Scott's REIT reports strong third quarter 2010 results

Double digit increases in both revenue and net operating income

TORONTO, Nov. 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 third quarter ended September 30, 2010. The REIT also announced its 60^th consecutive monthly cash distribution for the month of November 2010.

Third Quarter 2010 Financial Highlights

Three months ended September 30, 2010 vs. Three months ended September 30, 2009

• Revenue increased by 18.5 per cent to $5.9 million
• Net operating income* increased by 20.1 per cent to $5.1 million
• Payout ratio* of 95.3 per cent

*See section entitled Non-GAAP measures.

"The third quarter was strong for Scott's REIT with double digit growth in both revenue and net operating income. We purchased a small parcel of land in Thunder Bay which will enable us to expand one of our existing Shoppers Drug Mart tenants, demonstrating our commitment to creating Unitholder value," said Evelyn Sutherland, Chief Financial Officer of Scott's REIT. "Our results continue to demonstrate the inherent strength and consistency of our business model."

Financial Performance
Revenue of $5.9 million for the third quarter was favourable by $0.9 million compared to the same quarter last year. The primary reason for the increase in the quarter was a result of the acquisition of 12 properties subsequently leased to Shoppers Drug Mart which closed in March 2010, and the acquisition of the property located in Okotoks, Alberta, which closed in May 2010.

Operating expenses of $0.9 million for the third quarter were $0.1 million higher than the same quarter of 2009. The increase in operating expenses was due to properties that were acquired during the first and second quarter of 2010. All of these expenses are recoverable from the tenants.

Net operating income decreased by 0.3% on a same asset basis compared to last year. However, by removing the non-cash items from the calculation, Scott's REIT's adjusted same property net operating income increased by 0.2%. This is result of the successful leasing initiatives that the REIT has deployed over the last two quarters.

Distributable income for the third quarter ended September 30, 2010 was $2.1 million compared to $1.8 million. The increase in the distributable income from last year third quarter is due to the two acquisitions, which occurred during the first and second quarter of 2010 including the acquisition of twelve properties tenanted by Shoppers Drug Mart and one multi tenant property located in Okotoks, Alberta. 

Property Acquisition

On September 17th, 2010, Scott's REIT purchased a parcel of land from the City of Thunder Bay Ontario. The land is being used to expand an existing building and tenant, Shoppers Drug Mart, for approximately 5,000 square feet. The REIT anticipates that the expansion will be complete and income producing by second quarter of 2011.

Liquidity
At September 30, 2010, Scott's REIT had $6.7 million of cash and cash equivalents (compared to $16.0 million as at December 31, 2009).

Scott's REIT has a $65 million loan maturing on January 1, 2011. Originally the loan was scheduled to mature on October 1, 2010, however, an extension was granted under the same terms as the original loan at 4.9% interest which is payable monthly. The REIT is in active discussions with lenders in an effort to close the financing of the $65 million loan and the $20 million outstanding bridge facility, due in March 2011. The REIT is trying to close the refinancing process by December 31, 2010, but an additional three months extension may be required. The REIT has engaged two investment banking firms to refinance these obligations, who have arranged several conditional non-binding orders to secure first mortgages.

The REIT currently intends to combine the refinancing of the $65 million mortgage with the $20 million bridge facility to diversity the tenant mix within the properties, which will increase the refinancing options available to Scott's REIT. While Scott's REIT currently believes that it will be able to refinance the maturing obligations, there can be no assurances that such refinancing will be for amounts and terms that are favourable to the REIT.

Monthly Distribution for November 2010
Scott's REIT announced a cash distribution for the month of November 2010 of $0.0708 per unit payable on December 15, 2010 to Unitholders of record on November 30, 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 November 30, 2010. This distribution marks the 60^th consecutive cash distribution declared since Scott's REIT began operations in October 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, plus amortization expense, income taxes, stock based compensation, less the straight-line revenue accrual, deferred financing costs, deferred amortization costs, above/below market rents, acquisition write-offs 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 September 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 distributable income to cash provided by operating activities:

	Three months ended September 30,		Nine months ended September 30,
	2010	2009	2010	2009
Cash provided by (used in) operating activities	$3,434	$2,356	$6,509	$5,691
Net change in non-cash working capital	(1,375)	(559)	(1,032)	(199)
Distributable income	2,059	1,797	5,477	5,492
Distributions declared	1,962	1,541	5,742	4,622
Distributable income per Unit	0.223	0.248	0.620	0.757
Distributions per Unit	0.213	0.213	0.638	0.638
Distributable Income Payout Ratio	95.3%	85.7%	102.9%	84.2%

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 and divided by the distribution per unit paid during the period.

INTERIM CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands of dollars)
Assets			September 30, 2010 $		December 31, 2009 $
Income-producing properties			204,294		167,525
Intangible assets			9,942		7,743
Cash and cash equivalents			6,679		16,004
Accounts receivable			214		247
Prepaid expenses and other assets			1,922		795
Due from related companies			66		101
Straight-line rent receivable			2,650		2,446
			225,767		194,861
Liabilities and Unitholders' Equity
Mortgages payable			130,884		111,600
Convertible debentures			37,586		37,074
Accounts payable and accrued liabilities			2,327		1,284
Due to related companies			4		117
Distributions payable to unitholders			654		513
Other liabilities			3,967		151
			175,422		150,739
Class B Exchangeable Units			12,336		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			(1,797)		(183)
Cumulative distributions declared on Class A Units			(22,865)		(18,558)
			38,009		29,788
			225,767		194,861

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND CUMULATIVE EARNINGS (LOSSES) (UNAUDITED)
(in thousands of dollars, except Units and per Unit amounts)
	Three months ended		Nine months ended
	September 30,		September 30,
	2010	2009	2010	2009
REVENUE	$	$	$	$
Rental revenue received	5,808	4,911	16,463	14,695
Amortization of above (below) market rents	47	(22)	82	(26)
Straight-line revenue accrual	87	126	204	253
	5,942	5,015	16,749	14,922
EXPENSES
Amortization	2,479	1,991	6,928	6,042
Operating expenses	890	809	2,774	2,410
Interest	2,706	1,991	7,889	5,958
General and administrative	471	450	1,335	1,451
	6,546	5,241	18,926	15,861
Loss before non-controlling interest	(604)	(226)	(2,177)	(939)
Non-controlling interest of Class B Exchangeable Units	(146)	(70)	(563)	(292)
Net loss for the period	(458)	(156)	(1,614)	(647)
Cumulative earnings (losses) - Beginning of period	(1,339)	786	(183)	1,277
Cumulative earnings (losses) - End of period	(1,797)	630	(1,797)	630
Basic and diluted loss per Unit	(0.065)	(0.031)	(0.245)	(0.129)
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

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(in thousands of dollars)
	Three months ended		Nine months ended
	September 30		September 30
	2010	2009	2010	2009
	$	$	$	$
Net loss for the period	(458)	(156)	(1,614)	(647)
Other comprehensive income	-	-	-	-
Comprehensive loss for the period	(458)	(156)	(1,614)	(647)

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands of dollars)
		Three months ended		Nine months ended
		September 30,		September 30,
		2010	2009	2010	2009
CASH PROVIDED BY (USED IN)
Operating activities		$	$	$	$
Net loss for the period		(458)	(156)	(1,614)	(647)
Add (deduct)
	Non-controlling interest of Class B Exchangeable Units	(146)	(70)	(563)	(292)
	Amortization of income-producing properties	2,187	1,729	6,106	5,185
	Amortization of intangibles assets and other liabilities	245	284	740	883
	Amortization of deferred financing charges	245	117	698	353
	Amortization of tenant inducements and leasing fees/commissions	13	5	36	15
	Acquisitions-in-progress cost written off	-	-	-	206
	Interest accretion	60	14	178	42
	Straight-line revenue receivable	(87)	(126)	(204)	(253)
	Stock-based compensation	-	-	100	-
		2,059	1,797	5,477	5,492
Change in other non-cash operating items
	Accounts receivable	471	(7)	33	331
	Prepaid expenses and other assets	144	5	(115)	(240)
	Accounts payable and accrued liabilities	809	504	1,192	(5)
	Due to/from related companies	(49)	57	(78)	113
Cash provided by operating activities		3,434	2,356	6,509	5,691
Investing activities
Acquisition of income-producing properties		(356)	(54)	(41,680)	(61)
Tenant inducements and leasing commissions		(119)	(3)	(218)	(20)
Construction-in-progress		(28)	(6)	(95)	(20)
Additions to income-producing properties		(7)	(23)	(102)	(23)
Acquisitions-in-progress		-	-	-	1
Computer software		(23)	-	(23)	-
Restricted cash		(115)	-	(115)	-
		(648)	(86)	(41,233)	(123)
Financing activities
Class A Units issued		-	-	15,002	-
Buy back of Class A Units		-	-	-	(300)
Demand loan		-	-	-	1,300
Proceeds from mortgage payable		-	-	20,000	-
Mortgage financing fees and prepaid transaction costs		(965)	(10)	(1,304)	(14)
Principal repayments on mortgages payable		(253)	(227)	(750)	(626)
Distributions paid		(1,962)	(1,541)	(5,601)	(4,627)
Issuance costs		(64)	-	(948)	-
		(3,180)	(1,778)	26,399	(4,267)
Decrease (increase) in cash and cash equivalents during the period		(458)	492	(9,325)	1,301
Cash and cash equivalents - Beginning of period		7,137	911	16,004	102
Cash and cash equivalents - End of period		6,679	1,403	6,679	1,403
Supplemental cash flow disclosure
	Interest paid	1,893	1,860	6,476	5,563
Accrued cost relating to acquisition of income-producing properties		(66)	-	(66)	-
Accrued cost related to issuance of Units		(12)	-	(12)	-
Deposits made on income-producing properties in prior periods		-	-	250	-
Payments made on income-producing properties in current period but accrued in prior periods		364	-	218	-
Adjustments to accrual on convertible debentures		-	-	9	-

%SEDAR: 00022537E

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