Smart Real Estate Investment Trust
TSX : SRU.UN

Smart Real Estate Investment Trust

November 04, 2015 17:55 ET

Smart Real Estate Investment Trust Releases Third Quarter 2015 Results

TORONTO, ONTARIO--(Marketwired - Nov. 4, 2015) - Smart Real Estate Investment Trust ("SmartREIT" or "the Trust") (TSX:SRU.UN) is pleased to report strong results for the third quarter ended September 30, 2015.

Highlights for the quarter:

  • Funds from operations ("FFO") increased by 26.2% to $83.9 million and 10.2% to $0.54 on a per Unit basis compared to the same period in 2014
  • Adjusted funds from operations ("AFFO") payout ratio decreased by 7.0% to 76.9% compared to the same period in 2014
  • Annual distributions increased by $0.05 to $1.65 per Unit effective October 2015
  • Maintained high level occupancy of 98.7%. The Trust has two former Target store locations in the Trust's 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 98.1%
  • Completed Developments and Earnouts of 27,728 square feet of leasable area for $8.2 million, providing an unleveraged yield of 8.2%
  • Issued new secured debt totalling $108.8 million with an average term of 6.0 years and an average interest rate of 2.76%
  • Acquired an enclosed shopping centre totalling 227,000 square feet in Maple Ridge, British Columbia, for a total purchase price of $59.3 million, which was funded by existing cash
  • As part of the overall Transaction, the Trust acquired a 60% interest in a property in Orleans, Ontario, totalling 132,154 square feet of lands with potential for future development for a total purchase price of $8.8 million, which was satisfied by the assumption of a mortgage of $8.7 million, adjusted for costs of acquisition and other working capital amounts
  • Subsequent to quarter end, on October 16, 2015, $100.0 million aggregate principal amount of variable rate Series K senior unsecured debentures matured, which was settled by the Trust by existing cash and credit facilities

Huw Thomas, President & CEO of SmartREIT, said, "I am pleased with our positive third quarter results despite challenging market conditions for a number of our retail tenants. Our portfolio of 138 mostly Walmart-anchored retail centres continues to deliver reliable performance and steady growth. We have continued to grow our portfolio through both development and acquisitions. With respect to our emerging portfolio of growth initiatives, both the Montreal Premium Outlets and the Toronto Premium Outlets continue to exceed our expectations in terms of performance, which reflects our commitment to look for various avenues of growth and we continue to look for further sites to add to the portfolio. For the most significant longer term opportunity, construction has progressed very well on the first tower in the VMC and we are now turning our attention to the next possible development on the site. As to the Transaction we closed on May 28, 2015, I am extremely pleased at the very positive market reaction and excited about the multitude of growth opportunities our integrated platform can deliver over many years," added Thomas.

The following table summarizes SmartREIT's portfolio information:

September 30,
2015
December 31,
2014
Change
Fair value of real estate portfolio (in millions of dollars) (1) $ 8,105.9 $ 6,801.4 $ 1,304.5
Weighted average stabilized capitalization rate 5.96 % 5.98 % (0.02 )%
Built gross leasable area 30.8 million square feet
Future estimated development area 4.9 million square feet
Lands under Mezzanine Financing 0.8 million square feet
Number of retail properties 138
Number of development properties 11

(1) Includes the Trust's share of investments in associates

Developments completed during the quarter are as follows:

Leasable area 27,728 square feet
Cost $8.2 million
Yield 8.2 %

Quarterly Results

During the quarter, the Trust issued new term debt totalling $108.8 million with an average term of 6.0 years and an average interest rate of 2.76%.

In addition, the Trust acquired a future Walmart anchored enclosed shopping centre totalling 227,000 square feet in Maple Ridge, British Columbia, for a total purchase price of $59.3 million, which was funded by existing cash.

Also during the quarter, as part of the overall Transaction, the Trust acquired a 60% interest in a property in Orleans, Ontario, from Walmart Canada Realty Inc., totalling 132,154 square feet of lands with potential for future development. The remaining 40% is owned by Penguin. The total purchase price of this acquisition was $8.8 million, which was satisfied by the assumption of a mortgage of $8.7 million, adjusted for costs of acquisition and other working capital amounts.

The following table summarizes SmartREIT's key financial highlights for the quarters ended September 30(1):

(in millions of dollars, except per Unit information) Three Months Ended
September 30,
2015
Three Months Ended
September 30,
2014
Change % Change
Net income excluding fair value adjustments (1) $ 81.1 $ 64.5 $ 16.6 25.7 %
Rental revenue (1) $ 172.9 $ 147.2 $ 25.7 17.5 %
Net operating income (1) $ 116.2 $ 99.1 $ 17.1 17.3 %
Cash flow as measured by FFO $ 83.9 $ 66.4 $ 17.5 26.4 %
Per Unit Information
FFO per Unit (fully diluted) $ 0.54 $ 0.49 $ 0.05 10.2 %
AFFO per Unit (fully diluted) $ 0.52 $ 0.46 $ 0.06 13.0 %
Quarterly distribution $ 0.40 $ 0.39 $ 0.01 2.6 %
Payout ratio (to AFFO) 76.9 % 83.9 % (7.0 )%

(1) Includes the Trust's share of investments in associates

For the three months ended September 30, 2015, FFO increased by $17.5 million or 26.2% to $83.9 million and by 10.2% to $0.54 on a per Unit basis compared to the same quarter of 2014 (three months ended September 30, 2014 - $66.4 million). The increase in FFO of $17.5 million was primarily due to an increase in NOI net of tenant incentive amortization of $17.6 million, a decrease in interest expense net of yield maintenance on redemption of unsecured debentures and related write-off of unamortized financing costs of $2.5 million, an increase in interest income of $0.2 million, an increase in indirect interest in respect of the development portion of investment in associates of $0.2 million, partially offset by an increase in general and administrative expenses of $2.5 million.

SmartREIT's debt to gross book value was 52.8% at September 30, 2015 (December 31, 2014 - 50.5%), which is below SmartREIT's target range, and the debt to aggregate assets ratio was 45.3% (December 31, 2014 - 42.8%). The increases in the debt to gross book value and debt to aggregate asset ratios are primarily due to the assumption of term mortgages and developments loans totalling $645.5 million largely in connection with the Transaction that occurred on May 28, 2015.

The high occupancy level of 98.7%, as well as SmartREIT's acquisition and development program, generated rental revenue of $172.9 million during the quarter. NOI of $116.2 million increased by $17.1 million compared to the same period in 2014, including a 1.2% or $1.1 million increase on a same properties basis, which is primarily due to net lease-up of vacant space, rent increases by renewing tenants and step-ups in existing leases offset by higher bad debt expense.

The non-IFRS measures used in this Press Release, including AFFO, FFO, NOI, debt to aggregate assets, debt to gross book value, payout ratio and interest coverage 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 of the Trust for the three and nine months ended September 30, 2015, available on SEDAR at www.sedar.com.

Full reports of the financial results of the Trust for the year ended December 31, 2014 are outlined in the audited financial statements and the related management discussion and analysis of the Trust, as well as the Trust's Annual Information form, which are all 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 Thursday, November 5, 2015 at 8:00 a.m. (ET). Participating on the call will be members of SmartREIT's senior management.

Investors are invited to access the call by dialing 1-800-524-8950. 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 Thursday, November 5, 2015 beginning at 11:00 a.m. (ET) through to 11:00 a.m. (ET) on Thursday, November 12, 2015. To access the recording, please call 1-888-203-1112 and enter the Conference ID 517875#.

About SmartREIT

SmartREIT is one of Canada's largest real estate investment trusts with total assets of approximately $8.5 billion. It owns and manages in excess of 30 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 recent 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 new 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 both the period ended September 30, 2015 and the year ended December 31, 2014 and under the heading "Risk Factors" in its Annual Information Form for the year ended December 31, 2014. 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.

Contact Information

  • SmartREIT
    Huw Thomas
    President and Chief Executive Officer
    (905) 326-6400 ext. 7649

    SmartREIT
    Peter Sweeney
    Chief Financial Officer
    (905) 326-6400 ext. 7865
    www.smartreit.com