Scott's REIT reports year-end and fourth quarter 2006 financial results



    Successful acquisitions enhance REIT portfolio

    TORONTO, March 12 /CNW/ - Scott's Real Estate Investment Trust
(TSX: SRQ.UN) ("Scott's REIT" or the "REIT") today reported its financial
results for the full year and fourth quarter ended December 31, 2006.

    
    2006 Financial Highlights
    -   Revenue $12.1 million
    -   Net operating income $11.2 million
    -   Distributable income(*) $6.2 million
    -   Successfully completed two strategic acquisitions

    Fourth Quarter 2006 Financial Highlights
    -   Revenue $3.2 million
    -   Net operating income $2.9 million
    -   Distributable income(*) $1.5 million
    -   Announced pending acquisition of seven additional properties, four of
        which have closed in 2007

    (*) See section entitled Non-GAAP measures.
    

    "We are pleased with our performance and are on pace to meet our goal of
doubling our asset value over the next five years," said John Bitove, Chairman
and Chief Executive Officer of Scott's REIT. "With a number of successful
acquisitions already in place for the year ahead, we continue to meet the
strategic objectives of our business plan and enhance our portfolio to create
value for our unitholders."

    Financial Performance

    Revenues of $3.2 million for the fourth quarter were favourable by
$0.5 million versus the comparable quarter last year (year-to-date
$12.1 million and favourable by $0.7 million to the prospectus forecast)
primarily due to the impact of two properties acquired on July 31, 2006 as
well as costs recovered from the tenants. It should be noted that the REIT is
comparing the year ended December 31, 2006 results with the prospectus
forecast as the REIT has been operating since October 6, 2005 and therefore
does not have a full set of comparative results.
    Operating expenses of $0.3 million for the fourth quarter were
unfavourable to the same quarter last year by $0.2 million (year-to-date
$0.8 million and unfavourable by $0.4 million to the prospectus forecast)
primarily due to the impact of operating costs on the properties acquired on
July 31, 2006. The REIT recovers all these common area maintenance costs from
the tenants. In addition, in the fourth quarter of 2006 the REIT incurred
non-recurring expenses of $0.1 million relating to title insurance on certain
properties and an increase in property management fees as a result of the
acquisition of the new properties.
    The REIT's net operating income for the fourth quarter of $2.9 million
was favourable to the same quarter last year by $0.3 million (year-to-date
$11.2 million and favourable by $0.3 million to the prospectus forecast)
primarily due to the 2006 property acquisitions.
    On a full year basis, distributable income amounted to $6.2 million and
$1.4 million for the fourth quarter of 2005. Distributable income per unit,
year-to-date, had a positive variance of $0.01 per unit from the prospectus
forecast. Distributions per unit were in line with the prospectus forecast.
    At December 31, 2006, the REIT had $1.3 million of cash and short-term
investments compared to $1.7 million at the end of 2005.

    Monthly Distribution

    Scott's REIT also announced a cash distribution for the month of March
2007 of $0.0708 per unit payable on April 13, 2007 to unitholders of record on
March 30, 2007.
    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 March 30, 2007. This distribution marks the 17th
consecutive cash distribution declared since Scott's REIT began operations on
October 6, 2005.

    Fourth Quarter 2006 Key Operational Achievements

    Acquisitions

    On December 11, 2006, Scott's REIT announced that it had entered into
arrangements to acquire seven more properties, four of which have been
completed in the first two months of 2007. As a result of its due diligence,
Scott's REIT has chosen not to pursue the acquisition of the remaining three
sites, which had previously been announced.
    The REIT closed the acquisition of a 5,500 sq. ft. property in
Boucherville, Quebec, just outside of Montréal, for a purchase price of
$1.56 million, excluding closing costs. This acquisition was funded by cash
and bank debt. The lease is a quadruple net lease and has eight years
remaining as well as built in rent escalations. The next rent escalation is
scheduled in 2009.
    The REIT also completed a transaction to acquire one single-tenant and
two multi-tenant unenclosed retail centres totalling 47,775 square feet in
Thunder Bay, Ontario. The aggregate purchase price was $7.75 million. This
acquisition was funded by a first mortgage and a promissory note from Obelysk
Inc. ("Obelysk"). The promissory note from Obelysk bears interest at 8.5 per
cent and will mature on December 31, 2007. Obelysk owns approximately 31.1 per
cent interest in Scott's Real Estate LP and approximately 40 per cent in
Priszm LP. Scott's REIT earns substantially all of its rental revenue from
Priszm LP. Management expects each of these acquisitions to be immediately
accretive.
    Since July 2006, Scott's REIT has completed six acquisitions for a total
of $ 20.2 million.

    Scott's REIT proposes change to debt limit

    On December 14, 2006, Scott's REIT announced that it intends to propose
amending its Declaration of Trust to increase its debt-to-gross-book-value
restriction from 55 per cent to 65 per cent and to amend the single asset
test. Management believes the changes are necessary in order to grow faster in
an accretive manner and as part of its overall objective of being more
competitive in the marketplace. The changes will also allow Scott's REIT to
have more efficient capital management and give it the ability to take
advantage of current low interest rates. These changes are subject to
unitholder approval and the intention is to bring the proposed amendment to
the Declaration of Trust to a unitholder vote at the annual and special
unitholder meeting in 2007.

    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 press release 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 press release represents income before non-controlling interest of
Scott's REIT on a consolidated basis as determined in accordance with GAAP,
plus depreciation and amortization expense and the guarantee fee, less the
straight-line revenue accrual. For more information, please refer to the
REIT's MD&A, which is included in its annual filings at sedar.com.

    About Scott's Real Estate Investment Trust

    Scott's REIT (TSX: SRQ.UN) is Canada's premier small-box retail property
owner with 196 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
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 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 years ended December 31, 2006 and 2005, 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)


    Year to date ended December 31,                         2006        2005

    Cash provided by operating activities                 $6,130      $2,094
    Net change in non-cash working capital                   107        (645)
                                                      -----------------------
    Distributable Income                                  $6,237      $1,449
                                                      -----------------------
                                                      -----------------------
    Distributions declared                                $6,168      $1,458

    Distributable Income Payout Ratio                      98.8%      100.7%
                                                      -----------------------
                                                      -----------------------



    CONSOLIDATED BALANCE SHEETS
    as at December 31 (in thousands of dollars)

                                                            2006      2005(1)
    ASSETS
    Income-producing properties                         $133,573    $127,739
    Intangible assets                                      3,358       2,879
    Cash and short-term investments                        1,280       1,657
    Prepaid expenses and other assets                        550          79
    Straight-line revenue accrual                            785         148
    Deferred financing charges                               777         808
    Guarantee fee                                            199           -
                                                      -----------------------
                                                         140,522     133,310
                                                      -----------------------
                                                      -----------------------
    LIABILITIES AND UNITHOLDERS' EQUITY
    Mortgages payable                                     73,000      65,000
    Note payable                                           3,900           -
    Accounts payable and accrued liabilities                 718         427
    Due to related companies                                 102         799
    Distributions payable to Unitholders                     514         513
                                                      -----------------------
                                                          78,234      66,739
                                                      -----------------------
    Class B Exchangeable Units                            20,795      22,232
                                                      -----------------------
    UNITHOLDERS' EQUITY
    Contributed surplus                                      341           -
    Class A Units of Scott's REIT                         45,043      45,043
    Cumulative earnings                                    1,365         301
    Cumulative distributions declared on Class A Units    (5,256)     (1,005)
                                                      -----------------------
                                                          41,493      44,339
                                                      -----------------------
                                                         140,522     133,310

    Notes:
    (1) Period from October 5, 2005 to December 31, 2005



    CONSOLIDATED STATEMENTS OF EARNINGS AND CUMULATIVE EARNINGS
    (in thousands of dollars, except per Unit amount)

                                                          2006(1)     2005(2)
    REVENUE
    Rental revenue received                              $11,415      $2,533
    Straight-line revenue accrual                            637         148
                                                      -----------------------
                                                          12,052       2,681
                                                      -----------------------
    EXPENSES
    Depreciation and amortization                          5,012       1,120
    Operating expenses                                       804          90
    Interest expense                                       3,571         820
    General and administrative                               979         214
    Guarantee fee                                            142           -
                                                      -----------------------
                                                          10,508       2,244
                                                      -----------------------
    Earnings before non-controlling interest               1,544         437
    Non-controlling interest of Class B
     Exchangeable Units                                      480         136
                                                      -----------------------
    Net earnings for the period                            1,064         301
    Cumulative earnings - Beginning of period                301           -
                                                      -----------------------
    Cumulative earnings - End of period                    1,365         301
                                                      -----------------------
                                                      -----------------------
    Basic and diluted earnings per Unit                    0.213        0.06
                                                      -----------------------
                                                      -----------------------
    Class A Units outstanding                          5,000,000   5,000,000
                                                      -----------------------
                                                      -----------------------
    Class B Exchangeable Units outstanding             2,254,909   2,254,909
                                                      -----------------------
                                                      -----------------------

    Notes:
    (1) Year ended December 31, 2006
    (2) Period from October 5, 2005 to December 31, 2005



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (in thousands of dollars)

                                                          2006(1)     2005(2)
    CASH PROVIDED BY (USED IN)
    Operating activities
    Net earnings for the period                           $1,064        $301
    Add (deduct)
    Non-controlling interest of Class B
     Exchangeable Units                                      480         136
    Depreciation of income-producing properties            4,659       1,067
    Amortization of intangible assets                        353          53
    Amortization of deferred financing charges               176          40
    Amortization of guarantee fee                            142           -
    Straight-line revenue accrual                           (637)       (148)
                                                      -----------------------
                                                           6,237       1,449
    Change in other non-cash operating items
    Prepaid expenses and other assets                       (221)        (79)
    Accounts payable and accrued liabilities                 291         427
    Due to related companies                                (177)        297
                                                      -----------------------
                                                           6,130       2,094
                                                      -----------------------
    Investing activities
    Construction-in-progress                                (142)          -
    Property acquisitions - net of vendor note            (7,283)          -
    Acquisition of net assets on initial public
     offering                                                  -    (108,611)
    Prepaid expenses and other assets                       (250)          -
                                                      -----------------------
                                                          (7,675)   (108,611)
                                                      -----------------------
    Financing activities
    Class A Units issued on initial public offering            -      50,000
    Issuance costs                                             -      (4,957)
    Proceeds from mortgage payable                         8,000      65,000
    Mortgage financing fees                                 (145)       (848)
    Repayment of promissory note                               -        (578)
    Environmental remediation holdback                      (520)        502
    Distributions paid                                    (6,167)       (945)
                                                      -----------------------
                                                           1,168     108,174
                                                      -----------------------
    Increase (decrease) in cash and short-term
     investments during the period                          (377)      1,657
    Cash and short-term investments - Beginning of
     period                                                1,657           -
                                                      -----------------------
    Cash and short-term investments - End of period        1,280       1,657
                                                      -----------------------
                                                      -----------------------
    Cash and short-term investments consist of Cash          425         342
    Short-term investments                                   855       1,315
                                                      -----------------------
                                                           1,280       1,657
                                                      -----------------------
                                                      -----------------------
    Supplemental cash flow disclosure
    Interest paid                                          3,335         797
    Vendor note payable on acquisition of properties       3,900           -
                                                      -----------------------
                                                      -----------------------

    Notes:
    (1) Year ended December 31, 2006
    (2) Period from October 5, 2005 to December 31, 2005
    

    %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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