Smart Real Estate Investment Trust
TSX : SRU.UN

Smart Real Estate Investment Trust

August 04, 2016 18:30 ET

Smart Real Estate Investment Trust Releases Second Quarter Results for 2016

TORONTO, ONTARIO--(Marketwired - Aug. 4, 2016) - Smart Real Estate Investment Trust ("SmartREIT" or "the Trust") (TSX:SRU.UN) is pleased to report positive results for the second quarter ended June 30, 2016.

Highlights for the quarter ended June 30, 2016:

  • Funds From Operations (FFO) increased by 26.4% to $93.7 million and 15.4% to $0.60 on a per Unit basis compared to the same quarter in 2015
  • Adjusted Funds From Operations (AFFO) increased by 27.4% to $88.9 million and 16.3% to $0.57 on a per Unit basis compared to the same quarter in 2015
  • Target net settlement proceeds of $9.7 million were recorded, which had a corresponding impact on both FFO per Unit and AFFO per Unit of $0.06, and also decreased AFFO payout ratio from 80.9% to 72.5%
  • AFFO payout ratio decreased by 9.6% to 72.5% compared to the same quarter in 2015
  • Same properties' NOI increased by 0.9% or $0.9 million compared to the same quarter in 2015
  • High level of occupancy maintained at 98.2% (98.3% with committed leases not yet commenced). The Trust had two Target store locations in its portfolio. As a result of Target's decision to leave these locations, the Trust has identified both locations for redevelopment. Had these two sites not been identified for redevelopment, the occupancy level would have been 97.5%
  • Developments and Earnouts of 293,064 square feet of leasable area for $76.2 million were completed, providing an unleveraged yield of 6.0%
  • Secured debt of $19.4 million with an interest rate of 4.91% was repaid
  • Toronto Premium Outlets' expansion of both the shopping centre and the associated parking facility is actively moving forward

Subsequent to quarter end:

  • The Trust announced the commencement of the second phase of office development at VMC. The next phase of development is expected to be completed in 2019 and will feature a new 220,000 square foot Class A facility, which will be home to lead occupants, PwC, YMCA, and a new library and community uses for the City of Vaughan
  • The Board of Trustees approved a 3.0% increase in annual distributions to $1.70 per Unit effective October 2016
  • The Trust exercised its option to extend a development loan relating to the Montreal Premium Outlets for an additional term of one year expiring September 10, 2017. At June 30, 2016, the balance on this loan was $54.4 million and the credit facility limit is $55.5 million at the Trust's share.

Huw Thomas, CEO of SmartREIT said, "We are very pleased with the level of final settlement we reached on the two properties formerly leased to Target Canada. The amount received gives us multiple years flexibility in releasing space to new vibrant tenants at both locations and our core shopping centre portfolio continues to perform well despite a very competitive market, providing the Trust with a steady cash flow stream. Looking to the future, the suite of growth initiatives we have created continues to build momentum, including the VMC and the Premium Outlet portfolio as well as our various mixed use and residential opportunities," added Thomas.

The following table summarizes SmartREIT's portfolio information:

June 30, 2016 December 31, 2015 Change
Fair value of real estate portfolio (in millions of dollars) (1) $ 8,238.6 $ 8,168.6 $ 70.0
Weighted average stabilized capitalization rate 5.89 % 5.94 % (0.05 )%
June 30, 2016
Built gross leasable area 31.3 million square feet
Future estimated development area 4.7 million square feet
Lands under Mezzanine Financing 0.7 million square feet
Number of retail properties 141
Number of properties under development 8
Number of office properties 1
Total number of properties owned 150
(1) Includes the Trust's share of investments in associates

Developments completed during the quarter are as follows:

Three Months Ended
June 30, 2016
Leasable area 293,064 square feet
Investment (Cost) $76.2 million
Unleveraged yield 6.0 %

The following table summarizes SmartREIT's key financial highlights for the three months ended June 30 (including the Trust's share of investment in associates):

(in millions of dollars, except per Unit information) Three Months Ended
June 30, 2016
Three Months Ended
June 30, 2015
Change % Change
Net income and comprehensive income(1) $ 76.6 $ 80.0 -$3.4 (4.3 )%
Rentals from investment properties(1) $ 187.3 $ 160.7 $ 26.6 16.6 %
Net operating income(1) $ 126.8 $ 105.9 $ 20.9 19.7 %
FFO excluding adjustments(1) $ 93.7 $ 74.1 $ 19.6 26.5 %
Per Unit Information
FFO per Unit excluding adjustments (fully diluted)(1) $ 0.60 $ 0.52 $ 0.08 15.4 %
AFFO per Unit (fully diluted)(1) $ 0.57 $ 0.49 $ 0.08 16.3 %
Distribution $ 0.41 $ 0.40 $ 0.01 2.5 %
Payout ratio (to AFFO)(1) 72.5 % 82.1 % (9.6 )% (11.7 )%
(1) Includes $9.7 million net settlement proceeds associated with the Target lease terminations recorded during the three months ended June 30, 2016 (three months ended June 30, 2015 - $nil). For the three months ended June 30, 2016, the net settlement proceeds had an impact on both FFO per Unit and AFFO per Unit by $0.06 (three months ended June 30, 2015 - $nil).

Rentals from investment properties for the three months ended June 30, 2016, totalled $187.3 million, a $26.6 million or 16.6% increase over the three months ended June 30, 2015. Net base rent increased by $10.7 million or 10.1%, primarily due to rent increases from new and renewing tenants, acquisitions including the Transaction that closed on May 28, 2015, Earnouts and completed developments that occurred during 2015 and 2016. Property operating costs recovered increased by $4.5 million or 8.7% due to the related increases in recoverable costs with the growth in the portfolio.

The Trust recovered 97.4% of total recoverable expenses during the three months ended June 30, 2016, compared to 98.5% in the same quarter last year. Non-recovery of most of the remaining costs results from fixed recovery rates for some tenants and restrictions contained in certain anchor tenant leases in addition to adjustments made in 2015 for prior years.

In comparison to the same quarter in 2015, NOI increased by $20.9 million or 19.7% in 2016, primarily as a result of: a) the growth of the portfolio mainly due to the Transaction that closed on May 28, 2015, resulting in an increase to NOI of $9.3 million, and b) the increase to miscellaneous revenue, which was primarily due to $9.7 million of net settlement proceeds associated with the Target lease terminations.

For the three months ended June 30, 2016, FFO excluding adjustments increased by $19.5 million or 26.4% to $93.7 million and by 15.4% to $0.60 on a per Unit basis compared to the same quarter of 2015. The increase in FFO was primarily due to a $20.9 million increase in NOI as discussed above.

The non-IFRS measures used in this Press Release, including AFFO, FFO, NOI and payout ratio do not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS") and are therefore unlikely to be comparable to similar measures presented by other issuers. These non-IFRS measures are more fully defined and discussed in the 'Management Discussion and Analysis' (MD&A) of the Trust for the three and six months ended June 30, 2016, available on SEDAR at www.sedar.com.

Full reports of the financial results of the Trust for the three and six months ended June 30, 2016 are outlined in the unaudited interim condensed consolidated financial statements and the related MD&A of the Trust, which are available on SEDAR at www.sedar.com. In addition, supplemental information is available on the Trust's website at www.smartreit.com.

SmartREIT will hold a conference call on Friday, August 5, 2016 at 9:00 a.m. (ET). Participating on the call will be members of SmartREIT's senior management.

Investors are invited to access the call by dialing 1-866-530-1553. You will be required to identify yourself and the organization on whose behalf you are participating. A recording of this call will be made available Friday, August 5, 2016 beginning at 12:00 p.m. (ET) through to 12:00 p.m. (ET) on Friday, August 12, 2016. To access the recording, please call 1-888-203-1112 and enter the Replay Passcode 9024057#.

About SmartREIT

SmartREIT is one of Canada's largest real estate investment trusts with total assets in excess of $8.6 billion. It owns and manages in excess of 31 million square feet in value-oriented, principally Walmart-anchored retail centres, having the strongest national and regional retailers as well as strong neighbourhood merchants. In addition, SmartREIT is a joint-venture partner in the Toronto and Montreal Premium Outlets with Simon Property Group. SmartREIT's core vision is to provide a value-oriented shopping experience in all forms to Canadian consumers and over time create high quality mixed use developments in urban settings.

With SmartREIT's 2015 acquisition of SmartCentres, SmartREIT has transformed into a fully integrated real estate provider. SmartREIT and SmartCentres have had a long and successful alliance, helping to provide Canadians with value-focused retail shopping centres across the country. Now, our alliance has grown even stronger, the result is a fully integrated real estate provider with expertise in planning, development, leasing, operations, and construction - all under one roof. Our name is a reflection of our combined capabilities: SmartREIT. For more information on SmartREIT, visit www.smartreit.com.

Certain statements in this Press Release are "forward-looking statements" that reflect management's expectations regarding the Trust's future growth, results of operations, performance and business prospects and opportunities as outlined under the headings "Business Overview and Strategic Direction" and "Outlook". More specifically, certain statements contained in this Press Release, including statements related to the Trust's maintenance of productive capacity, estimated future development plans and costs, view of term mortgage renewals including rates and upfinancing amounts, timing of future payments of obligations, intentions to secure additional financing and potential financing sources, and vacancy and leasing assumptions, and statements that contain words such as "could", "should", "can", "anticipate", "expect", "believe", "will", "may" and similar expressions and statements relating to matters that are not historical facts, constitute "forward-looking statements". These forward-looking statements are presented for the purpose of assisting the Trust's Unitholders and financial analysts in understanding the Trust's operating environment, and may not be appropriate for other purposes. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management. However, such forward-looking statements involve significant risks and uncertainties, including those discussed under the heading "Risks and Uncertainties" and elsewhere in the Trust's Management's Discussion & Analysis for the three months ended June 30, 2016 and under the heading "Risk Factors" in its Annual Information Form for the year ended December 31, 2015. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements. Although the forward-looking statements contained in this Press Release are based on what management believes to be reasonable assumptions, the Trust cannot assure investors that actual results will be consistent with these forward-looking statements. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. These forward-looking statements are made as at the date of this Press Release and the Trust assumes no obligation to update or revise them to reflect new events or circumstances unless otherwise required by applicable securities legislation.

The Toronto Stock Exchange neither approves nor disapproves of the contents of this Press Release.

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