Primaris Retail REIT
TSX : PMZ.UN

Primaris Retail REIT

August 07, 2008 12:01 ET

Primaris Retail REIT Announces Second Quarter Financial Results

TORONTO, ONTARIO--(Marketwire - Aug. 7, 2008) - Primaris Retail REIT (TSX:PMZ.UN) is pleased to report a 17.0% increase in net operating income for the second quarter of 2008, as compared to the second quarter of 2007.

President and CEO, Michael Latimer, commented "We continue to be very pleased with the rate of internal growth represented by 4.7% Same Property net operating income growth in the second quarter. In addition, the recent completion of the Stone Road Mall refinancing has generated $48 million to treasury. Our next significant loan maturity does not occur until 2011."

Highlights

Funds From Operations

- Funds from operations for the second quarter ended June 30, 2008 were $21.3 million or $0.341 per unit fully diluted, down 0.9% on a per unit basis from the $20.2 million, or $0.344 per unit reported for the second quarter of 2007.

Net Operating Income

- Net operating income for the second quarter ended June 30, 2008, was $36.4 million, substantially higher than the $31.1 million recorded in the second quarter of 2007. The large increase was driven principally by acquisitions.

Same Property - Net Operating Income

- Net operating income for the second quarter ended June 30, 2008, on a same property basis, increased 4.7% over the comparative three-month period.

Operations

- The REIT renewed or leased 141,482 square feet of space during the second quarter. The weighted average new rent in these leases, on a cash basis, represented a 9.1% increase over the previous rent paid.

- The portfolio occupancy rate increased during second quarter and was 97.7% at June 30, 2008, compared to 97.3% at March 31, 2008, and up from 96.6% at June 30, 2007.

- Same-tenant sales, for the 13 properties owned during all of the 24 months ended May 31, 2008 increased 3.4% to $474 per square foot as compared to the previous 12 months.

- The second quarter results included seasonal revenues of $2.5 million as compared to $1.7 million recorded in the second quarter of 2007.

- Primaris successfully completed the refinancing of Stone Road Mall on August 1, 2008. The loan was for $110 million, bears interest at 5.49%, and matures in July 2013.

Financial Results

Funds from operations for the three months ended June 30, 2008 was $21.3 million or $0.343 per unit basic ($0.341 fully diluted). This compares to funds from operations of $20.2 million or $0.346 per unit basic ($0.344 fully diluted) earned during the three months ended June 30, 2007.

Net income for the three months ended June 30, 2008 was $1.0 million or $0.017 per unit (basic and fully diluted). This compares to a net loss of $43.6 million or $0.745 per unit (basic and fully diluted) earned during the three months ended June 30, 2007.

The REIT acquired six properties at various times during 2007. These properties contributed significantly to operations throughout the three months June 30, 2008. These acquisitions and the related debt and equity financings explain a significant amount of the difference between the results for the current periods and the comparative periods. In addition the REIT acquired one site in the first quarter of 2008 which contributed to operations for the three months ended June 30, 2008.

The distribution payout ratio for the second quarter of 2008, expressed on a per unit basis as distributions paid divided by fully diluted funds from operations was 89.3% as compared to a 85.7% payout ratio for the second quarter of 2007.

The payout ratios are sensitive to both seasonal operating results and financial leverage.

At June 30, 2008, the REIT's total enterprise value was approximately $2.1 billion (based on the market closing price of Primaris' units on June 30, 2008, plus total debt outstanding). At June 30, 2008 the REIT had $947.6 million of outstanding debt equating to a debt to total enterprise value ratio of 45.4%. The REIT's debt consisted of $852.8 million of fixed-rate senior debt with a weighted average interest rate of 5.7% and a weighted average term to maturity of 8.0 years, $6.0 million of 6.75% fixed-rate convertible debentures and $88.8 million of 5.85% fixed-rate convertible debentures. The REIT had a debt to gross book value ratio, as defined under the Declaration of Trust, of 47.9%. During the three months ended June 30, 2008, the REIT had an interest coverage ratio of 2.5 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 Trusts.



Operating Results

Net Operating Income - Same Properties

Variance to
Three Months Three Months Comparative Period
Ended Ended Favourable/
June 30, 2008 June 30, 2007 (Unfavourable)

Operating revenue $ 56,178 $ 54,101 $ 2,077
Operating expenses 23,841 23,202 (639)
-----------------------------------------------------
Net operating income $ 32,337 $ 30,899 $ 1,438
-----------------------------------------------------


The same property comparison includes only 20 properties that were owned throughout both the current and comparative three-month periods. Net operating income, on a same property basis, increased $1,438, or 4.7%, over the comparative three-month period.

Tenant sales

Tenant sales per square foot, on a same-tenant basis, have increased 3.4% to $474 in the 12 months ended May 31, 2008. Total tenant volume has increased by 6.1% when comparing sales for the same properties.



Same-Tenant
Sales per Square Foot Variance
2008 2007 $ %
-----------------------------------
Aberdeen Mall $ 466 $ 452 $ 14 3.1%
Cornwall Centre 503 466 37 7.9%
Dufferin Mall 536 538 (2) (0.3%)
Eglinton Square 415 423 (8) (1.9%)
Grant Park Shopping Centre 365 365 (1) (0.2%)
Lambton Mall 371 378 (8) (2.0%)
Midtown Plaza 594 521 72 13.9%
Northland Village 449 444 5 1.0%
Orchard Park Shopping Centre 586 574 11 1.9%
Park Place Shopping Centre 513 482 31 6.4%
Place Fleur de Lys 322 319 3 0.9%
Place du Royaume 399 379 20 5.3%
Stone Road Mall 544 560 (16) (2.8%)
-----------------------------------
$ 474 $ 459 $ 15 3.4%
-----------------------------------

All-Tenant
Total Sales Volume Variance
2008 2007 $ %
-------------------------------------------------
Aberdeen Mall $ 52,944,620 $ 54,963,478 $ (2,018,858) (3.7%)
Cornwall Centre 74,640,555 69,077,096 5,563,459 8.1%
Dufferin Mall 89,607,782 87,062,053 2,545,729 2.9%
Eglinton Square 39,471,462 40,390,708 (919,246) (2.3%)
Grant Park Shopping Centre 29,746,317 27,571,139 2,175,178 7.9%
Lambton Mall 53,798,205 55,488,099 (1,689,894) (3.0%)
Midtown Plaza 130,451,353 113,399,701 17,051,652 15.0%
Northland Village 46,875,146 42,894,458 3,980,688 9.3%
Orchard Park Shopping Centre 150,883,999 138,168,984 12,715,016 9.2%
Park Place Shopping Centre 81,810,634 75,363,204 6,447,430 8.6%
Place Fleur de Lys 72,563,239 72,130,377 432,862 0.6%
Place du Royaume 103,283,243 97,705,888 5,577,355 5.7%
Stone Road Mall 117,827,237 109,497,944 8,329,293 7.6%
-------------------------------------------------
$ 1,043,903,793 $ 983,713,130 $ 60,190,663 6.1%
-------------------------------------------------


Note: Tenant sales are reported on a one-month time lag during interim quarters; therefore, Q2 2008 is the 12 months to May 2008.

The REIT's increase in sales per square foot of 3.4% is favourable compared to the 3.0% national average tenant sales increase for the same period, as reported by the International Council of Shopping Centres for the 12 months ended May 31, 2008. The REIT's sales productivity of $474 is lower than the ICSC average of $555, largely because the ICSC includes sales from super regional malls which 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 increased during the second quarter of 2008 at 97.7%, versus 97.3% at March 31, 2008. These percentages include space for which signed leases are in place but where the tenant may not yet be in occupancy.

The REIT leased 141,482 square feet of space during the second quarter of 2008. This represented 86 leases of generally smaller stores. Approximately 58% of the leased spaces during the second quarter of 2008 consisted of the renewal of existing tenants. The weighted average new rent for renewals of existing tenants in the second quarter, on a cash basis, represented a 9.1% increase over the previous cash rent.

Refinancing

Primaris successfully completed the refinancing of Stone Road Mall on August
1, 2008, generating a net $47,690 to treasury. The new loan is in the amount of $110 million, matures in July 2013 and bears interest at 5.49%. Proceeds were used to repay the existing loan in the amount of $62,310, and for general trust purposes. Monthly payments will be blended payments of principal and interest, based on a 25-year amortization period.

Development Activity

Work on the development project at Place du Royaume is well underway and progressing on time and on budget.

In mid-April 2007, the REIT agreed to terminate the lease of an 86,500 square foot Bay department store at Place du Royaume located in Saguenay, Quebec. The store closed in June 2007. Leases are in place for 100% of the leaseable area of this first phase of the project. At June 30th 71,348 square feet of the new space in phase one was open for business. The second phase of the project is to reconstruct some existing space for use by other retailers. As part of this new circulation plan a small part of existing common area will be backfilled by retail use. The total budgeted cost of both phases of this project is approximately $14,000. As at June 30, 2008, $7,744 has been incurred and capitalized. The REIT expects that the backfill of existing common area will be completed in the fourth quarter of 2008. The project is anticipated to generate a positive return.



Comparison to Prior Period Financial Results

Variance to
Comparative
Three Months Three Months Period
Ended Ended Favourable/
June 30, 2008 June 30, 2007 (Unfavourable)

Revenue
Minimum rent $ 39,379 $ 33,606 $ 5,773
Recoveries from tenants 22,408 18,802 3,606
Percentage rent 649 510 139
Parking 1,555 1,356 199
Interest and other income 727 1,135 (408)
------------- ------------- --------------
$ 64,718 $ 55,409 $ 9,309
Expenses
Operating 27,484 23,067 (4,417)
Interest 14,032 10,164 (3,868)
Depreciation and amortization 18,864 18,719 (145)
Ground rent 264 295 31
------------- ------------- --------------
$ 60,644 $ 52,245 $ (8,399)
------------- ------------- --------------
Income from operations 4,074 3,164 910
General and administrative (2,017) (1,801) (216)
Gain on sale of land 298 - 298
Future income taxes (1,320) (45,000) 43,680
------------- ------------- --------------
Net income (loss) $ 1,035 $ (43,637) $ 44,672

Depreciation of
income-producing properties 17,486 17,773 (287)
Amortization of leasing costs 1,378 946 432
Amortization of acquired
deferred recoverable costs 145 166 (21)
Accretion of convertible
debentures 247 (4) 251
Gain on sale of land (298) - (298)
Future income taxes 1,320 45,000 (43,680)
------------- ------------- --------------
Funds from operations $ 21,313 $ 20,244 $ 1,069
------------- ------------- --------------

Funds from operations per
unit - basic $ 0.343 $ 0.346 $ (0.003)
Funds from operations per
unit - diluted $ 0.341 $ 0.344 $ (0.003)
Funds from operations
- payout ratio 89.3% 85.7% 3.6%
Distributions per unit $ 0.305 $ 0.295 $ 0.010
Weighted average units
outstanding - basic 62,103,730 58,540,282 3,563,448
Weighted average units
outstanding - diluted 67,064,978 59,205,786 7,859,192
Units outstanding, end of
period 62,179,175 58,590,888 3,588,287


Notes:

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 REALPac's White Paper on Funds from Operations. The White Paper defines Funds from Operations as net income adjusted for depreciation and amortization of assets purchased, including the net impact of above and below market leases, amortization of leasing costs and accretion of convertible debentures. Funds from Operations may not be comparable to similar measures used by other entities.

Funds from operations for the quarter ended June 30, 2008 was $1.1 million ($0.003 less per unit, fully diluted) greater than the comparative period.

Management Resources Committee

The board of trustees of Primaris has recently formed a Management Resources Committee to be chaired by G.T. (Tom) Gunn. Mr. Gunn is joined on the committee by three other independent trustees, Bill Biggar, Roland Cardy, and Ian Collier. The committee will assist the board of trustees in its oversight role with respect to human resource strategies, policies and programs and certain information technology matters.

Supplemental Information

The REIT's unaudited interim consolidated financial statements and Management's Discussion and Analysis for the three-month and six-month periods ended June 30, 2008 are available on the REIT's website at www.primarisreit.com.

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, the REIT's 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 which could cause actual results to differ materially from future results expressed, projected or implied by such forward-looking statements.

Examples of such information include, but are not limited to, factors relating to the business, financial position of the REIT, operations and redevelopments including volatility of capital markets, consumer spending, retail leasing demand, strength of the retail sector, price volatility of construction costs, availability of construction labour and timing of regulatory and contractual approvals for developments.

Although the forward-looking statements contained in this document are based on what management of the REIT 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. Factors that could cause actual results to differ materially include, but are not limited to, economic, competitive and commercial real estate conditions, unplanned compliance-related expenses, uninsured property losses and tenant-related risks.

Non-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 Canadian generally accepted accounting principles ("GAAP"). Management uses these measures when comparing itself to industry data or others in the marketplace. The MD&A describes FFO, NOI and EBITDA and provides a reconciliation to net income as defined under GAAP. FFO and EBITDA should not be considered alternatives to net income or other measures that have been calculated in accordance with GAAP 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 Thursday, August 7 at 4pm EST to discuss these results. Senior management will speak to the results and provide a brief corporate update. The telephone numbers for the conference are: 416-641-6136 (within Toronto), and 1-866-223-7781 (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 Thursday, August 14, 2008. The replay will be accessible by dialing 416-695-5800 or 1-800-408-3053 and using the pass code 3265921#.

The REIT is a TSX listed real estate investment trust (TSX:PMZ.UN). The REIT owns 26 income-producing properties comprising approximately 9.3 million square feet located in Canada. As of July 31, 2008, the REIT had 62,203,259 units issued and outstanding.



PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST
Interim Consolidated Balance Sheets
(In thousands of dollars)

-------------------------------------------------------------------
June 30, December 31,
2008 2007
-------------------------------------------------------------------
(Unaudited)

Assets

Income-producing properties $ 1,448,364 $ 1,471,637
Deferred costs 52,526 46,242
Rents receivable 6,917 6,366
Other assets and receivables 34,449 24,588
Cash and cash equivalents 59,544 94,202

-------------------------------------------------------------------
$ 1,601,800 $ 1,643,035
-------------------------------------------------------------------
-------------------------------------------------------------------

Liabilities and Unitholders' Equity

Liabilities:
Mortgages payable $ 852,850 $ 861,623
Convertible debentures 94,786 94,543
Accounts payable and other liabilities 46,030 49,678
Distribution payable 6,325 6,299
Future income taxes 41,470 40,000
-------------------------------------------------------------------
1,041,461 1,052,143

Unitholders' equity 560,339 590,892

-------------------------------------------------------------------
$ 1,601,800 $ 1,643,035
-------------------------------------------------------------------
-------------------------------------------------------------------



PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST
Interim Consolidated Statements of Income
(In thousands of dollars, except per unit amounts)
Unaudited

-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
-------------------------------------------------------------------------

Revenue:
Minimum rent $ 39,379 $ 33,606 $ 78,950 $ 66,699
Recoveries from tenants 22,408 18,802 46,197 38,360
Percentage rent 649 510 1,361 1,235
Parking 1,555 1,356 3,119 2,760
Interest and other 727 1,135 1,813 2,667
------------------------------------------------------------------------
64,718 55,409 131,440 111,721

Expenses:
Property operating 15,423 12,502 31,855 26,290
Property taxes 12,061 10,565 24,272 20,840
Depreciation 17,486 17,773 35,491 33,120
Amortization 1,378 946 2,503 1,920
Interest 14,032 10,164 28,214 20,289
Ground rent 264 295 617 585
General and administrative 2,017 1,801 3,925 3,584
------------------------------------------------------------------------
62,661 54,046 126,877 106,628
-------------------------------------------------------------------------

Income before income taxes 2,057 1,363 4,563 5,093

Gain on sale of land 298 - 298 -

Future income taxes 1,320 45,000 1,470 45,000

-------------------------------------------------------------------------
Net income (loss) $ 1,035 $ (43,637) $ 3,391 $ (39,907)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Basic and diluted net income
(loss) per unit $ 0.017 $ (0.745) $ 0.055 $ (0.683)

-------------------------------------------------------------------------
-------------------------------------------------------------------------



PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST
Interim Consolidated Statements of Cash Flows
(In thousands of dollars)
Unaudited

--------------------------------------------------------------------------
--------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
--------------------------------------------------------------------------

Cash provided by (used in):
Operations:
Net income (loss) $ 1,035 $ (43,637) $ 3,391 $ (39,907)
Items not involving cash:
Depreciation 17,486 17,773 35,491 33,120
Amortization of deferred
leasing commissions and
tenant improvements 1,378 946 2,503 1,920
Accretion of convertible
debt liability 247 (4) 496 11
Amortization of acquired
deferred recoverable
operating costs 145 166 291 334
Future income taxes 1,320 45,000 1,470 45,000
Gain on sale of land (298) - (298) -
--------------------------------------------------------------------------
21,313 20,244 43,344 40,478

Change in non-cash
operating items:
Amortization of above-
and below-market leases (417) (226) (891) (422)
Deferred leasing
commissions (395) (481) (594) (752)
Tenant inducements (282) (221) (282) (1,241)
Amortization of tenant
inducements 28 54 55 82
Deferred recoverable
operating costs (1,748) (836) (3,126) (1,086)
Amortization of deferred
recoverable operating
costs 666 514 1,336 999
Amortization of financing
costs 356 155 678 299
Other non-cash operating
items (5,203) 14,172 (12,000) 404
--------------------------------------------------------------------------
14,318 33,375 28,520 38,761

Financing:
Issuance of units, net of
costs 731 682 1,373 1,343
Mortgage principal
repayments (4,283) (3,464) (8,368) (6,870)
Financing costs (3) (314) (38) (352)
Proceeds of new financing - 160,000 - 166,000
Repayment of financing - - - (4,187)
Distributions to
unitholders (18,938) (17,279) (37,840) (34,507)
--------------------------------------------------------------------------
(22,493) 139,625 (44,873) 121,427

Investments:
Acquisition of
income-producing
properties (50) (209,503) (7,074) (228,715)
Additions to buildings
and building improvements (2,342) (5,397) (5,189) (7,886)
Additions to tenant
improvements (4,447) (2,165) (6,467) (3,071)
Proceeds from sale of land 425 - 425 -
--------------------------------------------------------------------------
(6,414) (217,065) (18,305) (239,672)
--------------------------------------------------------------------------

Decrease in cash and cash
equivalents (14,589) (44,065) 34,658 (79,484)

Cash and cash equivalents,
beginning of period 74,133 63,909 94,202 99,328
--------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 59,544 $ 19,844 $ 59,544 $ 19,844
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Supplemental cash flow
information:
Interest paid $ 14,069 $ 10,949 $ 28,191 $ 21,688

Supplemental disclosure of
non-cash operating
and financing activities:
Value of units issued
under asset management
agreement 1,124 - 1,881 1,598
Value of units issued
upon conversion of
convertible debentures 355 796 577 1,404
Financing costs
transferred to equity
upon conversion of
convertible debentures 16 15 24 58
Financing accumulated
amortization
transferred to equity
upon conversion
of convertible debentures (3) (12) (6) (18)
Mortgages assumed on
acquisition - 9,324 - 9,324
--------------------------------------------------------------------------
--------------------------------------------------------------------------



PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST

Reconciliation of Net Income to Funds from Operations
(In thousands of dollars)

-----------------------------------------------------------------
-----------------------------------------------------------------
Three Months Three Months
Ended Ended
June 30, 2008 June 30, 2007
-----------------------------------------------------------------

Net income/(loss) $ 1,035 $ (43,637)
Depreciation of income producing
properties 17,486 17,773
Amortization of leasing costs 1,378 946
Accretion of convertible debentures 247 (4)
Amortization of acquired deferred
recoverable costs 145 166
Gain on sale of land (298) -
-------------
Future income taxes 1,320 45,000
-------------- -------------
Funds from operations $ 21,313 $ 20,244
-------------- -------------


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 REALPac's White Paper on Funds from Operations. The White Paper defines Funds from Operations as net income adjusted for depreciation and amortization of assets purchased, including the net impact of above and below market leases, amortization of leasing costs and accretion of convertible debentures. Funds from Operations may not be comparable to similar measures used by other entities.



Calculation of Net Operating Income
(In thousands of dollars)

-----------------------------------------------------------------------
-----------------------------------------------------------------------
Three Months Three Months
Ended Ended
June 30, 2008 June 30, 2007
-----------------------------------------------------------------------

Revenue $64,718 $55,409
Less: Corporate interest and other income (573) (947)
Property operating expenses (15,423) (12,502)
Property tax expense (12,061) (10,565)
Ground rent (264) (295)
-------------- -------------
Net operating income $ 36,397 $ 31,100
-------------- -------------


Contact Information

  • Primaris Retail REIT
    R. Michael Latimer
    Chief Executive Officer
    (416) 865-5353
    or
    Primaris Retail REIT
    Louis M. Forbes
    Senior Vice President, Chief Financial Officer
    (416) 865-5360
    Website: www.primarisreit.com