VICTORIA, BRITISH COLUMBIA--(Marketwired - Nov. 13, 2013) - Partners Real Estate Investment Trust (TSX:PAR.UN) ("Partners," the "REIT") announced today results for the three months ended September 30, 2013 (the "third quarter").
Third Quarter Significant Events
- Increased revenues by 30% and NOI by 17%, when compared to the third quarter of 2012.
- FFO and AFFO decreased by 6% and 8%, respectively, when compared to the third quarter of 2012.
- Acquired Cobblestone Shopping Centre in Alberta for a purchase price of $16.5 million.
- Extended and amended the REIT's revolving credit facility.
- Subsequent to the conclusion of the third quarter, announced the formation of a Special Committee comprised of Partners' independent trustees. The mandate of the Special Committee is to evaluate the REIT's strategic alternatives and internalization strategy as well as evaluate the impact, if any, on the CCAA proceedings that involve its manager and its largest unitholder.
Adjustment to Monthly Distribution
Partners also announced that it will reduce its monthly cash distribution to unitholders by 22%, to $0.04167 per unit, or $0.50 per unit on an annualized basis. This adjustment will commence with the November 2013 distribution. The cashflow retained through the adjustment of the distribution will provide the REIT with improved financial flexibility to pursue those strategic alternatives currently under consideration by its Special Committee.
Management Commentary
"While Partners is currently undergoing a transformative period, we are optimistic about our future," stated Edward Boomer, the REIT's President and Chief Investment Officer. "The Special Committee of our independent trustees is currently analyzing all strategic alternatives, including the timing for terminating the management agreement with the manager. We believe that having employees and officers who work directly for the REIT, and not through an external manager, will benefit both Partners' governance and financial performance, and we look forward to this next step in our evolution. Our current challenges should not obscure the quality of our assets. Our property portfolio continues to establish a track record of consistent performance.
"The trustees have also made the decision to reduce Partners' distribution to $0.50 per unit on an annualized basis. This reduction will give the REIT financial flexibility while the Special Committee analyzes which strategic alternatives will provide us with the greatest opportunity for future success. Furthermore, our ability to execute upon the selected strategic initiatives will benefit from an improvement in our cost of capital. While the decision to reduce our distribution was not made lightly, the trustees believe that it is fiscally prudent, and will ultimately enhance unitholder value. The long-term growth and protection of this value is our primary objective."
Operational and Financial Results
Partners' revenues from income producing properties for the third quarter were $14.5 million, a $3.3 million, or 30%, increase from the third quarter of 2012. This improvement was primarily due to the REIT's acquisition of nine properties subsequent to the conclusion of the third quarter of 2012.
Net Operating Income ("NOI") for the third quarter was $8.8 million, a $1.3 million, or 17%, increase from the third quarter of 2012. This improvement was primarily due to the impact of the REIT's acquisitions. Excluding the impact of these acquisitions, the REIT's same property NOI for the third quarter decreased by 12%, when compared to the third quarter of 2012. This year over year decline can be attributed to provisions made during the quarter for uncollectible debts and adjustments to recovery revenues related to prior years. Management regularly reviews current as well as past accounting assumptions. At this juncture, based on the aging of certain uncollectible debts, and following a thorough review of prior period revenue recovery assumptions, management believes that it is prudent to recognize expenses associated with both categories to more accurately reflect the likelihood of collection given the information available to the REIT at this time.
At the conclusion of the third quarter, occupancy stood at 96.1%, a slight decrease from the 96.7% recorded at the end of 2012. This decline can be attributed to the six properties that the REIT acquired during the first nine months of 2013. These properties had a weighted average occupancy of 91.0%. The financial impact of any vacancies at these properties is effectively offset by rental income guarantees that ensure the REIT will receive related rental revenues until any vacancies at the properties have been filled.
| As at and for the three months ended | As at and for the nine months ended | |||||||
| Sep 30, 2013 | Sep 30, 2012 | Sep 30, 2013 | Sep 30, 2012 | |||||
| Revenues from income producing properties | $ | 14,533,172 | $ | 11,195,642 | $ | 41,792,858 | $ | 31,575,199 |
| Net income and comprehensive income | 2,879,866 | 3,526,175 | 13,380,102 | 10,715,642 | ||||
| Net income per unit - basic | 0.11 | 0.16 | 0.52 | 0.59 | ||||
| NOI (1) | 8,839,837 | 7,576,746 | 26,262,588 | 20,714,127 | ||||
| NOI - same property (1) | 6,675,221 | 7,575,746 | 14,170,325 | 14,528,653 | ||||
- NOI, FFO and AFFO are non-IFRS financial measures widely used in the real estate industry. See "Part II -
Performance Measurement" in the REIT's Management Discussion & Analysis ("MD&A") for further details and advisories.
Partners' Funds from Operations ("FFO") for the third quarter were $3.2 million, a decrease of $0.2 million from the third quarter of 2012. FFO per unit decreased by $0.04 to $0.12 per unit. Adjusted Funds from Operations ("AFFO") for the third quarter were $2.9 million, a decrease of $0.2 million from the third quarter of 2012. AFFO per unit decreased by $0.04 to $0.11 per unit. Improvements in both FFO and AFFO due to the REIT's acquisitions were more than offset by the provisions made during the quarter for uncollectible debts and adjustments to recovery revenues related to prior years.
The AFFO cash payout ratio for the third quarter was 131%, compared to 101% for the third quarter of 2012. This increase is due to provisions made in the third quarter for uncollectible debts and adjustments to recovery revenues related to prior periods. Based on the REIT's current portfolio, the AFFO cash payout ratio is expected to decline as income from the portfolio stabilizes and a large proportion of straight-line rent converts to collectible rent.
| As at and for the three months ended | As at and for the nine months ended | |||||||
| Sep 30, 2013 | Sep 30, 2012 | Sep 30, 2013 | Sep 30, 2012 | |||||
| FFO(1) | 3,162,365 | 3,360,600 | 10,865,030 | 8,751,497 | ||||
| FFO per unit(1) | 0.12 | 0.16 | 0.42 | 0.47 | ||||
| AFFO(1) | 2,912,645 | 3,160,571 | 9,923,969 | 8,427,599 | ||||
| AFFO per unit(1) | 0.11 | 0.15 | 0.38 | 0.46 | ||||
| Distributions(2) | 4,155,066 | 3,433,006 | 12,418,347 | 8,867,778 | ||||
| Distributions per unit(2) | 0.16 | 0.16 | 0.48 | 0.48 | ||||
| Distribution payout ratio(3) | 131% / 143 | % | 102% / 109 | % | 114% / 125 | % | 101% / 105 | % |
| Cash distributions(4) | 3,806,451 | 3,200,629 | 11,553,750 | 8,405,749 | ||||
| Cash distributions per unit(4) | 0.15 | 0.15 | 0.45 | 0.46 | ||||
| Cash distribution payout ratio(5) | 120% / 131 | % | 95% / 101 | % | 106% / 116 | % | 96% / 100 | % |
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.
Financial Position
At the conclusion of the third quarter, Partners' debt to gross book value was 52.5%, or 66.7% when including convertible debentures, compared to 49.3%, or 62.4% when including convertible debentures, at the conclusion of 2012. Interest coverage and debt service coverage ratios were 1.99 times and 1.38 times, respectively, at the conclusion of the third quarter, compared to 2.30 times and 1.55 times, respectively, at the conclusion of 2012. The REIT's total debt at the conclusion of the third quarter was $398.2 million, an increase of $104.2 million, or 37%, compared to the conclusion of 2012. This increase can be attributed to a $23.0 million convertible debenture issuance that closed on March 5, 2013, net draws of $21.5 million on the REIT's revolving credit facility, and new mortgages of $69.3 million, offset in part by the repayment of a variable rate mortgage with a principal balance of $4.0 million, and monthly principal repayments made on the REIT's mortgages.
| As at | Sep 30, 2013 | Dec 31, 2012 | Sep 30, 2012 | |||
| Total assets | $ | 605,640,966 | $ | 479,068,788 | $ | 442,496,388 |
| Total debt(6) | 398,184,703 | 294,023,939 | 280,307,968 | |||
| Total equity | 197,005,711 | 170,064,524 | 151,394,633 | |||
| Weighted average units outstanding - basic | 25,662,288 | 19,164,337 | 18,181,355 | |||
| Debt-to-gross book value including debentures(6) | 66.7% | 62.4% | 62.0% | |||
| Debt-to-gross book value excluding debentures(6) | 52.5% | 49.3% | 48.3% | |||
| Interest coverage ratio(7) | 1.99 | 2.30 | 2.08 | |||
| Debt service coverage ratio(7) | 1.38 | 1.55 | 1.44 | |||
| Weighted average interest rate(8) | 4.34% | 4.48% | 4.64% | |||
| Portfolio occupancy | 96.1% | 96.7% | 96.4% |
6. See calculation under "Debt-to-Gross Book Value" in "Part IV - Results of Operations" of the MD&A.
7. Calculated on a rolling four-quarter basis. See definition under "Mortgages and Other Financing" in "Part IV - Results of Operations" of the MD&A.
8. Represents the weighted average effective interest rate for secured debt excluding debentures and credit facilities.
Over the next two years, Partners has approximately $26.3 million in mortgages maturing which carries an average contractual interest rate of 4.59%. Refinancing at current market rates would result in a slight reduction of the REIT's financing costs.
League CCAA Filing
On October 18, 2013, League Assets Corp. and a number of related entities filed for protection under the Companies' Creditors Arrangement Act ("CCAA"). Related entities included:
- LAPP Global Asset Management Corp. ("LAPP"), the REIT's external asset manager
- IGW Public LP, the REIT's largest unitholder
- League Realty Services Ltd., the REIT's external property manager for several of its properties
Partners is not a creditor of any of the companies covered by the CCAA filing. While the management agreement between the REIT and LAPP remains in place, LAPP will continue to carry out the management and administration of the REIT.
If LAPP ceases to perform its obligations under the management agreement, the REIT will be able to employ many of the individuals currently working for LAPP on the REIT's behalf and is entitled to access to all records to be able to carry on normal operations.
Appointment of Special Committee
On October 18, 2013, Partners announced that it had appointed a Special Committee comprised of its independent trustees. That Committee's mandate is to:
- Evaluate the strategic alternatives that may be available to the REIT at this time to enhance unit holder value including, without limitation, entering into strategic alliances, the sale of all or some of the assets of the REIT, the purchase by others of some or all of the outstanding Units of the REIT, including by existing major unitholders, the issuance of Units of the REIT from treasury to others in exchange for either cash or non-cash consideration, and the recapitalization of the REIT to enable additional acquisitions and the internalization of management of the REIT.
- Evaluate the impact on the REIT of the League CCAA filing and to take all action the Special Committee determines necessary or appropriate.
Leasing
Leases representing approximately 159,000 square feet have expired or are scheduled to expire in 2013. As of this date, 83,687 square feet have been renewed or replaced with new leases with a further 55,829 square feet currently in the process of being renewed or committed to lease. Management believes that there is currently strong demand for the renewing space and expects to be able to fill substantially all of 2013 lease expiries in the coming months.
| Three months ended | 31-Mar-13 | 30-Jun-13 | 30-Sep-13 | 31-Dec-13 | Total 2013 | Total 2012 | ||||||
| Lease expiries(1) | 55,751 | 37,759 | 17,401 | 48,270 | 159,181 | 222,645 | ||||||
| Base rent per square foot(3) | $ | 11.46 | $ | 17.42 | $ | 18.35 | $ | 19.21 | $ | 15.98 | $ | 11.17 |
| Lease renewals - completed(1) | 5,071 | 29,034 | 4,795 | 34,995 | 73,895 | 103,072 | ||||||
| Base rent per square foot(3) | $ | 22.65 | $ | 18.95 | $ | 15.31 | $ | 21.27 | $ | 20.06 | $ | 14.02 |
| Leases - in progress(2) | 40,358 | 7,895 | 2,550 | 6,664 | 57,467 | - | ||||||
| Base rent per square foot(3) | $ | 8.25 | $ | 15.18 | $ | 11.41 | $ | 10.62 | $ | 9.62 | - | |
| New leasing(1) | 1,741 | - | 8,051 | - | 9,792 | 107,887 | ||||||
| Base rent per square foot(3) | $ | 23.00 | $ | - | $ | 12.96 | $ | - | $ | 14.74 | $ | 8.91 |
| Uncommitted vacancies(1) | 8,581 | 830 | 2,005 | 6,611 | 18,027 | 11,686 | ||||||
| Base rent per square foot(3) | $ | 18.92 | $ | 12.00 | $ | 24.09 | $ | 18.99 | $ | 19.20 | $ | 19.67 |
- Excludes month-to-month tenants
- Includes tenants on overhold or month-to-month leases
- Weighted average
Recent Acquisition Activity
On August 21, 2013, Partners closed the acquisitions of Cobblestone Shopping Centre in Grand Prairie, Alberta, for a purchase price of $16.5 million. This property is a 42,980 square-foot, three building open air retail centre, occupied by Shoppers Drug Mart, TD Canada Trust, and Starbucks.
Conference Call Details
The Company will hold a conference call to discuss these results at 9:00 AM Eastern on November 14, 2013.
Dial In-Information
Toll Free (North America): 855-223-7309
Local: 647-788-4929
Replay Information (Passcode: 92466152)
Toll Free (North America): 855-859-2056
The replay will be available until November 28, 2013. A recording of the conference call will also be available via the REIT's website.
For the complete Financial Statements and Management's Discussion and Analysis for the period, please visit www.sedar.com or www.partnersreit.com.
About Partners REIT
Partners REIT is a growth-oriented real estate investment trust, which currently owns (directly or indirectly) 39 retail properties located in Ontario, Quebec, Manitoba, Alberta and British Columbia aggregating approximately 2.7 million square feet of leasable space. Partners REIT focuses on expanding and managing a portfolio of retail and mixed-use community and neighbourhood shopping centres located in both primary and secondary markets across Canada.
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:
Edward Boomer
President & Chief Investment Officer
(647) 253-6156
Partners Real Estate Investment Trust
Heather Routly
Chief Financial Officer
(250) 419-7153
www.partnersreit.com