Plaza Retail REIT Announces Third Quarter 2020 Results

FREDERICTON, NB, Nov. 12, 2020 /CNW/ - Plaza Retail REIT (TSX: PLZ.UN) ("Plaza" or the "REIT") today announced its financial results for the three and nine months ended September 30, 2020.

"Our portfolio, which is dominated by essential needs and value retailers in open-air centres, continues to perform well.  We collected 97.4% of rent during the quarter" said Michael Zakuta, President and CEO.  "As the retail industry continues to evolve, we expect to be able to take advantage of buying opportunities for well-located retail assets in need of redevelopment.  Our team is well positioned to create value in transforming challenged retail assets."

Summary of Selected GAAP Financial Results
(CAD$000s, except percentages and per units repurchased)	Three Months Ended September 30, 2020	Three Months Ended September 30, 2019	Change	Nine Months Ended September 30, 2020	Nine Months Ended September 30, 2019	Change
Property rental revenue	$25,960	$26,868	($908)	$80,063	$84,988	($4,925)
Net operating income (NOI)	$17,631	$18,015	($384)	$50,613	$55,942	($5,329)
Net change in fair value of investment properties	($549)	$1,644	($2,193)	($49,060)	$19,758	($68,818)
Profit (loss) and total comprehensive income (loss)	$9,185	$10,076	($891)	($24,212)	$43,320	($67,532)

Quarterly Highlights

• NOI was $17.6 million, down $0.4 million (2.1%) from the same period in 2019, primarily as a result of lost revenue due to lease buyouts, impacts of the Canada Emergency Commercial Rent Assistance ("CECRA") program and rent abatements, offset by lower operating expenses and growth in NOI from acquisitions, developments, and new leasing in same-asset properties.
• Profit and total comprehensive income for the current quarter was $9.2 million compared to $10.1 million in the prior year. The decline was mainly due to a $2.2 million unfavourable change in the fair value of investment properties as a result of an increase in the weighted average capitalization rate to 7.33% at September 30, 2020 from 7.08% at September 30, 2019, and more conservative assumptions for underwritten NOI.

Year-To-Date Highlights

• NOI was $50.6 million, down $5.3 million (9.5%) from the same period in 2019, primarily as a result of lease buyouts in 2019 and the lost revenue due to same, CECRA impacts, rent abatements and an increase in bad debt expense, offset by lower operating expenses and growth in NOI from acquisitions, developments, and new leasing in same-asset properties in the current year.
• Loss and total comprehensive loss for the nine months ended September 30, 2020 was $24.2 million compared to a profit and total comprehensive income of $43.3 million for the same period in the prior year. The decline was mainly due to a $68.8 million year-to-date unfavourable change in the fair value of investment properties as a result of an increase in the weighted average capitalization rate and more conservative assumptions for underwritten NOI and re-leasing costs.

Summary of Selected Non-GAAP Financial Results
(CAD$000s, except percentages and per unit amounts)	Three Months Ended September 30, 2020	Three Months Ended September 30, 2019	Change	Nine Months Ended September 30, 2020	Nine Months Ended September 30, 2019	Change
FFO	$9,386	$10,126	($740)	$26,441	$31,802	($5,361)
FFO per unit	$0.091	$0.098	($0.007)	$0.257	$0.306	($0.049)
FFO payout ratio	76.8%	71.5%	+5.3%	81.8%	68.5%	+13.3%
AFFO	$8,387	$8,673	($286)	$23,167	$28,280	($5,113)
AFFO per unit	$0.081	$0.084	($0.003)	$0.225	$0.272	($0.047)
AFFO payout ratio	85.9%	83.5%	+2.4%	93.4%	77.0%	+16.4%
Same-asset NOI	$16,733	$17,204	($471)	$48,299	$49,535	($1,236)
Normal course issuer bid – units repurchased	8,400	235,900	(227,500)	388,097	584,289	(196,192)
Committed occupancy – including non-consolidated investments^2				95.8%	96.7%	(0.9%)
Same-asset committed occupancy^2				95.2%	96.3%	(1.1%)

¹ Refer to "Non-IFRS Financial Measures" below for further explanations.

² Excludes properties under development.  Same-asset committed occupancy excludes properties under development and non-consolidated investments.

Quarterly Highlights

• FFO & AFFO: For the three months ended September 30, 2020, FFO per unit decreased by $0.007 (7.1%) compared to the prior year, affected by a decrease in same-asset NOI as a result of a decrease in revenue partially from CECRA and rent abatements in the current year, partially offset by lower operating expenses, an increase in administrative costs due to higher severance settlements in the current year, a decrease in finance costs and an increase in NOI from acquisitions and properties transferred to IPP in 2019 and 2020. AFFO per unit was $0.003 (3.6%) lower than the prior year due to the changes in FFO noted above offset by lower leasing costs in the current quarter.
• Same-asset NOI decreased by $471 thousand (2.7%) due to lost revenue due to lease buyouts, CECRA impacts and rent abatements, partially offset by lower operating expenses, new lease up and rent increases in the current year.

Excluding the effect of the lease buyouts from the current and prior period, CECRA impacts, rent abatements and bad debt expense from the current year:

• FFO per unit for the quarter would have been 2.0% lower than the prior year, while AFFO per unit for the quarter would have been 7.3% higher than the prior year.
• Same-asset NOI for the quarter would have been 1.3% higher.

Year-To-Date Highlights

• FFO & AFFO: For the nine months ended September 30, 2020, FFO per unit decreased by $0.049 (16.0%) compared to the prior year, affected by lease buyout revenues in the prior year, a decrease in same-asset NOI, a decrease in other income, which were partly offset by lower operating expenses in the current year, growth in NOI from acquisitions and developments, growth in same-asset NOI due to new leasing, a decrease in administrative costs and a decrease in finance costs. AFFO per unit was $0.047 (17.3%) lower than the prior year due to the changes in FFO noted above, offset by lower leasing costs.
• Same-asset NOI decreased by $1.2 million (2.5%) due to lost revenue due to lease buyouts, CECRA impacts, rent abatements and an increase in bad debt expense, partially offset by new lease up and rent increases in the portfolio along with lower operating expenses in the current year.

Excluding the impact of the lease buyouts from the current and prior period, CECRA impacts, rent abatements and bad debt expense from the current year:

• FFO per unit for the nine months would have been 7.1% higher than the prior year, while AFFO per unit for the nine months would have been 12.0% higher than the prior year.
• Same-asset NOI for the nine months ended September 30, 2020 would have been 2.5% higher.

COVID-19 Update

Government mandated closures and restrictions imposed in mid-March started to ease in late Q2, with restrictions re-imposed post Q3 in certain markets in Ontario and Quebec.  To date, the impact of these subsequent closures has not had a material impact on Plaza's operations, as our strong secondary market presence in Ontario and Quebec, as well as Atlantic Canada, has fared well.

To mitigate the impacts from COVID-19, the Trust is prudently managing its capital, including temporarily deferring new acquisitions and developments that are not committed, proactively managing costs to reduce operating, general and administrative expenses, and deferring elective capital expenditures.  Plaza continues to actively monitor the availability and anticipated effect of government relief programs that may be applicable, and participating in such programs where beneficial to the Trust and its tenants.

Rent collections have improved significantly since last quarter, and rent deferrals and abatements have decreased substantially, as follows:

	Q2 2020	Q3 2020
Gross rent collected from tenants	81.9%	94.8%
CECRA – 50% Federal Government contribution	3.6%	2.6%
Total: Collections including Federal Government CECRA	85.5%	97.4%
CECRA – 12.5% Government of Quebec contribution	0.3%	0.3%
CECRA – 25% Landlord write-off	1.5%	1.0%
Rent deferred	5.7%	0.5%
Rent abated	2.4%	0.3%
Remaining accounts receivable	4.6%	0.5%
Totals	100.0%	100.0%

For deferred rent that required repayment in September, Plaza collected 100% of same.  For deferred rent that required repayment in October, to date, Plaza has collected 95% of same.

99% of Plaza's portfolio is now open, with restaurants in certain Ontario and Quebec jurisdictions offering take-out or delivery only.

Although the fair value of its properties reflects its best estimates as at September 30, 2020, Plaza is continuing to review its future NOI and cash flow projections.  Depending on the duration and full impacts of COVID-19, certain aspects of Plaza's operations could be affected, including rental and occupancy rates, demand for retail space, capitalization rates, and the resulting value of Plaza's properties. The full extent and duration of COVID-19, including the resulting impacts on Plaza's business and its tenants, remains uncertain at this time.

Further Information
Information appearing in this press release is a select summary of results. A more detailed analysis of the REIT's financial and operating results 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 Jim Drake, CFO, will host a conference call for the investment community on Friday, November 13, 2020 at 10:00 a.m. EDT. The call-in numbers for participants are 647-427-7450 or 888-231-8191.

A replay of the call will be available until November 20, 2020. To access the replay, dial 416-849-0833 or 855-859-2056 (Passcode: 3968516). 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, focused on Ontario, Quebec and Atlantic Canada. Plaza's portfolio at September 30, 2020 includes interests in 272 properties totaling approximately 8.6 million square feet across Canada and additional lands held for development. Plaza's portfolio largely consists of open-air centres and stand-alone small box retail outlets and is predominantly occupied by 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 and same-asset NOI. 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.

Cautionary Statements Regarding Forward-looking Information
This press release contains forward-looking statements relating to Plaza's operations, strategy, condition and the environment in which it operates, including Plaza's expectation that it will be able to take advantage of buying opportunities as noted as the retail industry continues to evolve. Forward-looking statements are not future guarantees of future performance and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Plaza to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements contained in this press release, including but not limited to general economic and market factors, the impacts of COVID-19 described above, and those described in Plaza's Annual Information Form for the year ended December 31, 2019 and Management's Discussion and Analysis for the quarter ended September 30, 2020 which can be obtained on SEDAR at www.sedar.com. Forward-looking statements are based on a number of expectations and assumptions made in light of management's experience and perceptions of historical trends and current conditions and, although based upon information currently available to management and what management believes are reasonable expectations and assumptions, there can be no assurances that forward-looking statements will prove to be accurate. Readers, therefore, should not place undue reliance on any forward-looking statements. Plaza undertakes no obligation to publicly update any such statements, except as required by law. These cautionary statements qualify all forward-looking statements contained in this press release. 

SOURCE Plaza Retail REIT

Jim Drake, Chief Financial Officer, Plaza Retail REIT, Tel: [phone]; Michael Zakuta, President & Chief Executive Officer, Plaza Retail REIT, Tel: [phone]

Related Links

www.plaza.ca