Borealis Retail REIT Announces Q3 2004 Financial Results.TORONTO Toronto (tərŏn`tō), city (1998 est pop. 2,400,000), provincial capital, S Ont., Canada, on Lake Ontario. Toronto is the largest city in Canada and since the 1970s has been one of the fastest-changing cities in North America, experiencing -- Borealis BOREALIS Balloon Outreach, Research, Exploration, and Land Imaging System Retail REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). (TSX TSX Toronto Stock Exchange (TSE before April, 2002) TSX Transfer from Stack Pointer to Index TSX True Space Extension :BRE (Business Rules Engine) Software that automates policies and procedures within an organization, whether legal, internal or operational. The use of a rules engine (BRE) requires placing the company rules in an external repository that can be easily reviewed rather than .UN) is pleased to report a 68% increase in distributable income for the third quarter of 2004 as compared to the 76-day period ended September September: see month. 30, 2003. Highlights - Net operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. for the third quarter ended September 30, 2004 was $16.997 million, substantially higher than the $12.486 million recorded in the second quarter of this year. This large increase was driven by the acquisition of two income- producing properties on June June: see month. 28, 2004. - Distributable income for the third quarter ended September 30, 2004 was $9,764 million, or $0.306 per unit, consistent with the $7.909 million, or $0.314 per unit, reported for the second quarter of 2004. - The REIT increased monthly distributions by 5.4% to $0.09 per unit commencing with the payment made August 16, 2004. - The REIT renewed or leased approximately 77,642 square feet of space during the quarter, generating positive absorption for the quarter. - Overall occupancy increased to 95.7% at September 30, as compared to 95.3% at June 30 and 96.8% at December December: see month. 31, 2003. The occupancy decrease at June 30 was the result of acquired assets having an occupancy rate Noun 1. occupancy rate - the percentage of all rental units (as in hotels) are occupied or rented at a given time pct, per centum, percent, percentage - a proportion in relation to a whole (which is usually the amount per hundred) below that of the pre-existing Adj. 1. pre-existing - existing previously or before something; "variations on pre-existent musical themes" pre-existent, preexistent, preexisting antecedent - preceding in time or order portfolio. - On June 28, the REIT completed the acquisition of Midtown Plaza Midtown Plaza may refer to:
 n`), city (1991 pop. 186,058), S central Sask., Canada, on the South Saskatchewan River. and Regina Regina (rĭjī`nə), city (1991 pop. 179,178), provincial capital, S Sask., Canada, on Wascana Creek. The city is the distribution and service center for one of the world's largest wheat-growing areas. respectively for $199 million, plus transaction costs Transaction CostsCosts incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). . The transition of these new assets has gone smoothly. - Construction of the expansion to Stone Road Mall Stone Road Mall, situated at Stone Road and Edinburgh, is the largest shopping mall in Guelph, Ontario, Canada with approximately 400,000 square feet (0 m) of Gross leasable area and 130 stores. in Guelph, Ontario Guelph (IPA: gwɛlf) (population 114,943[1]) is a city located in the Southwestern region of Ontario, Canada. continues on time and on budget. Old Navy opened its store on November November: see month. 4. - The REIT has a firm commitment to borrow $45 million by way of a mortgage to be secured by Cornwall Centre in Regina. The mortgage is scheduled to close in December, 2004. The loan will have a term of 8 years and will bear interest at 5.64%. This asset currently has no debt. Proceeds will be used to reduce the balance drawn on the REIT's revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility and for general corporate purposes. - The REIT has extended the term of its revolving line of credit Revolving line of credit A bank line of credit on which the customer pays a commitment fee and can take and repay funds at will. Normally a revolving LOC involves a firm commitment from the bank for a period of several years. for one year to July July: see month. 31, 2006. President and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , Michael Michael, archangel Michael (mī`kəl) [Heb.,=who is like God?], archangel prominent in Christian, Jewish, and Muslim traditions. In the Bible and early Jewish literature, Michael is one of the angels of God's presence. Latimer, commented "we are very pleased with our quarterly financial results. Trends in tenant sales, renewal leasing activity, and occupancy rates are positive. We expect strong seasonal revenues in the fourth quarter of this year. We are very pleased to have locked-in the financing on Cornwall at this time of favourable debt capital markets." Financial Results Distributable income was $9.764 million for the quarter ended September 30, 2004 or $0.319 per unit basic ($0.306 per unit fully diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. ). This compares to distributable income of $5.822 million or $0.236 per unit (basic and fully diluted) earned during the 76 day period ended September 30, 2003. Funds from Operations Funds From Operations (FFO) Used by real estate and other investment trusts to define the cash flow from trust operations; earnings with depreciation and amortization added back. for the quarter ended September 30, 2004 were $10.285 million or $0.33 per unit basic ($0.30 fully diluted). This compares to funds from operations of $5,824 million or $0.24 per unit (basic and fully diluted) earned during the 76 day period ended September 30, 2003. Distributable income and funds from operations increased during the 2004 period due to the positive contribution in the 2004 period from acquisitions and because the comparable 2003 period comprised only 76 days from the date of formation of the REIT to the end of the period. In addition, the adoption in 2004 of an accounting policy related to the recognition of rental revenue on a straight line basis contributed to the increase in 2004 of funds from operations. Net income for the quarter ended September 30, 2004 was $4.790 million or $0.160 cents per unit (basic and fully diluted). This compares to net income of $4.997 million or $0.200 per unit (basic and fully diluted) earned during the 76 day period ended September 30, 2003. The change in net income reflects the positive impact of all the items that affected funds from operations, offset by the negative impact of the adoption in 2004 of a straight line depreciation accounting policy. The distribution payout ratio Payout Ratio The percentage of earnings paid out in dividends. It is calculated by dividing dividends per share by earnings per share. Notes: The payout ratio indicates how well earnings support the dividend payments: the lower the ratio, the more secure the dividend. for the quarter, expressed on a per unit basis as distributions paid divided by recurring re·cur intr.v. re·curred, re·cur·ring, re·curs 1. To happen, come up, or show up again or repeatedly. 2. To return to one's attention or memory. 3. To return in thought or discourse. distributable income was 88.2%. At September 30, 2004 the REIT's total market capitalization Total Market Capitalization The total market value of all of a firm's outstanding securities. was approximately $796 million (based on the market closing price of Borealis' units on September 30, 2004 plus total debt outstanding). At September 30, 2004 the REIT had $409 million of outstanding debt equating e·quate v. e·quat·ed, e·quat·ing, e·quates v.tr. 1. To make equal or equivalent. 2. To reduce to a standard or an average; equalize. 3. to a debt to total market capitalization ratio of 51.4%. The REIT's debt consisted of $322.0 million of fixed-rate senior debt with a weighted average interest rate of 5.8% and a weighted average term to maturity of 6.1 years, $50.0 million of 6.75% fixed-rate convertible debentures Convertible Debenture Any type of debenture that can be converted into some other security. Notes: For example, a convertible bond can be converted into stock. and $37.0 million of floating-rate debt drawn on the REIT's operating line of credit. The REIT had a debt to gross book value ratio, as defined under the Declaration of Trust, of 49.4%. During the quarter the REIT had an interest coverage ratio of 2.8 times as expressed by EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become divided by net interest expensed. The REIT defines EBITDA as net income increased by depreciation, amortization, interest expense and, if applicable, income tax expense. EBITDA is a non-GAAP measure and may not be comparable to similar measures used by other companies.
Operating Results
Same property NOI
Same Property Operating Results
Three Months Ended September 30
(in thousands of dollars)
2004 2003 Change
Revenue $ 19,152 $ 18,843 1.6%
Operating expenses (8,609) (8,169) -5.4%
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NOI $ 10,543 $ 10,674 -1.2%
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The results shown for 2003 reflect the actual results achieved by the REIT during its 76 days of ownership and adjusted to gross-up the time period to a 92 day quarter, and to also give effect to the impact of accounting for minimum rent on a straight line basis. Same property net operating income decreased 1.2% compared to the grossed-up comparative period. The decrease resulted from a lower average occupancy rate during the current period. In addition, the same property performance in 2004 was negatively impacted by the REIT's decision to take 17,750 square feet of rentable area out of service during early 2004 for redevelopment at Stone Road Mall in Guelph. The space taken out of service generated $148 of net operating income in the grossed-up comparative period. The redevelopment space is expected to come back into service in the first quarter of 2005. Tenant sales Same store tenant sales performance during the 12 month period ended August 31, 2004, for those tenants required to report sales, remained strong at approximately $454 dollars per square foot. This represents a small increase of 1.0% over the $450 dollar amount for the 12 months ended August 31, 2003. Leasing activity Borealis Retail REIT's property portfolio remains well leased. As of September 30, 2004, the portfolio was 95.4% leased as compared to 95.3% leased at June 30, 2004 and 96.8% at December 31, 2003. These percentages include space for which signed leases are in place but where the tenant may not yet be in occupancy. The occupancy rate fell at June 30 from December 31 because during the second quarter the REIT acquired two large assets that had occupancy rates of 93% and 94%, thereby depressing the portfolio average. The REIT executed 25 leases, representing 77,642 square feet during the three months ended September 30, 2004. This consisted of 11 new leases aggregating 16,834 square feet and 14 renewal leases aggregating 60,808 square feet. Base rental rates on lease renewals increased 4.7% on a weighted average cash basis over the previous rent paid. Development Activity The $8.5 million dollar expansion of Stone Road Mall is proceeding on time and on budget. Old Navy opened their store on November 4 and we expect Pier pier, in engineering, term applied to a mass of reinforced concrete or masonry supporting a large structure, such as a bridge. When piers are built on ground of poor bearing value, it is often necessary to drive piles to obtain a firm base. One to open December 1. Other smaller tenants are scheduled to open through late 2004 and the first quarter of 2005. We have executed leases for 87% of the expansion and redevelopment space in this project. The completion of the development should have a positive impact on future rental rates and occupancy levels in the balance of the property. Work is progressing well on the redevelopment of the food court at Cornwall Centre in Regina. This $1.3 million dollar project should be completed by December 1, 2004. This project comprises five new food court retailers, new seating, and improvements to two pedestrian A pedestrian is a person travelling on foot, whether walking or running. In modern times, the term mostly refers to someone walking on a road or footpath, but this was not the case historically. History Walking is the primary means of human locomotion. connections between the parkade park·ade n. Canadian A multilevel structure for parking motor vehicles. [Blend of park and arcade. and the mall. Comparison to Prior Period Financial Results
Comparison to Prior Period Financial Results
Grossed Up Variance to
Actual Actual Grossed Up
Three Months Three Months Comparative
ended ended Period
September 30, September 30, favourable/
2004 (1) 2003 (2) (unfavourable)
Revenue $ 29,932 $ 18,861 $ 11,071
Expenses
Operating 12,666 7,904 4,762
Interest, net 5,721 2,842 2,879
Depreciation and
amortization 5,659 1,099 4,560
Ground rent 269 265 4
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24,315 12,110 12,205
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Income from operations 5,617 6,751 (1,134)
General and administrative 827 702 125
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Net income 4,790 6,049 (1,259)
Straight line rent adjustment (434) - (434)
Depreciation 5,424 999 4,425
Amortization of above and
below market rents, net (15) - (15)
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Distributable income (3) $ 9,764 $ 7,048 $ 2,731
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Distributable income
per unit - basic $ 0.319 $ 0.286 $ 0.033
Distributable income
per unit - fully diluted $ 0.306 $ 0.286 $ 0.020
Distributions $ 0.270 $ 0.257 $ 0.013
Payout ratio 88.2% 89.8% -1.68%
Weighted average units
outstanding - basic 30,589,498 24,661,610 5,927,888
Weighted average
units outstanding
- fully diluted 34,651,323 24,661,110 9,990,213
Notes: (1) Based on the actual financial statements for the three month period ended September 30, 2004. (2) Based on the actual financial statements for the 76 day period ended September 30, 2003, grossed-up to a 92 day period ended September 30, 2003. (3) Distributable income, which is not a defined term within Canadian Canadian (kənā`dēən), river, 906 mi (1,458 km) long, rising in NE New Mexico. and flowing E across N Texas and central Oklahoma into the Arkansas River in E Oklahoma. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). , has been calculated in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with the terms of the Declaration of Trust. Distributable income may not be comparable to similar measures used by other companies. The REIT defines distributable income fully in the Initial Public Offering prospectus. In calculating distributable income certain adjustments were made to incorporate the impact of two new accounting policies on the REIT's financial statements. One adjustment adjusts the recorded non-cash straight-line rent revenue from net income. The other adjustment deals with the new accounting policy for recording operating leases Operating Lease A lease contract that allows the use of an asset, but does not convey rights similar to ownership of the asset. Notes: An operating lease is not capitalized it is accounted for as a rental expense. on an acquisition. The adjustments result in the same distributable income that would have been achieved under the REIT's former accounting policies. As shown in the table above, straight-line rent is deducted de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. from net income and depreciation of buildings and improvements is added back to net income to determine distributable income. Other adjustments may be applicable in future years if, for example, the REIT were to incur To become subject to and liable for; to have liabilities imposed by act or operation of law. Expenses are incurred, for example, when the legal obligation to pay them arises. An individual incurs a liability when a money judgment is rendered against him or her by a court. gains or losses on sale of assets, or future income taxes. Distributable income for the quarter ended September 30, 2004 was $2.731 million ($0.02 per unit, fully diluted) greater than the grossed-up comparative period. This reflects the positive contribution in 2004 of acquisitions completed after September 30, 2003. Change in Accounting Policies In accordance with changes to Canadian generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting , the REIT adopted two new accounting policies effective the beginning of 2004. Straight-line Depreciation A method employed to calculate the decline in the value of income-producing property for the purposes of federal taxation. Under this method, the annual depreciation deduction that is used to offset the annual income generated by the property is determined by dividing the On January 1, 2004 the REIT prospectively changed its accounting policy for depreciation from the sinking fund sinking fund, sum set apart periodically from the income of a government or a business and allowed to accumulate in order ultimately to pay off a debt. A preferred investment for a sinking fund is the purchase of the government's or firm's bonds that are to be paid method to the straight-line method Noun 1. straight-line method - (accounting) a method of calculating depreciation by taking an equal amount of the asset's cost as an expense for each year of the asset's useful life straight-line method of depreciation . The REIT estimates that depreciation expense would have been $1.666 million less during the three months ended September 30, 2004 if it had used the sinking fund method of depreciation. Straight-line Rent On January 1, 2004 the REIT changed its accounting policy so that all rent steps in lease agreements are now accounted for on a straight-line basis over the terms of the respective leases. This change incorporates all future rent steps over the remaining useful lives of the related existing leases, and the full life of any new leases. The REIT recorded $434 thousand, net of allowances for doubtful collection, of straight-line rent receivable during the three months ended September 30, 2004. In response to the new accounting policy with respect to straight-line rent, the REIT adjusted its calculation of distributable income effective the beginning of 2004. Distributable income excludes the impact of accounting for minimum rent on a straight line basis. Asset retirement obligations Asset Retirement Obligations provide for future disposal of assets as required by SFAS 143 [1]. Firms must recognize the ARO liability in the period it was acquired, generally acquisition. The REIT has adopted an accounting policy so that all liabilities for asset retirement obligations associated with the retirement of tangible long-lived assets are recorded. The REIT acquired all of its assets within the past 12 months and performed a significant amount of due diligence Research; analysis; your homework. This term has caught on in all industries, because it sounds so "wired." Who would want to do analysis or research when they can do due diligence. See wired. in that regard. It has recorded a $187 thousand liability to provide for the potential need to restore a property located on leased land to its original state. Supplemental Information The REIT's unaudited consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge and Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial for the quarter ended September 30, 2004 are available on the REIT's website at www.borealisreit.com. Conference Call We invite you to participate in the conference call that will be held on Wednesday, November 10 at 2 pm EST EST electroshock therapy. EST abbr. electroshock therapy to discuss these results. Senior management will speak to the results and provide a brief corporate update. Teleconference: The telephone numbers for the conference are: 416-405-9328 (within Toronto) or toll-free 1-800-387-6216 (outside Toronto). Replay: An audio recording of the teleconference will be available after the call until 11.59pm EST on November 17, 2004. You can access the replay by dialing 416-695-5800 or 1-800-408-3053 using pass code 3105294#. The REIT is a TSX listed real estate investment trust (TSX:BRE.UN). The REIT owns 9 shopping centres comprising approximately 4.5 million square feet located in Canada. As of September 30, 2004, the REIT had 30,632,524 units issued and outstanding.
BOREALIS RETAIL REAL ESTATE
INVESTMENT TRUST
Consolidated Balance Sheet
(In thousands of dollars)
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September 30, December 31,
2004 2003
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(Unaudited)
Assets
Income-producing properties $ 684,085 $ 488,906
Deferred costs 10,334 6,709
Rents receivable 1,275 714
Other assets and receivables 12,445 7,827
Cash 2,518 682
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$ 710,657 $ 504,838
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Liabilities and Unitholders' Equity
Liabilities:
Mortgages payable $ 322,008 $ 244,207
Convertible debentures 48,776 -
Bank indebtedness 37,042 18,502
Accounts payable and other liabilities 14,130 7,152
Distribution payable 2,762 2,131
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424,718 271,992
Unitholders' equity 285,939 232,846
Commitments and contingencies
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$ 710,657 $ 504,838
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BOREALIS RETAIL REAL ESTATE
INVESTMENT TRUST
Consolidated Statement of Income
(In thousands of dollars, except per unit amounts)
(Unaudited)
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Three months Nine months 76-day
ended ended period ended
September 30, September 30, September 30,
2004 2004 2003
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Rental revenue:
Base rent$ $ 18,095 $ 45,247 $ 9,531
Recoveries from tenants 10,543 26,680 5,797
Percentage rent 244 621 206
Interest and other income 1,050 1,282 47
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29,932 73,830 15,581
Expenses:
Property operating 7,219 17,510 3,524
Property taxes 5,447 13,429 3,005
Depreciation 5,423 10,980 825
Amortization 236 472 83
Interest 5,721 12,656 2,348
Ground rent 269 806 219
General and administrative 827 2,208 580
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$ 25,142 $ 58,061 10,584
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Net income $ 4,790 $ 15,769 $ 4,997
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Net income per unit $ 0.16 $ 0.59 $ .20
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BOREALIS RETAIL REAL ESTATE
INVESTMENT TRUST
Reconciliation of Net Income to Distributable Income
(In thousands of dollars, except per unit amounts)
(Unaudited)
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Three months Nine months
ended ended
September 30, September 30,
2004 2004
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Net income $ 4,790 $ 15,769
Straight line rent (434) (1,182)
Depreciation 5,408 10,965
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Distributable Income $ 9,764 $ 25,552
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Distributable income, which is not a defined term within Canadian generally accepted accounting principles, has been calculated in accordance with the terms of the Declaration of Trust. Distributable income may not be comparable to similar measures used by other companies. The REIT defines distributable income fully in the IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. prospectus. In calculating distributable income certain adjustments were made to incorporate the impact of two new accounting policies on the REIT's financial statements. One adjustment adjusts the recorded non-cash straight line rent revenue from Net Income. The other adjustment deals with the new accounting policy for recording operating leases on an acquisition. The adjustments result in the same distributable income that would have been achieved under the REIT's former accounting policies. As shown in the table above, the impact of accounting for minimum rent on a straight line basis is deducted from net income and depreciation of buildings and improvements is added back to net income to determine distributable income. Other adjustments may be applicable in future years if, for example, the REIT were to incur gains or losses on sale of assets, or future income taxes.
Reconciliation of Net Income to Funds from Operations
(In thousands of dollars, except per unit amounts)
(Unaudited)
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Three months Nine months
ended ended
September 30, September 30,
2004 2004
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Net income $ 4,790 $ 15,769
Depreciation 5,423 10,980
Amortization 72 133
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Funds from Operation $ 10,285 $ 26,882
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Funds from Operations, which is not a defined term within Canadian generally accepted accounting principles, has been calculated by management, using Canadian generally accepted accounting principles, in accordance with the White Paper on Funds from Operations approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT NAREIT National Association of Real Estate Investment Trusts ") in April, 2002. The White Paper defines Funds from Operations as net income, excluding gains or losses on sales of property, plus depreciation and amortization, and after adjustment for unconsolidated partnerships and joint ventures. Funds from Operations may not be comparable to similar measures used by other entities. Borealis Retail REIT (TSX:BRE.UN) |
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