Plaza Retail REIT Announces Results for the Three Months Ended March 31, 2017

-  FFO per unit benefits from developments/redevelopments and lower finance costs

FREDERICTON, May 11, 2017 /CNW/ - Plaza Retail REIT (TSX: PLZ.UN) ("Plaza" or the "REIT") today announced their financial results for the three months ended March 31, 2017.

Michael Zakuta, President and CEO said, "We are pleased with our performance.  We delivered FFO growth for the three months ended March 31, 2017, which reflects the impact of the continued growth in our business from development and redevelopment activity. We achieve our goals of cash flow per unit growth and NAV growth by being opportunistic and by developing and redeveloping high quality retail projects leased to national retailers."

All period information in this press release is for the three months ended March 31, 2017 (except as otherwise noted) and all comparisons relate to the corresponding period in the prior year. "Same-asset" refers to properties the REIT has owned and operated during all of 2017 and the entire year ended December 31, 2016, and excludes partial year results from certain assets due to timing of acquisition, development, redevelopment or disposition.

 


Financial Results Summary for the Three Months Ended March 31st

(CAD$000s, except percentage and per unit amounts)

2017

2016

Change

Total property rental revenue

$25,340

$24,466

+ 3.6%

Total property operating expenses

$10,027

$9,162

+ 9.4%

Total NOI

$15,313

$15,304

n/c





Same-asset rental revenue

$22,308

$22,173

+ 0.6%

Same-asset operating expenses

$7,759

$7,560

+ 2.6%

Same-asset NOI

$14,549

$14,613

- 0.4%





FFO

$8,326

$7,491

+ 11.1%

FFO per unit

$0.082

$0.080

+ 2.5%

FFO payout ratio

82.9%

83.2%

- 0.4%





AFFO

$7,845

$7,037

+ 11.5%

AFFO per unit

$0.077

$0.075

+ 2.7%

AFFO payout ratio

88.0%

88.6%

- 0.7%





Profit and total comprehensive income

$279

$4,460

- 93.7%





EBITDA

$14,323

$14,236

+0.6%





Total distributions to unitholders

$6,906

$6,234

+ 10.8%





Debt to gross assets (including converts)

52.2%

53.6%

- 2.6%

Debt to gross assets (excluding converts)

48.4%

47.7%

+1.5%


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

 

Three Months Ended March 31, 2017 Financial Highlights

  • Funds from operations ("FFO") per unit increased to $0.082, up 2.5% from $0.080 in the prior year and adjusted funds from operations ("AFFO") per unit was $0.077, up 2.7%, from $0.075 in 2016. FFO was $8.3 million, an increase of $835 thousand, or 11.1% over the same period in the prior year, while AFFO was $7.8 million, up 11.5% from $7.0 million in 2016;
  • FFO and AFFO payout ratios were 82.9% and 88.0%, respectively, compared to 83.2% and 88.6% in 2016;
  • Property rental revenues were $25.3 million, up 3.6% from $24.5 million for the three months ended March 31, 2016. Same-asset rental revenues were $22.3 million, up 0.6%, from $22.2 million over the prior year;
  • Net property operating income ("NOI") was consistent at $15.3 million year over year and same-asset NOI was $14.5 million compared to $14.6 million for the three months ended March 31, 2016, down 0.4%;
  • Profit and total comprehensive income for the three months ended March 31, 2017 was $279 thousand compared to $4.5 million for the three months ended March 31, 2016, mainly due to non-cash fair value adjustments;
  • New long-term financing was obtained in the amount of $7.6 million (at Plaza's consolidated share) with a weighted average term of 10.0 years and a weighted average interest rate of 3.99%;
  • The interest coverage ratio improved from 2.07x at March 31, 2016 to 2.28x at March 31, 2017. The debt coverage ratio also improved at March 31, 2017 to 1.61x from 1.51x at March 31, 2016;
  • Plaza had a debt to gross asset ratio of 52.2% (including convertible debentures) and 48.4% (excluding convertible debentures), compared to 53.6% and 47.7%, respectively, at the end of the first quarter in 2016; and
  • Plaza paid total cash distributions to REIT unitholders and Class B exchangeable LP unitholders of $6.9 million.

Three Months Ended March 31, 2017 Operating Highlights

  • Plaza's leasing activity included 133 thousand square feet of renewals at existing properties at an average rate of $16.80 per square foot, compared to an expiring rate of $16.15 per square foot;
  • Plaza's leasing activity also included 20 thousand square feet of new leasing at existing properties at an average rate of $18.61 per square foot;
  • Plaza completed 36 thousand square feet of new leasing deals on developments and redevelopments at market rates and 48 thousand square feet of new and renewal leasing deals at market rates at non-consolidated investments; and
  • Same-asset committed occupancy and total committed occupancy remained high at 96.3% and 96.2%, respectively, at March 31, 2017, compared to 97.0% and 96.4%, respectively, at March 31, 2016.

Three Months Ended March 31, 2017 Financial Results
Total NOI was consistent at $15.3 million year over year and same-asset NOI was $14.5 million compared to $14.6 million in the prior year.  Total NOI was impacted mainly by an increase of $0.4 million due to growth from developments and redevelopments, Plaza's core business, offset by a decrease in NOI due to properties sold and higher administrative expenses charged to NOI.  The decrease in same-asset NOI was mainly due to a regional retailer bankruptcy and recovery adjustments in the quarter.  For the remainder of 2017 volatility is anticipated in same-asset NOI due to known vacancies.

FFO increased for the three months ended March 31, 2017 to $8.3 million, up 11.1% from $7.5 million for the three months ended March 31, 2016.  AFFO was $7.8 million, up 11.5% from $7.0 million in 2016.  FFO per unit was up 2.5% to $0.082 from $0.080 in the prior year and AFFO per unit was $0.077, up 2.7% from $0.075 in 2016.  FFO and AFFO were impacted by growth from developments and redevelopments, as well as a decrease in finance costs mainly due to lower debenture interest due to the redemption of Series B and C convertible debentures.  The per unit amounts were impacted by (1) the public offering of 5.0 million units completed on March 31, 2016, partly used to redeem the Series B convertible debentures, and (2) the conversion of $14.6 million in Series C convertible debentures into 2.8 million units in late 2016 and January 2017, upon the issuance of a redemption notice for the Series C convertible debentures in November 2016.  The full impact of the conversions is reflected in the quarter in the number of units outstanding, while the reduction in finance costs associated with the conversions will continue throughout the year.

Profit and total comprehensive income declined to $279 thousand for the three months ended March 31, 2017, from $4.5 million in the prior year.  The variance is mainly due to non-cash fair value adjustments.

Fair Value of Investment Properties
At the end of the quarter, investment properties were valued using an overall weighted average capitalization rate of 7.03%, consistent with the year ended December 31, 2016 and a drop of one basis point from March 31, 2016.  Fair value adjustments are determined based on the movement of various parameters, including changes in stabilized NOI and capitalization rates.

 

New Leases / Renewals



Strip Plazas

Enclosed Malls

Single-User Retail

Single-User QSR(1)

2017 – Q1





Leasing renewals (sq. ft.)

79,328

39,575

14,296

-

Weighted average rent ($/sq. ft.)

$14.26

$17.83

$28.00

-






Change in weighted average rent

3.6%

4.2%

4.7%

-






Expiries that renewed (sq. ft.)

79,328

39,575

14,296

-

Weighted average rent ($/sq. ft.)

$13.76

$17.11

$26.75

-











New leasing (sq. ft.)

16,093

2,344

-

1,790

Weighted average rent ($/sq. ft.)

$17.74

$19.71

-

$25.00











Expiries not renewed (sq. ft.)

14,726

6,133

-

1,790

Weighted average rent ($/sq. ft.)

$12.86

$12.32

-

$22.00











2017 – Remainder of Year





Expiries (sq. ft.)

126,362

29,835

8,963

16,132

Weighted average rent ($/sq. ft.)

$15.01

$16.56

$20.56

$35.32






(1) QSR refers to quick service restaurant.

 

Distributions
Distributions paid to REIT unitholders and Class B exchangeable LP unitholders of the REIT's subsidiary limited partnership were $6.9 million for the quarter ended March 31, 2017, representing an AFFO payout ratio of 88.0%, compared to distributions in the amount of $6.2 million paid in the prior year, representing an AFFO payout ratio of 88.6%.

Liquidity and Capital Structure
To fund ongoing operating activities, the REIT has a revolving operating facility with a Canadian chartered bank.  It bears interest at prime plus 0.75% or bankers' acceptances ("BAs") plus 2.00%.  In March 2017, the Trust pledged additional properties to increase its operating facility from $30.0 million to $44.0 million.  At March 31, 2017 there was $20.5 million available on this facility (net of letters of credit issued). 

To fund development activities the REIT has two revolving development facilities with Canadian chartered banks available upon pledging of specific development assets.  One is a $20 million facility that bears interest at prime plus 0.75% or BAs plus 2.25%.  The other is a $15 million facility that bears interest at prime plus 0.75% or BAs plus 2.00%.  At March 31, 2017 there was $28.1 million available on these development facilities. The REIT also has two variable rate secured construction loans, one for $3.0 million and the other for $907 thousand on two of its Ontario development projects.  The loans bear interest at a rate of prime plus 1.25% or BAs plus 2.50% and prime plus 1.00% or BAs plus 2.50%, respectively, and mature in August 2017 and December 2017, respectively.  At March 31, 2017, $2.6 million and $0.5 million, respectively, were drawn on these loans.

During 2017 Plaza obtained new long-term financing in the amount of $7.6 million (at Plaza's consolidated share) with a weighted average term of 10.0 years and a weighted average interest rate of 3.99%.  The REIT ended the quarter with total mortgages payable (excluding development, construction and operating lines mentioned above) of $440 million with a weighted average interest rate on fixed rate mortgages of 4.43% and a weighted average maturity of 6.4 years.

On November 30, 2016, the REIT issued a redemption notice for the 7.0% Series C convertible debentures to be redeemed on January 9, 2017.  During 2016, $1.75 million in Series C convertible debentures were converted into 333 thousand units and $198 thousand in cash, in accordance with the terms of conversion, leaving a balance of $15.2 million in face value of debentures at December 31, 2016.  Between January 3rd and 6th, 2017, $12.9 million in Series C convertible debentures were converted into 2.45 million units and $1.5 million in cash.  On January 9, 2017, the remaining $2.3 million in Series C convertible debentures were redeemed and paid out.

On February 28, 2017, the Trust issued $6.0 million in Series II unsecured debentures with an interest rate of 5.0% per annum maturing on February 28, 2022.

The interest coverage ratio improved from 2.07x at March 31, 2016 to 2.28x at March 31, 2017.  The debt coverage ratio also improved at March 31, 2017 to 1.61x from 1.51x at March 31, 2016.  The improvements in the ratios reflect lower finance costs mainly due to lower debenture interest from the redemption of Series B and C convertible debentures.

Debt to gross assets, excluding convertible debentures, at March 31, 2017 was 48.4% and including convertible debentures was 52.2%.  These compare to 47.7% and 53.6%, respectively at March 31, 2016.  The increase over the prior year excluding convertible debentures was mainly due to the issuance of $6.0 million Series II unsecured debentures.  The decrease over the prior year including convertible debentures was mainly due to the redemption of the Series B and C convertible debentures. 

Further Information
A more detailed analysis of the REIT's financial results for the three months ended March 31, 2017 is included in the REIT's Management's Discussion and Analysis and Condensed Interim 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 Floriana Cipollone, CFO, will host a conference call for the investment community on Friday, May 12, 2017 at 10:00 a.m. ET (11:00 a.m. AT). The call-in numbers for participants are 647-427-7450 or 888-231-8191.

A replay of the call will be available until Friday, May 19, 2017. To access the replay, dial 416-849-0833 or 855-859-2056 (Passcode: 6126662). 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, particularly in Eastern Canada.  Plaza's current portfolio includes interests in 298 properties totaling approximately 7.8 million square feet across Canada and additional lands held for development. Plaza's properties include a mix of strip plazas, stand-alone small box retail outlets and enclosed shopping centres, anchored by approximately 91% 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, same-asset NOI and EBITDA.  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 the quarter ended March 31, 2017 for a reconciliation of these non-IFRS measures to standardized IFRS measures.

Forward-looking Information
This news release contains forward looking statements relating to our operations and the environment in which we operate, which are based on our expectations, estimates, forecasts and projections.  These statements are not future guarantees of future performance and involve risks and uncertainties that are difficult to control or predict.  Therefore, actual outcomes and results may differ materially from those expressed in these forward looking statements.  Readers, therefore, should not place undue reliance on any such forward looking statements.  Further, a forward looking statement speaks only as of the date on which such statement is made.  We undertake no obligation to publicly update any such statement, to reflect new information or the occurrence of future events or circumstances, except for forward-looking information disclosed in prior disclosures which, in light of intervening events, requires further explanation to avoid being misleading.

The TSX does not accept responsibility for the adequacy or accuracy of this release.

 

SOURCE Plaza Retail REIT

For further information: Floriana Cipollone, Chief Financial Officer, Plaza Retail REIT, Tel: 416.848.4583; Kim Sharpe, Director of Business Development, Plaza Retail REIT, Tel: 506.357.7901

RELATED LINKS
http://www.plaza.ca

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