Scott's REIT increases revenue 23 per cent and improves payout ratio



    Reports second quarter 2008 financial results

    TORONTO, Aug. 12 /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, 2008. The REIT also announced its monthly cash distribution for
August 2008.

    
    Second Quarter 2008 Highlights

    Quarter ended June 30, 2008 compared to quarter ended June 30, 2007
    -   Revenue increased 23.3 per cent to $4.3 million
    -   Net operating income increased 17.8 per cent to $3.7 million
    -   Payout ratio improves to 96.4 per cent from 97.7 per cent
    -   Completes one acquisition subsequent to quarter end
    

    "Our financial results for the second quarter and first half of 2008 are
solid and our key metrics continue to improve significantly, demonstrated by a
23.3 per cent increase in revenue," said John Bitove, Chairman and Chief
Executive Officer of Scott's REIT. "We are making steady progress towards
doubling our asset base. With a strong balance sheet and a payout ratio that
is one of the best among small-cap REITs, we are in a strong position relative
to most of our peers in the REIT sector."

    Financial performance

    Scott's REIT reported revenue of $4.3 million for the three-month period
ended June 30, 2008, an increase of $0.8 million, or 23.3 per cent, over the
second quarter of 2007. The REIT's net operating income was $3.7 million for
the second quarter of 2008 versus $3.2 million for the same quarter in 2007.
The operating results of Scott's REIT for the quarter ended June 30, 2008 have
changed from the previous year's results due primarily to the nine
acquisitions completed over the course of the last 12 months.
    Operating expenses of $0.6 million for the second quarter increased
$0.3 million versus the same quarter last year primarily due to the nature of
the leases with respect to the acquisitions of nine properties subsequent to
the second quarter of 2007. Five of the nine properties acquired are triple
net leases and thus the REIT incurs and recovers common area maintenance and
realty tax costs from the tenants. The remaining acquired properties are
quadruple net leases for which the tenants pay all common area maintenance
costs, realty taxes and capital maintenance expenditures directly.
    During the three month period ended June 30, 2008, distributable income
was $1.7 million, an increase of 1.0 per cent over the same three-month period
in 2007. In addition, the payout ratio was 96.4 per cent, an improvement from
97.7 per cent last year.

    Completed strategic acquisition

    Scott's REIT continues to pursue a growth strategy that concentrates on
three core areas: organic growth of the current portfolio; growth through the
acquisition of income-producing sites; and expanding the business through new
development projects.
    On July 22, 2008, subsequent to quarter end, Scott's REIT completed the
acquisition of an income-producing property in Levis, Quebec that is
immediately accretive to earnings. Levis is a community in eastern Quebec
located on the southern shore of the Saint Lawrence River directly across
Quebec City. This new 21,000 sq. ft. multi-tenant retail centre is located in
a high traffic intersection and is anchored by Tim Hortons, Boston Pizza,
Scores, Tutti Fruitti and another local tenant. The leases are long-term with
an average length of 15 years. The property was purchased for $6 million and
financed through proceeds from a first mortgage.

    Monthly distribution

    Scott's REIT announced a cash distribution for the month of August 2008
of $0.0708 per unit payable on September 15, 2008 to unitholders of record on
August 29, 2008.
    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 29, 2008. This distribution marks the 33rd
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 to distributable
income as reported by such organizations. 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 and any guarantee fees, income taxes, less the straight-line revenue
accrual 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 206 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 a
70.4 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 media release contains forward-looking statements. Such statements
are based on current expectations that are subject to significant risks and
uncertainties that are difficult to predict. Actual results might differ
materially from projections suggested in any forward-looking statements due to
factors such as the competitive nature of the quick service restaurant
industry, the ability of Scott's REIT and Scott's Real Estate LP to execute a
growth and development strategy, the reliance of Scott's REIT and Scott's Real
Estate LP on key personnel, and risk associated with the structure of income
trusts. Scott's REIT and Scott's Real Estate LP assume no obligation to update
the forward-looking statements, or to update the reasons why actual results
could differ from those reflected in the forward-looking statements.
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 June 30, 2008 and 2007, and the notes
thereto included in Scott's REIT's annual filings at www.sedar.com.


    
    RECONCILIATION OF DISTRIBUTABLE INCOME
    (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     Six months ended
                                          June 30,              June 30,
                                      2008       2007       2008       2007

    Cash provided by operating
     activities                        $929     $1,175     $2,257     $2,899
    Net change in non-cash
     working capital                    755        492      1,122        382
                                 --------------------------------------------
                                 --------------------------------------------
    Distributable income              1,684      1,667      3,379      3,281
    Distributions declared            1,619      1,629      3,250      3,199
                                 --------------------------------------------
                                 --------------------------------------------
    Distributable income
     per Unit                         0.220      0.217      0.442      0.438
    Distributions per Unit            0.213      0.213      0.425      0.425
                                 --------------------------------------------
                                 --------------------------------------------
    Distributable Income
    Payout Ratio                      96.4%      97.7%      96.2%      97.5%
                                 --------------------------------------------
                                 --------------------------------------------


    FUNDS FROM OPERATIONS ("FFO") AND ADJUSTED FUNDS FROM OPERATIONS ("AFFO")
    NET INCOME RECONCILIATION

                                    Three months ended     Six months ended
                                          June 30,              June 30,
                                      2008       2007       2008       2007

    (Loss) before
     non-controlling interest          $(49)   $(2,344)     $(164)   $(2,276)
    Add (deduct):
      Amortization of income
       producing properties and
       intangible assets              1,804      1,504      3,608      2,924
      Guarantee fee                       -          -          -        199
      Income taxes                        -      2,633          -      2,633
                                 --------------------------------------------
                                 --------------------------------------------
    FFO                              $1,755     $1,793     $3,444     $3,480
                                 --------------------------------------------
                                 --------------------------------------------
    FFO Per Unit(1)                  $0.230     $0.234     $0.450     $0.465
                                 --------------------------------------------
                                 --------------------------------------------
    Add (deduct):
      Straight-line revenue
       accrual                         (180)      (167)      (283)      (293)
      Amortization of deferred
       financing fees                   102         47        204        108
      Interest accretion                 14          -         28          -
      Amortization of deferred
       costs                              2          -          3          -
      Amortization of Below
       Market Rents                      (9)        (6)       (17)       (14)
                                 --------------------------------------------
                                 --------------------------------------------
    AFFO                             $1,684     $1,667     $3,379     $3,281
                                 --------------------------------------------
                                 --------------------------------------------
    AFFO Per Unit(1)                 $0.220     $0.217     $0.442     $0.438
                                 --------------------------------------------
                                 --------------------------------------------
    Note
    (1) Based on the weighted average number of units outstanding during the
        quarter and year-to-date.



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

                                                       June 30,  December 31,
                                                          2008          2007

    ASSETS
    Income-producing properties                       $162,175      $165,071
    Intangible assets                                    6,511         6,937
    Cash and short-term investments                         75           705
    Prepaid expenses and other assets                    1,048           502
    Straight-line revenue accrual                        1,789         1,506
                                                  ---------------------------
                                                       171,598       174,721
                                                  ---------------------------
                                                  ---------------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Mortgages payable                                   87,823        87,837
    Convertible debentures                              18,738        18,602
    Demand loan                                          6,900         5,800
    Accounts payable and accrued liabilities               714         1,008
    Due to related companies                                15           294
    Distributions payable to Unitholders                   538           543
                                                  ---------------------------
                                                       114,728       114,084
                                                  ---------------------------
    Class B Exchangeable Units                          18,060        19,067
                                                  ---------------------------

    UNITHOLDERS' EQUITY
    Contributed surplus                                    571           341
    Class A Units of Scott's REIT                       47,977        48,913
    Convertible debentures                                 299           299
    Cumulative earnings                                  1,698         1,813
    Cumulative distributions declared on
     Class A Units                                     (12,088)       (9,796)
                                                  ---------------------------
                                                        38,810        41,570
                                                  ---------------------------
                                                       171,598       174,721
                                                  ---------------------------
                                                  ---------------------------



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

                                    Three months ended     Six months ended
                                          June 30,              June 30,
                                      2008       2007       2008       2007

    REVENUE
    Rental revenue received          $4,144     $3,341     $8,267     $6,545
    Amortization of below-market
     rentals                              9          -         17          -
    Straight-line revenue
     accrual                            180        167        283        293
                                 --------------------------------------------
                                      4,333      3,508      8,567      6,838
                                 --------------------------------------------
    EXPENSES
    Amortization                      1,804      1,498      3,608      2,910
    Operating expenses                  585        333      1,145        575
    Interest                          1,672      1,076      3,342      2,173
    General and administrative          321        312        636        624
    Guarantee fee                         -          -          -        199
                                 --------------------------------------------
                                      4,382      3,219      8,731      6,481
                                 --------------------------------------------
    (Loss) earnings before
     income taxes and non-
     controlling interest               (49)       289       (164)       357
    Income tax expense                    -      2,633          -      2,633
                                 --------------------------------------------
    Loss before non-controlling
     interest                           (49)    (2,344)      (164)    (2,276)
    Non-controlling interest of
     Class B Exchangeable Units          15        689         49        669
                                 --------------------------------------------
    Net loss for the period             (34)    (1,655)      (115)    (1,607)
    Cumulative earnings
     - Beginning of period            1,732      1,413      1,813      1,365
                                 --------------------------------------------
    Cumulative earnings (deficit)
     - End of period                  1,698       (242)     1,698       (242)
                                 --------------------------------------------
                                 --------------------------------------------
    Basic and diluted loss
     per Unit                        (0.006)    (0.306)    (0.021)    (0.297)
                                 --------------------------------------------
                                 --------------------------------------------
    Class A Units outstanding     5,352,227  5,410,527  5,352,227  5,410,527
                                 --------------------------------------------
                                 --------------------------------------------
    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,
                                      2008       2007       2008       2007

    Net loss for the period            $(34)   $(1,655)     $(115)   $(1,607)
    Other comprehensive income            -          -          -          -
                                 --------------------------------------------
    Comprehensive loss                  (34)    (1,655)      (115)    (1,607)
                                 --------------------------------------------
                                 --------------------------------------------



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

                                    Three months ended     Six months ended
                                          June 30,              June 30,
                                      2008       2007       2008       2007

    CASH PROVIDED BY (USED IN)
    Operating activities
    Net loss for the period            $(34)   $(1,655)     $(115)   $(1,607)
    Add (deduct)
      Non-controlling interest of
       Class B Exchangeable Units       (15)      (689)       (49)      (669)
      Amortization of income-
       producing properties           1,581      1,319      3,162      2,608
      Amortization of intangible
       assets                           214        179        429        302
      Amortization of deferred
       financing charges                102         47        204        108
      Amortization of deferred
       costs                              2          -          3          -
      Amortization of guarantee fee       -          -          -        199
      Interest accretion                 14          -         28          -
      Straight-line revenue accrual    (180)      (167)      (283)      (293)
      Future income taxes                 -      2,633          -      2,633
                                 --------------------------------------------
                                      1,684      1,667      3,379      3,281
    Change in other non-cash
     operating items
      Prepaid expenses and other
       assets                          (223)      (496)      (549)      (259)
      Accounts payable and
       accrued liabilities             (415)        16       (294)      (123)
      Due to related companies         (117)       (12)      (279)         -
                                 --------------------------------------------
                                        929      1,175      2,257      2,899
                                 --------------------------------------------
    Investing activities
    Construction-in-progress             (7)       (21)       (22)       (29)
    Property acquisitions                (3)       (10)       (35)    (9,923)
    Acquisitions in progress           (156)    (3,900)      (212)    (3,900)
                                 --------------------------------------------
                                       (166)    (3,931)      (269)   (13,852)
                                 --------------------------------------------
    Financing activities
    Buy back of Class A Units          (353)         -       (353)         -
    Class A Units issued                  -        (30)         -      3,870
    Proceeds from mortgages
     payable and demand loan          1,100      2,800      1,100      9,783
    Mortgage financing fees              (8)        (3)        (8)       (37)
    Principal repayments on
     mortgages payable                  (49)         -       (102)         -
    Distributions paid               (1,623)    (1,629)    (3,255)    (3,170)
                                 --------------------------------------------
                                       (933)     1,138     (2,618)    10,446
                                 --------------------------------------------
    Decrease in cash and
     short-term investments
     during the period                 (170)    (1,618)      (630)      (507)
    Cash and short-term
     investments - Beginning
     of period                          245      2,391        705      1,280
                                 --------------------------------------------
    Cash and short-term
     investments - End of period         75        773         75        773
                                 --------------------------------------------
                                 --------------------------------------------
    Cash and short-term
     investments consist of
    Cash                                 75        128         75        128
    Short-term investments                -        645          -        645
                                 --------------------------------------------
                                         75        773         75        773
                                 --------------------------------------------
                                 --------------------------------------------
    Supplemental cash flow
     disclosure
    Interest paid                     1,918      1,071      3,114      2,083
    

    %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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