Scott's REIT reports strong third quarter growth

Company raises $20 million

Strong growth underpins improvement in payout ratio to 85.7 per cent

TORONTO, Nov. 10 /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 third quarter ended September 30, 2009 and its monthly cash distribution for November 2009.

    
    Third Quarter 2009 Highlights

    Three months ended September 30, 2009 versus three months ended September
    30, 2008

    -  Increased revenue by 8.2 per cent to $5.0 million
    -  Increased distributable income per unit* by 2.6 per cent to 24.8
       cents
    -  Improved payout ratio to 85.7 per cent from 87.9 per cent
    -  Announced offering of $20 million 7.75 per cent convertible
       unsubordinated debentures, which closed subsequent to the end of the
       third quarter on October 2, 2009

    * See section entitled Non-GAAP measures.
    

"Fiscal 2009 continues to be a very good year for Scott's REIT," said Evelyn Sutherland, CFO of Scott's REIT. "The strength of our third quarter results reflects our solid business model and disciplined growth strategy. We also have a strong balance sheet, which in turn enabled us to access the public market and complete a convertible debenture offering at a very attractive interest rate in this extremely tight credit market. The proceeds from the offering will be used to finance future acquisitions that will further diversify our tenant portfolio and to provide a solid return on capital for our unitholders."

Financial Performance

Scott's REIT reported revenue of $5.0 million for the three-month period ended September 30, 2009, an increase of $0.4 million, or 8.2 per cent, over the third quarter of 2008. This increase was due to the acquisition of two additional properties in 2008 which occurred part way through the third quarter.

The REIT's net operating income was $4.2 million for the third quarter of 2009 versus $4.1 million for the same quarter in 2008, an increase of $0.1 million, or 3.9 per cent. The primary reason for the change in the operating results of Scott's REIT for the quarter ended September 30, 2009, as compared to the prior period is the impact of the acquisition of two additional properties by the REIT during fiscal 2008.

Operating expenses of $0.8 million for the third quarter were $0.2 million higher than during the same quarter of 2008. This was due to the nature of the leases of the two properties acquired in the third quarter of 2008, both of which are triple net lease properties. The REIT incurs and recovers common area maintenance and realty tax costs from its tenants with triple net leases. The majority of the REIT's properties contain leases with 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 September 30, 2009, distributable income was $1.8 million, down marginally over the same three-month period in 2008. In addition, the payout ratio was 85.7 per cent, an improvement from 87.9 per cent last year.

Recent Events

Convertible Debentures

On October 2nd, 2009, Scott's REIT closed an offering of $20 million convertible unsecured subordinated debentures due December 31, 2014. The Debentures will pay interest at a rate of 7.75 per cent per annum calculated semi-annually in arrears on June 30 and December 31, with the initial interest payment on December 31, 2009.

The Debentures are convertible into fully paid and non-assessable units of Scott's REIT at a conversion price of $8.04 per unit, subject to adjustment upon the occurrence of certain events, at the holders' option at any time prior to the close of business on the earlier of December 31, 2014 and the business day immediately preceding the date fixed for redemption. The conversion price is equivalent to a ratio of approximately 124.378 units per $1,000 principal amount of Debentures.

Demand Loan

On October 20, 2009, Scott's REIT paid $3,200 on the demand loan representing the full amount outstanding. As a result of this payment, the demand loan facility was closed by TD Securities and is unavailable for further draws.

Monthly Distribution

Scott's REIT announced a cash distribution for the month of November 2009 of $0.0708 per unit payable on December 15, 2009 to Unitholders of record on November 30, 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 November 30, 2009. This distribution marks the 48th 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 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 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 quarters ended September 30, 2009 and 2008, and the notes thereto included in Scott's REIT's annual filings at www.sedar.com.

RECONCILIATION OF DISTRIBUTABLE INCOME (UNAUDITED)

(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  Nine months ended
                                            September 30,      September 30,
    -------------------------------------------------------------------------
                                             2009     2008     2009     2008
    -------------------------------------------------------------------------
    Cash provided by operating activities  $2,356   $1,733   $5,691   $4,157
    Net change in non-cash working capital   (559)      98     (199)   1,053
    -------------------------------------------------------------------------
    Distributable income                    1,797    1,831    5,492    5,210
    Distributions declared                  1,541    1,611    4,622    4,861
    -------------------------------------------------------------------------
    Distributable income per Unit           0.248    0.242    0.757    0.687
    Distributions per Unit                  0.213    0.213    0.638    0.638
    -------------------------------------------------------------------------
    Distributable Income Payout Ratio       85.7%    87.9%    84.2%    92.8%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

                                                       Sept 30,  December 31,
                                                           2009         2008
    ASSETS
    Income-producing properties                       $ 168,824    $ 174,135
    Intangible assets                                     8,211        9,151
    Cash                                                  1,403          102
    Accounts receivable                                     243          574
    Straight-line revenue accrual                         2,386        2,133
    Prepaid expenses and other assets                       954          709
    Due from related companies                                1           80
                                                      -----------------------
                                                        182,022      186,884
                                                      -----------------------
                                                      -----------------------

    LIABILITIES AND UNITHOLDERS' EQUITY
    Mortgages payable                                   111,779      112,225
    Convertible debentures                               19,104       18,903
    Demand loan                                           3,200        1,900
    Accounts payable and accrued liabilities              1,259        1,264
    Due to related companies                                128           94
    Distributions payable to Unitholders                    513          518
    Intangible liabilities                                  162          242
                                                      -----------------------
                                                        136,145      135,146
                                                      -----------------------
    Class B Exchangeable Units                           15,180       16,910
                                                      -----------------------

    UNITHOLDERSHOLDERS' EQUITY
    Contributed surplus                                   2,588        2,218
    Class A Units of Scott's REIT                        44,676       45,346
    Convertible debentures                                  299          299
    Cumulative earnings                                     630        1,277
    Cumulative distributions declared on Class A Units  (17,496)     (14,312)
                                                      -----------------------
                                                         30,697       34,828
                                                      -----------------------
                                                        182,022      186,884
                                                      -----------------------
                                                      -----------------------



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

                                  Three months ended       Nine months ended
                                      September 30,           September 30,
                                    2009        2008        2009        2008

    REVENUE
    Rental revenue received      $ 4,911     $ 4,445    $ 14,695    $ 12,712
    Amortization of above
     (below) market rents            (22)         (3)        (26)         14
    Straight-line revenue
     accrual                         126         193         253         476
                               ----------------------------------------------
                                   5,015       4,635      14,922      13,202
                               ----------------------------------------------
    EXPENSES
    Amortization                   1,991       1,924       6,042       5,532
    Operating expenses               809         551       2,410       1,696
    Interest                       1,991       1,879       5,958       5,221
    General and administrative       450         421       1,451       1,057
                               ----------------------------------------------
                                   5,241       4,775      15,861      13,506
                               ----------------------------------------------
    Loss before non-controlling
     interest                       (226)       (140)       (939)       (304)
    Non-controlling interest
     of Class B Exchangeable
     Units                           (70)        (42)       (292)        (91)
                               ----------------------------------------------
    Net loss for the period         (156)        (98)       (647)       (213)
    Cumulative earnings (loss) -
     Beginning of period             786       1,698       1,277       1,813
                               ----------------------------------------------
    Cumulative earnings -
     End of period                   630       1,600         630       1,600
                               ----------------------------------------------
                               ----------------------------------------------
    Basic and diluted loss
     per Unit                     (0.031)     (0.018)     (0.129)     (0.039)
                               ----------------------------------------------
                               ----------------------------------------------
    Class A Units outstanding  4,993,964   5,292,064   4,993,964   5,292,064
                               ----------------------------------------------
                               ----------------------------------------------
    Class B Exchangeable
     Units outstanding         2,254,909   2,254,909   2,254,909   2,254,909
                               ----------------------------------------------
                               ----------------------------------------------



    INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
    (UNAUDITED)
    (in thousands of dollars)

                                   Three months ended      Nine months ended
                                      September 30            September 30
                               ----------------------------------------------
                                    2009        2008        2009        2008
                               ----------------------------------------------
    Net earnings (loss)
     for the period               $ (156)      $ (98)     $ (647)     $ (213)
    Other comprehensive income         -           -           -           -
                               ----------------------------------------------
    Comprehensive income (loss)     (156)        (98)       (647)       (213)
                               ----------------------------------------------



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

                                  Three months ended       Nine months ended
                                      September 30,           September 30,
                                    2009        2008        2009        2008

    CASH PROVIDED BY (USED IN)
    Operating activities
    Net loss for the period       $ (156)      $ (98)     $ (647)     $ (213)
    Add (deduct)
      Non-controlling interest
       of Class B Exchangeable
       Units                         (70)        (42)       (292)        (91)
      Amortization of
       income-producing
       properties                  1,729       1,671       5,185       4,833
      Amortization of
       intangibles                   284         256         883         685
      Amortization of deferred
       financing charges             117         107         353         311
      Amortization of deferred
       costs                           5           2          15           5
      Acquisitions-in-progress         -           -         206           -
      Interest accretion              14          14          42          42
      Straight-line revenue
       receivable                   (126)       (193)       (253)       (476)
      Employee non-cash bonuses        -         114           -         114
                               ----------------------------------------------
                                   1,797       1,831       5,492       5,210
    Change in other non-cash
     operating items
      Accounts receivable             (7)          -         331           -
      Prepaid expenses and
       other assets                    5        (865)       (240)     (1,247)
      Accounts payable and
      accrued liabilities            504         645          (5)        351
      Due to related companies        57         122         113        (157)
                               ----------------------------------------------
    Cash provided by operating
     activities                    2,356       1,733       5,691       4,157
                               ----------------------------------------------
    Investing activities
    Computer software                (23)          -         (23)          -
    Construction-in-progress          (6)        (22)        (20)        (44)
    Property acquisitions            (54)     (9,593)        (61)     (9,903)
    Acquisitions-in-progress           -         (30)          1        (134)
    Tenant inducements and
     leasing commissions              (3)          -         (20)          -
                               ----------------------------------------------
                                     (86)     (9,645)       (123)    (10,081)
                               ----------------------------------------------
    Financing activities
    Buy back of Class A Units          -        (475)       (300)       (828)
    Proceeds from mortgage
     payable                           -      15,700           -      15,700
    Mortgage financing fees          (10)       (348)        (14)       (356)
    Principal repayments on
     mortgages payable              (227)        (64)       (626)       (166)
    Distributions paid            (1,541)     (1,614)     (4,627)     (4,869)
    Demand loan                        -      (5,200)      1,300      (4,100)
    Convertible debenture              -          37           -          37
                               ----------------------------------------------
                                  (1,778)      8,036      (4,267)      5,418
                               ----------------------------------------------
    Increase (decrease) in cash
     and short-term investments
     during the period               492         124       1,301        (506)
    Cash - Beginning of period       911          75         102         705
                               ----------------------------------------------
    Cash - End of period           1,403         199       1,403         199
                               ----------------------------------------------
                               ----------------------------------------------

    Supplemental cash flow
     disclosure
      Interest paid                1,860       1,294       5,563       4,408
    

%SEDAR: 00022537E

SOURCE KEYreit

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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