Plaza Retail REIT Announces its 15th Consecutive Annual Distribution Increase and Results for the Quarter Ended September 30, 2017

Continued strategy of growth allows for 15th annual distribution increase

FREDERICTON, Nov. 9, 2017 /CNW/ - Plaza Retail REIT (TSX: PLZ.UN) ("Plaza" or the "REIT") today announced that its Board of Trustees has approved an increase in its annual distribution to unitholders to $0.28 per unit, representing a 3.7% increase.  Plaza also announced its financial results for the three and nine months ended September 30, 2017.

The increased distribution will be effective for the regularly scheduled monthly distribution payment dates for 2018 beginning with the January distribution, payable February 15, 2018, in the amount of 2.33 cents per unit at each payment date, subject to Board approval at that time.

Michael Zakuta, President and CEO said, "The distribution increase represents the fifteenth consecutive annual increase since we began paying distributions in 2003.  We have more than tripled our distribution over the last 15 years, as our initial 8 cents per unit distribution has grown to 28 cents per unit.  This confirms our value-add business model and our ability to consistently grow our business and deliver results to our unitholders."

Financial Results Summary
(CAD$000s, except percentages, per unit amounts and coverage ratios)	Three Months Ended Sept 30, 2017	Three Months Ended Sept 30, 2016	Change	Nine Months Ended Sept 30, 2017	Nine Months Ended Sept 30, 2016	Change
Total property rental revenue	$25,113	$25,585	- 1.8%	$77,208	$74,974	+ 3.0%
Total property operating expenses	$8,805	$9,152	- 3.8%	$28,339	$27,958	+ 1.4%
Total NOI	$16,308	$16,433	- 0.8%	$48,869	$47,016	+ 3.9%
Same-asset rental revenue	$21,764	$21,925	- 0.7%	$66,135	$66,284	- 0.2%
Same-asset operating expenses	$6,914	$7,163	- 3.5%	$22,187	$22,510	- 1.4%
Same-asset NOI	$14,850	$14,762	+ 0.6%	$43,948	$43,774	+ 0.4%
FFO	$9,245	$9,119	+ 1.4%	$27,380	$24,031	+13.9%
FFO per unit	$0.090	$0.092	- 2.2%	$0.268	$0.246	+  8.9%
FFO payout ratio	74.8%	70.8%	+ 5.6%	75.7%	79.7%	-  5.0%
AFFO	$8,556	$7,870	+ 8.7%	$25,426	$21,601	+17.7%
AFFO per unit	$0.084	$0.079	+ 6.3%	$0.249	$0.221	+12.7%
AFFO payout ratio	80.9%	82.1%	- 1.5%	81.6%	88.6%	- 7.9%
Profit and total comprehensive income	$7,611	$7,389	+ 3.0%	$13,917	$23,184	- 40.0%
EBITDA	$15,449	$15,753	- 1.9%	$45,396	$43,692	+ 3.9%
Total distributions to unitholders	$6,919	$6,460	+ 7.1%	$20,737	$19,149	+ 8.3%
Interest coverage ratio	2.41 x	2.32 x	+ 3.9%	2.38 x	2.15 x	+10.7%
Debt coverage ratio	1.71 x	1.69 x	+ 1.2%	1.69 x	1.56 x	+  8.3%

Refer to "Non-IFRS Financial Measures" below for further explanations.

Three Months Ended September 30, 2017 Financial Highlights

• FFO per unit decreased to $0.090, down 2.2% from $0.092 in the prior year and adjusted funds from operations ("AFFO") per unit was $0.084, up 6.3%, from $0.079 in 2016. FFO and AFFO per unit amounts for the current quarter were impacted by a larger number of units outstanding due to the conversion of $14.6 million in Series C convertible debentures into 2.8 million units in late 2016 and January 2017, upon the issuance of a redemption notice for the Series C convertible debentures in November 2016. As well there were lease termination revenues included in the quarter ended September 30, 2016;
• Excluding the non-recurring lease termination revenues in the prior year, FFO and AFFO per unit were up 0.6% and 9.0%, respectively, driven by growth from developments and redevelopments and a reduction in financing costs;
• FFO and AFFO payout ratios were 74.8% and 80.9%, respectively, compared to 70.8% and 82.1% in 2016;
• Net property operating income ("NOI") was $16.3 million, down 0.8% from $16.4 million in the same period in the prior year, impacted mainly by: (i) a decrease in NOI from non-cash straight-line rent; and (ii) a decrease in NOI due to non-recurring lease termination revenues in the prior year; partly offset by (iii) growth in NOI from developments and redevelopments in the current quarter;
• Same-asset NOI was $14.9 million compared to $14.8 million for the same period in the prior year, up 0.6%, mainly due to rent steps in the portfolio more than offsetting vacancies and lease terminations;
• Profit and total comprehensive income for the quarter was marginally higher at $7.6 million compared to $7.4 million for the prior year, mainly due to non-cash fair value adjustments. Specifically, a positive change in both the fair value of convertible debentures (based on their trading price) and the fair value of the Class B exchangeable LP units (based on Plaza's trading price), more than offset the decrease in fair value of investment properties and investments; and
• The interest coverage ratio improved from 2.32x for the quarter ended September 30, 2016 to 2.41x for the quarter ended September 30, 2017. The debt coverage ratio also improved to 1.71x from 1.69x for the prior year. The improvements in the ratios reflect lower finance costs mainly from the redemption of the Series C convertible debentures.

Nine Months Ended September 30, 2017 Financial Highlights

• FFO per unit increased to $0.268, up 8.9% from $0.246 in the prior year and AFFO per unit was $0.249, up 12.7%, from $0.221 in 2016. FFO and AFFO per unit were positively impacted by growth from developments and redevelopments, significantly higher non-recurring lease termination revenues received in the current year compared to the prior year and a decrease in finance costs;
• Even excluding all of the non-recurring lease termination revenues, FFO and AFFO per unit increased by 3.4% and 6.5%, respectively;
• FFO and AFFO payout ratios were 75.7% and 81.6%, respectively, compared to 79.7% and 88.6% in 2016;
• NOI increased to $48.9 million, up 3.9% from $47.0 million in the same period in the prior year, impacted mainly by NOI from developments and redevelopments, as well as the lease termination revenues recorded relating to two lease termination transactions;
• Same-asset NOI was $43.9 million compared to $43.8 million for the same period in the prior year, up 0.4%;
• Profit and total comprehensive income for the nine months ended September 30, 2017 was down to $13.9 million from $23.2 million for the nine months ended September 30, 2016, mainly due to non-cash fair value adjustments driven by the decrease in the fair value of investment properties for the nine months ended September 30, 2017, largely due to changes in NOI and cost overruns on current development projects; and
• The interest coverage ratio improved from 2.15x for the nine months ended September 30, 2016 to 2.38x for the nine months ended September 30, 2017. The debt coverage ratio also improved to 1.69x from 1.56x for the nine months ended September 30, 2016. The improvements in the ratios reflect higher EBITDA due to higher NOI and lower finance costs due to the redemption of both the Series B and C convertible debentures.

Leasing and Occupancy

• Same-asset committed occupancy and total committed occupancy were 95.4% and 95.5%, respectively, at September 30, 2017, compared to 96.3% and 96.2%, respectively, at September 30, 2016; and
• The weighted average lease term is 5.9 years.

Acquisitions/Dispositions

• Year to date, Plaza purchased various lands for a total of $1.9 million.
• During the quarter, Plaza purchased a 50% interest in development lands in Mississauga, ON for $6.1 million, which will add approximately 70,000 square feet (at 100%) of retail space at completion.
• Subsequent to quarter end, Plaza waived conditions for the purchase of a 50% interest in a former Sears store in Chicoutimi, QC for redevelopment for $3.25 million, which will add approximately 109,000 square feet (at 100%) of retail space upon completion.
• Subsequent to quarter end, Plaza waived conditions for the purchase of land in Liverpool, NS for development for $168 thousand, which will add approximately 14,000 square feet of retail space upon completion.
• Year to date, Plaza sold various parcels of surplus land as well as properties for total net proceeds of $2.1 million.

Balance Sheet, Liquidity and Capital Structure

• At the end of the quarter, investment properties were valued using an overall weighted average capitalization rate of 7.00%, a drop of three basis points from the year ended December 31, 2016 and a drop of three basis points from September 30, 2016. Fair value adjustments are determined based on the movement of various parameters, including changes in stabilized NOI and capitalization rates. The fair value decreases were largely due to changes in NOI as well as cost overruns on current development projects (development projects are valued at fair value less costs to complete).
• To fund ongoing operating and development activities, the REIT has the following facilities in place:
• a $44.0 million revolving operating facility with a Canadian chartered bank. At September 30, 2017 there was $7.1 million available on this facility (net of letters of credit issued).
• two revolving development facilities with Canadian chartered banks available upon pledging of specific development assets. One is a $20 million one-year revolving facility and the other is a $15 million two-year revolving facility. At September 30, 2017 there was $30.7 million available on these development facilities.

• The REIT ended the quarter with total mortgages payable (excluding development, construction and operating lines) of $442 million with a weighted average interest rate on fixed rate mortgages of 4.38% and a weighted average maturity of 6.3 years.
• Debt to gross assets, excluding convertible debentures, at September 30, 2017 was 49.1% and including convertible debentures was 53.0%. These compare to 47.4% and 52.9%, respectively at September 30, 2016. The increase over the prior year excluding convertible debentures was mainly due to the issuance of $6.0 million Series II unsecured debentures and an increase in the operating line balance. Including convertible debentures, the current year ratio was also impacted by the redemption of the Series B and C convertible debentures.

Further Information
A more detailed analysis of the REIT's financial and operating results is included in the REIT's Management's Discussion and Analysis and Condensed Interim Consolidated Financial Statements, which have been filed on SEDAR and can be viewed at www.sedar.com or on the REIT's website at www.plaza.ca. 

Conference Call
Michael Zakuta, President and CEO, and Floriana Cipollone, CFO, will host a conference call for the investment community on Friday, November 10, 2017 at 10:00 a.m. ET (11:00 a.m. AT). The call-in numbers for participants are 647-427-7450 or 888-231-8191.  

A replay of the call will be available until Friday, November 17, 2017. To access the replay, dial 416-849-0833 or 855-859-2056 (Passcode: 97987403). The audio replay will also be available for download on the REIT's website for 90 days following the conference call.

About Plaza
Plaza is an open-ended real estate investment trust and is a leading retail property owner and developer, particularly in Eastern Canada.  Plaza's portfolio at September 30, 2017 includes interests in 295 properties totaling approximately 7.7 million square feet across Canada and additional lands held for development. Plaza's properties include a mix of strip plazas, stand-alone small box retail outlets and enclosed shopping centres, anchored by approximately 90% national tenants.  For more information, please visit www.plaza.ca.  

Non-IFRS Financial Measures
This press release contains certain non-IFRS financial measures including FFO, AFFO, same-asset NOI and EBITDA.  These measures are commonly used by entities in the real estate industry as useful metrics for measuring performance.  However, they do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other publicly traded entities.  These measures should be considered as supplemental in nature and not as a substitute for related financial information prepared in accordance with IFRS.  Please refer to the REIT's Management's Discussion and Analysis for a reconciliation of these non-IFRS measures to standardized IFRS measures.

Forward-looking Information
This news release contains forward looking statements relating to our operations and the environment in which we operate, which are based on our expectations, estimates, forecasts and projections. An example of a forward looking statement in this press release is that payment of distributions at each payment date in 2018 is subject to Board approval at that time. Forward looking statements are not future guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. Therefore, actual outcomes and results may differ materially from those expressed in these forward looking statements. 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. We undertake no obligation to publicly update any such statement, to reflect new information or the occurrence of future events or circumstances, except for forward-looking information disclosed in prior disclosures which, in light of intervening events, requires further explanation to avoid being misleading. More detailed information about risks and uncertainties that could affect Plaza is described in Plaza's Annual Information Form for the year ended December 31, 2016 and Management's Discussion and Analysis for the period ended September 30, 2017 which can be obtained on SEDAR at www.sedar.com.

The TSX does not accept responsibility for the adequacy or accuracy of this release.

SOURCE Plaza Retail REIT

Floriana Cipollone, Chief Financial Officer, Plaza Retail REIT, Tel: [phone]; Kim Sharpe, Director of Business Development, Plaza Retail REIT, Tel: [phone]

Related Links

http://www.plaza.ca