Smart Real Estate Investment Trust
TSX : SRU.UN

Smart Real Estate Investment Trust

November 02, 2016 18:39 ET

Smart Real Estate Investment Trust Releases Third Quarter Results for 2016

TORONTO, ONTARIO--(Marketwired - Nov. 2, 2016) - Smart Real Estate Investment Trust ("SmartREIT" or "the Trust") (TSX:SRU.UN) is pleased to report positive results for the third quarter ended September 30, 2016.

Highlights for the quarter ended September 30, 2016:

  • The Trust improved its occupancy to 98.3% in the quarter (from 98.2% in the second quarter) based on leased and occupied space. Including the executed deals that will take occupancy after the quarter, this metric increases to 98.5% (from 98.3% in the second quarter)
  • Developments and Earnouts of 54,845 square feet of leasable area for $17.9 million were completed, providing an unleveraged yield of 6.7%
  • An investment property in Lethbridge, Alberta, was acquired totalling 53,392 square feet of leasable area for a total purchase price of $15.3 million, for which the Trust assumed an existing mortgage totalling $9.2 million with a term of 3.9 years and an interest rate of 2.73%
  • $100.0 million of 2.987% Series O senior unsecured debentures and $250.0 million of 3.444% Series P senior unsecured debentures were issued for combined net proceeds including issuance costs totalling $347.4 million
  • $100.0 million aggregate principal amount of 5.00% Series F senior unsecured debentures and $90.0 million aggregate principal amount of 4.70% Series G senior unsecured debentures were redeemed

Subsequent to Quarter End:

  • KPMG opened for business on October 3, 2016 at the new Vaughan Metropolitan Centre and new leasing at the centre is very positive, with effective rents and timing ahead of expectations
  • On October 25, 2016, the Trust completed the acquisition of a mixed-use retail-office centre in Pointe-Claire, Quebec, from a third party, totalling approximately 382,000 square feet of leasable area. The total purchase price of this acquisition was $62.0 million, which was be funded by existing cash and the assumption of an existing mortgage totalling $34.5 million with an interest rate of 2.87% that matures in 2017
  • On October 28, 2016, the Trust entered into an agreement to extend a loan receivable in the amount of $40.3 million issued to OneREIT for a period of one year that was due to mature on October 30, 2016 with an interest rate of 6.75%, resulting in a revised maturity date of October 30, 2017 with substantially the same terms except for a one-time prepayment option of $10.0 million that was exercised by OneREIT on October 31, 2016

Huw Thomas, CEO of SmartREIT said, "Our two key focuses remain the health of our core retail holdings and the development of a strong pipeline of growth initiatives and we are pleased with the progress on both fronts. Despite a very competitive market, our principally Walmart anchored sites are able to attract new tenants and increase occupancy. The investments we are making in developing multiple projects in our large urban sites continue to have a modest negative impact on our current profitability but we are confident that these mixed-use investments will provide significant long term benefits for our Unitholders as they become part of our extended portfolio," added Thomas.

Portfolio Highlights

Portfolio Information
The following table summarizes SmartREIT's portfolio information:

September 30,
2016
December 31,
2015
Change
Fair value of real estate portfolio (in millions of dollars) (1) $8,267.4 $8,168.6 $98.8
Weighted average stabilized capitalization rate 5.89% 5.94% (0.05)%
September 30, 2016
Built gross leasable area 31.5 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 142
Number of properties under development 8
Number of office properties 1
Total number of properties owned 151
(1) Includes the Trust's share of investments in associates

Developments and Earnouts Completed on Existing Properties

Three Months Ended September 30, 2016 Nine Months Ended September 30, 2016
(in millions of dollars) Area
(sq. ft.)
Investment
($)
Yield
(%)
Area
(sq. ft.)
Investment
($)
Yield
(%)
Earnouts 9,253 4.7 6.0 49,820 19.1 6.5
Developments 45,592 13.2 7.0 345,471 92.0 6.0
54,845 17.9 6.7 395,291 111.1 6.1

Acquisitions

On August 16, 2016, the Trust completed the acquisition of a property in Lethbridge, Alberta, from a third party, totalling 53,392 square feet of leasable area. The total purchase price of this acquisition was $15.3 million, which included $6.2 million paid in cash and the assumption of a mortgage of $9.2 million, adjusted for costs of acquisition and other working capital amounts.

Key Financial Highlights

Quarterly Comparison to Prior Year

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

(in millions of dollars, except per Unit information) Three Months Ended
September 30, 2016
Three Months Ended
September 30, 2015
Change % Change
Net income and comprehensive income $56.7 $92.6 -$35.9 (38.8)%
Rentals from investment properties $174.1 $172.9 $1.2 0.7%
Net operating income $115.1 $116.2 -$1.1 (0.9)%
FFO excluding adjustments $83.5 $83.9 -$0.4 (0.5)%
Per Unit Information
FFO per Unit excluding adjustments (fully diluted) $0.54 $0.54 $0.00 -%
AFFO per Unit (fully diluted) $0.51 $0.52 -$0.01 (1.9)%
Distribution $0.41 $0.40 $0.01 2.5%
Payout ratio (to AFFO) 81.0% 76.9% 4.1% 5.3%

Operations Highlights

Rentals from investment properties for the three months ended September 30, 2016, totalled $174.1 million, a $1.2 million or 0.7% increase over the same period last year. Net base rent increased by $0.2 million or 0.2%, primarily due to rent increases from new and renewing tenants, partially offset by higher vacancies, and income from acquisitions that closed during 2015 and 2016, as well as Earnouts and completed Developments that occurred during 2015 and 2016. Property operating costs recovered increased by $0.1 million or 0.1% due to the related increases in recoverable costs with the growth in the portfolio.

The Trust recovered 95.9% of total recoverable expenses during the three months ended September 30, 2016, compared to 99.9% in the same quarter last year. Non-recovery of most of the remaining costs resulted from higher vacancies, fixed recovery rates for some tenants, restrictions contained in certain anchor tenant leases, unfavourable property operating cost recovery adjustments made in 2016 for prior years of $0.3 million and favourable realty tax adjustments made in 2015 for prior years of $0.6 million.

In comparison to the same quarter in 2015, NOI decreased by $1.1 million or 0.9% in 2016, primarily as a result of the increase in recoverable costs, net of recoveries, of $2.3 million attributable to additional shortfall and prior year adjustments as discussed above, partially offset by the increase in miscellaneous revenue mainly due to the increase in settlement proceeds and short term rental revenue of $0.9 million.

FFO and AFFO Highlights

For the three months ended September 30, 2016, FFO excluding adjustments decreased by $0.4 million or 0.5% to $83.5 million and remained the same on a per Unit basis ($0.54) compared to the same quarter of 2015. The decrease in FFO excluding adjustments of $0.4 million was primarily due to a decrease in NOI of $1.1 million, an increase in general and administrative expense of $0.5 million, partially offset by an increase in salaries and related costs attributed to leasing - which are added back to FFO - in the amount of $0.9 million and an increase in interest income of $0.1 million.

For the three months ended September 30, 2016, AFFO decreased by $1.0 million or 1.2% to $78.7 million and by 1.9% to $0.51 on a per Unit basis compared to the same quarter of 2015. The decrease in AFFO of $1.0 million was primarily due to the decreases described in FFO above for the three months ended September 30, 2016, further decreased by adjusted salaries and related costs attributed to leasing of $0.6 million.

Year-to-Date Comparison to Prior Year

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

(in millions of dollars, except per Unit information) Nine Months Ended
September 30, 2016
Nine Months Ended
September 30, 2015
Change % Change
Net income and comprehensive income $232.2 $227.8 $4.4 1.9%
Rentals from investment properties $541.0 $492.2 $48.8 9.9%
Net operating income $356.3 $323.9 $32.4 10.0%
FFO excluding adjustments $260.1 $229.2 $30.9 13.5%
Per Unit Information
FFO per Unit excluding adjustments (fully diluted) $1.67 $1.58 $0.09 5.6%
AFFO per Unit (fully diluted) $1.58 $1.49 $0.09 6.1%
Distribution $1.24 $1.20 $0.04 3.3%
Payout ratio (to AFFO) 78.4% 80.6% (2.2)% (2.7)%

Operations Highlights

Rentals from investment properties for the nine months ended September 30, 2016, totalled $541.0 million, a $48.8 million or 9.9% increase over the nine months ended September 30, 2015. Net base rent increased by $26.5 million or 8.2%, primarily due to rent increases from new and renewing tenants, partially offset by higher vacancies, and income from acquisitions that closed during 2015 and 2016, as well as Earnouts and completed Developments that occurred during 2015 and 2016. Property operating cost recoveries increased by $11.4 million or 7.1% due to the related increases in recoverable costs with the growth of the Trust's portfolio. In addition, the increase to miscellaneous revenue for the nine months ended September 30, 2016 was primarily due to $9.7 million settlement proceeds associated with the Target lease terminations net of other amounts.

The Trust recovered 96.6% of total recoverable expenses during the nine months ended September 30, 2016, compared to 98.8% in the same period last year. Non-recovery of most of the remaining costs resulted from higher vacancies, fixed recovery rates for some tenants, restrictions contained in certain anchor tenant leases, unfavourable property operating cost recovery adjustments made in 2016 for prior years of $0.6 million and favourable realty tax adjustments made in 2015 for prior years of $1.3 million.

In comparison to the same period in 2015, NOI increased by $32.4 million or 10.0% in 2016, primarily as a result of: a) the growth of the Trust's portfolio mainly due to the Transaction that closed on May 28, 2015, resulting in an increase to NOI of $24.6 million and b) the increase to miscellaneous revenue, which was primarily due to $9.7 million settlement proceeds associated with the Target lease terminations net of other amounts.

FFO and AFFO Highlights

For the nine months ended September 30, 2016, FFO excluding adjustments increased by $30.9 million or 13.5% to $260.1 million and by 5.6% to $1.67 on a per Unit basis compared to the same period of 2015. The increase in FFO excluding adjustments of $30.9 million was primarily due to an increase in NOI of $32.4 million, an increase in salaries and related costs attributed to leasing - which are added back to FFO - in the amount of $2.8 million, partially offset by an increase in general and administrative expense of $5.6 million.

For the nine months ended September 30, 2016, AFFO increased by $29.6 million or 13.7% to $245.7 million and by 6.1% to $1.58 on a per Unit basis compared to the same period of 2015. The increase in AFFO of $29.6 million was primarily due to the increases described in FFO above for the nine months ended September 30, 2016, further offset by adjusted salaries and related costs attributed to leasing of $2.0 million.

Non-IFRS Measures

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 nine months ended September 30, 2016, available on Sedar at www.sedar.com.

Full reports of the financial results of the Trust for the three and nine months ended September 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.

Conference Call

SmartREIT will hold a conference call on Thursday, November 3, 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 1-800-524-8950. 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 3, 2016 beginning at 12:00 p.m. (ET) through to 12:00 p.m. (ET) on Thursday, November 10, 2016. To access the recording, please call 1-888-203-1112 and enter the Replay Passcode 3902820#.

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 and nine months ended September 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.

Contact Information

  • Huw Thomas
    Chief Executive Officer
    Smart Real Estate Investment Trust
    (905) 326-6400 ext. 7649
    hthomas@smartreit.com

    Peter Sweeney
    Chief Financial Officer
    Smart Real Estate Investment Trust
    (905) 326-6400 ext. 7865
    psweeney@smartreit.com