Choice Properties Real Estate Investment Trust Reports Results for Second Quarter 2016 and Announces Distribution Increase

TORONTO, July 20, 2016

Quarter Highlights:

• Reported Funds from Operations ("FFO")⁽¹⁾ per unit diluted of $0.249, an increase of $0.009 or 3.8% compared with $0.240 in the second quarter of 2015;
• Reported rental revenue of $197.3 million, an increase of $14.2 million or 7.8% compared with $183.1 million in the second quarter of 2015;
• Completed the development of 262,000 square feet of Gross Leasable Area ("GLA") during the quarter, creating 19 new retail spaces contributing to the completion of 10 projects yielding a weighted average return of 8%;
• Completed first greenfield developments including the new food store and drug store in Barrie, Ontario and a new food store in Surrey, British Columbia; 
• Acquired 10 income producing properties from Loblaw Companies Limited ("Loblaw") for $117.1 million adding approximately 681,000 square feet of gross leasable area ("GLA") and approximately $7.0 million in stabilized net operating income ("NOI");
• Improved ancillary occupancy and increased organic NOI by 3.2% to $129.4 million from $125.4 million in the second quarter of 2015;
• Maintained high occupancy rate of 98.8% compared with 98.6% as at December 31, 2015 and 98.5% as at June 30, 2015;

"Choice Properties reported another quarter of improved financial and operational metrics.  Our continued success is a reflection of the team we have in place and the solid business platform we have established over the last few years," said John Morrison, President and Chief Executive Officer.  "We remain committed to leveraging our strong pipeline of value creation opportunities, our portfolio of long term leases with stable and growing cash flows and our strong balance sheet to grow the business and deliver value to all stakeholders. Our focus on execution has consistently delivered steady and stable results and we are pleased to announce our second increase in distributions within the last twelve months."

Financial and Operational Summary

For the three months ended June 30 ARIVA.DE Börsen-Geflüster Kurse CHOICE PROPERTIES REIT 9,56 $ +0,95%
($ thousands except where otherwise indicated)
(unaudited)			2016		2015
Number of properties			529		513
Gross Leasable Area ("GLA") (in millions of square feet)			42.5		41.3
Occupancy			98.8%		98.5%
Rental revenue		$	197,348	$	183,084
Net Operating Income ("NOI")(i)		$	136,727	$	126,861
Net Income (Loss)(ii)		$	(559,709)	$	188,735
Net Income (Loss)(ii) per unit diluted		$	(1.363)	$	0.472
Funds from Operations ("FFO")(i) per unit diluted		$	0.249	$	0.240
Adjusted Funds from Operations ("AFFO")(i) per unit diluted		$	0.204	$	0.191
Adjusted Funds from Operations(i) payout ratio			82.3%		85.1%
Distribution declared per unit		$	0.1675	$	0.1625
Total assets (in millions)		$	8,950	$	8,465
Debt to total assets(iii)			46.5%		45.1%
Debt service coverage(iii)			3.6x		3.5x

Financial Results for the Quarter:

• Net Operating Income⁽¹⁾ - NOI⁽¹⁾ for the second quarter of 2016 was $136.7 million, an increase of $9.9 million, or 7.8%, compared with the second quarter of 2015 including NOI⁽¹⁾ of $4.5 million from acquisitions completed subsequent to the first quarter of 2015. Same Properties⁽¹⁾, same GLA, NOI⁽¹⁾ of $129.4 million was $4.0 million or 3.2% higher than the $125.4 million achieved in the second quarter of 2015. This improvement was primarily driven by improvements in ancillary occupancy, higher average rents per square foot on new ancillary leases, rent steps in Loblaw leases, and growth in capital recoveries.
• Net Income before Adjustments to Fair Value⁽¹⁾ - Second quarter net income before adjustments to fair value⁽¹⁾ of $44.4 million compared with $45.6 million reported in the second quarter of 2015.
• Funds from Operations⁽¹⁾ - FFO⁽¹⁾ for second quarter of 2016 was $102.3 million or $0.249 per unit diluted, compared with $95.9 million or $0.240 per unit diluted in the second quarter of 2015. The year-over-year improvement in FFO⁽¹⁾ of $0.009 per unit diluted was primarily driven by growth in NOI⁽¹⁾.
• Adjusted Funds from Operations⁽¹⁾ - AFFO⁽¹⁾ for the second quarter of 2016 was $83.6 million or $0.204 per unit diluted, compared with $76.4 million or $0.191 per unit diluted in the second quarter of 2015. Similar to FFO⁽¹⁾, the improvement in AFFO⁽¹⁾ was primarily driven by growth in NOI⁽¹⁾.

Operational Results for the Quarter:

• Accretive acquisitions - As previously announced, Choice Properties acquired a portfolio of 10 properties from Loblaw. The aggregate purchase price of the portfolio was $117.1 million and added approximately 681,000 square feet of GLA and approximately $7.0 million in stabilized NOI to the Trust's portfolio.
• Retail Development - During the second quarter of 2016, Choice Properties constructed 262,000 square feet of new GLA providing 19 new retail space for tenants in St. Jean Richelieu, Quebec; Barrie, Burlington and Stoney Creek, Ontario; Regina, Saskatchewan; Lloydminster and Edmonton, Alberta; and Surrey, British Columbia; and included the Trust's first greenfield developments comprising 82,000 square feet for a food store and a drug store in Barrie, Ontario, which opened for business in June, 2016, and 120,000 square feet for a food store in Surrey, British Columbia, which is expected to open in the third quarter of 2016. The new GLA constructed in the quarter contributed to the completion of 10 projects which yielded a weighted average return of 8% based on a total capital investment of approximately $110.8 million.
• Development Pipeline - The GLA expected to be completed during the remainder of 2016 totals approximately 369,000 and includes the 201,000 square foot expansion of an industrial warehouse leased to Loblaw in Boucherville, Quebec.
• Leasing Profile - During the second quarter of 2016, Choice Properties entered into leases for approximately 404,000 square feet of GLA with an average lease term of 12.0 years. This included approximately 91,000 square feet of renewing leases which represented a renewal rate of 63.9% for the quarter with an average increase over expiring base rent rates of 10.7%.
• Occupancy - At June 30, 2016, the Trust's portfolio occupancy rate was 98.8%, compared to 98.6% as at December 31, 2015 and 98.5% as at June 30, 2015.

Capital Structure:

• Capacity to Invest for Further Growth - As at June 30, 2016, the Trust's debt service coverage ratio⁽²⁾ was 3.6 times. With stable cash flow from operations and access to several funding options; including a $500 million unsecured revolving credit facility, the Trust believes it has the financial capacity to meet ongoing obligations and invest for further growth.
• Distributions - Distributions per unit declared during the quarter totaled $0.1675, for an AFFO⁽¹⁾ payout ratio of 82.3% (2015 - $0.1625 and 85.1%). With continued expectations for sustainable increases in cash flows, Choice Properties' Board of Trustees approved a 6.0% increase in annual distributions to $0.71 per unit effective for the July 29, 2016 distribution payable on August 15, 2016.

Outlook
Choice Properties' outlook continues to be for steady, stable growth with the potential for incremental value creation through leasing and development opportunities.

Choice Properties expects to provide Unitholders with stable cash flow and sustainable growth in distributions.  The Trust has a sizable asset base that is geographically diverse across Canada.  It also has long-term leases and a strategic alliance with Loblaw and an existing development pipeline.  Combined with a solid balance sheet, a long and staggered debt profile and investment grade credit, Choice Properties is confident it has the capacity to meet current obligations and to invest for future growth.

The vast majority of Choice Properties' sites are anchored by Loblaw, Canada's largest food and drug retailer.  Loblaw represents approximately 90% of the Trust's gross leasable area and base rent.  Leases with Loblaw have 10 to 20 year initial terms with multiple five-year renewal options and include rent escalations that will reach a steady-state of 1.5% annual growth by mid-2018, or 7.7% every five years.  For the remaining 10% of its GLA, not leased to Loblaw, and its pipeline of development opportunities, Choice Properties targets tenants with strong covenants to complement the non-discretionary food and drug offering of its anchor tenant.  With the current uncertainty in the Canadian and Global economies, certain retailers have taken a more conservative stance with respect to expansion.  Even with the slowing in business investments, Choice Properties sites, including those in Western provinces undergoing economic recession, remain a draw for national tenants that benefit from the proximity to a Loblaw bannered store.  The Trust's primary focus is on properties that are well-positioned to respond to changing consumer preferences and plans to attract and retain quality tenants at its existing sites and to develop new space for tenants.

The Canadian economy has been characterized by a long period of low interest rates and a volatile economy underscored by the downturn in the resource sector.  The more recent global uncertainty driven by Britain's vote to exit the European Union is expected to negatively impact Canada's economic growth trajectory, which will likely delay any increase to interest rates by the Bank of Canada.  In this low interest rate environment, the Trust believes that capitalization rates will remain range-bound, particularly for quality retail real estate which remains in scarce supply.  Choice Properties expects to continue to complete accretive acquisitions of strategic sites from Loblaw and third party vendors.

Forward-Looking Statements

This press release contains forward-looking statements about Choice Properties' objectives, outlook, plans, goals, aspirations, strategies, financial condition, results of operations, cash flows, performance, prospects and opportunities. Specific statements with respect to anticipated future results can be found in various sections of this press release and in the MD&A of Choice Properties' Second Quarter 2016 Report to Unitholders. Forward-looking statements are typically identified by words such as "expect", "anticipate", "believe", "foresee", "could", "estimate", "goal", "intend", "plan", "seek", "strive" , "will", "may", "should" and similar expressions, as they relate to Choice Properties and its management.

Forward-looking statements reflect Choice Properties' current estimates, beliefs and assumptions, which are based on management's perception of historic trends, current conditions, outlook and expected future developments, as well as other factors it believes are appropriate in the circumstances. Choice Properties' 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's 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.

Numerous risks and uncertainties could cause Choice Properties' actual results to differ materially from those expressed, implied or projected in the forward-looking statements, including, those described in section 12, "Enterprise Risks and Risk Management", in the MD&A of Choice Properties' 2015 Annual Report. Such risks and uncertainties include:

• changes in economic conditions, including changes in interest rates, and the rate of inflation or deflation;
• the inability of Choice Properties to maintain and leverage its relationship with Loblaw, including in respect of: (i) Loblaw's retained interest in Choice Properties; (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' acquisition of certain properties held by Loblaw); and (iv) the Strategic Alliance Agreement between Choice Properties and Loblaw;
• changes in Loblaw's business, activities or circumstances which may impact Choice Properties, including Loblaw's inability to make rent payments or perform its obligations under its leases;
• failure to manage its growth effectively in accordance with its growth strategy or acquire assets on an accretive basis;
• changes in timing to obtain municipal approvals, development costs, and tenant leasing and occupancy of properties under development, redevelopment, or intensification;
• changes in Choice Properties' capital expenditure and fixed cost requirements;
• the inability of Choice Properties Limited Partnership to make distributions or other payments or advances;
• the inability of Choice Properties to obtain financing;
• changes in Choice Properties' degree of financial leverage;
• 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 "mutual fund trust" and as a "real estate investment trust", as such terms are defined in the Income Tax Act (Canada); and
• changes in Choice Properties' competitiveness in the real estate market or the unavailability of desirable commercial real estate assets.

This is not an exhaustive list of the factors that may affect Choice Properties' 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' materials filed with the Canadian securities regulatory authorities from time to time, including the Trust's 2015 Annual Information Form. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect Choice Properties' expectations only as of the date of this press release. 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.

Non-GAAP Financial Measures

Choice Properties uses the following non-GAAP financial measures. 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.

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