\n| (3)<\/td>\n | <\/td>\n | FFO per unit adjusted to deduct the gain from the accelerated amortization of debt premiums associated with early debt retirement was $0.224.<\/td>\n<\/tr>\n<\/table>\n Financial Highlights for the Quarter:<\/b><\/p>\n\n- Net Operating Income<\/b>(1)<\/sup> \u2013 <\/b>First quarter NOI(1)<\/sup> of $115.3 million<\/span> was $3.3 million<\/span> higher than Forecast. The positive variance was driven primarily by the acquisition of investment properties following the Trust\u2019s IPO, which contributed $2.7 million<\/span> to NOI(1)<\/sup>. Based on the initial portfolio of 425 properties, same property NOI(1) <\/sup>of $112.6 million<\/span> was $0.6 million<\/span> or 0.5% better than Forecast. This improvement was primarily attributable to a $1.2 million<\/span> increase in net operating cost recoveries, driven by improved recovery ratios, partially offset by a decrease in base rent of $0.6 million<\/span>.<\/li>\n
- Net Income \/ Loss \u2013 <\/b>First quarter net loss was $8.2 million<\/span>. Excluding non-cash fair value adjustments, net income for the quarter of $40.2 million<\/span> compared with Forecast of $34.8 million<\/span>. This increase was primarily attributable to improved NOI(1) <\/sup>of $3.3 million<\/span>, savings from general and administrative expenses of $1.0 million<\/span> and savings from net interest expense and other financing charges of $0.5 million<\/span>.<\/li>\n
- Funds from Operations<\/b>(1)<\/sup> \u2013 <\/b>First <\/b>quarter FFO(1)<\/sup> was $86.8 million<\/span> or $0.233<\/span> per unit, compared with Forecast <\/sup><\/b>of $79.1 million<\/span> or $0.223<\/span> per unit. The improvement in FFO(1)<\/sup> was driven by post-IPO acquisitions, savings from general and administrative expenses and accelerated amortization of the debt premium associated with the early repayment of certain Transfer Notes. Excluding the impact of accelerated amortization of debt premiums associated with early debt retirement, first quarter FFO(1)<\/sup> was $83.4 million<\/span> or $0.224<\/span> per unit.<\/li>\n
- Adjusted Funds from Operations<\/b>(1) <\/b><\/sup>\u2013 <\/b>First quarter AFFO(1)<\/sup> was $68.7 million<\/span> or $0.185<\/span> per unit, compared with Forecast of $63.9 million<\/span> or $0.180<\/span> per unit. NOI(1)<\/sup> from post-IPO acquisitions and general and administrative expense savings drove the improvement in AFFO(1)<\/sup>.<\/li>\n
- Distributions<\/b> declared during the quarter totaled $0.162501<\/span> per unit for an AFFO(1)<\/sup> payout ratio of 87.8%.<\/li>\n<\/ul>\n
Operational Highlights:<\/b><\/p>\n\n- Leasing Profile \u2013 <\/b>During the first quarter of 2014, Choice Properties entered into binding leases or offers to lease totaling 50,162 square feet, of which 47,428 square feet represented the renewal of expiring leases.<\/li>\n
- Occupancy \u2013 <\/b>At March 31, 2014<\/span> the Trust\u2019s portfolio occupancy rate was 97.7%, flat from the IPO.<\/li>\n
- Accretive Acquisitions \u2013 <\/b>During the first quarter of 2014, the Trust acquired an industrial property at 580 Secretariat Court in Mississauga, ON<\/span> from a third-party vendor. This single-tenant property of approximately 150,000 square feet was purchased for $15.5 million<\/span>, excluding acquisition costs. This acquisition was immediately accretive with an overall year-one capitalization rate of 7.34%. The Trust has entered into a lease with ACE Bakery Limited, a subsidiary of George Weston Limited, effective March 1, 2014<\/span>, for an initial term of 15 years with multiple renewal options.<\/li>\n
- Development Program<\/b> \u2013 The Trust continued to progress on development projects for its properties located in Etobicoke<\/span> and Stoney Creek, ON<\/span>. The projects remain on track to deliver retail GLA for two tenants, LCBO and Dollarama in Etobicoke<\/span> and for a new Fortinos bannered Loblaw store in Stoney Creek<\/span> in 2014. Subsequent to the quarter, the Trust commenced construction of a 120,000 square foot Real Canadian Super Store in Surrey, BC<\/span>.<\/li>\n
- Active Management \u2013<\/b> During the quarter, Choice Properties completed blueprint designs and plans for an expanded ERP systems implementation in preparation to internalize its property management platform.<\/li>\n<\/ul>\n
Capital Structure:<\/b><\/p>\n\n- Capacity to invest for further growth \u2013 <\/b>At March 31, 2014<\/span>, the Trust\u2019s debt service cover ratio(2)<\/sup> was 3.5 times. With strong cash flow from operations and access to a $500 million<\/span> credit facility, the Trust has the capacity to meet ongoing obligations and invest for further growth.<\/li>\n
- Strengthened capital structure through debt financings<\/b> \u2013 As previously announced, Choice Properties issued $450 million<\/span> of series C and series D senior unsecured debentures. The transaction has effectively mitigated refinancing risks in the near-term. Choice Properties\u2019 next debt maturity is not until 2016. With this issuance, the Trust\u2019s weighted average term to maturity of its debt instruments increased to 6.1 years from 5.0 years.<\/li>\n
- Refinanced Transferor Notes<\/b> \u2013 Subsequent to the end of the quarter, Choice Properties Limited Partnership entered into a Master Trust Indenture agreement with Computershare Trust Company of Canada<\/span>. First and second supplemental indentures were created in order to facilitate the replacement of the Series 5 and 6 Transferor Notes with replacement notes containing the same principal amounts, interest rates and maturity dates. The remaining terms and conditions are substantially similar to the original notes. As a result, Choice incurred a non-cash interest expense of approximately $8 million<\/span>. Loblaw subsequently sold the replacement notes to unrelated parties.<\/li>\n<\/ul>\n
\n\n| (1) <\/td>\n | See \u00ab\u00a0Non-GAAP Financial Measures\u00a0\u00bb beginning on page 4.<\/td>\n<\/tr>\n | \n| (2) <\/td>\n | Debt ratios include Class C LP Units but exclude Exchangeable Units. The ratios are non-GAAP financial measures calculated based on the Trust Indenture as supplemented.<\/td>\n<\/tr>\n<\/table>\n Outlook<\/b>
Choice Properties is focused on building its business platform and is dedicated to enhancing and growing its asset base to consistently create and deliver value to Unitholders. While the economic environment, particularly with respect to interest rates, introduces uncertainty, Choice Properties remains on plan with its Forecast, as presented in the Trust\u2019s IPO prospectus dated June 26, 2013<\/span>, and expects to realize the growth opportunities inherent in its portfolio. Choice Properties believes the current Canadian retail and commercial real estate markets are relatively stable and present development, acquisition and improved tenancy potential for future growth. As a result, the Trust expects to execute on opportunities including development and redevelopment of existing at-grade excess density, acquisition of assets from a dedicated pipeline of assets from Loblaw\u2019s remaining portfolio and the potential to strengthen underlying operations through improved leasing strategies and active property management. Over the longer-term, Choice Properties will seek to further expand through its development program with Loblaw and third parties and purchase third-party assets that meet its investment criteria.<\/p>\nForward-Looking Statements<\/b>
This press release contains forward-looking statements about Choice Properties\u2019 objectives, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects and opportunities. As Choice Properties is a new entrant into the real estate investment trust market and has only been operating since July 2013<\/span>, it is required to compare its results to forecasted results rather than historical results. As such, specific statements with respect to anticipated future results can be found in various sections of this press release. Forward-looking statements are typically identified by words such as \u00ab\u00a0expect\u00a0\u00bb, \u00ab\u00a0anticipate\u00a0\u00bb, \u00ab\u00a0believe\u00a0\u00bb, \u00ab\u00a0foresee\u00a0\u00bb, \u00ab\u00a0could\u00a0\u00bb, \u00ab\u00a0estimate\u00a0\u00bb, \u00ab\u00a0goal\u00a0\u00bb, \u00ab\u00a0intend\u00a0\u00bb, \u00ab\u00a0plan\u00a0\u00bb, \u00ab\u00a0seek\u00a0\u00bb, \u00ab\u00a0strive\u00a0\u00bb , \u00ab\u00a0will\u00a0\u00bb, \u00ab\u00a0may\u00a0\u00bb, \u00ab\u00a0should\u00a0\u00bb and similar expressions, as they relate to Choice Properties and its management.<\/p>\nForward-looking statements reflect Choice Properties\u2019 current estimates, beliefs and assumptions, which are based on management\u2019s perception of historic trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. Choice Properties\u2019 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\u2019s 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.<\/p>\n Numerous risks and uncertainties could cause Choice Properties\u2019 actual results to differ materially from those expressed, implied or projected in the forward-looking statements, including, those described in Section 12 \u00ab\u00a0Enterprise Risks and Risk Management\u00a0\u00bb in the MD&A section of Choice Properties\u2019 First Quarter 2014 Report to Unitholders. Such risks and uncertainties include:<\/p>\n \n- the inability of Choice Properties to maintain and leverage its relationship with Loblaw, including in respect of: (i) Loblaw\u2019s retained interest in Choice Properties and its current intention with respect thereto; (ii) the services to be provided to Choice Properties (whether directly or indirectly) by Loblaw; (iii) expected transactions to be entered into between Loblaw and Choice Properties (including Choice Properties\u2019 acquisition of certain interests in properties held by Loblaw); and (iv) the Strategic Alliance Agreement;<\/li>\n
- changes in Loblaw\u2019s business, activities or circumstances which may impact Choice Properties, including Loblaw\u2019s inability to make rent payments or perform its obligations under the Loblaw leases;<\/li>\n
- failure to manage its growth effectively in accordance with its growth strategy or acquire assets on an accretive basis;<\/li>\n
- failure to meet its forecasted financial results for the periods set out in the \u00ab\u00a0Financial Forecast\u00a0\u00bb section of the IPO Prospectus;<\/li>\n
- changes in Choice Properties\u2019 capital expenditure and fixed cost requirements;<\/li>\n
- the inability of the Partnership to make distributions or other payments or advances;<\/li>\n
- the inability of Choice Properties to obtain financing;<\/li>\n
- changes in Choice Properties\u2019 degree of leverage;<\/li>\n
- changes in laws or regulatory regimes, which may affect Choice Properties, including changes in the tax treatment of the Trust and its distributions to Unitholders or the inability of the Trust to continue to qualify as a \u00ab\u00a0mutual fund trust\u00a0\u00bb and as a \u00ab\u00a0real estate investment trust\u00a0\u00bb, as such terms are defined in the Income Tax Act (Canada<\/span>); and<\/li>\n
- changes in Choice Properties\u2019 competitiveness in the real estate market or the unavailability of desirable commercial real estate space.<\/li>\n<\/ul>\n
This is not an exhaustive list of the factors that may affect Choice Properties\u2019 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\u2019 materials filed with the Canadian securities regulatory authorities from time to time, including the \u00ab\u00a0Enterprise Risks and Risk Management\u00a0\u00bb section of the MD&A on page 22 of Choice Properties\u2019 First Quarter 2014 Report to Unitholders. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect Choice Properties\u2019 expectations only as of the date of the MD&A. 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.<\/p>\n NON-GAAP Financial Measures<\/b><\/p>\n Choice Properties uses the following non-GAAP financial measures: FFO, AFFO, and NOI. 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.<\/p>\n Management uses these and other non-GAAP financial measures to exclude the impact of certain expenses and income that must be recognized under GAAP when analyzing underlying operating performance, as the excluded items are not necessarily reflective of Choice Properties\u2019 underlying operating performance or impact the comparability of financial performance between periods. From time to time, the Trust may exclude additional items if it believes doing so would result in a more effective analysis of underlying operating performance. The exclusion of certain items does not imply that they are non-recurring.<\/p>\n These measures do not have a standardized meaning prescribed by GAAP 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 GAAP.<\/p>\n Net Operating Income <\/b>NOI from operations is defined as cash rental revenue from investment properties less property operating costs. NOI is used as a key indicator of performance as it represents a measure over which management has control. The Trust evaluates performance of management by comparing the performance of the portfolio adjusted for the effects of certain items and current year acquisitions. The Trust\u2019s method of calculating NOI may differ from other issuers\u2019 methods and, accordingly, may not be comparable to NOI reported by other issuers.<\/p>\n Funds from Operations <\/b>FFO is not a term defined under IFRS and may not be comparable to similar measures used by other real estate entities. Choice Properties calculates its FFO in accordance with the Real Property Association of Canada White Paper on Funds from Operations for IFRS issued in November 2012<\/span>. 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.<\/p>\nAn advantage of the FFO measure is improved comparability between Canadian and foreign REITs. FFO adds back to net income items that do not arise from operating activities, such as fair value adjustments. FFO, however, still includes non-cash revenues related to accounting for straight-line rent and makes no deduction for the recurring capital expenditures necessary to sustain the existing earnings stream.<\/p>\n Funds from Operations Payout Ratio <\/b>FFO payout ratio is calculated as the distributions per unit divided by the FFO per unit diluted.<\/p>\n Adjusted Funds from Operations <\/b>AFFO is a supplemental measure of operating performance widely used in the real estate industry. 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 capital expenditures for maintaining productive capacity required for sustaining property infrastructure 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.<\/p>\n There is currently no standard industry-defined measure of AFFO. As such, Choice Properties\u2019 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.<\/p>\n Adjusted Funds from Operations Payout Ratio <\/b>AFFO payout ratio is calculated as the distributions per unit divided by the AFFO per unit diluted.<\/p>\n\n Choice Properties Real Estate Investment Trust<\/b>
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measure<\/b><\/p>\n\n\nFor the quarter ended March 31, 2014
(in thousands of Canadian dollars, except per unit amounts)<\/td>\n | <\/td>\n | First Quarter Actuals<\/b><\/td>\n | <\/td>\n | First Quarter Forecast<\/td>\n | <\/td>\n<\/tr>\n | \n| Rental revenue<\/td>\n | <\/td>\n | $<\/b><\/td>\n | 167,045<\/b><\/td>\n | <\/td>\n | $<\/td>\n | 163,982<\/td>\n | <\/td>\n<\/tr>\n | \n| Reverse \u2013 Straight-line rental revenue<\/td>\n | <\/td>\n | <\/td>\n | (8,562)<\/b><\/td>\n | <\/td>\n | <\/td>\n | (8,098)<\/td>\n | <\/td>\n<\/tr>\n | \n| Property operating costs<\/td>\n | <\/td>\n | <\/td>\n | (43,151)<\/b><\/td>\n | <\/td>\n | <\/td>\n | (43,826)<\/td>\n | <\/td>\n<\/tr>\n | \nNet Operating Income(1)<\/sup><\/td>\n| <\/td>\n | $<\/b><\/td>\n | 115,332<\/b><\/td>\n | <\/td>\n | $<\/td>\n | 112,058<\/td>\n | <\/td>\n<\/tr>\n | \n| Net Income (Loss)<\/td>\n | <\/td>\n | $<\/b><\/td>\n | (8,171)<\/b><\/td>\n | <\/td>\n | $<\/td>\n | 34,784<\/td>\n | <\/td>\n<\/tr>\n | \n| Fair value adjustments on Exchangeable Units<\/td>\n | <\/td>\n | <\/td>\n | 48,293<\/b><\/td>\n | <\/td>\n | <\/td>\n | \u2014<\/td>\n | <\/td>\n<\/tr>\n | \n| Fair value adjustments on investment properties<\/td>\n | <\/td>\n | <\/td>\n | 110<\/b><\/td>\n | <\/td>\n | <\/td>\n | \u2014<\/td>\n | <\/td>\n<\/tr>\n | \n| Fair value adjustments on unit-based compensation<\/td>\n | <\/td>\n | <\/td>\n | (88)<\/b><\/td>\n | <\/td>\n | <\/td>\n | \u2014<\/td>\n | <\/td>\n<\/tr>\n | \n| Distributions on Exchangeable Units<\/td>\n | <\/td>\n | <\/td>\n | 46,162<\/b><\/td>\n | <\/td>\n | <\/td>\n | 44,281<\/td>\n | <\/td>\n<\/tr>\n | \n| Amortization of tenant improvement allowances<\/td>\n | <\/td>\n | <\/td>\n | 450<\/b><\/td>\n | <\/td>\n | <\/td>\n | \u2014<\/td>\n | <\/td>\n<\/tr>\n | \nFunds from Operations(1)<\/sup><\/td>\n| <\/td>\n | <\/td>\n | 86,756<\/b><\/td>\n | <\/td>\n | <\/td>\n | 79,065<\/td>\n | <\/td>\n<\/tr>\n | \n| Accelerated amortization of debt premiums<\/td>\n | <\/td>\n | <\/td>\n | (3,342)<\/b><\/td>\n | <\/td>\n | <\/td>\n | \u2014<\/td>\n | <\/td>\n<\/tr>\n | \nFunds from Operations(1) <\/sup>excluding accelerated amortization<\/td>\n| <\/td>\n | $<\/b><\/td>\n | 83,414<\/b><\/td>\n | <\/td>\n | $<\/td>\n | 79,065<\/td>\n | <\/td>\n<\/tr>\n | \nFunds from Operations(1)<\/sup><\/td>\n| <\/td>\n | $<\/b><\/td>\n | 86,756<\/b><\/td>\n | <\/td>\n | $<\/td>\n | 79,065<\/td>\n | <\/td>\n<\/tr>\n | \n| Straight-line rental revenue<\/td>\n | <\/td>\n | <\/td>\n | (8,562)<\/b><\/td>\n | <\/td>\n | <\/td>\n | (8,098)<\/td>\n | <\/td>\n<\/tr>\n | \n| Amortization of finance charges<\/td>\n | <\/td>\n | <\/td>\n | (1,887)<\/b><\/td>\n | <\/td>\n | <\/td>\n | 704<\/td>\n | <\/td>\n<\/tr>\n | \n| Unit-based compensation expense<\/td>\n | <\/td>\n | <\/td>\n | 417<\/b><\/td>\n | <\/td>\n | <\/td>\n | 216<\/td>\n | <\/td>\n<\/tr>\n | \nProperty capital expenditures <\/sup>\u2013 incurred<\/td>\n| <\/td>\n | <\/td>\n | (476)<\/b><\/td>\n | <\/td>\n | <\/td>\n | (7,323)<\/td>\n | <\/td>\n<\/tr>\n | \nProperty capital expenditures \u2013 normalized(2)<\/sup><\/td>\n| <\/td>\n | <\/td>\n | (5,741)<\/b><\/td>\n | <\/td>\n | <\/td>\n | \u2014<\/td>\n | <\/td>\n<\/tr>\n | \n| Leasing capital expenditures<\/td>\n | <\/td>\n | <\/td>\n | (1,800)<\/b><\/td>\n | <\/td>\n | <\/td>\n | (694)<\/td>\n | <\/td>\n<\/tr>\n | \nAdjusted Funds from Operations(1)<\/sup><\/td>\n| <\/td>\n | $<\/b><\/td>\n | 68,707<\/b><\/td>\n | <\/td>\n | $<\/td>\n | 63,870<\/td>\n | <\/td>\n<\/tr>\n | \nAFFO(1)<\/sup> per unit \u2013 basic<\/td>\n| <\/td>\n | $<\/b><\/td>\n | 0.185<\/b><\/td>\n | <\/td>\n | $<\/td>\n | 0.180<\/td>\n | <\/td>\n<\/tr>\n | \nAFFO(1)<\/sup> per unit \u2013 diluted<\/td>\n| <\/td>\n | $<\/b><\/td>\n | 0.185<\/b><\/td>\n | <\/td>\n | $<\/td>\n | 0.180<\/td>\n | <\/td>\n<\/tr>\n | \nAFFO(1)<\/sup> payout ratio<\/td>\n| <\/td>\n | <\/td>\n | 87.8<\/b><\/td>\n | %<\/b> <\/td>\n | <\/td>\n | 90.3<\/td>\n | %<\/td>\n<\/tr>\n | \n| Distribution per unit<\/td>\n | <\/td>\n | $<\/b><\/td>\n | 0.162501<\/b><\/td>\n | <\/td>\n | $<\/td>\n | 0.162501<\/td>\n | <\/td>\n<\/tr>\n | \n| Weighted average Units outstanding \u2013 basic<\/td>\n | <\/td>\n | <\/td>\n | 371,885,952<\/b><\/td>\n | <\/td>\n | <\/td>\n | 353,997,871<\/td>\n | <\/td>\n<\/tr>\n | \n| Weighted average Units outstanding \u2013 diluted<\/td>\n | <\/td>\n | <\/td>\n | 372,066,094<\/b><\/td>\n | <\/td>\n | <\/td>\n | 353,997,871<\/td>\n | <\/td>\n<\/tr>\n | \n| Number of Units outstanding, end of quarter<\/td>\n | <\/td>\n | <\/td>\n | 372,029,705<\/b><\/td>\n | <\/td>\n | <\/td>\n | 353,997,871<\/td>\n<\/tr>\n | \n| <\/td>\n | <\/td>\n | <\/td>\n | <\/td>\n | <\/td>\n<\/tr>\n<\/table>\n | | | | | | | | | | | | |