Canada NewsWire
TORONTO, Nov. 8, 2016
TORONTO, Nov. 8, 2016 /CNW/ - Choice Properties Real Estate Investment Trust ("Choice Properties" or the "Trust") (TSX: CHP.UN) today announced its consolidated financial results for the third quarter ended September 30, 2016. The Trust's Third Quarter Report to Unitholders will be available in the Investor Relations section of the Trust's website at www.choicereit.ca, filed with SEDAR and available at www.sedar.com.
Quarter Highlights:
"We continue to execute on our strategy and deliver results as planned. The 2.9% year-over-year growth in FFO/unit reported for the third quarter reflects the strength of our business model and our focus on growth and value creation." said John Morrison, President and Chief Executive Officer. "We continue to make progress on all fronts, including acquisitions, active management and development in particular, as we remain on track to complete approximately 750,000 square feet of new retail GLA for 2016, to yield a weighted average return of 8% with a total capital investment of approximately $224 million."
(1) |
See "Non-GAAP Financial Measures" beginning on page 5. |
Financial and Operational Summary | ||||||
As at or for the three months ended September 30 |
||||||
($ thousands except where otherwise indicated) |
||||||
(unaudited) |
2016 |
2015 | ||||
Number of properties |
530 |
515 | ||||
Gross Leasable Area ("GLA") (in millions of square feet) |
42.9 |
41.4 | ||||
Occupancy |
98.8% |
98.5% | ||||
Rental revenue |
$ |
196,275 |
$ |
187,285 | ||
Net Operating Income ("NOI")(1) |
$ |
137,835 |
$ |
129,986 | ||
Net Income (Loss)(i) |
$ |
213,718 |
$ |
(173,362) | ||
Net Income (Loss)(i) per unit diluted |
$ |
0.521 |
$ |
(0.426) | ||
Funds from Operations ("FFO")(1) per unit diluted |
$ |
0.248 |
$ |
0.241 | ||
Adjusted Funds from Operations ("AFFO")(1) per unit diluted |
$ |
0.200 |
$ |
0.194 | ||
Adjusted Funds from Operations(1) payout ratio |
88.8% |
83.8% | ||||
Distribution declared per unit |
$ |
0.1775 |
$ |
0.1625 | ||
Total assets (in millions) |
$ |
9,156 |
$ |
8,603 | ||
Debt to total assets(ii) |
45.9% |
44.9% | ||||
Debt service coverage(ii) |
3.6x |
3.6x |
(i) |
Net income (loss) included a positive adjustment of $123,673 and a negative adjustment of $220,896 for the fair value of Exchangeable Units, and positive adjustments of $44,757 and $1,527 for the fair value of investment properties, for the three months ended September 30, 2016 and September 30, 2015, respectively. Net income before adjustments to fair value(1) was $45,288 and $46,007 for the three months ended September 30, 2016 and September 30, 2015, respectively. |
(ii) |
Debt ratios include Class C LP Units but exclude Exchangeable Units. The ratios are non-GAAP financial measures calculated based on the trust indentures, as supplemented. |
Financial Results for the Quarter:
(1) |
See "Non-GAAP Financial Measures" beginning on page 5. |
Operational Results for the Quarter:
Capital Structure:
Outlook
Choice Properties' outlook continues to be for steady, stable growth enhanced by the Trust's capacity to capitalize on leasing and development opportunities to further fuel growth and create incremental value.
Choice Properties expects to provide Unitholders with stable cash flow and sustainable growth in distributions. The Trust has a sizable asset base that is geographically diverse across Canada. It also has long-term leases and a strategic alliance with Loblaw and an existing development pipeline. Combined with a solid balance sheet, a long and staggered debt profile and investment grade credit, Choice Properties is confident it has the capacity to meet current obligations and to invest for future growth.
The vast majority of Choice Properties' sites are anchored by Loblaw, Canada's largest food and drug retailer. Loblaw represents approximately 90% of the Trust's gross leasable area and base rent. Leases with Loblaw have 10 to 20 year initial terms with multiple five-year renewal options and include rent escalations that will reach a steady-state of 1.5% annual growth by mid-2018, or 7.7% every five years. For the remaining 10% of its GLA, that is not leased to Loblaw and its pipeline of development opportunities, Choice Properties targets tenants with strong covenants to complement the non-discretionary food and drug offering of its anchor tenant. With the current uncertainty in the Canadian and global economies, certain retailers have taken a more conservative stance with respect to expansion. Despite the slowing in business investments, Choice Properties sites, including those in Western provinces experiencing an economic recession, remain in demand for national tenants that benefit from the proximity to a Loblaw bannered store. Choice Properties plans to attract and retain quality tenants at its existing sites and to develop new space for tenants. The Trust's primary focus is on properties that are well-positioned to respond to changing consumer preferences.
The Canadian economy has experienced a protracted period of low interest rates and a volatile economy underscored by the downturn in the resource sector. Given the Bank of Canada's recent downward revisions to the country's GDP growth profile through to mid-2018, a sudden rise in interest rates over the near- to mid-term is not expected. In this low interest rate environment, the Trust believes that capitalization rates will remain range-bound, particularly for quality retail real estate which remains in scarce supply. Choice Properties expects to continue to complete accretive acquisitions of strategic sites from Loblaw and third party vendors.
(1) |
See "Non-GAAP Financial Measures" beginning on page 5. |
(2) |
Debt ratios include Class C LP Units but exclude Exchangeable Units. The ratios are non-GAAP financial measures calculated based on the trust indentures, as supplemented. |
Forward-Looking Statements
This press release contains forward-looking statements about Choice Properties' objectives, outlook, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects and opportunities. Specific statements with respect to anticipated future results can be found in various sections of this press release and in the MD&A of Choice Properties' Third Quarter 2016 Report to Unitholders. Forward-looking statements are typically identified by words such as "expect", "anticipate", "believe", "foresee", "could", "estimate", "goal", "intend", "plan", "seek", "strive" , "will", "may", "should" and similar expressions, as they relate to Choice Properties and its management.
Forward-looking statements reflect Choice Properties' current estimates, beliefs and assumptions, which are based on management's perception of historic trends, current conditions, outlook and expected future developments, as well as other factors it believes are appropriate in the circumstances. Choice Properties' expectation of operating and financial performance is based on certain assumptions, including assumptions about future growth potential, prospects and opportunities, industry trends, future levels of indebtedness, current tax laws, current economic conditions and no new competition in the market that leads to reduced revenues and profitability. Management's estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. Choice Properties can give no assurance that such estimates, beliefs and assumptions will prove to be correct.
Numerous risks and uncertainties could cause Choice Properties' actual results to differ materially from those expressed, implied or projected in the forward-looking statements, including, those described in section 12, "Enterprise Risks and Risk Management", in the MD&A of Choice Properties' 2015 Annual Report. Such risks and uncertainties include:
This is not an exhaustive list of the factors that may affect Choice Properties' forward-looking statements. Other risks and uncertainties not presently known to Choice Properties could also cause actual results or events to differ materially from those expressed in its forward-looking statements. Additional risks and uncertainties are discussed in Choice Properties' materials filed with the Canadian securities regulatory authorities from time to time, including the Trust's 2015 Annual Information Form. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect Choice Properties' expectations only as of the date of this press release. Except as required by applicable law, Choice Properties does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Non-GAAP Financial Measures
Choice Properties uses the following non-GAAP financial measures. The Trust believes these non-GAAP financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the Trust for the reasons outlined below.
Management uses these and other non-GAAP financial measures to exclude the impact of certain expenses and income that must be recognized under IFRS when analyzing operating performance, as the excluded items are not necessarily reflective of Choice Properties' underlying operating performance or impact the comparability of financial performance between periods.
These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded REITs, and should not be construed as an alternative to other financial measures determined in accordance with IFRS.
These non-GAAP measures are more fully defined and discussed in the Trust's Third Quarter 2016 Management's Discussion and Analysis.
Net Operating Income NOI is defined as rental revenue, excluding straight-line rent, from investment properties less property operating costs. NOI is a key performance indicator as it evaluates the operating performance of the portfolio and represents a measure over which management has control. It is also a key input in determining the fair value of the portfolio. The Trust's method of calculating NOI may differ from other issuers' methods and, accordingly, may not be comparable to NOI reported by other issuers.
Net Income before Adjustments to Fair Value Net Income (or net loss) as calculated under IFRS excluding adjustments to fair value of Exchangeable Units, investment properties and investment property held in equity-accounted joint venture.
Funds from Operations FFO is not a term defined under IFRS and may not be comparable to similar measures used by other real estate entities. Except as otherwise noted, Choice Properties calculates its FFO in accordance with the Real Property Association of Canada White Paper on Funds from Operations for IFRS issued in April 2014. The purpose of the White Paper was to provide reporting issuers and investors with greater guidance on the definition of FFO and to help promote more consistent disclosure from reporting issuers.
Choice Properties calculates FFO by adjusting net income (or net loss) for items that do not arise from operating activities, such as adjustments to fair value.
Adjusted Funds from Operations AFFO is a supplemental measure of operating performance widely used in the real estate industry. Choice Properties views AFFO as an alternative measure of cash generated from operations and considers AFFO generated as one of its inputs in determining the appropriate level of distribution to Unitholders.
Choice Properties calculates AFFO by adjusting FFO for non-cash income and expense items such as amortization of straight-line rents and finance charges. AFFO includes a reduction for property capital expenditures, required for sustaining productive capacity and revenue from real estate properties, and direct leasing costs. Property capital expenditures do not occur evenly over the fiscal year. The property capital expenditures in the AFFO calculation are adjusted to reflect an average annual spending level.
There is currently no standard industry-defined measure of AFFO. As such, Choice Properties' method of calculating AFFO may differ from that of other real estate entities and, accordingly, may not be comparable to such amounts reported by other issuers.
AFFO payout ratio is calculated as the distribution declared per unit divided by the AFFO per unit diluted.
Choice Properties Real Estate Investment Trust | ||||||||
Calculation of Non-GAAP Financial Measures | ||||||||
Three Months |
Nine Months | |||||||
For the periods ended September 30 |
||||||||
(in thousands of Canadian dollars, except per unit amounts) |
||||||||
(unaudited) |
2016 |
2015 |
2016 |
2015 | ||||
Rental revenue |
$ |
196,275 |
$ |
187,285 |
$ |
585,861 |
$ |
552,043 |
Reverse - Straight-line rental revenue |
(8,695) |
(9,405) |
(27,423) |
(27,535) | ||||
Property operating costs |
(49,745) |
(47,894) |
(151,431) |
(142,376) | ||||
Net Operating Income(1) |
$ |
137,835 |
$ |
129,986 |
$ |
407,007 |
$ |
382,132 |
Net Income (Loss) |
$ |
213,718 |
$ |
(173,362) |
$ |
(478,646) |
$ |
(195,677) |
Adjustment to fair value of Exchangeable Units |
(123,673) |
220,896 |
637,391 |
315,100 | ||||
Adjustment to fair value of investment properties |
(44,757) |
(1,527) |
(7,384) |
15,921 | ||||
Adjustment to fair value of investment property held in equity |
— |
— |
(13,640) |
— | ||||
Net Income before Adjustments to Fair Value(1) |
45,288 |
46,007 |
137,721 |
135,344 | ||||
Adjustment to fair value of unit-based compensation |
(489) |
592 |
4,534 |
509 | ||||
Interest otherwise capitalized for development in equity |
82 |
— |
240 |
— | ||||
Distributions on Exchangeable Units |
56,287 |
51,295 |
162,517 |
151,343 | ||||
Amortization of tenant improvement allowances |
165 |
74 |
365 |
150 | ||||
Internal expenses for leasing(3) |
546 |
358 |
1,617 |
1,105 | ||||
Funds from Operations(1) |
$ |
101,879 |
$ |
98,326 |
$ |
306,994 |
$ |
288,451 |
Straight-line rental revenue |
(8,695) |
(9,405) |
(27,423) |
(27,535) | ||||
Effective interest rate amortization of finance charges |
513 |
(325) |
596 |
(913) | ||||
Unit-based compensation expense |
660 |
617 |
2,293 |
1,496 | ||||
Property capital expenditures - incurred |
(24,074) |
(5,227) |
(25,849) |
(7,813) | ||||
Property and leasing capital expenditures - normalized(4) |
14,074 |
(2,571) |
(4,151) |
(18,692) | ||||
Leasing capital expenditures - incurred |
(2,395) |
(2,403) |
(4,030) |
(4,100) | ||||
Adjusted Funds from Operations(1) |
$ |
81,962 |
$ |
79,012 |
$ |
248,430 |
$ |
230,894 |
FFO(1) per unit - diluted |
$ |
0.248 |
$ |
0.241 |
$ |
0.749 |
$ |
0.720 |
AFFO(1) per unit - diluted |
$ |
0.200 |
$ |
0.194 |
$ |
0.606 |
$ |
0.576 |
AFFO(1) payout ratio |
88.8% |
83.8% |
84.6% |
84.6% | ||||
Distribution declared per unit |
$ |
0.1775 |
$ |
0.1625 |
$ |
0.5125 |
$ |
0.4875 |
Weighted average Units outstanding - basic |
409,046,270 |
406,013,090 |
408,660,570 |
400,365,196 | ||||
Weighted average Units outstanding - diluted |
410,254,616 |
406,503,007 |
409,618,643 |
400,811,437 | ||||
Number of Units outstanding, end of period |
409,244,667 |
406,379,516 |
409,244,667 |
406,379,516 |
(1) |
See "Non-GAAP Financial Measures" beginning on page 5. |
(2) |
Interest expensed in the Trust, relating to qualifying development projects underway in the equity accounted joint venture, was eligible to be added back to FFO(1) in accordance with the Real Property Association of Canada White Paper on Funds from Operations for IFRS issued in April 2014. |
(3) |
Internal expenses for leasing, primarily salaries, were eligible to be added back to FFO(1), based on the revision to the definition of FFO(1) in the Real Property Association of Canada White Paper published in April 2014 that provided for an adjustment to incremental leasing expenses for the cost of salaried staff. This adjustment to FFO(1) made results more comparable between real estate entities that expensed their internal leasing departments and those that capitalized the expenses. |
(4) |
Seasonality impacts the timing of capital expenditures. The AFFO(1) calculations for the three and nine months ended September 30, 2016 and September 30, 2015 were adjusted for this factor to make the quarters more comparable. |
Selected Financial Information
The following includes quarterly financial information prepared by management in accordance with IFRS and based on the Trust's Third Quarter 2016 Report to Unitholders. This financial information does not contain all disclosures required by IFRS, and accordingly should be read in conjunction with the Trust's 2015 Annual Report, which is available in the Investor Relations section of the Trust's website at www.choicereit.ca.
Choice Properties Real Estate Investment Trust | |||||
Condensed Consolidated Balance Sheets | |||||
(unaudited) |
As at |
As at | |||
(in thousands of Canadian dollars) |
September 30, 2016 |
December 31, 2015 | |||
Assets |
|||||
Non-current Assets |
|||||
Investment properties |
$ |
8,869,000 |
$ |
8,561,000 | |
Equity accounted joint venture |
18,990 |
9,350 | |||
Accounts receivable and other assets |
6,085 |
9,874 | |||
Notes receivable |
2,313 |
2,179 | |||
8,896,388 |
8,582,403 | ||||
Current Assets |
|||||
Accounts receivable and other assets |
35,942 |
6,240 | |||
Notes receivable |
221,534 |
272,892 | |||
Cash and cash equivalents |
1,784 |
44,354 | |||
259,260 |
323,486 | ||||
Total Assets |
$ |
9,155,648 |
$ |
8,905,889 | |
Liabilities and Unitholders' Equity |
|||||
Non-current Liabilities |
|||||
Long term debt and Class C LP Units |
$ |
3,726,450 |
$ |
3,579,202 | |
Credit facility |
203,000 |
— | |||
Exchangeable Units |
4,379,286 |
3,741,895 | |||
Trade payables and other liabilities |
2,019 |
1,354 | |||
8,310,755 |
7,322,451 | ||||
Current Liabilities |
|||||
Long term debt due within one year |
202,199 |
302,188 | |||
Trade payables and other liabilities |
310,399 |
438,177 | |||
512,598 |
740,365 | ||||
Total Liabilities |
8,823,353 |
8,062,816 | |||
Equity |
|||||
Unitholders' equity |
324,539 |
835,317 | |||
Non-controlling interests |
7,756 |
7,756 | |||
Total Equity |
332,295 |
843,073 | |||
Total Liabilities and Equity |
$ |
9,155,648 |
$ |
8,905,889 |
Choice Properties Real Estate Investment Trust | |||||||||
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) | |||||||||
Three months |
Three months |
Nine months |
Nine months | ||||||
(unaudited) |
September 30, |
September 30, |
September 30, |
September 30, | |||||
Net Property Income |
|||||||||
Rental revenue from investment properties |
$ |
196,275 |
$ |
187,285 |
$ |
585,861 |
$ |
552,043 | |
Property operating costs |
(49,745) |
(47,894) |
(151,431) |
(142,376) | |||||
Net Property Income |
146,530 |
139,391 |
434,430 |
409,667 | |||||
Other Expenses |
|||||||||
General and administrative expenses |
(5,286) |
(6,042) |
(21,921) |
(16,617) | |||||
Amortization of other assets |
(231) |
(235) |
(697) |
(565) | |||||
Net interest expense and other financing charges |
(95,725) |
(87,107) |
(274,091) |
(257,141) | |||||
Share of income from joint venture |
— |
— |
13,640 |
— | |||||
Adjustment to fair value of Exchangeable Units(1) |
123,673 |
(220,896) |
(637,391) |
(315,100) | |||||
Adjustment to fair value of investment properties |
44,757 |
1,527 |
7,384 |
(15,921) | |||||
Net Income (Loss) and Comprehensive Income (Loss) |
$ |
213,718 |
$ |
(173,362) |
$ |
(478,646) |
$ |
(195,677) |
(1) |
The Class B LP Units of the Trust's subsidiary, Choice Properties Limited Partnership, are exchangeable into Trust Units at the option of the holder. Loblaw holds all of the Exchangeable Units. These Exchangeable Units are considered puttable instruments and are required to be classified as financial liabilities at fair value through profit or loss. The distributions paid on the Exchangeable Units are accounted for as interest expense. |
Choice Properties Real Estate Investment Trust | ||||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||||
Three months |
Three months |
Nine months |
Nine months | |||||||
(unaudited) (in thousands of Canadian dollars) |
September 30, |
September 30, |
September 30, |
September 30, | ||||||
Operating Activities |
||||||||||
Net income (loss) |
$ |
213,718 |
$ |
(173,362) |
$ |
(478,646) |
$ |
(195,677) | ||
Straight-line rental revenue |
(8,695) |
(9,405) |
(27,423) |
(27,535) | ||||||
Amortization of tenant improvement allowances |
165 |
74 |
365 |
150 | ||||||
Amortization of other assets |
231 |
235 |
697 |
565 | ||||||
Net interest expense and other financing charges |
95,725 |
87,107 |
274,091 |
257,141 | ||||||
Value of unit-based compensation granted |
171 |
1,209 |
6,827 |
2,005 | ||||||
Share of income from joint venture |
— |
— |
(13,640) |
— | ||||||
Adjustment to fair value of Exchangeable Units |
(123,673) |
220,896 |
637,391 |
315,100 | ||||||
Adjustment to fair value of investment properties |
(44,757) |
(1,527) |
(7,384) |
15,921 | ||||||
Interest received |
13 |
9 |
89 |
79 | ||||||
Net change in non-cash working capital |
23,884 |
20,659 |
(97,005) |
(15,401) | ||||||
Cash Flows from Operating Activities |
156,782 |
145,895 |
295,362 |
352,348 | ||||||
Investing Activities |
||||||||||
Acquisitions of investment properties |
(19,920) |
(18,863) |
(139,815) |
(216,401) | ||||||
Additions to investment properties |
(74,203) |
(47,899) |
(130,598) |
(84,134) | ||||||
Additions to fixtures and equipment |
— |
— |
(338) |
(529) | ||||||
Notes receivable issued to third-party |
— |
500 |
— |
(1,565) | ||||||
Equity investment |
4,000 |
— |
4,000 |
(2,120) | ||||||
Cash Flows used in Investing Activities |
(90,123) |
(66,262) |
(266,751) |
(304,749) | ||||||
Financing Activities |
||||||||||
Long term debt |
||||||||||
Issued - Senior unsecured debentures, net of debt |
(217) |
(76) |
347,854 |
248,410 | ||||||
Principal repayments - Senior unsecured debentures |
— |
— |
(300,000) |
— | ||||||
Principal repayments - Mortgage |
(306) |
(261) |
(901) |
(749) | ||||||
Gain on settlement of bond forward contracts |
— |
— |
2,682 |
— | ||||||
Credit facility |
||||||||||
Net advancements (repayments) |
61,000 |
47,000 |
203,000 |
11,000 | ||||||
Debt placement costs |
— |
(282) |
(275) |
(292) | ||||||
Change in bank indebtedness |
(4,232) |
(8,936) |
— |
— | ||||||
Notes receivable |
||||||||||
Issued to related party |
(66,792) |
(62,852) |
(195,620) |
(185,510) | ||||||
Repaid by related party |
— |
— |
248,463 |
236,328 | ||||||
Trust Unit issuance costs |
— |
— |
(133) |
— | ||||||
Cash received on exercise of options |
136 |
— |
732 |
321 | ||||||
Interest paid |
(43,520) |
(36,802) |
(142,404) |
(130,815) | ||||||
Distributions paid on Exchangeable Units |
— |
— |
(202,204) |
(190,078) | ||||||
Distributions paid to Unitholders |
(10,944) |
(9,870) |
(32,375) |
(29,992) | ||||||
Contribution from non-controlling interest |
— |
60 |
— |
60 | ||||||
Cash Flows used in Financing Activities |
(64,875) |
(72,019) |
(71,181) |
(41,317) | ||||||
Change in cash and cash equivalents |
1,784 |
7,614 |
(42,570) |
6,282 | ||||||
Cash and cash equivalents, beginning of period |
— |
— |
44,354 |
1,332 | ||||||
Cash and Cash Equivalents, end of period |
$ |
1,784 |
$ |
7,614 |
$ |
1,784 |
$ |
7,614 |
Management Discussion and Analysis and Financial Statements and Notes
Information appearing in this news release is a consolidated select summary of results. This news release should be read in conjunction with Choice Properties' Third Quarter 2016 Report to Unitholders, which includes the condensed consolidated financial statements and MD&A for the Trust and is available at www.choicereit.ca and on SEDAR at www.sedar.com.
Conference Call and Webcast
Senior management will host a conference call to discuss the results on November 9, 2016 at 10:00AM (ET). To access via teleconference, please dial (647) 427-7450. A playback will be made available two hours after the event at (416) 849-0833, access code: 91187105. To access the conference call via webcast, a link is available at www.choicereit.ca in the "Events and Webcasts" section under "News and Events".
About Choice Properties Real Estate Investment Trust
Choice Properties Real Estate Investment Trust is an owner, manager and developer of well-located commercial real estate across Canada. Choice Properties' portfolio spans approximately 43.3 million square feet of gross leasable area and consists of 535 properties primarily focused on supermarket and drug store anchored shopping centres and stand-alone supermarkets and drug stores. Choice Properties' strategy is to create value by enhancing and optimizing its portfolio through accretive acquisitions, strategic development and active property management. Choice Properties' principal tenant and largest Unitholder is Loblaw Companies Limited, Canada's largest retailer. Choice Properties' strong alliance with Loblaw positions it well for future growth. For more information, visit Choice Properties' website at www.choicereit.ca and Choice Properties' issuer profile at www.sedar.com.
SOURCE Choice Properties Real Estate Investment Trust
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