Ms. Jane Domenico reports

PARTNERS REIT ANNOUNCES RESULTS FOR THE FOURTH QUARTER AND FULL-YEAR 2014

Partners Real Estate Investment Trust has released its results for the three- and 12-month periods ended Dec. 31, 2014.

Fourth quarter 2014 highlights:

• Revenues of $14.9-million, a 1-per-cent increase when compared with the fourth quarter of 2013;
• Same-property net operating income of $8.1-million, a 5-per-cent decrease when compared with the fourth quarter of 2013;
• Funds from operations and adjusted funds from operations down by 55 per cent and 58 per cent, respectively, when compared with the fourth quarter of 2013;
• AFFO cash payout ratio of 114 per cent, an increase from 106 per cent during the fourth quarter of 2013;
• On Oct. 2, 2014, completed the rescission of its purchase of three retail centres from Holyrood Holdings;
• On Nov. 3, 2014, announced that it had fully repaid a $15-million loan outstanding, which carried a 10.0-per-cent interest rate at the time of its repayment;
• On Nov. 10, 2014, announced the refinancing of first mortgages at five properties for $51.0-million at a weighted-average interest rate of 3.73 per cent; these proceeds were primarily deployed toward the repayment of the REIT's credit facility and other existing mortgages;
• Subsequent to the conclusion of the quarter, on Feb. 17, 2015, completed the refinancing of first mortgages at three properties for $5.6-million at a weighted-average interest rate of 2.88 per cent.

                          FINANCIAL HIGHLIGHTS

                              As at and for               As at and for
                         the three months ended          the year ended
                          Dec. 31,      Dec. 31,      Dec. 31,      Dec. 31,
                             2014          2013          2014          2013
Revenues from income-
producing
properties           $ 14,935,452  $ 14,774,322  $ 59,821,021  $ 56,567,180
Net income (loss)      (3,011,691)   (9,184,881)  (27,083,600)    4,195,221
Net income (loss)
per unit -- basic           (0.11)        (0.36)        (1.03)         0.16
NOI                     8,039,612     9,004,796    35,959,362    35,267,384
NOI -- same property    8,072,182     8,480,303    27,582,458    28,314,657
FFO                     1,091,535     2,400,027     9,539,662    12,546,438
FFO per unit                 0.04          0.09          0.36          0.48
AFFO                    1,274,371     3,034,378     9,818,612    12,958,348
AFFO per unit                0.05          0.12          0.37          0.50
Distributions           1,658,029     3,561,211    10,413,443    15,979,558
Distributions per
unit                         0.06          0.14          0.40          0.62
Distribution payout
ratio                    152%/130%     148%/117%     109%/106%     127%/123%
Cash
distributions           1,453,401     3,229,261     9,943,968    14,783,011
Cash distributions
per unit                     0.08          0.12          0.38          0.57
Cash distribution
payout ratio             133%/114%     135%/106%     104%/101%     118%/114%

"Two thousand fourteen was the most difficult year in Partners' history," stated Jane Domenico, the REIT's acting chief executive officer. "Our property portfolio -- Partners' greatest strength -- required not only operational attention, but also capital investment. Our balance sheet had become stretched, impairing our financial flexibility. In response to these challenges, we both overhauled the REIT's leadership and implemented a comprehensive review of our business and our strategic options. Additionally, we felt it prudent to revisit the REIT's historical bad debt, recovery and valuation practices. Our financial and operational resources were further strained by Orange Capital's unsuccessful attempt at a proxy contest this past summer.

"Ultimately, we were forced to make multiple difficult decisions in order to secure Partners' future, strengthen our balance sheet and generate the capital necessary to rejuvenate our property portfolio. We halved our distribution, creating annual cash savings of approximately $6-million. We sold a selection of properties, providing us with total proceeds of approximately $15-million, and we refinanced nine of our properties through first mortgages that have amounted to a total of approximately $74-million. In combination, these actions have served to fortify Partners' financial position and allowed us to focus upon our future.

"Our plan for the future is simple: We will revitalize our property portfolio. We will pursue this revitalization through both capital improvements and by placing a renewed priority upon our tenant relationships. Our strategic review is ongoing, and through that review, we continue to explore potential options for providing value to our unitholders. Yet the most immediate tactic towards creating this value is simply to focus on the properties we currently own, placing the best possible tenants within those properties, and providing those tenants with the best possible service. With the challenges of 2014 behind us, I look forward to delivering upon these objectives."

Financial results

Partners' revenue from income-producing properties increased for the fourth quarter and full-year 2014 by $200,000 (1 per cent) and $3.3-million (6 per cent), respectively, when compared with the same periods in 2013. The quarterly increase was primarily as a consequence of recognizing an additional $400,000 in realty tax recoveries to revenues, an amount that was equally offset by an increase to realty tax expenses. As a result, this increase did not generate incremental NOI, but did affect quarterly gross revenue. This adjustment related to certain tenants who paid realty taxes directly on behalf of the REIT. The full-year 2014 revenue increase was due to a full period of contributions in 2014 from the six properties acquired during 2013, and was partially offset by the sale of three Ontario properties in September, 2014.

The net loss for the fourth quarter decreased by $6.2-million when compared with the same period in 2013. This decrease was primarily due to lower fair value losses year over year. Net income for the full-year 2014 decreased by $31.3-million when compared with the prior year. This decrease was primarily the result of two non-operational matters, an increase in fair value losses of $23.7-million and an increase to other corporate transaction costs of $5.5-million.

During 2014, management obtained 23 external appraisals, representing 66 per cent of the REIT's portfolio value. These appraisals, combined with significant management review of the stabilized NOI, capitalization rates and present value of lease-up costs, have resulted in the material adjustment to the values of the REIT's income-producing properties. For the year ended Dec. 31, 2014, the REIT recognized $28.3-million in fair value losses across its property portfolio. These fair value losses consist of $17.8-million related to six properties acquired during 2013 (which were previously valued at the purchase price plus closing costs), $8.1-million at one of the REIT's properties in Ontario (which requires extensive capital upgrades and recently lost an anchor tenant) and $2.4-million across the remaining properties (resulting from new appraisals received and from management adjusting capitalization rates based on comparable market transactions). Management is confident that after recognizing $28.3-million in fair value losses during fiscal 2014, combined with the $10.7-million in fair value losses recognized by current management for the fourth quarter of 2013, barring a general market change to capitalization rates or a material adverse change to tenancies, there should be less volatility to the future values of the REIT's income-producing properties. Furthermore, when also considering the 13 external appraisals done for the Dec. 31, 2013, year-end -- since the end of 2013, the REIT now has appraisals covering 28 of 36 properties covering 78 per cent of the value of Dec. 31, 2014's income-producing properties.

All-property NOI for the fourth quarter decreased by $1.0-million (11 per cent) when compared with the same period in 2013. This decrease was due to both the sale of three Ontario properties in September, 2014, and the recognition of a $200,000 bad debt provision. All-property NOI for the full-year 2014 increased by $700,000 (2 per cent) when compared with the same period in 2013. This increase was due to a full period of contributions in 2014 from the six properties acquired during 2013, and was partially offset by both the sale of three Ontario properties in September, 2014, and increased property operating costs mostly from $700,000 in bad debt provision. Same-property NOI, which removes the effect of the REIT's acquisitions and dispositions, decreased by 5 per cent and 3 per cent, respectively, for the fourth quarter and full-year 2014. These decreases were due to both the aforementioned bad debt provisions and costs associated with new external property management agreements.

Funds from operations for the fourth quarter decreased by $1.3-million (55 per cent) when compared with the same period in 2013. This decrease was due to a $500,000 one-time mortgage penalty cost incurred by the early repayment of a second mortgage that was undergoing a refinancing, the $600,000 loss of income from the sale of three Ontario properties in September, 2014, and $300,000 in increased general and administrative expenses. FFO for the full-year 2014 decreased by $3.0-million (23 per cent) when compared with the same period in 2013. This decrease was primarily due to a $700,000 receivable provision, $1.0-million in increased general and administrative expenses, and increased financing costs as a result of a higher average loan balance outstanding during the year.

Adjusted funds from operations for the fourth quarter and full-year 2014 decreased by $1.8-million (58 per cent) and $3.1-million (24 per cent), respectively, when compared with the same periods in 2013. These factors were driven by the same factors as the FFO declines, and further compounded by increased maintenance related spending on the REIT's property portfolio. During 2014, the REIT recognized that $2.0-million of the $4.8-million in capital expenditures related to non-revenue-enhancing capital (that is, sustaining capital), whereas for 2013, the REIT recognized only $200,000 of $7.7-million of capital spending as sustaining capital. This $1.8-million increase in 2014's sustaining capital results in an incremental deduction in 2014's AFFO (a seven-cent-per-unit effect), as compared with the year ended Dec. 31, 2013.

The AFFO cash payout ratio for fourth quarter and full-year 2014 was 114 per cent and 101 per cent, respectively, compared with 106 per cent and 114 per cent, respectively, for the same periods in 2013. Based on the 26.4 million units outstanding as at Dec. 31, 2014, the current annual distribution is $6.6-million or 67 per cent of 2014's AFFO.

Partners' total assets as at Dec. 31, 2014, decreased by $53.1-million, or 9 per cent, when compared with the balance as at Dec. 31, 2013. This decrease was a result of the sale of the three Ontario properties and fair value losses recognized on the REIT's property portfolio. These factors were partially offset by an increase in the REIT's working capital.

Partners' total debt as at Dec. 31, 2014, decreased by $16.6-million, or 4 per cent, when compared with the balance at Dec. 31, 2013. This decrease was the result of a disposal of a total of $19.3-million in mortgages as a part of the sale of three Ontario properties, $32.4-million in loan maturities, $8.6-million in monthly principal repayments on the REIT's mortgages and the repayment of $31.0-million on the REIT's matured credit facility. These factors were partially offset by both $74.3-million in new mortgages and $2.2-million in regular amortization of deferred financing costs.

Partners' interest coverage ratio as at Dec. 31, 2014, was 1.84, a decrease from 2.10 as at Dec. 31, 2013. The REIT's debt service coverage ratio as at Dec. 31, 2014, was 1.24, a decrease from 1.43 as at Dec. 31, 2013. These declines can be attributed to new mortgages, a convertible debenture offering (during 2013) and draws on the REIT's credit facility. These factors were partially offset by net income contributions from newly acquired properties.

Partners' debt-to-gross book value as at Dec. 31, 2014, was 66.9 per cent, or 54.2 per cent, when excluding the impact of debentures. These metrics stood at 66.4 per cent and 52.2 per cent, respectively, as at Dec. 31, 2013.

Net asset value is a measure of Partners' total assets less the REIT's liabilities, and is represented on the balance sheet as unitholders' equity. As at Dec. 31, 2014, the REIT's net asset value was $5.65 per unit, a decrease of $1.46 per unit when compared with its level at Dec. 31, 2013. This decrease is mainly as a result of $28.3-million ($1.07 unit) in property fair value writedowns and $8.8-million (33 cents per unit) in other transactions costs.

Operational performance

Partners' occupancy as at Dec. 31, 2014, was 94.3 per cent, a decrease from 96.4 per cent as at Dec. 31, 2013. This decrease was primarily the result of single vacancy in excess of 40,000 square feet. The REIT is actively seeking a replacement tenant for this space.

Of the leases that were vacant or expired during 2014, 459,527 square feet have been renewed or replaced. The balance of 91,512 square feet, comprising 22 tenancies, will require new prospects.

Outlook

Lease expiries in 2015 and 2016 are 7.1 per cent and 14.7 per cent, respectively, as at Dec. 31, 2014. The REIT anticipates that there will be strong demand for the majority of this space, and as a result, these expiries provide the REIT with a near-term opportunity to potentially increase revenues.

As at Dec. 31, 2014, Partners had $64.6-million, or 26.8 per cent, in mortgages maturing during the period from Jan. 1, 2015, to Dec. 31, 2016. These maturities provide Partners with an opportunity to refinance this portion of its debt at current market rates, which should result in a slight reduction in the REIT's financing costs.

Fourth quarter and subsequent developments

A more comprehensive description of all the items listed herein, as well as less significant developments that took place during the relevant periods, is available in the REIT's management's discussion and analysis for the fourth quarter of 2014.

Unwinding of the Holyrood transaction

In April, 2014, Partners purchased three retail centres from Holyrood Holdings for a purchase price of approximately $90.1-million. In June, 2014, the REIT entered into a rescission agreement with Holyrood to unwind this transaction. On Oct. 2, 2014, the REIT and Holyrood satisfied all conditions of this rescission agreement and unwound the transaction. Total soft costs and break fees associated with the Holyrood transaction and its rescission were $4.2-million.

Financing activity

On Nov. 10, 2014, Partners completed its refinancing of five properties. This refinancing consisted of first mortgages that amount to $51.0-million. Of this amount, $47.0-million was used to repay both the $35.0-million outstanding on the REIT's $40.0-million credit facility and other existing mortgages. The balance of $4.0-million will be allocated to high return on investment projects, improving the quality of the REIT's existing property portfolio. The first mortgages carry an average-weighted interest rate of 3.74 per cent and an average term to maturity of 6.9 years.

The refinancing also provided the REIT with access to a $10.0-million line of credit that is secured by second mortgages on a number of the refinanced properties. The $10.0-million line of credit will bear interest at a rate of prime plus 2.0 per cent and has a term of two years.

On Feb. 17, 2015, Partners completed its refinancing of three properties. This refinancing consisted of first mortgages that amount to $5.6-million, and provided the REIT with $4.1-million in additional liquidity to finance high return on investment projects. These first mortgages carry an average-weighted interest rate of 2.88 per cent and an average term to maturity of 5.5 years.

Declaration of trust

On March 23, 2015, Partners' board of trustees approved changes to Appendix A of the REIT's declaration of trust to amend provisions setting out procedures that must be followed should anyone wish to nominate individuals for election as a trustee of the REIT. The amended provisions follow similar advance notice bylaws adopted by many reporting issuers. Unitholders will be asked to confirm and ratify the amended and restated nomination provisions set out in Appendix A of the declaration of trust at the next annual meeting of unitholders. If the provisions are not confirmed at the annual unitholders meeting by an ordinary resolution of the unitholders, such provisions will be of no further force and terminate. The revised form of the declaration of trust will be filed on SEDAR and will be available on the REIT's website.

Conference call

Partners will also host a conference call at 8:30 a.m. Eastern Time tomorrow, March 27, at which time management will both review Partners' financial results and discuss the REIT's outlook.

Dial-in details:

Toll-free (North America):  800-355-4959

Local:  416-340-8530

Instant replay details (available until April 10, 2015):

Toll-free (North America):  800-408-3053

Passcode:  7778388

A recording of the conference call will also be available on Partners' website.

We seek Safe Harbor.