Plaza Retail REIT Announces Solid Results for the Year Ended December 31, 2016

-  Plaza continues to benefit from NOI growth from developments/redevelopments/acquisitions

FREDERICTON, Feb. 23, 2017 /CNW/ - Plaza Retail REIT (TSX: PLZ.UN) ("Plaza" or the "REIT") today announced strong financial results for the year ended December 31, 2016.

Michael Zakuta, President and CEO said, "We are pleased with our financial results for 2016.  They reflect the impact of the continued growth in our business from development and redevelopment activity.  Our goal at Plaza is to achieve cash flow per unit growth and NAV growth and pass that growth onto unitholders.  We achieve this goal by being opportunistic and by developing and redeveloping high quality retail projects leased to national retailers.  Our financial results confirm the success of our business strategy."

All period information in this press release is for the year ended December 31, 2016 (except as otherwise noted) and all comparisons relate to the corresponding period in the prior year.  "Same-asset" refers to properties the REIT has owned and operated during all of 2016 and the entire year ended December 31, 2015, and excludes partial year results from certain assets due to timing of acquisitions, redevelopments and dispositions.

Year Ended December 31, 2016 Financial Highlights

• Funds from operations ("FFO") were $32.7 million, an increase of $1.3 million, or 4.3% over the same period in the prior year. Adjusted funds from operations ("AFFO") were $32.2 million, up 7.7% from $29.9 million in 2015. FFO per unit was unchanged at $0.333 for the year ended December 31, 2016 and AFFO per unit was $0.328, up 3.1%, from $0.318 in 2015. Impacting both FFO and AFFO was a decrease in other income of $1.1 million due to one-time insurance proceeds received in the prior year;
• FFO and AFFO payout ratios were 78.5% and 79.5%, respectively, compared to 75.1% and 78.6% in 2015;
• Property rental revenues were $100.2 million, up 4.3% from $96.1 million for the year ended December 31, 2015. Same-asset rental revenues were consistent over the prior year at $85.6 million;
• Net property operating income ("NOI") was $62.7 million, up 2.9% from $60.9 million in the prior year and same-asset net property operating income was $54.8 million compared to $55.3 million for the year ended December 31, 2015, down 0.8% mainly due to vacancies at two properties;
• Profit and total comprehensive income for the year ended December 31, 2016 was $32.8 million compared to $38.6 million at December 31, 2015, mainly due to year over year non-cash fair value adjustments;
• New long-term financing was obtained in the amount of $54.3 million (at Plaza's consolidated share) with a weighted average term of 9.6 years and a weighted average interest rate of 3.67%;
• The interest coverage ratio improved from 2.08x at December 31, 2015 to 2.18x at December 31, 2016, reflecting higher EBITDA and lower finance costs partly as a result of all of the early refinancings undertaken over the past few years at historically low interest rates as well as lower debt balances outstanding. The debt coverage ratio also improved at December 31, 2016 to 1.58x from 1.55x at December 31, 2015;
• Plaza's financial leverage improved, mainly as a result of the public offering completed on March 31, 2016, ending the quarter with a debt to gross asset ratio of 53.0% (including convertible debentures) and 47.7% (excluding convertible debentures), compared to 56.4% and 50.5%, respectively, at the end of the year in 2015;
• Plaza paid total cash distributions to REIT unitholders and Class B exchangeable LP unitholders of $25.6 million; and
• On March 31, 2016, Plaza closed a public offering of 5.0 million units at an issue price of $4.60 per unit for gross proceeds of $23.0 million.

Year Ended December 31, 2016 Operating Highlights

• Plaza's leasing activity included 466 thousand square feet of renewals at existing properties at an average rate of $13.46 per square foot, compared to an expiring rate of $12.94 per square foot;
• Plaza's leasing activity also included 161 thousand square feet of new leasing at existing properties at an average rate of $12.79 per square foot;
• Plaza completed 557 thousand square feet of new leasing deals on developments and redevelopments at market rates and 297 thousand square feet of new and renewal leasing deals at market rates at non-consolidated investments;
• Same-asset committed occupancy and total committed occupancy remained high at 95.8% and 95.9%, respectively, at December 31, 2016, compared to 96.3% and 96.1%, respectively, at December 31, 2015;
• Plaza acquired an additional 5.5% interest in the Village Shopping Centre in St. John's, NL for $2.7 million. The REIT now owns 50.0% of this property; and
• Plaza entered into a 50/50 joint venture with RioCan Real Estate Investment Trust ("RioCan") that is focused on redeveloping three properties located in Ontario and New Brunswick which were previously 100% owned by RioCan. Plaza acquired a 50% managing interest in the three properties for an aggregate purchase price of $11.5 million. As consideration for the acquisition Plaza paid cash of $750 thousand, issued a vendor take back interest-only mortgage secured by one of the properties of $5.25 million bearing interest of 5.00% per annum with a seven year term, and issued $5.5 million, 5.50%, five year Series VII convertible debentures. The vendor take back mortgage is repayable at any time without penalty. Closing costs associated with the acquisitions were $155 thousand.

Financial Results Summary for the Year Ended December 31^st
(CAD$000s, except percentage and per unit amounts)	2016	2015	Change
Property rental revenue	$100,215	$96,050	+ 4.3%
Property operating expenses	$37,543	$35,152	+ 6.8%
Property net operating income	$62,672	$60,898	+ 2.9%
Same-asset rental revenue	$85,580	$85,574	n/c
Same-asset operating expenses	$30,745	$30,302	+ 1.5%
Same-asset net operating income	$54,835	$55,272	- 0.8%
FFO	$32,650	$31,314	+ 4.3%
FFO per unit	$0.333	$0.333	n/c
FFO payout ratio	78.5%	75.1%	+ 4.5%
AFFO	$32,221	$29,908	+ 7.7%
AFFO per unit	$0.328	$0.318	+ 3.1%
AFFO payout ratio	79.5%	78.6%	+ 1.1%
Profit and total comprehensive income	$32,758	$38,595	- 15.1%
Total distributions to unitholders	$25,621	$23,507	+ 9.0%
Debt to gross assets (including converts)	53.0%	56.4%	- 340 bps
Debt to gross assets (excluding converts)	47.7%	50.5%	- 280 bps

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

Year Ended December 31, 2016 Financial Results
Property NOI was $62.7 million, up 2.9% from $60.9 million in the prior year and same-asset NOI was $54.8 million compared to $55.3 million in the prior year.  Total property NOI increased mainly due to significant growth from developments and redevelopments, Plaza's core business, notwithstanding a decrease in NOI of $1.0 million due to properties sold.  Same-asset NOI decreased mainly due to vacancies at two properties, one of which was re-leased at a lower rent, as well as roof repairs.

FFO increased for the year ended December 31, 2016 to $32.7 million, up 4.3% from $31.3 million for the year ended December 31, 2015.  AFFO was $32.2 million, up 7.7% from $29.9 million in 2015.  FFO per unit was unchanged at $0.333 and AFFO per unit was $0.328, up 3.1% from $0.318 in 2015.  FFO and AFFO were impacted by growth in NOI, mainly due to net growth from developments/redevelopments/acquisitions, partly offset by a decrease of $1.1 million in other income due to one-time insurance proceeds received in the prior year.  AFFO was also impacted by a decrease in maintenance capital expenditures and leasing costs.  The per unit amounts were also impacted by the public offering completed on March 31, 2016.

Profit and total comprehensive income declined to $32.8 million for the year ended December 31, 2016, from $38.6 million in the prior year.  The variance is mainly due to year over year non-cash fair value adjustments.

Fair Value of Investment Properties
At the end of the year, investment properties were valued using an overall weighted average capitalization rate of 7.03%, a drop of one basis point from December 31, 2015.  Fair value adjustments are determined based on the movement of various parameters, including changes in stabilized NOI and capitalization rates.

New Leases / Renewals
	Strip Plazas	Enclosed Malls	Single-User Retail	Single-User QSR^(1)
2016
Leasing renewals (sq. ft.)	292,784	105,513	49,580	17,701
Weighted average rent ($/sq. ft.)	$12.31	$16.23	$11.65	$21.19
Change in weighted average rent	4.8%	0.9%	10.6%	2.2%
Expiries that renewed (sq. ft.)	292,784	105,513	49,580	17,701
Weighted average rent ($/sq. ft.)	$11.75	$16.08	$10.53	$20.74
New leasing (sq. ft.)	139,455	16,860	5,129	-
Weighted average rent ($/sq. ft.)	$12.17	$14.72	$23.16	-
Expiries not renewed (sq. ft.)	183,740	12,084	5,969	4,018
Weighted average rent ($/sq. ft.)	$13.84	$17.53	$22.67	$31.43
2017
Expiries (sq. ft.)	198,889	41,939	8,963	16,132
Weighted average rent ($/sq. ft.)	$14.55	$16.62	$20.56	$35.32

(1)

QSR refers to quick service restaurant.

Distributions
Distributions paid to REIT unitholders and Class B exchangeable LP unitholders of the REIT's subsidiary limited partnership were $25.6 million for the year ended December 31, 2016, representing an AFFO payout ratio of 79.5%, compared to distributions in the amount of $23.5 million paid in the prior year, representing an AFFO payout ratio of 78.6%.

In November 2016, Plaza announced its 14^th consecutive annual distribution increase to $0.27 per unit in 2017, representing a 3.8% increase from 2016.

Liquidity and Capital Structure
To fund ongoing operating activities, the REIT has a $30.0 million revolving operating facility with a Canadian chartered bank.  It bears interest at prime plus 0.75% or BAs plus 2.00%.  At December 31, 2016 there was $16.4 million available on this facility (net of letters of credit issued). 

To fund development activities the REIT has two revolving development facilities with Canadian chartered banks available upon pledging of specific assets.  One is a $20 million facility that bears interest at prime plus 0.75% or BAs plus 2.25%.  The other is a $15 million facility that bears interest at prime plus 0.75% or BAs plus 2.00%.  At December 31, 2016 there was $28.1 million available on these development facilities. The REIT also has two variable rate secured construction loans, one for $3.0 million and the other for $907 thousand on two of its Ontario development projects.  The loans bear interest at a rate of prime plus 1.25% or BAs plus 2.50% and prime plus 1.00% or BAs plus 2.50%, respectively, and mature in August 2017 and December 2017, respectively.  At December 31, 2016, $2.6 million and $0.5 million, respectively, were drawn on these loans. 

During 2016 Plaza obtained new long-term financing in the amount of $54.3 million (at Plaza's consolidated share) with a weighted average term of 9.6 years and a weighted average interest rate of 3.67%.  The REIT ended the year with total mortgages payable (excluding development, construction and operating lines mentioned above) of $450 million with a weighted average interest rate on fixed rate mortgages of 4.46% and a weighted average maturity of 6.4 years. 

In February 2016, the $900 thousand Series VI mortgage bonds matured and were repaid.

In June 2016, the $1.185 million Series V mortgage bonds matured and were repaid.

In August 2016, the $3.86 million Series VII mortgage bonds matured and were repaid.

On July 8, 2016 and August 15, 2016, the REIT issued a total of $6.0 million Series XI floating mortgage bonds.

On April 29, 2016, Plaza redeemed the $9.2 million outstanding 8.0% Series B convertible debentures with the proceeds from the public offering.

On June 15, 2016, $5.5 million in Series VII convertible debentures were issued as part of the financing to acquire a 50.0% interest in three properties from RioCan.

On November 30, 2016, the REIT issued a redemption notice for the 7.0% Series C convertible debentures to be redeemed on January 9, 2017.  During 2016, $1.75 million in Series C convertible debentures were converted into 333 thousand units and $198 thousand in cash.  Between January 3 – 6, 2017, $12.9 million in Series C convertible debentures were converted to 2.45 million units and $1.5 million in cash.  On January 9, 2017, the remaining $2.3 million in Series C convertible debentures were redeemed and paid out.

Debt to gross book assets, excluding convertible debentures, at December 31, 2016 was 47.7% and including convertible debentures was 53.0%.

Further Information
A more detailed analysis of the REIT's financial results for the year ended December 31, 2016 is included in the REIT's Management's Discussion and Analysis and 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, February 24, 2017 at 10:00 a.m. EST (11:00 a.m. AST). The call-in numbers for participants are 647-427-7450 or 888-231-8191.  

A replay of the call will be available until Friday, March 3, 2017. To access the replay, dial 416-849-0833 or 855-859-2056 (Passcode: 53531084). 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 current portfolio includes interests in 298 properties totaling approximately 7.8 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 91% 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 and AFFO. 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 the year ended December 31, 2016 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.  These 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.

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