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Press release from Marketwire

Primaris Retail REIT Announces Strong First Quarter

Thursday, May 12, 2011

Primaris Retail REIT Announces Strong First Quarter18:33 EDT Thursday, May 12, 2011TORONTO, ONTARIO--(Marketwire - May 12, 2011) - Primaris Retail REIT (TSX:PMZ.UN) is pleased to report positive operating results for the first quarter of 2011. These results have been prepared in accordance with International Financial Reporting Standards ("IFRS"). Prior year's results have been restated to conform to this change.President and CEO, John Morrison, commented "The financial results for the first quarter of the year are very positive. We have reported growth in same property net operating income and FFO per unit. Our leasing team continues to achieve rent growth on new and renewal activity and tenant demand has improved from a year ago. We completed the refinancing of Dufferin Mall generating a net $73 million dollars to treasury after repaying the existing debt. The new loan bears interest at a fixed rate of 5.01% and has a ten year term. In addition we continue to make progress on redevelopment projects."Highlights Funds from Operations Funds from operations for the first quarter ended March 31, 2011 were $25.0 million, up $2.7 million from the $22.3 million reported for the first quarter of 2010 as restated. On a per unit diluted basis, funds from operations for the first quarter of 2011 were $0.352, up $0.006 or 1.7% from the $0.346 reported for the first quarter of 2010. The principal reasons for the improved financial results are 1) contribution from the property acquisition made in 2010, and 2) improved performance of existing properties. These improvements were sufficient to more than offset both increased finance costs from new acquisition debt arranged in mid 2010, and the dilutive impact of an equity issue completed in June 2010. Net Operating Income Net operating income for the first quarter ended March 31, 2011 was $46.3 million, an increase of $3.3 million from the $43.0 million recorded in the first quarter of 2010. Same Properties – Net Operating Income Net operating income for the first quarter ended March 31, 2011, for the properties held continually for the past twenty-four months, increased 1.2% or $0.5 million from the comparative three month period. Net Income Net income for the first quarter ended March 31, 2011 was $5.0 million, a decrease of $1.8 million from the $6.8 million recorded in the first quarter of 2010. The decrease is principally due to fair value adjustments on convertible debentures and unit-based compensation. Operations Primaris renewed or leased 175,132 square feet of space during the first quarter. The weighted average new rent in these leases, on a cash basis, represented a 7.2% increase over the previous rent paid. The portfolio occupancy declined during the first quarter. It was 96.3% at March 31, 2011, compared to 97.1% at December 31, 2010, and 96.7% at March 31, 2010. The decline is primarily attributable to seasonality of revenues and redevelopment activity. Same tenant sales per square foot, for the 15 properties owned during all of the 24 months ended February 28, 2011 was $451 as compared to $452 for the previous 12 months. Liquidity At March 31, 2011, Primaris had $54.1 million of cash on hand and no amount drawn on its $130.0 million credit facility. There are no commitments to fund mezzanine loans. A mortgage of $37 million matured in March of 2011. Primaris entered into a new loan agreement for $110,000 at a fixed interest rate of 5.01% and a term of ten years. Financial ResultsFunds from operations for the three months ended March 31, 2011 were $25.0 million, up $2.7 million from the $22.3 million reported for the three months ended March 31, 2010. On a per unit diluted basis, funds from operations for the first quarter of 2011 were $0.352, up $0.006 or 1.7% from the $0.346 reported for the first quarter of 2010. The principal reasons for the improved financial results are 1) contribution from the property acquisition made in 2010, and 2) improved performance of existing properties. These improvements were sufficient to more than offset both increased finance costs from new acquisition debt arranged in mid 2010, and the dilutive impact of an equity issue completed in June 2010.Net income for the three months ended March 31, 2011 was $5.0 million. This compares to net income of $6.8 million earned during the three months ended March 31, 2010. The decrease is principally due to fair value adjustments on convertible debentures and unit-based compensation.The distribution payout ratio for the first quarter of 2011, calculated as distributions paid per unit divided by diluted funds from operations per diluted unit, was 86.5% as compared to an 88.0% payout ratio for the first quarter of 2010 and 72.7% for the previous quarter December 31, 2010. The payout ratios are sensitive to both seasonal operating results and financial leverage.At March 31, 2011, Primaris' total enterprise value was approximately $2.9 billion (based on the market closing price of Primaris' units on March 31, 2011 plus total debt outstanding). At March 31, 2011 Primaris had $1,409.9 million of outstanding debt, equating to a debt to total enterprise value ratio of 48.9%. Primaris' debt consisted of $1,236.5 million of fixed-rate senior debt with a weighted average interest rate of 5.6% and a weighted average term to maturity of 6.3 years, $3.5 million of 6.75% fixed-rate convertible debentures, $93.5 million of 5.85% fixed-rate convertible debentures, and $76.4 million of 6.30% fixed-rate convertible debentures. During the three months ended March 31, 2011, Primaris had an interest coverage ratio of 2.3 times as expressed by EBITDA divided by interest expense on mortgages, convertible debentures and bank indebtedness. Primaris defines EBITDA as net income increased by depreciation, finance costs, income tax expense and amortization of leasing costs included in revenue. EBITDA is a non-GAAP measure and may not be comparable to similar measures used by other Trusts.Operating ResultsNet Operating Income - Same PropertiesIn thousands of dollarsUnauditedThree MonthsEndedUnauditedThree MonthsEndedVariance to ComparativePeriodFavourable/March 31, 2011March 31, 2010(Unfavourable)Operating revenue$78,755$77,268$1,487Operating expenses35,28734,309(978)Net operating income$43,468$42,959$509The same-property comparison consists of the 28 properties that were owned throughout both the current and comparative three month periods. Net operating income, on a same-property basis, increased $0.5 million, or 1.2%, in relation to the comparable three month period.LiquidityAt the end of the quarter, Primaris had $54.1 million of cash on hand and no amount drawn on its $130.0 million credit facility. Primaris had a mortgage payable mature on March 30, 2011, secured by Dufferin Mall. The loan balance due on maturity was $37.0 million dollars. Primaris received a new $110.0 million dollar mortgage. Proceeds of the new mortgage were used to repay the maturing loan, reduce the amount of bank indebtedness and for general corporate purposes. The new loan has a ten year term and a fixed interest rate of 5.01%.Tenant SalesFor the 15 reporting properties owned throughout both the twelve month periods ended February 28, 2011 and 2010, sales per square foot, on a same-tenant basis, have decreased slightly to $451 from $452 per square foot. For the same 15 properties the total tenant sales volume has increased 0.1%.Same TenantSales per Square FootAll TenantTotal Sales VolumeVarianceVariance20112010$%20112010$%Dufferin Mall537524132.4%90,65185,9694,6825.4%Eglinton Square341322195.9%27,68727,3932941.1%Heritage Place298300(2)-0.6%25,78125,5422390.9%Lambton Mall372374(2)-0.6%47,76048,204(444)-0.9%Place d'Orleans45445130.6%108,350107,5947560.7%Place Du Royaume40239482.1%113,581108,1125,4695.1%Place Fleur De Lys323325(2)-0.5%71,61974,021(2,402)-3.2%Stone Road Mall511513(2)-0.4%112,870112,893(23)0.0%Aberdeen Mall393395(2)-0.4%48,09747,6304671.0%Cornwall Centre532519132.5%81,74377,6014,1425.3%Grant Park450464(14)-3.0%26,60427,674(1,070)-3.9%Midtown Plaza555565(10)-1.7%131,712134,215(2,503)-1.9%Northland Village452460(8)-1.8%44,62645,827(1,201)-2.6%Orchard Park466477(11)-2.4%130,171138,186(8,015)-5.8%Park Place Mall503513(10)-2.0%76,54175,4801,0611.4%451452(1)-0.2%1,137,7931,136,3411,4520.1%The tenants' sales decreased 0.2% 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, 2011, increased 6.4%. Primaris' sales productivity of $451 is lower than the ICSC average of $587, largely because the ICSC includes sales from super regional malls that have the highest sales per square foot in the country.Leasing ActivityPrimaris Retail REIT's property portfolio remains well leased.The portfolio occupancy rate declined during the first quarter of 2011 and was 96.3% at March 31, 2011, compared to 97.1% at December 31, 2010, but down from 96.7% at March 31, 2010. These percentages include space for which signed leases are in place but where the tenant may not yet be in occupancy.Primaris renewed or leased 175,132 square feet of space during the first quarter of 2011. Approximately 66.6% of the leased spaces during the first quarter of 2011 consisted of the renewal of existing tenants. The weighted average new rent in these leases, on a cash basis, represented a 7.2% increase over the previous rent.At March 31, 2011, Primaris had a weighted average term to maturity of leases of 5.6 years.Development ActivityDuring 2009 Primaris completed phase one of a three phased redevelopment at Lambton Mall in Sarnia, Ontario. Although this first phase created a vacant anchor store location, it provided an opportunity to not only add a food court where none existed previously, but also provided an opportunity to backfill the anchor store with a new large tenant.With construction commencing June 2011, a second phase will introduce a food court to improve the centre's amenities. This improvement will significantly reinforce the mall's market presence. The food court is expected to cost approximately $4.75 million and be completed by November 2011. Discussions continue with regard to a replacement anchor tenant.A second redevelopment project at Orchard Park Shopping Centre in Kelowna, British Columbia started in the summer of 2010 and will be completed by November of 2011. This project includes the construction of approximately 25,000 square feet of new retail space and redevelopment of about 10,000 square feet of existing area to bring Best Buy, a dynamic first-to-market tenant, to the centre. The project is on budget and expected to cost $7.7 million and will increase the centre's market dominance.A re-development project is underway at Grant Park Shopping Centre in Winnipeg, Manitoba to accommodate an expanded and repositioned Manitoba Liquor Control Commission ("MLCC") store, and relocated retail tenants. This project also includes the realignment and upgrade of almost 11,500 square feet of common area with new floor and ceiling finishes which will revitalize the west end of the shopping centre. A portion of the exterior of the building and the west mall entrance will also be renovated to provide a marquee entry to the new redevelopment inside. Construction activities are scheduled to commence in June 2011 with an anticipated opening date of October 2011 for the relocated retail tenant, and an April 2012 opening for the MLCC expansion. The project is expected to cost $6.5 million and will create additional consumer draw to the centre and increase the cross shopping opportunity.Comparison to Prior Period Financial Results – in thousands of dollarsUnauditedThree Months EndedRestatedUnauditedThree Months EndedComparativePeriod Favourable/March 31, 2011March 31, 2010(Unfavourable)Revenue Minimum rent$48,889$45,607$3,282 Recoveries from tenants30,87128,5362,335 Percent rent4164124 Parking1,4791,46811 Other income294355(61)81,94976,3785,571Expenses Property operating21,29319,944(1,349) Property tax15,47914,070(1,409) Ground rent2942951 General & administrative3,1272,314813 Depreciation18750531840,38037,128(1,626)Income from operations$41,569$39,250$2,319Finance Income1024(14)Finance Costs(36,140)(26,007)(10,133)Fair value adjustment on investment properties(450)(689)(239)Gain on sale of land-74(74)Deferred income taxes-(5,832)5,832Net income$4,989$6,820$(1,831)Fair value adjustment on investment properties450689(239)Fair value adjustment on convertible debentures12,3365,3646,972Fair value adjustment on exchangeable units3,8611,5342,327Fair value adjustment on unit-based compensation92830898Distributions on exchangeable units673695(22)Amortization of tenant improvements1,7811,423358Gain on sale of land-(74)74Deferred income taxes-5,832(5,832)Funds from operations$25,018$22,313$2,705Funds from operations per unit - basic$0.363$0.357$0.006Funds from operations per unit - diluted$0.352$0.346$0.006Funds from operations - payout ratio86.5%88.0%-1.5%Distributions per unit$0.305$0.305$-Weighted average units outstanding - basic68,989,02562,571,3676,417,658Weighted average units outstanding - diluted78,464,09272,417,5156,046,577Units outstanding, end of period69,257,46962,651,5066,605,963Funds from Operations, which is not a defined term within International Financial Reporting Standards, has been calculated by management, using International Financial Reporting Standards, substantially in accordance with REALpac's White Paper on Funds from Operations. The White Paper adds back to net income items that do not arise from operating activities, such as amortization of tenant improvements, deferred income taxes and fair value adjustments. Funds from Operations may not be comparable to similar measures used by other entities.Funds from operations for the quarter ended March 31, 2011 were $2.7 million ($0.006 per unit diluted) more than the comparative period.International Financial Reporting Standards ("IFRS")In February 2008, the Canadian Accounting Standards Board confirmed that IFRS would replace Canadian generally accepted accounting principles ("GAAP"), for Canadian publically accountable profit-oriented enterprises, effective for fiscal periods beginning on or after January 1, 2011. The March 31, 2011 unaudited condensed interim consolidated financial statements and related disclosures are Primaris' first publications under the new standards. These statements include 2010 comparative results restated to IFRS and reconciliations to the previously reported Canadian GAAP statements.Supplemental InformationPrimaris' unaudited condensed interim consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the three-month periods ended March 31, 2011 and 2010 are available on Primaris' website at www.primarisreit.com.Forward-Looking InformationThe 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, Primaris' 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 that could cause actual results to differ materially from future results expressed, projected or implied by such forward-looking statements.In particular, certain statements in this document discuss Primaris' anticipated outlook of future events. These statements include, but are not limited to:the development of properties which could be impacted by real estate market cycles, the availability of labour and general economic conditions; reinvesting to make improvements and maintenance to existing properties, which could be impacted by the availability of labour and capital resource allocation decisions; generating improved rental income and occupancy levels, which could be impacted by changes in demand for Primaris' properties, tenant bankruptcies, the effects of general economic conditions and supply of competitive locations in proximity to Primaris locations; overall indebtedness levels, which could be impacted by the level of acquisition activity Primaris is able to achieve and future financing opportunities; anticipated distributions and payout ratios, which could be impacted by seasonality of capital expenditures, results of operations and capital resource allocation decisions; the effect that any contingencies would have on Primaris' financial statements; and anticipated replacement of expiring tenancies, which could be impacted by the effects of general economic conditions and the supply of competitive locations. Although the forward-looking statements contained in this document are based on what management of Primaris 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. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information may include: a less robust retail environment than has been seen for the last several years; relatively stable interest costs; access to equity and debt capital markets to fund, at acceptable costs, the future growth program and to enable the Trust to refinance debts as they mature, and the availability of purchase opportunities for growth.Except as required by applicable law, Primaris undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.Non-IFRS/GAAP MeasuresFunds 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 IFRS. Management uses these measures when comparing itself to industry data or others in the marketplace. Primaris' MD&A describes FFO, NOI and EBITDA and provides reconciliations to net income as defined under IFRS. Reconciliations of FFO and NOI to net income, as defined by IFRS, also appear at the end of the press release. FFO and EBITDA should not be considered alternatives to net income or other measures that have been calculated in accordance with IFRS and may not be comparable to measures presented by other issuers.Conference CallPrimaris invites you to participate in the conference call that will be held on Friday, May 13, 2011 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 call are: 416-340-8018(within Toronto), and 1-866-223-7781 (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 May 27, 2011. The replay will be accessible by dialing 905-694-9451 or 1-800-408-3053 and using the pass code 6186175.Primaris is a TSX listed real estate investment trust (TSX:PMZ.UN). Primaris owns 29 income-producing properties comprising approximately 11.1 million square feet located in Canada. As of April 30, 2011, Primaris had 69,481,038 units issued and outstanding (including exchangeable units).PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUSTInterim Consolidated Statements of Financial Position (In thousands of dollars)(Unaudited)March 31,December 31,January 1,201120102010AssetsNon-current assets: Investment properties$2,805,900$2,804,900$2,541,700Current assets: Rents receivable5,0136,0964,907 Other assets and receivables15,64511,00612,083 Cash and cash equivalents54,1466,50015,45274,80423,60232,442$2,880,704$2,828,502$2,574,142Liabilities and EquityNon-current liabilities: Mortgages payable$1,203,481$1,101,015$1,059,163 Convertible debentures201,755196,703189,847 Exchangeable units46,58943,32537,239 Deferred tax liability––264,2861,451,8251,341,0431,550,535Current liabilities: Current portion of mortgages payable 27,380 63,754 27,919 Bank indebtedness–10,00015,000 Accounts payable and other liabilities45,08551,85753,929 Distribution payable6,8786,8096,35879,343132,420103,2061,531,1681,473,4631,653,741Equity1,349,5361,355,039920,401$2,880,704$2,828,502$2,574,142PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUSTInterim Consolidated Statements of Income and Comprehensive Income(In thousands of dollars, except per unit amounts)Three months endedMarch 31,20112010(Unaudited)Revenue: Minimum rent$48,889$45,607 Recoveries from tenants30,87128,536 Percentage rent416412 Parking1,4791,468 Other Income29435581,94976,378Expenses: Property operating21,29319,944 Property taxes15,47914,070 Ground rent294295 General and administrative3,1272,314 Depreciation18750540,38037,128Income from operations41,56939,250Finance income1024Finance costs(36,140) (26,007)Fair value adjustments on investment properties(450) (689)Gain on sale of land-74Income before income taxes4,98912,652Deferred income taxes-(5,832)Net income4,9896,820Amortization of deferred net loss on cash flow hedges5860Tax effect of deferred net loss on cash flow hedges-(29)Comprehensive income$5,047$6,851PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUSTInterim Consolidated Statements of Cash Flows(In thousands of dollars)Three months endedMarch 31,20112010(Unaudited)Cash flows from operating activities: Net income$4,989$6,820 Adjustments for:Amortization of tenant improvements1,7811,423Amortization of tenant inducements2937Amortization of straight-line rent(399)(570)Depreciation of fixtures and equipment187505Net finance costs36,13025,983Fair value adjustments on investment properties450689Gain on sale of land–(74)Deferred income taxes–5,83243,16740,645Other non-cash operating working capital(10,590)(11,359)Leasing commissions(46)(133)Tenant improvements(558)(1,037) Cash generated from operating activities31,97328,116 Interest received1024Net cash from operating activities31,98328,140Cash flows from financing activities:Mortgage principal repayments(6,117)(5,280)Proceeds of new mortgage financing110,000–Repayment of financing(37,039)–Bank indebtedness(10,000)1,500Interest paid on financing(18,953)(18,033)Additions to financing costs(875)–Amortization of deferred loss on cash flow hedges(58)(60)Issuance of units, net of costs2,026866Distributions to Unitholders(21,061)(19,087) Net cash flow from (used in) financing activities17,923(40,094)Cash flows from investing activities:Proceeds of disposition of land–88Additions to fixtures and equipment(3)(164)Additions to buildings and building improvements(2,164)(332)Additions to recoverable improvements(93)(91) Net cash flow from (used in) investing activities(2,260)(499)Increase (decrease) in cash and cash equivalents47,646(12,453)Cash and cash equivalents, beginning of period6,50015,452Cash and cash equivalents, end of period$54,146$2,999Supplemental disclosure of non-cash operating, financing and investing activities:Value of units issued from conversion of convertible debentures7,284513Value of units and options granted under equity incentive plan1,369859Value of units issued upon exchange597683PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUSTReconciliation of Net Income to Funds from Operations(In thousands of dollars)Three Months EndedThree Months EndedMarch 31, 2011March 31, 2010Net income$4,989$6,820Fair value adjustment on investment properties450689Fair value adjustment on convertible debentures12,3365,364Fair value adjustment on exchangeable units3,8611,534Fair value adjustment on unit-based compensation92830Distributions on exchangeable units673695Amortization of tenant improvements1,7811,423Gain on sale of land-(74)Deferred income taxes-5,832Funds from operations$25,018$22,313Funds from Operations, which is not a defined term within International Financial Reporting Standards, has been calculated by management, using International Financial Reporting Standards, substantially in accordance with REALpac's White Paper on Funds from Operations. The White Paper adds back to net income items that do not arise from operating activities, such as amortization of tenant improvements, deferred income taxes and certain fair value adjustments. Funds from Operations may not be comparable to similar measures used by other entities.Calculation of Net Operating Income All Properties(In thousands of dollars)Three Months EndedThree Months EndedMarch 31, 2011March 31, 2010Revenue$81,949$76,378Add:amortization of leasing costs1,411890Less:Property operating expenses(21,293)(19,944)Property tax expense(15,479)(14,070)Ground Rent(294)(295)Net operating income$46,294$42,959FOR FURTHER INFORMATION PLEASE CONTACT: John MorrisonPrimaris Retail REITPresident & Chief Executive Officer(416) 642-7860ORLouis M. ForbesPrimaris Retail REITExecutive Vice President & Chief Financial Officer(416) 642-7810