Plaza Retail REIT Announces its 13th Consecutive Annual Distribution Increase and Solid Results for the Nine Months Ended September 30, 2015

- Revenue growth and lower administrative expenses drive FFO and AFFO per unit growth of 2.1% and 3.1%, respectively - continued strategy of growth allows for 13^th annual distribution increase

FREDERICTON, Nov. 16, 2015 /CNW/ - Plaza Retail REIT (TSX: PLZ.UN) ("Plaza" or the "REIT") today announced that its Board of Trustees has approved an increase in its annual distribution to unitholders to $0.26 per unit, representing a 4.0% increase.  Plaza also announced its financial results for the nine months ended September 30, 2015.

The increased distribution will be effective for the regularly scheduled monthly distribution payment dates for 2016 beginning with the January distribution, payable February 15, 2016, in the amount of 2.167 cents per unit at each payment date, subject to Board approval at that time.

Michael Zakuta, President and CEO said, "The distribution increase represents the thirteenth consecutive annual increase since we began paying distributions in 2003.  We have more than tripled our distribution over the last 13 years; as our initial 8 cents per unit distribution has grown to 26 cents per unit. No REIT in Canada has such a track record of distribution increases and it confirms our ability to grow the business and deliver results to our unitholders.  We are pleased with our financial results for the nine months ended September 30, 2015.  They are up over the prior year and reflect the impact of the continued growth in our business from development/redevelopment activity, as well as the substantial refinancing program undertaken in 2014 and 2015. Our results confirm our business strategy that is based on creating value for our unitholders by being opportunistic and by developing and redeveloping high quality retail projects leased to national retailers and financing those projects with long-term fixed rate financing."

All period information in this press release is for the nine months ended September 30, 2015 (except as otherwise noted) and all comparisons relate to the corresponding period in the prior year. "Same-asset" refers to properties the REIT has owned and operated during all of 2015 and the entire year ended December 31, 2014, and excludes partial year results from certain assets due to timing of acquisitions, redevelopments and dispositions.

Nine Months Ended September 30, 2015 Financial Highlights

• Same-asset committed occupancy ended the quarter at 96.9%, compared to 96.1% at September 30, 2014, while income producing property committed occupancy ended the quarter at 96.6% compared to 96.3% at September 30, 2014;
• Property and same-asset rental revenues were $71.7 million and $64.2 million, respectively, up 2.6% and 1.5%, respectively, from $69.9 million and $63.2 million for the prior year;
• Property and same-asset net operating income ("NOI") were $45.6 million and $41.4 million, respectively, up 1.1% and 0.4% from $45.1 million and $41.2 million in the prior year;
• Funds from operations ("FFO") were $22.5 million, up 4.9% from $21.5 million in 2014. Adjusted funds from operations ("AFFO") were $21.6 million, up 6.1% from $20.3 million in 2014. FFO and AFFO per unit of $0.240 and $0.230, respectively, were up 2.1% and 3.1%, from $0.235 and $0.223 in 2014;
• FFO and AFFO payout ratios were 78.2% and 81.6%, respectively, compared to 76.4% and 80.6% in 2014;
• Interest coverage and debt service coverage ratios improved from 1.85x and 1.42x, respectively, in 2014 to 2.04x and 1.53x, respectively, in 2015; and
• Plaza's financial leverage remained relatively consistent ending the quarter with a debt to gross asset ratio of 56.2% (including convertible debentures) and 50.3% (excluding convertible debentures), compared to 55.2% and 48.9%, respectively, at the end of Q3 2014.

Nine Months Ended September 30, 2015 Operating Highlights

• Plaza's leasing activity included 430 thousand square feet of renewals/new leasing at existing properties at an average rate of $14.45 per square foot;
• Plaza completed 426 thousand square feet of new leasing deals on developments and redevelopments at market rates and 58 thousand square feet of new and renewal leasing deals at market rates at non-consolidated investments;
• New long-term financing was obtained in the amount of $75.6 million (at Plaza's consolidated share) with a weighted average term of 7.3 years and a weighted average interest rate of 3.54%;
• Plaza closed the purchase of interests of certain equity partners in eight properties located in New Brunswick and Prince Edward Island effective January 1, 2015;
• Seven new ground-up developments and six re-developments, three of which are former KEYreit properties, were added to the development pipeline during the first three quarters of 2015;
• Plaza announced a 50-50 joint venture development in St. John's Newfoundland with DewCor (a company owned and operated by Danny Williams – businessperson, lawyer and former Premier of Newfoundland and Labrador) that will consist of more than 700,000 square feet of retail space once completed;
• Plaza sold income producing properties and land from the former KEYreit portfolio in Drayton Valley, AB, Brandon and Selkirk, MB, Windsor, NS, Oshawa, Toronto and Whitby, ON, and Mont-Laurier, QC for gross proceeds of $6.4 million (total sales of former KEYreit properties since Plaza acquired KEYreit in 2013 have amounted to $66.7 million, which is approximately $16.8 million more than the REIT underwrote these assets for);
• The Trust sold an 80% interest in two income producing properties in Kenora and Midland, ON for $13.0 million (it originally purchased 100% interests in these properties in August 2015); and
• Plaza paid total cash distributions to REIT unitholders and Class B exchangeable LP unitholders of $17.6 million.
  

 

 

Nine Months Ended September 30, 2015 Financial Results
Property and same-asset NOI were $45.6 million and $41.4 million, respectively, up 1.1% and 0.4% from $45.1 million and $41.2 million in the prior year.  Total property NOI increased mainly due to significant growth from developments and redevelopments, Plaza's core business, notwithstanding a decrease in NOI of $830 thousand due to properties sold.

FFO was $22.5 million, up 4.9% from $21.5 million in 2014.  AFFO was $21.6 million, up 6.1% from $20.3 million in 2014.  FFO and AFFO per unit of $0.240 and $0.230, respectively, were up from $0.235 and $0.223, respectively, in 2014.  FFO and AFFO were up as a result of NOI growth, lower interest expense (net of distributions on Class B exchangeable LP units), and lower administrative expenses (one-time costs were incurred to convert to a REIT structure in 2014).  As well, in order to early refinance a number of mortgages in the first three quarters of 2015, Plaza incurred $0.9 million of one-time loan defeasance expenses and early mortgage discharge fees, which are included in FFO.  Excluding these and other one-time costs in the current and prior year, FFO was $22.7 million, up 9.6% from $20.7 million in 2014 and FFO per unit was $0.242, up from $0.227 in 2014.

Fair Value of Investment Properties
At the end of the quarter, the properties were valued using an overall weighted average capitalization rate of 7.04%, a drop of 9 basis points from December 31, 2014 and a drop of 9 basis points from September 30, 2014. There were $9.4 million of fair value gains recognized in the first three quarters of 2015 primarily as a result of the capitalization rate compression for Plaza's properties. Fair value adjustments are determined based on the movement of various parameters, including changes in stabilized NOI and capitalization rates.

New Leases / Renewals

 

Distributions
Distributions paid to REIT unitholders and Class B unitholders of the REIT's subsidiary limited partnership were $17.6 million in the first three quarters of 2015, representing an AFFO payout ratio of 81.6%, compared to distributions in the amount of $16.4 million paid in the prior year, representing an AFFO payout ratio of 80.6%. 

The REIT has announced its 13^th consecutive annual distribution increase to $0.26 per unit in 2016, representing a 4.0% increase from 2015, and will be effective for the regularly scheduled monthly distribution payment dates beginning with the January 2016 distribution, payable February 15, 2016.

Liquidity and Capital Structure
To fund ongoing operating activities, the REIT has a $30.0 million 365-day revolving operating facility with a Canadian chartered bank.  It bears interest at prime plus 1.0% or BAs plus 2.25%.  The operating facility has been renewed until July 31, 2016.  At September 30, 2015 there was $1.8 million available on this facility. 

On August 26, 2015 the purchase of two properties located in Kenora and Midland, ON was funded using the operating line, for a total net purchase price of $8.6 million (net of debt obtained).  An 80% interest in these two properties was sold on September 30, 2015, however, the cash proceeds from the sale weren't deposited until October 2, 2015, thereby reducing the outstanding balance on the operating line subsequent to quarter end. 

To fund development activities the REIT has two 365-day revolving development facilities with Canadian chartered banks available upon pledging of specific assets.  One is a $20 million facility that bears interest at prime plus 1.00% or BAs plus 2.75%, and the other is a $15 million facility that bears interest at prime plus 1.00% or BAs plus 2.25%.  The two lines have been renewed until July 31, 2016.  At September 30, 2015 there was $22.9 million available on these development facilities. The REIT also has a $2.2 million variable rate secured construction loan on one of its Ontario development projects.  The loan bears interest at a rate of prime plus 1.25% or BAs plus 2.50% and matures in August 2017.  At September 30, 2015, $1.6 million was drawn on the loan. 

Given the current favourable debt market and interest rate environment, the REIT continued to look for opportunities to early refinance mortgages on better terms.  During the first three quarters of 2015 Plaza obtained new long-term financing in the amount of $75.6 million (at Plaza's consolidated share) with a weighted average term of 7.3 years and a weighted average interest rate of 3.54%.  Of that amount, $57.6 million were early refinancings replacing existing mortgages with a weighted average original term of 7.5 years and a weighted average interest rate of 5.06%.  Annual cash flow savings of $0.8 million will be realized on all of the 2015 refinancings.

The REIT ended the period with total mortgages payable (excluding development/construction and operating lines mentioned above) of $457.1 million with a weighted average interest rate on fixed rate mortgages of 4.61% and a weighted average maturity of 6.7 years.  

On June 25, 2015, Plaza issued $6.0 million Series X floating mortgage bonds.  These bonds have a five year term and an interest rate of 5.0%.

In August 2015, the Trust renewed $3.86 million of the $4.0 million Series VII mortgage bonds.  On the date of renewal $140 thousand of the mortgage bonds were redeemed and not renewed.

Debt to gross book assets, excluding convertible debentures, at September 30, 2015 was 50.3% and including convertible debentures was 56.2%.

Further Information
A more detailed analysis of the REIT's 2015 financial results (including results for the three months ended September 30, 2015) is included in the REIT's Management's Discussion and Analysis and Consolidated Financial Statements, which have been filed on SEDAR and can be viewed at www.sedar.com or on the REIT's website at www.plaza.ca.  

Conference Call
Michael Zakuta, President and CEO, and Floriana Cipollone, CFO, will host a conference call for the investment community on Tuesday, November 17, 2015 at 10:00 a.m. ET (11:00 a.m. AT). The call-in numbers for participants are 647-427-7450 or 888-231-8191.  

A replay of the call will be available until Tuesday, November 24, 2015. To access the replay, dial 416-849-0833 or 855-859-2056 (Passcode: 60682221). The webcast will be archived on the REIT's website for 90 days following the conference call.

About Plaza
Plaza is an open-ended real estate investment trust and is a leading retail property owner and developer, particularly in Eastern Canada.  Plaza's current portfolio includes interests in 306 properties totaling approximately 7.0 million square feet across Canada and additional lands held for development. Plaza's properties include a mix of strip plazas, stand-alone small box retail outlets and enclosed shopping centres, anchored by approximately 91% national tenants.  For more information, please visit www.plaza.ca.  

Non-IFRS Financial Measures
This press release contains certain non-IFRS financial measures including FFO and AFFO. These measures are commonly used by entities in the real estate industry as useful metrics for measuring performance. However, they do not have any standardized meaning prescribed by IFRS and are not necessarily comparable to similar measures presented by other publicly traded entities. These measures should be considered as supplemental in nature and not as a substitute for related financial information prepared in accordance with IFRS. Please refer to the REIT's Management's Discussion and Analysis for the third quarter ended September 30, 2015 for a reconciliation of FFO and AFFO to standardized IFRS measures.

Forward-looking Information
This news release contains forward looking statements relating to our operations and the environment in which we operate, which are based on our expectations, estimates, forecasts and projections. These statements are not future guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. Therefore, actual outcomes and results may differ materially from those expressed in these forward looking statements. Readers, therefore, should not place undue reliance on any such forward looking statements. Further, a forward looking statement speaks only as of the date on which such statement is made. We undertake no obligation to publicly update any such statement, to reflect new information or the occurrence of future events or circumstances, except for forward-looking information disclosed in prior disclosures which, in light of intervening events, requires further explanation to avoid being misleading.

The TSX does not accept responsibility for the adequacy or accuracy of this release.

 

SOURCE Plaza Retail REIT