Plaza Retail REIT Reports Strong Results for the Six Months Ended June 30, 2015

-  Revenue growth, normalized administrative expenses and lower interest expense drive FFO and AFFO per unit growth of 9.2% and 6.4%, respectively - 

FREDERICTON, Aug. 10, 2015 /CNW/ - Plaza Retail REIT (TSX: PLZ.UN) ("Plaza" or the "REIT") today announced strong financial results for the six months ended June 30, 2015.

Michael Zakuta, President and CEO said, "We are very pleased with the financial results for the first half of 2015. They are up significantly over the prior year and reflect the impact of the continued growth in our business, as well as the substantial refinancing program undertaken in 2014 and the first half of 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 six months ended June 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.

Six Months Ended June 30, 2015 Financial Highlights

• Same-asset occupancy ended the quarter at 96.1%, compared to 96.4% at June 30, 2014, while committed occupancy ended the quarter at 95.7% compared to 95.9% at June 30, 2014;
• Property and same-asset rental revenues were $47.8 million and $43.1 million, up 2.2% and 2.1% respectively, from $46.8 million and $42.2 million for the prior year;
• Property and same-asset net operating income ("NOI") were $29.9 million and $27.4 million, respectively, up 0.5% and 0.7% from $29.8 million and $27.2 million in the prior year;
• Funds from operations ("FFO") was $14.6 million, up 12.9% from $12.9 million in 2014. Adjusted funds from operations ("AFFO") was $14.1 million, up 10.2% from $12.8 million in 2014. FFO and AFFO per unit of $0.155 and $0.150, respectively, were up 9.2% and 6.4%, from $0.142 and $0.141 in 2014;
• FFO and AFFO payout ratios were 80.7% and 83.5%, respectively, compared to 84.3% and 85.1% in 2014;
• Interest coverage and debt service coverage ratios improved from 1.73x and 1.34x, respectively, in 2014 to 2.01x and 1.51x, respectively, in 2015; and
• Plaza's financial leverage remained consistent ending the quarter with a debt to gross asset ratio including converts of 55.4% and excluding converts of 49.4%, compared to 55.6% and 49.2%, respectively, at the end of Q2 2014.

Six Months Ended June 30, 2015 Operating Highlights

• Plaza's leasing activity included 359 thousand square feet of renewals/new leasing at existing properties at an average rate of $13.82 per square foot;
• Plaza completed 138 thousand square feet of new leasing deals on developments and redevelopments at market rates and 33 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 $63.7 million (at Plaza's consolidated share) with a weighted average term of 6.8 years and a weighted average interest rate of 3.52%;
• 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;
• Four new ground-up developments and one re-development of a former KEYreit property were added to the development pipeline during the first half 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, ON, Whitby, ON, and Mont-Laurier, QC for gross proceeds of $3.8 million (total sales of former KEYreit properties since Plaza acquired KEYreit in 2013 amounted to $64.1 million, which is approximately $15.2 million more than the REIT underwrote these assets for); and
• Plaza paid total cash distributions to REIT unitholders and Class B exchangeable LP unitholders of $11.7 million.

 

Refer to "Non-IFRS Financial Measures" below for further explanations.

Six Months Ended June 30, 2015 Financial Results
Property and same-asset NOI were $29.9 million and $27.4 million, respectively, up 0.5% and 0.7% from $29.8 million and $27.2 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 $599 thousand due to properties sold.

FFO was $14.6 million, up 12.9% from $12.9 million in 2014.  AFFO was $14.1 million, up 10.2% from $12.8 million in 2014.  FFO and AFFO per unit of $0.155 and $0.150, respectively, were up from $0.142 and $0.141, respectively, in 2014.  FFO and AFFO were up as a result of NOI growth, lower interest expense and normalized 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 half of 2015, Plaza incurred $0.9 million of one-time loan defeasance expenses and early mortgage discharge fees, which are included in FFO.  Excluding the one-time costs in the current and prior year, FFO was $15.4 million, up 15.3% from $13.4 million in 2014 and FFO per unit was $0.164, up from $0.148 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 7.03%, a drop of 10 basis points from December 31, 2014 and a drop of 10 basis points from June 30, 2014. There were $8.9 million of fair value gains recognized in the first half 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 $11.7 million in the first half of 2015, representing an AFFO payout ratio of 83.5%, compared to distributions in the amount of $10.9 million paid in the prior year, representing an AFFO payout ratio of 85.1%.

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 early renewed until July 31, 2016.  At June 30, 2015 there was $13.4 million available on this facility.  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 early renewed until July 31, 2016.  At June 30, 2015 there was $26.2 million available on these development facilities. The REIT also has a $4.4 million variable rate secured construction loan on one of its Ontario development projects.  The loan bears interest at a rate of prime plus 1.0% and matures in August 2015.  At June 30, 2015, $3.7 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 half of 2015 Plaza obtained new long-term financing in the amount of $63.7 million (at Plaza's consolidated share) with a weighted average term of 6.8 years and a weighted average interest rate of 3.52%.  Of that amount, $49.4 million were early refinancings replacing existing mortgages with a weighted average term of 6.7 years and a weighted average interest rate of 5.02%.  Annual cash flow savings of $0.8 million will be realized on these early refinancings.

The REIT ended the period with total mortgages payable (excluding development/construction and operating lines mentioned above) of $447.5 million with a weighted average interest rate on fixed rate mortgages of 4.62% and a weighted average maturity of 6.5 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%. 

Debt to gross book assets, excluding convertible debentures, at June 30, 2015 was 49.4% and including convertible debentures was 55.4%.

Further Information
A more detailed analysis of the REIT's 2015 financial results (including results for the three months ended June 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, August 11, 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, August 18, 2015. To access the replay, dial 416-849-0833 or 855-859-2056 (Passcode: 83549414). 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 305 properties totaling approximately 6.7 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 90% 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 second quarter ended June 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