Primaris Retail REIT
TSX : PMZ.UN

Primaris Retail REIT

November 04, 2005 17:09 ET

PRIMARIS RETAIL REIT Announces Strong Financial Results and December Distribution

TORONTO, ONTARIO--(CCNMatthews - Nov. 4, 2005) - Primaris Retail REIT (TSX:PMZ.UN) is pleased to report a 38% increase in net operating income for the third quarter of 2005, as compared to the third quarter of 2004.

President and CEO, Michael Latimer, commented "This has been a very busy and successful quarter for Primaris. Operations continue to be very healthy as evidenced by strong tenant sales performance, leasing activity, occupancy rates, and growth in net operating income. We have successfully invested the proceeds of the August equity offering through the acquisition of Eglinton Square and pending acquisition of Lambton Mall. This has further strengthened our business through improved diversification and enhanced scale. This growth has allowed us to increase the distributions to $0.095 per month or $1.14 annually effective with the August distribution."

Highlights

- Funds from operations for the third quarter ended September 30, 2005 was $14.7 million or $0.347 per unit fully diluted, up 8.8% on a per fully diluted unit basis from the $10.3 million, or $0.321 reported for the third quarter of 2004.

- Distributable income for the third quarter ended September 30, 2005 was $13.7 million, or $0.323 per unit fully diluted, as compared to $9.8 million, or $0.306 per unit fully diluted, reported for the third quarter of 2004. This represents a 5.5% increase in fully diluted distributable income per unit. The REIT's financial leverage as measured by the debt to gross book value averaged approximately 51% in the third quarter of 2005, compared to approximately 50% in the third quarter of 2004.

- Net income for the three months ended September 30, 2005 was $4.9 million or $0.12 cents per unit (basic and fully diluted) as compared to net income of $4.8 million or $0.16 cents per unit (basic and fully diluted) earned in the third quarter of 2004.

- Net operating income for the third quarter ended September 30, 2005, was $23.4 million, substantially higher than the $17.0 million recorded in the third quarter of 2004. The large increase was driven by acquisitions, as well as an improvement in both the average occupancy rate and rents in properties held throughout both quarters.

- Net operating income, on a same property basis, increased 6.6% over the comparative three-month period. Excluding the net positive effect of lease termination fees of $145 thousand recorded in 2005 the increase in same-property NOI would have been 5.8%.

- The REIT renewed or leased 100,750 square feet of space during the quarter. The weighted average new rent in these leases, on a cash basis, represented an 8.8% increase over the previous rent paid.

- Overall occupancy was 96.8% at September 30, 2005 as compared to 96.8% at December 31, 2004 and up from 95.7% at September 30, 2004.

- Same-tenant sales, for the six properties owned since IPO, increased 2.2% to $473 per square foot in the twelve months ended September 2005 as compared to the previous twelve month period. This is comparable to the Canadian industry average as reported by the International Council of Shopping Centres. It is important to note that the ICSC industry average includes the results of super regional malls.

- The third quarter results included seasonal revenues of $1.2 million as compared to $0.9 million recorded in the third quarter of 2004.

- The REIT completed an acquisition in July at a cost of $85.5 million, excluding transaction costs.

- The REIT completed a previously announced $85 million dollar equity offering of units on August 4, 2005.

- The monthly distribution was increased 5.5% to $0.095 per month or $1.14 annually, effective with the August distribution.

Financial Results

Funds from operations for the three months ended September 30, 2005 was $14.7 million or $0.355 per unit basic ($0.347 fully diluted). This compares to funds from operations of $10.3 million or $0.336 per unit basic ($0.321 fully diluted) earned during the three months ended September 30, 2004. Distributable income was $13.7 million for the quarter ended September 30, 2005, or $0.330 per unit basic ($0.323 per unit fully diluted). This compares to distributable income of $9.8 million or $0.319 per unit basic ($0.306 fully diluted) earned during the three months ended September 30, 2004.

The calculation of Distributable Income during the third quarter includes a deduction from net income of $262 on account of the amortization of debt premiums. This amortization reflects the excess of cash interest over expensed interest on loans assumed on recent acquisitions. The former loan secured by Place du Royaume, subsequently refinanced, gave rise to $158 of this amortization. This $158 will not recur in future quarters. In addition, the loan assumed on acquisition of Place Fleur de Lys contributed $76 to this amortization. The REIT intends to refinance this loan, at which time this amortization would cease.

The REIT acquired four properties in June 2005 and acquired a fifth asset in July 2005. These properties contributed significantly to operations throughout the three months ended September 30, 2005. These acquisitions and the related financings explain a significant amount of the difference between the actual results for the current period and the comparative period. The REIT's financial leverage as measured by the ratio of debt to gross book value averaged approximately 51% in the third quarter of 2005 compared to 50% in the third quarter of 2004.

Net income for the three months ended September 30, 2005 was $4.9 million or $0.12 cents per unit (basic and fully diluted). This compares to net income of $4.8 million or $0.16 per unit (basic and fully diluted) earned during the three months ended September 30, 2004. The change in net income reflects the positive impact of acquisitions and operations, offset by the negative impact of accounting policies for the depreciation of acquired assets.

The distribution payout ratio for the quarter, expressed on a per unit basis as distributions paid divided by fully diluted recurring distributable income was 88.2%.

At September 30, 2005, the REIT's total market capitalization was approximately $1.2 million (based on the market closing price of Primaris' units on September 30, 2005 plus total debt outstanding). At September 30, 2005 the REIT had $533.7 million of outstanding debt equating to a debt to total market capitalization ratio of 42.8%. The REIT's debt consisted of $507.1 million of fixed-rate senior debt with a weighted average interest rate of 5.6% and a weighted average term to maturity of 6.8 years, and $26.6 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 47.9%. During the three months ended September 30, 2005, the REIT had an interest coverage ration of 3.0 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
Comparative Period
Three Months Ended Three Months Ended favourable/
September 30, 2005 September 30, 2004 (unfavourable)

Operating
revenue $ 31,402 $ 29,921 $ 1,481
Operating
expenses 13,286 12,935 (351)
------------------ ------------------ -------------------
Net
operating
income $ 18,116 $ 16,986 $ 1,130
------------------ ------------------ -------------------


The same property comparison includes only nine properties that were owned throughout both the current and comparative three-month periods. Net operating income, on a same property basis, increased 6.6% compared to the comparative three-month period.

Current three-month net operating income on a same property basis was $1,130 greater than the comparative three-month period due to a net increase of $145 of lease surrender revenues in the current quarter, in addition to increased occupancy and increased rents. On a same property basis, expenses were $351 more than the comparative period, primarily due to increases in, and timing of, operating costs.

Tenant sales

Tenant sales per square foot, on a same-tenant basis, have increased 2.2% to $473 in the 12 months ended September 30, 2005. Total tenant volume has also increased when comparing sales for the same properties.



Sales Per Square Foot Variance
2005 2004 $ %
----------------------------------------------------
Dufferin Mall $ 484 $ 480 $ 4 0.8%
Stone Road Mall 495 494 1 0.2%
Edinburgh Market
Place 391 377 14 3.7%
Northland Village 395 393 2 0.5%
Orchard Park 516 502 14 2.8%
Park Place Mall 426 401 25 6.2%
----------------------------------------------------
$ 473 $ 463 $ 10 2.2%
----------------------------------------------------



Tenant Sales Volume Variance
2005 2004 $ %
----------------------------------------------------
Dufferin Mall $ 86,117,739 $ 83,582,326 $ 2,535,413 3.0%
Stone Road Mall 103,726,567 94,765,385 8,961,182 9.5%
Edinburgh Market
Place 5,870,532 5,664,570 205,962 3.6%
Northland Village 35,827,774 34,359,096 1,468,678 4.3%
Orchard Park 116,165,872 108,632,259 7,533,613 6.9%
Park Place Mall 65,034,883 58,524,253 6,510,630 11.1%
----------------------------------------------------
$ 412,743,367 $ 385,527,889 $ 27,215,478 7.1%
----------------------------------------------------


The REIT's $473 same-tenant sales per square foot for this 12-month period is comparable to the national average tenant sales for the same period, as reported by the International Council of Shopping Centres ("ICSC"), of $473 per square foot and a 2.8% increase reported by ICSC Canada for the 12 months ended August 2005; 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 slightly during the third quarter to 96.8% at September 30, 2005, versus 96.7% at June 30, 2005. The occupancy rate has increased from September 30, 2004 occupancy rate of 95.7%.These percentages include space for which signed leases are in place but where the tenant may not yet be in occupancy.

The REIT leased 100,750 square feet of space during the third quarter. This represents 38 leases of generally smaller stores. Approximately 35% of these were renewals of existing tenants. The weighted average new rent for renewals of existing tenants, on a cash basis, represented a 8.8% increase over the previous rent paid.

Acquisitions

On October 7 the REIT completed the previously announced acquisition of Eglinton Square at a cost of $44 million, excluding transaction costs.

The REIT announced on October 25 the pending acquisition of Lambton Mall in Sarnia, Ontario. The acquisition is scheduled to close December 1, 2005 at a cost of $105.9 million, excluding transaction costs.

Lambton Mall is an approximately 630,000 square foot enclosed regional shopping centre and was developed over several phases between 1970 and 2001. It is anchored by Sears, Wal-Mart and Canadian Tire - the only locations for each of the three stores in the Sarnia trade area. Other significant tenants include Tepperman's, Toys 'R Us and Marks Work Warehouse. The shopping centre is located on 48 acres of land, just west of the intersection of Highway 402 and Modeland Road. Lambton Mall is the dominant shopping centre in its market, with the next closest enclosed regional mall being an hour's drive away in London, Ontario.

The three anchor tenants represent 59.4% of the gross leasable area of the centre. There is 14.8 years remaining on the weighted average lease term for these stores, excluding renewal options. The Wal-Mart store, comprising 129,121 square feet, was built in 2001; Canadian Tire, comprising 106,331 square feet, was built in 1996; and Sears, comprising 135,258 square feet on two levels, was built in 2001. The mall is currently 98.7% leased, with 88.4% national tenants, 8.3% regional tenants and 2.0% local tenants.

The REIT has a firm commitment to borrow $68.8 million by way of a mortgage to be secured by Lambton Mall. The mortgage will have a term of 15 years and will bear interest at 5.3%.

Development Activity

The REIT commenced construction in August, 2005 of a 22,000 square foot addition to Northland Village Shopping Centre in Calgary. The project, which will cost $8.5 million, includes a 35,000 square foot store leased to Best Buy and a 278 stall parking deck. The new store is expected to open in early December, 2005. At the same time the vacant former grocery store at Northland has been leased to Designer Depot, with an expected opening of November, 2005. Work is progressing well on this development. The arrival of these two tenants, together with some other leasing activity at the property, should increase the occupancy rate to 94% at year end from 87% at December 31, 2004.

The REIT intends to spend approximately $28 million on a redevelopment project at Stone Road Mall in Guelph. The project includes a number of phases. Initially a vacant 83,000 square foot former Zellers store will be redemised and leased to a 34,000 square foot Home Outfitters Store and a number of new, smaller shops. This phase of the project should commence in early 2006 and be completed before year end. Later in 2006 the food court will be relocated to a less productive part of the mall and certain other small shops will be redeveloped. Finally, in 2007 the common area of the balance of the mall will be renovated including floors, ceilings, lighting and energy management systems. The REIT expects that it will earn an accretive return on the expenditure of this capital.



Comparison to Prior Period Financial Results

Variance to
Comparative Period
Three Months Ended Three Months Ended favourable/
September 30, 2005 September 30, 2004 (unfavourable)
(unaudited) (unaudited)

Revenue
Base rent $ 25,639 $ 18,335 $ 7,304
Recoveries
from tenants 12,556 10,543 2,013
Percentage
rent 345 41 304
Parking 1,013 947 66
Interest and
other income 526 66 460
----------- ----------- -----------
40,079 29,932 10,147

Expenses
Operating 16,152 12,666 (3,486)
Interest 7,532 5,721 (1,811)
Depreciation and
amortization 10,091 5,659 (4,432)
Ground rent 294 269 (25)
----------- ----------- -----------
34,069 24,315 (9,754)
----------- ----------- -----------

Income from
operations 6,010 5,617 393
General and
administrative 1,148 827 (321)
----------- ----------- -----------
Net income 4,862 4,790 72

Straight-line rent
adjustment (504) (434) (70)
Depreciation and
amortization 9,670 5,423 4,247
Accretion of
convertible
debentures 5 - 5
Amortization of
above and below
market rents, net (101) (15) (86)
Amortization of
debt premiums (262) - (262)
----------- ----------- -----------
Distributable
income (note 1) $ 13,670 $ 9,764 $ 3,906
----------- ----------- -----------

Distributable income
per unit - basic $ 0.330 $ 0.319 $ 0.010
Distributable income
per unit - fully
diluted $ 0.323 $ 0.306 $ 0.017
Distributions $ 0.285 $ 0.270 $ 0.015
Payout ratio 88.2% 88.2% 0.0%
Weighted average
units outstanding
- basic 41,483,523 30,589,498 10,894,025
Weighted average
units outstanding
- fully diluted 43,835,469 34,671,131 9,164,338
Units outstanding,
end of period 44,391,559 30,632,524 13,759,035

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 as net income less straight-line rent
adjustment, plus depreciation and amortization including
depreciation of acquired leasing costs and debt premiums, plus
accretion of convertible debentures, less amortization of above
and below market rents and any other adjustments the Trustees
deem necessary. 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 September 30, 2005 was $3.9 million ($0.017 more per unit, fully diluted) greater than the comparative period. The increase was driven by acquisitions, as well as an improvement in both the average occupancy rate and rents in properties held throughout both quarters.

Supplemental Information

The REIT's unaudited interim consolidated financial statements and Management's Discussion and Analysis for the third quarter ended September 30, 2005 are available on the REIT's website at www.primarisreit.com.

December Distribution

Primaris Retail REIT also announces today its November 2005 monthly distribution in the amount of $0.095 or $1.14 on an annualized basis. Payment will be made on December 15, 2005 to holders of record as of November 30, 2005.

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. The price at which units will be issued 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

Primaris invites you to participate in the conference call that will be held on Monday, November 7 at 10:15 am 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: 416-340-2216 (within Toronto), and 1-866-898-9626 (within North America), pass code 3164423#.

Audio replays of the conference call will be available immediately following the completion of the conference call, and will remain active until November14, 2005. The replay will be accessible by dialing 416-695-5800 or 1-800-408-3053 and using the pass code 3164423#.

The REIT is a TSX listed real estate investment trust (TSX:PMZ.UN). Upon completion of the previously announced acquisition of Lambton Mall, the REIT will own 16 income-producing properties comprising approximately 7.0 million square feet located in Canada. As of October 31, 2005, the REIT had 44,439,892 units issued and outstanding.



PRIMARIS RETAIL REAL ESTATE
INVESTMENT TRUST

Interim Consolidated Balance Sheets
(In thousands of dollars)

September 30, 2005 and December 31 2004
---------------------------------------------------------------------
---------------------------------------------------------------------
September 30, December 31,
2005 2004
---------------------------------------------------------------------
(unaudited)
Assets

Income-producing properties $937,647 $684,096
Deferred costs 20,966 13,486
Rent receivable 1,863 1,498
Other assets and receivables 21,600 9,250
Cash and cash equivalents 34,852 46,894

---------------------------------------------------------------------
$1,016,928 $755,224
---------------------------------------------------------------------
---------------------------------------------------------------------

Liabilities and Unitholders' Equity

Liabilities:
Mortgages payable $ 507,078 $364,854
Convertible debentures 26,021 48,387
Accounts payable and other liabilities 26,574 16,224
Distribution payable 4,211 3,043
--------------------------------------------------------------------
563,884 432,508

Unitholders' equity 453,044 322,716

---------------------------------------------------------------------
$1,016,928 $755,224
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---------------------------------------------------------------------



PRIMARIS RETAIL REAL ESTATE
INVESTMENT TRUST

Interim Consolidated Statements of Income
(In thousands of dollars, except per unit amounts)
Three months ended September 30, 2005 and 2004
(unaudited)

---------------------------------------------------------------------
---------------------------------------------------------------------
September 30, September 30,
2005 2004
---------------------------------------------------------------------

Revenue:
Base rent $25,639 $18,132
Recoveries from tenants 12,556 10,543
Percentage rent 345 244
Parking 1,013 947
Interest and other income 526 66
--------------------------------------------------------------------
40,079 29,932

Expenses:
Property operating 9,100 7,219
Property taxes 7,052 5,447
Depreciation 9,670 5,423
Amortization 421 236
Interest 7,532 5,721
Ground rent 294 269
General and administration 1,148 827
--------------------------------------------------------------------
35,217 25,142

---------------------------------------------------------------------
Net income $ 4,862 $ 4,790
---------------------------------------------------------------------
---------------------------------------------------------------------

Basic and fully diluted net income
per unit $ 0.12 $ 0.16
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---------------------------------------------------------------------



PRIMARIS RETAIL REAL ESTATE
INVESTMENT TRUST
Reconciliation of Net Income to Distributable Income
(In thousands of dollars)

---------------------------------------------------------------------
---------------------------------------------------------------------
Three Month Three Month
Period Ended Period Ended
(unaudited) September 30, 2005 September 30, 2004
---------------------------------------------------------------------

Net income $ 4,862 $ 4,790
Straight line rent (504) (434)
Depreciation 9,670 5,423
Accretion of convertible
debentures 5 -
Above and below market leases (101) (15)
Amortization of debt premiums (262) -
--------- ---------
Distributable Income $ 13,670 $ 9,764
--------- ---------

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 as net income less
straight-line rent adjustment, plus depreciation and amortization of
acquired leasing costs and debt premiums, plus accretion of
convertible debentures, less amortization of above and below market
rents and any other adjustments the Trustees deem necessary. 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)

---------------------------------------------------------------------
---------------------------------------------------------------------
Three Month Three Month
Period Ended Period Ended
(unaudited) September 30, 2005 September 30, 2004
---------------------------------------------------------------------

Net income $ 4,862 $ 4,790
Depreciation 9,670 5,423
Amortization 273 72
Accretion of convertible
debentures 5 -
Above and below market leases (101) (15)
--------- ---------
Funds from Operation $ 14,709 $ 10,270
--------- ---------

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,
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.


Reconciliation to Net Operating Income
(In thousands of dollars)

---------------------------------------------------------------------
---------------------------------------------------------------------
Three Month Three Month
Period Ended Period Ended
(unaudited) September 30, 2005 September 30, 2004
---------------------------------------------------------------------

Revenue $40,079 $ 29,932
Less: Corporate interest and
other income (117) (11)
Mortgage re-financing
other income (155) -
Property operating
expenses (9,100) (7,219)
Property tax expense (7,052) (5,447)
Ground rent (294) (269)
--------- ---------
Net Operating Income $ 23,361 $ 16,986
--------- ---------


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