Smart Real Estate Investment Trust Releases Second Quarter Results for 2017 and Announces Distribution Increase

digitaljournal.com
Aug. 9, 2017

Smart Real Estate Investment Trust ("SmartREIT" or "the Trust") (TSX:SRU.UN) is pleased to report positive financial and operating results for the second quarter ended June 30, 2017 and also announce a distribution increase.

Highlights for the three months ended June 30, 2017 include the following:

On April 12, 2017, the Trust along with its joint venture partners Mitchell Goldhar and CentreCourt Developments, announced details of a planning application for the development of Transit City, the first residential condominium towers in VMC. The two initial 55 storey towers will be two of the tallest developments in York Region and will be located steps from the TTC’s new Vaughan Metropolitan Centre Subway Station. The project will also include the first "Buca" restaurant and "Bar Buca" outside the downtown Toronto core within the lobby area of the first tower.

On June 6, 2017, the Trust along with its joint venture partners Mitchell Goldhar and CentreCourt Developments announced that the first and second condo towers of Transit City were sold out, and as a result of the actual sales figures, the Trust amended its previously announced guidance by increasing profitability on these towers to an estimated return of 25-30% on costs from the previously announced 15-20%. In addition, pre-selling of units in a third 55 storey tower commenced during the quarter.

The Trust maintained a high level of occupancy at 98.4% (June 30, 2016 – 98.2%). Including executed leases, the occupancy level for the quarter ended June 30, 2017 was 98.5% (June 30, 2016 – 98.3%).

Excluding the $9.7 million net settlement proceeds associated with the 2016 Target lease terminations that was recorded in the comparative quarter:

• FFO with one time adjustment and transactional FFO increased by $5.0 million or 5.9% to $88.9 million, and by $0.03 or 6.0% to $0.57 on a per Unit basis. (When the impact of the 2016 Target settlement is included, FFO with one time adjustment and transactional FFO decreased by $4.7 million or
• AFFO with one time adjustment and transactional FFO increased by $6.3 million or 8.0% to $85.7 million, and by $0.04 or 7.8% on a per Unit basis. (When the impact of the 2016 Target settlement is included, AFFO with one time adjustment and transactional FFO decreased by $3.4 million or 3.8%, and by $0.02 or 3.5% on a per Unit basis).
• Payout ratio to AFFO with one time adjustment and transactional FFO for the three months ended June 30, 2017 decreased by 3.7% to 77.3%. (When the impact of the 2016 Target settlement is included, the payout ratio to AFFO with one time adjustment and transactional FFO increased by 5.3%).

Same properties NOI increased by $0.6 million or 0.5% compared to the same quarter last year.

$5.9 million of Earnouts and Developments including investment in associates were completed and transferred to income properties at a yield rate of 6.3%.

On April 3, 2017, the KPMG Tower was awarded the Real Estate Excellence ("REX") Office Development of the Year Award for Greater Toronto.

On April 13, 2017, $150.0 million aggregate principal amount of 3.385% Series J senior unsecured debentures was redeemed.

During the quarter, the Trust entered into a joint venture with Fieldgate to develop a 16 acre parcel of land adjacent to the SmartCentres Shopping Centre at Major Mackenzie Drive and Weston Road in Vaughan and build approximately 230 freehold townhouses. On June 29, 2017, the Trust closed on the transaction to sell 50% of the development lands to Fieldgate for gross proceeds of $19.4 million, excluding closing costs of $0.2 million. Concurrent with the disposition of 50% of the development lands, the Trust transferred the remaining 50% or $19.4 million interest that it owns out of property under development into residential development inventory. The Trust additionally entered in a co-ownership agreement with Fieldgate who acquired the 50% interest on the development lands discussed above, to develop and sell residential inventory.

On June 12, 2017, the Trust announced the replacement of its former revolving operating facility of $350.0 million with a new five-year $500.0 million unsecured revolving operating facility, together with an accordion feature of $250.0 million.
Subsequent to the three months ended June 30, 2017:

On July 7, 2017, the Trust and Penguin announced that they have signed a 13 year (plus two five-year extensions) lease transaction with FM Global, one of the world’s largest commercial and industrial property insurers, in the KPMG Tower at SmartCentres Place in Vaughan.

On July 26, 2017, the Trust along with its joint venture partners Mitchell Goldhar and CentreCourt Developments announced that the third 55 storey condominium tower at Transit City was substantially sold out. The guidance on the profitability on the sale of the units in this tower was revised to an estimated return of 20%-25% on costs from the previously announced 15%-20%.

On August 4, 2017, the Trust announced that it was successful in solidifying an opportunity, through a plan of arrangement, to purchase 12 retail properties from OneREIT representing over 2.28 million square feet along with substantial future development potential of approximately 1.75 million square feet. These 12 properties have very similar physical attributes and tenancy characteristics as the Trust's current portfolio. Specifically, six of the properties have Walmart as an anchor tenant, and five of the remaining properties have strong grocery or similar large anchor tenants. The remaining property is in the GTA and given its proximity to transit, represents a substantive redevelopment opportunity. The purchase price for the portfolio is $429.0 million and will be paid for by the Trust assuming property level and corporate level debt of $354.0 million and the Trust issuing $75.0 million in Trust Units to those current OneREIT unitholders who elect (subject to the announced plan of arrangement) to take Units in the Trust. It is expected that the acquisition will be immediately accretive to the Trust, and once stabilized in 2018, it is expected that the acquisition will be accretive by $0.05 per Unit annually thereafter. This acquisition is subject to approval by OneREIT's unitholders and other regulatory and customary closing conditions and is expected to close before the end of September 2017.

On August 9, 2017, the Board of Trustees approved a $0.05 increase in annual distributions to $1.75 per Unit effective October 2017.

"The second quarter of 2017 represents another successful quarter in balancing the stability of our largely Walmart anchored shopping centre portfolio with our exciting pipeline of development opportunities," said Huw Thomas, SmartREIT's CEO. "In particular, the significant progress on the residential developments at VMC and the town home development in Vaughan N.W. highlight the value creation potential of our exceptional development platform," added Thomas.