Further strengthens portfolio through $30 million strategic
acquisition of 12 new properties from Shoppers Drug Mart
Announces monthly cash distribution for March 2010
TORONTO, March 10 /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 fourth quarter and year ended December 31, 2009 and its monthly cash distribution for March 2010.
Fiscal 2009 Highlights
Year ended December 31, 2009 versus year ended December 31, 2008
- Increased revenue by 7.1 per cent to $19.5 million
- Increased distributable income per unit* by 3.3 per cent to
93 cents
- Generated a Distributable Income payout ratio of 91.9 per cent from
94.4 per cent
- Announced a $30 million sale and leaseback transaction with Shoppers
Drug Mart to acquire 12 properties, which closed subsequent to year
end on March 5, 2010.
* See section entitled Non-GAAP measures.
"Throughout the year, our portfolio of small-box properties generated strong operating cash while vacancies were maintained at a moderate level," said John Bitove, Chairman and CEO of Scott's REIT. "The stable revenue base that we have created continues to provide Scott's REIT with the strong earnings base we need to continue making high-return acquisitions during this low point in the economic cycle and to create opportunities that will increase unitholder value in the future."
Financial Performance
Scott's REIT reported revenue of $4.6 million for the three-month period ended December 31, 2009, a decrease of $0.4 million, or 8.7 per cent, over the fourth quarter of 2008. The decrease was due to vacancies and several large property tax reassessments that occurred in the fourth quarter of 2008, which were collected in 2009. For the fiscal year, Scott's REIT reported revenue of $19.5 million, an increase of $1.3 million over fiscal 2008. The favourable variance for the year is a result of two acquisitions that closed part way through 2008. In 2009, the REIT had a full year of rental revenues from these acquisitions.
The REIT's net operating income* was $3.7 million for the fourth quarter of 2009 versus $4 million for the same quarter in 2008, a decrease of $0.3 million, or 7.5 per cent. The cause of the decline was a result of several vacancies, which occurred during the quarter. However, Scott's REIT has since leased out four of those vacancies and the tenants are currently in possession of the various units. Year-over-year, net operating income was higher by $0.7 million as a result of the full year impact of two property acquisitions, which took place in 2008.
Operating expenses for the fourth quarter and fiscal 2009 were $0.8 and $3.2 million, respectively compared to $1 million and $2.7 million for the fourth quarter and fiscal 2008. The majority of the decline in expenses relates to two properties that had large increases in their taxes due to reassessments during the fourth quarter of 2008, which did not occur in the fourth quarter of 2009. The increase in the operating expenses year-over-year was a result of the full year impact of the two property acquisitions, which occurred in 2008.
Distributable income for the fourth quarter and fiscal 2009 were $1.2 million and $6.7 million, respectively compared to $1.6 million and $6.8 million for the fourth quarter and fiscal 2008. In addition, the payout ratio was 91.9 per cent, an improvement from 94.4 per cent in 2008. Although there was a decline in distributable income in the fourth quarter, the REIT anticipates that this is temporary due to the timing of the issuance of the 2009 Convertible Debentures prior to the Shoppers Drug Mart acquisition closing. Due to the volatility of the equity markets over the course of 2009, the REIT felt that it was prudent to secure the funds while the markets made them available. Distributable income for fiscal 2009 was still higher than distributions declared and paid. The excess will be used to fund, among other things, capital improvements, tenant inducements and principal payments on mortgages.
Recent Events
Changes to the Declaration of Trust
Scott's REIT held a special meeting on December 16, 2009 where the Unitholders of the REIT voted to approve amendments to the Declaration of Trust including, among others, certain changes to section 5.4 and section 15 of the Declaration of Trust to address the issue that the outstanding Units of the REIT may be classified as debt based on guidance in the International Financial Reporting Standards ("IFRS") under Internal Accounting Standards ("IAS") pronouncement 32; Financial Instruments: Presentations, as amended effective January 1, 2009. As a result of the amendments to the Declaration of Trust and management's review of the terms of the Units, management believes the REIT will be able to utilize the exemption in IAS 32 to present the Units as equity for the purposes of classification in its consolidated financial statements. Management continues to analyze the impact of IAS 32 on the Class B exchangeable Units.
Unitholders also approved amendments to section 11.1 of the Declaration of Trust which permit the Trustees to make future amendments to the Declaration of Trust as a result of changes in accounting standards due to IFRS implementation. The rationale for such amendment is that the REIT is currently in the process of evaluating the potential impact of IFRS on the consolidated financial statements. This is an ongoing process as the International Accounting Standards Board issues new standards and recommendations. The REIT's consolidated financial performance and financial position, as disclosed in the current GAAP financial statements, may be significantly different when presented in accordance with IFRS.
Lastly, Unitholders approved amendments to section 4.2(1) of the Declaration of Trust to give greater flexibility to the Trustees to enter into certain issuances which may be dilutive to Unitholders if they otherwise determine that such issuances are in the best interest of the REIT.
Equity Offering
On February 24, 2010, Scott's REIT closed an offering of 1,974,000 trust units of the Company from treasury. The Trust Units were offered at a price of $7.60 per Trust Unit, which resulted in gross proceeds of $15,002,400 for Scott's REIT. The REIT's proceeds will be used to fund land intensification projects, future acquisitions and for working capital purposes.
Acquisition from Shoppers Drug Mart
On March 5, 2010, the REIT closed its previously announced sale leaseback with Shoppers Drug Mart for 12 properties located in Alberta (1), Manitoba (1), Ontario (2), Quebec (6) and Nova Scotia (2). The purchase price for the transaction is $30.2 million and the weighted average lease term is 11.45 years. There are 10 properties with a 10-year lease term and two properties with a 15-year lease term. As a result of the larger refinancing that Scott's REIT is negotiating, the REIT financed the acquisition with a one-year bridge loan facility on favourable terms of $20 million and the balance with cash generated from the convertible debenture offering completed in the fourth quarter of 2009. This was done to maximize the benefits to the Unitholders of the REIT as it pursues various refinancing alternatives in the capital markets.
Monthly Distribution
Scott's REIT announced a cash distribution for the month of March 2010 of $0.0708 per unit payable on April 15, 2010 to Unitholders of record on March 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 March 31, 2010. This distribution marks the 52nd 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 press release 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 to distributable income as reported by such organizations. Distributable income in this press release represents income before non-controlling interest of Scott's REIT on a consolidated basis as determined in accordance with GAAP, plus depreciation and amortization expense and the guarantee fee, less the straight-line revenue accrual. For more information, please refer to the REIT's MD&A, which is included in its annual filings at sedar.com.
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 219 commercial properties in seven provinces across Canada. Scott's REIT's properties are well-located and geographically diverse across Canada and nearly all properties are 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, 2008. 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 September 30, 2009 and 2008, 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 distributable income to
cash provided by operating activities:
Reconciliation of Distributable Income to Cash Provided by Operating
Activities
-------------------------------------------------------------------------
Three months Twelve months
ended Dec 31, ended Dec 31,
-------------------------------------------------------------------------
2009 2008 2009 2008
-------------------------------------------------------------------------
Cash provided by
operating activities $1,074 $1,839 $6,765 $5,996
Net change in non-cash
working capital 141 (237) (58) 816
-------------------------------------------------------------------------
Distributable income 1,215 1,602 6,707 6,812
Distributions declared 1,541 1,571 6,163 6,434
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Distributable income per Unit 0.17 0.22 0.93 0.90
Distributions per Unit 0.21 0.21 0.85 0.85
-------------------------------------------------------------------------
Distributable income
Payout Ratio(1) 126.8% 98.1% 91.9% 94.4%
-------------------------------------------------------------------------
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.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
As of December 31,
Assets 2009 2008
$ $
Income-producing properties 167,525 174,135
Intangible assets 7,743 9,151
Cash and cash equivalents 16,004 102
Accounts receivable 247 574
Prepaid expenses and other assets 795 709
Due from related companies 101 80
Straight-line rent receivable 2,446 2,133
---------------------
194,861 186,884
---------------------
---------------------
Liabilities and Unitholders' Equity
Mortgages payable 111,600 112,225
Convertible debentures 37,074 18,903
Demand loan - 1,900
Accounts payable and accrued liabilities 1,284 1,264
Due to related companies 117 94
Distributions payable to unitholders 513 518
Other liabilities 151 242
---------------------
150,739 135,146
---------------------
Class B Exchangeable Units 14,334 16,910
---------------------
Unitholders' Equity
Contributed surplus 2,588 2,218
Class A Units of Scott's REIT 44,676 45,346
Convertible debentures 1,265 299
Cumulative earnings (losses) (183) 1,277
Cumulative distributions declared on Class A Units (18,558) (14,312)
---------------------
29,788 34,828
---------------------
194,861 186,884
---------------------
---------------------
CONSOLIDATED STATEMENTS OF OPERATIONS AND CUMULATIVE EARNINGS (LOSSES)
(in thousands of dollars, except per Unit amounts)
For the years ended December 31,
2009 2008
$ $
Revenue
Rental revenue 19,270 17,558
Amortization of (above) below market rentals (111) 2
Straight-line rent 313 627
---------------------
19,472 18,187
---------------------
Expenses
Depreciation and amortization 8,174 7,607
Operating expenses 3,227 2,672
Interest expense, net 8,375 7,180
General and administrative 1,815 1,503
---------------------
21,591 18,962
---------------------
Loss before non-controlling interest (2,119) (775)
Non-controlling interest of Class B
Exchangeable Units (659) (239)
---------------------
Net loss for the year (1,460) (536)
Cumulative earnings - Beginning of year 1,277 1,813
---------------------
Cumulative earnings (losses) - End of year (183) 1,277
---------------------
---------------------
Basic and diluted loss per Unit (0.292) (0.101)
---------------------
---------------------
Class A Units outstanding 4,993,964 5,060,964
---------------------
---------------------
Class B Exchangeable Units outstanding 2,254,909 2,254,909
---------------------
---------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands of dollars)
For the years ended December 31,
2009 2008
$ $
Net loss for the year (1,460) (536)
Other comprehensive income - -
---------------------
Comprehensive loss (1,460) (536)
---------------------
---------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
For the years ended December 31,
2009 2008
$ $
Cash provided by (used in)
Operating activities
Net loss for the year (1,460) (536)
Add (deduct)
Non-controlling interest of Class B
Exchangeable units (659) (239)
Depreciation of income-producing properties 6,916 6,561
Amortization of intangible assets and other
liabilities 1,369 1,044
Amortization of deferred financing charges 524 430
Amortization of tenant inducements and leasing
fees/commissions 23 11
Acquisitions-in-progress written off 206 -
Interest accretion 101 54
Straight-line rent (313) (627)
Employee non-cash bonuses - 114
---------------------
6,707 6,812
Change in other non-cash operating items
Accounts receivable 327 (492)
Prepaid expenses and other assets (73) (300)
Accounts payable and accrued liabilities (198) 256
Due to (from) related companies 2 (280)
---------------------
6,765 5,996
---------------------
Investing activities
Tenant inducements and leasing commissions (36) -
Intangible assets (52) -
Construction-in-progress (20) (49)
Acquisitions-in-progress (179) (190)
Property acquisitions - (9,918)
Additions to income-producing properties (95) (66)
---------------------
(382) (10,223)
---------------------
Financing activities
Buy back of Class A units (300) (1,804)
Net proceeds from convertible debentures 18,770 38
Proceeds from mortgage payable - 16,500
Mortgage financing costs (14) (407)
Distributions paid (6,168) (6,459)
Principal repayments on mortgages payable (869) (344)
Demand loan (1,900) (3,900)
---------------------
9,519 3,624
---------------------
Increase (decrease) in cash and
cash equivalents during the year 15,902 (603)
Cash and cash equivalents - Beginning of year 102 705
---------------------
Cash and cash equivalents - End of year 16,004 102
---------------------
---------------------
Cash and cash equivalents consist of
Cash 292 102
Cash equivalents 15,712 -
---------------------
16,004 102
---------------------
---------------------
Supplemental Disclosure
Interest paid 7,786 6,604
Mortgage assumed on acquisition of properties - 8,418
Accrued capital expenditures 218 -
%SEDAR: 00022537E
For further information: For investor information, please contact: Trish Moran, (416) 624-5133, [email protected]; For media information, please contact: Wilcox Group, (416) 203-6666, [email protected]
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