Scott's REIT distributable income up 25 per cent per Unit underpinning its strongest-ever quarterly financial results



    Payout ratio significantly improves to 78 per cent from 96 per cent

    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, 2009. The REIT also announced its 45th consecutive monthly cash
distribution for the month of August 2009.

    
    Second Quarter 2009 Financial Highlights

    -   Revenue increased 17.8 per cent to $5.1 million
    -   Net operating income increased 13.8 per cent to $4.3 million
    -   Distributable income(*) per Unit grew by 24.6 per cent
    -   Payout ratio improved to 77.6 per cent from 96.4 per cent

    (*)See section entitled Non-GAAP measures.
    

    "Scott's REIT is doing very well despite the difficult recession, which
speaks to the quality of our tenant portfolio and reflects the success of our
strategy of focusing on high-quality national tenants as we continue to bring
value to our unitholders," said John Bitove, Chairman and Chief Executive
Officer of Scott's REIT.

    Financial Performance

    "The REIT's solid performance this quarter reflects the accretive
acquisitions that we have made over the past two years as well as rent
escalations realized in the fourth quarter of 2008, which resulted in a 9.0
per cent increase in total adjusted funds from operations ("AFFO"), as well as
a 15.2 per cent quarter-to-quarter increase in AFFO per unit over the same
period last year," said Bitove. "The REIT also implemented a unit buyback
program to provide a greater return to unitholders over the long term.
Pursuant to a normal course issuer bid, the REIT purchased for cancellation
more than 435,000 Class A Units, which also attributed to our continued strong
results."
    Scott's REIT reported revenue of $5.1 million for the three-month period
ended June 30, 2009, an increase of 17.8 per cent over the second quarter of
2008.
    Operating expenses for the second quarter of 2009 were $0.8 million, an
increase of $0.2 million over the second quarter of 2008.
    The REIT's net operating income for the second quarter of 2009 was $4.3
million, an increase of 13.8 per cent over the prior year quarter.
    During the second quarter of 2009, the REIT generated distributable
income of $2.0 million, an increase of 24.6 per cent over the second quarter
of 2008.

    Liquidity

    At June 30, 2009, Scott's REIT increased its cash on hand to
approximately $0.9 million compared to $0.1 million at December 31, 2008. The
REIT's cash balance is anticipated to be used for general corporate purposes
including monthly distributions paid to Unitholders, payments on the demand
loan and principal payment on mortgages.
    In 2009, cash provided by operating activities (including non-cash
working capital) is higher than distributions. As such, Scott's REIT
anticipates that it will continue to maintain stable monthly cash
distributions to its Unitholders throughout the remaining fiscal year.
    Subsequent to the end of the second quarter, the REIT renewed its demand
loan. In light of the current tight conditions of the credit market, the new
terms stipulate that the demand loan will expire on December 31, 2009 and bear
interest at prime plus three per cent for August 2009, increasing by one
percent every month thereafter until the loan's expiry. Scott's REIT is
pursuing alternate financing solutions and currently has received interest
from other financial institutions for a $6 million replacement facility. The
REIT anticipates that it will be able to fully meet its financing obligations
with regards to the demand loan. At June 30, 2009, $3.2 million has been drawn
on the facility, which was used to fund recent acquisitions and other
corporate purposes. Reductions on the demand loan could also come from payment
of holdbacks, cash from the operations of the business and future equity
offerings.
    "Our solid track record is also serving us well as we hold discussions
with several lenders with respect to the renewal of our upcoming loan in 2010.
While these discussions are still in the preliminary stage, several parties
are interested in refinancing the full loan amount," said Bitove.

    Monthly Distribution for August 2009

    Scott's REIT announced a cash distribution for the month of August 2009
of $0.0708 per unit payable on September 15, 2009 to Unitholders of record on
August 31, 2009.
    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, 2009. This distribution marks the 45th
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.

    About Scott's Real Estate Investment Trust

    Scott's REIT (TSX: SRQ.UN) is Canada's premier small-box retail property
owner with 207 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 68.9 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 quarter ended June 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

    -------------------------------------------------------------------------
                                  Three months ended        Six months ended
                                        June 30,                June 30,
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Cash provided by operating
     activities                   $1,741        $929      $3,335      $2,257
    Net change in non-cash
     working capital                 244         755         360       1,122
    -------------------------------------------------------------------------
    Distributable income           1,985       1,684       3,695       3,379
    Distributions declared         1,540       1,619       3,081       3,250
    -------------------------------------------------------------------------
    Distributable income per Unit  0.274       0.220       0.509       0.442
    Distributions per Unit         0.213       0.213       0.425       0.425
    -------------------------------------------------------------------------
    Distributable Income
     Payout Ratio                  77.6%       96.4%       83.5%       96.2%
    -------------------------------------------------------------------------



    INTERIM CONSOLIDATED BALANCE SHEETS (UNAUDITED)
    (in thousands of dollars)

                                                       June 30,  December 31,
                                                          2009          2008

    ASSETS
    Income-producing properties                       $170,493      $174,135
    Intangible assets                                    8,310         8,909
    Cash                                                   911           102
    Accounts receivable                                    236           574
    Prepaid expenses and other assets                      961           709
    Due from related companies                               1            80
    Straight-line revenue accrual                        2,260         2,133
                                                    -------------------------
                                                       183,172       186,642
                                                    -------------------------
                                                    -------------------------
    LIABILITIES AND UNITHOLDERS' EQUITY
    Mortgages payable                                  111,952       112,225
    Convertible debentures                              19,037        18,903
    Demand loan                                          3,200         1,900
    Accounts payable and accrued liabilities               755         1,264
    Due to related companies                                71            94
    Distributions payable to Unitholders                   513           518
                                                    -------------------------
                                                       135,528       134,904
                                                    -------------------------
    Class B Exchangeable Units                          15,730        16,910
                                                    -------------------------
    UNITHOLDERS' EQUITY
    Contributed surplus                                  2,588         2,218
    Class A Units of Scott's REIT                       44,676        45,346
    Convertible debentures                                 299           299
    Cumulative earnings                                    786         1,277
    Cumulative distributions declared on
     Class A Units                                     (16,435)      (14,312)
                                                    -------------------------
                                                        31,914        34,828
                                                    -------------------------
                                                       183,172       186,642
                                                    -------------------------
                                                    -------------------------



    INTERIM CONSOLIDATED STATEMENTS OF EARNINGS AND CUMULATIVE EARNINGS
    (UNAUDITED)
    (in thousands of dollars, except unit and per unit amounts)


                                  Three months ended        Six months ended
                                        June 30,                June 30,
                                    2009        2008        2009        2008

    REVENUE
    Rental revenue               $ 5,049     $ 4,144     $ 9,784     $ 8,267
    Amortization of
     above/below-market rentals      (23)          9          (4)         17
    Straight-line revenue
     accrual                          79         180         127         283
                               ----------------------------------------------
                                   5,105       4,333       9,907       8,567
                               ----------------------------------------------
    EXPENSES
    Amortization                   1,985       1,804       4,051       3,608
    Operating                        841         585       1,647       1,145
    Interest                       1,990       1,672       3,967       3,342
    General and administrative       575         321         955         636
                               ----------------------------------------------
                                   5,391       4,382      10,620       8,731
                               ----------------------------------------------
    Loss before non-
     controlling interest           (286)        (49)       (713)       (164)
    Non-controlling interest of
     Class B Exchangeable Units       89          15         222          49
                               ----------------------------------------------
    Net loss for the period         (197)        (34)       (491)       (115)
    Cumulative earnings -
     Beginning of period             983       1,732       1,277       1,813
                               ----------------------------------------------
    Cumulative earnings -
     End of period                   786       1,698         786       1,698
                               ----------------------------------------------
                               ----------------------------------------------
    Basic and diluted loss
     per Unit                     (0.039)     (0.006)     (0.098)     (0.021)
                               ----------------------------------------------
                               ----------------------------------------------
    Class A Units outstanding  4,993,964   5,352,227   5,410,527   5,352,227
                               ----------------------------------------------
                               ----------------------------------------------
    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        Six months ended
                                        June 30,                June 30,
                                    2009        2008        2009        2008

    Net loss for the period      $  (197)    $   (34)    $  (491)    $  (115)
    Other comprehensive income         -           -           -           -
                               ----------------------------------------------
    Comprehensive loss              (197)        (34)       (491)       (115)
                               ----------------------------------------------
                               ----------------------------------------------



    INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
    (UNAUDITED)
    (in thousands of dollars)

                                  Three months ended        Six months ended
                                        June 30,                June 30,
                                    2009        2008        2009        2008

    CASH PROVIDED BY (USED IN)
    Operating activities
    Net loss for the period        $(197)       $(34)      $(491)      $(115)
    Add (deduct)
      Non-controlling interest
       of Class B Exchangeable
       Units                         (89)        (15)       (222)        (49)
      Amortization of
       income-producing
       properties                  1,728       1,581       3,456       3,162
      Amortization of
       intangible assets             280         214         599         429
      Amortization of deferred
       financing charges             118         102         236         204
      Amortization of deferred
       costs                           4           2          10           3
      Acquisition-in-progress
       cost written off              206           -         206           -
      Interest accretion              14          14          28          28
      Straight-line revenue
       accrual                       (79)       (180)       (127)       (283)
                               ----------------------------------------------
                                   1,985       1,684       3,695       3,379
    Change in other non-cash
     operating items
      Accounts receivable            184           -         338           -
      Prepaid expenses and other
       assets                          3        (223)       (245)       (549)
      Accounts payable and
       accrued liabilities          (389)       (415)       (509)       (294)
      Due to related companies       (42)       (117)         56        (279)
                               ----------------------------------------------
                                   1,741         929       3,335       2,257
                               ----------------------------------------------
    Investing activities
    Tenant inducements and
     leasing commissions             (17)          -         (17)          -
    Construction-in-progress         (14)         (7)        (14)        (22)
    Property acquisitions             (9)         (3)         (7)        (35)
    Acquisitions-in-progress           -        (156)          1        (212)
                               ----------------------------------------------
                                     (40)       (166)        (37)       (269)
                               ----------------------------------------------
    Financing activities
    Buy back of Class A Units          -        (353)       (300)       (353)
    Demand loan                        -       1,100       1,300       1,100
    Mortgage financing fees            -          (8)         (4)         (8)
    Principal repayments on
     mortgages payable              (215)        (49)       (399)       (102)
    Distributions paid            (1,540)     (1,623)     (3,086)     (3,255)
                               ----------------------------------------------
                                  (1,755)       (933)     (2,489)     (2,618)
                               ----------------------------------------------
    Increase (decrease) in cash
     and short-term investments
     during the period               (54)       (170)        809        (630)
    Cash - Beginning of period       965         245         102         705
                               ----------------------------------------------
    Cash - End of period             911          75         911          75
                               ----------------------------------------------
                               ----------------------------------------------
    Supplemental cash flow
     disclosure
    Interest paid                  2,213       1,918       3,703       3,114
    

    %SEDAR: 00022537E




For further information:

For further information: For investor information, please contact: Trish
Moran, (416) 624-5133, trish.moran@scottsreit.com; For media information,
please contact: Wilcox Group, (416) 203-6666, scottsreit@wilcoxgroup.com

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