Partners Real Estate Investment Trust
TSX : PAR.UN

Partners Real Estate Investment Trust

November 13, 2014 20:00 ET

Partners REIT Announces Results for the Third Quarter of 2014

BARRIE, ONTARIO--(Marketwired - Nov. 13, 2014) - Partners Real Estate Investment Trust (the "REIT," or "Partners") (TSX:PAR.UN) today announced its results for the three-month period ended September 30, 2014 (the "third quarter").

QUARTERLY RESULT HIGHLIGHTS

  • Revenues were essentially flat when compared to the third quarter of 2013, while NOI decreased by 1%.
  • FFO and AFFO decreased by 15% and 10%, respectively, when compared to the third quarter of 2013.
  • AFFO payout ratio of 84%, a significant decrease from 143% during the third quarter of 2013.
  • On August 14, the REIT announced a reduction in its monthly cash distributions to $0.02083 per unit per month, or $0.25 per unit on an annualized basis, effective as of that month's distribution.
  • On September 26, 2014, the REIT completed the sale of a small portfolio of properties for net proceeds of $15.5 million.
  • Subsequent to the conclusion of the third quarter, on October 2, 2014, the REIT successfully completed the rescission of its April 2014 purchase of three retail centres from Holyrood Holdings ("the Holyrood Transaction").
  • Subsequent to the conclusion of the third quarter, on November 3, 2014, the REIT announced its refinancing of first mortgages at five properties for $51.0 million. These proceeds were primarily deployed towards the repayment of the REIT's credit facility and other existing mortgages. The REIT also announced that it had fully repaid a $15.0 million loan outstanding with Firm Capital.
As at and for the three months ended As at and for the nine months ended
Sep 30, 2014 Sep 30, 2013 Sep 30, 2014 Sep 30, 2013
Revenues from income producing properties $ 14,507,888 $ 14,533,172 $ 44,885,569 $ 41,792,858
Net income (loss) (12,464,313 ) 2,879,866 (24,071,909 ) 13,380,102
Net income (loss) per unit - basic (0.47 ) 0.11 (0.92 ) 0.52
NOI(1) 8,755,664 8,839,837 27,919,750 26,262,588
NOI - same property(1) 7,913,368 8,226,200 21,006,225 21,571,577
FFO(1) 2,458,189 2,901,042 8,448,127 10,146,410
FFO per unit(1) 0.09 0.11 0.32 0.39
AFFO(1) 2,619,091 2,912,645 8,544,241 9,923,969
AFFO per unit(1) 0.10 0.11 0.33 0.38
Distributions(2) 2,198,779 4,155,066 8,755,414 12,418,347
Distributions per unit(2) 0.08 0.16 0.33 0.48
Distribution payout ratio(3) 89% / 84 % 143% / 143 % 104% / 102 % 122% / 125 %
Cash distributions(4) 2,005,495 3,806,451 7,952,202 11,553,750
Cash distributions per unit(4) 0.08 0.15 0.30 0.45
Cash distribution payout ratio(5) 82% / 77 % 131% / 131 % 94% / 93 % 114% / 116 %
As at Sep 30, 2014 Dec 31, 2013 Sep 30, 2013
Total assets $ 558,778,156 $ 595,628,037 $ 605,640,966
Total debt(6) 394,301,960 398,612,885 398,184,703
Total equity 153,507,424 184,878,657 197,005,711
Weighted average units outstanding - basic 26,165,753 25,731,319 25,662,288
Debt-to-gross book value including debentures(6) 66.8 % 66.7 % 66.7 %
Debt-to-gross book value excluding debentures(6) 52.3 % 52.4 % 52.5 %
Interest coverage ratio(7) 2.09 2.10 1.99
Debt service coverage ratio(7) 1.36 1.43 1.38
Weighted average interest rate(8) 4.99 % 4.34 % 4.34 %
Portfolio occupancy 96.0 % 96.4 % 96.1 %
(1) NOI, FFO and AFFO are non-IFRS financial measures widely used in the real estate industry. See "Part II - Performance Measurement" in the MD&A for further details and advisories. Prior year balances have been reclassified to conform with current year presentation.
(2) Represents distributions to unitholders on an accrual basis. Distributions are payable as at the end of the period in which they are declared by the Board of Trustees, and are paid on or around the 15th day of the following month. Distributions per unit exclude the 5% bonus units given to participants in the Distribution Reinvestment and Optional Unit Purchase Plan.
(3) Total distributions as a percentage of FFO/AFFO.
(4) Represents distributions on a cash basis, and as such, excludes the non-cash distributions of units issued under the Distribution Reinvestment and Optional Unit Purchase Plan.
(5) Cash distributions as a percentage of FFO/AFFO.
(6) See calculation under "Debt-to-Gross Book Value" in "Part IV - Results of Operations" in the MD&A.
(7) Calculated on a rolling four-quarter basis. See definition under "Mortgages and Other Financing" in "Part IV - Results of Operations" in the MD&A.
(8) Represents the weighted average effective interest rate for secured debt excluding debentures and credit facilities.
(9) Certain comparative figures have been reclassified to conform with the current year's presentation.

"Partners' third quarter results demonstrate the consistency of our property portfolio," stated Jane Domenico, the REIT's acting CEO. "The quality of these assets will provide us with a secure foundation as we examine options for Partners' future. Our ability to explore these options has been greatly enhanced by several steps we have undertaken since the conclusion of the second quarter. The successful unwinding of the Holyrood Transaction, our sale of three properties in Ontario, and our significant recent refinancing have all served to significantly increase both Partners' financial flexibility and the visibility of our future costs. As a result, we are now far better prepared to approach not only the next stage in our development, but also opportunities for the rebuilding of unitholder value."

Financial Results

Partners' revenue from income producing properties for the third quarter was essentially flat when compared to the third quarter of 2013.

All property NOI for the third quarter decreased by 1% compared to the third quarter of 2013. Same property NOI for the third quarter decreased by 4% when compared to the third quarter of 2013. This decline can be attributed primarily to the application of lower recovery rate accruals at the conclusion of the third quarter, when compared to accruals performed at the conclusion of the third quarter of 2013.

FFO for the third quarter decreased by 15%, when compared to FFO for the third quarter of 2013, primarily due to the NOI decreases and the increase to financing costs, AFFO for the third quarter decreased by 10% when compared to the third quarter of 2013. The AFFO decline was driven by the same factors as the FFO decline, and was partially offset by the recognition of lower straight line rents during 2014. The AFFO payout ratio was 84% in the third quarter as compared to 143% in the third quarter of 2013. AFFO cash payout ratio for the third quarter was 77%, compared to 131% in the third quarter of 2013.

Partners' total assets as at September 30, 2014, decreased by $36.8 million, or 6%, when compared to the balance as at December 31, 2013. This decrease was a result of the sale of three single tenant properties located in Ontario for gross proceeds of $34.9 million, as well as fair value losses recognized on the REIT's property portfolio. These factors were partially offset by an increase in the REIT's working capital.

Partners' total debt as at September 30, 2014, decreased by $4.3 million, or 1%, when compared to the balance at December 31, 2013. This decrease was the result of a disposal of a total of $19.2 million in mortgages as a part of the sale of three Ontario properties, $20.7 million in loan maturities, as well as monthly principal repayments on the REIT's mortgages of $6.0 million. These factors were partially offset by $38.0 million in new mortgages and $4.0 million in net draws on the REIT's Credit Facility.

Partners' interest coverage ratio as at September 30, 2014 was 2.09, in line with 2.10 as at December 31, 2013. The REIT's debt service coverage ratio as at September 30, 2014 was 1.36, a decrease from 1.43 as at December, 2013. Contributions from newly acquired properties were offset by new mortgages, a convertible debenture offering, and draws on the REIT's credit facility.

Partners' debt-to-gross book value as at September 30, 2014, was 66.8%, or 52.3% when excluding the impact of debentures. These metrics stood at 66.7% and 52.4%, respectively, as at December 31, 2013.

Net asset value is a measure of the Partners' total assets less the REIT's liabilities, and is represented on the balance sheet as Unitholders' Equity. As at September 30, 2014, the REIT's net asset value was $5.84 per unit, a decrease of $1.27 per unit compared to December 31, 2013.

OPERATIONAL PERFORMANCE

Partners' occupancy as at September 30, 2014, was 96.0%, a slight decrease from 96.1% at September 30, 2013.

Of the leases that are set to expire during 2014, 417,227 square feet have been renewed or replaced with new leases with a further 86,858 square feet currently in the process of being renewed or committed to lease. The balance of 44,161 square feet, comprising seventeen tenancies, will require new prospects.

OUTLOOK

Leasing expiries in 2014 and 2015 are 3.0% and 8.0% respectively, as at September 30, 2014. The REIT anticipates that there will be strong demand for the majority of this space, and as a result, these expiries provide the REIT with a near-term opportunity to potentially increase revenues.

Over the next two years, the REIT has approximately $70.4 million in mortgages maturing which carry an average contractual interest rate of 6.14%. These maturities provide the REIT with an opportunity to refinance this portion of its debt at current market rates. Management expects these financings to result in a slight reduction to the REIT's financing costs.

As a result of the expected performance of Partners REIT's existing portfolio, as well as the reductions of the REIT's distribution per unit in November 2013 and August 2014, management anticipates that the REIT's AFFO payout ratio will be below 100% during 2014.

THIRD QUARTER AND SUBSEQUENT DEVELOPMENTS

A more comprehensive description of all the items listed below, as well as less significant developments that took place during the relevant periods, is available in the REIT's Management's Discussion & Analysis for the third quarter of 2014.

Reduced Distribution

Effective as of the August 2014 distribution, Partners reduced its monthly distribution to $0.02083 per unit per month, or $0.25 per unit on an annualized basis. This reduction is expected to result in annual cash savings of approximately $6.0 million, based on the REIT's unit count at the end of the third quarter of 2014.

Sale of Three Ontario Properties for $34.9 Million and Debt Repayment

On September 26, 2014, Partners successfully completed its sale of three properties in Ontario to CT Real Estate Investment Trust ("CT REIT"). The purchase price of these properties equated to $34.9 million, excluding transaction costs. CT REIT satisfied this purchase price via a combination of cash and the assumption of three mortgages totaling $19.2 million. The total proceeds from the transaction, net of costs, were approximately $15.5 million.

In November 2014, proceeds from this transaction were utilized to fully repay the REIT's outstanding $15.0 million loan with Firm Capital. This loan, which was first announced on April 30, 2014 in a press release entitled "Partners Real Estate Investment Trust Accepts Financing Commitment," carried a 10.0% interest rate at the time of its repayment.

Unwinding of the Holyrood Transaction

In April 2014, Partners purchased three retail centres from Holyrood Holdings ("Holyrood") for a purchase price of approximately $90.1 million. In June 2014, the REIT entered into a Rescission Agreement with Holyrood to unwind this transaction. On October 2, 2014 the REIT and Holyrood successfully satisfied all conditions of this Rescission Agreement and unwound the transaction. Total soft costs and break fees associated with the Holyrood Transaction and its rescission were $4.3 million.

Financing Activity

In September 2014, Partners refinanced its Place Desormeaux property through a $23.0 million new mortgage, which replaced a maturing mortgage of $20.6 million. Excess funds, net of costs, were $2.1 million. This amount, along with a related release of $1.3 million in escrow funds, will provide the REIT with $3.4 million in cash for operations. The new mortgage is a variable rate loan at prime plus 2% (effective interest rate of 5%), with a three-year term.

On November 10, 2014, Partners completed its refinancing of five properties. This refinancing consisted of first mortgages that amount to $51.0 million. Of this amount, $47.0 million was used to repay both the $35.0 million outstanding on the REIT's $40.0 million credit facility and other existing mortgages. The balance of $4.0 million will be allocated to high return on investment projects, improving the quality of the REIT's existing property portfolio.

The refinancing also provides the REIT with access to a $10.0 million line of credit that is secured by second mortgages on a number of the refinanced properties. The REIT does not anticipate requiring significant use of this line of credit within the near future.

The first mortgages carry an average weighted interest rate of 3.74% and an average term to maturity of 6.9 years. The $10.0 million line of credit will bear interest at a rate of prime plus 2.0% and has a term of two years.

The REIT also announced that it has repaid in full a second mortgage loan outstanding with Firm Capital. At the time of the repayment, the loan carried an interest rate of 10.0%.

Conference Call Details

Partners will also host a conference call at 8:30 AM Eastern tomorrow, November 14, at which time management will both review the Partners' third quarter financial results and discuss the REIT's strategic plan.

Toll Free (North America): 866-225-0198

Local: 416-340-2216

Instant Replay Details (Available until November 28, 2014)

Toll Free (North America): 800-408-3053

Passcode: 6659765

A recording of the conference call will also be available via Partners' website.

About Partners REIT

Partners REIT is a growth-oriented real estate investment trust focused on the expansion and management of a portfolio of 36 retail and mixed-use community and neighbourhood shopping centres. These properties are located in both primary and secondary markets across British Columbia, Alberta, Manitoba, Ontario, and Quebec, and comprise a total of approximately 2.5 million square feet of leasable space.

Disclaimer

Certain statements included in this press release constitute forward-looking statements, including, but not limited to, those identified by the expressions "expect," "will" and similar expressions to the extent they relate to Partners REIT. The forward- looking statements are not historical facts but reflect Partners REIT's current expectations regarding future results or events. These forward looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including the timing of the offering, success of the offering, listing of the units, use of proceeds of the Offering, access to capital, regulatory approvals, intended acquisitions and general economic and industry conditions. Although Partners REIT believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and, accordingly, readers are cautioned not to place undue reliance on such statements due to the inherent uncertainty therein.

Contact Information