Acquisitions contribute to double-digit revenue growth
TORONTO, Aug. 11 /CNW/ - Scott's Real Estate Investment Trust (TSX: SRQ.UN) ("Scott's REIT" or the "REIT"), Canada's leading owner of small-box retail properties, today reported its financial results for the second quarter ended June 30, 2010. The REIT also announced its 57th consecutive monthly cash distribution for the month of August 2010.
Second Quarter 2010 Financial Highlights
Three months ended June 30, 2010 vs. Three months ended June 30, 2009
- Revenue increased by 14.2 per cent to $5.8 million
- Net operating income* increased by 12.3 per cent to $4.8 million
- Payout ratio* increased to 99.8 per cent from 77.6 per cent but
decreased significantly from the first quarter of 2010.
*See section entitled Non-GAAP measures.
"Scott's REIT is off to a strong start in 2010," said Evelyn Sutherland, Chief Financial Officer of Scott's REIT. "The 13 properties that we acquired earlier this year are already contributing solidly to our bottom line and the fundamentals of our business remain robust, which will be beneficial as we look to refinance our existing mortgage this fall."
Financial Performance
Scott's REIT reported revenue of $5.8 million for the three-month period ended June 30, 2010, an increase of 14.2 per cent over the second quarter of 2009. The primary reason for the increase in the quarter was a result of the acquisition of 12 properties leased to Shoppers Drug Mart, which closed in early March 2010, and the acquisition of the property located in Okotoks, Alberta, which closed in early May 2010.
Operating expenses for the three-month period were $1 million, an increase of $0.2 million over the second quarter of 2009. The increase in operating expenses was a result of timing differences from property carrying costs primarily as a result of higher property tax expenses. All expenses are recoverable from the tenants.
In the second quarter, distributable income was slightly higher than distributions paid, resulting in a payout ratio of 99.8 per cent. The REIT's year-to-date payout ratio remains above 100 per cent due to the recent equity offering in February 2010 - of which the cash proceeds have not been completely deployed into income producing initiatives - as well as the delayed closing of the acquisition of 12 properties tenanted by Shoppers Drug Mart. However, based upon the positive results realized in the second quarter, this trend is starting to reverse. The REIT believes that the larger than normal payout ratio is temporary and anticipates that once the cash from the equity offering is deployed into income producing initiatives such as land intensification or future acquisitions, the ratio will once again return to below 100 per cent.
Liquidity
At June 30, 2010, Scott's REIT had $7.1 million in cash and cash equivalents (compared to $16 million as at December 31, 2009). Part of the REIT's cash balance at year ended December 31, 2009 was used to close the acquisition of the 12 properties tenanted by Shoppers Drug Mart in March 2010, along with the $20 million bridge loan facility raised in March 2010. The remainder will be used for, among other things, general corporate purposes. The REIT raised an additional $14 million in cash proceeds from the equity raised in February 2010. Of the proceeds, $7 million was estimated to be used for land intensification projects, while the remaining $5 million was estimated to be used to fund future acquisitions and the balance will be used for working capital purposes. The REIT used approximately $10.5 million of the cash for an acquisition in Okotoks, Alberta and anticipates placing a first mortgage on the property concurrently when it refinances its current $65 million debt which is maturing on October 1, 2010. The proceeds which will be obtained from this mortgage will be used to finance future acquisitions and also land intensification projects.
Monthly Distribution for August 2010
Scott's REIT announced a cash distribution for the month of August 2010 of $0.0708 per unit payable on September 15, 2010 to Unitholders of record on August 31, 2010.
Scott's REIT also announced today a monthly cash distribution of $0.0708 per unit to Unitholders of record of Class B Limited Partnership Units in Scott's Real Estate LP on August 31, 2010. This distribution marks the 57th consecutive cash distribution declared since Scott's REIT began operations on October 6, 2005.
Non-GAAP Measures
Distributable income
Distributable Income is not a measure recognized under GAAP and does not have a standardized meaning prescribed by GAAP. Distributable Income is presented in this MD&A because management of Scott's REIT believes this non-GAAP measure is a relevant measure of the ability of Scott's REIT to earn and distribute cash returns to Unitholders. Distributable Income as computed by Scott's REIT may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable. Distributable Income in this MD&A represents income before non-controlling interest of Scott's REIT on a consolidated basis as determined in accordance with GAAP, plus amortization expense, income taxes, stock compensation, less the straight-line revenue accrual, deferred financing costs, deferred amortization costs, below market rents and interest accretion.
Net Operating Income ("NOI")
NOI is not a measure recognized under GAAP and does not have a standardized meaning prescribed by GAAP. NOI is presented in this MD&A because the management of Scott's REIT believes that this non-GAAP 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.
About Scott's Real Estate Investment Trust
Scott's REIT (TSX: SRQ.UN) is Canada's premier small-box retail property owner with 220 properties in seven 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. The REIT has approximately 75.6 per cent interest in Scott's Real Estate LP. To find out more about Scott's Real Estate Investment Trust (TSX: SRQ.UN), visit our website at http://www.scottsreit.com.
Forward-Looking Statements
This document contains certain information that may constitute forward-looking information within the meaning of securities laws. 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. Forward-looking information may relate to management's future outlook and anticipated events or results, and may include statements or information regarding future growth opportunities and potential and expected cash distributions or cash distribution levels. In particular, information regarding the REIT's monthly cash distributions and information relating to the impact of the REIT's recent acquisitions on annual revenues and interest expense is forward-looking information. Forward-looking information is based on certain factors and assumptions regarding, among other things, occupancy rates, property expense and capital expenditures. While the REIT considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. Forward looking-information is subject to certain factors, including risks and uncertainties, which could cause actual results to differ materially from what is currently expected. Such factors include risks relating to the REIT's reliance on Priszm LP, the REIT's largest tenant, risks associated with investment in real property, competition, reliance on key personnel, financing and refinancing risks, environmental matters, tenant risks, risks related to current economic conditions and other risk factors more particularly described in the REIT's Annual Information Form for the year ended December 31, 2009. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. Other than as required by applicable Canadian securities law, the REIT does not undertake to update this information at any particular time. Additional information identifying risks and uncertainties is contained in Scott's REIT filings with the Canadian securities regulators, available at www.sedar.com.
The following selected financial information, with the exception of the Reconciliation of Distributable Income, has been derived from and should be read in conjunction with the historical audited financial statements of Scott's REIT for the quarters ended June 30, 2010 and 2009, and the notes thereto included in Scott's REIT's annual filings at www.sedar.com.
RECONCILIATION OF DISTRIBUTABLE INCOME TO CASH PROVIDED BY OPERATING
ACTIVITIES (UNAUDITED)
(in thousands of dollars except per Unit amounts)
The following table outlines the reconciliation of cash provided by
operating activities to distributable income:
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
-------------------------------------------------------------------------
2010 2009 2010 2009
-------------------------------------------------------------------------
Cash provided by operating activities $1,154 $1,741 $2,691 $3,335
Net change in non-cash working capital 812 244 727 360
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Distributable income 1,966 1,985 3,418 3,695
Distributions declared 1,962 1,540 3,780 3,081
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Distributable income per Unit 0.213 0.274 0.396 0.509
Distributions per Unit 0.213 0.213 0.425 0.425
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Distributable Income Payout Ratio 99.8% 77.6% 107.4% 83.5%
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Note
(1) Distributable income payout ratio is calculated by taking
distributable income divided by the weighted average number of Units
outstanding assuming full conversion of the class B exchangeable
Units during the relevant period end divided by the distributions per
unit paid during the period.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
June 30, December 31,
2010 2009
$ $
Assets
Income-producing properties 206,388 167,525
Intangible assets 10,252 7,743
Cash and cash equivalents 7,137 16,004
Accounts receivable 685 247
Prepaid expenses and other assets 880 795
Due from related companies 58 101
Straight-line rent receivable 2,563 2,446
-----------------------
227,963 194,861
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-----------------------
Liabilities and Unitholders' Equity
Mortgages payable 131,001 111,600
Convertible debentures 37,417 37,074
Accounts payable and accrued liabilities 1,880 1,284
Due to related companies 45 117
Distributions payable to Unitholders 654 513
Other liabilities 4,055 151
-----------------------
175,052 150,739
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Class B Exchangeable Units 12,960 14,334
-----------------------
Unitholders' Equity
Contributed surplus 2,588 2,588
Class A Units of Scott's REIT 58,818 44,676
Convertible debentures 1,265 1,265
Cumulative losses (1,339) (183)
Cumulative distributions declared on Class A Units (21,381) (18,558)
-----------------------
39,951 29,788
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227,963 194,861
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CONSOLIDATED STATEMENTS OF OPERATIONS AND CUMULATIVE EARNINGS
(in thousands of dollars, except per Unit amounts)
Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
REVENUE
Rental revenue $ 5,723 $ 5,049 $ 10,655 $ 9,784
Amortization of (above)
below-market rentals 41 (23) 35 (4)
Straight-line revenue accrual 68 79 117 127
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5,832 5,105 10,807 9,907
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EXPENSES
Amortization 2,400 1,985 4,449 4,051
Operating 1,042 841 1,884 1,647
Interest 2,703 1,990 5,183 3,967
General and administrative 452 575 864 955
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6,597 5,391 12,380 10,620
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Loss before non
-controlling interest (765) (286) (1,573) (713)
Non-controlling interest of
Class B Exchangeable Units 187 89 417 222
--------------------------------------------
Net loss for the period (578) (197) (1,156) (491)
Cumulative earnings (loss)
- Beginning of period (761) 983 (183) 1,277
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Cumulative earnings (loss)
- End of period (1,339) 786 (1,339) 786
--------------------------------------------
--------------------------------------------
Basic and diluted loss per
Unit (0.083) (0.039) (0.181) (0.098)
--------------------------------------------
--------------------------------------------
Class A Units outstanding 6,982,036 4,993,964 6,982,036 4,993,964
--------------------------------------------
--------------------------------------------
Class B Exchangeable Units
outstanding 2,254,909 2,254,909 2,254,909 2,254,909
--------------------------------------------
--------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands of dollars)
For the years ended June 30,
Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
Net loss for the period $ (578) $ (197) $ (1,156) $ (491)
Other comprehensive income - - - -
--------------------------------------------
Comprehensive loss for the
period (578) (197) (1,156) (491)
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
For the years ended June 30, 2010 and 2009
Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
CASH PROVIDED BY (USED IN)
Operating activities
Net loss for the period $(578) $(197) $(1,156) $(491)
Add (deduct)
Non-controlling interest
of Class B Exchangeable
Units (187) (89) (417) (222)
Amortization of income-
producing properties 2,115 1,728 3,918 3,456
Amortization of intangible
assets 245 280 495 599
Amortization of deferred
financing charges 269 118 453 236
Amortization of tenant
inducements and leasing
fees/commissions 12 4 23 10
Acquisition-in-progress
cost written off - 206 - 206
Interest accretion 59 14 118 28
Straight-line revenue accrual (68) (79) (117) (127)
Stock-based compensation 100 - 100 -
--------------------------------------------
1,966 1,985 3,418 3,695
Change in other non-cash
operating items
Accounts receivable (404) 184 (438) 338
Prepaid expenses and
other assets (167) 3 (478) (245)
Accounts payable and
accrued liabilities (223) (389) 218 (509)
Due to/from related
companies (18) (42) (29) 56
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1,154 1,741 2,691 3,335
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Investing activities
Acquisition of income-
producing properties (10,568) (9) (40,940) (7)
Tenant inducements and
leasing commissions (39) (17) (99) (17)
Construction-in-progress (38) (14) (67) (14)
Additions to income-
producing properties (95) - (95) -
Acquisitions-in-progress - - - 1
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(10,740) (40) (41,201) (37)
--------------------------------------------
Financing activities
Class A shares issued - - 15,002 -
Buy back of Class A Units - - - (300)
Demand loan - - - 1,300
Proceeds from mortgage
payable - - 20,000 -
Mortgage financing fees (125) - (339) (4)
Principal repayments on
mortgages payable (251) (215) (497) (399)
Distributions paid (1,961) (1,540) (3,639) (3,086)
Issuance costs 33 - (884) -
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(2,304) (1,755) 29,643 (2,489)
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Increase (decrease) in cash
and short-term investments
during the period (11,890) (54) (8,867) 809
Cash - Beginning of period 19,027 965 16,004 102
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Cash - End of period 7,137 911 7,137 911
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Supplemental cash flow
disclosure
Interest paid 2,385 2,213 4,583 3,703
Accrued cost relating to
acquisition of income-
producing properties 430 - 430 -
Accrued cost relating
to issuance of Units 12 - 12 -
Deposits made on income-
producing properties in
prior periods 100 - 350 -
%SEDAR: 00022537E
For further information: For investor information, please contact: Trish Moran, 416-624-5133, [email protected]; For media information, please contact: Wilcox Group, 604-488-1100, [email protected]
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