a combination of $249 million from the issuance of trust units, $72 million from unsecured debt, $222 million from secured debt, and $39 million from cash and the operating line. The transaction was a success due to efforts from many members of the Primaris team.”
Highlights
Financial Results
Funds from operations for the second quarter ended June 30, 2011 were $21.8 million, down $1.1 million from the $22.9 million reported for the second quarter of 2010 as restated. On a per unit diluted basis, funds from operations for the second quarter of 2011 were $0.304, down $0.042 from the $0.346 reported for the second quarter of 2010. The second quarter was affected by a onetime charge for convertible debenture issuance costs of $3.0 million or $0.037 per unit diluted. Net of this charge, the financial results improved due to the acquisitions in mid 2010 and June 2011.
Net income for the three months ended June 30, 2011 was $41.2 million. This compares to net income of $58.9 million earned during the three months ended June 30, 2010. The decrease is principally due to the volatility in the fair value adjustments on investment properties, convertible debentures, exchangeable units and unit-based compensation.
The distribution payout ratio for the second quarter of 2011, calculated on a diluted basis, was 100.3% as compared to an 88.0% payout ratio for the second quarter of 2010 and 86.5% for the previous quarter March 31, 2011. The ratio would have been 89.3% if the convertible debenture issuance costs had not been incurred during the quarter. The payout ratios are sensitive to both seasonal operating results and financial leverage.
At June 30, 2011, Primaris- total enterprise value was approximately $3.4 billion (based on the market closing price of Primaris- units on June 30, 2011 plus total debt outstanding). At June 30, 2011 Primaris had $1,706.9 million of outstanding debt, equating to a debt to total enterprise value ratio of 49.6%. Primaris- debt consisted of $1,453.6 million of fixed-rate senior debt with a weighted average interest rate of 5.5% and a weighted average term to maturity of 6.3 years, $10.0 drawn on the operating line of credit, $3.3 million of 6.75% fixed-rate convertible debentures, $93.5 million of 5.85% fixed-rate convertible debentures, $71.5 million of 6.30% fixed-rate convertible debentures and $75.0 million of 5.40% fixed-rate convertible debentures. During the three months ended June 30, 2011, Primaris had an interest coverage ratio of 2.3 times as expressed by EBITDA divided by interest expense on mortgages, convertible debentures and bank indebtedness. Primaris defines EBITDA as net income increased by depreciation, finance costs, income tax expense and amortization of leasing costs and straight-line rent. EBITDA is a non-GAAP measure and may not be comparable to similar measures used by other Trusts.
The same-property comparison consists of the 28 properties that were owned throughout both the current and comparative three month periods. Net operating income, on a same-property basis, increased $0.3 million, or 0.7%, in relation to the comparable three month period.
Liquidity
At the end of the quarter, Primaris had $11.2 million of cash on hand and $10.0 drawn on its $130.0 million credit facility.
To finance the acquisition of five shopping centres, Primaris issued 12,650,000 units for net proceeds of $249.5 million and $75 million 5.40% convertible debentures, and also placed permanent financing on two of the acquired properties. Primaris arranged third party mortgage funding of $108.6 million and $115.0 million with respect to the acquisitions of Burlington Mall and Oakville Place. The respective loans have terms of 5 years and 10 years and bear interest at fixed rates of 3.83% and 4.74%.
Tenant Sales
For the 15 reporting properties owned throughout both the twelve month periods ended May 31, 2011 and 2010, sales per square foot, on a same-tenant basis, have decreased slightly to $454 from $456 per square foot. For the same 15 properties the tenant total sales volume has decreased 0.2%.
The tenants- sales decreased 0.5% per square foot, while the national average tenant sales as reported by the International Council of Shopping Centers (“ICSC”) for the 12- month period ended May 31, 2011, increased 3.3%. Primaris- sales productivity of $454 is lower than the ICSC average of $584, largely because the ICSC includes sales from super regional malls that have the highest sales per square foot in the country.
Leasing Activity
Primaris Retail REIT-s property portfolio remains well leased.
The portfolio occupancy rate declined during the second quarter of 2011. It was 95.7% at June 30, 2011, compared to 96.3% at March 31, 2011, and 96.6% at June 30, 2010. The decline is primarily attributable to redevelopment activity and the addition of the acquisition properties. Without the five additional properties, occupancy would be 96.1%. These percentages include space for which signed leases are in place but where the tenant may not yet be in occupancy.
Primaris renewed or leased 382,285 square feet of space during the second quarter of 2011. Approximately 68.5% of the leased spaces during the second quarter of 2011 consisted of the renewal of existing tenants. The weighted average new rent in these leases, on a cash basis, represented a 6.35% increase over the previous rent.
At June 30, 2011, Primaris had a weighted average term to maturity of leases of 5.7 years.
Development Activity
During 2009 Primaris completed phase one of a three phase redevelopment at Lambton Mall in Sarnia, Ontario. Although this first phase created a vacant anchor store location, it provided an opportunity to not only add a food court where none existed previously, but also provided an opportunity to backfill the anchor store with a new large tenant.
Construction commenced in June 2011, on a second phase that will introduce a food court to improve the centre-s amenities. This improvement will significantly reinforce the mall-s market presence. The food court is expected to cost approximately $4.75 million and be completed by November 2011. Discussions continue with regard to a replacement anchor tenant.
A redevelopment project at Orchard Park Shopping Centre in Kelowna, British Columbia started in the summer of 2010. This project includes the construction of approximately 25,000 square feet of new retail space and the redevelopment of about 10,000 square feet of existing area. The project, scheduled to be completed by November 2011, will bring Best Buy, a dynamic first-to-market tenant, to the centre. The project is on budget, expected to cost $7.7 million, and will increase the centre-s market dominance.
A re-development project is underway at Grant Park Shopping Centre in Winnipeg, Manitoba to accommodate an expanded and repositioned Manitoba Liquor Control Commission (“MLCC”) store, and relocated retail tenants. This project also includes the realignment and upgrade of almost 11,500 square feet of common area with new floor and ceiling finishes which will revitalize the west end of the shopping centre. A portion of the exterior of the building and the west mall entrance will also be renovated to provide a marquee entry to the new redevelopment inside. Construction activities commenced in June 2011 with an anticipated opening date of October 2011 for the relocated retail tenants, and an April 2012 opening date for the MLCC expansion. The project is expected to cost $6.5 million and will create additional consumer draw to the centre and increase the cross shopping opportunity.
Acquisition
As previously announced, Primaris purchased Oakville Place in Oakville, Ontario, Burlington Mall in Burlington, Ontario, Place Vertu in Saint-Laurent, Quebec, St. Albert Centre in St. Albert, Alberta and Tecumseh Mall in Windsor, Ontario in June 2011. The properties were purchased from Ivanhoe Cambridge for $582.4 million inclusive of closing costs. The acquisition of these five shopping centres is a significant step in the growth of Primaris. The investment is consistent the core strategy of owning shopping centres that have dominant positions in the primary trade areas.
Funds from Operations, which is not a defined term within International Financial Reporting Standards, has been calculated by management, using International Financial Reporting Standards, in accordance with REALpac-s White Paper on Funds from Operations. The White Paper adds back to net income items that do not arise from operating activities, such as amortization of tenant improvements, deferred income taxes and fair value adjustments. Funds from Operations may not be comparable to similar measures used by other entities.
Funds from operations for the quarter ended June 30, 2011 were $1.1 million ($0.042 per unit diluted) less than the comparative period. The second quarter was affected by a onetime charge for convertible debenture issuance costs of $3.0 million or $0.037 per unit diluted. Net of this charge, the financial results improved due to the acquisitions in mid 2010 and June 2011.
International Financial Reporting Standards (“IFRS”)
In February 2008, the Canadian Accounting Standards Board confirmed that IFRS would replace Canadian generally accepted accounting principles (“GAAP”), for Canadian publically accountable profit-oriented enterprises, effective for fiscal periods beginning on or after January 1, 2011. The June 30, 2011 unaudited condensed interim consolidated financial statements and related disclosures include 2010 comparative results restated to IFRS and reconciliations to the previously reported Canadian GAAP statements.
Supplemental Information
Primaris- unaudited condensed interim consolidated financial statements and Management-s Discussion and Analysis (“MD&A”) for the three-month periods ended June 30, 2011 and 2010 are available on Primaris- website at .
Forward-Looking Information
The MD&A contains forward-looking information based on management-s best estimates and the current operating environment. These forward-looking statements are related to, but not limited to, Primaris- operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains statements with words such as “anticipate,” “believe,” “expect,” “plan” or similar words suggesting future outcomes. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed, projected or implied by such forward-looking statements.
In particular, certain statements in this document discuss Primaris- anticipated outlook of future events. These statements include, but are not limited to:
Although the forward-looking statements contained in this document are based on what management of Primaris believes are reasonable assumptions, forward-looking statements involve significant risks and uncertainties. They should not be read as guarantees of future performance or results and will not necessarily be an accurate indicator of whether or not such results will be achieved. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future results to differ from targets, expectations or estimates expressed in the forward-looking statements. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information may include: a less robust retail environment than has been seen for the last several years; relatively stable interest costs; access to equity and debt capital markets to fund, at acceptable costs, the future growth program and to enable the Trust to refinance debts as they mature, and the availability of purchase opportunities for growth.
Except as required by applicable law, Primaris undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Non-IFRS/GAAP Measures
Funds from operations (“FFO”), net operating income (“NOI”) and earnings before interest, taxes, depreciation and amortization (“EBITDA”) are widely used supplemental measures of a Canadian real estate investment trust-s performance and are not defined under IFRS. Management uses these measures when comparing itself to industry data or others in the marketplace. Primaris- MD&A describes FFO, NOI and EBITDA and provides reconciliations to net income as defined under IFRS. Reconciliations of FFO and NOI to net income, as defined by IFRS, also appear at the end of the press release. FFO, NOI and EBITDA should not be considered alternatives to net income or other measures that have been calculated in accordance with IFRS and may not be comparable to measures presented by other issuers.
Conference Call
Primaris invites you to participate in the conference call that will be held on Friday, August 5, 2011 at 9am EST to discuss these results. Senior management will speak to the results and provide a brief corporate update. To only listen to the call, call toll-free 1-877-669-3239 (within Canada/USA). To listen and participate in the call, visit to register and be connected automatically by telephone or computer.
Audio replays of the conference call will be available within 15 minutes following the completion of the conference call, and will remain active until the next quarterly results call. The replay will be accessible by visiting: .
Primaris is a TSX listed real estate investment trust (TSX: PMZ.UN). Primaris owns 33 income-producing properties comprising approximately 13.5 million square feet located in Canada. As of July 31, 2011, Primaris had 82,447,799 units issued and outstanding (including exchangeable units).
Funds from Operations, which is not a defined term within International Financial Reporting Standards, has been calculated by management, using International Financial Reporting Standards, in accordance with REALpac-s White Paper on Funds from Operations. The White Paper adds back to net income items that do not arise from operating activities, such as amortization of tenant improvements, deferred income taxes and certain fair value adjustments. Funds from Operations may not be comparable to similar measures used by other entities.
Contacts:
Primaris Retail REIT
John R. Morrison
President & Chief Executive Officer
(416) 642-7860
Primaris Retail REIT
Louis M. Forbes
Executive Vice President & Chief Financial Officer
(416) 642-7810