Primaris Retail REIT (TSX: PMZ.UN) is reporting stable operating
results and continued strong liquidity.
President and CEO, Michael Latimer, commented "Primaris'
financial position remains strong in these uncertain times. While
it is encouraging to see some capital markets activity during the
first quarter, market conditions are by no means normal. We have a
cautious outlook for future operating results because we see less
depth to tenant demand for vacant space. However, to date,
occupancy rates remain solid and rents continue to grow on renewal
of leases."
Highlights
Liquidity
- Primaris continues to remain extremely liquid. It has $80
million cash and a $120 million unutilized credit facility. There
is one loan maturity in 2009 of $3.7 million that needs to be
re-financed and there are no loan maturities in 2010. There are no
commitments to fund mezzanine loans.
Funds From Operations
- Funds from operations for the first quarter ended March 31,
2009 were $21.8 million or $0.347 per unit diluted, down 4.4% on a
per unit basis from the $22.7 million, or $0.363 per unit diluted
reported for the first quarter of 2008.
Net Operating Income
- Net operating income for the first quarter ended March 31,
2009, was $37.5 million, virtually the same as the $37.6 million
recorded in the first quarter of 2008.
Same Property - Net Operating Income
- Net operating income for the first quarter ended March 31,
2009, on a same property basis, decreased 0.4% over the comparative
three-month period. Primaris is currently externally managed and as
previously announced, the rate of the property management fee
increased during the third quarter of 2008. After adjusting for the
$842 increase in the property management fees during 2009, same
property net operating income would have increased 1.9%.
Operations
- The REIT renewed or leased 392,426 square feet of space during
the first quarter, which includes the renewal of one anchor store.
The weighted average new rent in these leases, on a cash basis,
represented a 6.2% increase over the previous rent paid (5.8%
excluding the anchor store).
- The portfolio occupancy rate decreased during the first
quarter and was 97.3% at March 31, 2009, compared to 98.2% at
December 31, 2008, and the same as the 97.3% at March 31, 2008.
- Same-tenant sales, for the 13 reporting properties owned
during all of the 24 months ended February 28, 2009 decreased 1.8%
to $470 per square foot as compared to the previous 12 months.
- The first quarter results included seasonal revenues of $2.6
million as compared to $2.3 million recorded in the first quarter
of 2008.
Liquidity
Primaris continues to remain extremely liquid. It has $80
million cash invested in Treasury Bills and a variety of high
quality Bankers Acceptances and bearer deposit notes, and has a
$120 million unutilized credit facility not maturing until mid
2010. There is one loan maturity in 2009 of $3.7 million and there
are no loan maturities in 2010. The annual requirement to fund loan
principal payments amounts to approximately $20 million. There are
no commitments to fund mezzanine loans.
Financial Results
Funds from operations for the three months ended March 31, 2009
was $21.8 million or $0.350 per unit basic ($0.347 diluted). This
compares to funds from operations of $22.7 million or $0.366 per
unit basic ($0.363 diluted) earned during the three months ended
March 31, 2008.
Net income for the three months ended March 31, 2009 was $0.5
million or $0.008 per unit (basic and diluted). This compares to
net income of $2.4 million or $0.038 per unit (basic and diluted)
earned during the three months ended March 31, 2008.
Funds from Operations and Net Income for the three months ended
March 31, 2009 include a gain of $467 resulting from the repurchase
of $3,051 (cost $2,288) of the 5.85% convertible debentures. This
repurchase occurred in the late March 2009.
The REIT made one small acquisition in the first quarter of 2008
and two small acquisitions in the fourth quarter of 2008, which
contributed to operations for the three months ended March 31,
2009. The total purchase price for the acquisitions was $14.6
million.
The distribution payout ratio for the first quarter of 2009,
expressed on a per unit basis as distributions paid divided by
diluted funds from operations was 87.8% as compared to a 84.0%
payout ratio for the first quarter of 2008. The payout ratios are
sensitive to both seasonal operating results and financial
leverage.
At March 31, 2009, the REIT's total enterprise value was
approximately $1.5 billion (based on the market closing price of
Primaris' units on March 31, 2009, plus total debt outstanding). At
March 31, 2009 the REIT had $978.7 million of outstanding debt
equating to a debt to total enterprise value ratio of 63.4% . On a
net of cash basis, this ratio would be 58.3% . The REIT's debt
consisted of $885.6 million of fixed-rate senior debt with a
weighted average interest rate of 5.7% and a weighted average term
to maturity of 7.5 years, $5.9 million of 6.75% fixed-rate
convertible debentures and $87.2 million of 5.85% fixed-rate
convertible debentures. The REIT had a debt to gross book value
ratio, as defined under the Declaration of Trust, of 49.1% . During
the three months ended March 31, 2009, the REIT had an interest
coverage ratio of 2.5 times as expressed by EBITDA divided by net
interest expensed. The REIT defines EBITDA as net income increased
by depreciation, amortization, interest expense and 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
Three Months Three Months Variance to
Ended Ended Comparative Period
Favourable/
March 31, 2009 March 31, 2008 (Unfavourable)
Operating revenue $ 68,010 $ 65,650 $ 2,360
Operating expenses 30,644 28,152 (2,492)
------------------------------------------------------
Net operating income $ 37,366 $ 37,498 $ (132)
------------------------------------------------------
The same property comparison includes only 26 properties that
were owned throughout both the current and comparative three-month
periods. Net operating income, on a same property basis, decreased
$132, or 0.4%, over the comparative three-month period. Net
operating income, on a same-property basis, would have increased
1.9% excluding the net change in the property management fees of
$842.
Tenant sales
Tenant sales per square foot, on a same-tenant basis, have
decreased to $470 for the 12 months ended February 28, 2009. Total
tenant volume has increased by 0.9% when comparing sales for the
same properties.
Same-Tenant
Sales per Square Foot Variance
2009 2008 $ %
---------------------------------------------
Aberdeen Mall $ 429 $ 444 $ (14) (3.2%)
Cornwall Centre 551 524 28 5.3%
Dufferin Mall 558 563 (5) (1.0%)
Eglinton Square 343 343 (1) (0.2%)
Grant Park Shopping Centre 492 495 (3) (0.5%)
Lambton Mall 370 382 (12) (3.2%)
Midtown Plaza 565 548 17 3.1%
Northland Village 461 461 0 0.1%
Orchard Park Shopping Centre 528 557 (29) (5.1%)
Park Place Shopping Centre 523 527 (4) (0.8%)
Place Fleur de Lys 309 311 (2) (0.6%)
Place du Royaume 389 392 (3) (0.8%)
Stone Road Mall 568 568 (1) (0.1%)
---------------------------------------------
$ 470 $ 473 $ (3) (1.8%)
---------------------------------------------
All-Tenant
Total Sales Volume Variance
2009 2008 $ %
---------------------------------------------
Aberdeen Mall $ 52,015 $ 53,496 $ (1,481) (2.8%)
Cornwall Centre 77,699 73,427 4,272 5.8%
Dufferin Mall 89,583 89,398 185 0.2%
Eglinton Square 34,103 39,505 (5,402) (13.7%)
Grant Park Shopping Centre 29,805 29,686 119 0.4%
Lambton Mall 51,849 54,057 (2,208) (4.1%)
Midtown Plaza 135,812 126,737 9,075 7.2%
Northland Village 47,684 46,826 858 1.8%
Orchard Park Shopping Centre 147,081 149,839 (2,758) (1.8%)
Park Place Shopping Centre 81,571 80,590 981 1.2%
Place Fleur de Lys 73,660 73,285 375 0.5%
Place du Royaume 104,796 101,692 3,104 3.1%
Stone Road Mall 117,900 115,657 2,243 1.9%
---------------------------------------------
$ 1,043,558 $ 1,034,196 $ 9,363 0.9%
---------------------------------------------
The REIT's sales decreased 1.8% per square foot, while the
national average tenant sales as reported by the International
Council of Shopping Centers ("ICSC") for the 12-month period ended
February 28, 2009 increased 2.2%. The REIT's sales productivity of
$470 is lower than the ICSC average of $561, largely because the
ICSC includes sales from super regional malls that have the highest
sales per square foot in the country. However the ICSC data point
is for all tenant sales. The REIT's all tenant sales per square
foot increase was 0.2% for same period, lower than the ICSC figure
of 2.2%.
Leasing activity
Primaris Retail REIT's property portfolio remains well
leased.
The portfolio occupancy rate decreased during the first quarter
and was 97.3% at March 31, 2009, down from 98.2% at December 31,
2009, and the same as the 97.3% at March 31, 2008. These
percentages include space for which signed leases are in place but
where the tenant may not yet be in occupancy.
The REIT leased 392,426 square feet of space during the first
quarter of 2009. This represented 89 leases of generally smaller
stores and the renewal of one anchor store. Approximately 83% of
the leased spaces during the first quarter of 2009 consisted of the
renewal of existing tenants, or 73% if the anchor store is
excluded. The weighted average new rent for renewals of existing
tenants in the first quarter, on a cash basis, represented a 6.2%
increase over the previous cash rent (5.8% excluding the anchor
store).
Development Activity
Canadian Tire leased a 139,000 square foot store, previously
occupied by Wal-Mart at Lambton Mall in Sarnia, Ontario. Canadian
Tire began work on the premises in October 2008, and opened on
April 15, 2009. Their existing 106,331 square foot store, also at
Lambton Mall, remained in operation until the new store opened. The
REIT's budget for this first phase of the project was approximately
$3.5 million, and Canadian Tire spent additional amounts in
completing their store and executing their move. The scope of work
included a small expansion as well as constructing a connection
between the new store and the interior of the mall, something that
did not exist with the previous tenant. Once the existing Canadian
Tire store is vacated, a second phase of the project will be
initiated, with Lambton Mall modifying and releasing the vacated
space. Plans for this second phase are not yet finalized; however,
discussions are underway with a number of retailers to participate
in this second phase.
In mid-April 2007, the REIT agreed to terminate the lease of an
86,500 square foot Bay department store at Place du Royaume located
in Saguenay, Quebec. The store closed in June 2007. The first phase
of the project was to reconstruct the existing space for use by
other retailers. Tenants are in place for 100% of the leasable area
of the first phase of the project. The second phase included a new
common area of the mall, including the floor, demising walls and
ceilings and the demolition of the exterior entrance. Both phases
were completed on time and under budget. As at March 31, 2009,
$9,539 has been incurred and capitalized. As part of this new
circulation plan, a small part of existing common area has been
backfilled by retail use. The total budgeted cost of this project
is approximately $14,000. There are still some further costs to be
incurred, but the REIT is anticipating the cost of this project to
be substantially under budget. The REIT experienced 12 months of
downtime in the former department store space and six months of
downtime for the backfill of existing common area. During the
second quarter of 2008 almost all of the tenants in the former
department store space opened, with the last tenant having opened
in the first quarter of 2009. The project generated a positive
return for the property.
Comparison to Prior Period Financial Results
Variance to
Comparative
Three Months Three Months Period
Ended Ended Favourable/
March 31, 2009 March 31, 2008 (Unfavourable)
Revenue
Minimum rent $ 40,568 $ 39,571 $ 997
Recoveries from tenants 25,311 23,789 1,522
Percentage rent 724 712 12
Parking 1,528 1,564 (36)
Interest and other income 887 1,086 (199)
--------------- --------------- --------------
$ 69,018 $ 66,722 $ 2,296
Expenses
Operating 30,401 27,827 (2,574)
Interest 14,625 14,182 (443)
Depreciation and
amortization 18,550 19,946 1,396
Ground rent 300 353 53
--------------- --------------- --------------
$ 63,876 $ 62,308 $ (1,568)
--------------- --------------- --------------
Income from operations 5,142 4,414 728
General and administrative (2,118) (1,908) (210)
Future income taxes (2,500) (150) (2,350)
--------------- --------------- --------------
Net income $ 524 $ 2,356 $ (1,832)
Depreciation of
income-producing properties 16,999 18,821 (1,822)
Amortization of leasing
costs 1,503 1,125 378
Accretion of convertible
debentures 269 249 20
Future income taxes 2,500 150 2,350
--------------- --------------- --------------
Funds from operations $ 21,795 $ 22,701 $ (906)
--------------- --------------- --------------
Funds from operations per
unit - basic $ 0.350 $ 0.366 $ (0.016)
Funds from operations per
unit - diluted $ 0.347 $ 0.363 $ (0.016)
Funds from operations -
payout ratio 87.8% 84.0% 3.8%
Distributions per unit $ 0.305 $ 0.305 $ -
Weighted average units
outstanding - basic 62,306,961 61,965,060 341,901
Weighted average units
outstanding - diluted 67,230,327 66,950,493 279,834
Units outstanding, end of
period 62,348,408 62,039,190 309,218
Notes:
Funds from Operations, which is not a defined term within Canadian generally
accepted accounting principles, has been calculated by management in
accordance with REALPac's White Paper on Funds from Operations. The White
Paper defines Funds from Operations as net income adjusted for depreciation
and amortization of assets purchased, including the net impact of above and
below market leases, amortization of leasing costs and accretion of
convertible debentures. Funds from Operations may not be comparable to
similar measures used by other entities.
Funds from operations for the quarter ended March 31, 2009 was
$0.9 million ($0.016 less per unit, diluted) less than the
comparative period.
Transition Update
As previously announced, the REIT is planning to fully
internalize its management on January 1, 2010. There is a fuller
discussion of this in the Management's Discussion and Analysis.
During the quarter ended March 31, 2009 the REIT incurred $384 of
transition costs (2008 $nil), of which $353 was expensed and $31
was capitalized.
Reclassification Prior Years Amounts
The REIT has reclassified prior periods' results to reflect the
reclassification of recoverable improvements (previously called
recoverable operating costs) to a component of income-producing
properties. This is discussed more fully in Management's Discussion
and Analysis and the reclassification of the previous seven
quarters is contained therein.
Supplemental Information
The REIT's unaudited interim consolidated financial statements
for the three-months ended March 31, 2009 and 2008 and Management's
Discussion and Analysis for the three-month period ended March 31,
2009 are available on the REIT's website at
www.primarisreit.com.
Forward-Looking Information
The MD&A contains forward-looking information based on
management's best estimates and the current operating environment.
These forward-looking statements are related to, but not limited
to, the REIT's operations, anticipated financial performance,
business prospects and strategies. Forward-looking information
typically contains statements with words such as "anticipate",
"believe", "expect", "plan", or similar words suggesting future
outcomes. Such forward-looking statements are subject to risks,
uncertainties and other factors which could cause actual results to
differ materially from future results expressed, projected or
implied by such forward-looking statements.
Examples of such information include, but are not limited to,
factors relating to the business, financial position of the REIT,
operations and redevelopments including volatility of capital
markets, legislative changes, consumer spending, retail leasing
demand, strength of the retail sector, price volatility of
construction costs, availability of construction labour and timing
of regulatory and contractual approvals for developments.
Although the forward-looking statements contained in this
document are based on what management of the REIT believes are
reasonable assumptions, forward-looking statements involve
significant risks and uncertainties. They should not be read as
guarantees of future performance or results and will not
necessarily be an accurate indicator of whether or not such results
will be achieved. Readers are cautioned not to place undue reliance
on forward-looking statements as a number of factors could cause
actual future results to differ from targets, expectations or
estimates expressed in the forward-looking statements. Factors that
could cause actual results to differ materially include, but are
not limited to, economic, competitive and commercial real estate
conditions, unplanned compliance-related expenses, uninsured
property losses and tenant-related risks.
Non-GAAP Measures
Funds from operations ("FFO"), net operating income ("NOI") and
earnings before interest, taxes, depreciation and amortization
("EBITDA") are widely used supplemental measures of a Canadian real
estate investment trust's performance and are not defined under
Canadian generally accepted accounting principles ("GAAP").
Management uses these measures when comparing itself to industry
data or others in the marketplace. The MD&A describes FFO, NOI
and EBITDA and provides a reconciliation to net income as defined
under GAAP. FFO and EBITDA should not be considered alternatives to
net income or other measures that have been calculated in
accordance with GAAP and may not be comparable to measures
presented by other issuers.
Conference Call
Primaris invites you to participate in the conference call that
will be held on Friday, May 8, 2009 at 9am EST to discuss these
results. Senior management will speak to the results and provide a
brief corporate update. The telephone numbers for the conference
are: 416-340-2216 (within Toronto), and 1-866-226-1792 (within
North America).
Audio replays of the conference call will be available
immediately following the completion of the conference call, and
will remain active until Friday, May 15, 2009. The replay will be
accessible by dialing 416-695-5800 or 1-800-408-3053 and using the
pass code 7230077#.
The REIT is a TSX listed real estate investment trust (TSX:
PMZ.UN). The REIT owns 26 income-producing properties comprising
approximately 9.3 million square feet located in Canada. As of
April 30, 2009, the REIT had 62,376,548 units issued and
outstanding.
PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST
Interim Consolidated Balance Sheets
(In thousands of dollars)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
March 31, December 31,
2009 2008
-----------------------------------------------------------------------
(Unaudited)
Assets
Income-producing properties $ 1,428,848 $ 1,443,958
Leasing costs 38,427 38,200
Rents receivable 5,245 4,812
Other assets and receivables 28,004 24,438
Cash and cash equivalents 80,196 97,424
-----------------------------------------------------------------------
$ 1,580,720 $ 1,608,832
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Liabilities and Unitholders' Equity
Liabilities:
Mortgages payable $ 885,591 $ 890,258
Convertible debentures 93,106 95,438
Accounts payable and other liabilities 39,815 45,782
Distribution payable 6,341 6,334
Future income taxes 43,300 40,800
----------------------------------------------------------------------
1,068,153 1,078,612
Unitholders' equity 512,567 530,220
-----------------------------------------------------------------------
$ 1,580,720 $ 1,608,832
-----------------------------------------------------------------------
-----------------------------------------------------------------------
PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST
Interim Consolidated Statements of Income
(In thousands of dollars, except per unit amounts)
Three months ended March 31, 2009 and 2008
(Unaudited)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
2009 2008
-----------------------------------------------------------------------
Revenue:
Minimum rent $ 40,568 $ 39,571
Recoveries from tenants 25,311 23,789
Percentage rent 724 712
Parking 1,528 1,564
Interest and other 887 1,086
----------------------------------------------------------------------
69,018 66,722
Expenses:
Property operating 17,839 15,616
Property taxes 12,562 12,211
Depreciation 17,047 18,821
Amortization 1,503 1,125
Interest 14,625 14,182
Ground rent 300 353
General and administrative 2,118 1,908
----------------------------------------------------------------------
65,994 64,216
-----------------------------------------------------------------------
Income before income taxes 3,024 2,506
Future income taxes (2,500) (150)
-----------------------------------------------------------------------
Net income $ 524 $ 2,356
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Basic and diluted net income per unit $ 0.008 $ 0.038
-----------------------------------------------------------------------
-----------------------------------------------------------------------
PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST
Interim Consolidated Statements of Cash Flows
(In thousands of dollars)
Three months ended March 31, 2009 and 2008
(Unaudited)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
2009 2008
---------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net income $ 524 $ 2,356
Items not involving cash:
Depreciation of income-producing properties 16,172 18,005
Depreciation of recoverable improvements 827 816
Amortization of leasing commissions and tenant
improvements 1,503 1,125
Accretion of convertible debt 269 249
Future income taxes 2,500 150
---------------------------------------------------------------------------
21,795 22,701
Change in non-cash operating items:
Depreciation of fixtures and equipment 48 -
Gain on purchase of convertible debentures under
normal course issuer bid (467) -
Amortization of above- and below-market leases (621) (474)
Amortization of tenant inducements 36 27
Amortization of financing costs 403 322
Other (9,632) (6,797)
Leasing commissions (220) (199)
Tenant inducements (53) -
---------------------------------------------------------------------------
11,289 15,580
Financing:
Mortgage principal repayments (4,555) (4,085)
Financing costs - (35)
Distributions to Unitholders (19,009) (18,902)
Issuance of units, net of costs 717 642
Purchase of convertible debentures under normal
course issuer bid (2,288) -
---------------------------------------------------------------------------
(25,135) (22,380)
Investments:
Acquisition of income-producing properties - (7,024)
Additions to buildings and building improvements (1,821) (2,847)
Additions to tenant improvements (1,493) (2,020)
Additions to recoverable improvements (68) (1,378)
--------------------------------------------------------------------------
(3,382) (13,269)
---------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (17,228) (20,069)
Cash and cash equivalents, beginning of period 97,424 94,202
---------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 80,196 $ 74,133
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $ 14,598 $ 14,122
Supplemental disclosure of non-cash operating and
financing activities:
Value of units issued under asset management
agreement 57 757
Value of units issued under equity incentive plan 14 -
Value of units issued from conversion of convertible
debentures - 217
Financing costs transferred to equity upon
conversion of convertible debentures - 8
Financing accumulated amortization transferred to
equity upon conversion of convertible debentures - (3)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST
Reconciliation of Net Income to Funds from Operations
(In thousands of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, 2009 March 31, 2008
-------------------------------------------------------------------------
Net income $ 524 $ 2,356
Depreciation of income producing
properties 16,999 18,821
Amortization of leasing costs 1,503 1,125
Accretion of convertible debentures 269 249
Future income taxes 2,500 150
-------------- --------------
Funds from operations $ 21,795 $ 22,701
-------------- --------------
Funds from Operations, which is not a defined term within Canadian generally
accepted accounting principles, has been calculated by management in
accordance with REALPac's White Paper on Funds from Operations. The White
Paper defines Funds from Operations as net income adjusted for depreciation
and amortization of assets purchased, including the net impact of above and
below market leases, amortization of leasing costs and accretion of
convertible debentures. Funds from Operations may not be comparable to
similar measures used by other entities.
Calculation of Net Operating Income
(In thousands of dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, 2009 March 31, 2008
-------------------------------------------------------------------------
Revenue $69,018 $66,722
Less: Corporate interest and other income (825) (975)
Property operating expenses (17,839) (15,616)
Property tax expense (12,562) (12,211)
Ground rent (300) (353)
--------------- ---------------
Net operating income $ 37,492 $ 37,567
--------------- ---------------
Contacts: Primaris Retail REIT R. Michael Latimer Chief
Executive Officer (416) 865-5353 Primaris Retail REIT Louis M.
Forbes Senior Vice President, Chief Financial Officer (416)
865-5360 www.primarisreit.com
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