Partners Announces Results for the First Quarter of 2015
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E-mailBARRIE, ONTARIO -- (Marketwired) -- 05/12/15 -- Partners Real Estate Investment Trust (the "REIT," or "Partners") (TSX: PAR.UN) today announced its results for the three month period ended March 31, 2015 (the "first quarter").
FIRST QUARTER 2015 HIGHLIGHTS
-- Revenues of $14.5 million, a 4% decrease when compared to the first
quarter of 2014.
-- Same property NOI of $8.5 million, a 5% decrease when compared to the
first quarter of 2014.
-- FFO and AFFO were both $0.09 per unit, a decrease from 2014's comparable
quarter of $0.13 per unit and $0.14 per unit respectively.
-- AFFO payout ratio of 67%, a decrease from 89% during the first quarter
of 2014 and 106% for the full year 2014.
-- On February 17, 2015, the REIT completed its refinancing of first
mortgages at three properties for $5.6 million, having a weighted
average interest rate of 2.88%.
-- The REIT's weighted average interest rate at March 31, 2015 was 4.35%,
which is a decrease from the 4.43% as at December 31, 2014.
-- Occupancy at March 31, 2015 increased to 94.6% as compared to 94.3%
occupancy at December 31, 2014.
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Mar 31, 2015 Mar 31, 2014
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Revenues from income producing
properties $ 14,524,120 $ 15,167,896
Net loss (4,096,321) (1,312,186)
Net loss per unit - basic (0.16) (0.05)
NOI (1) 8,492,707 9,559,495
NOI - same property (1) 8,492,707 8,976,303
FFO(1) 2,363,249 3,512,896
FFO per unit(1) 0.09 0.13
AFFO(1) 2,479,268 3,649,015
AFFO per unit(1) 0.09 0.14
Distributions per unit(2) 0.06 0.13
Distribution payout ratio(3) 70% / 67% 93% / 89%
Cash distributions(4) 1,342,768 2,982,466
Cash distributions per unit(4) 0.05 0.11
Cash distribution payout
ratio(5) 57% / 54% 85% / 82%
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As at Mar 31, 2015 Dec 31, 2014 Mar 31, 2014
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Total assets $ 538,118,289 $ 542,551,040 $ 595,864,465
Total debt(6) 385,979,311 381,967,023 401,783,410
Total equity 143,589,134 149,036,368 180,635,579
Weighted average units
outstanding - basic 26,399,382 26,206,391 26,023,936
Debt-to-gross book value
including debentures(6) 71.2% 69.9% 66.9%
Debt-to-gross book value
excluding debentures(6) 55.4% 54.2% 52.7%
Interest coverage ratio(7) 1.78 1.84 2.01
Debt service coverage ratio(7) 1.20 1.24 1.34
Weighted average interest
rate(8) 4.35% 4.43% 4.34%
Portfolio occupancy 94.6% 94.3% 96.4%
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(1) NOI, NOI - same property, FFO and AFFO are non-IFRS financial measures
widely used in the real estate industry. See "Part II - Performance
Measurement" for further details and advisories. Prior year balances
have been reclassified to conform with current year presentation. NOI -
same property includes only those properties which have been owned by
the REIT for a full current and prior year period.
(2) Represents distributions to unitholders on an accrual basis.
Distributions are payable as at the end of the period in which they are
declared by the Board of Trustees, and are paid on or around the 15th
day of the following month. Distributions per unit exclude the 5% bonus
units given to participants in the Distribution Reinvestment and
Optional Unit Purchase Plan.
(3) Distribution payout ratio is a non-IFRS financial measure widely used in
the real estate industry, calculated as total distributions as a
percentage of FFO/AFFO. Management considers the distribution payout
ratio a valuable metric to determine the sustainability of the REIT's
distribution. Non-IFRS measures do not have standardized meanings and
are therefore unlikely to be comparable to similar measures presented by
other issuers. There is no directly comparable IFRS measure.
(4) Represents distributions on a cash basis, and as such, excludes the non-
cash distributions of units issued under the Distribution Reinvestment
and Optional Unit Purchase Plan.
(5) Cash distribution payout ratio is a non-IFRS financial measure widely
used in the real estate industry, calculated as cash distributions as a
percentage of FFO/AFFO. Management considers the cash distribution
payout ratio a valuable metric to determine the sustainability of the
REIT's distribution. Non-IFRS measures do not have standardized meanings
and are therefore unlikely to be comparable to similar measures
presented by other issuers. There is no directly comparable GAAP
measure.
(6) Debt-to-gross book value is a non-IFRS financial measure widely used in
the real estate industry. See calculation under "Debt-to-Gross Book
Value" in "Part IV - Results of Operations". Management considers debt-
to-gross book value to be a valuable metric in assessing the REIT's
overall leverage. Non-IFRS measures do not have standardized meanings
and are therefore unlikely to be comparable to similar measures
presented by other issuers. There is no directly comparable IFRS
measure.
(7) Interest coverage ratio and debt service coverage ratio are non-IFRS
financial measures widely used in the real estate industry, calculated
on a rolling four-quarter basis. See definition under "Mortgages and
Other Financing" in "Part IV - Results of Operations". Management
considers the interest coverage and debt service coverage ratios to be
valuable metrics in assessing the REIT's ability to make contractual
payments on debt. Non-IFRS measures do not have standardized meanings
and are therefore unlikely to be comparable to similar measures
presented by other issuers. There are no directly comparable IFRS
measures.
(8) Represents the weighted average effective interest rate for secured debt
excluding debentures and credit facilities.
(9) Certain comparative figures have been reclassified to conform with the
current year's presentation.
"We are pleased with Partners' results for the first quarter of 2015, and optimistic regarding our prospects for the year ahead," stated Jane Domenico, the REIT's acting CEO. "2015 marks a fresh start for our business, and should demonstrate a revitalization of our property portfolio. This revitalization is the first priority for our available capital. Our philosophy in this regard is simple - our most certain route towards creating unitholder value is simply to focus on the properties we currently own, placing the best possible tenants within those properties, and providing those tenants with the best possible service."
"Revitalizing our portfolio will require financial flexibility. The refinancings we completed during the first quarter represented our most recent steps towards developing this flexibility, and followed several more significant steps during the latter half of 2014. Our financial position will be further enhanced by this quarter's considerable reduction in our payout ratio. Should we find ourselves in a position where our capital resources exceed our reinvestment needs, our next priority for this cash will be the long-term improvement of our balance sheet."
"Again, we believe this strategy provides Partners with the most certain route towards creating value for our unitholders. As a result, I am confident that 2015 will mark Partners' return to positive results."
Financial Results
Revenue from income producing properties for the three months ended March 31, 2015 was $14.5 million, a $0.6 million (4%) decrease when compared to $15.1 million from 2014's comparable period. The decrease in the quarter was primarily as a result of the sale of three Canadian Tire properties during the third quarter of 2014.
Net loss for the three months ended March 31, 2015 was $4.1 million, a $2.8 million increase when compared to $1.3 million loss for the same period in 2014. This decrease in profitability was primarily due to the loss of income from the aforementioned sale of three properties and the increase to fair value losses. These amounts were partially offset by decreases in other transactions costs.
All property NOI for the three months ended March 31, 2015 was $8.5 million, a $1.1 million (11%) decrease when compared to $9.6 million from 2014's comparable period. This decline can be attributed to $0.6 million in lost NOI from the sale of three properties, reduced revenue as a result of increased vacancy and a small increase to property management fees that occurred as a result of externalizing property management in September 2014.
Same property NOI removes the effect of the REIT's dispositions during 2014. For the three months ended March 31, 2015 same property NOI was $8.5 million, a $0.5 million (5%) decrease when compared to $9.0 million for the same period in 2014. This period over period decline is as a result of increased vacancy and a small increase to property management fees.
FFO for the three months ended March 31, 2015 was $2.4 million, a $1.1 million (33%) decrease when compared to $3.5 million from 2014's comparable period. This decline was primarily due to the same factors as the decline to the same property NOI (as discussed above).
AFFO for the three months ended March 31, 2015 was $2.5 million, a $1.1 million (32%) decrease when compared to $3.6 million from the same period in 2014. This decline was primarily due to the same factors as the FFO decline, and was further compounded by a year over year increase in sustaining capital expenditures. This current quarter is the first period of implementation of the sustaining capex reserve calculation (sustaining capex is reserved at $0.15 per foot per quarter - $0.60 annually). The reserve resulted in first quarter sustaining capex of $0.4 million, which is a $0.3 million increase over 2014's comparative period.
Distributions for the three months ended March 31, 2015 were $1.7 million ($0.06 per unit), a decrease when compared to $3.3 million ($0.13 per unit) for the same period in the prior year. This $1.6 million reduction was a direct result of the REIT's August 2014 decision to reduce its annual distribution from $0.50/unit to $0.25/unit (effective for the August distribution paid in September 2014).
The AFFO payout ratio for the three months ended March 31, 2015 was 67% (March 31, 2014 - 89%). Taking into account the dividend re-investment plan ("DRIP"), the AFFO cash payout ratio for the three months ended March 31, 2015 was 54% (March 31, 2014 - 82%). The current periods AFFO cash payout ratio is below industry average and it provides the REIT with cash for capital re-investment purposes.
The REIT's total assets as at March 31, 2015 were $538.1 million, a $4.4 million (1%) decrease when compared to $542.5 million as at December 31, 2014. This decline was primarily as a result of $6.1 million in fair value losses recognized on the REIT's property portfolio. This adjustment was partially offset by increases in working capital assets.
The REIT's total debt as at March 31, 2015 was $386.0 million, a $4.0 million (1%) increase when compared to the $382.0 million as at December 31, 2014. This increase was the result of three re-financings that provided the REIT with $4.1 million in net new mortgage financing, as well as a $2.0 million draw on the REIT's $10.0 million credit facility. These factors were partially offset by $2.2 million in regular principal repayments on the REIT's mortgages.
Partners' debt-to-gross book value as at March 31, 2015, was 71.2%, or 55.4% when excluding the impact of the convertible debentures. These metrics stood at 69.9% and 54.2%, respectively, as at December 31, 2014. The increase reflects in part the above noted mortgage financings and the impact of $6.1 million in fair value loss adjustments to the valuation of income producing properties.
The REIT's weighted average interest rate at March 31, 2015 was 4.35%, which is a decrease from 4.43% as at December 31, 2014. This decrease was as a result of the $5.6 million in new mortgage financings during the three months ended March 31, 2015, which had a weighted average contract interest rate of 2.88%.
Partners' interest coverage ratio as at March 31, 2015 was 1.78, a decrease from 1.84 as at December 31, 2014. The REIT's debt service coverage ratio as at March 31, 2015 was 1.20, a decrease from 1.24 as at December 31, 2014. These minor declines can be attributed to the small decrease to NOI.
Net asset value is a measure of the Partners' total assets less the REIT's liabilities, and is represented on the balance sheet as unitholders' equity. As at March 31, 2015, the REIT's net asset value was $5.43 per unit, a decrease of $0.22 per unit when compared to $5.65 per unit amount as at December 31, 2014. This decrease in unitholder equity is as a result of the quarters' $4.1 million net loss and the $1.7 million in distributions.
OPERATIONAL PERFORMANCE
Partners' occupancy as at March 31, 2015, was 94.6%, an increase from 94.3% as at December 31, 2014. This increase was primarily the result of new leases at several of the REIT's properties.
During the first quarter, Partners renewed or entered into new leases for 37,278 square feet of space that was either vacant at the beginning of the quarter or expired during the quarter. The balance of leased space that expired during the quarter of 9,746 square feet, comprising seven units, is either in the process of being renewed or will require new tenant prospects. The REIT has a single large vacancy in excess of 40,000 square feet, and is in active discussions with potential replacement tenants for this space.
Also during the first quarter, the REIT renewed a total of 17,023 square feet that was set to expire over the balance of 2015. The success in securing lease renewals and new leases for 2015 expiries reflects the REIT's increased focus and efforts on proactive leasing activities in recent months.
OUTLOOK
Lease expiries in 2015 and 2016 represent 5.3% and 14.6%, respectively, of Partners' total GLA as at March 31, 2015. Management believes that there is sufficient demand for the majority of space, and that certain expiries should provide the REIT with a near-term opportunity to enhance the revenues generated by those properties. However, it should be noted that while the REIT did not have Target or Future Shop as tenants in any of its properties, these companies' withdrawal from the Canadian retail market has created significant vacancies. This may result in some challenges in negotiating renewals or vacant lease-ups with major tenants.
As at March 31, 2015, Partners had $70.6 million, or 29.7%, in mortgages maturing during the period from April 1, 2015 to March 31, 2017. These maturing mortgages have a weighted average interest rate of 4.65%. Based on current refinancing conditions, management expects that refinancing this portion of Partners' debt should result in reductions to the REIT's financing costs.
FIRST QUARTER AND SUBSEQUENT DEVELOPMENTS
Refinancing
On February 17, 2015, Partners completed its refinancing of three properties. This refinancing consisted of first mortgages that amount to $5.6 million, and provided the REIT with $4.1 million in additional liquidity to fund high return on investment projects. These first mortgages carry an average weighted interest rate of 2.88% and an average term to maturity of 5.5 years.
Strategic Review
On May 12, 2015, Partners' Board of Trustees announced the conclusion of its ongoing review of strategic alternatives.
On May 6, 2014, Partners announced that its Board had struck a Special Committee to review strategic alternatives to maximize value for all unitholders. That process was effectively put on hold until October 2014 until the REIT reversed the Holyrood transaction pursuant to which it had acquired 3 shopping malls in Ontario from Holyrood Holdings. Following the rescission of the Holyrood transaction the Special Committee instructed its financial advisors to re-engage with various parties that had expressed an interest in some form of transaction with the REIT. After considering the alternatives available, that process led to confidential negotiations with a Canadian real estate investment trust. Partners REIT and this third party undertook due diligence and the negotiation of a confidential non-binding letter of intent that contemplated the merger of the two REITs on terms that the Partners REIT Board of Trustees believed could be in the best interests of the REIT. However, any such transaction would require the approval of a majority of the unitholders of Partners REIT, and so the Special Committee canvassed certain of the REIT's major unitholders for a reaction to the transaction that was under consideration. The feedback received by the Special Committee was that those unitholders considered the economic terms of the transaction to undervalue Partners REIT and that they would not support a sale or merger of the REIT at this time. Given that a major strategic transaction of this nature is not possible without the approval of a majority of unitholders, the party in discussion with the REIT elected to discontinue the process and the Special Committee recommended to the Board that the REIT's focus be on continuing to improve the operations of the REIT.
Partners' Board of Trustees has accepted the recommendation of the Special Committee. The REIT will now devote itself to improving its Net Operating Income via a revitalization of its existing portfolio, as well as an improvement of the REIT's balance sheet and financial position.
Conference Call
Partners will host a conference call at 8:30 AM Eastern on May 13, 2015, at which time the REIT's management will both review these financial results and discuss their strategic outlook.
Conference Dial-In Details
Toll Free (North America): 800-355-4959
Local: 416-340-8527
Instant Replay Details (Available until May 20, 2015)
Toll Free (North America): 800-408-3053
Passcode: 5467657
A recording of the conference call will also be available via Partners' website.
About Partners REIT
Partners REIT is a growth-oriented real estate investment trust focused on the expansion and management of a portfolio of 36 retail and mixed-use community and neighbourhood shopping centres. These properties are located in both primary and secondary markets across British Columbia, Alberta, Manitoba, Ontario, and Quebec, and comprise a total of approximately 2.5 million square feet of leasable space.
Disclaimer
Certain statements included in this press release constitute forward-looking statements, including, but not limited to, those identified by the expressions "expect," "will" and similar expressions to the extent they relate to Partners REIT. The forward- looking statements are not historical facts but reflect Partners REIT's current expectations regarding future results or events. These forward looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including access to capital, regulatory approvals, intended acquisitions and general economic and industry conditions. Although Partners REIT believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and, accordingly, readers are cautioned not to place undue reliance on such statements due to the inherent uncertainty therein.
Contacts: Partners Real Estate Investment Trust Investor Relations [email protected] (705) 725-6020 ext. 401 Renmark Financial Communications Inc. Barry Mire: [email protected] Robert Thaemlitz: [email protected] (514) 939-3989 or (416) 644-2020 www.renmarkfinancial.com
Source: Partners Real Estate Investment Trust
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