Primaris REIT Announces Strong Q2/22 Results; Raises Guidance
Primaris Real Estate Investment Trust ("Primaris" or "the Trust") (TSX: PMZ.UN) announced today financial and operating results for the second quarter ended June 30, 2022.
Quarterly Financial and Operating Results Highlights
Business Update Highlights
"Throughout 2022, enclosed malls across our portfolio are experiencing a significant rebound in tenant sales growth with several of our malls reporting all time highs in productivity," said Patrick Sullivan, President and Chief Operating Officer. "Our team is working hard to deliver on the business plan we have laid out, and our strong operating results reflect normalizing shopping behaviour, recovering tenant sales productivity, and the strength of our team."
Chief Financial Officer, Rags Davloor added, "We are committed to building out a best-in-class financial reporting package, providing the investment community with useful and insightful information. This quarter, new disclosure additions include details around tenant sales, leasing activity, and capital structure. In connection with financing activities, we agreed on terms for a $200 million unsecured term loan with a syndicate of banks. This facility, along with our existing revolving facilities provides us with funds to refinance expiring mortgage debt for the current year at very attractive terms."
"Our second consecutive guidance increase signals the confidence we have in our ability to take advantage of the ongoing recovery in retail property," said Alex Avery, Chief Executive Officer. "Capital allocation is critical to the success of Primaris, and we continue to buy back units, contributing to both NAV per unit and FFO per unit growth. We are increasing our focus on the opportunities created by the recent market disruptions in both the capital and direct property markets."
Select Financial and Operational Metrics
Same Properties Cash NOI** was $4.9 million, or 15.4%, higher than the same period in 2021. The increase in Same Properties Cash NOI** included $2.6 million, or 8.2%, from recovery of prior year's property tax and change in bad debt expense. The remaining increase of $2.3 million, or 7.2%, was driven by higher revenues from base rent, percent rent and percent rent in lieu, and specialty leasing revenue. The revenue growth over the prior period reflects the completion of a portion of the lease abatement arrangements entered into during the pandemic and improving tenant sales.
The below table compares the composition of FFO** and AFFO** for the three months ended June 30, 2022 to the prior quarter and calculates the drivers of the quarter over quarter changes.
The $0.018 increase in quarter over quarter FFO** per weighted average unit was primarily driven by $0.054 from NOI**, which included $0.019 of revenue from recovery of prior years property tax. The increase in quarter over quarter AFFO** per weighted unit was positively impacted by lower operating capital expenditures.
To illustrate the positive impact of the NCIB activity on future quarters, the below chart calculates the increase to FFO** and AFFO** per unit as if the Units purchased under the NCIB were cancelled for the entire period.
Occupancy and Leasing Results
As at June 30, 2022, the portfolio had an in-place occupancy rate of 86.5%, and a committed occupancy rate of 87.4%. The in-place occupancy rate of the HOOPP Properties is tracking lower at 83.7% and represents an opportunity for future organic growth.
In the quarter, Primaris completed 150 leasing deals totaling 0.6 million square feet including commercial retail unit ("CRU") and large format tenant lease renewals. Overall renewal rents were up 0.2% comprised of CRU renewals of 0.8%, and flat large format renewals. Included in CRU renewals are a number of lease agreements that provide lower than expiring rental rates due in part to tenant sales operating at below pre-pandemic levels. These renewals at reduced rental rates are for shorter terms, deferring longer term lease commitments as tenant sales continue to recover, enhancing our negotiating leverage.
Robust Liquidity and Differentiated Balance Sheet
Primaris' differentiated financial model is core to its overall strategy, providing a best-in-class capital structure upon which to build the business. Management has targeted to reduce its secured debt as a percent of total debt to 40%. The ratio was 51.2% as at June 30, 2022, and management anticipates lowering this ratio towards the target as existing mortgages payable mature, market conditions permitting.
Liquidity at June 30, 2022 was $307.5 million. Primaris has $2.2 billion of unencumbered assets and a calculated Net Asset Value** per unit outstanding of $22.16.
Conference Call and Webcast
About Primaris Real Estate Investment Trust
Primaris is Canada's only enclosed shopping centre focused REIT, with ownership interests primarily in dominant enclosed shopping centres in growing markets. The portfolio totals 11.3 million square feet and is valued at approximately $3.2 billion at Primaris' share. Economies of scale are achieved through its fully internal, vertically integrated, full-service national management platform. Primaris is very well-capitalized and is exceptionally well positioned to take advantage of market opportunities at an extraordinary moment in the evolution of the Canadian retail property landscape.
Forward-Looking Statements Disclaimer
Certain statements included in this news release constitute ''forward-looking information'' or "forward-looking statements" within the meaning of applicable securities laws. The words "will", "expects", "plans", "estimates", "intends" and similar expressions are often intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Specific forward-looking statements made or implied in this news release include but are not limited to statements regarding: statements with respect to expected future distributions, the Trust's development activities, the expected benefits from the integration of the HOOPP properties and the normal course issuer bid. These statements are based on factors or assumptions that were applied in drawing a conclusion or making a forecast or projection, including assumptions based on historical trends, current conditions and expected future developments. Since forward-looking statements relate to future events and conditions, by their very nature they require making assumptions and involve inherent risks and uncertainties. Primaris cautions that although it is believed that the assumptions are reasonable in the circumstances, these risks and uncertainties give rise to the possibility that actual results may differ materially from the expectations set out in the forward-looking statements. Material risk factors and assumptions include those set out in the MD&A which will be available on SEDAR, and in Primaris' other materials filed with the Canadian securities regulatory authorities from time to time. Given these risks, undue reliance should not be placed on these forward-looking statements, which apply only as of their dates. Other than as specifically required by law, Primaris undertakes no obligation to update any forward-looking statements to reflect new information, subsequent or otherwise.
Information in this press release is a select summary of results. This press release should be read in conjunction with the Trust's Management Discussion and Analysis and Interim Condensed Consolidated Statements of Financial Position and the accompanying notes for the three and six months ended June 30, 2022 and 2021 (together the "Financial Statements").
Primaris' Financial Statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). However, Primaris also uses a number of measures which do not have a standardized meaning prescribed under generally accepted accounting principles ("GAAP") in accordance with IFRS. These non-GAAP measures, which are denoted in this press release by the suffix "**" may include non-GAAP financial measures and/or non-GAAP ratios, each as defined in National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure. None of these non-GAAP measures should be construed as an alternative to financial measures calculated in accordance with GAAP. Furthermore, these non-GAAP measures may not be comparable to similar measures presented by other real estate entities and should not be construed as an alternative to financial measures determined in accordance with IFRS.