Heritage Property Investment Trust, Inc. Reports Results for Second Quarter
BOSTON, Aug. 9 -- Heritage Property Investment
Trust, Inc. (NYSE: HTG) ("Heritage" or the "Company"), today reported
results of its operations for the three and six months ended June 30, 2006.
FINANCIAL RESULTS
For the three months ended June 30, 2006, Funds from Operations, or
"FFO," a widely accepted measure of REIT performance, was $26.2 million, or
$0.54 per share, as compared to $25.9 million, or $0.54 per share, for the
same three-month period in 2005. For the six months ended June 30, 2006,
FFO was $57.9 million, or $1.19 per share, as compared to $62.9 million, or
$1.32 per share, for the same six-month period in 2005.
Net income attributable to common shareholders was $19.0 million for
the three months ended June 30, 2006, or $0.39 per share, as compared to
$1.3 million, or $0.03 per share, for the same three-month period in 2005.
Net income attributable to common shareholders was $22.6 million for the
six months ended June 30, 2006, or $0.47 per share, as compared to $14.5
million, or $0.31 per share for the same six-month period in 2005.
All per share amounts are stated on a diluted basis. During the three
and six month periods ended June 30, 2006, the Company recorded losses of
$4.6 million and $6.7 million, respectively, in connection with the
impairment of three shopping centers located in Alabama and one shopping
center located in Wisconsin and the early extinguishment of indebtedness
with respect to three properties sold. These losses correspondingly reduced
both FFO and net income attributable to common shareholders by $0.09 per
share and $0.14 per share for the three and six months ended June 30, 2006,
respectively.
The results set forth in this release also reflect the impact of the
Company's previously completed restatement of its financial statements for
the three and six months ended June 30, 2005. For the three and six months
ended June 30, 2005, the impact of the tax-offset provision that gave rise
to the restatement increased general and administrative expenses by $7.9
million and $4.6 million, respectively. The increased general and
administrative expenses correspondingly reduced both FFO and net income
attributable to common shareholders by $0.16 per share and $0.09 per share
for the three and six months ended June 30, 2005, respectively. As
previously announced, the tax-offset provision that gave rise to the
restatement was eliminated on December 30, 2005.
FFO represents a non-generally accepted accounting principle (GAAP)
financial measure. A table reconciling FFO to net income, the GAAP measure
the Company believes to be most directly comparable to FFO, is presented
within the consolidated financial statements included in this release.
PROPOSED MERGER WITH CENTRO
On July 9, 2006, the Company entered into an Agreement and Plan of
Merger with Centro Saturn LLC, a Delaware limited liability company
("Parent"), and Centro Saturn MergerSub LLC, a Delaware limited liability
company and wholly owned subsidiary of Parent ("MergerSub"). Parent and
MergerSub are affiliates of Centro Properties Group, an Australian
publicly-traded real estate company.
Pursuant to the merger agreement, at the effective time of the merger,
the Company will merge with and into MergerSub, the Company's separate
corporate existence will cease and MergerSub will survive the merger and
continue to exist as a wholly-owned subsidiary of Parent. In the merger,
each share of our common stock issued and outstanding immediately prior to
the effective time of the merger (other than shares held by us, our
subsidiaries or MergerSub) will be converted into, and canceled in exchange
for, the right to receive $36.15 in cash, without interest and less any
applicable withholding taxes, plus, if we have not yet paid our regular
dividend on our common stock with respect to the third quarter of 2006, an
amount per share equal to $0.525 multiplied by the quotient (provided that
if the quotient exceeds one it shall be deemed to equal one) obtained by
dividing the number of days between June 30, 2006 and the closing date by
92 (the number of days in the third quarter of 2006), without interest and
less any applicable withholding taxes No dividends will be paid with
respect to the Company's common stock after the completion of the Company's
third quarter.
In addition, in connection with the merger, Parent and MergerSub will
offer to each holder of units of limited partnership interest in one of the
Company's operating partnerships, Bradley Operating Limited Partnership,
the opportunity to receive in cash, in exchange for each OP unit, an amount
equal to $36.15 in cash, plus, if the regular distribution in respect of OP
units has not been paid with respect to the third quarter of 2006, an
amount equal to $0.525 multiplied by the quotient (provided that if the
quotient exceeds one it shall be deemed to equal one) obtained by dividing
the number of days between June 30, 2006 and the closing date by 92 (the
number of days in the third quarter of 2006), without interest and less any
applicable withholding taxes. Any holder of OP units who either elects not
to accept this offer, or fails to submit that holder's election form in a
timely manner, will remain a limited partner in Bradley OP and continue to
hold his, her or its OP units with rights, terms and conditions set forth
in an amended partnership agreement of Bradley OP to be entered into in
connection with the merger.
The merger, which is expected to close during the fourth quarter of
2006, is subject to various closing conditions, including, among other
things, the requisite approval of the merger agreement by the holders of a
majority of the outstanding common stock of the Company. The closing of the
merger is not subject to a financing condition.
BALANCE SHEET POSITION
As of June 30, 2006, Heritage's market capitalization was $3.1 billion,
including an aggregate of $1.4 billion of indebtedness, resulting in a
debt- to-total market capitalization ratio of 44.7%. Heritage's
indebtedness had a weighted average interest rate of 6.4% with an average
maturity of 3.7 years. Approximately 57.1% of the Company's total debt is
unsecured. As of June 30, 2006, $231 million was outstanding under the
Company's $400 million line of credit. On August 1, 2006, the Company
repaid in full its $100 million bridge loan with additional borrowings
under the Company's line of credit.
PORTFOLIO OVERVIEW
General
As of June 30, 2006, Heritage had a shopping center portfolio of 159
properties, located in 27 states and totaling approximately 32.6 million
square feet of total gross leasable area or "GLA," of which approximately
27.2 million square feet is Company-owned GLA. The shopping center
portfolio was approximately 92.1% leased as of June 30, 2006.
Leasing Activity
During the second quarter of 2006, the Company executed 152 leases (new
and renewed), for 671,000 square feet in the Company's shopping center
portfolio. In doing so, the Company achieved a 5.5% increase over prior
rents on a cash basis from $12.79 per square foot to $13.50 per square
foot. For the first six months of 2006, the Company has signed 301 leases
(new and renewed), for 1.6 million square feet in the Company's shopping
center portfolio. In doing so, the Company achieved a 5.9% increase over
prior rents on a cash basis from $10.89 per square foot to $11.53 per
square foot.
At June 30, 2006, the percentage of the Company's portfolio leased was
92.1%. At March 31, 2006, the Company's portfolio was 92.0% leased.
Same Property Operating Results
With respect to the properties owned by the Company for the three- and
six-month periods ended June 30, 2006 and 2005, our same property net
operating income, or "NOI," was as follows:
Same Property Operating Data
(in thousands)
Three Months Ended
June 30,
2006 2005
Real estate revenue $81,255 $81,241
Operating expenses (23,998) (22,820)
Net Operating Income 57,257 58,421 (2.0)%
Less: Lease termination income - (1)
Net Operating Income, as adjusted $57,257 $58,420 (2.0)%
Same Property Operating Data
(in thousands)
Six Months Ended
June 30,
2006 2005
Real estate revenue $163,995 $163,867
Operating expenses (48,718) (48,381)
Net Operating Income 115,277 115,486 (0.2)%
Less: Lease termination income (49) (365)
Net Operating Income, as adjusted $115,228 $115,121 0.1 %
A table reconciling the Company's same property NOI to net income, the
GAAP measure the Company believes to be most directly comparable to same
property NOI, is presented within the consolidated financial statements
included in this release.
Investment Activity
Dispositions
In April 2006, the Company completed the disposition of eight shopping
centers in Nebraska and South Dakota, comprising 0.8 million square feet of
Company-owned GLA, for $69.4 million, resulting in a gain of $17.4 million.
The shopping centers were sold as a portfolio to a single buyer and
represented all of the Company's shopping centers in Nebraska and South
Dakota.
In April 2006, the Company completed the disposition of Salem Consumer
Square, a shopping center located in Trotwood, Ohio comprising 0.3 million
square feet of Company-owned GLA, for $23.1 million, resulting in a gain of
$1.3 million. In connection with the sale, the Company incurred a loss of
approximately $1.3 million from a prepayment penalty related to the early
extinguishment of the mortgage loan on the shopping center.
In June 2006, the Company completed the disposition of three properties
located in Alabama, comprising 0.5 million square feet of Company-owned
GLA, for $39.9 million. The shopping centers were sold as a portfolio to a
single buyer and represented all of the Company's shopping centers in
Alabama. In connection with the sale, the Company recorded a loss of $2.0
million due to the impairment of two of these properties in the first
quarter of 2006. During the second quarter of 2006, the Company recorded an
additional impairment loss of $1.4 million on all three properties. In
addition, the Company incurred a net loss of approximately $1.7 million
from the early extinguishment of the mortgage loan on two of the shopping
centers.
During the six-month period ended June 30, 2006, the Company disposed
of two parcels of land in separate transactions for a total purchase price
of $0.3 million, resulting in a total gain of $0.2 million.
Development Joint Venture Activity
In May 2006, the Company's joint venture for the construction of a new
approximately 625,000 square foot development to be located in La Vista,
Nebraska, completed the sale an 11-acre parcel of land to Cabela's, a
leading specialty retailer of hunting, fishing, camping and related outdoor
merchandise. Heritage currently expects that Cabela's will open its new,
approximately 125,000 square foot location later this year.
Heritage also announced that it has entered into a joint venture for
the construction of a new approximately 485,000 square foot development to
be located in Riverhead, Long Island, New York. The shopping center will be
located on a busy retail corridor along the eastern end of the Long Island
Expressway across from a Tanger outlet mall. The joint venture is with
Developers Realty Corporation, an Eastern U.S. developer located in West
Hartford, Connecticut. Heritage contributed approximately $31.5 million to
the joint venture to enable it to purchase the 42 acre parcel on which the
shopping center will be located. The first phase of this project is
expected to be anchored by Costco and completed in the first half of 2008.
DIVIDEND PAYMENT
On July 17, 2006, the Company paid its regular quarterly dividend of
$0.525 per common share to shareholders of record on June 30, 2006.
NO EARNINGS GUIDANCE AND NO CONFERENCE CALL
The Company is not providing earnings guidance for the third quarter
nor is it hosting a conference call to discuss its second quarter results
due to the proposed merger with Centro.
ADDITIONAL INFORMATION ABOUT THE MERGER AND WHERE TO FIND IT
This communication is being made in respect of the proposed merger
involving the Company and affiliates of The Centro Properties Group. In
connection with the transaction, the Company will file a definitive proxy
statement with the SEC. Stockholders are urged to read the definitive proxy
statement carefully and in its entirety when it becomes available because
it will contain important information about the proposed transaction. The
final proxy statement will be mailed to the Company's stockholders. In
addition, the proxy statement and other documents will be available free of
charge on the SEC's Internet Web site, http://www.sec.gov. When available,
the definitive proxy statement and other pertinent documents also may be
obtained free of charge at the Company's website, http://www.heritagerealty.com.
The Company and its directors and officers and other members of
management and employees may be deemed to be participants in the
solicitation of proxies in respect to the proposed transactions.
Information regarding the Company's directors and executive officers is
detailed in its proxy statements and annual reports on Form 10-K,
previously filed with the SEC, and the definitive proxy statement relating
to the proposed transactions, when it becomes available.
ABOUT HERITAGE PROPERTY INVESTMENT TRUST, INC.
Heritage is a fully integrated, self-administered and self-managed REIT
traded on the New York Stock Exchange under the symbol "HTG." Heritage is
one of the largest owners and operators of neighborhood and community
shopping centers in the United States. Heritage focuses on grocer-anchored
shopping centers with multiple anchors. Heritage is headquartered in
Boston, Massachusetts and has an additional 15 regional offices located in
the Eastern, Midwestern and Southwestern United States. For more
information about Heritage, please refer to Heritage's website,
http://www.heritagerealty.com.
A copy of Heritage's second quarter 2006 "Supplemental Operating and
Financial Data" is available on the Investor Relations section of the
Company's website at http://www.heritagerealty.com. These materials are also
available by written request to:
Investor Relations
Heritage Property Investment Trust, Inc.
131 Dartmouth St.
Boston, MA 02116
SAFE HARBOR LANGUAGE
Some of the statements contained in this press release constitute
forward-looking statements. Forward-looking statements relate to
expectations, beliefs, projections, future plans and strategies,
anticipated events or trends and similar expressions concerning matters
that are not historical facts. The forward-looking statements reflect the
Company's current views about future events and are subject to risks,
uncertainties, assumptions and changes in circumstances that may cause the
Company's actual results to differ significantly from those expressed in
any forward-looking statement. You should not rely on forward-looking
statements since they involve known and unknown risks, uncertainties and
other factors that are, in some cases, beyond the Company's control and
that could materially affect actual results. Such factors include, among
others, the following: the satisfaction of the conditions to consummate the
merger with Centro, including the Company's receipt of the requisite
stockholder approval; the occurrence of any event, change or other
circumstances that could give rise to the termination of the merger
agreement; the failure of the merger to close for any other reason; and the
amount of the costs, fees, expenses and charges related to the merger. For
further discussion of these and other factors that could impact the
Company's future results, performance, achievements or transactions, see
the documents filed by the Company from time to time with the Securities
and Exchange Commission, and in particular Item 1A, "Risk Factors," in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2005. The forward-looking statements contained in this release represent
the Company's judgment as of the date of this release, and the Company
cautions readers not to unduly rely on such statements.
HERITAGE PROPERTY INVESTMENT TRUST, INC.
Consolidated Balance Sheets
June 30, 2006 and December 31, 2005
(Unaudited and in thousands of dollars, except for share amounts)
June 30, December 31,
2006 2005
Assets
Real estate investments, net $2,187,388 $2,305,402
Cash and cash equivalents 5,316 -
Accounts receivable, net of allowance for
doubtful accounts of $11,637 in 2006 and
$10,585 in 2005 54,287 54,077
Prepaids and other assets 35,717 30,219
Investments in unconsolidated joint ventures 5,428 5,211
Deferred financing and leasing costs 56,829 63,320
Total assets $2,344,965 $2,458,229
Liabilities and Shareholders' Equity
Liabilities:
Mortgage loans payable $ 586,669 $ 630,819
Unsecured notes payable 448,574 449,964
Line of credit facility 231,000 328,000
Bridge loan payable 100,000 50,000
Accrued expenses and other liabilities 86,461 96,286
Accrued distributions 25,418 25,224
Total liabilities 1,478,122 1,580,293
Minority interests:
Exchangeable limited partnership units 15,207 17,125
Other minority interest 525 -
Total minority interests $ 15,732 $ 17,125
Shareholders' equity:
Common stock, $.001 par value; 200,000,000
shares authorized; 47,819,727 and
47,385,995 shares issued and outstanding
at June 30, 2006 and December 31, 2005,
respectively 48 47
Additional paid-in capital 1,180,324 1,174,855
Cumulative distributions in excess of net
income (336,849) (309,219)
Unearned compensation - (3,672)
Other comprehensive income (loss) 7,588 (1,200)
Total shareholders' equity 851,111 860,811
Total liabilities and shareholders' equity $2,344,965 $2,458,229
HERITAGE PROPERTY INVESTMENT TRUST, INC.
Consolidated Statements of Operations
Six Months ended June 30, 2006 and 2005
(Unaudited and in thousands, except per-share data)
Six months ended
June 30,
2006 2005
Revenue:
Rentals and recoveries $170,601 $163,867
Interest, other, and joint venture fee income 1,319 1,853
Total revenue 171,920 165,720
Expenses:
Property operating expenses 23,070 24,402
Real estate taxes 27,256 23,979
Depreciation and amortization 52,929 46,391
Interest 45,014 40,281
General and administrative 15,362 18,226
Impairment loss 342 -
Total expenses 163,973 153,279
Income before gain on sale of marketable
securities and land sales 7,947 12,441
Gain on sale of marketable securities 42 8
Gain on land sales 171 -
Income before minority interests 8,160 12,449
Equity in income from unconsolidated
joint ventures 242 159
Income allocated to exchangeable limited
partnership units (347) (109)
Income before discontinued operations 8,055 12,499
Discontinued Operations:
(Loss) income from discontinued operations (4,121) 2,028
Gains on sales of discontinued operations 18,659 -
Income from discontinued operations 14,538 2,028
Net income attributable to common shareholders $ 22,593 $ 14,527
Basic per-share data:
Income before discontinued operations $ 0.17 $ 0.27
Income from discontinued operations 0.31 0.04
Income attributable to common shareholders $ 0.48 $ 0.31
Weighted average common shares outstanding 47,391 46,791
Diluted per-share data:
Income before discontinued operations $ 0.17 $ 0.27
Income from discontinued operations 0.30 0.04
Income attributable to common shareholders $ 0.47 $ 0.31
Weighted average common and common equivalent
shares outstanding 48,152 47,921
HERITAGE PROPERTY INVESTMENT TRUST, INC.
Consolidated Statements of Operations
Three Months ended June 30, 2006 and 2005
(Unaudited and in thousands, except per-share data)
Three months ended
June 30,
2006 2005
Revenue:
Rentals and recoveries $ 84,519 $ 81,241
Interest, other, and joint venture fee income 364 475
Total revenue 84,883 81,716
Expenses:
Property operating expenses 10,908 10,690
Real estate taxes 13,882 12,130
Depreciation and amortization 25,559 23,573
Interest 22,252 20,126
General and administrative 7,764 14,962
Impairment loss 242 -
Total expenses 80,607 81,481
Income before gain on sale of marketable
securities 4,276 235
Gain on sale of marketable securities 42 8
Income before minority interests 4,318 243
Equity in income from unconsolidated joint
ventures 33 54
Income allocated to exchangeable limited
partnership units (307) 49
Income before discontinued operations 4,044 346
Discontinued Operations:
(Loss) income from discontinued operations (3,742) 979
Gains on sales of discontinued operations 18,659 -
Income from discontinued operations 14,917 979
Net income attributable to common shareholders $ 18,961 $ 1,325
Basic per-share data:
Income before discontinued operations $ 0.09 $ 0.01
Income from discontinued operations 0.31 0.02
Income attributable to common shareholders $ 0.40 $ 0.03
Weighted average common shares outstanding 47,451 46,880
Diluted per-share data:
Income before discontinued operations $ 0.08 $ 0.01
Income from discontinued operations 0.31 0.02
Income attributable to common shareholders $ 0.39 $ 0.03
Weighted average common and common equivalent
shares outstanding 48,211 48,069
Heritage Property Investment Trust, Inc.
Calculation of Funds from Operations
(Unaudited and in thousands of dollars)
Six months ended
June 30,
2006 2005
Net income $ 22,593 $ 14,527
Add:
Depreciation and amortization
(real-estate related):
Continuing operating 52,621 46,039
Discontinued Operations 1,167 2,307
Pro rata share of unconsolidated joint venture 193 63
Deduct:
Gains on sales of real estate investments (18,659) -
Funds from Operations $ 57,919 $ 62,936
Three months ended
June 30,
2006 2005
Net income $ 18,961 $ 1,325
Add:
Depreciation and amortization
(real-estate related):
Continuing operating 25,406 23,397
Discontinued Operations 315 1,149
Pro rata share of unconsolidated joint venture 129 55
Deduct:
Gains on sales of real estate investments (18,659) -
Funds from Operations $ 26,154 $ 25,926
We calculate Funds from Operations in accordance with the best
practices described in the April 2001 National Policy Bulletin of the
National Association of Real Estate Investment Trusts, referred to as
NAREIT, and NAREIT's 1995 White Paper on Funds from Operations. The White
Paper defines Funds From Operations as net income (loss) (computed in
accordance with U.S. generally accepted accounting principles ("GAAP")),
excluding gains (or losses) from extraordinary items and sales of property,
plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. Given the
nature of our business as a real estate owner and operator, we believe that
FFO is helpful to investors as a starting point in measuring our
operational performance because it excludes various items included in net
income that do not relate to, or are not indicative of, our operating
performance, such as gains (or losses) from sales of real estate
investments and depreciation and amortization, which can make periodic and
peer analyses of operating performance more difficult. However, FFO (i)
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indicator of our financial performance, (ii) is
not an alternative to cash flow from operating activities (determined in
accordance with GAAP) as a measure of our liquidity, and (iii) is not
indicative of funds available to fund our cash needs, including our ability
to make distributions. Our computation of FFO may differ from the
methodology utilized by other equity REITs to calculate FFO and, therefore,
may not be comparable to other REITs.
Heritage Property Investment Trust, Inc.
Reconciliation of Net Operating Income
(Unaudited and in thousands of dollars)
Six-months ended
June 30,
2006 2005
Net operating income - Same Property Portfolio $115,277 $115,486
Add:
Net operating income - acquisitions 4,998 -
Net operating income - Total Portfolio 120,275 115,486
Add:
Interest, other, and joint venture fee income 1,319 1,853
Gain on sale of marketable securities 42 8
Gain on land sales 171 -
Equity in income from unconsolidated
joint ventures 242 159
Income from discontinued operations 14,538 2,028
Deduct:
Depreciation and amortization 52,929 46,391
Interest 45,014 40,281
General and administrative 15,362 18,226
Impairment loss 342 -
Income allocated to exchangeable limited
partnership units 347 109
Net income attributable to common shareholders $ 22,593 $ 14,527
Three-months ended
June 30,
2006 2005
Net operating income - Same Property Portfolio $ 57,257 $ 58,421
Add:
Net operating income - acquisitions 2,472 -
Net operating income - Total Portfolio 59,729 58,421
Add:
Interest, other, and joint venture fee income 364 475
Gains on sale of marketable securities 42 8
Equity in income from unconsolidated joint
ventures 33 54
Income from discontinued operations 14,917 979
Deduct:
Depreciation and amortization 25,559 23,573
Interest 22,252 20,126
General and administrative 7,764 14,962
Impairment loss 242 -
Income allocated to exchangeable limited
partnership units 307 (49)
Net income attributable to common shareholders $ 18,961 $ 1,325
Net operating income, or "NOI," is a non-GAAP financial measure equal
to net income available to common shareholders (the most directly
comparable GAAP financial measure), plus accretion of redeemable equity,
preferred stock distributions, minority interest in Bradley Operating
Limited Partnership, net derivative losses (gains), losses (gains) on
investments in securities, losses from prepayment of debt, general and
administrative expense, depreciation and amortization, and interest
expense, less income from discontinued operations, gains (losses) on sales
of real estate investments and equipment and interest and other income.
We use NOI internally, and believe NOI provides useful information to
investors, as a performance measure in evaluating the operating performance
of our real estate assets. This is because NOI reflects only those income
and expense items that are incurred at the property level and excludes
certain components from net income in order to provide results that are
more closely related to a property's results of operations. Our
presentation of NOI may not be c to NOI reported by other REITs that define
NOI differently. We believe that in order to obtain a clear understanding
of our operating results, NOI should be examined in conjunction with net
income as presented in our consolidated financial statements. NOI should
not be considered as an alternative to net income as an indication of our
performance or to cash flows as a measure of liquidity or ability to make
distributions.
