Scott's REIT announces financial results for the fourth quarter and year ended December 31, 2011

Re-leases 28 of 43 original disclaimed properties
Refinances Okotoks, AB mortgage
Announces 76th consecutive monthly cash distribution

TORONTO, March 7, 2012 /CNW/ - Scott's Real Estate Investment Trust (TSX: SRQ.UN) ("Scott's REIT" or the "REIT") today reported its financial results for the fourth quarter and year ended December 31, 2011. The REIT also provided an update on re-leasing activities, announced the refinancing of its Okotoks, Alberta property and announced its monthly cash distribution for March 2012.

Fourth Quarter 2011 Financial Highlights

• Revenues of $6.2 million, a 9.5 percent increase versus same quarter last year
• Net operating income* of $5.1 million, a 7.5 percent increase versus same quarter last year
• Adjusted Funds From Operations* per Unit of $0.13
• AFFO payout ratio* of 141.5 percent adjusted for non-recurring Priszm-related legal fees

Fiscal 2011 Financial Highlights

• Revenues of $23.3 million, a 4.3 percent increase versus the prior year
• Net operating income* of $19.4 million, a 3.7 percent increase versus the last year
• Adjusted Funds From Operations* per Unit of $0.65
• AFFO payout ratio* of 118.8 percent, excluding non-recurring Priszm-related legal fees

*See section entitled Non-IFRS measures.

Operational and Financial Summary

• Net operating income ("NOI") for Q4 2011 was $5.1 million, an increase of $0.4 million as compared to NOI for the same period of 2010. NOI has decreased by 8.2 percent on a same asset basis as compared to last year as a result of the Priszm disclaimed leases. NOI from acquisitions increased to $0.8 million in the fourth quarter as a result of the acquisition of nine Shoppers Drug Mart properties effective September 23, 2011. For the year ended December 31, 2011, NOI increased $0.7 million due to the additional contribution of $1.6 million from acquisitions offset by a decrease in same property NOI of $0.9 million due to the disclaimed Priszm leases.
  
  
• Adjusted Funds From Operations ("AFFO") for Q4 2011 totaled $1.2 million ($0.13 per unit, basic and diluted) as compared to $1.9 million ($0.21 per unit basic and $0.20 per unit diluted) for Q4 2010. The decrease in AFFO is a result of the increase in NOI of $0.4 million, offset by an increase in interest expense of $0.6 million due to new mortgages placed in 2011, the refinancing of 70 Ontario properties and the new $12 million convertible debenture that closed in September 2011, and an increase in trust expenses of $0.5 million which includes legal costs incurred as a result of the REIT's claim on Priszm's sales proceeds. AFFO for the year ended December 31, 2011 was $6.0 million ($0.65 per unit basic and $0.64 per unit diluted) compared to $7.4 million ($0.83 per unit basic and $0.76 per unit diluted) for the same period in 2010. The AFFO payout ratios for the quarter and year ending December 31, 2011 were 163.3 percent and 131.0 percent, respectively. Excluding the Priszm related legal and trust expenses, the adjusted AFFO payout ratios were 141.5 percent and 118.8 percent for the three months and year ended December 31, 2011, respectively.
  
  
• The portfolio occupancy rate as at December 31, 2011 was 95.1 percent versus the prior year at 98.4percent. Pro-forma occupancy including all leases disclaimed since year-end 2011 and all committed leases due to re-leasing efforts currently sits at 96.3 percent.
  
  
• The REIT's average cost of mortgage debt was 5.27 percent at the end of Q4 2011, as compared to 5.07 percent at the end of 2010. The REIT's leverage ratio at December 31, 2011 was 53.8 percent excluding convertible debentures and 71.0 percent including convertible debenture, versus 49.6 percent and 65.1 percent, respectively, as at December 31, 2010.
  
  
• During fiscal 2011, the REIT refinanced $53 million of maturing debt and raised $40.1 million of new financing related to property acquisitions.
  
  
• At December 31, 2011, Scott's REIT had $3.3 million of cash and cash equivalents compared to $4.8 million as at December 31, 2010.

"Scott's REIT continued to grow its business this past year despite the challenges created by the financial difficulties of a key tenant. The REIT executed its largest acquisition in its history, refinanced one-third of its debt, raised new capital and successfully executed new leasing on nearly two-thirds of its vacant properties," said Teresa Neto, Chief Financial Officer of the REIT. "These same efforts will continue into 2012 as the REIT restores occupancy to historical levels and deals with the remainder of its refinancing objectives."

Re-leasing Update

Scott's REIT has completed nine new leases for sites disclaimed and previously leased by Priszm as KFC restaurants, including eight sites in Ontario and one in Quebec. The eight sites in Ontario have been leased to Dixie Lee Chicken, each for a 10-year term. Scott's REIT has now re-leased 100 percent of the 14 former Priszm disclaimed sites in Ontario. In Quebec, Scott's REIT has re-leased a total of five of the 13 sites disclaimed by Priszm, 11 of which were disclaimed effective January 27, 2012. Including these nine new leases, Scott's REIT has now leased 28 of the 43 sites disclaimed representing 63.5 percent of the total disclaimed gross leasable area ("GLA"). A total of 15 vacant disclaimed properties, representing 31,915 square feet of GLA, remain outstanding.

"We are very pleased at the pace in which we have been able to re-lease the former Priszm KFC sites," said Kevin Salsberg, Chief Operating Officer of Scott's REIT. "Ontario vacancies have been fully dealt with in seven months, while in Quebec; nearly 45 percent of the 11 sites that were disclaimed only one month ago have already been re-leased. The fact that we have achieved an occupancy level of 96.3 percent demonstrates the strength of the REIT's single-tenant assets and we believe most of the remaining vacant sites will be re-leased over the next twelve months."

Refinancing of Okotoks, Alberta Mortgage

On February 27, 2012, Scott's REIT completed the refinancing of its first mortgage with Alberta Treasury Branches ("ATB"), secured by Scott's REIT's property in Okotoks, Alberta. The mortgage has been increased to $7.1 million and the mortgage term has been extended to ten years. The mortgage bears a fixed interest rate of 4.69 percent, and is amortized over a 24-year period.  The previous mortgage had an outstanding balance of approximately $5.4 million, bore an interest rate of prime plus 0.50 percent and was due to mature in April 2013.

March 2012 Distribution

Scott's REIT announced a cash distribution for the month of March 2012 of $0.0708333 per unit payable on April 16, 2012 to Unitholders of record on March 30, 2012.

Scott's REIT reviews the amount of its distributions on an ongoing basis and considers a number of factors including expected cash flows based on occupancy rates, operating expenses, capital expenditures and debt service requirements. Although Scott's REIT has maintained the same distribution amount for 76 consecutive months in accordance with its distribution policy, there can be no assurance that any future distributions will be at the current level.

"We remain confident that Scott's REIT will be able to successfully address any potential challenges that may surface over the next few quarters as Priszm concludes sales of its KFC restaurant operations," said Teresa Neto, CFO of the REIT. "Until such time when all of Priszm's actions are known, and as we continue to re-lease the balance of the remaining Priszm KFC sites, our payout ratio will temporarily exceed our preferred payout ratio level. However, Scotts REIT is taking a long term view with respect to our distributions, assets and portfolio management."

Financial Highlights

The following selected financial information, has been derived from and should be read in conjunction with the audited consolidated financial statements of Scott's REIT for the years ended December 31, 2011 and 2010, and the notes thereto included in Scott's REIT's annual filings at www.sedar.com.

(in thousands of dollars, except Unit and per Unit amounts)	Three-month period ended December 31,		Year  Ended December 31,
Financial Information	2011	2010 ^(1)	2011	2010^(1)
Revenue	$6,235	$5,696	$23,301	$22,342
Net operating income (2)	5,142	4,782	19,352	18,654
Net income (loss) (3)	(8,665)	333	3,248	12,872
FFO^(4)	851	1,863	3,821	7,070
FFO per Unit(5)	0.09	0.20	0.41	0.79
FFO per Unit - Fully Diluted(5)	0.09	0.19	0.41	0.74
FFO, Adjusted (6)	877	1,863	4,932	7,070
FFO per Unit, Adjusted	0.09	0.20	0.53	0.79
FFO per Unit, Adjusted  - Fully Diluted	0.09	0.19	0.53	0.74
AFFO(7)	1,203	1,916	5,996	7,394
AFFO per Unit (8)	0.13	0.21	0.65	0.83
AFFO per Unit  - Fully Diluted (8)	0.13	0.20	0.64	0.76
AFFO, Adjusted (9)	1,388	1,916	6,611	7,394
AFFO per Unit, Adjusted	0.15	0.21	0.72	0.83
AFFO per Unit, Adjusted  - Fully Diluted	0.15	0.20	0.70	0.76
Total Units (10)	9,249,607	9,236,945	9,249,607	9,236,945
Weighted Average Number of Units (10)	9,249,607	9,236,945	9,243,952	8,939,658
Weighted Average Number of Units - Fully Diluted(11)	11,737,169	13,629,269	11,731,515	13,629,269
Total distributions declared to Unitholders (12)	1,965	1,963	7,854	7,708
Total distributions to Unitholders, cash basis(13)	1,965	1,963	7,854	7,708
Total distributions per Unit	0.21	0.21	0.85	0.85
Payout ratio(14)	163.3%	102.4%	131.0%	102.8%
Adjusted payout ratio (15)	141.5%	102.4%	118.8%	102.8%

(in thousands of dollars, except Unit and per Unit amounts)	Three-month period ended December 31,		Year ended December 31,
Financial Metrics	2011	2010 (1)	2011	2010(1)
Total assets as at period end	$299,572	$263,910	$299,572	$263,910
Debt, excluding convertible debentures as at period end (16)	161,299	130,757	161,299	130,757
Debt to gross book value (17)	53.84%	49.55%	53.84%	49.55%
Interest coverage ratio (18)	1.45	1.82	1.54	1.80
Weighted average mortgage contract interest rate	5.27%	5.07%	5.27%	5.07%
			Three and twelve month periods ended December 31,
Operational Information			2011	2010(1)
Portfolio Occupancy			95.12%	98.38%
Gross Leasable Area			1,103,156	955,537
Number of Properties			229	220

Notes:

(1)	Results of 2010 have been restated to conform with International Financial Reporting Standards ("IFRS").
(2)	A non-IFRS measurement, calculated by the REIT as rental revenue (net rents, property tax and operating cost recoveries, as well as other miscellaneous income from tenants) less operating expenses from rental properties and property management fees.
(3)	Refer to the MD&A for a discussion and analysis of the fourth quarter and year-to-date results compared to the corresponding periods in the previous year.
(4)	A non-IFRS measure for which a reconciliation to net income can be found in the MD&A in the discussion under "Funds from Operations ("FFO") and Adjusted Funds From Operations ("AFFO")".
(5)	FFO per Unit is calculated using the weighted average number of Units outstanding including the Class B Exchangeable Units of Scott's LP while they were outstanding for the year.
(6)	FFO is adjusted for the transaction costs incurred of $26 for Q4 2011 and $1,110 for the year 2011, on the issuance of $12,000 of unsecured convertible debentures which are expensed to general and administrative costs.
(7)	A non-IFRS measure for which a reconciliation to net income can be found in the MD&A in the discussion under "Funds From Operations and Adjusted Funds from Operations". AFFO includes the adjustment for the transactions costs incurred on the issuance of $12,000 of unsecured convertible debentures, per note (6) above.
(8)	AFFO per Unit is calculated using the weighted average number of Units outstanding including the Class B Exchangeable Units of Scott's LP while they were outstanding for the year.
(9)	AFFO is adjusted for the legal expenses related to the claim on proceeds from Priszm (see "2011 - Fourth Quarter Highlights - Priszm").
(10)	Calculated using the number of Units outstanding including the Class B Exchangeable Units of Scott's LP while they were outstanding during the year.
(11)	For 2011, fully diluted units assume the conversion of the 2009 Convertible Debentures, and for 2010 assumes the conversion of the 2007 Convertible Debentures and the 2009 Convertible Debentures.
(12)	Distributions declared include the distributions declared on the Class B Exchangeable Units of Scott's LP while they were outstanding during the year.
(13)	Distributions on a cash basis include the distributions paid on the Class B Exchangeable Units of Scott's LP while they were outstanding during the year.
(14)	A non-IFRS measure calculated by dividing distributions paid to Unitholders, including the Class B Exchangeable Units of Scott's LP while they were outstanding during the year, by AFFO as defined in the MD&A.
(15)	A non-IFRS measure calculated by dividing distributions paid to Unitholders, including the Class B Exchangeable Units of Scott's LP while they were outstanding during the year by AFFO, adjusted, as defined in the MD&A.
(16)	Debt is defined as mortgages payable, term debt and land lease liability.
(17)	A non-IFRS measurement defined in the REIT's Declaration of Trust.
(18)	Interest coverage ratio is calculated as IFRS net income, plus interest expense (including the distribution on the Class B Exchangeable Units and deferred financing amortization expense), plus transaction costs incurred on the issuance of convertible debentures, plus amortization, and adjusted for unrealized gains/losses on financial instruments and investment properties measured at fair value, divided by the total interest expense (excluding the distribution on the Class B Exchangeable Units of Scott's LP and the deferred financing amortization expense).

Non-IFRS Measures

Funds From Operations ("FFO") and FFO, Adjusted
FFO is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. FFO is presented in this MD&A because management of Scott's REIT believes this non-IFRS measure is a relevant measure of Scott's REIT operating performance. Scott's REIT calculates FFO according to the industry standard definition stated in the REALpac Whitepaper on FFO dated June 2010. FFO as computed by Scott's REIT may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable. FFO in the MD&A represents net income of Scott's REIT, plus depreciation, amortization of intangible assets, amortization expense relating to tenant allowances, interest expense on the Class B Exchangeable Units; and fair value adjustments on investment properties, convertible debentures and the Class B Exchangeable Units. FFO, Adjusted represents FFO, as computed by Scott's REIT, less transaction costs expensed relating to the issuance of convertible debentures.

Adjusted Funds From Operations ("AFFO") and AFFO, Adjusted
AFFO is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. AFFO 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. AFFO as computed by Scott's REIT may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable. AFFO in the MD&A represents net income of Scott's REIT, plus depreciation, amortization of intangible assets, amortization expense relating to tenant allowances, amortization of deferred financing fees, stock based compensation, interest expense on the Class B Exchangeable Units, and acquisition write-offs, less, the straight-line rent revenue accrual, and fair value adjustments on investment properties, convertible debentures and the Class B Exchangeable Units. The amount of distributions paid in a period relative to the AFFO generated in the same period is referred to as the "payout ratio". AFFO, Adjusted represents AFFO, as computed by Scott's REIT, less legal costs expensed relating to the REIT's claim on Priszm's sales proceeds.

Net Operating Income ("NOI")
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 the ability of Scott's REIT to earn and distribute cash to Unitholders. NOI as computed by Scott's REIT may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable.

Forward-Looking Statements

This MD&A contains certain information or statements that may constitute forward-looking information within the meaning of securities laws, which reflect the current view of Scott's REIT with respect to the REIT's objectives, plans, goals, strategies, future growth, results of financial performance, financial and operating performance and business prospectus and opportunities . 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. In particular, forward-looking information included in this MD&A includes, but is not limited to, statements with respect to the REIT's ability to lease vacant property units, collect minimum rents, diversify its tenant base, undertake land intensification projects, refinance loans and mortgages at their maturity, complete accretive acquisitions, and maintain or grow monthly cash distribution levels, and also with respect to the timing of such events. Forward-looking information should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the statements and information in this MD&A containing forward-looking information are qualified by these cautionary statements.

Forward-looking statements are based on information available at the time they are made, underlying estimates and assumptions made by management and management's good faith belief with respect to future events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally which could cause actual results to differ materially from what is currently expected. Such risks and uncertainties include, but are not limited to the REIT's reliance on Priszm Limited Partnership "Priszm", the REIT's second largest tenant in terms of gross leasable area, risks associated with investment in real property, competition, reliance on key personnel, financing and refinancing risks, distributions, environmental matters, tenant risks, risks related to current economic conditions and other risk factors more particularly described in the REIT's most recent Annual Information Form available on SEDAR at www.sedar.com. Additional risks and uncertainties not presently known to the REIT or that the REIT currently believes to be less significant may also adversely affect the REIT.

Scott's REIT cautions readers that the list of factors is not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by the REIT will be realized or, even if substantially realized, that they will have the expected consequences to, or effect on, the REIT. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date. The REIT disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

About Scott's Real Estate Investment Trust
Scott's REIT (TSX: SRQ.UN) is Canada's premier small-box retail property owner with 229 properties in eight 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. To find out more about Scott's Real Estate Investment Trust (TSX: SRQ.UN), visit our website at www.scottsreit.com.

 

 

 

Teresa Neto
Chief Financial Officer
[email protected]
416-361-9953

For media information, please contact:

Trevor Boudreau
604-564-8209
[email protected]