Partners REIT announces solid growth in Third Quarter 2011

 

VICTORIA, B.C. (November 10, 2011) - Partners Real Estate Investment Trust (TSX - PAR.UN) announced today solid growth for the three and nine months ended September 30, 2011. Effective November 3, 2010, the name of Charter Real Estate Investment Trust was changed to Partners Real Estate Investment Trust. All references to “Partners Real Estate Investment Trust”, “Partners REIT”, the “REIT” and similar references in this press release refer to Charter Real Estate Investment Trust prior to the name change. In addition, effective January 1, 2011 the REIT adopted International Financial Reporting Standards (“IFRS”). Please refer to the REIT’s Management Discussion and Analysis and the condensed consolidated financial statements for the three and nine months ended September 30, 2011 for a comprehensive description of the changes arising from the transition.

Third Quarter Highlights:

• Occupancies up significantly to 98.2% as at September 30, 2011 from 95.2% for the same period last year

• NOI rises 62% and FFO up 34% on contribution from acquisitions and improved same property performance

• Net Asset Value (“NAV”) at September 30, 2011 is $1.76 per unit

• Acquisition of properties in Quebec and British Columbia strengthen and further diversify portfolio

• New debt reduces average effective interest rate to 5.42% as at September 30, 2011from 5.88% for the same period last year

• Focus on growing Unitholder value through accretive acquisitions and enhanced property performance continues

• Proposed acquisition of assets of NorRock Realty Finance Corporation to enhance liquidity position

“Our strong operating and financial performance in the third quarter of 2011 clearly demonstrates that our growth strategies are working,” commented Adam Gant, Chief Executive Officer. “The ten properties acquired over the last year are making a solid and accretive contribution to our results, while our proven leasing and property management programs are generating solid same property growth. We look for these trends to continue in the quarters ahead.”

Solid Operating Performance Continues

Weighted average occupancy at September 30, 2011 increased significantly to 98.2% from 95.2% at the same time last year. The increase is due to strong occupancies at recently acquired properties, with seven of the ten properties acquired over the prior twelve months having occupancy of 100%, and solid leasing activity through the balance of the REIT’s portfolio.

Net Operating Income (“NOI”) increased 62% to $4.1 million in the third quarter of 2011 from $2.5 million in the same prior-year period. For the nine months ended September 30, 2011 NOI increased 48% to $10.8 million from $7.3 million in the same period last year. The increases were due primarily to the contribution from recent acquisitions and growth in same property NOI, which increased 5.3% and 2.5% for the three and nine months ended September 30, 2011, respectively, compared to the same prior-year periods.

Funds from Operations (“FFO”) rose to $1.3 million ($0.04 per unit) in the third quarter of 2011 from $0.9 million ($0.04 per unit) in the third quarter of the prior year. For the first nine months of 2011, FFO increased to $3.6 million ($0.12 per unit) from $2.6 million ($0.13 per unit) in the same period last year. The increases were due primarily to the contribution from acquisitions in the period and increases in same property NOI. Per unit amounts were impacted by the 31.8% and 53.3% increase in the weighted average number of units outstanding for the three and nine months ended September 30, 2011, respectively, compared to the same prior-year periods, due to equity offerings completed in July 2010 and December 2010. Management believes per unit amounts will improve over time as recent acquisitions make a full contribution to FFO.

Active Leasing Across Portfolio

Management remains committed to actively pursuing new leases and lease renewals with the objective of increasing occupancy and weighted average rental income per square foot of gross leasable area. One of the REIT’s goals is to generate organic growth through redevelopment and lease renewal activities at its existing centres. As of November 10, 2011 The REIT had lease renewals of approximately 44,000 square feet, and new signed leases of approximately 33,000 square feet; which is 13,000 square feet in excess of the anticipated lease expiries for the year. Management expects the portfolio’s occupancy rate to improve over the remainder of 2011 from property acquisitions as well as new and renewed leases.

Debt Coverage Highlights

As at September 30, 2011 the REIT’s ratio of debt to gross book value was 73.3% compared to 55.0% at December 31, 2010. Subsequent to the completion of the arrangement with NorRock, the gross book value of the assets is anticipated to increase from $270,652,755 to $323,370,323 (the original cost of income producing properties plus book value of all other assets as at September 30, 2011). The debt-to-gross book value ratio is anticipated to decrease from 73.3% to 61.3% based on the combination of the mortgages payable, bank credit facility and debentures which aggregate to $198,264,829 excluding deferred financing costs, the fair value of the debentures’ convertible feature, the fair value of the embedded derivatives, and unamortized above market interest rate adjustments.

Interest coverage and debt service coverage ratios remained a conservative 1.65 times and 1.26 times, respectively. During the first nine months of 2011 the REIT acquired and assumed mortgages totaling $58.1 million on the nine properties acquired during the year. Overall, the REIT’s mortgage portfolio incurs a weighted average effective interest rate of 5.42% at September 30, 2011, down from 5.88% as at September 30, 2010, with a weighted average term to maturity of approximately four years.

Recent Events

On July 14, 2011, the REIT acquired a second mortgage from Mortgage Fund Three in the amount of $4.0 million. This mortgage is secured by the REIT’s Shoppers Drug Mart properties in Manitoba. It is an interest only loan maturing April 30, 2013 and bears interest at a floating rate equal to prime rate plus 4%.

On August 31, 2011, the REIT completed the acquisition of Place Desormeaux, a 250,000 square foot enclosed shopping centre in Longueuil, Québec on the south shore of the Greater Montreal Region. The REIT paid approximately $32.2 million for the property with approximately $3.6 million in additional acquisition and capital improvement costs to be incurred in the future. The purchase was funded by a $23.0 million loan from OMERS Administration Corporation, secured by the property, with a three year term and bearing contractual interest at a rate of 4.05%. The balance of the purchase price was funded by a portion of the $13.5 million, three year revolving loan facility from Firm Capital Corporation, secured against the REIT’s portfolio of properties. The revolving loan facility bears a floating interest rate that is the greater of 9.00% or the TD Canada Trust Posted Bank Prime Rate of Interest plus 4.00%.

On September 1, 2011, the REIT completed the acquisition of the Evergreen Shopping Centre, a five building 88,200 square foot open-air shopping centre located in Sooke, British Columbia approximately 37 kilometers west of Victoria. The shopping centre was acquired for $15.9 million and was funded by a new $10.5 million five-year mortgage on the property with a contractual interest rate of 3.8%. The balance of the purchase price was paid in cash from the REIT’s bank credit facility.

On October 12, 2011, the REIT refinanced its property located in Chateauguay, Quebec. The loan is secured by a first mortgage on the property. The loan amount is for $11 million, bears interest at a rate equal to 3.4%, with a term to maturity of 5 years. The REIT used $8.6 million of the loan proceeds to pay down the previous first mortgage.

On October 17, 2011, the REIT announced that an acquisition agreement was entered with NorRock Realty Finance Corporation ("NorRock"), whereby Partners REIT will acquire all the assets of NorRock in exchange for the issuance of Partners REIT units, certain rights to acquire Partners REIT units and cash. On the closing of the proposed transaction, Partners REIT will pay for the cash and cash equivalents held by NorRock, currently valued at approximately $38.3 million. In addition, Partners REIT will pay for the non-cash assets of NorRock through an initial payment of $12.6 million, subject to any required adjustments. To the extent that the assets are sold prior to closing, the amount of the net proceeds will be deducted from the assets at closing and added to the cash at closing. After closing, Partners REIT may retain or may sell the non-cash assets acquired from NorRock. The acquisition is expected to be completed in December, 2011.

The REIT has had discussions with the Toronto Stock Exchange about obtaining a TSX listing for the REIT units. Any listing on the TSX would be subject to fulfilling the conditions of the TSX and there can be no assurance that the REIT will be able to do so. Subject to the satisfaction of several conditions that are expected to be imposed upon such listing, if approved, it is anticipated that this change in listing will occur in the first half of 2012.

“The proposed NorRock acquisition will provide Partners REIT with the financial resources and flexibility to continue acquiring accretive retail real estate assets while at the same time substantially expanding our investor base,” Mr. Gant concluded.

Investor Conference Call

A conference call to discuss the recent operating and financial results will be hosted by Adam Gant, Chief Executive Officer and Patrick Miniutti, President and Chief Operating Officer, on Monday November 14, 2011 at 3:00 pm ET. The telephone numbers for the conference call are Local: (416) 849-2698 and North American Toll Free: (866) 400-2270. The telephone numbers to listen to the call after it is completed (Instant Replay) are local (416) 915-1035 or North American toll free (866) 245-6755. The Passcode for the Instant Replay is 426392#. A recording of the call will also be archived on the REIT’s website at www.partnersreit.com.

Financial Highlights

		As at and for the three months ended				As at and for the six months  ended
		Sept. 30, 2011		Sept. 30, 2010		Sept. 30, 2011	Sept. 30, 2010
NOI(1)		$ 4,137,945		$ 2,498,519		$ 10,802,497	$ 7,325,831
NOI – same property(1)		2,630,849		2,498,519		7,509,907	7,325,831
FFO(1)		1,262,428		940,313		3,602,159	2,602,438
FFO per unit(1)		0.04		0.04		0.12	0.13
Net income		2,113,239		2,522,061		4,192,601	2,122,821
Net income per unit		0.04		0.13		0.14	0.13
Distributions(2)		1,243,624		1,029,665		3,722,820	2,513,965
Distributions per unit(2)		0.04		0.04		0.12	0.12
Cash distributions(3)		1,162,701		867,554		3,526,056	2,225,963
Cash distributions per unit(3)		0.04		0.04		0.11	0.11
Total assets		256,486,723		134,894,045		256,486,723	134,894,045
Total debt(4)		197,559,240		85,207,938		197,559,240	85,207,938
Debt-to-gross book value(5)		73.3%		57.5%		73.3%	57.5%
Interest coverage ratio(6)		1.65		1.67		1.65	1.67
Debt service coverage ratio(6)		1.26		1.36		1.26	1.36
Weighted average interest rate(7)		5.42%		5.88%		5.42%	5.88%
Portfolio occupancy		98.2%		95.2%		98.2%	95.2%

1. Net operating income or “NOI” and funds from operations or “FFO” are non-IFRS financial measures widely used in the real estate industry. See “Part III – Performance Measurement” of the MD&A for further details and advisories.

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. 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.

4. Includes secured debt, unsecured debt and bank credit facility.

5. See calculation under “Debt-to-Gross Book Value” in “Part V – Results of Operations.”

6. Calculated on a rolling four quarter basis.

7. Represents the weighted average effective interest rate for secured debt excluding the bank credit facility, which has a floating rate of interest.

For the complete third quarter 2011 financial statements and Management’s Discussion and Analysis, please visit www.sedar.com or www.partnersreit.com.

About Partners REIT

Partners REIT is a growth-oriented real estate investment trust, which currently owns (directly or indirectly) 20 retail properties located in Ontario, Quebec, Manitoba and British Columbia aggregating approximately 1.6 million square feet of leaseable space. Partners REIT focuses on expanding and managing a portfolio of retail and mixed-use community and neighbourhood shopping centres located in both primary and secondary markets across Canada.

Non-IFRS Measures

This press release makes reference to certain financial measures other than those prescribed by International Financial Reporting Standards ("IFRS").  These non-IFRS measures are not recognized under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other entities.  These non-IFRS measures, which include NOI and FFO, are provided to the reader as additional information to complement IFRS measures and to further understand the REIT’s results of operations from management's perspective and as a supplemental measure of performance that highlights trends in the business that may not otherwise be apparent when relying solely on IFRS financial measures.  Such non-IFRS measures should not be considered in isolation or as a substitute for analysis of financial information reported under IFRS. Readers should refer to the REIT’s annual information form and MD&A, which are available on our website and on SEDAR at www.sedar.com, for additional details regarding the determination of these non-IFRS measures and reconciliation to financial information reported under IFRS.

Forward-looking Statements

Certain statements included in this press release constitute forward-looking statements, including, but not limited to, those identified by the expressions “believe”, "expect," "will", “offers the opportunity”, “intend, “look forward, “look for” 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 continuing our growth; increases in per unit amounts over time; increasing occupancy through pursuing new leases and lease renewals; generating organic growth through redevelopment and lease renewal; any approval to list our units on the Toronto Stock Exchange; our ability to obtain court, regulatory, securityholder and other approvals for the NorRock transaction; the fulfillment of conditions precedent to closing the NorRock transaction and the successful completion of the transaction; our expectations regarding an increase in funds available to Partners REIT as a result of the acquisition, our expectations regarding the retention or sale of the mortgages and other assets acquired by Partners REIT in connection with the transaction with NorRock; the anticipated value to be received by holders of NorRock Class A shares and stock appreciation rights; our expectations regarding an additional payment to the holders of NorRock Class A shares and stock appreciation rights after the closing of the transaction; Partners REIT’s  intention to continue to grow and diversify its portfolio; 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.

The forward-looking statements contained in this press release reflect our current views with respect to future events and are also subject to certain other risks and uncertainties and other risks detailed from time-to-time in the REIT’s ongoing filings with the securities regulatory authorities, which filings can be found at www.sedar.com. Actual results, events, and performance may differ materially from those contemplated in the REIT’s forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. The REIT undertakes no obligation to publicly update or revise any forward-looking statements either as a result of new information, future events or otherwise, except as required by applicable securities laws.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

For more information, contact Patrick Miniutti, President and Chief Operating Officer (250) 940-5500.