Primaris Retail REIT
TSX : PMZ.UN

Primaris Retail REIT

June 13, 2005 14:30 ET

Primaris Retail REIT Announces Five Acquisitions, Private Placement And Interest Rate Hedge

TORONTO, ONTARIO--(CCNMatthews - June 13, 2005) - Primaris Retail REIT (TSX:PMZ.UN) announces today that it has made five separate strategic acquisitions: Place du Royaume, located in the Saguenay, Quebec; Place Fleur de Lys located in Quebec City, Quebec; a 50% interest in Grant Park Shopping Centre located in Winnipeg, Manitoba; Northland Professional Centre, located in Calgary Alberta; and Tillsonburg Gateway Centre, located in Tillsonburg, Ontario. The acquisitions represent a total purchase price of $268 million, and increase the book value of the portfolio to almost $945 million. Primaris has agreed to sell $40 million of exchangeable securities in a private placement with the vendors of one of the five properties being acquired. In addition, Primaris has entered into an interest rate hedge.

All five acquisitions meet the Primaris stated strategy of producing stable, growing cash distributions, enhanced asset and unit value and diversified, growing portfolio and distribution income. The acquisitions will expand Primaris' overall tenant base, and diversify its holdings geographically.

About Place du Royaume

Place du Royaume is a 580,000 square foot enclosed shopping centre, and is located in the Saguenay in the former town of Chicoutimi. The shopping centre is anchored by a Wal-Mart and Bay, as well as being adjacent to a Canadian Tire which is not being acquired as part of the deal. Other significant tenants include Future Shop, Pharmaprix, Sports Experts, Reitmans, La Difference and L'Equipeur. Place du Royaume is the primary shopping mall in the secondary market of Saguenay, making it a strategic acquisition for the REIT.

In addition to the shopping centre, there is approximately 8.5 acres of surplus land available for development. Place du Royaume dominates its market, with 2004 averaging tenant sales of $352 per square foot, and has the widest offering of fashion merchandise in the region. Place du Royaume has a diversified tenant mix with 52% national tenants, 31% local tenants and 17% regional tenants. Constructed in 1972, the shopping centre was expanded in 1977, 1986 and 1993, and renovated over 2000 and 2001.

Saguenay is Quebec's third largest region, with a population of almost 285,000 people in 112,700 households. Located approximately 200 kilometres north of Quebec City and 500 kilometres east of Montreal, Saguenay is a unique economy and market which support a diversified workforce and average household income of over $53,000. Retail sales for the region are approximately $3.5 billion, with per capital sales of over $11,800.

Primaris will make a $134 million investment in Place du Royaume and will assume the existing mortgage on the property, representing a current outstanding balance of $63.1 million, an interest rate of 6.32%, and a maturity in September 2009, with the intention to refinance the debt on or shortly after the acquisition.

The acquisition is expected to close on June 29, 2005.

About Place Fleur de Lys and Private Placement

Place Fleur de Lys is an 865,000 enclosed regional shopping centre located in Quebec City, Quebec. It is anchored by Sears (not owned), The Bay, Zellers, and Maxi. Other significant tenants include Future Shop, Croteau, and Sports Experts. The shopping centre is located on 52.9 acres of land (excluding Sears) and is located just south of the intersection of Highways 40 and 175. The property was developed over several phases between 1963 and 1993, and has had significant capital upgrades in recent years.

Quebec City is the second largest metropolitan region in the province of Quebec, with a population in excess of 700,000 people. Place Fleur de Lys is a mid-market mall and entirely consistent with the REIT's stated strategy. According to the Conference Board of Canada, Quebec City has a diversified economy and, as the provincial capital, has the province as the largest employer in this market. Large public and institutional sector employers include hospitals, Laval University, the Canadian Armed Forces, and the Caisse Populaire Desjardins.

Primaris will make a $91.5 million investment in this asset and will assume an existing mortgage on the property representing a current balance of $34 million, an interest rate of 7.24% and a maturity date in August 2018. Primaris is in discussions with the existing lenders to refinance this loan.

Primaris has purchased the property from five partners who are private individuals. The REIT will issue to the vendors $40 million of exchangeable securities as partial consideration for the purchase of Place Fleur de Lys. These securities will be exchangeable into units of Primaris Retail REIT on a one-for-one basis and, prior to exchange, will be entitled to the same distributions as made on Primaris units. There is a mandatory exchange provision that has a 20 year term. Consequently, these securities will be treated as equity on the consolidated financial statements of the REIT. The exchangeable securities will be accompanied by voting rights and will be subject to certain hold restrictions. The exchangeable units were priced at $14.04 per unit being the weighted average closing price of Primaris units on the TSX for the 20 trading days beginning May 6, 2005 and ending June 3, 2005.

The acquisition is expected to close on July 20, 2005.

About Grant Park Shopping Centre

Grant Park Shopping Centre is a 385,000 square foot enclosed community shopping centre, located in the south west quadrant of Winnipeg in an area known as River Heights. The mall is anchored by Zellers and Safeway, and includes two additional anchor tenants: McNally Robinson Booksellers, and an eight-screen Cineplex Odeon Theatre. Shoppers Drug Mart and Liquor Mart are two other significant tenants. The 32-acre property was built in 1962, and underwent an expansion in 1989. The Zellers store was built in 2001, and Safeway recently spent over $3.5 million updating their store.

Grant Park has a weighted average remaining lease term for all tenants of approximately ten years, and in 2004 reported tenant sales productivity of $355 in sales per square foot. The shopping mall forms a strong part of the Winnipeg community, provides further geographic distribution amongst the REIT's holdings, and fits well into Primaris' strategy.

Primaris will purchase its 50% interest from two private investors and will contemporaneously enter into a joint venture agreement with two other private investors who own the remaining 50% interest. The joint venture agreement contains normal provisions concerning major decisions and liquidity as between the partners. The owners will engage Oxford Properties Group as the manager of the property.

Primaris will make a $24 million investment for its 50% share of this asset, subject to a new $17million mortgage (at share), with a ten year term. The interest rate on this new loan will be set shortly before closing, at a rate equal to the sum of the yield on the June 2015 4.5% Government of Canada bond plus 1.25%. Primaris will use cash on hand to fund the balance of the purchase price. Closing of the purchase is expected on June 27, 2005.

About Northland Professional Centre

Northland Professional Centre is a 50,000 square foot professional office building immediately adjacent to Northland Village Shopping Centre, Calgary, already owned by the REIT. This asset will complement the existing operations of the shopping centre, and excess density at the professional centre may be of future benefit. The building is 95% leased and is occupied predominately by health care professionals with established practices. Leases representing less than 9% of the leasable area are scheduled to expire in the first three years of ownership. Management of the asset will be under the direction of the existing staff based at the shopping centre, and office leasing will be supported by Oxford's office leasing specialists located in Calgary. These operating synergies combined with the tenant diversity offered by the property make it a strategic acquisition for the REIT.

Primaris made a $10.7 million investment in this property, which is subject to a $3.3 million mortgage, bearing interest at 7.2% and maturing in 2019. Primaris used cash on hand to fund the balance of the purchase price. Closing of the purchase occurred on June 1, 2005.

About Tillsonburg Gateway Centre

Tillsonburg Gateway Centre is a strip centre with a total of 47,000 square feet of retail space. Completed in 2003, the centre is located in Tillsonburg, approximately 100 kilometers southwest of Toronto, Ontario. The centre is anchored by Sobey's grocery store, and has three additional tenants - Subway, Movie Gallery and Pioneer Petroleums. All four tenants have long lease maturities: the three in-line tenant leases expire in 2013, and the Sobey's lease expires in 2023.

Tillsonburg Gateway Centre broadens Primaris' retail investment base through geographic and tenant diversification.

Primaris made an $8.4 million investment and assumed the current Tillsonburg Gateway Centre mortgage, which represented a balance of $4.5 million, a 6.12% interest rate and a November 2006 maturity. Closing occurred on June 1, 2005.

Interest Rate Hedge

Primaris has entered into a contract to hedge its interest rate exposure on the refinancing of Orchard Park Shopping Centre, in Kelowna, British Columbia. The hedge anticipates a new loan amount of $100,000,000, a loan term of 10 years and an amortization of 25 years. The hedge was priced against a June 2015 bond yield of 3.95% and will add a cost of borrowing of approximately 20 basis points to the new loan's interest rate. On the assumption that Primaris can achieve a credit spread on the new loan of 135 basis points, the effective interest on the new loan would be 5.50%. Management decided to enter into this contract in order to help meet one of its principal objectives: providing stable distributions.

Orchard Park Shopping Centre is financed by a mortgage bond issued to multiple holders. The loan had a balance of $67,740,627 as of March 31, 2005. It bears interest at 7.02%, reduced to 5.032% by virtue of a loan payment subsidy obtained at IPO. The loan matures on May 1, 2006. The change in interest rates from the current loan to the new rate to be obtained on refinancing represented one of the larger variables in the REIT's financial performance going forward.

President and CEO Michael Latimer said "these acquisitions will be accretive to our distributable income as we expect the year one, unlevered net operating income return on these investments to be approximately 8.0%. Each of the five assets fits the REIT's strategic acquisition goals, and will further diversify our portfolio of properties. The hedge placed on the 2006 refinancing eliminates the biggest financial risk in our operations and responds to the most frequently asked question posed to management."

At March 31, 2005, Primaris had a debt to gross book ratio of approximately 47%. This ratio increases to approximately 55% after giving pro forma effect for these five transactions. Management believes it has additional acquisition capacity of $50 million while remaining within a comfortable debt to gross book value ratio of 57%.

These five acquisitions are consistent with Primaris' stated strategy, and will further diversify the portfolio geographically and immunize against the impact of market-specific economic changes. The acquisitions will add to the overall tenant base of the REIT, and will help Primaris continue to meet its three stated objectives of:

1. Stable, growing cash distributions;

2. Enhanced asset and unit value; and

3. Diversified, growing portfolio and distribution income.

Primaris Retail REIT is a TSX listed real estate investment trust (TSX:PMZ.UN). Upon completion of these transactions, Primaris Retail REIT will own 14 shopping centres comprising approximately 6.1 million square feet located in Canada. As of May 31, 2005 the REIT had 34,220,616 units issued and outstanding.

Contact Information

  • Primaris Retail REIT
    R. Michael Latimer
    Chief Executive Officer
    (416) 865-5353
    or
    Primaris Retail REIT
    Louis M. Forbes
    Senior Vice President and Chief Financial Officer
    (416) 865-5360