Plaza Retail REIT Announces Solid Results for the Six Months Ended June 30, 2016

- Plaza benefits from NOI growth from developments/redevelopments/acquisitions

FREDERICTON, Aug. 11, 2016 /CNW/ - Plaza Retail REIT (TSX: PLZ.UN) ("Plaza" or the "REIT") today announced solid financial results for the six months ended June 30, 2016.

Michael Zakuta, President and CEO said, "We are pleased with our financial results for the six months ended June 30, 2016.  Our business continues to benefit and grow from development and redevelopment activity.  Our goal is always to achieve cash flow per unit growth and pass that growth onto unitholders.  We are also pleased to have entered into a joint venture with RioCan Real Estate Investment Trust during the second quarter to redevelop three properties.  This is the type of activity that is at the core of our business – adding value in markets where we are strong and focused."

All period information in this press release is for the six months ended June 30, 2016 (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 2016 and the entire year ended December 31, 2015, and excludes partial year results from certain assets due to timing of acquisitions, redevelopments and dispositions.

Six Months Ended June 30, 2016 Financial Highlights

  • Funds from operations ("FFO") were $14.9 million, an increase of $353 thousand, or 2.4% over the same period in the prior year. Excluding non-recurring items, FFO increased 5.0%. Adjusted funds from operations ("AFFO") were $15.2 million, up 8.3% from $14.1 million in 2015. FFO per unit was $0.154 compared to $0.155 for the six months ended June 30, 2015 and AFFO per unit was $0.157, up 4.7%, from $0.150 in 2015. Excluding non-recurring items, FFO per unit increased 1.9% over the prior year;
  • FFO and AFFO payout ratios were 85.1% and 83.3%, respectively, compared to 80.7% and 83.5% in 2015;
  • Property rental revenues were $49.4 million, up 3.3% from $47.8 million for the six months ended June 30, 2015. Same-asset rental revenues were consistent year over year at $43.5 million;
  • Net property operating income ("NOI") was $30.6 million, up 2.3% from $29.9 million in the prior year and same-asset net property operating income was $27.6 million compared to $27.8 million for the six months ended June 30, 2015, down 0.9% mainly due to vacancies at two properties;
  • Profit and total comprehensive income for the period ended June 30, 2016 was $15.8 million compared to $24.5 million at June 30, 2015, mainly due to year over year non-cash fair value adjustments;
  • New long-term financing was obtained in the amount of $24.1 million (at Plaza's consolidated share) with a weighted average term of 7.8 years and a weighted average interest rate of 3.70%;
  • The interest coverage ratio improved from 2.01x at June 30, 2015 to 2.06x at June 30, 2016, reflecting higher EBITDA and lower financing costs as a result of all of the early refinancings undertaken over the past few years at historically low interest rates. The debt coverage ratio at June 30, 2016 remained relatively consistent at 1.50x compared to 1.51x at June 30, 2015;
  • Plaza's financial leverage improved, mainly as a result of the bought deal equity offering completed on March 31, 2016, ending the quarter with a debt to gross asset ratio of 53.4% (including convertible debentures) and 47.9% (excluding convertible debentures), compared to 55.4% and 49.4%, respectively, at the end of the second quarter in 2015;
  • Plaza paid total cash distributions to REIT unitholders and Class B exchangeable LP unitholders of $12.7 million; and
  • On March 31, 2016, Plaza closed a bought deal public offering of 5.0 million units at an issue price of $4.60 per unit for gross proceeds of $23.0 million.

Six Months Ended June 30, 2016 Operating Highlights

  • Plaza's leasing activity included 275 thousand square feet of renewals at existing properties at an average rate of $14.32 per square foot, compared to an expiring rate of $14.17 per square foot;
  • Plaza's leasing activity also included 83 thousand square feet of new leasing at existing properties at an average rate of $14.24 per square foot;
  • Plaza completed 443 thousand square feet of new leasing deals on developments and redevelopments at market rates and 116 thousand square feet of new and renewal leasing deals at market rates at non-consolidated investments;
  • Same-asset committed occupancy and total committed occupancy remained high at 96.4% and 96.2%, respectively, at June 30, 2016, compared to 96.5% and 96.1%, respectively, at June 30, 2015;
  • Plaza acquired an additional 5.5% interest in the Village Shopping Centre in St. John's, NL for $2.7 million. The REIT now owns 50.0% of this property; and
  • Plaza entered into a 50/50 joint venture with RioCan Real Estate Investment Trust ("RioCan") that is focused on redeveloping three properties located in Ontario and New Brunswick which were previously 100% owned by RioCan. Plaza acquired a 50% managing interest in the three properties for an aggregate purchase price of $11.5 million. As consideration for the acquisition Plaza paid cash of $750 thousand, issued a vendor take back interest-only mortgage secured by one of the properties of $5.25 million bearing interest of 5.00% per annum with a seven year term, and issued $5.5 million, 5.50%, five year Series VII convertible debentures. The vendor take back mortgage is repayable at any time without penalty. Closing costs associated with the acquisitions were $133 thousand.

 




Financial Results Summary for the Six Months Ended June 30th

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

2016

2015

Change

Property rental revenue

$49,389

$47,814

+ 3.3%

Property operating expenses

$18,806

$17,920

+ 4.9%

Property net operating income

$30,583

$29,894

+ 2.3%





Same-asset rental revenue

$43,510

$43,560

- 0.1%

Same-asset operating expenses

$15,932

$15,716

+ 1.4%

Same-asset net operating income

$27,578

$27,844

- 0.9%





FFO

$14,912

$14,559

+ 2.4%

FFO per unit

$0.154

$0.155

- 0.6%

FFO payout ratio

85.1%

80.7%

+ 5.5%





AFFO

$15,228

$14,064

+ 8.3%

AFFO per unit

$0.157

$0.150

+ 4.7%

AFFO payout ratio

83.3%

83.5%

- 0.2%





Profit and total comprehensive income

$15,795

$24,467

- 35.4%





Total distributions to unitholders

$12,689

$11,745

+ 8.0%





Debt to gross assets (including converts)

53.4%

55.4%

- 200 bps

Debt to gross assets (excluding converts)

47.9%

49.4%

- 150 bps


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

 

Six Months Ended June 30, 2016 Financial Results
Property NOI was $30.6 million, up 2.3% from $29.9 million in the prior year and same-asset NOI was $27.6 million compared to $27.8 million in the prior year.  Total property NOI increased mainly due to significant growth from developments and redevelopments, Plaza's core business, notwithstanding a decrease in NOI of $410 thousand due to properties sold.  Same-asset NOI decreased mainly due to vacancies at two properties, one of which was re-leased at a lower rent, as well as roof repairs.

FFO increased for the six months ended June 30, 2016 to $14.9 million, up 2.4% from $14.6 million for the six months ended June 30, 2015.  AFFO was $15.2 million, up 8.3% from $14.1 million in 2015.  FFO per unit was $0.154 compared to $0.155 in 2015 and AFFO per unit was $0.157, up 4.7% from $0.150 in 2015.  FFO and AFFO were impacted by growth in NOI, mainly due to net growth from developments/redevelopments/acquisitions and AFFO was impacted by a decrease in maintenance capital expenditures.  The per unit amounts were also impacted by the bought deal completed on March 31, 2016.  Excluding non-recurring items such as loan defeasance and early mortgage discharge fees paid for properties sold or early refinanced, write-offs of mark-to-market adjustments on debt for properties sold or early refinanced and property insurance proceeds, FFO was $15.2 million, up 5.0% from $14.5 million in 2015 and FFO per unit was $0.157, up from $0.154 in 2015.

Profit and total comprehensive income declined to $15.8 million for the six months ended June 30, 2016, from $24.5 million in the prior year.  The variance is mainly due to year over year 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 7.02%, a drop of two basis points from December 31, 2015 and a drop of one basis point from June 30, 2015.  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)

2016 – Q2





Leasing renewals (sq. ft.)

153,956

82,970

24,287

13,781

Weighted average rent ($/sq. ft.)

$13.44

$15.59

$10.25

$23.66






Expiries that renewed (sq. ft.)

153,956

82,970

24,287

13,781

Weighted average rent ($/sq. ft.)

$13.42

$15.21

$10.04

$23.64






New leasing (sq. ft.)

73,413

9,386

1,982

-

Weighted average rent ($/sq. ft.)

$14.41

$11.10

$25.00

-






Expiries not renewed (sq. ft.)

70,810

8,124

-

4,018

Weighted average rent ($/sq. ft.)

$16.09

$16.32

-

$31.43






2016 – Remainder of Year





Expiries (sq. ft.)

204,307

13,520

2,989

1,484

Weighted average rent ($/sq. ft.)

$10.85

$17.25

$16.44

$25.00

(1) QSR refers to quick service restaurant.

 

Distributions
Distributions paid to REIT unitholders and Class B unitholders of the REIT's subsidiary limited partnership were $12.7 million for the six months ended June 30, 2016, representing an AFFO payout ratio of 83.3%, compared to distributions in the amount of $11.7 million paid in the prior year, representing an AFFO payout ratio of 83.5%.

Liquidity and Capital Structure
To fund ongoing operating activities, the REIT has a $30.0 million 365-day revolving operating facility with a Canadian chartered bank.  It was early renewed for a two year period to July 31, 2018 with the interest rate dropping to prime plus 0.75% or BAs plus 2.00% from prime plus 1.00% or BAs plus 2.25%.  At June 30, 2016 there was $18.5 million available on this facility (net of letters of credit issued). 

To fund development activities the REIT has two 365-day revolving development facilities with Canadian chartered banks available upon pledging of specific assets.  One is a $20 million facility that was early renewed for a one year period with the interest rate dropping to prime plus 0.75% or BAs plus 2.25% from prime plus 1.00% or BAs plus 2.75%.  The other is a $15 million facility that was early renewed for a two year period with the interest rate dropping to prime plus 0.75% or BAs plus 2.00% from prime plus 1.00% or BAs plus 2.25%.  At June 30, 2016 there was $25.3 million available on these development facilities. The REIT also has two variable rate secured construction loans, one for $2.2 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 June 30, 2016, $1.6 million and $0.5 million, respectively, were drawn on these loans. 

During 2016 Plaza obtained new long-term financing in the amount of $24.1 million (at Plaza's consolidated share) with a weighted average term of 7.8 years and a weighted average interest rate of 3.70%.  The REIT ended the quarter with total mortgages payable (excluding development, construction and operating lines mentioned above) of $454.8 million with a weighted average interest rate on fixed rate mortgages of 4.56% and a weighted average maturity of 6.0 years.  

In February 2016, the $900 thousand Series VI mortgage bonds matured and were repaid.

In June 2016, the $1.185 million Series V mortgage bonds matured and were repaid.

On April 29, 2016, Plaza redeemed the $9.2 million outstanding 8.0% Series B convertible debentures with the proceeds from the bought deal public offering.

On June 15, 2016, $5.5 million in Series VII convertible debentures were issued as part of the financing to acquire a 50.0% interest in three properties.

Debt to gross book assets, excluding convertible debentures, at June 30, 2016 was 47.9% and including convertible debentures was 53.4%.

Further Information
A more detailed analysis of the REIT's financial results for the six months ended June 30, 2016 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, August 12, 2016 at 9:30 a.m. ET (10:30 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, August 19, 2016. To access the replay, dial 416-849-0833 or 855-859-2056 (Passcode: 48065401). 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 300 properties totaling approximately 7.6 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 and AFFO. 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 June 30, 2016 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 Kim Sharpe, Director of Business Development, Plaza Retail REIT Plaza Retail REIT, Tel: 416.848.4583 Tel: 506.357.7901

RELATED LINKS
http://www.plaza.ca

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