Choice Properties Real Estate Investment Trust Reports Solid Results for the Second Quarter of 2017

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TORONTO, July 19, 2017

TORONTO, July 19, 2017 /CNW/ - Choice Properties Real Estate Investment Trust ("Choice Properties" or the "Trust") (TSX: CHP.UN) today announced its condensed consolidated financial results for the second quarter ended June 30, 2017. The Trust's Quarterly Report will be available in the Investor Relations section of the Trust's website at www.choicereit.ca, filed with SEDAR and available at www.sedar.com.

Quarter Highlights:

Reported rental revenue of $208.6 million, an increase of $11.3 million or 5.7% compared with $197.3 million in the second quarter of 2016;
Reported net income of $41.5 million, an increase of $601.2 million compared with a net loss of $559.7 million in the second quarter of 2016. The second quarter of 2017 included a net fair value adjustment loss of $7.7 million (2016 - net loss of $604.1 million);
Reported Funds from Operations ("FFO")⁽¹⁾ per unit diluted of $0.262, an increase of $0.013, or 5.2%, compared with $0.249 in the second quarter of 2016;
Acquired an investment property, from a third-party vendor, adding approximately 36,000 square feet of gross leasable area ("GLA") for a purchase price of $8.4 million, at a capitalization rate of 6.5%;
Constructed 114,000 square feet of GLA, for 2017 projects, delivering 24 new ancillary retail units and one Shoppers Drug Mart in Surrey, British Columbia; and
Maintained ancillary occupancy and increased organic Net Operating Income ("NOI")⁽¹⁾ for the quarter by 1.2% to $136.4 million from $134.9 million in 2016.

"Choice Properties reported another successful quarter of solid operational performance and continued growth in financial results," said John Morrison, President and Chief Executive Officer. "With the ongoing benefit of a large, stable and predictable portfolio of long-term leases, we are focused on execution and furthering our strategy to expand our portfolio and to add value for all of our stakeholders. As we maintain the momentum of our ongoing acquisition, development and active management programs, we are making headway in our mixed-use redevelopment projects with our first community outreach campaign launched during the quarter."

(1)	See "Non-GAAP Financial Measures" beginning on page 5.

Financial and Operational Summary

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CHOICE PROPERTIES REIT

9,56 $

+0,95%

As at or for the three months ended June 30
($ thousands except where otherwise indicated)
(unaudited)		2017		2016
Number of properties		537		529
Gross Leasable Area ("GLA") (in millions of square feet)		43.8		42.5
Occupancy		98.9%		98.8%
Rental revenue	$	208,626	$	197,348
Net Operating Income ("NOI")⁽¹⁾	$	144,012	$	136,727
Net Income (loss)⁽ⁱ⁾	$	41,467	$	(559,709)
Net Income (loss)⁽ⁱ⁾ per unit diluted	$	0.100	$	(1.366)
Funds from Operations ("FFO")⁽¹⁾ per unit diluted	$	0.262	$	0.249
Adjusted Cash Flow from Operations ("ACFO")⁽¹⁾	$	87,838	$	80,060
Adjusted Cash Flow from Operations⁽¹⁾ payout ratio		85.4%		85.5%
Distribution declared per unit	$	0.1825	$	0.1675
Total assets (in millions)	$	9,512	$	8,950
Debt to total assets⁽ⁱⁱ⁾		45.8%		46.5%
Debt service coverage⁽ⁱⁱ⁾		3.6x		3.6x

(i)

Net income (loss) included no adjustment and a negative adjustment of $580,311 for the fair value of Exchangeable Units, and a negative adjustment of $7,689 and a negative adjustment of $23,750 for the fair value of investment properties for the three months ended June 30, 2017 and June 30, 2016, respectively. Net income before adjustments to fair value⁽¹⁾ was $49,156 and $44,352 for the three months ended June 30, 2017 and June 30, 2016, respectively.

(ii)

Debt ratios include Class C LP Units but exclude Exchangeable Units. The ratios are non-GAAP financial measures calculated based on the trust indentures, as supplemented.

Financial Results for the Quarter:

Rental Revenue - Second quarter rental revenue totalled $208.6 million, an increase of $11.3 million or 5.7% compared with $197.3 million in the second quarter of 2016. Properties owned throughout both comparative periods contributed $7.8 million to the increase.
Net Operating Income⁽¹⁾ - NOI⁽¹⁾for the second quarter of 2017 was $144.0 million, an increase of $7.3 million, or 5.3%, compared with the second quarter of 2016. The increase in NOI⁽¹⁾ was primarily driven by $2.2 million from properties acquired subsequent to March 31, 2016 and $3.6 million from new developments. Excluding NOI⁽¹⁾ from acquisitions and developments, NOI⁽¹⁾ was $136.4 million, $1.5 million, or 1.2%, higher than the $134.9 million achieved in the second quarter of 2016. This improvement was primarily driven by growth in capital recoveries, rent steps in Loblaw leases and higher average rents per square foot on new ancillary leases.
Net Income (Loss) - Net income for the second quarter of 2017 was $41.5 million compared to a net loss of $559.7 million in the second quarter of 2016. Adjustments to fair value measures were the primary cause of the variance between these comparative periods.
Net Income before Adjustments to Fair Value⁽¹⁾ - Second quarter net income before adjustments to fair value⁽¹⁾ of $49.2 million compared with $44.4 million reported in the second quarter of 2016. The increase was driven by an increase of net property income, partially offset by an increase to net interest expense and other financing charges, including distributions on Exchangeable Units.
Funds from Operations⁽¹⁾ - FFO⁽¹⁾ for the second quarter of 2017 was $108.4 million or $0.262 per unit diluted, compared with $102.3 million or $0.249 per unit diluted in the second quarter of 2016. The year-over-year improvement in FFO⁽¹⁾ of $0.013 per unit diluted was primarily driven by growth in net property income partially offset by higher net interest expense, excluding distributions on Exchangeable Units.
Adjusted Cash Flow from Operations⁽¹⁾ - ACFO⁽¹⁾ for the second quarter of 2017 was $87.8 million, representing an excess of $12.8 million over distributions paid during the quarter, which is an increase of $1.2 million compared to an excess of $11.6 million in the second quarter of 2016. The year-over-year improvement in ACFO⁽¹⁾ is indicative of growth in NOI⁽¹⁾ and minor fluctuations in the timing of cash flows from working capital.
Distributions - Distributions per unit declared during the quarter totalled $0.1825, for an ACFO⁽¹⁾ payout ratio of 85.4% (2016 - $0.1675 and 85.5%, respectively).

(1)	See "Non-GAAP Financial Measures" beginning on page 5.

Operational Results for the Quarter:

Accretive Acquisition - On June 14, 2017, Choice Properties acquired a retail property in Brooks, Alberta from a third-party vendor, for a purchase price of $8.4 million. The acquisition added approximately 36,000 square feet of ancillary GLA including a 25,134 square foot Loblaw food store. The acquired property was immediately accretive, with a capitalization rate of 6.5%, based on an estimated stabilized NOI⁽¹⁾ of approximately $0.5 million.
Development Progress - In the second quarter of 2017, Choice Properties constructed 114,000 square feet of GLA for 2017 projects, delivering 24 new retail spaces for third-party tenants, primarily in a greenfield site in Surrey, British Columbia and intensification sites in Prince Edward Island, Quebec, and southern Ontario, plus one Shoppers Drug Mart in British Columbia. Approximately 90% of the remaining development for the 2017 projects is already pre-leased.
Leasing Activity - In the second quarter of 2017, Choice Properties entered into leases for approximately 162,000 square feet of GLA with an average lease term of 8.6 years. This total included approximately 33,000 square feet of lease renewals, with an average increase over expiring base rent rates of 1.6%, and approximately 94,000 square feet for new developments at an average base rent per square foot of $25.38.
Occupancy - At June 30, 2017, the Trust's portfolio occupancy rate was 98.9%, compared to 98.8% as at June 30, 2016.

Capital Structure:

Capacity to Invest for Further Growth - As at June 30, 2017, the Trust's debt service coverage ratio⁽²⁾ was 3.6 times. With stable cash flows from operations and access to several funding sources, including $750 million from two senior unsecured committed revolving credit facilities, the Trust believes it has the financial capacity to meet ongoing obligations and invest for further growth.

Outlook

Choice Properties continues to drive value creation through accretive acquisitions, strategic development and active management of its portfolio of properties. This strategy supports the Trust's goal to expand its asset base and increase monthly distributions to unitholders.

Choice Properties is well positioned to meet its current obligations and to invest for future growth. The Trust's competitive advantages include: a sizable asset base that is geographically diverse across Canada; long-term leases and a strategic alliance with Loblaw; and an existing development pipeline, supported by sound financial management focused on maintaining a solid balance sheet and its investment grade credit ratings.

In 2017, Choice Properties expects to:

Acquire additional properties from Loblaw and third-party vendors on an accretive basis when opportunities arise;
Invest approximately $172 million in development projects, including mixed-use projects, expected to be completed in 2017 and future years;
Complete the development of approximately 347,000 square feet of GLA with an expected yield ranging from 7% to 9%; and
Maintain a total occupancy rate of approximately 98%, with the occupancy rate for ancillary GLA in the 90% range.

(1)	See "Non-GAAP Financial Measures" beginning on page 5.
(2)	Debt ratios include Class C LP Units but exclude Exchangeable Units. The ratios are non-GAAP financial measures calculated based on the trust indentures, as supplemented.

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, opportunities, and legal and regulatory matters. 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 2017 Report. 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 current competition. 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' 2016 Annual Report. Such risks and uncertainties include:

changes in economic conditions, including changes in interest rates, and the rate of inflation;
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 2016 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.

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