Borealis Retail REIT

Borealis Retail REIT

March 03, 2005 21:32 ET

CORRECTION FROM SOURCE: BOREALIS RETAIL REIT Announces Strong Financial Results and March Distribution


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: BOREALIS RETAIL REIT

TSX SYMBOL: BRE.UN

MARCH 3, 2005 - 21:32 ET

CORRECTION FROM SOURCE: BOREALIS RETAIL REIT Announces
Strong Financial Results and March Distribution

TORONTO, ONTARIO--(CCNMatthews - March 3, 2005) - A correction from
source has been issued with respect to the release issued earlier today
at 6:33pm ET. Due to multiple revisions, the corrected and complete
release is as follows.

Borealis Retail REIT (TSX:BRE.UN) is pleased to report a 38% increase in
distributable income for the fourth quarter of 2004 as compared to the
fourth quarter of 2003.

Highlights

- Net operating income for the fourth quarter ended December 31, 2004
was $18.769 million, substantially higher than the $16.986 million
recorded in the third quarter of this year. This large increase was
driven by the strong seasonal revenues typical of the fourth quarter, as
well as an improvement in the average occupancy rate.

- Distributable income for the fourth quarter ended December 31, 2004
was $11.225 million, or $0.343 per fully diluted unit, as compared to
$8.114 million, or $0.326 per fully diluted unit, reported for the
fourth quarter of 2003. This represents a 5.2% increase in fully diluted
Distributable Income per unit.

- Funds from operations for the fourth quarter ended December 31, 2004
was $11.712 million or $0.356 per fully diluted unit, up 9.2% over the
$8.122 million, or $0.326 for the fourth quarter of 2003.

- The REIT renewed or leased approximately 103,546 square feet of space
during the quarter, generating positive absorption for the quarter. The
weighted average new rent in these leases, on a cash basis, represented
a 9.7% increase over the previous rent paid.

- Overall occupancy increased to 96.8% at December 31, 2004 as compared
to 95.7% at September 30, 2004 and 96.3% at December 31, 2003. The
occupancy increase at December 31 was the result of strong seasonal
leasing during the fourth quarter.

- Same-tenant sales, for the six properties owned since IPO, increased
2.9% to $461 per square foot in 2004 as compared to 2003. This compares
very favourably to the Canadian industry average of $450 per square foot
as reported by the International Council of Shopping Centres, especially
when one considers that the industry average includes the results of
super regional malls.

- The fourth quarter results included seasonal revenues of $2.394
million. This compares to $0.875 million, $0.775 million, and $0.799
million recorded respectively in the third, second and first quarters of
2004.

- On June 28, the REIT completed the acquisition of Midtown Plaza and
Cornwall Centre, two regional malls located in Saskatoon and Regina
respectively for $199 million, plus transaction costs. The transition of
these new assets has gone smoothly.

- Construction of the expansion to Stone Road Mall in Guelph, Ontario is
nearing completion, on time and on budget. Old Navy and Pier One each
opened their stores in time for the Christmas selling season. The
expanded and redeveloped space is 93% leased. The REIT will reclassify
this development to rental operations effective January 1, 2005.

- In December, 2004 the REIT borrowed $45 million by way of a mortgage
secured by Cornwall Centre in Regina. The loan has a term of 8 years and
bears interest at 5.64%. Proceeds were used to reduce the balance drawn
on the REIT's revolving credit facility and for general corporate
purposes.

- The REIT completed an equity offering in December, 2004, issuing
3,050,000 trust units for $13.30 per unit generating gross proceeds of
approximately $40.6 million. The proceeds will be used for future
property acquisitions and for general corporate purposes.

- The REIT is in a strong cash position as a result of both the mortgage
financing and equity offering completed in December. There is $46.9
million cash on hand at December 31, 2004 and the $60 million credit
facility is unutilized. The Debt to Gross Book Value ratio at December
31 was 46.9%.

President and CEO, Michael Latimer, commented "we are very pleased with
our quarterly financial results. We have demonstrated the seasonal
strength of the fourth quarter. Same tenant sales were $461 per square
foot, ahead of national averages. Trends in renewal leasing activity and
occupancy rates are positive. The REIT is diligently pursuing
acquisition opportunities."

Financial Results

Distributable income was $11.225 million for the quarter ended December
31, 2004 or $0.360 per unit basic ($0.343 per unit fully diluted). This
compares to distributable income of $8.114 million or $0.326 per unit
basic and fully diluted, earned during the three months ended December
31, 2003. Funds from Operations for the three months ended December 31,
2004 was $11.712 million or $0.376 per unit basic ($0.356 fully
diluted). This compares to funds from operations of $8.122 million or
$0.326 per unit (basic and fully diluted) earned during the three months
ended December 31, 2003. Distributable income and funds from operations
increased during the 2004 period due to the positive contribution in the
2004 period from acquisitions, increased occupancies and higher rents.
In addition, the adoption in 2004 of an accounting policy related to the
recognition of rental revenue on a straight line basis contributed to
the increase in 2004 of funds from operations.

Net income for the three months ended December 31, 2004 was $5.981
million or $0.194 cents per unit (basic and fully diluted). This
compares to net income of $7.072 million or $0.284 per unit (basic and
fully diluted) earned during the three months ended December 31, 2003.
The change in net income reflects the positive impact of all the items
that affected funds from operations, offset by the negative impact of
the adoption in 2004 of a straight line depreciation accounting policy.

Results for the full year 2004 are not comparable to 2003 because the
REIT only existed for 168 days during 2003 and because of acquisitions
completed during 2004.

The distribution payout ratio for the quarter, expressed on a per unit
basis as distributions paid divided by fully diluted recurring
distributable income was 78.8%. The distribution payout ratio for the
full year 2004 expressed on the same basis was 82.2%.

At December 31, 2004 the REIT's total market capitalization was
approximately $866.1 million (based on the market closing price of
Borealis' units on December 31, 2004 plus total debt outstanding). At
December 31, 2004 the REIT had $414.5 million of outstanding debt
equating to a debt to total market capitalization ratio of 47.9%. The
REIT's debt consisted of $364.9 million of fixed-rate senior debt with a
weighted average interest rate of 5.8% and a weighted average term to
maturity of 6.2 years, and $49.6 million of 6.75% fixed-rate convertible
debentures. The REIT had a debt to gross book value ratio, as defined
under the Declaration of Trust, of 46.9%. During the three months and
year ended December 31, 2004 the REIT had an interest coverage ration of
3.1 times as expressed by EBITDA divided by net interest expensed. The
REIT defines EBITDA as net income increased by depreciation,
amortization, interest expense and, if applicable, income tax expense.
EBITDA is a non-GAAP measure and may not be comparable to similar
measures used by other companies.

Results for the full year 2004 are not comparable to 2003 because the
REIT only existed for 168 days during 2003 and because of acquisitions
completed during 2004.



Operating Results

Net Operating Income - Same Properties

Variance to
Comparative Period
Three Months Ended Three Months Ended favourable/
December 31, 2004 December 31, 2003 (unfavourable)

Operating
income $ 20,775 $ 20,133 $ 642
Operating
expenses 8,925 8,687 (238)
--------- --------- ---------
Net operating
income $ 11,850 $ 11,446 $ 404
--------- --------- ---------


The same property comparison includes only properties that were owned
throughout both the current and comparative three-month period. Net
Operating Income, on a same property basis, increased 3.5% compared to
the comparative three-month period. The positive variance of $404 is
primarily due to increased occupancy and rents.

Note that the revenue amount for the three months in 2004 do not include
the adjustment for straight line rents so as to make this amount more
comparable to the figure presented for 2003.

In addition, the REIT had 17,750 square feet of rentable area out of
service during the three-month period ended December 31, 2004 for the
expansion of an income-producing property. The space taken out of
service generated $241 of base rent in the comparative period.

Tenant sales

Tenant sales per square foot, from reporting tenants, have increased
3.1% in 2004 when comparing sales at the six properties owned throughout
both 2003 and 2004. Total tenant volume has also increased when
comparing sales for the same properties. Sales per square foot for all
nine properties is over $433 for the year ended December 31, 2004.



Sales Per
Square Foot Variance Tenant Sales Volume Variance
2004 2003 $ % 2004 2003 $ %
-----------------------------------------------------------
Dufferin
Mall $ 483 $ 477 $ 6 1.3% $ 73,832 $ 72,883 $ 949 1.3%
Edinburgh
Marketplace 383 363 20 5.5% 5,758 5,462 296 5.4%
Northland
Village 391 395 (4)-1.0% 30,388 30,643 (255)-0.8%
Orchard Park
Shopping
Centre 514 479 35 7.3% 97,544 90,958 6,586 7.2%
Park Place
Mall 398 384 14 3.6% 54,210 52,260 1,950 3.7%
Stone Road
Mall 472 468 4 0.9% 72,792 72,182 610 0.8%
-----------------------------------------------------------
$ 461 $ 448 $ 13 2.9% $ 334,524 $ 324,388 $ 10,136 3.1%
-----------------------------------------------------------
-----------------------------------------------------------


The REIT's $461 same-tenant sales per square foot for 2004 compares
favourably to the national average tenant sales for the same period, as
reported by the International Council of Shopping Centres ("ICSC") of
$450 per square foot; the ICSC includes sales from super regional malls,
which have the highest sales per square foot in the country.

Leasing activity

Borealis Retail REIT's property portfolio remains well leased.

As of December 31, 2004, the portfolio was 96.8% leased as compared to
95.7% leased at September 30, 2004 and 96.3% at December 31, 2003. These
percentages include space for which signed leases are in place but where
the tenant may not yet be in occupancy.

The REIT executed 46 leases, representing 103,546 square feet during the
three months ended December 31, 2004. This consisted of 21 new leases
aggregating 54,059 square feet, 23 renewal leases aggregating 47,416
square feet and expansions aggregating 2,071 square feet. Base rental
rates on lease renewals increased 9.7% on a weighted average cash basis
over the previous rent paid.

Development Activity

Construction of the 28,000 square foot expansion to Stone Road Mall in
Guelph, Ontario is progressing on time and on budget. Executed leases
are in place for 93% of the development, of which 75% are open for
business with the remainder scheduled to open during the first quarter
of 2005. Old Navy and Pier One each opened their stores in time for the
Christmas selling season. The REIT will reclassify this development to
rental operations effective January 1, 2005.

Work progressed well on the redevelopment of the food court at Cornwall
Centre in Regina. This $1.3 million dollar project was completed in
December 2004. This project was comprised of five new food court
retailers, new seating, and improvements to two pedestrian connections
between the parkade and the mall.



Comparison to Prior Period Financial Results

Variance to
Comparative Period
Three Months Ended Three Months Ended favourable/
December 31, 2004 December 31, 2003 (unfavourable)

Revenue
Base rent $ 19,169 $ 12,735 6,434
Recoveries from
tenants 11,655 7,493 4,162
Percentage rent 758 458 300
Parking 1,389 - 1,389
Interest and
other income 133 3 130
----------- ----------- -----------
33,104 20,689 12,415
Expenses
Operating 13,907 8,655 (5,252)
Interest, net 5,753 2,953 (2,800)
Depreciation and
amortization 5,923 1,118 (4,805)
Ground rent 371 269 (102)
----------- ----------- -----------
25,954 12,995 (12,959)
----------- ----------- -----------
Income from
operations 7,150 7,694 (544)
General and
administrative 1,169 622 (547)
----------- ----------- -----------
Net income 5,981 7,072 (1,091)

Straight line
rent adjustment (303) - (303)
Depreciation 5,566 1,042 4,524
Amortization of
above and below
market rents, net (19) - (19)
----------- ----------- -----------
Distributable
income (1) $ 11,225 $ 8,114 $ 3,111
----------- ----------- -----------

Distributable
income per
unit - basic $ 0.360 $ 0.326 $ 0.034
Distributable
income per
unit - fully
diluted $ 0.343 $ 0.326 $ 0.017
Distributions $ 0.270 $ 0.256 $ 0.014
Payout ratio 78.8% 78.6% (0.2%)
Weighted average
units outstanding
- basic 31,160,385 24,907,671 6,252,714
Weighted average
units outstanding
- fully diluted 35,242,018 24,907,671 10,334,347


Notes:

(1) Distributable income, which is not a defined term within Canadian
GAAP, has been calculated in accordance with the terms of the
Declaration of Trust. Distributable income may not be comparable to
similar measures used by other companies. The REIT defines distributable
income fully in the IPO prospectus and forms a benchmark from various
perspectives, including the IPO Financial Forecast and the distribution
payout policies. In calculating distributable income certain adjustments
were made to incorporate the impact of two new accounting policies on
the REIT's financial statements. One adjustment reflects the recorded
non-cash straight-line rent revenue from net income. The other
adjustment deals with the new accounting policy for recording operating
leases on an acquisition. The adjustments result in the same
distributable income that would have been achieved under the REIT's
former accounting policies before the adoption of these two new
policies. As shown in the table above, straight-line rent is deducted
from net income and depreciation of buildings and improvements are added
back to net income to determine distributable income. Other adjustments
may be applicable in future years if, for example, the REIT were to
incur gains or losses on sale of assets or future income taxes.

Distributable income for the quarter ended December 31, 2004 was $3.111
million ($0.017 per unit, fully diluted) greater than the comparative
period. This reflects the positive contribution in 2004 of acquisitions
completed in December, 2003 and June, 2004.

Change in Accounting Policies

In accordance with changes to Canadian generally accepted accounting
principles, the REIT adopted two new accounting policies effective the
beginning of 2004.

Straight-line Depreciation

On January 1, 2004 the REIT prospectively changed its accounting policy
for depreciation from the sinking fund method to the straight-line
method. The REIT estimates that depreciation expense would have been
$6.661 million less during the year ended December 31, 2004 if it had
used the sinking fund method of depreciation.

Straight-line Rent

On January 1, 2004 the REIT changed its accounting policy so that all
rent steps in lease agreements are now accounted for on a straight-line
basis over the terms of the respective leases. This change incorporates
all future rent steps over the remaining useful lives of the related
existing leases, and the full life of any new leases. The REIT recorded
$1.587 million, net of allowances for doubtful collection, of
straight-line rent receivable during the three months ended December 31,
2004.

During the three months ended December 31, 2004 the REIT recorded $102
thousand dollars of straight line rent expense, classified as revenues,
with respect to the ground lease at Park Place Mall. No amount had been
recorded earlier in the year in this regard. Future years will record
this amount evenly throughout the year.

In response to the new accounting policy with respect to straight-line
rent, the REIT adjusted its calculation of distributable income
effective the beginning of 2004. Distributable income excludes the
impact of accounting for minimum rental revenue and ground rent expense
on a straight line basis.

Asset retirement obligations

The REIT has adopted an accounting policy so that all liabilities for
asset retirement obligations associated with the retirement of tangible
long-lived assets are recorded. The REIT acquired all of its assets
within the past 12 months and performed a significant amount of due
diligence in that regard. It has recorded a $189 thousand liability to
provide for the potential need to restore a property located on leased
land to its original state.

Supplemental Information

The REIT's audited consolidated financial statements and Management's
Discussion and Analysis for the year ended December 31, 2004 are
available on the REIT's website at www.borealisreit.com.

March Distribution

Borealis Retail REIT also announces today its March 2005 monthly
distribution in the amount of $0.09. Payment will be made on April15th,
2005 to holders of record as of March 31, 2005.

In addition, unitholders who elect to participate in the DRIP will
receive a further distribution, payable in units, equal in value to 3%
of each cash distribution reinvested by them. The price at which units
will be purchased with such cash distributions is based on a weighted
average trading price of units for the 20 trading days prior to the
relevant distribution date, which is normally the 15th of each month.
Those unitholders wishing to enroll in the DRIP should contact the
brokerage house or financial institution where their units are currently
held and complete the required authorization form.

Conference Call

We invite you to participate in the conference call that will be held on
Friday, March 4 at 2 pm EST to discuss these results. Senior management
will speak to the results and provide a brief corporate update. The
telephone numbers for the conference call are: 416-405-9328 (within
Toronto), and 1-800-387-6216 (within North America).

Audio replays of the conference call will be available immediately
following the completion of the conference call, and will remain active
until March 11, 2005. The replay will be accessible by dialing
416-695-5800 or 1-800-408-3053 and using the pass code 3135216#.

The REIT is a TSX listed real estate investment trust (TSX:BRE.UN). The
REIT owns 9 shopping centres comprising approximately 4.5 million square
feet located in Canada. As of December 31, 2004, the REIT had 33,753,
019 units issued and outstanding.



BOREALIS RETAIL REAL ESTATE
INVESTMENT TRUST

Consolidated Balance Sheets
(In thousands of dollars)

December 31, 2004 and 2003

---------------------------------------------------------------------
---------------------------------------------------------------------
2004 2003
---------------------------------------------------------------------

Assets

Income-producing properties $ 684,096 $ 488,906
Deferred costs 13,486 6,709
Rent receivable 1,498 714
Other assets and receivables 9,250 7,827
Cash and cash equivalents 46,894 682

---------------------------------------------------------------------
$ 755,224 $ 504,838
---------------------------------------------------------------------
---------------------------------------------------------------------

Liabilities and Unitholders' Equity

Liabilities:
Mortgages payable $ 364,854 $ 244,207
Convertible debentures 48,387 -
Bank indebtedness - 18,502
Accounts payable and other liabilities 16,224 7,152
Distribution payable 3,043 2,131
--------------------------------------------------------------------
432,508 271,992

Unitholders' equity 322,716 232,846

Commitments and contingencies

---------------------------------------------------------------------
$ 755,224 $ 504,838
---------------------------------------------------------------------
---------------------------------------------------------------------



BOREALIS RETAIL REAL ESTATE
INVESTMENT TRUST

Consolidated Statements of Income
(In thousands of dollars, except per unit amounts)

Year ended December 31, 2004 and for the period from
July 17, 2003 to December 31, 2003

---------------------------------------------------------------------
---------------------------------------------------------------------
2004 2003
---------------------------------------------------------------------

Revenue:
Base rent $ 64,554 $ 22,276
Recoveries from tenants 38,335 13,290
Percentage rent 1,379 664
Parking 2,343 -
Interest and other income 323 40
--------------------------------------------------------------------
106,934 36,270

Expenses:
Property operating 26,200 8,609
Property taxes 18,646 6,575
Depreciation 16,546 1,867
Amortization 829 159
Interest 18,409 5,301
Ground rent 1,177 488
General and administration 3,377 1,202
--------------------------------------------------------------------
85,184 24,201

---------------------------------------------------------------------
Net income $ 21,750 $ 12,069
---------------------------------------------------------------------
---------------------------------------------------------------------

Basic and fully diluted net income per unit $ 0.777 $ 0.487
---------------------------------------------------------------------
---------------------------------------------------------------------




BOREALIS RETAIL REAL ESTATE
INVESTMENT TRUST

Reconciliation of Net Income to Distributable Income
(In thousands of dollars, except per unit amounts)

(Unaudited)

---------------------------------------------------------------------
---------------------------------------------------------------------
Year 168 Day Period
ended ended
December 31, December 31,
2004 2003
---------------------------------------------------------------------

Net income $ 21,750 $ 12,069
Straight line rent (1,485) -
Depreciation 16,546 1,867
Amortization of above
and below market leases (34) -
--------- ---------
Distributable Income $ 36,777 $ 13,936
--------- ---------


Distributable income, which is not a defined term within Canadian
generally accepted accounting principles, has been calculated in
accordance with the terms of the Declaration of Trust. Distributable
income may not be comparable to similar measures used by other
companies. The REIT defines distributable income fully in the IPO
prospectus and forms a benchmark from various perspectives, including
the IPO Financial Forecast and the distribution payout policies. In
calculating distributable income certain adjustments were made to
incorporate the impact of two new accounting policies on the REIT's
financial statements. One adjustment adjusts the recorded non-cash
straight line rent revenue from Net Income. The other adjustment deals
with the new accounting policy for recording operating leases on an
acquisition. The adjustments result in the same distributable income
that would have been achieved under the REIT's former accounting
policies. As shown in the table above, the impact of accounting for
minimum rent on a straight line basis is deducted from net income and
depreciation of buildings and improvements is added back to net income
to determine distributable income. Other adjustments may be applicable
in future years if, for example, the REIT were to incur gains or losses
on sale of assets, or future income taxes.



Reconciliation of Net Income to Funds from Operations
(In thousands of dollars, except per unit amounts)

(Unaudited)

---------------------------------------------------------------------
---------------------------------------------------------------------
Year 168 Day Period
ended ended
December 31, December 31,
2004 2003
---------------------------------------------------------------------

Net income $ 21,750 $ 12,069
Depreciation 16,546 1,867
Amortization 317 10
Above and below
market leases (34) -
--------- ---------
Funds from Operation $ 38,579 $ 13,946
--------- ---------


Funds from Operations, which is not a defined term within Canadian
generally accepted accounting principles, has been calculated by
management, using Canadian generally accepted accounting principles, in
accordance with CIPPREC's White Paper on Funds from Operations. The
White Paper defines Funds from Operations as net income, excluding gains
or losses on sales of property, plus depreciation and amortization, and
after adjustment for unconsolidated partnerships and joint ventures.
Funds from Operations may not be comparable to similar measures used by
other entities.

-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Borealis Retail REIT
    R. Michael Latimer
    Chief Executive Officer
    (416) 865-5353
    or
    Borealis Retail REIT
    Louis M. Forbes
    Senior Vice President, Chief Financial Officer
    (416) 865-5360