Primaris Retail REIT Announces Strong Fourth Quarter Financial Results

Marketwired

TORONTO, ONTARIO--(Marketwire - Mar 7, 2013) - Primaris Retail REIT (TSX:PMZ.UN) is pleased to report fourth quarter operating results for the period ending December 31, 2012. These results have been prepared in accordance with International Financial Reporting Standards ("IFRS").

President and CEO, John Morrison, commented "We are very pleased with our strong operating results for the 2012 fourth quarter and calendar year. Operating FFO per unit showed 5% growth over the fourth quarter of 2011, after adjusting for the dilution from our equity offering, debt retirement fees, and the material non-recurring charges related to an unsolicited takeover bid recorded in 2012. Our tenant sales trend has turned positive, having begun the year in negative territory. The portfolio occupancy rate improved throughout the year contributing to the excellent financial results. These strong results are directly attributable to the passionate and dedicated team at Primaris.

"As announced on February 5, 2013, Primaris has entered into an Arrangement Agreement and various conditional sales agreements whereby the assets of Primaris will be purchased by a KingSett Capital-led consortium and H&R REIT, and Primaris will become a wholly-owned subsidiary of H&R REIT. These transactions are subject to many conditions more fully described in a circular dated February 19, 2013. The circular is available on SEDAR and on Primaris'' website."

Bill Biggar, chair of the Independent Committee of the Primaris board of trustees, commented "The board strongly endorses these transactions and encourages Unitholders to vote in favour of the transactions at the Unitholders'' meeting on March 22, 2013."

Highlights

Funds from Operations (FFO)

  • FFO for the quarter ended December 31, 2012 was $29.7 million, down $5.0 million from the $34.7 million reported for the fourth quarter of 2011. On a per unit diluted basis, FFO for the fourth quarter of 2012 was $0.307, down $0.100 from the $0.407 reported in the same quarter of 2011.

  • FFO includes $10.5 million of non-recurring charges related to a takeover. When these takeover charges are excluded, Operating FFO for the fourth quarter is $0.415 per unit on a diluted basis. This is an increase of $0.008 from the fourth quarter results of 2011. Operating FFO for the three months and year ended December 31, 2012 also included a charge for early debt repayment of $0.9 million. There was no similar charge in the prior periods.

  • FFO for the year ended December 31, 2012 was $132.1 million, up $21.3 million from the $110.8 million reported for the prior year. On a per diluted unit basis, FFO for the 2012 year was $1.439, as compared to the $1.415 for the prior year.

  • Operating FFO on a per unit diluted basis for the year ended December 31, 2012 was $1.549, up $0.098 from the $1.451 result of the 2011 year end.

  • FFO, and Operating FFO, are not terms defined under IFRS and may not be comparable to similar measures used by other Trusts. A reconciliation of net income to FFO and Operating FFO is included.

Net Operating Income (NOI)

  • NOI for the quarter ended December 31, 2012 was $63.9 million, an increase of $4.6 million from the $59.3 million recorded in the fourth quarter of 2011.

  • NOI for the year ended December 31, 2012 was $237.8 million, an increase of $29.5 million from the $208.3 million recorded in 2011.

  • NOI is not a term defined under IFRS and may not be comparable to similar measures used by other Trusts. A calculation of NOI is included.

Same Properties - Net Operating Income

  • NOI for the fourth quarter ended December 31, 2012, for the 32 properties held continually for the past 24 months, increased 4.0% from the comparative three month period.

  • NOI for the year ended December 31, 2012, for the 27 properties held continually for the past 24 months, increased $7.8 million or 4.2% from 2011. Lease surrender revenue in 2012 was considerably higher than 2011. Removing the effects of lease-surrender revenue in 2012, NOI would be 3.1% higher than the comparative year.

Net Income

  • Net income for the quarter ended December 31, 2012 was $61.1 million, a decrease of $95.3 million from the $156.4 million recorded in the fourth quarter of 2011. The decrease is driven by fluctuations in the recording of investment properties at fair value and one time takeover expenses.

  • Net income for the year ended December 31, 2012 was $266.4 million, an increase of $34.6 million from the $231.8 million recorded in 2012. Again, the change is principally due to the fluctuations in the fair values of investment properties.

Operations

  • During the fourth quarter of 2012, Primaris leased 340,492 square feet comprised of 240,347 square feet to 112 smaller tenants and the remainder to three major and anchor tenants. Approximately 53.6% of the space leased during the current quarter of 2012 resulted from the renewal of existing tenants (53.5% if the major tenants are excluded). The weighted average new rent for renewals of existing tenants in the current quarter, on a cash basis, represented an 11.1% increase over the previous rent (9.3% if the major tenants are excluded).

  • During 2012, Primaris leased 1,828,283 square feet comprised of 895,460 square feet to 514 smaller tenants and the remainder to 17 major and anchor tenants. Approximately 67.8% of the space leased during the 2012 year resulted from the renewal of existing tenants (65.5% if the major tenants are excluded). The weighted average new rent for renewals of existing tenants in the year, on a cash basis, represented a 6.0% increase over the previous rent (7.8% if the major tenants are excluded).

  • The portfolio occupancy improved through 2012. It was 97.7% at December 31, 2012, compared to 97.5%% at September 30, 2012, and 97.1% at December 31, 2011.

  • For the 18 reporting properties owned throughout both twelve month periods ended December 31, 2012 and 2011, sales per square foot, on a same-tenant basis, have increased to $475 per square foot, from $471 in the prior year.

Liquidity

  • At December 31, 2012, Primaris had $45.6 cash on hand and $45.0 million drawn on its $100 million credit facility. At December 31, 2012 Primaris had drawn on its operating line to have cash on hand to repay mortgages maturing January 1, 2013.

Financial Results

FFO for the quarter ended December 31, 2012 was $29.7 million, down $5.0 million from the $34.7 million reported for the fourth quarter of 2011. On a per unit diluted basis, FFO for the fourth quarter of 2012 was $0.307, down $0.100 from the $0.407 reported for the fourth quarter of 2011.

FFO, for the three months ended December 31, 2012, includes material non-recurring charges related to a takeover. When these charges are excluded, Operating FFO for the fourth quarter is $0.415 per unit on a diluted basis. This is an increase of $0.008 from the fourth quarter results of 2011.

FFO for the year ended December 31, 2012 was $132.1 million, up $21.3 million from the $110.8 million reported for the prior year. On a per diluted unit basis, FFO for the 2012 year was $1.439, as compared to the $1.415 for the prior year.

Operating FFO on a per unit diluted basis for the year ended December 31, 2012 was $1.549, up $0.098 from the 2011 year end Operating FFO of $1.451.

Operating FFO for the three months and year ended December 31, 2012 included a charge for early debt repayment of $0.9 million. There was no similar charge in the prior periods.

Net income for the quarter ended December 31, 2012 was $61.1 million, a decrease of $95.3 million from the $156.4 million recorded in the fourth quarter of 2011. The decrease is driven by fluctuations in the recording of investment properties at fair value and one time takeover expenses.

Net income for the year ended December 31, 2012 was $266.4 million, an increase of $34.6 million from the $231.8 million recorded in 2012. Again, the change is principally due to the fluctuations in the fair values of investment properties.

The Operating FFO distribution payout ratio for the fourth quarter of 2012, calculated on a diluted basis, was 73.5% as compared to a 74.9% payout ratio for the fourth quarter of 2011 and 79.6% for the previous quarter ended September 30, 2012. The payout ratios are sensitive to both seasonal operating results and financial leverage.

The Operating FFO distribution ratio for the 2012 year was 78.7% as compared to an 84.0% payout ratio for 2011.

At December 31, 2012, Primaris'' total enterprise value was approximately $4.4 billion (based on the market closing price of Primaris'' units on December 31, 2012 plus total debt outstanding). At December 31, 2012 Primaris had $1,727.4 million of outstanding debt, equating to a debt to total enterprise value ratio of 39.0%. Primaris'' debt consisted of $1,589.2 million of fixed-rate senior debt with a weighted average interest rate of 5.1% and a weighted average term to maturity of 6.0 years, $45.0 million drawn on the operating line of credit, and $93.2 million of fixed-rate convertible debentures.

Primaris had a debt to total asset ratio of 40.8% at December 31, 2012. During the three months ended December 31, 2012, Primaris had an interest coverage ratio of 2.4 times as expressed by EBITDA divided by interest expense on mortgages, convertible debentures and bank indebtedness. Primaris defines EBITDA as net income increased by depreciation, finance costs, income tax expense and amortization of leasing costs and straight-line rent. This coverage ratio would have been 2.9 times if not for the takeover costs incurred during the fourth quarter of 2012. EBITDA is not a term defined under IFRS and may not be comparable to similar measures used by other Trusts. See below under "Non-IFRS Measures".

Operating Results

Comparison to Prior Period Financial Results (in thousands of dollars)

FFO for the quarter ended December 31, 2012 was $5.0 million ($0.100 per unit diluted) less than the comparative period.

FFO includes takeover expenses. When these expenses are excluded, Operating FFO for the fourth quarter is $5.6 million, or $0.008 per unit on a diluted basis, greater than the fourth quarter results of 2011.

  Three Months Ended December 31,   Favourable /  
(Unaudited) 2012   2011   (Unfavourable)  
   
Revenue                  
  Minimum rent $ 64,345   $ 61,833   $ 2,512  
  Recoveries from tenants   41,362     38,620     2,742  
  Percent rent   1,022     893     129  
  Parking   2,161     1,998     163  
  Other income   556     719     (163 )
    109,446     104,063     5,383  
   
Expenses                  
  Property operating   28,215     27,382     (833 )
  Property tax   19,285     18,597     (688 )
  Ground rent   359     332     (27 )
  General & administrative   15,950     2,110     (13,840 )
  Depreciation   207     282     75  
    64,016     48,703     (15,313 )
                   
Income from operations $ 45,430   $ 55,360   $ (9,930 )
Finance income   22     72     (50 )
Finance costs   (28,340 )   (32,951 )   4,611  
Fair value adjustment on investment properties   43,997     133,956     (89,959 )
Net income $ 61,109   $ 156,437   $ (95,328 )
   
Fair value adjustment on investment properties   (43,997 )   (133,956 )   89,959  
Fair value adjustment on convertible debentures   936     9,000     (8,064 )
Fair value adjustment on exchangeable units   5,348     240     5,108  
Fair value adjustment on unit-based compensation   2,873     108     2,765  
Distributions on exchangeable units   647     667     (20 )
Amortization of tenant improvement allowances   2,809     2,176     633  
Funds from operations(1) $ 29,725   $ 34,672   $ (4,947 )
                   
Add back one-time expenses   10,550     -     10,550  
Operating FFO $ 40,275   $ 34,672   $ 5,603  
   
Funds from operations per unit - basic $ 0.311   $ 0.420   $ (0.109 )
Funds from operations per unit - diluted $ 0.307   $ 0.407   $ (0.100 )
Operating FFO per unit - diluted $ 0.415   $ 0.407   $ 0.008  
Operating FFO - payout ratio   73.5 %   74.9 %   24.4 %
Distributions per unit $ 0.305   $ 0.305   $ -  
Weighted average units outstanding - basic   95,617,087     82,641,329     12,975,758  
Weighted average units outstanding - diluted   97,963,800     93,987,252     3,976,548  
Units outstanding, end of period (including exchangeable units)   100,346,768     82,740,232     17,606,536  
   
(1) Funds from Operations, which is not a defined term within IFRS, has been calculated by management, using IFRS, in accordance with REALpac''s White Paper on Funds from Operations. The White Paper adds back to net income items that do not arise from operating activities, such as amortization of tenant improvements, deferred income taxes and fair value adjustments. Funds from Operations may not be comparable to similar measures used by other entities. See below under "Non-IFRS Measures".

Net Operating Income - Same Properties (in thousands of dollars)

The same-property comparison consists of the 32 properties that were owned throughout both the current and comparative three month periods. NOI, on a same-property basis, increased $2.3 million, or 4.0%, in relation to the comparable three month period.

  Three Months Ended December 31,   Favourable /  
(Unaudited) 2012   2011   (Unfavourable)  
   
Operating revenue(1) $ 108,071   $ 105,640   $ 2,431  
Less operating expenses   (46,397 )   (46,311 )   (86 )
Net operating income(1) $ 61,674   $ 59,329   $ 2,345  
   
(1) Not a term defined under IFRS

NOI is not a term defined under IFRS and may not be comparable to similar measures used by other Trusts. Operating revenue from properties includes an adjustment for amortization of tenant improvement allowances, tenant inducements and straight-line rent to remove non-cash transactions from revenue for the calculation of net operating income. Operating expenses include operating expenses from properties, property taxes and ground rent.

Financing Update & Liquidity

At December 31, 2012, Primaris had $45.6 cash on hand and $45.0 million drawn on its $100 million operating line to have cash on hand to repay $43.7 million of mortgages maturing January 1, 2013. Subsequent to year end Primaris increased its operating line of credit to $138 million.

Subsequent to December 31, 2012, Primaris agreed to purchase two shopping centres and seven complimentary properties in Alberta for $376,680. In order to finance the acquisition, the vendor provided $339,012 of financing and the balance was funded by a draw on the operating line. The acquisition was completed in early March 2013.

Tenant Sales

For the 18 reporting properties owned throughout both twelve month periods ended December 31, 2012 and 2011, sales per square foot, on a same-tenant basis, have increased to $475 per square foot from $471. For the same 18 properties the all-tenant total sales volume has increased 2.1%.

  Same Tenant           All Tenant          
  Sales per Square Foot Variance         Total Sales Volume Variance        
(Unaudited) 2012 2011 $   %     2012 2011 $   %    
Cataraqui $ 527 $ 527 $ -   0.0 %     87,601   86,092   1,509   1.8 %  
Dufferin Mall   517   515 $ 2   0.3 %     95,590   91,655   3,935   4.3 %  
Eglinton Square   402   391 $ 11   3.0 %     31,416   30,591   825   2.7 %  
Heritage Place   306   305 $ 1   0.5 %     26,474   25,689   785   3.1 %  
Lambton Mall   324   323 $ 1   0.1 %     44,193   45,865   (1,672 ) -3.6 %  
Place d''Orleans   442   453 $ (11 ) -2.6 %     97,693   99,890   (2,197 ) -2.2 %  
Place Du Royaume   439   438 $ 1   0.3 %     113,341   114,445   (1,104 ) -1.0 %  
Place Fleur De Lys   330   331 $ (1 ) -0.4 %     67,835   69,384   (1,549 ) -2.2 %  
Stone Road Mall   535   528 $ 7   1.3 %     114,895   116,142   (1,247 ) -1.1 %  
Aberdeen Mall   387   377 $ 10   2.5 %     49,830   48,815   1,015   2.1 %  
Cornwall Centre   583   569 $ 14   2.6 %     91,589   85,590   5,999   7.0 %  
Grant Park   655   650 $ 5   0.7 %     26,388   26,560   (172 ) -0.6 %  
Midtown Plaza   638   614 $ 24   3.8 %     144,704   134,108   10,596   7.9 %  
Northland Village   488   493 $ (5 ) -1.2 %     41,881   43,680   (1,799 ) -4.1 %  
Orchard Park   490   490 $ -   0.1 %     133,838   131,656   2,182   1.7 %  
Park Place Mall   474   477 $ (3 ) -0.6 %     78,564   75,463   3,101   4.1 %  
Sunridge Mall   526   499 $ 27   5.4 %     101,525   91,732   9,793   10.7 %  
Woodgrove Centre   478   476 $ 2   0.3 %     91,269   92,283   (1,014 ) -1.1 %  
  $ 475 $ 471 $ 4   0.9 %   $ 1,438,626 $ 1,409,640 $ 28,986   2.1 %  

The same tenants'' sales per square foot increased 0.9% per square foot, while the national average tenant sales as reported by the International Council of Shopping Centers ("ICSC") for the 12-month period ended December 31, 2012, increased 2.0%. Primaris'' sales productivity of $475 is lower than the ICSC average of $596, largely because the ICSC includes sales from super regional malls that have the highest sales per square foot in the country.

Leasing Activity

Primaris Retail REIT''s property portfolio remains well leased.

The portfolio occupancy rate improved through the year. It was 97.7% at December 31, 2012, compared to 97.5% at September 30, 2012, and 97.1 % at December 31, 2011. These percentages include space for which signed leases are in place, but where the tenant may not yet be in occupancy.

During the fourth quarter of 2012, Primaris leased 340,492 square feet comprised of 240,347 square feet to 112 smaller tenants and the remainder to three major and anchor tenants. Approximately 53.6% of the space leased during the current quarter of 2012 resulted from the renewal of existing tenants (53.5% if the major tenants are excluded). The weighted average new rent for renewals of existing tenants in the current quarter, on a cash basis, represented an 11.1% increase over the previous rent (9.3% if the major tenants are excluded).

During 2012, Primaris leased 1,828,283 square feet comprised of 895,460 square feet to 514 smaller tenants and the remainder to 17 major and anchor tenants. Approximately 67.8% of the space leased during the 2012 year resulted from the renewal of existing tenants (65.5% if the major tenants are excluded). The weighted average new rent for renewals of existing tenants in the year, on a cash basis, represented a 6.0% increase over the previous rent (7.8% if the major tenants are excluded).

At December 31, 2012, Primaris had a weighted average term to maturity of leases of 5.3 years.

With respect to the four remaining Zellers'' leases in Primaris'' portfolio, two now terminate on April 30, 2013, the third terminates on June 30, 2013 and the fourth expires naturally on March 31, 2013. Our leasing and development teams are already at work on plans to make the most of the opportunity to bring new brands to the properties.

Development Activity

During 2009 and 2011, Primaris completed phases one and two of a three phase redevelopment at Lambton Mall in Sarnia, Ontario.

Work is well underway on the third phase of the Lambton Mall redevelopment. The project involves the redevelopment of the vacant anchor space (approximately 92,000 square feet), formerly occupied by Canadian Tire. Part of the existing building was demolished and will be replaced with a new Galaxy Theatre building comprising approximately 32,000 square feet, a Sport Chek which will occupy approximately 31,000 square feet and 1,000 square feet of commercial retail space. The plan also creates a new mall entrance next to H&M. The project includes the acquisition of the existing 5.9 acre Cineplex property located at 1450 London Road, adjacent to Lambton Mall. With the opening of the new Galaxy Theatre at Lambton Mall, Cineplex will close its existing theatre. This phase will cost approximately $16,000, including the purchase of 1450 London Road. A spring 2013 opening of both the Galaxy Theatre and the Sport Chek is expected.

The second phase of a redevelopment at Grant Park comprises a 5,000 square foot expansion of the shopping centre, re-leasing and remerchandising of approximately 23,000 square feet of other retail area, renovation and expansion of washrooms, and upgrade of an additional 5,000 square feet of common area. Landlord pre-construction activities commenced in September 2012. Common area improvements and washroom renovations are expected to be completed by spring 2013, and the expansion is expected to open in July 2013. This second phase has a $5,400 budget.

A 12,000 square foot freestanding pad development at Tecumseh Mall, in Windsor, Ontario, was turned over to the LCBO for fixturing on October 31, 2012, on time and under budget. The LCBO plans to open in spring 2013. Primaris invested $3.3 million in this project.

Redevelopment projects will be funded through a combination of cash, draws on the operating line and mortgage refinancing.

Supplemental Information

Primaris'' condensed interim consolidated financial statements and Management''s Discussion and Analysis ("MD&A") for the three months and year ended December 31, 2012 and 2011 are available on Primaris'' website at www.primarisreit.com.

About Primaris

Primaris is a TSX listed real estate investment trust (TSX:PMZ.UN). Primaris owns 35 income-producing properties comprising approximately 14.7 million square feet located in Canada. As of February 28, 2013, Primaris had 100,743,915 units issued and outstanding (including 2,122,261 exchangeable units for which units have yet to be issued).

Forward-Looking Information

The MD&A contains forward-looking information based on management''s best estimates and the current operating environment. These forward-looking statements are related to, but not limited to, Primaris'' operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains statements with words such as "anticipate", "believe", "expect", "plan" or similar words suggesting future outcomes. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed, projected or implied by such forward-looking statements.

In particular, certain statements in this document discuss Primaris'' anticipated outlook of future events. These statements include, but are not limited to:

(i) the accretive acquisition of properties and the anticipated extent of the accretion of any acquisitions, which could be impacted by demand for properties and the effect that demand has on acquisition capitalization rates and changes in the cost of capital;
   
(ii) reinvesting to make improvements and maintenance to existing properties, which could be impacted by the availability of labour and capital resource allocation decisions;
   
(iii) generating improved rental income and occupancy levels, which could be impacted by changes in demand for Primaris'' properties, tenant bankruptcies, the effects of general economic conditions and supply of competitive locations in proximity to Primaris locations;
   
(iv) overall indebtedness levels, which could be impacted by the level of acquisition activity Primaris is able to achieve and future financing opportunities;
   
(v) tax exempt status, which can be impacted by regulatory changes enacted by governmental authorities;
   
(vi) anticipated distributions and payout ratios, which could be impacted by capital expenditures, results of operations and capital resource allocation decisions;
   
(vii) the effect that any contingencies could have on Primaris'' financial statements;
   
(viii) anticipated replacement of expiring tenancies, which could be impacted by the effects of general economic conditions and the supply of competitive locations;
   
(ix) the development of properties which could be impacted by real estate market cycles, the availability of labour and general economic conditions; and
   
(x) the anticipated outcome of the Primaris Unitholder vote on the amended and restated Arrangement Agreement with H&R Real Estate Investment Trust and H&R Finance Trust and an asset purchase agreement with members of the KingSett Capital-led Consortium.

Although the forward-looking statements contained in this document are based on what management of Primaris believes are reasonable assumptions, forward-looking statements involve significant risks and uncertainties. They should not be read as guarantees of future performance or results and will not necessarily be an accurate indicator of whether or not such results will be achieved. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future results to differ from targets, expectations or estimates expressed in the forward-looking statements. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information may include: a less robust retail environment; relatively stable interest costs; access to equity and debt capital markets to fund, at acceptable costs, the future growth program and to enable Primaris to refinance debts as they mature and the availability of purchase opportunities for growth.

Except as required by applicable law, Primaris undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Non-IFRS Measures

Funds from operations ("FFO"), net operating income ("NOI") and earnings before interest, taxes, depreciation and amortization ("EBITDA") are widely used supplemental measures of a Canadian real estate investment trust''s performance and are not defined under IFRS. Management uses these measures when comparing itself to industry data or others in the marketplace. Primaris'' MD&A describes FFO, NOI and EBITDA and provides reconciliations to net income, as defined under IFRS, for FFO and EBITDA. A reconciliation of FFO to net income, as defined by IFRS, and a calculation of NOI also appear at the end of the press release. FFO, NOI and EBITDA should not be considered alternatives to net income or other measures that have been calculated in accordance with IFRS and may not be comparable to measures presented by other issuers.

PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST
Consolidated Statements of Financial Position
(In thousands of dollars)
 
    December 31, December 31,
      2012   2011
 
Assets        
 
Non-current assets:        
  Investment properties $ 4,145,400 $ 3,557,900
 
Current assets:        
  Rents receivable   6,245   7,387
  Other assets and receivables   20,793   25,010
  Cash and cash equivalents   45,622   -
      72,660   32,397
 
    $ 4,218,060 $ 3,590,297
 
Liabilities and Equity        
 
Non-current liabilities:        
  Mortgages payable $ 1,431,205 $ 1,372,871
  Convertible debentures   110,525   268,766
  Exchangeable units   57,088   45,079
  Accounts payable and other liabilities   7,214   1,205
      1,606,032   1,687,921
 
Current liabilities:        
  Current portion of mortgages payable   151,729   53,004
  Bank indebtedness   45,000   6,779
  Accounts payable and other liabilities   75,248   61,744
  Distribution payable   10,000   8,251
      281,977   129,778
      1,888,009   1,817,699
 
Equity   2,330,051   1,772,598
 
    $ 4,218,060 $ 3,590,297
   
PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST  
Consolidated Statements of Income and Comprehensive Income  
(In thousands of dollars, except per unit amounts)  
   
    Three months ended   Year ended  
    December 31,   December 31,  
    2012   2011   2012   2011  
    (unaudited)   (unaudited)          
   
Revenue:                        
  Minimum rent $ 64,345   $ 61,833   $ 242,516   $ 219,113  
  Recoveries from tenants   41,362     38,620     154,235     135,464  
  Percentage rent   1,022     893     2,707     2,652  
  Parking   2,161     1,998     7,220     6,556  
  Other income   556     719     4,353     1,568  
      109,446     104,063     411,031     365,353  
   
Expenses:                        
  Property operating   28,215     27,382     103,297     92,745  
  Property taxes   19,285     18,597     76,467     68,569  
  Ground rent   359     332     1,353     1,246  
  General and administrative   15,950     2,110     25,483     9,840  
  Depreciation   207     282     1,207     1,039  
      64,016     48,703     207,807     173,439  
   
Income from operations   45,430     55,360     203,224     191,914  
   
Finance income   22     72     90     168  
Finance costs   (28,340 )   (32,951 )   (115,648 )   (109,396 )
Fair value adjustment on investment properties   43,997     133,956     178,690     149,113  
   
Net income (loss)   61,109     156,437     266,356     231,799  
   
Other comprehensive income:                        
Deferred loss on cash flow hedge   143     -     (190 )   -  
Amortization of deferred net loss on cash flow hedges   56     57     226     230  
Comprehensive income $ 61,308     $ 156,494   $ 266,392   $ 232,029  
   
PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST  
Consolidated Statements of Cash Flows  
(In thousands of dollars)  
   
      Three months ended December 31,  
      2012     2011  
      (unaudited)     (unaudited)  
Cash flows from operating activities:            
  Net income for the period $ 61,109   $ 156,437  
  Adjustments for:            
    Amortization of tenant improvement allowances   2,809     2,176  
    Amortization of tenant inducements   55     70  
    Amortization of straight-line rent   (578 )   (669 )
    Value of units and options granted under unit-based compensation plan   3,246     364  
    Depreciation of fixtures and equipment   207     282  
    Net finance costs   28,318     32,879  
    Fair value adjustments on investment properties   (43,997 )   (133,956 )
        51,169     57,583  
    Other non-cash operating working capital   20,242     4,969  
    Leasing commissions   (346 )   (408 )
    Tenant improvement allowances   (3,044 )   (7,377 )
    Tenant inducements   -     (15 )
  Cash generated from operating activities   68,021     54,752  
  Interest received   22     72  
  Net cash from operating activities   68,043     54,824  
   
Cash flows from financing activities:            
  Mortgage principal repayments   (8,380 )   (8,033 )
  Proceeds of new mortgage financing   209,905     -  
  Proceeds of bridge financing   -     57,500  
  Repayment of financing   -     (62,894 )
  Advance (repayment) of bank indebtedness   44,090     (221 )
  Interest paid on financing   (21,755 )   (21,315 )
  Capitalized debt placement costs   (994 )   7  
  Issuance of units   115,016     -  
  Unit issue costs   (5,278 )   (50 )
  Distributions to Unitholders   (25,152 )   (23,163 )
  Net cash flow used in financing activities   307,452     (58,169 )
   
Cash flows used in investing activities:            
  Acquisitions of investment properties   (315,561 )   (3,005 )
  Additions to buildings and building improvements   (9,827 )   (4,947 )
  Additions to recoverable improvements   (4,471 )   (7,821 )
  Additions to fixtures and equipment   (14 )   (286 )
  Proceeds of disposition   -     18,266  
  Net cash flow used in investing activities (329,873 )   2,207  
   
Decrease in cash and cash equivalents   45,622     (1,138 )
             
Cash and cash equivalents, beginning of period   -     1,138  
             
Cash and cash equivalents, end of period $ 45,622   $ -  
   
Supplemental disclosure of non-cash operating, financing and investing activities:            
  Value of units issued from conversion of convertible debentures   6,270     2,037  
  Value of units issued under distribution reinvestment plan   4,461     2,079  
  Value of units issued upon conversion of exchangeable units   -     -  
  Value of units issued under unit-based compensation plan   -     -  
  Deferred loss on cash flow hedge   143     -  
               
   
PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST  
Consolidated Statements of Cash Flows  
(In thousands of dollars)  
   
        Year ended December 31,  
        2012     2011  
Cash flows from operating activities:            
  Net income for the period $ 266,356   $ 231,799  
  Adjustments for:            
    Amortization of tenant improvement allowances   9,768     7,419  
    Amortization of tenant inducements   220     168  
    Amortization of straight-line rent   (2,096 )   (2,030 )
    Value of units and options granted under unit-based compensation plan   7,552     1,957  
    Depreciation of fixtures and equipment   1,207     1,039  
    Net finance costs   115,558     109,228  
    Fair value adjustments on investment properties   (178,690 )   (149,113 )
        219,875     200,467  
    Other non-cash operating working capital   16,535     (7,069 )
    Leasing commissions   (990 )   (773 )
    Tenant improvement allowances   (17,440 )   (18,879 )
    Tenant inducements   (25 )   (15 )
  Cash generated from operating activities   217,955     173,731  
  Interest received   90     168  
  Net cash from operating activities   218,045     173,899  
   
Cash flows from financing activities:            
  Mortgage principal repayments   (33,000 )   (28,146 )
  Proceeds of new mortgage financing   209,905     333,600  
  Proceeds of bridge financing   -     57,500  
  Repayment of financing   (21,227 )   (99,933 )
  Advance (repayment) of bank indebtedness   38,221     (3,221 )
  Interest paid on financing   (87,962 )   (83,723 )
  Capitalized debt placement costs   (1,479 )   (2,736 )
  Cash received on exercise of options   829     457  
  Issuance of units   230,074     260,590  
  Unit issue costs   (10,491 )   (11,144 )
  Redemption of convertible debentures   (9,458 )   -  
  Issuance of convertible debentures   -     75,000  
  Convertible debenture issue costs   -     (3,029 )
  Distributions to Unitholders   (93,628 )   (84,016 )
  Purchase of units under normal course issuer bid   -     (589 )
  Net cash flow from (used in) financing activities   221,784     410,610  
   
Cash flows used in investing activities:            
  Acquisitions of investment properties   (365,897 )   (585,388 )
  Additions to buildings and building improvements   (17,225 )   (12,977 )
  Additions to recoverable improvements   (9,498 )   (12,087 )
  Additions to fixtures and equipment   (1,587 )   (390 )
  Proceeds of disposition   -     19,833  
  Net cash flow used in investing activities   (394,207 )   (591,009 )
   
Decrease in cash and cash equivalents   45,622     (6,500 )
Cash and cash equivalents, beginning of period   -     6,500  
   
Cash and cash equivalents, end of period $ 45,622   $ -  
   
Supplemental disclosure of non-cash operating, financing and investing activities:            
  Value of units issued from conversion of convertible debentures   161,539     17,926  
  Value of units issued under distribution reinvestment plan   16,133     8,714  
  Value of units issued upon conversion of exchangeable units   481     478  
  Value of units issued under unit-based compensation plan   1,409     597  
  Deferred loss on cash flow hedge   (190 )   -  
               
   
PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST  
   
Reconciliation of Net Income to Funds from Operations  
(In thousands of dollars)  
(Unaudited)  
   
   
  Three Months Ended   Three Months Ended  
  December 31, 2012   December 31, 2011  
   
Net income $ 61,109   $ 156,437  
Fair value adjustment on investment properties   (43,997 )   (133,956 )
Fair value adjustment on convertible debentures   936     9,000  
Fair value adjustment on exchangeable units   5,348     240  
Fair value adjustment on unit-based compensation   2,873     108  
Distributions on exchangeable units   647     667  
Amortization of tenant improvement allowances   2,809     2,176  
   
Funds from operations(1) $ 29,725   $ 34,672  
   
(1) Funds from Operations, which is not a defined term within IFRS, has been calculated by management, using IFRS, in accordance with REALpac''s White Paper on Funds from Operations. The White Paper adds back to net income items that do not arise from operating activities, such as amortization of tenant improvements, deferred income taxes and certain fair value adjustments. Funds from Operations may not be comparable to similar measures used by other entities.
 
Calculation of Net Operating Income All Properties
(In thousands of dollars)
(Unaudited)
   
   
   Three Months Ended    Three Months Ended  
   December 31, 2012    December 31, 2011  
   
Revenue $ 109,446   $ 104,063  
   
Reverse: Non-cash revenue   2,286     1,577  
Less: Property operating expenses   (28,215 )   (27,382 )
  Property tax expense   (19,285 )   (18,597 )
  Ground Rent   (359 )   (332 )
   
Net operating income(1) $ 63,873   $ 59,329  
   
(1) Net Operating Income is not a defined term within IFRS. Net Operating Income may not be comparable to similar measures used by other entities.
Contact:
Primaris Retail REIT
John R. Morrison
President & Chief Executive Officer
(416) 642-7860
Primaris Retail REIT
Louis M. Forbes
Executive Vice President & Chief Financial Officer
(416) 642-7810
www.primarisreit.com

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