Partners REIT Announces Strategic Steps to Improve Financial Position

BARRIE, ONTARIO--(Marketwired - Aug. 14, 2014) - Partners Real Estate Investment Trust (the "REIT," or "Partners") (TSX:PAR.UN) today provided an update to the strategic review currently being undertaken by its Board of Trustees, as initially announced on May 6, 2014.

Partners' higher than anticipated general and administrative costs, expenses associated with the REIT's recent proxy battle, near-term cash requirements, and necessary capital expenditures have all combined to strain the REIT's financial flexibility. This flexibility has been further constrained by the REIT's difficulty in accessing traditional sources of capital, as potential lenders or investors seek clarity on the resolution of the REIT's attempts to unwind its April 2014 purchase of three Ontario retail centres from Holyrood Holdings (the "Holyrood Transaction"). In an effort to improve Partners' liquidity and establish a more secure financial position, the REIT's Board of Trustees have elected to take the following steps:

• Effective as of the August 2014 distribution, Partners will reduce its monthly distribution to $0.02083 per unit per month, or $0.25 per unit per annum. This reduction will result in annual cash savings of approximately $7.7 million, based on the REIT's unit count at the end of the second quarter.
• The sale of a small portfolio of properties in Ontario in exchange for net cash consideration of approximately $14.0 million.

Partners' Board of Trustees continues to work with both management and its advisor, National Bank Financial, to identify longer-term strategic alternatives, that could include potential strategic investments or a sale of the REIT. The Board of Trustees anticipate that this process will accelerate in early September 2014, once greater clarity is available regarding the REIT's attempts to unwind the Holyrood Transaction. The Board is also continuing its search for a new permanent Chief Executive Officer.

REDUCTION OF DISTRIBUTION

Due to Partners' current debt levels, sustaining capital requirements, and the liquidity pressures resulting from recent events, the REIT's Trustees believe that a reduction in the REIT's monthly distribution is both necessary and prudent. Effective as of the August distribution, Partners will reduce its monthly distribution to $0.02083 per unit per month, or $0.25 per unit per annum. This represents a 50% cut from the current annualized distribution rate of $0.50 per unit. This reduction will result in annual cash savings of approximately $7.7 million, based on the unit count at the end of the second quarter.

SALE OF PROPERTIES

Partners' has entered into a conditional agreement to sell a small portfolio of Ontario properties for aggregate net proceeds (after deducting mortgage debt assumed by the purchaser and transaction expenses) of approximately $14.0 million. The REIT expects to complete the sale of these properties, all of which are fully leased, during the third quarter of 2014. The capitalization rate for this transaction is considered to be at market. Proceeds from this transaction will be used to reduce the amounts owed on the revolving credit facility. These funds will therefore be available for planned capital expenditures and for general corporate purposes.

HOLYROOD TRANSACTION UPDATE

In April 2014, Partners purchased three retail centres in Ontario from Holyrood Holdings ("Holyrood") for a purchase price of approximately $83.2 million. This purchase price was satisfied by the issuance of 4,813,517 convertible units of a subsidiary of the REIT and the assumption of three new first mortgage debts. Concurrently, the REIT issued 1,188,188 units at $5.80 per unit to Holyrood and this issuance of $6.9 million was paid in full by Holyrood's issuance of a promissory note. A second promissory note of $524,000 was also issued by Holyrood to the REIT, representing mark to market interest rate adjustment on the 3 mortgages obtained with the Acquisition. This transaction resulted in Holyrood holding approximately 18.7% of the REIT's outstanding units, on a fully diluted basis.

At the time this acquisition was announced, Partners' Trustees considered the transaction to be in the REIT's best interests. The Trustees believed the acquisition would enhance the REIT's scale, create operational synergies, and increase net operating income.

In May 2014, shortly after the closing of the transaction, the REIT's Trustees were presented with information that persuaded them, after investigation and retention of independent counsel advice, that Ron McCowan, the REIT's interim Chief Executive Officer at the time (and holder of 15% of the REIT's outstanding units) had a sufficiently close business relationship with Laura Philp, Holyrood's owner, that they could be considered as acting together under applicable regulation. The REIT's Trustees would not have approved the Holyrood transaction had they known that Mr. McCowan and Ms. Philp may not have been acting at arm's length.

As a result of this development, the REIT's Trustees initiated a process to reverse the Holyrood Transaction. In June 2014, the REIT entered into a Rescission Agreement with Holyrood to unwind the Holyrood Transaction. The effect of the Agreement would be that the parties would apply to Court for an order rescinding the Holyrood Transaction and returning the parties (to the greatest extent possible) to the position they would have been in prior to its occurrence. The three properties would be returned to Holyrood, and the units issued to Holyrood would be returned to the REIT and its subsidiary for cancellation.

The Rescission Agreement is subject to a number of material conditions. For the past several months, the parties have been working to satisfy those conditions. Based on discussions to date, the REIT is confident that the lenders who have mortgages on the three properties acquired from Holyrood will not oppose the court application to be brought by the REIT and Holyrood to reverse the Holyrood Transaction. One outstanding material condition that has not yet been resolved is that Holyrood has pledged as collateral for a loan the units of the REIT and its subsidiary issued to Holyrood as part of the Holyrood Transaction. Holyrood continues to develop options to either repay the loan, or arrange for alternate security, so that the lender will release the pledged units so that they can be returned to Partners and cancelled.

The Rescission Agreement requires the parties to use their reasonable commercial efforts to complete the rescission by August 31, 2014. The REIT and Holyrood intend to continue to work towards the completion of this Rescission Agreement. However, there can be no assurance at this time that the rescission will be completed. 

SECOND QUARTER RESULTS

Partners has also released its results for the three-month period ended June 30, 2014 (the "second quarter"). The second quarter results are discussed in a separate press release issued today, entitled "Partners REIT announces results for the second quarter of 2014." Results remain strong at the real estate asset level with improvement in occupancy and revenue. Results were negatively impacted by $2.5 million of one-time costs associated with the proxy battle with Orange Capital, the unwinding of the Holyrood transaction, and the strategic review. 

Conference Call Details

Partners will host a conference call at 8:30 AM Eastern tomorrow, August 15, 2014, at which time management will review the REIT's second quarter financial results and discuss the REIT's strategic outlook.

About Partners REIT

Partners REIT is a growth-oriented real estate investment trust, which currently owns (directly or indirectly) 42 retail properties, located in British Columbia, Alberta, Manitoba, Ontario, and Quebec, aggregating approximately 3.2 million square feet of leasable space. Partners REIT focuses on expanding and managing a portfolio of retail and mixed-use community and neighbourhood shopping centres located in both primary and secondary markets across Canada.

Disclaimer

Certain statements included in this press release constitute forward-looking statements, including, but not limited to, those identified by the expressions "expect," "will" and similar expressions to the extent they relate to Partners REIT. The forward- looking statements are not historical facts but reflect Partners REIT's current expectations regarding future results or events. These forward looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including the timing of the offering, success of the offering, listing of the units, use of proceeds of the Offering, access to capital, regulatory approvals, intended acquisitions and general economic and industry conditions. Although Partners REIT believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and, accordingly, readers are cautioned not to place undue reliance on such statements due to the inherent uncertainty therein.