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Press release from CNW Group

Scott's REIT continued to grow in 2010, reports strong fiscal results

Wednesday, March 09, 2011

Scott's REIT continued to grow in 2010, reports strong fiscal results21:10 EST Wednesday, March 09, 2011New acquisitions drive growth in rental revenueCompletes $33 million financingTORONTO, March 9 /CNW/ - Scott's Real Estate Investment Trust (TSX: SRQ.UN) ("Scott's REIT" or the "REIT"), Canada's leading owner of small box retail properties, today reported its financial results for the fourth quarter and year ended December 31, 2010 and its monthly cash distribution for March 2011.Fiscal 2010 HighlightsYear ended December 31, 2010 versus year ended December 31, 2009Increased revenue by 15.5 per cent to $22.5 millionReached goal of doubling its asset base, to $260 millionCompleting the milestone $30-million sale leaseback transaction Shoppers Drug MartConfirmed its tax-exempt status as a REIT under the newly adopted income trust legislationAcquired 24,500 square foot property in Okotoks, Alberta*See section entitled Non-GAAP measures.In 2010 Scott's REIT increased its base of cash generating assets by 13.9 per cent and paid out more than $7.6 million in distributions to unitholders."I'm very proud of the REIT's achievements in 2010 - we completed a transformational acquisition with Shoppers Drug Mart Corporation, achieved our goal of doubling the REIT's asset base and generated record net operating income," said John Bitove, CEO of Scott's REIT.On March 8, the REIT also announced that it had secured $33 million in financing from Firm Capital Corporation and an extension on its original $64-million mortgage to February 1, 2012 from July 1, 2011. The majority of the proceeds from the new financing were used to pay down the original mortgage. The remaining balance is now $32 million."As we move into 2011 with our new financing complete, our focus remains clear; continueto demonstrateshareholder value by further building the strength of our assets as we realize our vision of being Canada's leading small-box retail REIT." Said Evelyn Sutherland the CFO of Scott's REIT. "Since our IPO we have diversified our tenant base to where we are much more than a restaurant landlord, in fact almost 50 per cent of our tenants are in businesses other than quick service restaurants, in strong branded concepts from pharmacies to financial institutions."Financial PerformanceScott's REIT reported revenue of $5.7 million for the three-month period ended December 31, 2010, an increase of $1.2 million, or 26.2 per cent, over the fourth quarter of 2009. The primary reasons for the increase were the acquisition of 12 properties leased to Shoppers Drug Mart, which closed in March 2010; the property acquisition in Okotoks, Alberta, which closed in May 2010; and fewer vacant units as compared with the fourth quarter in 2009. For the 2010 fiscal year, Scott's REIT reported revenue of $22.5 million; an increase of $3 million over 2009.The REIT's net operating income was $4.8 million for the fourth quarter of 2010 versus $3.7 million for the same quarter in 2009, an increase of $1.1 million, or 30.2 per cent. Net operating income increased by $2.6 million, or 15.7 per cent, to $18.8 million in fiscal 2010 from $16.2 million in fiscal 2009. Operating expenses for the fourth quarter and fiscal 2010 were $0.9 and $3.7 million, respectively compared to $0.8 million and $3.2 million for the fourth quarter and fiscal 2009. This increase was a result of the two acquisitions completed during the year. All expenses related to these acquisitions are expected to be collected from the tenants.Distributable income for the fourth quarter and fiscal 2010 was $1.9 million and $7.4 million, respectively compared to $1.2 million and $6.7 million for the fourth quarter and fiscal 2009. The increase in the Distributable Income from last year's fourth quarter has been caused by the two acquisitions that occurred during the first and second quarters of 2010.Recent FinancingOn March 7, 2011, the REIT entered into a first and second mortgage with Firm Capital Corporation for $33,000 in proceeds, secured by 70 properties located in Ontario which are tenanted by primarily by Priszm Income Fund. These properties had been secured on a first mortgage for the $64,000 loan, maturing on July 1, 2011. The majority of the proceeds were used to pay down the $64,000 loan which has resulted in a remaining balance owing of $32,000. The new loan bears interest at the greater of 6.25% or prime plus 2% in the first 12 months and increasing each year thereafter. The loan is open for payment at any time during the 2.5 year term. Financing fees paid were 1% of the loan balance. The REIT also received a further extension for its remaining loan balance of $32,000 until February 1, 2012.Monthly DistributionScott's REIT announced a cash distribution for the month of March 2011 of $0.0708 per unit payable on April 15, 2011 to Unitholders of record on March 31, 2011.Scott's REIT also announced today a monthly cash distribution of $0.0708 per unit to Unitholders of record of Class B Limited Partnership Units in Scott's Real Estate LP on March 31, 2011.Non-GAAP MeasuresDistributable IncomeDistributable income is not a measure recognized under GAAP and does not have a standardized meaning prescribed by GAAP. Distributable income is presented in this press release because management of Scott's REIT believes this non-GAAP measure is a relevant measure of the ability of Scott's REIT to earn and distribute cash returns to Unitholders. Distributable income as computed by Scott's REIT may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable to distributable income as reported by such organizations. Distributable income in this press release represents income before non-controlling interest of Scott's REIT on a consolidated basis as determined in accordance with GAAP, plus depreciation and amortization expense and the guarantee fee, less the straight-line revenue accrual. For more information, please refer to the REIT's MD&A, which is included in its annual filings at Operating Income ("NOI")NOI is not a measure recognized under GAAP and does not have a standardized meaning prescribed by GAAP. NOI is presented in this MD&A because the management of Scott's REIT believes that this non-GAAP measure is a relevant measure of the ability of Scott's REIT to earn and distribute cash to Unitholders. NOI as computed by Scott's REIT may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable.  About Scott's Real Estate Investment Trust Scott's REIT (TSX: SRQ.UN) is Canada's premier small-box retail property owner with 220 properties in seven provinces across Canada. Scott's REIT's properties are well located and geographically diverse across Canada with the majority of all properties containing long-term quadruple net leases. The REIT has approximately 75.6 per cent interest in Scott's Real Estate LP. To find out more about Scott's Real Estate Investment Trust (TSX: SRQ.UN), visit our website at Statements This document contains certain information that may constitute forward-looking information within the meaning of securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts. Forward-looking information may relate to management's future outlook and anticipated events or results, and may include statements or information regarding future growth opportunities and potential and expected cash distributions or cash distribution levels. In particular, information regarding the REIT's monthly cash distributions and information relating to the impact of the REIT's recent acquisitions on annual revenues and interest expense is forward-looking information. Forward-looking information is based on certain factors and assumptions regarding, among other things, occupancy rates, property expense and capital expenditures. While the REIT considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.Forward looking-information is subject to certain factors, including risks and uncertainties, which could cause actual results to differ materially from what is currently expected. Such factors include risks relating to the REIT's reliance on Priszm LP, the REIT's largest tenant, risks associated with investment in real property, competition, reliance on key personnel, financing and refinancing risks, environmental matters, tenant risks, risks related to current economic conditions and other risk factors more particularly described in the REIT's Annual Information Form for the year ended December 31, 2009.You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. Other than as required by applicable Canadian securities law, the REIT does not undertake to update this information at any particular time. Additional information identifying risks and uncertainties is contained in Scott's REIT filings with the Canadian securities regulators, available at following selected financial information, with the exception of the Reconciliation of Distributable Income, has been derived from and should be read in conjunction with the historical audited financial statements of Scott's REIT for the quarters ended December 31, 2010 and 2009, and the notes thereto included in Scott's REIT's annual filings at OF DISTRIBUTABLE INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES (UNAUDITED)(in thousands of dollars except per Unit amounts)  The following table outlines the reconciliation of distributable income to cash provided by operating activities:Reconciliation of Distributable Income to Cash Provided by Operating Activities  Three months ended December 31, Twelve months ended December 31, 2010200920102009Cash provided by (used in) operating activitiesNet change in non-cash working capital$981915$1,074141$8,082(699)$6,765(58)Distributable IncomeDistributions declared1,8961,9641,2151,5417,3837,7066,7076,163Distributable Income per UnitDistributions per Unit0. Income Payout Ratio 103.5%126.8%102.9%91.9%Note (1) Distributable Income payout ratio is calculated by taking Distributable Income divided by the weighted average number of Units outstanding assuming full conversion of the Class B LP Units during the relevant period end divided by the distributions per unit paid during the period.  CONSOLIDATED BALANCE SHEETS(in thousands of dollars)As of December 31,               Assets          2010$   2009$                Income-producing properties          202,703   167,525                Intangible assets          9,533   7,743                Cash and cash equivalents          4,846   16,004                Accounts receivable          62   247                Prepaid expenses and other assets          1,931   795                Due from related companies           100   101                Straight-line rent receivable          2,733   2,446                           221,908   194,861                Liabilities and Unitholders' Equity                               Mortgages payableand term debt          130,757   111,600                Convertible debentures          37,754   37,074                Accounts payable and accrued liabilities          1,317   1,284                Due to related companies          ‒   117                Distributions payable to unitholders          654   513                Other liabilities          3,879   151                           174,361   150,739                Class B Exchangeable Units          11,649   14,334                Unitholders' Equity               Contributed surplusClass A Units of Scott's REITConvertible debenturesCumulative lossesCumulative distributions declared on Class A Units2,58858,8301,265(2,437)(24,348)2,58844,6761,265(183)(18,558)                           35,898   29,788                           221,908   194,861                                CONSOLIDATED STATEMENTS OF OPERATIONS AND CUMULATIVE LOSSES(in thousands of dollars, except  Unit amounts)For the years ended December 31,                2010$   2009$           Revenue          Rental revenueAmortization of (above) below market rentalsStraight-line rent  22,08411828719,270(111)313                 22,489   19,472           Expenses          Depreciation and amortizationOperating expensesInterest expense, netGeneral and administrative  9,4803,68810,6041,7408,1743,2278,3751,815                 25,512   21,591           Loss before non-controlling interest     (3,023)   (2,119)           Non-controlling interest of Class B Exchangeable Units     (769)   (659)           Net loss for the year     (2,254)   (1,460)           Cumulative earnings - Beginning of year     (183)   1,277           Cumulative losses - End of year     (2,437)   (183)           Basic and diluted loss per Unit     (0.338)         (0.292)           Class A Units outstanding     6,982,036   4,993,964           Class B Exchangeable Units outstanding     2,254,909   2,254,909                      CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(in thousands of dollars)For the years ended December 31,                                                           2010$      2009$                                  Net loss for the year                         (2,254)      (1,460)                                  Other comprehensive income                         -      -                                  Comprehensive loss                         (2,254)      (1,460)                                                                    CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands of dollars)For the years ended December 31,     2010$   2009$           Cash provided by (used in)                     Operating activities          Net loss for the year     (2,254)   (1,460)Add (deduct)           Non-controlling interest of Class B Exchangeable unitsDepreciation of income-producing propertiesAmortization of intangible assets and other liabilitiesAmortization of deferred financing chargesAmortization of tenant inducements and leasing fees/commissionsAcquisitions-in-progress written offInterest accretionStraight-line rent accrualStock-based compensation     (769)8,2961,06694450-237(287)100   (659)6,9161,36952423206101(313)-      7,383   6,707Change in other non-cash operating items           Accounts receivablePrepaid expenses and other assetsAccounts payable and accrued liabilitiesDue to (from) related companies     185412218(116)   327(73)(198)2                 8,082   6,765           Investing activities          Acquisition of income-producing propertiesConstruction-in-progressAcquisitions-in-progressAdditions to income-producing propertiesComputer softwareRestricted cashTenant inducements and other leasing commissions     (42,005)(478)26(250)(28)(115)(246)   -(20)(179)(95)(52)-(36)      (43,148)   (346)           Financing activities          Class A units issuedBuyback of Class A unitsNet proceeds from convertible debenturesProceeds from bridge financing term debtMortgage financing costsDistributions paidPrincipal repayments on mortgages payableDemand loanIssuance costs     15,002-920,000(1,582)(7,565)(1,008)-(948)   -(300)18,770-(14)(6,168)(869)(1,900)-                 23,908   9,519           Increase (decrease) in cash and cash equivalents during the year     (11,158)   15,902           Cash and cash equivalents - Beginning of year     16,004   102           Cash and cash equivalents - End of year     4,846   16,004           Cash and cash equivalents consist of          CashCash equivalents     1,9692,877   29215,712                 4,846   16,004           Supplemental Disclosure          Interest paidAccrued cost relating to acquisition of income-producing propertiesAccrued capital expendituresAccruals of construction-in-progress     9,4123013   7,786219--For further information: For investor information,   please contact:         For media information, please contact:          Trish Moran  416-624-5133         Trevor Boudreau 604-564-8209