Annual report more inside...

Transcription

1 Annual report 2011 more inside...

2 Table of contents Financial Highlights 01 Letter from the CEO 02 A Dependable Growth Strategy 04 A Sound Business Model 08 A Strong and Growing Retail Portfolio 10 Talented and Motivated People 12 Strong Leadership 14 Letter from the Chair 16 Sustainable Business Practices 18 Corporate and Unitholder Information 20 Primaris Retail REIT Generating stable and growing distributions to investors since 2003

3 Primaris is focused on owning and managing Canadian regional enclosed shopping centres that are dominant in their trade areas. Financial highlights income statement (000s) Years ended December 31, 2011 and * Revenue 365, ,551 Operating expenses 173, ,831 Net income $ 231,799 $ 405,531 Operating FFO per unit (diluted) $ $ *2010 restated to IFRS $ DISTRIBUTIONS PER UNIT (ANNUALISED) HISTORICAL OCCUPANCY (%) AUG AUG AUG AUG AUG AUG AUG AUG AUG FFO PER UNIT (DILUTED) *annualised **operating FFO: adjusted for non-recurring convertible debenture issuance costs ANNual report

4 more growth The total return to Primaris investors was nearly 12% in 2011 and 281% since the initial public offering in 2003 from steady distributions and capital appreciation. Gross Leasable Area (MILLION SF) % increase in portfolio value in 2011 More growth was the continuing theme at Primaris in We made a significant and strategic investment with the acquisition of five regional shopping centres, which increased the value of our portfolio by 19%. All of the new centres are the right strategic fit for our business. Through the acquisition we have increased our exposure to the Greater Toronto Area with the addition of Oakville Place and Burlington Mall and entered into new markets in Edmonton, Alberta (St. Albert Centre), Windsor, Ontario (Tecumseh Mall) and Montreal, Quebec (Place Vertu). Primaris has grown from a portfolio of 6 to 32 incomeproducing properties in eight years. Our portfolio now has a gross leaseable area of approximately 13.5 million square feet and spans 7 provinces. Results in the public markets To fund the 2011 acquisition, we successfully raised $411 million in the capital markets through the issuance of equity and convertible debentures. Our investors responded positively; the offering was oversubscribed. We also placed mortgages on two of the new assets at very competitive interest rates without negatively affecting our debtto-total-assets ratio. 2 primaris retail real estate investment trust

5 letter from the ceo Acquiring Canadian shopping centres that are dominant in their primary trade areas Redeveloping our assets to expand and remerchandise our centres with topperforming tenants Getting the most value out of our existing assets through leasing renewals and bringing in soughtafter retailers John Morrison President and Chief Executive Officer In 2011, Primaris investors continued to earn an attractive distribution of $1.22 per unit and together with capital appreciation, earned nearly a 12% total return on their investment. This is very appealing to investors, especially when compared to the TSX Composite Index loss of 8.7% in Investors who bought Primaris units at the initial public offering eight years ago have achieved a 281% total return as of December 31, I am very proud of our history of reliable cash distributions and growth in unit value. Performance across the country Through the course of the year, I travelled to almost every one of our properties and some more than once. It provided me with the ability to see first-hand how our tenants are doing, survey the competition, and ensure that we maintain our competitive position in each market. We have some exciting initiatives underway to remerchandise and redevelop several properties. Consumer traffic and spending in our properties is a key component of our business and we are constantly striving to work with our retail partners to offer customers the most desirable brands in each market. The most important and satisfying aspect of my travels is the opportunity to visit and talk to our dedicated employees across the country. The pride of ownership within Primaris is inspiring and I experience it every time I visit our shopping centres. Target is coming to Primaris An exciting contribution to our future growth was announced mid-year and that is the planned conversion of eight Zellers stores in our portfolio to Target stores in Thirty-five per cent of our portfolio will benefit from the arrival of this new brand in Canada. The new Target stores will drive increased consumer traffic to our shopping malls, and customers in secondary trade areas will travel farther for the shopping opportunity. Target s presence will create a benefit for the incumbent retailers and stimulate additional demand for space, driving up rents. Other international retail brands continue to express strong interest in the Canadian marketplace. The structural flexibility offered by enclosed shopping centres that are dominant in their trade areas is very attractive to these retailers. Focus on the properties In 2012, our focus will be to continue attracting exciting and high-demand retail brands while we maintain our high occupancy levels. We have a number of redevelopment projects in various stages at some of our properties that will conclude this year and contribute to the bottom line. Lastly, the current low interest rate environment presents a great opportunity for Primaris mortgage renewals through (Signed) John Morrison President and Chief Executive Officer Annual report

6 m 5 new properties added in primaris retail real estate INVestment trust

7 Oakville Place, Burlington Mall, Tecumseh Mall, St. Albert Centre and Place Vertu were acquired for $572 million in June A dependable growth strategy ore opportunity More opportunity was our motto in 2011, most notably when we bought five new properties that are great additions to the Primaris portfolio. Oakville Place, Burlington Mall, Tecumseh Mall, St. Albert Centre and Place Vertu were acquired for $572 million in June Five new properties Oakville Place is the largest enclosed shopping centre in the affluent Oakville, Ontario market and offers a successful mix of better quality fashion along with a selection of brands geared to the youth market. A two-level regional shopping centre, Oakville Place has approximately 459,000 square feet of gross leasable area. The property has an excellent location, situated at the QEW highway and Trafalgar Road. Burlington Mall, located in central Burlington, Ontario, is the largest shopping centre in that city, one of Canada s fastest growing places to live. Burlington Mall is 638,000 square feet and is predominantly single-level. With a trade area spanning 20 kilometres, the centre offers a solid mix of national and regional retailers and has a diverse product offering including value to mid-priced fashion and lifestyle amenities. We see huge potential for this property and are putting together redevelopment plans to coincide with the arrival of Target. Tecumseh Mall is the second largest enclosed retail centre in Windsor and forms part of a large retail node that includes a number of community plazas and stand-alone, name brand, big box retailers. Tecumseh benefits from the draw of consumers to the node. Tecumseh Mall is a 373,000-square-foot single-level enclosed community shopping centre with three free-standing retail pads. The property includes 7.5 acres of land for future development. St. Albert Centre is in the suburban city of St. Albert, which borders the northwest city limits of Edmonton, Alberta. The property is located along the city of St. Albert s main commercial strip. St. Albert Centre is a singlelevel enclosed community shopping centre of 312,000 square feet including two freestanding pads. The Centre is anchored by the Bay and Zellers which will be expanded and converted to Target in Annual report

8 Place Vertu, located in Saint-Laurent on the Island of Montreal, Quebec, is a 735,600-square-foot enclosed regional shopping centre offering shoppers a diverse array of products and services. Place Vertu is the largest enclosed mall in its trade area and includes an integrated nine-storey office building. The 124,000-square-foot Zellers store will be converted to Target in cataraqui is my mall and the changes this year are fantastic! the new stores are exactly what I am looking for. Karyn LeBlanc Cataraqui Shopper We took the opportunity to divest our portfolio of two small non-core properties this year. Tillsonburg Gateway Centre and Forest Glen Shopping Centre were sold for approximately $21 million. Organic Growth In addition to our acquisition growth strategy, we continually focus on growth at our properties. This type of organic growth is measured by increases in rent, for both renewal and new tenants. In 2011, the average increase for renewal tenants was nearly 7% and the average increase for new tenants was over 16%. These rent lifts underscore the demand for space in our shopping centres. Another key performance indicator of our organic growth strategy is the measure of occupancy, which was an average of 97.1% at December 31 st. Most of the vacancy that currently exists is primarily due to the downtime that occurs when vacant space is being prepared for new tenants. Managing occupancy levels effectively takes a long lead time. Supported by our internal research capabilities, our leasing teams continually refresh merchandising plans for each of our 97.1% average occupancy as of December 31, 2011 properties, taking into consideration trade area demographics, consumer demand for sought-after brands, demand from new retailers, lease expiries, the needs of existing tenants and the potential to recapture space from under-performing merchants. Remerchandising A key aspect of our business is to provide the consumer with the retail brands and services they desire and will support. Merchandise sales transactions are the most important measure of any retail business. In the enclosed shopping centre business, the majority of retail tenants are required by lease to report monthly retail sales performance to the owner of the centre. This highly critical data provides us with the opportunity to work with our retail partners to improve their sales performance and it is an excellent measure to manage revenue risk and opportunity. Although we experienced a greater number of tenant financial restructurings in 2011 than in 2010, our sales data ensured that we were prepared for potential vacancies. Our strategic remerchandising efforts in 2011 brought first-to-market brand retailers to the markets we operate in. For example, when we introduced Sweden s highly successful H&M stores to Cataraqui Centre in Kingston, Ontario and Lambton Mall in Sarnia, Ontario, both experienced significantly higher than expected opening day sales results. We introduced the first and only Best Buy store to the interior of British Columbia at Orchard Park Shopping Centre in Kelowna. We also introduced other highly sought-after brands to our secondary markets: Sephora and Guess stores opened at Midtown Plaza in Saskatoon, Saskatchewan. More opportunities for remerchandising will take place as we approach 2013 when eight Target stores will open at Burlington Mall, Cataraqui Centre, Sunridge Mall, Place Fleur de Lys, Grant Park Shopping Centre, Place d Orleans, St. Albert Centre and Place Vertu. The Target brand is new to Canada and these discount department stores, with great fashion and unique home design items, are generating a wave of excitement among the consumers in these communities. Innovative Technology The advent of social media sites such as Facebook and Twitter is beginning to provide tremendous opportunities for our on-site management teams to socialize with customers. Immediate one-to-one communication and feedback is providing us with highly relevant views on consumer preferences. Our enclosed shopping centres are not only a place to shop, see a movie, or enjoy a meal, they are community and social gathering places. The explosion in the use of social media has become the newest research tool for our enclosed shopping centres. They use Facebook to connect with customers and monitor what customers are saying about their experiences at our centres. We continue to embrace technology as an enabler and as such we introduced Wi-Fi as a pilot project throughout Lambton Mall in Sarnia, Ontario. The availability of this technology allows retailers to identify which customers are logged onto our Wi-Fi in the shopping centre and issue proximity-based shopping incentives. Imagine shopping in a SportChek store and suddenly receiving a discount e-coupon for the store on your mobile device. It s a great pull strategy. 6 primaris retail real estate investment trust

9 a dependable growth strategy (continued)...the changes are great! looking out into the centre from my store I see a bright, inviting and modern environment. I hear my customers talk about all the new changes they like the updates, and that s important to me. Shaun Wisteard General Manager SportChek, Cataraqui Centre Left: New seating, branding and signage at Cataraqui Centre in Kingston, Ontario Above: New food court at Lambton Mall in Sarnia, Ontario ANNual report

10 REITs are safe havens when the world is worried according to bmo nesbitt Burns. Conservative investors look for reliable returns from quality assets. more reliability Investing in shopping centres that are dominant in their trade areas is our specialty. 8 primaris retail real estate investment trust

11 A sound business model Why invest in REITs? Real Estate Investment Trusts (REITs) are an ideal vehicle for individuals wanting to invest in institutional-grade real estate while maintaining the liquidity and benefits of the equity markets. REITs offer stable, real income over the short term, and capital appreciation over the long term. A recent BMO Nesbitt Burns report on real estate companies and REITs indicated that Canadian REITs tend to be one of the preferred safer-haven higheryielding investment sectors when the world is worried. Why invest in shopping centres? We have confidence in this sector, and believe that enclosed shopping centres offer a consumer environment that is superior to other shopping alternatives, for a variety of reasons. Shoppers prefer to park once and shop at leisure; they appreciate an enclosed, temperature-controlled environment, especially in the Canadian climate; shopping centres offer many comfort amenities such as food courts, inviting seating areas, washrooms and nursing stations; the environment is well-lit and safe. Most of all, consumers love to shop in a setting that has a great merchandising plan with all their soughtafter brands. Why invest in Primaris? Primaris is the only public enclosed shopping centre REIT in Canada. With an enterprise value of $3.4 billion, a reputation for holding quality assets and run by an experienced management team, Primaris represents an appealing opportunity for those investors who want to invest in the regional shopping centre niche in Canada. With a diverse tenant base, historically stable occupancy rate, low debt, economies of scale, and a high proportion of fixed-rate long-term debt, Primaris has much to offer. Canada is the world s ninth largest economy and one of the world s most advanced countries. The balance of an investment in Canadian real estate, combined with exposure to the consumer goods category, provides a measure of diversification. A market research survey conducted in 2011 reported that 93.8% of customers in Primaris malls were satisfied or very satisfied with their experience, which makes them loyal they reported that 60% of all their shopping trips are to our malls. Our centres are dominant in their trade areas Whether our properties are in major or secondary markets, they have all been chosen for their dominance in their primary trade areas. Our shopping centres in major markets are in the Greater Toronto Area, Ottawa, Calgary, Quebec City, Saskatoon, Regina and Montreal. Secondary markets range across seven provinces from Nanaimo, British Columbia in the west to Chicoutimi, Quebec in the east. In each of these communities, our enclosed shopping centre is the go-to shopping destination for consumers. A stable investment paying solid distributions Primaris is a stable investment in a time of global uncertainty. We pay a distribution of $ per unit per month, which annualizes at $1.22 per unit. This yields an approximate 6% income return to investors. Total return to Primaris investors was nearly 12% in 2011 and 281% since our initial public offering in 2003; this includes distributions and capital appreciation. Our typical investor wants a safe place for their investment where they can achieve attractive returns and experience less volatility than if invested in other equities. Roland cardy, Chair of the board of trustees (left) John morrison, President and ceo of Primaris (right) ANNual report

12 Having a wideranging presence across Canada is very attractive to national and international brand retailers. Our introduction of first-to-market retailers creates demand for space at our shopping centres. mor Enclosed centres as at December 31, 2011 Property Tenant/Retailer (>50,000 sf) APProX. Gla OCcupancy (1) Cru sales ($psf) Aberdeen Mall Kamloops, BC Sears, the Bay 460, % 390 Burlington Mall Burlington, ON the Bay*, Zellers, HomeSense 638, % 386 Cataraqui Centre Kingston, ON Sears, Zellers, the Bay 596, % 480 Cornwall Centre Regina, SK Sears, the Bay, Startek (3) 567, % 559 Dufferin Mall Toronto, ON Walmart, No Frills 568, % 526 Eglinton Square Toronto, ON the Bay, Metro* 275, % 337 Grant Park Winnipeg, MB Zellers, Safeway 386, % 459 Heritage Place Shopping Centre Owen Sound, on Sears, Zellers 313, % 312 Lambton Mall Sarnia, ON Sears, Canadian Tire 616, % 348 Midtown Plaza Shopping Centre Saskatoon, SK Sears, the Bay 734, % 587 Northland Village Mall Calgary, AB (4) Walmart 504, % 446 Oakville Place Oakville, ON the Bay, Sears, H&M 459, % 502 Orchard Park Shopping Centre Kelowna, BC the Bay, Sears 714, % 480 Park Place Shopping Centre Lethbridge, AB Sears 471, % 477 Place d Orleans Orleans, ON Zellers, the Bay, SportChek, Fed Gov t 740, % 418 Place du Royaume Saguenay, QC Walmart, Canadian Tire* 590, % 404 Place Fleur de Lys Québec City, QC Zellers, the Bay, Maxi, Sears* 672, % 304 Place Vertu Montreal, QC Sears, Zellers 736, % 328 St. Albert Centre St. Albert, AB Zellers, the Bay 312, % 405 Stone Road Mall Guelph, ON Sears 513, % 523 Sunridge Mall Calgary, AB the Bay, Zellers 813, % 462 Tecumseh Centre Windsor, ON Zellers, Sobeys 373, % 274 Woodgrove Centre Nanaimo, BC the Bay, Walmart (5) 724, % 468 (2) 10 primaris retail real estate INVestment trust

13 A strong And growing Portfolio eexpansion Other properties as at December 31, 2011 (1) Property Tenant/Retailer APProX. Gla OCcupancy Cru sales ($psf) Alliston Mills New Tecumseth, ON Zellers, Canadian Tire*, Zehrs* 191, % N/A Edinburgh Market Place Guelph, ON Metro 113, % N/A Garden City Winnipeg, MB Home Depot*, Safeway, Staples, Future Shop, JYSK 160, % N/A Northland Professional Centre Calgary, AB n/a 51, % N/A Northland Shoppes Calgary, AB (4) A&W 14, % N/A South Cambridge Centre Cambridge, ON Zehrs 190, % N/A Sugarloaf Mall Atholville, NB Zellers, Canadian Tire* 194, % N/A Toronto properties Toronto, ON n/a 74, % (6) N/A Westbank Shopping Centre West Kelowna, BC Zellers*, Landmark Cinema 74, % N/A Total for enclosed centres & other properties 13,473, % $439 (7) (2) (8) (9) * Shadow Anchor (1) occupied and committed space as of December 31, 2011 (2) cru All store sales per square foot as of December 31, 2011 (3) startek Vacant but paying rent (4) northland Village Mall and Northland Shoppes have been combined in the property description section. Total gla is 518,000 SF. (5) woodgrove Centre gla at 100%: Note that Primaris owns 50% of Woodgrove Centre. (6) weighted average for multiple properties. (7) excludes 50% (367,000 SF) of Woodgrove Centre not owned by Primaris. (8) occupancy Total reflects a weighted average for all properties. (9) cru Sales Total reflects a weighted average for enclosed centres only. ANNual report

14 Our employees are motivated to achieve results that exceed expectations. We cannot succeed without this essential engagement. Brian Dasilva Operations Manager Midtown Plaza Shopping Centre Saskatoon, SK Being the best in the shopping centre business means we have to find, source, develop and motivate top talent to achieve our vision. When we hire, we look for people who have a passion for what they do. Skills can be developed but inspiration and motivation come from within. Touring a Primaris shopping centre is the best measure one can use to assess the exceptional pride our employees have in their jobs. That is the difference between Primaris and its competition. To check the pulse of the organization, we surveyed our employees in 2011 using an independent consultant to get a sense of the level of engagement employees have with their jobs and with Primaris. The engagement score came in at 76%, which is 7% above the benchmark. We are enormously proud of the contributions made by each and every one of our employees appreciating how they build on our success and contribute to our results. 12 primaris retail real estate investment trust

15 talented and motivated people Jennifer Ip Manager, Development Primaris Head Office more talent Tatiana Shovkun Marketing Manager Dufferin Mall, Toronto, ON Brian Dasilva A 20-year employee of Midtown Plaza Shopping Centre, Brian DaSilva, Operations Manager, has to be ready for every eventuality. Responsible for maintenance, construction, tenant coordination and cleaning for the centre means that Brian s operations team is the heart of the shopping centre and its office tower. One Friday evening last summer, a heavy downpour put so much pressure on a roof drainpipe that a joint broke, causing an instant massive flood in the shoe store below. Brian and his staff immediately isolated the flow of water and redirected it. They spent the next 14 hours with a restoration services company to remove water and have the store ready for opening time at 10 am the following day. Brian commented: My priorities were to ensure everyone s safety, minimize damage to the store and its inventory, protect three neighbouring stores and get the tenant back in business. We worked all night and by the next morning, it was as if it never happened. Jennifer Ip Jennifer is responsible for managing the property development process from initial concept through to completion of construction. A professional engineer, her background in applied science and business is a great asset to this role as she works with multiple disciplines to review and assess project progress and ensure they are delivered on time and within budget. Working on a new 363-seat food court this past year, Jennifer remarked: One of the things that I love about my job is bringing plans to life. No two days are ever the same and I am always learning. That s important to me. Tatiana Shovkun Marketing Manager for Dufferin Mall in Toronto, ON since 2008, Tatiana has spearheaded a number of very successful marketing initiatives for the shopping centre. In 2011 she launched the Something to Wear campaign, which partnered clothing retailers with a local women s shelter to inspire customers to shop for and donate new clothing, shoes and accessories to the shelter. She created a whirl of publicity, which resulted in donations of prime location free billboard advertising at Dundas Square, free radio ads and lots of blogger coverage. This marketing initiative raised over $10,000 in new clothing donations and created much goodwill in the community. The International Council of Shopping Centres recognized excellence in Primaris employees at its Canadian Conference in 2011 when it awarded prestigious Gold Maple Leaf marketing awards to two of our Centres. One of these awards was for the Someting to Wear Campaign. In addition, Dufferin Mall was awarded a grant of $5,000 to a charity of its choice as part of the ICSC Foundation Community Support Award. 13

16 more vision John Morrison is President and Chief Executive Officer of Primaris Retail REIT. Prior to his appointment as CEO of Primaris, Mr. Morrison was President, Real Estate Management at Oxford Properties Group, where he was responsible for the performance of Oxford s $10 billion domestic portfolio of office, industrial, multifamily residential and shopping centre properties. Primaris management team is delivering on our vision to be the leading enclosed shopping centre REIT in Canada. John Morrison President and Chief Executive Officer Toran Eggert Vice President, Portfolio Management Mr. Morrison currently serves on the Board of Trustees of The International Council of Shopping Centres (ICSC), and was recently appointed to the Executive Committee as divisional vice president (Canada). Toran Eggert is a leading expert in retail leasing with over 18 years of experience, which includes shopping centre development and leasing, merchandising, acquisitions, franchising, international licence agreements and non-traditional development. Prior to her appointment at Primaris, she was Vice-President, Development Leasing for Redcliff Realty Management, where she was involved in over 10 million square feet of retail and mixed-use projects. Ms. Eggert also held a senior leasing position at Ivanhoe Cambridge. Ms. Eggert holds a Bachelor of Economics degree from McMaster University, and a real estate broker designation. Devon Jones Vice President, Legal & Secretary Devon Jones is Vice President, Legal and Secretary of Primaris. Ms. Jones is responsible for overseeing all of Primaris legal activities. Prior to her current role, Ms. Jones oversaw general legal services for retail and other asset classes at Oxford Properties Group, which included legal services provided to the Primaris portfolio. Ms. Jones has a Bachelor of Laws degree from Osgoode Hall Law School and has concentrated her practice in the commercial real estate field since primaris retail real estate investment trust

17 strong leadership Louis M. Forbes, CA Executive Vice President & Chief Financial Officer Louis Forbes is Executive Vice President & Chief Financial Officer with Primaris Retail REIT. Mr. Forbes was a founding officer of Primaris and formerly worked as an equity analyst with Merrill Lynch, where he specialized in real estate equity securities. Mr. Forbes holds a Bachelor of Science from McMaster University, a Master of Business Administration from Queen s University and holds the Chartered Accountant designation. Patrick Sullivan Senior Vice President, Portfolio Management Patrick Sullivan has overall responsibility for operations and leasing of Primaris $3.5 billion portfolio of properties. He has 20 years of retail and office real estate experience. Prior to joining Primaris, Mr. Sullivan held a senior leasing role with Oxford Properties Group where he was responsible for its portfolio of shopping centres in western Canada. Mr. Sullivan holds a Bachelor of Commerce degree from the University of British Columbia. Lesley Gibson, CA Vice President, Finance Lesley Gibson is Vice President, Finance for Primaris Retail REIT and has been with Primaris since prior to its IPO. She oversees corporate finance, accounting and public reporting responsibilities. Before joining Primaris, Ms. Gibson worked at Borealis Capital Corporation as Director, Client Reporting and at KPMG LLP as a Senior Manager in the Real Estate Group. Ms. Gibson earned a Bachelor of Arts (Economics) at the University of Western Ontario and holds a Chartered Accountant designation. Lesley Buist, CA Vice President, Finance Leslie Buist is Vice President, Finance for Primaris and is responsible for financial reporting and conversion to International Financial Reporting Standards. Prior to joining Primaris, Ms. Buist worked as Director of Finance with Cara Operation Limited and Kelsey s International Inc. managing the financial reporting for multi-unit national restaurant chains. Anne Morash Vice President, Development Anne Morash is Vice President,Development, and is responsible for leading all of Primaris development initiatives and activities. Previously, Ms. Morash was with Cadillac Fairview where she was responsible for a number of significant projects and with Ivanhoe Cambridge where she held development and leasing positions. Ms. Morash is a graduate of Queen s University (Honours in Urban Studies) and York University, Master in Environmental Studies (Urban Planning and Land Development). Ron Perlmutter Vice President, Investments Ron Perlmutter is responsible for Primaris investments in income-producing properties. Prior to joining Primaris, Mr. Perlmutter was with Oxford Properties Group and Borealis Capital Corporation where his responsibilities included Primaris investments activities. Mr. Perlmutter earned Master of Business Administration and Bachelor of Engineering Science degrees from the University of Western Ontario. Ron also holds designations as a licensed Real Estate Broker and a Professional Engineer, both in the Province of Ontario. Annual report

18 letter from the chair Stakeholders expect more of board members today than ever before. These expectations mean disclosing the process for making decisions, not just the decisions themselves. more transparency Roland A. Cardy Chair The Board considers 2011 to have been a great success. With a balanced outlook on growth through acquisitions and capable management of existing assets, the executive team led by President and CEO John Morrison brought about results that rewarded unitholders and positioned Primaris for longer term performance excellence. Aligning management and stakeholder interests When the Compensation Committee sets annual targets for the President and CEO s performance, it incorporates the impact of short- and long-term decision making. We focus on aligning incentives with desired outcomes that bring about enduring value. In 2011, 66% of the President and CEO s annual income and equity awards were at risk and dependent on his ability to deliver against annual and long-term goals. Rewarding executive performance is essential for motivational and competitive reasons and the Board believes that our most important contribution to this process is ensuring that there is strong alignment between the interests of executives and unitholders. To underscore our intent, we have put in place a minimum unitholding policy that requires Mr. Morrison to hold units valued at three times his base salary. Planning for the future This past year the Governance and Nominating Committee also put in place short- and long-term succession plans for the President and CEO. As well as mitigating risk, the succession plan provides a framework that drives senior executive development and contributes to the management and governance of Primaris which are secondary benefits of the process. The President and CEO succession plan will remain one of the Board s priorities as we regularly review and update it. Mr. Morrison has reviewed succession plans for the rest of the executive team with the Governance and Nominating Committee and we are pleased with this focus on development of our human capital. Strong governance Once again, in late 2011, Primaris governance practices were reviewed in the annual Board Games report on governance that is published in the Globe and Mail s Report on Business. Primaris performed well when measured against high governance standards as acknowledged in this independent evaluation. Also, Primaris excelled in the Board Shareholder Confidence Index published by the Clarkson Centre for Ethics in the Rotman School of Management at the University of Toronto. Our Governance and Nominating Committee is focused on maintaining our strong governance and improving transparency with stakeholders. Trustee education, research and guidance from management and external 16 primaris retail real estate investment trust

19 board of trustees Roland A. Cardy Independent, Chair of the Board Since March 2003, Mr. Cardy has served as Managing Partner and a director of Gorbay Company Limited, a Toronto-based private company that owns and operates multi-family properties. From 2000 to March 2003, Mr. Cardy was a Senior Managing Director at Raymond James Ltd. Mr. Cardy has a Bachelor of Arts (Economics and History) and Master of Business Administration from York University. He also has completed the requirements of the Institute of Corporate Directors program. advisors, as well as dialogue with stakeholders, all contribute to our ongoing review of governance practices. The expectation placed upon Board members has evolved a great deal in recent years and we are committed to fulfilling these responsibilities. We annually review the effectiveness of the Board through an evaluation process that includes Board and individual Trustee assessments and a peer evaluation. This process dovetails with an annual evaluation of skills and experience. By conducting these reviews, the Governance and Nominating Committee can say with confidence that it is satisfied that Primaris has the right balance of skills and experience on the Board to provide effective stewardship. Seeing for ourselves We believe in getting out of the boardroom to meet staff and see firsthand how Primaris properties are doing. This year the Trustees toured properties in eastern Ontario. At each of the sites, the local management teams toured us around the properties with obvious pride. It was interesting to witness the remerchandising and redevelopment plans that had been underway and to talk to the people who are overseeing the work at the local level. Our key takeaway from this tour was that Primaris employees are deeply engaged and committed to the success of their shopping centres. It was an inspiring experience. I want to acknowledge the efforts of my colleagues on the Board of Trustees this past year. They contribute a wealth of knowledge, experience and perspectives to their work, which brings great value to boardroom discussions and decision-making. William J. Biggar, CA Independent, Chair of Audit Committee Mr. Biggar has been President and CEO of North American Palladium since Prior to that, Mr. Biggar was Managing Director of Richardson Capital Limited from 2004 to Mr. Biggar has extensive experience in real estate acquisitions, development, financing and management. Mr. Biggar is a Chartered Accountant and also holds Bachelor of Commerce and Master of Business Administration degrees from the University of Toronto. Ian Collier Independent, Chair of Distributions Committee Mr. Collier is CEO and Partner of Perseis Partners Inc. Prior to that, in 2004 and 2005, Mr. Collier was President and CEO of Borealis Private Equity and President and CEO of OMERS Capital Partners. Mr. Collier was a Director of Borealis Real Estate Management Inc. between May 2002 and February 2004 and a director of Oxford Properties Group Inc. between 2001 and Mr. Collier holds a Bachelor of Arts (Economics) from Wilfrid Laurier University. Kenneth Field, CA Independent, Chair of Compensation Committee Mr. Field is a retired Investment Banker. Between 1996 and 2000, Mr. Field was Senior Vice President, Head of Real Estate Investment Banking with Midland Walwyn Inc. / Merrill Lynch Canada Inc. Mr. Field has over 35 years of experience in major real estate sales and financings across Canada. He is a Chartered Accountant, a former member of the Board of Governors of the Toronto Stock Exchange and a former Chair of the Board of Governors of the Toronto Futures Exchange. Kerry Adams FCA, ICD.D, Independent, Chair of Governance & Nominating Committee Ms. Adams has been President of K. Adams & Associates Limited providing wealth management services for trusts and private corporations since Ms. Adams was a Commissioner and Director of the Ontario Securities Commission from 1996 through A Chartered Accountant, Ms. Adams also holds a Bachelor of Arts (Honours Economics) from Queens University and is an Institutecertified Director (2012) of the Institute of Corporate Directors. Brent Hollister Independent Mr. Hollister has been actively involved in the Canadian retail industry for over 35 years. He stepped down from his role as Chief Executive Officer of Sears Canada Inc. in Mr. Hollister is a director for Holiday Group Holdings Inc., a private equity company and is on the Advisory Board of the Boys & Girls Club Foundation of Canada. A retail graduate of Ryerson, Mr. Hollister has completed the requirements of the Institute of Corporate Directors program. John Morrison President, Chief Executive Officer & Trustee, Non-independent Mr. Morrison is President and Chief Executive Officer of Primaris Retail REIT. Prior to his appointment as CEO of Primaris, Mr. Morrison was President, Real Estate Management at Oxford Properties Group, where he was responsible for the performance of Oxford s $10 billion Canadian portfolio. Mr. Morrison is on the Board of Trustees of The International Council of Shopping Centres (ICSC) and is Canadian divisional vice president on the Executive Committee of the ICSC. Annual report

20 Primaris put $68 million back into 32 Canadian communities through property taxes money that will fund important public services including waste management and recycling efforts. Sustainability The term sustainability has garnered much attention in recent years. Industry standards, programs and certifications are laying foundations for the mitigation of social and environmental impact. Primaris strategy has been to lead by example and fuel grassroots development of a national program, formally launched in Our approach comprises three elements that help identify new opportunities to attain tangible results: 1. environmental impact awareness and reduction 2. community collaboration and creative partnerships 3. measurement and business case analysis Our stakeholders ROI sustainability in an investment sense demands innovation that reduces both cost and impact. Reducing the waste of resources, whatever they are, remains a common-sense proposition. Primaris entire portfolio leverages locally raised solutions and actionable values. Conservation is just one element of impact and cost reduction. In addition, some behavioural changes are mandated in policies: construction, environmental purchasing and recycling requirements are in-place at many properties, and are being standardised. Other opportunities are found in unique situations, due to the motivation and resourcefulness we value, and this intelligence on the ground is closely communicated to management. We are excited about developing our sustainability regime. We know that we need to work together with our tenants, sharing ethical and environmental responsibilities. Our aim is to defeat the misconception that being environmentally and socially responsible is expensive or involves a lot of additional work. By using our scale, industry best-practices and relationships with local partners across the country, we are in a position to deliver improvements that may not be feasible to implement on a household level. Environmental Certification Standards We have currently adopted the BOMA BESt (Building Environmental Standards) environmental certification program as a target for most of our enclosed shopping centres. It is the leading Canadian environmental certification program for commercial buildings. This program suits our business model because it is all about making properties more environmentally responsive and energy efficient while reducing operating costs. Properties are rated on categories such as: Resource Consumption (energy + water) Waste Reduction & Recycling Emissions & Effluents Indoor Environment & Air Quality Environmental Management Systems Tenant Awareness We are exceptionally proud to have six newly certified properties in 2011, doubling the number of Primaris properties that have met this challenge. BOMA Best Environmental Certifications Park Place Aberdeen Mall Heritage Place Cataraqui Centre Stone Road Mall Grant Park Lambton Mall Midtown Plaza Northland Village Mall Orchard Park Place Du Royaume 18 primaris retail real estate investment trust

21 sustainable business practices more responsible The Green Team We are fostering communication and sharing results across our portfolio, by way of our Green Team, a committee led by passionate employees who continually challenge everyone to share best practices and exceed expectations. In recent months, employees nationwide have announced achievements and selectively set new milestones in our commitment to environmental sustainability. Our participation in the community has likewise impacted lives and prompted our people to ask themselves, individually, if even more can be done to raise Primaris positive impact among those with whom we work, shop and live. A groundswell of staff interest in sustainability is growing across the country in head and regional offices, as illustrated by propertybased initiatives such as celebrating Earth Week by walking the Green Mile and bundling up on national Wear a Sweater Day. The power of creativity A great case study for locally developed solutions comes from Park Place Shopping Centre in Lethbridge, Alberta. Upon reviewing demolition work for a vacant store at Park Place in 2011, the local property management team was confronted with the problem of what to do with 1.2 million pounds of concrete rubble, 300,000 pounds of roofing gravel and 16,000 square feet of Styrofoam Rigid Insulation. In an effort to keep the rubble out of local landfills, the team thought of an environmentally friendly way to dispose of the rubble and save $15,000 in concrete tipping fees alone. All 1.2 million pounds of concrete rubble was donated to a biodiversity reclamation project, where Lafarge Inc., Wildlife Habitat Council and World Wildlife Fund used the material to reinforce and stabilize pond banks that serve as habitat to re-establish wetland bird species. 100% of the roofing gravel and Styrofoam Rigid Insulation were diverted to external companies to be reused in future construction projects. Giving back to our communities The biggest contribution we make to all 25 of our communities is the remittance of property taxes on behalf of Primaris and our tenants. In 2011, this amounted to $68 million that would have been applied to important municipal programs and services such as parks and recreation, road maintenance, education, waste management and recycling for the people who live in those communities. These municipalities depend on this source of revenue and thousands of jobs are funded with these tax dollars. Our employees get tremendous satisfaction out of giving back as well. The Dare2Care Committee was formed at our corporate and regional offices and organized to coordinate employee participation in charitable events. Primaris employees have participated in fundraising activities, raising tens of thousands of dollars in 2011 for the World Wildlife Foundation, Daily Bread Food Bank, Heart and Stroke Foundation, Canadian Cancer Society, Raising the Roof, Children s Aid Society, Prostate Cancer Canada and others. 1.2 million lbs. of rubble diverted from landfill for reuse. Annual report

22 CORPORATE AND UNITHOLDER INFORMATION OFFICERS John morrison President and Chief Executive Officer Louis m. forbes, ca Executive Vice President and Chief Financial Officer Patrick sullivan Senior Vice President, Portfolio Management Toran eggert Vice President, Portfolio Management Anne morash Vice President, Development Ron Perlmutter Vice President, Investments Lesley Gibson, ca Vice President, Finance Leslie buist, ca Vice President, Finance Devon Jones Vice President, Legal and Secretary Oliver hobday Assistant Secretary AUDITORS KPMG LLP Chartered Accountants REGISTRAR AND TRANSFER AGENT CIBC Mellon Trust Company c/o Canadian Stock Transfer Company Inc. P.O. Box 700, Station B, Montreal, QC H3B 3K3 Toll-Free: Local: Fax: Website: HEAD OFFICE Primaris Retail REIT 1 Adelaide Street East, Suite 900 Toronto, ON M5C 2V9 Telephone: INVESTOR RELATIONS Louis m. forbes Executive Vice President and Chief Financial Officer Telephone: lforbes@primarisreit.com STOCK EXCHANGE LISTING Toronto Stock Exchange (TMX), symbols PMZ.UN PMZ.DB PMZ.DB.A PMZ.DB.B PMZ.DB.C ANNUAL GENERAL MEETING May 8, 2012 at 10:00 am EST toronto Board of Trade, 4th floor First Canadian Place, Toronto, ON M5X 1C1 20 primaris retail real estate INVestment trust

23 For more information, visit our website:

24

25 financial review 2011 more inside...

26 financial review 2011 Management s Discussion and Analysis Management s Responsibility for Financial Reporting Independent Auditors Report Consolidated Statements of Financial Position Consolidated Statements of income and Comprehensive Income Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements... 40

27 ManagEMEnt s DISCuSSIon and analysis of FInanCIAl condition and RESulTS of operations (in thousands of dollars, except per unit and square foot amounts) For the year ended December 31, 2011 Primaris Retail Real Estate Investment Trust ( Primaris ) has prepared the following discussion and analysis of financial condition and results of operations ( MD&A ), which should be read in conjunction with the consolidated financial statements and the accompanying notes prepared for the years ended December 31, 2011 and The MD&A is dated March 1, Disclosure contained in this document is current to that date, unless otherwise noted. Additional information relating to Primaris, including the Annual Information Form, is on SEDAR at Primaris owns, manages, leases and develops retail properties, in Canada. These properties are typically mid-market retail centres in major cities or major retail centres in secondary cities and dominant in their primary trade areas. The portfolio s focus to date has been predominantly enclosed shopping centres. Primaris also acquires complementary real estate in its target markets. Forward-Looking Information The MD&A contains forward-looking information based on management s best estimates and the current operating environment. These forward-looking statements are related to, but not limited to, Primaris operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains statements with words such as anticipate, believe, expect, plan or similar words suggesting future outcomes. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed, projected or implied by such forward-looking statements. In particular, certain statements in this document discuss Primaris anticipated outlook of future events. These statements include, but are not limited to: (i) (ii) the accretive acquisition of properties and the anticipated extent of the accretion of any acquisitions, which could be impacted by demand for properties and the effect that demand has on acquisition capitalization rates and changes in the cost of capital; reinvesting to make improvements and maintenance to existing properties, which could be impacted by the availability of labour and capital resource allocation decisions; (iii) generating improved rental income and occupancy levels, which could be impacted by changes in demand for Primaris properties, tenant bankruptcies, the effects of general economic conditions and supply of competitive locations in proximity to Primaris locations; (iv) overall indebtedness levels, which could be impacted by the level of acquisition activity Primaris is able to achieve and future financing opportunities; financial REvIEw

28 Management s Discussion and Analysis (cont d) (v) tax exempt status, which can be impacted by regulatory changes enacted by governmental authorities; (vi) anticipated distributions and payout ratios, which could be impacted by capital expenditures, results of operations and capital resource allocation decisions; (vii) the effect that any contingencies could have on Primaris financial statements; (viii) anticipated replacement of expiring tenancies, which could be impacted by the effects of general economic conditions and the supply of competitive locations; and (ix) the development of properties, which could be impacted by real estate market cycles, the availability of labour and general economic conditions. Although the forward-looking statements contained in this document are based on what management of Primaris believes are reasonable assumptions, forward-looking statements involve significant risks and uncertainties. They should not be read as guarantees of future performance or results and will not necessarily be an accurate indicator of whether or not such results will be achieved. Readers are cautioned not to place undue reliance on forward-looking statements as a number of factors could cause actual future results to differ from targets, expectations or estimates expressed in the forward-looking statements. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information may include: a less robust retail environment; relatively stable interest costs; access to equity and debt capital markets to fund, at acceptable costs, the future growth program and to enable Primaris to refinance debts as they mature and the availability of purchase opportunities for growth. Except as required by applicable law, Primaris undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Basis of Presentation In February 2008, the Canadian Accounting Standards Board confirmed the replacement of Canadian generally accepted accounting principles ( GAAP ) with International Financial Reporting Standards ( IFRS ), for Canadian publically accountable profit-oriented enterprises, effective for fiscal periods beginning on or after January 1, Financial data provided in the MD&A, for years ended December 31, 2011 and 2010, have been prepared in accordance with IFRS. Where material, reconciliations between Canadian GAAP and IFRS values are reported in the notes to the financial statements. Non-IFRS/GAAP Financial Measures Funds from operations ( FFO ), net operating income ( NOI ) and earnings before interest, taxes, depreciation and amortization ( EBITDA ) are widely used supplemental measures of a Canadian real estate investment trust s performance and are not defined under IFRS. Management uses these measures when comparing itself to industry data or to others in the marketplace. The MD&A describes FFO, NOI and EBITDA and provides reconciliations to net income as defined under IFRS. FFO, NOI and EBITDA should not be considered alternatives to net income or other measures that have been calculated in accordance with IFRS and may not be comparable to measures presented by other issuers. Primaris MD&A describes FFO, NOI and EBITDA. Reconciliations to net income, as defined under IFRS, for FFO and EBITDA are presented, as well as the calculation of NOI. Business Objectives and Overview Primaris is an unincorporated, open-ended real estate investment trust created in 2003 pursuant to its Declaration of Trust, as amended and restated. Primaris is governed by the laws of Ontario. The units and four series of convertible debentures of Primaris trade on the Toronto Stock Exchange under the symbols PMZ.UN, PMZ.DB, PMZ.DB.A, PMZ.DB.B and PMZ.DB.C, respectively. Primaris vision is to be the leading enclosed shopping centre REIT in Canada. The objectives of Primaris are: to generate stable and growing cash distributions; to enhance the value of Primaris assets and maximize long-term unit value; and to expand the asset base of Primaris and increase its funds from operations through an acquisition program. Primaris results have been consistent with these objectives. Key performance indicators for Primaris include operational results both at the properties and for Primaris in the aggregate. 2 primaris RETAIl REAl ESTATE investment TRuST