Scott's REIT reports second quarter 2007 financial results

    Revenue up 21.7 per cent over Q2 2006

    TORONTO, Aug. 9 /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, 2007. The REIT also announced its monthly cash distribution for
August 2007.

    Second Quarter 2007 Highlights

    -   Revenue $3.5 million, up 21.7 per cent versus the same quarter last
    -   Distributable income(*) $1.7 million, up 6.7 per cent compared to the
        second quarter of 2006
    -   Payout ratio was 97.7 per cent, down from 98.4 per cent in the second
        quarter of 2006

    (*)See section entitled Non-GAAP measures.

    "Our solid performance this quarter is beginning to reflect the success
of our aggressive growth strategy," said John Bitove, Chairman and Chief
Executive Officer of Scott's REIT. "We have made six acquisitions this year
and with the acquisition line we put in place this quarter, we are well poised
to continue the expansion of our current asset base. With 198 quality
properties across Canada, we are making good headway towards doubling our
asset value over the next three years."

    Financial Performance

    Revenues for the second quarter were $3.5 million, an increase of
$0.6 million, or 21.7 per cent, compared to the same quarter last year.
Approximately $0.3 million of the rental revenue increase was a result of the
acquisitions that closed on July 31, 2006 and $0.3 million can be attributed
to rental revenue including recoveries for common area maintenance received as
a result of the four properties acquired in February 2007.
    Operating expenses of $0.3 million for the second quarter rose by
$0.2 million versus the same quarter last year primarily due to the six
properties that were acquired, two on July 31, 2006 and four in February 2007.
Four of the acquisition properties are triple net leases. The REIT therefore
incurs and recovers common area maintenance costs from the tenants. The
remaining two acquisitions are quadruple net leases for which the tenant pays
all common area maintenance costs directly.
    General and administrative expenses were $0.3 million in the second
quarter, an increase of $0.1 million over the second quarter of 2006.
Approximately $49,000 can be attributed to a financing fee for the acquisition
line and legal fees associated with obtaining the line. These expenses were
one time charges and are not expected to recur.
    The REIT's net operating income was $3.2 million for the second quarter
of 2007 versus $2.7 million for the same quarter in 2006.
    During the three month period ended June 30, 2007, distributable income
amounted to $1.7 million, an increase of 6.7 per cent over the same three
month period in 2006.
    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.

    Effect of Bill C-52 Budget Implementation Act, 2007

    On October 31, 2006, the Minister of Finance (Canada) announced a "Tax
Fairness Plan" which, in part, proposed changes to the manner in which certain
flow-through entities and the distributions from such entities are taxed.
Concurrent with this announcement, the government indicated that real estate
investment trusts would be exempted from the new legislation.
    Bill C-52, Budget Implementation Act, 2007, which received Royal Assent
on June 22, 2007, contained rules which modify the tax treatment of certain
publicly-traded trusts and partnerships that are specified investment
flow-through trusts or partnerships ("SIFTs"). Rather than specifically
exempting real estate investment trusts, the new legislation provides that the
rules will not apply to an entity that qualifies for the real estate
investment trust exemption (the "REIT exemption").
    It is unclear as to whether Scott's REIT will qualify for the technical
REIT exception. Accordingly, a future income tax liability in the amount of
$2,633 has been recorded as at June 30, 2007 based on the temporary
differences that are expected to reverse on, or after, January 1, 2011.
    Scott's REIT is currently waiting to receive guidance from the tax
authorities as to the availability of the REIT exception failing which Scott's
REIT will consider other alternatives for the purpose of meeting the REIT
exception. The charge will have no impact on Scott's REIT's cash flows or
    The REIT is looking to qualify for the REIT exemption prior to 2011. In
order to qualify, Scott's REIT may be required to restructure its affairs.

    $10 Million Acquisition Line

    During the quarter, the REIT announced that it had obtained a $10 million
unsecured acquisition line through TD Securities Inc. The new facility will
allow Scott's REIT to undertake approximately $40 million in acquisitions.

    2007 Acquisition Update

    Subsequent to quarter end, Scott's REIT closed two previously announced
acquisitions: the first in Smith Falls, Ontario and the other in St. Thomas,
    On July 17, 2007, the REIT announced that it had completed the
acquisition of an income-producing property in Smith Falls, Ontario. The
company announced that it had signed a letter of intent to acquire the
property on May 8, 2007. The new 8,400 sq. ft. free-standing, single-tenant
retail centre has an aggregate purchase price of approximately $1.5 million
and is under a seven year lease to Pharma Plus.
    On July 12, 2007, Scott's REIT announced that it had completed the
acquisition of an income-producing property in St. Thomas, Ontario. The
company announced that it had signed a letter of intent to acquire the
property on April 13, 2007. The new 27,505 sq. ft. multi-tenant retail centre
is anchored by a new format Shoppers Drug Mart and has an aggregate purchase
price of $6.7 million. The average lease term for the property is 11 years and
the next rent escalation of nine per cent is scheduled for 2010.
    Both acquisitions were funded in part by a first mortgage and the REIT's
acquisition line and are immediately accretive to unitholders.

    Monthly Distribution

    Scott's REIT announced a cash distribution for the month of August 2007
of $0.0708 per unit payable on September 17, 2007 to unitholders of record on
August 31, 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 August 31, 2007. This distribution marks the 22nd
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 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

    About Scott's Real Estate Investment Trust

    Scott's REIT (TSX: SRQ.UN) is Canada's premier small-box retail property
owner with 198 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
70.6 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

    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

    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, 2007 and 2006, and the notes
thereto included in Scott's REIT's annual filings at

    (in thousands of dollars except per Unit amounts)

                                                        June 30,     June 30,
    For the quarter ended                                  2007         2006
    Cash provided by operating activities           $     1,175  $     1,432
    Net change in non-cash working capital                  492          131
    Distributable income                                  1,667        1,563
    Distributions declared                                1,629        1,542
    Distributable income payout ratio                      97.7%        98.4%

    as at December 31 (in thousands of dollars)

                                                        June 30, December 31,
                                                           2007         2006
    Income-producing properties                         139,458      133,463
    Intangible assets                                     4,405        3,358
    Cash and short-term investments                         773        1,280
    Prepaid expenses and other assets                       919          660
    Straight-line revenue accrual                         1,078          785
    Deferred financing charges                                -          777
    Guarantee fee                                             -          199
                                                        146,633      140,522
    Mortgages payable                                    79,277       73,000
    Note payable                                              -        3,900
    Loan payable                                          2,800            -
    Accounts payable and accrued liabilities                595          718
    Future income taxes                                   2,633            -
    Due to related companies                                102          102
    Distributions payable to Unitholders                    543          514
                                                         85,950       78,234
    Class B Exchangeable Units                           19,168       20,795
    Contributed surplus                                       -          341
    Class A Units of Scott's REIT                        49,254       45,043
    Cumulative (loss) earnings                             (242)       1,365
    Cumulative distributions declared on
     Class A Units                                       (7,497)      (5,256)
                                                        146,633      140,522

    (in thousands of dollars, except per Unit amount)

                                Three months ended         Six months ended
                                      June 30,                  June 30,
                                 2007         2006         2007         2006
    Rental revenue
     received                   3,341        2,725        6,545        5,434
     revenue accrual              167          157          293          314
                                3,508        2,882        6,838        5,748
    Amortization                1,498        1,183        2,910        2,366
    Operating expenses            333          147          575          290
    Interest expense            1,076          818        2,173        1,632
    General and
     administrative               312          239          624          464
    Guarantee fee                   -            -          199            -
                                3,219        2,387        6,481        4,752
    Earnings before
     income taxes and
     interest                     289          495          357          996
    Income tax expense          2,633            -        2,633            -
    (Loss) earnings
     before non-controlling
     interest                  (2,344)         495       (2,276)         996
     interest of Class B
     Exchangeable Units           689         (154)         669         (310)
    Net (loss) earnings for
     the period                (1,655)         341       (1,607)         686
    Cumulative earnings
     - Beginning of period      1,413          646        1,365          301
    Cumulative (deficit)
     - End of period             (242)         987         (242)         987
    Basic and diluted
     (loss) earnings
     per Unit                  (0.306)       0.068       (0.297)       0.137
    Class A Units
     outstanding             5,410,527   5,000,000    5,410,527    5,000,000
    Class B Exchangeable
     Units outstanding       2,254,909   2,254,909    2,254,909    2,254,909

    (in thousands of dollars)

                                Three months ended         Six months ended
                                      June 30,                  June 30,
                                 2007         2006         2007         2006
    Operating activities
    Net earnings
     for the period            (1,655)         341       (1,607)         686
    Add (deduct)
     interest of Class B
     Exchangeable Units          (689)         154         (669)         310
    Amortization of
     properties                 1,319        1,127        2,608        2,254
    Amortization of
     intangible assets            179           56          302          112
    Amortization of
     deferred financing
     charges                       47           42          108           85
    Guarantee fee                   -            -          199            -
     revenue accrual             (167)        (157)        (293)        (314)
    Future income taxes         2,633            -        2,633            -
                                1,667        1,563        3,281        3,133
    Change in other non-
     cash operating items
    Prepaid expenses and
     other assets                (496)        (226)        (259)        (285)
    Accounts payable and
     accrued liabilities           16          (89)        (123)           3
    Due to related
     companies                    (12)           6            -         (201)
                                1,175        1,432        2,899        2,650
    Investing activities
     progress                     (21)           -          (29)           -
    Property acquisitions         (10)           -       (9,923)           -
    Note payable               (3,900)           -       (3,900)           -
                               (3,931)           -      (13,852)           -
    Financing activities
    Class A Units issued          (30)           -        3,870            -
    Proceeds from
     mortgage payable               -            -        6,983            -
    Mortgage financing
     fees                          (3)           -          (37)           -
    Distributions paid         (1,629)      (1,542)      (3,170)      (3,084)
    Loan payable                2,800            -        2,800            -
                                1,138       (1,542)      10,446       (3,084)
    Decrease in cash and
     short-term investments    (1,618)        (110)        (507)        (434)
    Cash and short-term
     - Beginning of period      2,391        1,333        1,280        1,657
    Cash and short-term
     - End of period              773        1,223          773        1,223
    Cash and short-term
     investments consist
    Cash                          128          283          128          283
    Short-term investments        645          940          645          940
                                  773        1,223          773        1,223
    Supplemental cash
     flow disclosure
    Interest paid               1,071          776        2,083        1,547

    %SEDAR: 00022537E

For further information:

For further information: For investor information, please contact: Trish
Moran, (416) 624-5133,; For media information,
please contact: Wilcox Group, (416) 203-6666,

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