Primaris Retail REIT
TSX : PMZ.UN

Primaris Retail REIT

August 08, 2005 19:54 ET

Primaris Retail REIT Announces Strong Financial Results and September Distribution

TORONTO, ONTARIO--(CCNMatthews - Aug. 8, 2005) - Primaris Retail REIT (TSX:PMZ.UN) is pleased to report a 49% increase in net operating income for the second quarter of 2005, as compared to the second quarter of 2004.

Highlights

- Net operating income for the second quarter ended June 30, 2005, was $18.692 million, substantially higher than the $12.403 million recorded in the second 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.

- Distributable income for the second quarter ended June 30, 2005 was $11.261 million, or $0.316 per unit fully diluted, as compared to $7.909 million, or $0.314 per unit fully diluted, reported for the second quarter of 2004. This represents a 0.6% increase in fully diluted distributable income per unit. Distributable income per unit has increased in spite of the deleveraging effect of an equity offering completed in December 2004. The REIT's financial leverage as measured by the debt to gross book value averaged approximately 47% in the second quarter of 2005, compared to approximately 50% in the second quarter of 2004.

- Funds from operations for the second quarter ended June 30, 2005 was $11.821 million or $0.331 per unit fully diluted, virtually the same on a per unit basis as the $8.317 million, or $0.330 for the second quarter of 2004.

- Net income for the three months ended June 30, 2005 was $5.984 million or $0.175 cents per unit (basic and fully diluted) as compared to net income of $5.501 million or $0.220 per unit (basic and fully diluted) earned in the first quarter of 2004.

- Net operating income, on a same property basis, increased 8.0% over the comparative three-month period. Excluding the positive effect of lease termination fees recorded in 2005 this increase would be 5.6%.

- The REIT renewed or leased 80,465 square feet of space during the quarter. The weighted average new rent in these leases, on a cash basis, represented a 4.4% increase over the previous rent paid.

- Overall occupancy decreased slightly to 96.7% at June 30, 2005 as compared to 96.8% at December 31, 2004 and up from 95.8% at June 30, 2004.

- Same-tenant sales, for the six properties owned since IPO, increased 3.2% to $470 per square foot in the twelve months ended June 2005 as compared to the previous twelve month period. This compares favourably to the Canadian industry average of $461 per square foot as reported by the International Council of Shopping Centres, especially when one considers that the industry average includes the results of super regional malls.

- The second quarter results included seasonal revenues of $0.995 million as compared to $0.759 million recorded in the second quarter of 2004.

- The REIT completed four previously announced acquisitions in June at a total cost of $176 million, excluding transaction costs. It completed a fifth acquisition in July at a cost of $85.5 million, excluding transaction costs.

- The REIT has waived its conditions to acquire Eglinton Square at a cost of $44 million. Closing is anticipated in August 2005.

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

President and CEO, Michael Latimer, commented "This has been a very busy and successful quarter for Primaris. Our operations are very healthy as demonstrated by tenant sales performance, leasing activity, occupancy rates, and growth in net operating income. We delivered the acquisitions expected by our investors. At the same time we have entered new markets and acquired new tenants, strengthening our business through improved diversification and enhanced scale. We were pleased this month to deliver the good news to Unitholders in the form of a distribution increase."

Financial Results

Distributable income was $11.261 million for the quarter ended June 30, 2005, or $0.329 per unit basic ($0.316 per unit fully diluted). This compares to distributable income of $7.909 million or $0.314 per unit basic and fully diluted, earned during the three months ended June 30, 2004. Funds from operations for the three months ended June 30, 2005 was $11.821 million or $0.345 per unit basic ($0.331 fully diluted). This compares to funds from operations of $8.317 million or $0.33 per unit (basic and fully diluted) earned during the three months ended June 30, 2004. The REIT acquired Cornwall Centre and Midtown Plaza on June 28, 2004. These properties contributed to operations throughout the three months ended June 30, 2005. These two acquisitions and the related financings explain a significant amount of the difference between the actual results for the current period and the comparative period. Distributable income and funds from operations per unit have increased in spite of the deleveraging effect of an equity offering completed in December 2004. The REIT's financial leverage as measured by the ratio of debt to gross book value averaged approximately 47% in the second quarter of 2005 compared to 50% in the second quarter of 2004.

Net income for the three months ended June 30, 2005 was $5.984 million or $0.17 cents per unit (basic and fully diluted). This compares to net income of $5.501 million or $0.22 per unit (basic and fully diluted) earned during the three months ended June 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 85.4%.

At June 30, 2005, the REIT's total market capitalization was approximately $1,039 million (based on the market closing price of Primaris' units on June 30, 2005 plus total debt outstanding). At June 30, 2005 the REIT had $537.4 million of outstanding debt equating to a debt to total market capitalization ratio of 51.7%. The REIT's debt consisted of $452.1 million of fixed-rate senior debt with a weighted average interest rate of 5.6% and a weighted average term to maturity of 5.0 years, $54.8 million of floating rate bank indebtedness and $30.5 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 54.8%. During the three months ended June 30, 2005, the REIT had an interest coverage ration of 3.1 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
Three Three Period
Months Ended Months Ended favourable/
June 30, 2005 June 30, 2004 (unfavourable)

Operating revenue $ 22,792 $ 21,614 $ 1,178
Operating expenses 9,388 9,212 (176)
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Net operating income $ 13,404 $ 12,402 $ 1,002
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The same property comparison includes only properties that were owned throughout both the current and comparative three-month periods. Net operating income, on a same property basis, increased 8% compared to the comparative three-month period. Current three-month net operating income on a same property basis was $1,002 greater than the comparative three-month period due to the inclusion of $350 of lease surrender revenues in the current quarter in addition to increased occupancy and increased rents from specialty leasing. On a same property basis, expenses were $176 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 3.2% to $470 in the 12 months ended June 30, 2005. Total tenant volume has also increased when comparing sales for the same properties.



Sales Per Square Foot Variance
2005 2004 $ %
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Dufferin Mall $ 489 $ 481 $ 8 1.7%
Stone Road Mall $ 491 489 2 0.4%
Edinburgh Market Place $ 390 370 20 5.4%
Northland Village $ 388 390 (2) -0.5%
Orchard Park $ 514 484 30 6.2%
Park Place Mall $ 417 394 23 5.8%
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$ 470 $ 455 $ 15 3.2%
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Tenant Sales Volume Variance
2005 2004 $ %
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Dufferin Mall $ 72,757,387 $ 71,585,508 $ 1,171,879 1.6%
Stone Road Mall 74,229,176 73,906,706 322,470 0.4%
Edinburgh Market
Place 5,856,303 5,561,964 294,339 5.3%
Northland Village 30,695,550 30,868,708 (173,158) -0.6%
Orchard Park 97,607,757 91,871,915 5,735,842 6.2%
Park Place Mall 54,572,799 51,560,897 3,011,902 5.8%
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$ 335,718,972 $ 325,355,698 $ 10,363,274 3.2%
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The REIT's $470 same-tenant sales per square foot for this 12-month period compares favourably to the national average tenant sales for the same period, as reported by the International Council of Shopping Centres ("ICSC") of $461 per square foot; the ICSC average 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 second quarter to 96.7% at June 30, 2005, versus 96.6% at March 31, 2005. The occupancy rate has increased from June 30, 2004 occupancy rate of 95.8%.These percentages include space for which signed leases are in place but where the tenant may not yet be in occupancy.

The REIT leased 80,465 square feet of space during the second quarter. This represents 37 leases of generally smaller stores, but does include one new lease for 30,000 square feet at Northland Village. Approximately 32% of these were renewals of existing tenants. The weighted average new rent for renewals of existing tenants, on a cash basis, represented a 4.4% increase over the previous rent paid.

Acquisition

The REIT has waived its conditions to acquire Eglinton Square Shopping Centre in Toronto, a 263,000 square foot enclosed shopping centre. The property is located at the corner of Victoria Park Avenue and Eglinton Avenue East. A Dominion food store adjoins the mall, but does not form part of the acquired property. The shopping centre is anchored by a 115,000 square foot Bay store and includes an LCBO, Shoppers Drug Mart and Canadian chartered bank as tenants. The property comprises 15 acres of land and includes two smaller buildings that front onto Victoria Park Avenue. The building currently has a 96.5% occupancy rate. It was built in stages, starting in 1953 with significant expansions in 1965 and 1983. Eglinton Square forms part of a major retail node that includes grocery anchored strip product, power centres and neighbourhood convenience properties. It has excellent parking available and benefits from high traffic counts.

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. 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.



Comparison to Prior Period Financial Results
Variance to
Comparative
Three Three Period
Months Ended Months Ended favourable/
June 30, 2005 June 30, 2004 (unfavourable)
(unaudited) (unaudited)
Revenue
Base rent $ 19,366 $ 13,690 $ 5,676
Recoveries from
tenants 10,740 7,890 2,850
Percentage rent 221 117 104
Parking 1,115 7 1,108
Interest and
other income 649 103 546
-------- -------- -------
32,091 21,807 10,284
Expenses
Operating 12,825 8,943 (3,882)
Interest 5,866 3,475 (2,391)
Depreciation and
amortization 6,052 2,903 (3,149)
Ground rent 294 268 (26)
-------- -------- -------
25,037 15,589 (9,448)
-------- -------- -------
Income from operations 7,054 6,218 836
General and
administrative 1,070 717 (353)
-------- -------- -------
Net income 5,984 5,501 483

Straight-line rent
adjustment (369) (378) 9
Depreciation and
amortization 5,697 2,786 2,911
Accretion of convertible
debentures (32) - (32)
Amortization of above and
below market rents, net (19) - (19)
-------- -------- -------
Distributable income
(note 1) $ 11,261 $ 7,909 $ 3,352
-------- -------- -------

Distributable income
per unit - basic $ 0.329 $ 0.314 $ 0.015
Distributable income per
unit - fully diluted $ 0.316 $ 0.314 $ 0.002
Distributions $ 0.270 $ 0.256 $ 0.014
Payout ratio 85.4% 81.7% (3.7%)
Weighted average units
outstanding - basic 34,276,516 25,174,036 9,102,480
Weighted average units
outstanding - fully
diluted 37,998,055 25,308,595 12,689,460
Units outstanding, end
of period 35,442,822 30,557,701 4,885,121


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 of acquired leasing costs, 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 June 30, 2005 was $3.35 million ($0.002 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. The per unit increase was achieved in spite of the dilutive effect of the December 2004 equity offering continuing for virtually the entire second quarter of 2005.

Supplemental Information

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

September Distribution

Primaris Retail REIT also announces today its September 2005 monthly distribution in the amount of $0.095. Payment will be made on September 15, 2005 to holders of record as of August 31, 2005.

In addition, 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 reinvested by them. The price at which units will be purchased with such cash distributions 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 Tuesday, August 9 at 11 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), passcode 3157750#.

Audio replays of the conference call will be available immediately following the completion of the conference call, and will remain active until August 16, 2005. The replay will be accessible by dialing 416-695-5800 or 1-800-408-3053 and using the pass code 3157750#.

The REIT is a TSX listed real estate investment trust (TSX:PMZ.UN). The REIT owns 14 income-producing properties comprising approximately 6.1 million square feet located in Canada. As of August 4, 2005, the REIT had 44,182,908 units issued and outstanding.



PRIMARIS RETAIL REAL ESTATE
INVESTMENT TRUST

Interim Consolidated Balance Sheets
(In thousands of dollars)

June 30, 2005 and December 31 2004
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June 30, December 31,
2005 2004
---------------------------------------------------------------------
(unaudited)

Assets

Income-producing properties $ 854,060 $ 684,096
Deferred costs 15,521 13,486
Rent receivable 2,301 1,498
Other assets and receivables 18,077 9,250
Cash and cash equivalents 5,427 46,894
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895,386 $ 755,224
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Liabilities and Unitholders' Equity

Liabilities:
Mortgages payable $ 452,103 $ 364,854
Convertible debentures 29,825 48,387
Bank indebtedness 54,791 -
Accounts payable and other liabilities 20,795 16,224
Distribution payable 3,194 3,043
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560,708 432,508

Unitholders' equity 334,678 322,716

Commitments and contingencies
Subsequent events
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$ 895,386 $ 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 June 30, 2005 and 2004
(unaudited)
---------------------------------------------------------------------
June 30, June 30,
2005 2004
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Revenue:
Base rent $ 19,366 $ 13,690
Recoveries from tenants 10,740 7,890
Percentage rent 221 117
Parking 1,115 7
Interest and other income 649 103
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32,091 21,807

Expenses:
Property operating 7,706 5,051
Property taxes 5,119 3,892
Depreciation 5,697 2,786
Amortization 355 117
Interest 5,866 3,475
Ground rent 294 268
General and administration 1,070 717
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26,107 16,306
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Net income $ 5,984 $ 5,501
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Basic and fully diluted net income per unit $ 0.17 $ 0.22
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PRIMARIS RETAIL REAL ESTATE
INVESTMENT TRUST
Reconciliation of Net Income to Distributable Income
(In thousands of dollars, except per unit amounts)

(Unaudited)

---------------------------------------------------------------------
---------------------------------------------------------------------
Three Month Three Month
Period Ended Period Ended
June 30, 2005 June 30, 2004
---------------------------------------------------------------------
Net income $ 5,984 $ 6,218
Straight line rent (369) (378)
Depreciation 5,697 2,786
Accretion of convertible debentures (32) -
Distributable Income (19) -
-------- -------
Distributable Income $ 11,261 $ 7,909
-------- -------


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, 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, except per unit amounts)

(Unaudited)

---------------------------------------------------------------------
---------------------------------------------------------------------
Three Month Three Month
Period Ended Period Ended
June 30, 2005 June 30, 2004
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Net income $ 5,984 $ 5,501
Depreciation 5,697 2,786
Amortization 191 30
Accretion of convertible debentures (32) -
Funds from Operation (19) -
-------- -------
Funds from Operation $ 11,821 $ 8,317
-------- -------


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, except per unit amounts)

(Unaudited)

---------------------------------------------------------------------
---------------------------------------------------------------------
Three Month Three Month
Period Ended Period Ended
June 30, 2005 June 30, 2004
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Revenue $ 32,091 $ 21,807
Less: Corporate interest and other income (280) (193)
Property operating expenses (7,706) (5,051)
Property tax expense (5,119) (3,892)
Ground rent (294) (268)
-------- --------
Net Operating Income $ 18,692 $ 12,403
-------- --------




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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