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Press release from CNW Group

Scott's REIT first quarter 2011 financial results remain strong

Monday, June 13, 2011

Scott's REIT first quarter 2011 financial results remain strong17:26 EDT Monday, June 13, 2011New acquisitions drive continued revenue growthREIT continues to diversify tenant base TORONTO, June 13, 2011 /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 first quarter ended March 31, 2011 and its monthly cash distribution for June 2011.First Quarter 2011 HighlightsThree months ended March 31, 2011 versus three months ended March 31, 2010Increased revenue by 16.5 per cent to $5.8 millionNet operating income* increased 17.6 per cent to $4.9 millionPayout ratio* of 104.9 per centSuccessfully refinanced $33 million of the REIT's original $65 million first mortgage*See section entitled Non-IFRS measures."The REIT has started off the year on solid footing," said John Bitove, Chief Executive Officer of Scott's REIT. "Our continued year-over-year revenue growth and 67 months of uninterrupted cash distributions is testament to the success of our strategy - which focuses on high return acquisitions,and continued diversification in our tenant base and property locations - is great for long-term unitholder value. Our successful acquisitions with Shoppers Drug Mart and the mall in Okotoks Alberta have really helped our bottom line."Financial PerformanceScott's REIT reported revenue of $5.8 million for the three-month period ended March 31, 2011, an increase of $0.8 million, or 16.5 per cent, over the same three-month period in 2010.The REIT's net operating income was $4.9 million for the first quarter of 2011 versus $4.1 million for the same quarter in 2010, an increase of $0.7 million, or 17.6 per cent.Operating expenses for the first quarter were $0.9 compared to $0.8 million for the same time period in 2010. The increased revenue and operating expenses related to the properties acquired during fiscal 2010, including the 12 properties tenanted by Shopper's Drug Mart and the property located in Okotoks, Alberta.Distributable income for the first quarter was $1.8 million compared to $1.5 million for the first quarter 2010. The increase in the Distributable Income from last year's first quarter was due to the two accretive acquisitions made during the first and second quarters of 2010, including 12 properties tenanted by Shopper's Drug Mart and one property located in Okotoks, Alberta, respectively.Monthly DistributionScott's REIT announced a cash distribution for the month of June 2011 of $0.0708 per unit payable on July 15, 2011 to Unitholders of record on June 30, 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 June 30, 2011.Mortgage RefinancingOn March 7, 2011, the REIT entered into a first and second mortgage with Firm Capital Corporation for $33 million in proceeds, secured by 70 properties located in Ontario. These properties had been part of a $64 million loan that matured on July 1, 2011. The majority of the proceeds were used to pay down the $64 million loan, which has resulted in a remaining balance owing of $32 million. The new loan bears interest at the greater of 6.25 per cent or prime plus 2 per cent 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 per cent of the loan balance. The REIT also received a further extension for its remaining loan balance of $32 million until February 1, 2012.On April 20, 2011 Scott's REIT entered into a two-year variable rate loan facility for $5.5 million bearing interest at prime rate plus 0.5 per cent. The facility is amortized over a 25-year period.  The facility is open for repayment at any time after the first six months of the term and is secured against the recently acquired property in Okotoks, Alberta.Shoppers Drug Mart Acquisition Refinancing On February 17, 2011, the REIT's $20 million facility used to acquire the original 12 properties with Shoppers Drug Mart, which was scheduled to mature on March 4, 2011, was extended until June 30, 2011. This extension was granted on the same terms as the original loan, with the exception of the interest rate, which was reduced to Bankers' Acceptances ("BA") plus 325 basis points until June 15, 2011. For the last two weeks of the extension, from June 16, 2011 through to June 30, 2011, the interest rate will increase to BA plus 500 basis points.Scott's has entered into a conditional commitment agreement for a 5-year $20 million mortgage bond at 2.35 per cent over Government of Canada Bonds. The REIT anticipates that the refinancing will be secured on or before June 30, 2011, however, the facility holders have communicated that a short extension would be possible if necessary.Comment on Priszm Limited Partnership ("Priszm")Priszm, the REIT's largest tenant, and operator of 190 KFC locations owned by the REIT, issued several news releases during the first quarter of 2011. On January 31, 2011, the REIT received notice and a request from Priszm to assign eight master leases affecting 79 properties owned by the REIT as part of a proposed sale of Priszm's British Columbia and Ontario operations to Soul Restaurants Canada Ltd. Scott's REIT asserted a claim on the proceeds with respect to the 63 Scott's REIT properties that are the subject of this transaction. The court appointed monitor for Priszm agreed to set aside $12.2 million until this claim could be heard in the courts.On June 1, 2011, Priszm announced that it had successfully completed the sale of 204 restaurants to Soul Restaurants, affecting the 63 properties mentioned above. Officially 32 stores have been assigned to Soul Restaurants as a result of the nature of their lease. Soul Restaurants is now paying the rent on these properties.The remaining 31 leases still require Scott's REIT's consent to be assigned to Soul Restaurants. Although Scott's REIT provided Priszm with the consent agreement to assign the leases on March 30, 2011, it has not yet been executed by Priszm and Soul Restaurants. Soul Restaurants is operating these restaurants, while Priszm continues to pay the rent until the consent agreement is fully executed."We are pleased with the recent sale of 63 KFC properties by our largest tenant; it plays right into the heart of our growth strategy and continued focus on diversification," said Evelyn Sutherland, CFO of Scott's REIT. "We expect the remaining Priszm stores to be sold soon and we can then put this issue behind us and continue to focus on growing Scotts REIT with a strong stable tenant base across Canada."Non-IFRS MeasuresDistributable IncomeDistributable Income is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. Distributable Income is presented in this MD&A because management of Scott's REIT believes this non-IFRS 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 reported by other similar organizations and, accordingly, may not be comparable. Distributable Income in this MD&A represents net income and comprehensive income of Scott's REIT, plus depreciation and amortization expense of tenant inducements, commission and leasing fees, stock based compensation, interest expense on the class b exchangeable units less the straight-line revenue accrual, acquisition write-offs, fair value adjustments on investment properties, convertible debentures and Class B units.Net Operating Income ("NOI")Net Operating Income ("NOI") is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. NOI is presented in this MD&A because the management of Scott's REIT believes that this non-IFRS measure is a relevant measure of Scott's REIT's ability to earn and distribute cash to Unitholders. NOI as computed by Scott's REIT may differ from similar computations 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 March 31, 2011 and 2010, as well as 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 March 31, 20112010Cash provided by (used in) operating activitiesNet change in non-cash working capitalTenant allowances and leasing commissionsInterest expense Class B exchangeable units$1,991(727)19479$1,000(86)60478Distributable IncomeDistributions declared1,7621,9631,4521,818Distributable Income per UnitDistributions per Unit0.1910.2130.1810.213Distributable Income Payout Ratio(1)111.4%117.6%Notes:(1)     Distributable income per Unit is calculated by dividing Distributable Income by the weighted average number of Units outstanding assuming full conversion of the Class B Exchangeable Units during the relevant period end.(2)     Distributable income payout ratio is calculated by dividing Distributable Income by the weighted average number of Units outstanding assuming full conversion of the Class B Exchangeable Units during the relevant period end divided by the actual distributions per Unit made during the period.(3)     Adjusted distributable income payout ratio is calculated by dividing Distributable Income (adjusted for $110 of one-time legal expenses related to the Priszm) by the weighted average number of Units outstanding assuming full conversion of the Class B Exchangeable Units during the relevant period end divided by the actual distributions per Unit made during the period.Scott's Real Estate Investment TrustConsolidated Interim Statements of Financial Position(Unaudited)(in thousands of Canadian dollars)Assets March 31,2011$ December 31,2010$ January 1,2010$       Current assetsCash and cash equivalentsAccounts receivablesDue from related partiesOther assets      3,42233831,808      4,846621001,741      16,004247101777       Current assets 5,571 6,749 17,129       Non-current assetsInvestment propertiesIntangible assetsOther assets     255,725163,076     254,249222,979     201,175522,862       Non-current assets 258,817 257,250 204,089       Total assets 264,388 263,999 221,218       Liabilities             Current liabilitiesAccounts payable and accrued liabilitiesDue to related partiesDistributions payable to unitholdersCurrent portion of mortgages payable and term debt      2,4992249552,451      1,348-49486,004      1,39311735466,137       Current liabilities 55,467 87,846 68,001       Non-current liabilitiesMortgages payable and term debtConvertible debenturesClass B Exchangeable UnitsAmounts payable      76,88639,75516,123137      44,75341,15017,859129      45,46339,69817,02550       Non-current liabilities 132,901 103,891 102,236       Total liabilities 188,368 191,737 170,237       Unitholders' EquityClass A unitsContributed surplusRetained earnings     58,8302,58814,602     58,8302,58810,844     44,6762,5883,717       Total equity 76,020 72,262 50,981       Total liabilities and equity 264,388 263,999 221,218       Consolidated Interim Statements of Net Income and Comprehensive Income(Unaudited)For the three months ended March 31, 2011 and 2010(in thousands of dollars)  2011$ 2010$     IncomeRevenue from investment properties   5,793   4,974     Operating income (expenses)Direct operatingGeneral and administrativeDepreciation on intangible assetsFair value adjustment on investment properties      (933)(618)(8)941      (842)(405)(13)4,675     Income from operations 5,175 8,389     Other income (expenses)Interest incomeInterest expenseFair value adjustment on convertible debenturesFair value adjustment on Class B Exchangeable Units      8(3,072)1,3951,736      23(2,814)(127)676       67 (2,242)     Net income and comprehensive income for the period 5,242 6,147     Scott's Real Estate Investment TrustConsolidated Interim Statements of Unitholders' Equity(Unaudited)(in thousands of Canadian dollars)      Class Aunits$   Contributedsurplus$   Retainedearnings$   Total$               Balance - January 1, 2011 58,830   2,588   10,844   72,262      -        Comprehensive income for the periodDistributions  --   --    5,242(1,484)   5,242(1,484)               Balance - March 31, 2011 58,830   2,588   14,602   76,020                              Balance - January 1, 2010 44,676   2,588   3,717   50,981                 Issuance of equityComprehensive income for the periodDistributions   14,009--    ---    -6,147(1,340)    14,0096,147(1,340)               Balance - March 31, 2010 58,685   2,588   8,524   69,797              For further information: For investor information, please contact: Trish Moran 416-624-5133 For media information, please contact: Trevor Boudreau 604-564-8209