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Press release from CNW Group

First Capital Realty Announces Strong Q2 2011 Results

Thursday, August 11, 2011

First Capital Realty Announces Strong Q2 2011 Results07:00 EDT Thursday, August 11, 2011TORONTO, Aug. 11, 2011 /CNW/ - First Capital Realty Inc. ("First Capital Realty") (TSX: FCR)  Canada's leading owner, developer and operator of supermarket and drugstore anchored neighbourhood and community shopping centres, located predominantly in growing metropolitan areas, announced today strong financial results for the three and six months ended June 30, 2011.SIX MONTHS HIGHLIGHTSSix months ended June 30$ millions20112010 (1)Enterprise value$ 5,789$ 4,840Debt to total assets - IFRS basis47.2%49.4%Debt to total market capitalization45.1%47.1%Property rental revenue$ 258.8 $ 234.1Net operating income (NOI) (2)$ 165.2$ 149.7Six Months ended June 30$ millionsper share20112010 (1)20112010 (1)Funds from Operations (FFO)(2)$ 77.4$ 71.4$ 0.47$ 0.46Weighted average diluted shares for FFO (000's)165,567156,805  Adjusted Funds from Operations (AFFO)(2)  $ 81.7$ 77.6$ 0.44$ 0.44Weighted average diluted shares for AFFO (000's)186,957178,182  (1)     Restated for the adoption of International Financial Reporting Standards ( IFRS), where applicable (2)     See "Non-IFRS Supplemental Financial Measures" section of this press releaseInvested $228 million in acquisitions, development activities and property improvements;Added 968,000 square feet of gross leasable area from acquisitions, development and redevelopment coming on line;Acquired two shopping centres, eight properties adjacent to existing shopping centres and three development land parcels, adding 721,000 square feet of gross leasable area and 3.3 acres of land for future development;3.2% same property NOI growth; 2.9% excluding redevelopments and expansions.  Lease termination fees included in same property NOI totaled $0.5 million which compares to $1.1 million in the same prior year period;9.1% rate per square foot increase on 799,000 square feet of renewal leases;Occupancy of 96.2% compared to 96.4% at December 31, 2010 and June 30, 2010; occupancy was 96.4% excluding the effect of Blockbuster closings.  Vacancy includes 0.7% of space held for redevelopment;Gross new leasing totalled 548,000 square feet including development and redevelopment coming on line; lease closures totalled 349,000 square feet and closures for redevelopment totalled 261,000 square feet;Completed new leasing on existing space totalling 221,000 square feet at an average rate of $20.80 per square foot;Lease rates on openings and redevelopment coming on line increased by 23.5% versus all lease closures;Average lease rate per occupied square foot increased by 2.5% from June 30, 2010 to $16.45 at June 30, 2011 including 2011 year-to-date acquisitions at an average lease rate of $12.99.SECOND QUARTER HIGHLIGHTSThree months ended June 30$ millionsper share20112010 (1)20112010 (1)Property rental revenue$ 129.4$ 116.5  Net operating (NOI) (2)$ 83.7$ 75.5  FFO(2)$ 38.0$ 35.3$ 0.23$ 0.22Weighted average diluted shares for FFO (000's)166,353157,835  AFFO(2)$ 41.5$ 36.6$ 0.22$ 0.20Weighted average diluted shares for AFFO (000's)188,619179,547  1)     Restated for the adoption of IFRS, where applicable 2)     See "Non-IFRS Supplemental Financial Measures" section of this press releaseInvested $82 million in acquisitions, development activities and property improvements;Added 216,000 square feet of gross leasable area from acquisitions, development and redevelopment coming on line;Acquired five properties adjacent to existing shopping centres and two development land parcels, adding 59,000 square feet of gross leasable area and 2.5 acres of land for future development;3.9% same property NOI growth; 2.9% excluding redevelopments and expansions;7.7% rate per square foot increase on 223,000 square feet of renewal leases;Gross new leasing totalled 269,000 square feet including development and redevelopment coming on line; lease closures totalled 174,000 square feet and closures for redevelopment totalled 197,000 square feet;Completed new leasing on existing space totaling 120,000 square feet at an average rate of $18.92 per square foot."We continue to be pleased with both our operating results and the present and anticipated future performance of our portfolio," stated Dori J. Segal, President & CEO. "With significant financing activity in the last eighteen months, our balance sheet is in excellent shape and we expect to realize benefits in the near future from our strong financial position."FFO AND AFFOFFO increased to $38.0 million or $0.23 per share (diluted) in the second quarter of 2011 from $35.3 million or $0.22 per share (diluted) in the same prior year period.  Year-to-date, FFO increased to $77.4 million or $0.47 per share (diluted) from $71.4 million or $0.46 per share (diluted).  The increase is primarily due to the increase in NOI resulting from acquisitions, development and redevelopment projects coming on line, as well as same property NOI growth.  This was partially offset by an increase in interest expense and the weighted average number of common shares outstanding resulting from financing activities ahead of portfolio growth.FFO for the second quarter of 2011 included net losses of $1.2 million compared to net gains of $0.7 million in the same prior year period.  Year-to-date, FFO included net gains of $0.2 million compared to net gains of $2.4 million in the same prior year period.AFFO increased to $41.5 million or $0.22 per share (diluted) in the second quarter of 2011 from $36.6 million or $0.20 per share (diluted) in the same prior year period.  AFFO increased to $81.7 million or $0.44 per share (diluted) in the six months ended June 30, 2011 from $77.6 million or $0.44 per share (diluted) in the same prior year period.AFFO included $0.3 million of net gains in the second quarter of 2011 compared to $0.4 million of net gains for the same prior year period.  AFFO included $1.6 million of net gains in the six months ended June 30, 2011 compared to $5.1 million of net gains for the same prior year period.Refer to the Funds from Operations, Other Gains (Losses) and (Expenses) and the Adjusted Funds from Operations sections in Management's Discussion and Analysis for further information.Net Income Three months ended June 30Six months ended June 30($ thousands, except per share amounts)2011201020112010Net income attributable to common shareholders$ 154,247$ 43,734$ 200,678$ 64,156Net income per share attributable to common shareholders (diluted)$ 0.84$ 0.28$ 1.12$ 0.41Weighted average common shares - diluted (1)188,619,226179,547,106186,956,775175,515,024Net income attributable to common shareholders for the three months ended June 30, 2011 was $154.2 million or $0.84 per share (diluted) compared to $43.7 million or $0.28 per share (diluted) for the three months ended June 30, 2010. Net income attributable to common shareholders for the six months ended June 30, 2011 was $200.7 million or $1.12 per share (diluted) compared to $64.2 million or $0.41 per share (diluted) for the six months ended June 30, 2010. The increase in net income is primarily due to the increase in the value of investment properties in the second quarter of 2011, as well as increases in NOI resulting from acquisitions, development and redevelopment projects coming on line and same property NOI growth. The effects of the increases in net income were partially offset by an increase in interest expense and the weighted average number of common shares outstanding resulting from financing activities ahead of portfolio growth, as well as increased deferred income tax expense due to the growth in net income before tax.Financing and Capital MarketsThe Company completed the following debt and equity financing activities during the six months ended June 30, 2011:Issued, in January, $150 million principal amount senior unsecured debentures, Series L, with a coupon rate of 5.48%, maturing July 2019;Issued, in two tranches in March and June, $175 million principal amount senior unsecured debentures, Series M, with a coupon rate of 5.60% maturing April 2020;Repaid, on maturity in March, $99 million principal amount of senior unsecured debentures, Series B, with a coupon rate of 5.25%;Issued, in April, $57.5 million principal amount of 5.40% convertible unsecured subordinated debentures, due January 2019, convertible at the holder's option at a price of $22.62 per common share;Completed, in June, a two-year, $250 million senior unsecured revolving credit facility with two Canadian chartered banks.  The Company's existing $250 million syndicated secured facility was concurrently reduced to $50 million;Issued 0.8 million common shares as a result of the conversion, at the holders' option, of $13.1 million principal amount of 5.50% convertible unsecured subordinated debentures;Issued 0.6 million common shares as payment-in-kind of the interest, in the aggregate amount of $9.7 million, due to holders of the 5.50%, 5.70% and 6.25% convertible debentures, consistent with existing practice;Issued 0.6 million common shares through the exercise of options for proceeds of $7.1 million.Consistent with existing practice, it is the Company's current intention to continue to satisfy its obligations of principal and interest payments in respect of all of its outstanding convertible debentures by the issuance of common shares.Subsequent to quarter end, on August 9, 2011, the Company issued $57.5 million principal amount of 5.25% convertible unsecured subordinated debentures due January 31, 2019, convertible at the holder's option at a price of $23.77 per common share.On July 8, 2011, the Company announced that it had received the requisite approvals to temporarily change the conversion privilege of its approximately $212.8 million principal amount outstanding of 5.50% convertible unsecured subordinated debentures, class CDN and class US (TSX: FCR.DB.A and FCR.DB.B). The temporary change reduces the conversion price of the 5.50% convertible debentures to $16.25 (being a ratio of approximately 61.538 common shares for each $1,000 principal amount of debentures), from the original conversion price of $16.425, for a period of 35 days ending at 5:00 p.m. (Toronto time) on August 16, 2011.  As of July 8, 2011, Gazit Canada Inc., a wholly owned subsidiary of Gazit Globe Ltd., a publicly traded company listed on the Tel-Aviv stock exchange, was a holder of approximately 48.4% of First Capital Realty's outstanding common shares and holder of approximately 74% of the outstanding 5.50% convertible debentures.  Prior to the announcement of the temporary change to the conversion privilege for the 5.50% convertible debentures, Gazit Canada advised First Capital Realty of its intention, subject to market conditions, to exercise the conversion privilege at this special conversion price for not less than $74 million principal amount of the 5.50% convertible debentures it holds.  At the request of First Capital Realty, Gazit Canada agreed to limit its exercise over that amount to a level such that it should not hold more than 50% of the common shares as a result of it exercising the conversion privilege at this special conversion price.  As of August 10, 2011, a total of approximately $58 million principal amount of 5.50% convertible debentures had been converted into 3.57 million common shares, including approximately $50 million converted by Gazit Canada.Quarterly DividendThe Company also announced today that it will pay a third quarter dividend of $0.20 per common share on October 11, 2011 to shareholders of record on September 29, 2011.Payment of Interest in SharesThe Company will pay the interest due on September 30, 2011 to holders of the 5.50%, 6.25%, 5.70% and 5.40% convertible unsecured subordinated debentures (FCR.DB.A, FCR.DB.B, FCR.DB.C, FCR.DB.D and FCR.DB.E) by the issuance of common shares. The number of common shares to be issued per $1,000 principal amount of debentures will be calculated by dividing the dollar amount of interest payable by an amount equal to 97% of the volume-weighted average trading price of the common shares of First Capital Realty on the Toronto Stock Exchange calculated for the 20 consecutive trading days ending on September 23, 2011. The interest payment will be approximately $10.7 million based upon convertible debentures outstanding as of August 9, 2011.Acquisitions and Dispositions Subsequent to June 30, 2011On July 12, 2011, First Capital Realty acquired Rona Stockyards, a 84,000 square foot property situated on 8.6 acres of land located in the Stockyards retail complex in Toronto, Ontario. The purchase price of $18.2 million including closing costs was satisfied in cash and the assumption of $7.6 million of fixed rate debt with an annual interest rate of 5.235% and maturing in September 2016.On July 18, 2011, First Capital Realty and ProMed Canada (a wholly owned subsidiary of Gazit America Inc. (TSX: GAA), which is a TSX-listed subsidiary of First Capital Realty's principal shareholder, Gazit-Globe, Ltd.) acquired Meadowlark Health and Shopping Centre on a 50/50 joint venture basis. The Meadowlark Health and Shopping Centre consists of nine separate single storey buildings, comprising 306,000 square feet of gross leasable area on a 23-acre site located in Edmonton, Alberta. The total purchase price of $84.0 million including closing costs was satisfied in cash and with a new $50.0 million 10-year first mortgage bearing interest at a fixed rate of 4.90% per annum.As at August 10, 2011, First Capital Realty has waived its due diligence condition in respect of the acquisition of a 124,000 square foot income producing property on 7.8 acres of land adjacent to an existing shopping centre for a total purchase price of approximately $36.0 million, including estimated closing costs.  Similarly, through its Main and Main Developments joint venture, First Capital Realty has waived due diligence conditions on the acquisition of development land parcels comprising 1.5 acres for future development and comprising a total purchase price of $15.3 million.  Although First Capital Realty and Main and Main Developments have waived due diligence conditions in respect of these acquisitions, they remain subject to customary closing conditions. Accordingly, there can be no assurance as to the actual closing of any such acquisitions.In addition, as of August 10, 2011, First Capital Realty is committed to sell a shopping centre and adjacent development lands for an aggregate sale price of approximately $42.6 million.  Although First Capital Realty has contractual commitments in respect of this sale, the transaction remains subject to customary closing conditions. Accordingly, there can be no assurance as to the actual closing of such dispositions.OUTLOOK Over the past several years, First Capital Realty has made significant progress in growing its business across the country, generating modest accretion in funds from operations while dramatically enhancing the quality of its portfolio.The current property acquisition environment remains competitive for assets of similar quality to those the Company owns, with increasing competition for transactions. Both equity and long-term debt markets are accessible but continue to offer tight spreads (if any), relative to pricing currently being asked by vendors of high quality, well-located urban properties. The Company will continue to selectively acquire properties that are well-located and of high quality, when they add strategic value and/or operating synergies, provided that they will be accretive to FFO over the long term, and provided that equity and long-term debt capital can be priced and committed to maintain conservative leverage.Development and redevelopment activities continue to provide the Company with opportunities to grow within its existing portfolio of assets. These activities typically generate higher returns on investment over the long term and improve the quality and growth of property rental income.With respect to acquisitions of both income-producing and development properties, as well as in its existing portfolio, the Company will continue to focus on the quality, sustainability and growth potential of rental income. Consistent with First Capital Realty's past practices and in the normal course of business, First Capital Realty is engaged in discussions, and has various agreements, with respect to possible acquisitions of new properties and dispositions of existing properties in its portfolio. However, there can be no assurance that these discussions or agreements will result in acquisitions or dispositions, or if they do, what the final terms or timing of such acquisitions or dispositions would be. The Company expects to continue current discussions and actively pursue other acquisition, investment and disposition opportunities.With respect to financing activities, the Company will continue to focus on maintaining access to all sources of long-term capital at the lowest possible price. In particular, the Company is focussed on both extending the term and staggering the maturity of its debt.Specifically, Management has identified the following six areas to achieve its objectives in 2011 and 2012:continued focus on proactive asset management that results in higher rent growth;development, redevelopment and repositioning activities on existing and newly acquired properties;selective acquisitions of strategic assets and adjacent sites;densification activities in the existing portfolio;increasing efficiency and productivity of operations; andimproving the cost of both debt and equity capital.Overall, Management is confident that the quality of the Company's balance sheet and the defensive nature of its assets and operations will continue to serve it well in the current environment.2011 GUIDANCE (per share amounts, except for projected FFO, AFFO and shares outstanding)2011 Guidanceas at Q22011 Guidanceas at Q1Variance  LowHighLowHighLowHighProjected diluted net income per share$ 1.56$ 1.59$ 0.81$ 0.84$ 0.75$ 0.75Adjustments        Projected fair value increase and deferred income taxes(0.61)(0.61)0.140.15(0.75)(0.76)Projected FFO per share$ 0.95$ 0.98$ 0.95$ 0.99-(0.01)Projected FFO$ 160.6$ 165.8$ 158.0$ 164.5$ 2.6$ 1.3Projected weighted average shares outstanding for per share FFO calculations169.0165.93.1 Projected FFO$ 160.6$ 165.8$ 158.0$ 164.5$ 2.6$ 1.3Projected weighted average shares outstanding for per share AFFO calculations (including conversion of convertible debentures)188.0188.8(0.8)Projected FFO per share (using weighted average AFFO shares outstanding)$ 0.85$ 0.88$ 0.84$ 0.87$ 0.01$ 0.01   Projected revenue sustaining capital expenditures(0.07)(0.07)(0.07)(0.07)--   Projected non-cash items, net0.090.100.100.11(0.01)(0.01)Projected AFFO per share$ 0.87$ 0.91$ 0.87$ 0.91--Projections involve numerous assumptions such as rental income (including assumptions on timing of lease-up, development coming on line and levels of percentage rent), interest rates, tenant defaults, corporate expenses, the level and timing of acquisitions of income-producing properties, investments in other real estate assets, the Company's capital structure and share price, the number of shares outstanding and numerous other factors.  While these projections include year-to-date actual results through June 30, 2011, not all factors which affect our range of projected net income, funds from operations and adjusted funds from operations are determinable at this time; actual results may vary from the projected results in a material respect, and may be above or below the range presented in a material respect.2011 guidance is based on the following operating activity assumptions:Same property NOI growth of 1.5% to 2.5% (excluding redevelopment and expansion);Development, redevelopment and expansion coming on line of 400,000 to 500,000 square feet with approximate gross book value of $150 to $175 million;Income-producing property acquisitions totalling approximately $275 million for the year versus $127 million completed through June 30, 2011.  Approximately $97 million is committed to close subsequent to quarter end;Disposition of one income-producing property totaling $42 million in Q3;General and administrative expenses will be consistent with 2010;Revenue sustaining capital expenditures are expected to be approximately $0.65 per square foot on average;$58 million principal of the 5.50% convertible debentures was converted by August 10, 2011 at $16.25.  Any non-cash loss from the accounting for the conversion inducement is excluded from this guidance;Capital structure on the balance sheet will be similar to June 30, 2011 with average leverage at ± 50 bps of the average leverage carried year-to-date;Note that the Company does not forecast changes in capitalization rates.  These changes have the effect of increasing or decreasing net income but not FFO or AFFO.The information above represents Management's best estimate of operating and financing activities for 2011 as of the date of this press release.Readers should refer to the section below titled "Forward-Looking Statements" for important information on risk factors.REGULATORY FILINGS AND OTHER INFORMATIONFirst Capital Realty's financial statements and MD&A for the three and six months ended June 30, 2011 will be filed today on the Company's website at www.firstcapitalrealty.ca in the Investors section, and on the Canadian Securities Administrators' website at www.sedar.com. First Capital Realty's Corporate Presentation will also be available today on the HomePage on the Company's website.The Company will also add to its website (under the Investors tab and then Downloads) a list by property with IFRS values and any related encumbrances as of December 31, 2010.MANAGEMENT CONFERENCE CALL AND WEBCASTFirst Capital Realty invites you to participate in its live conference call with senior management announcing our second quarter results on Thursday, August 11 at 1:00 p.m. ET.Teleconference:You may participate in the live conference toll free at 866-299-6657 or at 416-641-6135.  To ensure your participation, please dial in five minutes prior to the scheduled start of the call.  The call will be archived through August 25, 2011 and can be accessed by dialing toll free 800-408-3053 or 905-694-9451 with access code 8467663.Management's presentation will be followed by a question and answer period.  To ask a question, press '1' followed by '4' on a touch-tone phone.  The conference call coordinator is immediately notified of all requests in the order in which they are made, and will introduce each questioner.  To cancel your request, press '1' followed by '3'.  If you hang up, you can reconnect by dialing 866-299-6657 or 416-641-6135.  For assistance at any point during the call, press '*0'.Webcast:To access the webcast, go to First Capital Realty's website at www.firstcapitalrealty.ca and click on the link for the webcast on our Home Page.  The webcast will be archived on our Home Page for 30 days and can be accessed thereafter in the Investors section of our website under Conference Calls.ABOUT First Capital Realty (TSX:FCR)First Capital Realty is Canada's leading owner, developer and operator of supermarket and drugstore anchored neighbourhood and community shopping centres, located predominantly in growing metropolitan areas. The Company currently owns interests in 165 properties, including four under development, totalling approximately 22.7 million square feet of gross leasable area and six sites in the planning stage for future retail development.* * * *Non-IFRS Supplemental Financial MeasuresFirst Capital Realty prepares and releases unaudited quarterly and audited consolidated annual financial statements prepared in accordance with International Financial Reporting Standards ("IFRS"). In this and other earnings releases and investor conference calls, as a complement to results provided in accordance with IFRS, the Company also discloses and discusses certain non-IFRS financial measures, including NOI, FFO and AFFO. These non-IFRS measures are further defined and discussed in First Capital Realty's MD&A for the quarter ended June 30, 2011, which should be read in conjunction with this news release. Since NOI, FFO and AFFO do not have standardized meanings prescribed by IFRS, they may not be comparable to similar measures reported by other issuers. The Company uses and presents these non-IFRS measures as Management believes they are commonly accepted and meaningful financial measures of operating performance in the real estate industry. A reconciliation of net income and such non-IFRS measures is included in the Company's MD&A. These non-IFRS measures should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS as measures of First Capital Realty's operating performance.Forward-Looking StatementsThis press release, and in particular the "Outlook" and "2011 Guidance" sections hereof, contains forward-looking statements and information within the meaning of applicable securities law.  Forward-looking statements can generally be identified by the expressions "anticipate", "believe", "plan", "estimate", "project", "expect", "intend", "outlook", "objective", "may", "will", "should", "continue" and similar expressions.  The forward-looking statements are not historical facts but, rather, reflect the Company's current expectations regarding future results or events and are based on information currently available to Management. Certain material factors and assumptions were applied in providing these forward-looking statements, including, without limitation, those set forth in the "2011 Guidance" section of this press release.  Moreover, the assumptions underlying the Company's forward-looking statements contained in the "Outlook" and "2011 Guidance" sections of this press release also include that consumer demand will remain stable, demographic trends will continue and there will continue to be barriers to entry in the markets in which the Company operates.  Management believes that the expectations reflected in forward-looking statements are based upon reasonable assumptions; however, Management can give no assurance that actual results will be consistent with these forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including the matters discussed under "Risks and Uncertainties" in the Company's Management's Discussion and Analysis for the second quarter of 2011 and under "Risk Factors" in First Capital Realty's current Annual Information Form.Factors that could cause actual results or events to differ materially from those expressed, implied or projected by forward-looking statements, in addition to those factors referenced above, include, but are not limited to, general economic conditions, the availability of new competitive supply of retail properties which may become available either through construction or sublease, First Capital Realty's ability to maintain occupancy and to lease or re-lease space at current or anticipated rents, the availability of debt and equity financing, changes in interest rates and credit spreads, tenant bankruptcies, the relative illiquidity of real property, unexpected costs or liabilities related to acquisitions, development and construction, environmental liability and compliance costs, legal matters, reliance on key personnel, tenant financial difficulties and defaults, changes in operating costs, changes in the US-Canadian foreign currency exchange rate and First Capital Realty's ability to obtain insurance coverage at a reasonable cost. Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, a forward-looking statement speaks only as of the date on which such statement is made. First Capital Realty undertakes no obligation to publicly update any such statement or to reflect new information or the occurrence of future events or circumstances except as required by applicable securities law. All forward-looking statements in this press release are made as of the date of this press release and are qualified by these cautionary statements.           For further information: Dori J. Segal, President & C.E.O., or Karen H. Weaver, Executive Vice President & C.F.O. First Capital Realty Inc. 85 Hanna Avenue, Suite 400 Toronto, Ontario, Canada M6K 3S3 Tel: (416) 504-4114 Fax: (416) 941-1655  www.firstcapitalrealty.ca