Primaris Retail REIT (TSX: PMZ.UN) is reporting stable operating
results and continued strong liquidity.
President and CEO, John Morrison, commented "Primaris' financial
position remains strong in these uncertain times. The decrease in
occupancy rate during the quarter was expected, as a result of the
redevelopment work at Lambton Mall in Sarnia. We have a cautious
outlook for future operating results because we continue to see
less depth in tenant demand for vacant space. On the other hand,
credit markets appear to have a better tone than early in the
year."
Highlights
Liquidity
- Primaris continues to remain extremely liquid. It has $58
million cash and a $120 million unutilized credit facility. There
is one loan maturity in 2009 of $3.7 million and there are no loan
maturities in 2010. There are no commitments to fund mezzanine
loans.
Funds From Operations
- Funds from operations for the second quarter ended June 30,
2009 were $21.1 million or $0.337 per unit diluted, down 4.0% on a
per unit basis from the $22.0 million, or $0.351 per unit diluted
reported for the second quarter of 2008.
Net Operating Income
- Net operating income for the second quarter ended June 30,
2009, was $37.7 million, up from the $37.2 million recorded in the
second quarter of 2008.
Same Property - Net Operating Income
- Net operating income for the second quarter ended June 30,
2009, on a same property basis, increased 1.1% 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 3.4%.
Operations
- The REIT renewed or leased 332,729 square feet of space during
the second quarter, which includes the renewal of one anchor store.
The weighted average new rent in these leases, on a cash basis,
represented a 3.3% increase over the previous rent paid (3.5%
excluding the anchor store).
- The portfolio occupancy rate decreased during the second
quarter and was 96.4% at June 30, 2009, compared to 97.3% at March
31, 2009, and down from 97.7% at June 30, 2008.
- Same-tenant sales, for the 13 reporting properties owned
during all of the 24 months ended May 31, 2009, decreased 1.9% to
$466 per square foot as compared to the previous 12 months.
- The second quarter results included seasonal revenues of $2.5
million as compared to $2.5 million recorded in the second quarter
of 2008.
- During the second quarter the REIT incurred and expensed $0.8
million of transition costs, included in general and administrative
expenses.
Liquidity
Primaris continues to remain extremely liquid. It has $58
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 June 30, 2009
was $21.1 million or $0.339 per unit basic ($0.337 diluted). This
compares to funds from operations of $22.0 million or $0.354 per
unit basic ($0.351 diluted) earned during the three months ended
June 30, 2008.
Net income for the three months ended June 30, 2009 was $0.7
million or $0.011 per unit (basic and diluted). This compares to
net income of $1.0 million or $0.017 per unit (basic and diluted)
earned during the three months ended June 30, 2008.
Funds from Operations and Net Income for the three months ended
June 30, 2009 include a gain of $260 resulting from the repurchase
of $3,427 (cost $2,839) of the 5.85% convertible debentures.
The REIT made one small acquisition in the second quarter of
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 June 30,
2009. The total purchase price for the acquisition completed to
date in 2009 was $7.4 million and those acquisitions completed in
2008 was $14.6 million.
General and administrative expenses in the second quarter
include $0.8 million of transition costs, compared to virtually no
such costs incurred in the comparative quarter. This increase is
partially offset by a reduction in consulting and other
professional fees.
The distribution payout ratio for the second quarter of 2009,
expressed on a per unit basis as distributions paid divided by
diluted funds from operations was 90.3% as compared to an 86.8%
payout ratio for the second quarter of 2008. The payout ratios are
sensitive to both seasonal operating results and financial
leverage.
At June 30, 2009, the REIT's total enterprise value was
approximately $1.7 billion (based on the market closing price of
Primaris' units on June 30, 2009, plus total debt outstanding). At
June 30, 2009 the REIT had $975.0 million of outstanding debt
equating to a debt to total enterprise value ratio of 56.9% . On a
net of cash basis, this ratio would be 53.5% . The REIT's debt
consisted of $884.6 million of fixed-rate senior debt with a
weighted average interest rate of 5.7% and a weighted average term
to maturity of 7.2 years, $5.9 million of 6.75% fixed-rate
convertible debentures and $84.5 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 June 30, 2009, the REIT had an interest
coverage ratio of 2.4 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/
June 30, 2009 June 30, 2008 (Unfavourable)
Operating revenue $ 66,131 $ 63,991 $ 2,140
Operating expenses 28,617 26,882 (1,735)
-----------------------------------------------------
Net operating income $ 37,514 $ 37,109 $ 405
-----------------------------------------------------
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, increased
$405, or 1.1%, over the comparative three-month period. Net
operating income, on a same-property basis, would have increased
3.4% 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 $466 for the 12 months ended May 31, 2009. Total
tenant volume has decreased by 1.1% when comparing sales for the
same properties.
Same-Tenant
Sales per Square Foot Variance
2009 2008 $ %
-----------------------------------------
Aberdeen Mall $ 408 $ 437 $ (29) (6.6%)
Cornwall Centre 585 560 25 4.5%
Dufferin Mall 531 548 (17) (3.1%)
Eglinton Square 385 390 (5) (1.3%)
Grant Park Shopping Centre 491 489 2 0.4%
Lambton Mall 351 370 (19) (5.1%)
Midtown Plaza 567 564 3 0.5%
Northland Village 449 446 3 0.7%
Orchard Park Shopping Centre 518 551 (33) (6.0%)
Park Place Shopping Centre 514 531 (17) (3.2%)
Place Fleur de Lys 305 309 (4) (1.3%)
Place du Royaume 385 393 (8) (2.0%)
Stone Road Mall 550 561 (11) (2.0%)
-----------------------------------------
$ 466 $ 475 $ (9) (1.9%)
-----------------------------------------
All-Tenant
Total Sales Volume Variance
2009 2008 $ %
-----------------------------------------------
Aberdeen Mall $ 50,741 $ 53,059 $ (2,318) (4.4%)
Cornwall Centre 78,321 74,655 3,666 4.9%
Dufferin Mall 88,040 89,660 (1,620) (1.8%)
Eglinton Square 31,365 39,437 (8,072) (20.5%)
Grant Park Shopping Centre 29,596 29,760 (164) (0.6%)
Lambton Mall 50,803 53,791 (2,988) (5.6%)
Midtown Plaza 135,396 130,385 5,011 3.8%
Northland Village 48,199 46,892 1,307 2.8%
Orchard Park Shopping Centre 145,008 150,949 (5,941) (3.9%)
Park Place Shopping Centre 80,019 81,749 (1,730) (2.1%)
Place Fleur de Lys 73,353 73,213 140 0.2%
Place du Royaume 105,008 102,922 2,086 2.0%
Stone Road Mall 116,435 117,368 (933) (0.8%)
-----------------------------------------------
$ 1,034,293 $ 1,045,848 $ (11,555) (1.1%)
-----------------------------------------------
The REIT's sales decreased 1.9% 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
May 31, 2009 decreased 0.9%. The REIT's sales productivity of $466
is lower than the ICSC average of $544, 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 decrease was 1.3% for same period, which is more than the ICSC
decrease of 0.9%.
Leasing activity
Primaris Retail REIT's property portfolio remains well
leased.
The portfolio occupancy rate decreased during the second quarter
and was 96.4% at June 30, 2009, down from 97.3% at March 31, 2009,
and down from 97.7% at June 30, 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 332,729 square feet of space during the second
quarter of 2009. This represented 78 leases of generally smaller
stores and the renewal of one anchor store of approximately 95,000
square feet. Approximately 79% of the leased space during the
current quarter of 2009 resulted from the renewal of existing
tenants or 71% if the anchor store is excluded. The weighted
average new rent for renewals of existing tenants in the current
quarter, on a cash basis, represented a 3.3% increase over the
previous cash rent for all transactions (3.5% excluding the anchor
store).
Development Activity
At Lambton Mall in Sarnia, Ontario, Canadian Tire leased a
139,000 square foot store, previously occupied by Wal-Mart.
Canadian Tire began work on the premises in October 2008, and
opened on April 15, 2009. The former 106,331 square foot Canadian
Tire store remained in operation until the existing store opened.
The REIT's budget for this phase of the project was approximately
$3,500, and Canadian Tire spent additional funds in completing
their store and executing their move. The scope of work included a
small expansion as well as constructing a connection between the
existing store and the interior of the mall, something that did not
exist with the previous tenant. Now that the former Canadian Tire
store has been vacated, a second phase of the project will be
planned, with Lambton Mall modifying and re-leasing 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.
Comparison to Prior Period Financial Results
Variance to
Comparative
Three Months Three Months Period
Ended Ended Favourable/
June 30, 2009 June 30, 2008 (Unfavourable)
Revenue
Minimum rent $ 40,961 $ 39,379 $ 1,582
Recoveries from tenants 23,229 22,408 821
Percentage rent 560 649 (89)
Parking 1,549 1,555 (6)
Interest and other income 454 727 (273)
------------- ------------- --------------
$ 66,753 $ 64,718 $ 2,035
Expenses
Operating 28,380 26,673 (1,707)
Interest 14,521 14,032 (489)
Depreciation and
amortization 19,436 19,675 239
Ground rent 324 264 (60)
------------- ------------- --------------
$ 62,661 $ 60,644 $ (2,017)
------------- ------------- --------------
Income from operations 4,092 4,074 18
General and administrative (2,601) (2,017) (584)
Gain on sale of land - 298 (298)
Future income taxes (800) (1,320) 520
------------- ------------- --------------
Net income $ 691 $ 1,035 $ (344)
Depreciation of
income-producing
properties 17,807 18,297 (490)
Amortization of leasing costs 1,582 1,378 204
Accretion of convertible
debentures 269 247 22
Gain on sale of land - (298) 298
Future income taxes 800 1,320 (520)
------------- ------------- --------------
Funds from operations $ 21,149 $ 21,979 $ (830)
------------- ------------- --------------
Funds from operations
per unit - basic $ 0.339 $ 0.354 $ (0.015)
Funds from operations
per unit - diluted $ 0.337 $ 0.351 $ (0.014)
Funds from operations
- payout ratio 90.3% 86.8% 3.5%
Distributions per unit $ 0.305 $ 0.305 $ -
Weighted average units
outstanding - basic 62,384,749 62,103,730 281,019
Weighted average units
outstanding - diluted 67,119,386 67,064,978 54,408
Units outstanding,
end of period 62,413,012 62,179,175 233,837
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 June 30, 2009 was
$0.8 million ($0.014 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 six-months ended June 30, 2009 the REIT incurred $3,830
of transition costs, of which $1,202 was expensed and $2,628 was
capitalized.
Leadership Update
As previously announced, Mr. John R. Morrison has been appointed
President and Chief Executive Officer of Primaris Retail REIT. Mr.
Morrison has been actively involved in Primaris since its launch in
2003, representing continuity of strategy and management for the
REIT, its portfolio and its team.
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
and Management's Discussion and Analysis for the three-month and
six-month periods ended June 30, 2009 and 2008 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, August 7, 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, August 14, 2009. The replay will
be accessible by dialing 416-695-5800 or 1-800-408-3053 and using
the pass code 8333846#.
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 July
31, 2009, the REIT had 62,431,234 units issued and outstanding.
PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST
Interim Consolidated Balance Sheets
(In thousands of dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
June 30, December 31,
2009 2008
---------------------------------------------------------------------------
(Unaudited)
Assets
Income-producing properties $ 1,424,042 $ 1,443,958
Leasing costs 41,350 38,200
Rents receivable 5,827 4,812
Other assets and receivables 38,830 24,438
Cash and cash equivalents 58,669 97,424
---------------------------------------------------------------------------
$ 1,568,718 $ 1,608,832
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Liabilities and Unitholders' Equity
Liabilities:
Mortgages payable $ 884,608 $ 890,258
Convertible debentures 90,427 95,438
Accounts payable and other liabilities 48,252 45,782
Distribution payable 6,365 6,334
Future income taxes 44,100 40,800
-------------------------------------------------------------------------
1,073,752 1,078,612
Unitholders' equity 494,966 530,220
---------------------------------------------------------------------------
$ 1,568,718 $ 1,608,832
---------------------------------------------------------------------------
---------------------------------------------------------------------------
PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST
Interim Consolidated Statements of Income
(In thousands of dollars, except per unit amounts)
(Unaudited)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2009 2008 2009 2008
---------------------------------------------------------------------------
Revenue:
Minimum rent $ 40,961 $ 39,379 $ 81,529 $ 78,950
Recoveries from tenants 23,229 22,408 48,540 46,197
Percentage rent 560 649 1,284 1,361
Parking 1,549 1,555 3,077 3,119
Interest and other 454 727 1,341 1,813
-------------------------------------------------------------------------
66,753 64,718 135,771 131,440
Expenses:
Property operating 15,758 14,612 33,597 30,228
Property taxes 12,622 12,061 25,184 24,272
Depreciation 17,854 18,297 34,901 37,118
Amortization 1,582 1,378 3,085 2,503
Interest 14,521 14,032 29,146 28,214
Ground rent 324 264 624 617
General and administrative 2,601 2,017 4,719 3,925
-------------------------------------------------------------------------
65,262 62,661 131,256 126,877
---------------------------------------------------------------------------
Income before gain on sale
of land and income taxes 1,491 2,057 4,515 4,563
Gain on sale of land - 298 - 298
---------------------------------------------------------------------------
Income before income taxes 1,491 2,355 4,515 4,861
Future income taxes 800 1,320 3,300 1,470
---------------------------------------------------------------------------
Net income $ 691 $ 1,035 $ 1,215 $ 3,391
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Basic and diluted net
income per unit $ 0.011 $ 0.017 $ 0.019 $ 0.055
---------------------------------------------------------------------------
---------------------------------------------------------------------------
PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST
Interim Consolidated Statements of Cash Flows
(In thousands of dollars)
(Unaudited)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2009 2008 2009 2008
---------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net income $ 691 $ 1,035 $ 1,215 $ 3,391
Items not involving cash:
Depreciation of income
-producing properties 16,993 17,486 33,165 35,491
Amortization of recoverable
improvements 814 811 1,641 1,627
Amortization of leasing
commissions and tenant
improvements 1,582 1,378 3,085 2,503
Accretion of convertible
debentures 269 247 538 496
Future income taxes 800 1,320 3,300 1,470
Gain on sale of land - (298) - (298)
-------------------------------------------------------------------------
21,149 21,979 42,944 44,680
Change in non-cash operating
items:
Gain on purchase of convertible
debentures under normal
course issuer bid (260) - (727) -
Depreciation of fixtures
and equipment 47 - 95 -
Amortization of above- and
below-market leases (442) (417) (1,063) (891)
Amortization of tenant
inducements 37 28 73 55
Amortization of financing costs 362 356 765 678
Other (2,900) (5,203) (12,532) (12,000)
Leasing commissions (292) (395) (512) (594)
Tenant inducements - (282) (53) (282)
-------------------------------------------------------------------------
17,701 16,066 28,990 31,646
Financing:
Mortgage principal repayments (4,621) (4,283) (9,176) (8,368)
Financing costs (14) (3) (14) (38)
Distributions to Unitholders (19,031) (18,938) (38,040) (37,840)
Issuance of units, net of costs 698 731 1,415 1,373
Purchase of convertible
debentures under normal
course issuer bid (2,839) - (5,127) -
-------------------------------------------------------------------------
(25,807) (22,493) (50,942) (44,873)
Investments:
Acquisition of income-producing
properties (3,594) (50) (3,594) (7,074)
Additions to buildings
and building improvements (2,351) (2,342) (4,172) (5,189)
Additions to tenant improvements (4,250) (4,447) (5,743) (6,467)
Additions to recoverable
improvements (3,226) (1,748) (3,294) (3,126)
Proceeds from sale of land - 425 - 425
-------------------------------------------------------------------------
(13,421) (8,162) (16,803) (21,431)
---------------------------------------------------------------------------
Decrease in cash and cash
equivalents (21,527) (14,589) (38,755) (34,658)
Cash and cash equivalents,
beginning of period 80,196 74,133 97,424 94,202
---------------------------------------------------------------------------
Cash and cash equivalents, end
of period $ 58,669 $ 59,544 $ 58,669 $ 59,544
---------------------------------------------------------------------------
---------------------------------------------------------------------------
PRIMARIS RETAIL REAL ESTATE
INVESTMENT TRUST
Reconciliation of Net Income to Funds from Operations
(In thousands of dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Three Months Three Months
Ended Ended
June 30, 2009 June 30, 2008
---------------------------------------------------------------------------
Net income $ 691 $ 1,035
Depreciation of income producing properties 17,807 18,297
Amortization of leasing costs 1,582 1,378
Accretion of convertible debentures 269 247
Gain on sale of land - (298)
--- -----
Future income taxes 800 1,320
-------- ---------
Funds from operations $ 21,149 $ 21,979
-------- ---------
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
June 30, 2009 June 30, 2008
---------------------------------------------------------------------------
Revenue $66,753 $64,718
Less: Corporate interest and other income (356) (574)
Property operating expenses (15,758) (14,612)
Property tax expense (12,622) (12,061)
Ground rent (324) (264)
------------- -------------
Net operating income $ 37,693 $ 37,207
------------- -------------
Contacts: Primaris Retail REIT John R. Morrison President &
Chief Executive Officer (416) 642-7860 Primaris Retail REIT Louis
M. Forbes Senior Vice President, Chief Financial Officer (416)
642-7810
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