Primaris Retail REIT Announces Record Second Quarter Financial Results

Real Estate — August 7, 2012

TORONTO, ONTARIO--(Marketwire - Aug. 7, 2012) - Primaris Retail REIT (TSX:PMZ.UN) is pleased to report record second quarter operating results. These results have been prepared in accordance with International Financial Reporting Standards ("IFRS").

President and CEO, John Morrison, commented "We are very pleased with our reported results which have exceeded the expectations we had last fall. This is the result of strong leasing fundamentals, a reduction in the expected number of store closings, a deferral of certain vacancies until later in 2012 than previously expected, and the receipt of above normal lease termination income. We expect the positive fundamentals will continue for the balance of the year. During the second quarter and through certain third quarter activities to date, we have significantly strengthened the statement of financial position, preparing Primaris for future investment activity and noticeably improving our credit metrics."

Highlights

Funds from Operations (FFO)
	•	Funds from operations for the second quarter ended June 30, 2012 were $33.4 million, up $11.6 million from the $21.8 million reported for the second quarter of 2011. On a per unit diluted basis, funds from operations for the second quarter of 2012 were $0.376, up $0.076 from the $0.300 reported for the second quarter of 2011. The second quarter of 2011 was affected by a non-recurring charge for convertible debentures issuance costs of $3.0 million or $0.040 per unit diluted. After allowing for this charge, second quarter FFO grew $0.036 or 10.8% over the comparable amount in 2011.

	•	FFO is not a term defined under International Financial Reporting Standards (IFRS) and may not be comparable to similar measures used by other Trusts. A reconciliation of net income to FFO is included.

Net Operating Income (NOI)
	•	NOI for the second quarter ended June 30, 2012 was $57.7 million, an increase of $10.2 million from the $47.5 million recorded in the second quarter of 2011.

	•	NOI is not a term defined under IFRS and may not be comparable to similar measures used by other Trusts. A calculation of NOI is included.

Same Properties - Net Operating Income
	•	NOI for the second quarter ended June 30, 2012, for the properties held continually for the past twenty-four months, increased 4.7% from the comparative three month period. Removing the effects of lease-surrender revenue, net operating income, on a same-property basis, would be 3.1% higher than the comparative period.

Net Income
	•	Net income for the second quarter ended June 30, 2012 was $39.2 million, a decrease of $2.0 million from the $41.2 million recorded in the second quarter of 2011. The decrease is driven by fluctuations in the recording of debt instruments at fair value.

Operations
	•	Primaris renewed or leased 435,241 square feet of space during the second quarter. The weighted average new rent in these leases, on a cash basis, represented a 2.3% increase over the previous rent paid (5.6% if the major tenants are excluded).

	•	The portfolio occupancy for 2012 is relatively stable. It was 97.4% at June 30, 2012, compared to 96.7% at March 31, 2012, and 95.7% at June 30, 2011.

	•	Same tenant sales per square foot, for the 18 properties owned during all of the 24 months ended May 31, 2012 was $468, the same as for the previous 12 months.

Liquidity
	•	At June 30, 2012, Primaris had $34.8 million of cash on hand and no amount drawn on its $100.0 million credit facility.

Financial Results

FFO for the second quarter ended June 30, 2012 were $33.4 million, up $11.6 million from the $21.8 million reported for the second quarter of 2011. On a per unit diluted basis, funds from operations for the second quarter of 2012 were $0.376, up $0.076 from the $0.300 reported for the second quarter of 2011. The second quarter of 2011 was affected by a non-recurring charge for convertible debenture issuance costs of $3.0 million or $0.040 per unit diluted. After allowing for this charge, second quarter FFO grew $0.036 or 10.8% over the comparable amount in 2011.

Net income for the second quarter ended June 30, 2012 was $39.2 million, a decrease of $2.0 million from the $41.2 million recorded in the second quarter of 2011. The decrease is driven by fluctuations in the recording of debt instruments at fair value.

The FFO distribution payout ratio for the second quarter of 2012, calculated on a diluted basis, was 81.0% as compared to a 101.4% payout ratio for the second quarter of 2011 and 79.7% for the previous quarter ended March 31, 2012. The payout ratios are sensitive to both seasonal operating results and financial leverage.

At June 30, 2012, Primaris' total enterprise value was approximately $3.7 billion (based on the market closing price of Primaris' units on June 30, 2012 plus total debt outstanding). At June 30, 2012 Primaris had $1,621.4 million of outstanding debt, equating to a debt to total enterprise value ratio of 43.3%. Primaris' debt consisted of $1,415.6 million of fixed-rate senior debt with a weighted average interest rate of 5.4% and a weighted average term to maturity of 5.3 years, no amount drawn on the operating line of credit, $2.3 million of 6.75% fixed-rate convertible debentures, $93.5 million of 5.85% fixed-rate convertible debentures, $35.0 million of 6.30% fixed-rate convertible debentures and $75.0 million of 5.40% fixed-rate convertible debentures.

In July 2012, $13.7 million, at face value, of 6.30% series of convertible debentures was converted to 817,603 units.

On July 18, 2012 Primaris exercised its right to redeem the 5.85% series of convertible debentures. The redemption of the debentures will be effective on August 17, 2012.

Subsequent to June 30, 2012, Primaris waived conditions on a $6,950 purchase of a property adjacent to an existing shopping centre. The purchase will be funded through cash on hand, operating line, and an assumed mortgage of $1,690 with a fixed interest rate of 3.78% which matures December 1, 2014.

Primaris had a debt to total asset ratio of 43.5%. During the three months ended June 30, 2012, Primaris had an interest coverage ratio of 2.5 times as expressed by EBITDA divided by interest expense on mortgages, convertible debentures and bank indebtedness. Primaris defines EBITDA as net income increased by depreciation, finance costs, income tax expense and amortization of leasing costs and straight-line rent. EBITDA is not a term defined under IFRS and may not be comparable to similar measures used by other Trusts. See below under "Non-IFRS Measures".

Operating Results

Comparison to Prior Period Financial Results (in thousands of dollars)

		Three Months Ended June 30, 2012 (unaudited)			Three Months Ended June 30, 2011 (unaudited)			Comparative Period Favourable/ (Unfavourable)

Revenue
	Minimum rent	$	59,385		$	49,817		$	9,568
	Recoveries from tenants		36,132			30,415			5,717
	Percent rent		609			632			(23	)
	Parking		1,742			1,596			146
	Other income		1,013			292			721
			98,881			82,752			16,129

Expenses
	Property operating		23,901			20,188			(3,713	)
	Property tax		18,794			16,202			(2,592	)
	Ground rent		331			295			(36	)
	General & administrative		3,773			2,523			(1,250	)
	Depreciation		362			284			(78	)
			47,161			39,492			(7,669	)

Income from operations		$	51,720		$	43,260		$	8,460

Finance income			54			73			(19	)
Finance costs			(36,902	)		(20,787	)		(16,115	)
Fair value adjustment on investment properties			24,329			18,604			5,725
Net income		$	39,201		$	41,150		$	(1,949	)

Fair value adjustment on investment properties			(24,329	)		(18,604	)		(5,725	)
Fair value adjustment on convertible debentures			9,936			(2,626	)		12,562
Fair value adjustment on exchangeable units			4,075			(547	)		4,622
Fair value adjustment on unit-based compensation			1,558			88			1,470
Distributions on exchangeable units			644			666			(22	)
Amortization of tenant improvement allowances			2,340			1,679			661
Funds from operations ⁽¹⁾		$	33,425		$	21,806		$	11,619

Funds from operations per unit - basic		$	0.384		$	0.303		$	0.081
Funds from operations per unit - diluted		$	0.376		$	0.300		$	0.076
Funds from operations - payout ratio			81.0	%		101.4	%		-20.4	%
Distributions per unit		$	0.305		$	0.305		$	-
Weighted average units outstanding - basic		87,117,445				71,854,014			15,263,431
Weighted average units outstanding - diluted		94,062,914				77,267,750			16,795,164
Units outstanding, end of period		90,197,056				82,342,138			7,854,918

⁽¹⁾

Funds from Operations, which is not a defined term within IFRS, has been calculated by management, using International Financial Reporting Standards, in accordance with REALpac's White Paper on Funds from Operations. The White Paper adds back to net income items that do not arise from operating activities, such as amortization of tenant improvements, deferred income taxes and fair value adjustments. Funds from Operations may not be comparable to similar measures used by other entities. See below under "Non-IFRS Measures".

Funds from operations for the quarter ended June 30, 2012 were $11.6 million ($0.076 per unit diluted) greater than the comparative period.

Net Operating Income - Same Properties (in thousands of dollars)


	Three months ended June 30, 2012 (unaudited)			Three months ended June 30, 2011 (unaudited)			Variance to Comparative Period Favourable/ (Unfavourable)

Operating revenue	$	83,602		$	81,845		$	1,757
Less operating expenses		(35,341	)		(35,754	)		413
Net operating income	$	48,261		$	46,091		$	2,170

NOI is not a term defined under IFRS and may not be comparable to similar measures used by other Trusts. Operating revenue from properties includes an adjustment for amortization of tenant improvement allowances, tenant inducements and straight-line rent to remove non-cash transactions from revenue for the calculation of net operating income. Operating expenses include operating expenses from properties, property taxes and ground rent.

The same-property comparison consists of the 27 properties that were owned throughout both the current and comparative three month periods. NOI, on a same-property basis, increased $2.2 million, or 4.7%, in relation to the comparable three month period. Removing the effects of lease-surrender revenue, net operating income, on a same-property basis, would be $1.4 million or 3.1% higher than the comparative period.

Liquidity

At June 30, 2012, Primaris had $34.8 million of cash on hand and no amount drawn on its $100.0 million credit facility. One mortgage of $21.2 million was repaid when it matured on July 1, 2012.

On June 15, 2012 Primaris entered into a hedge agreement that is scheduled to mature February 1, 2013. The hedge was completed to mitigate the risk of interest rate volatility in anticipation of $125.0 million of new debt to be placed for a 5 year term, principally to repay loans maturing during the first quarter of 2013. Primaris achieved an effective hedge on the five year Government of Canada bond yield of 1.448%, including the cost of the hedge. The credit spread on this anticipated loan is unknown as of June 30, 2012.

Tenant Sales

For the 18 reporting properties owned throughout both the twelve month periods ended May 31, 2012 and 2011, sales per square foot, on a same-tenant basis, was the same at $468 per square foot. For the same 18 properties the all tenant total sales volume has increased 0.9%.


	Same Tenant Sales per Square Foot				Variance						All Tenant Total Sales Volume				Variance
Unaudited		2012		2011		$		%			2012		2011		$		%
Cataraqui	$	509	$	517	$	(8	)	-1.6	%	$	85,963	$	87,235	$	(1,272	)	-1.5	%
Dufferin Mall		528		515		13		2.5	%		93,731		89,944		3,787		4.2	%
Eglinton Square		397		398		(1	)	-0.3	%		31,006		28,251		2,755		9.8	%
Heritage Place		300		309		(9	)	-2.8	%		25,423		25,764		(341	)	-1.3	%
Lambton Mall		324		331		(7	)	-2.1	%		44,817		47,970		(3,153	)	-6.6	%
Place d'Orleans		443		462		(19	)	-4.0	%		98,613		103,348		(4,735	)	-4.6	%
Place Du Royaume		423		422		1		0.3	%		114,077		113,968		109		0.1	%
Place Fleur De Lys		322		321		1		0.4	%		68,495		71,184		(2,689	)	-3.8	%
Stone Road Mall		543		539		4		0.7	%		116,270		113,662		2,608		2.3	%
Aberdeen Mall		376		375		1		0.2	%		48,888		48,302		586		1.2	%
Cornwall Centre		557		535		22		4.0	%		87,658		81,784		5,874		7.2	%
Grant Park		583		573		10		1.8	%		26,682		27,187		(505	)	-1.9	%
Midtown Plaza		621		607		14		2.4	%		137,827		130,302		7,525		5.8	%
Northland Village		460		465		(5	)	-1.1	%		42,837		44,267		(1,430	)	-3.2	%
Orchard Park		495		498		(3	)	-0.6	%		131,969		129,968		2,001		1.5	%
Park Place Mall		506		501		5		1.0	%		77,487		76,883		604		0.8	%
Sunridge Mall		487		491		(4	)	-0.7	%		95,649		91,984		3,665		4.0	%
Woodgrove Centre		459		473		(14	)	-3.0	%		91,374		94,593		(3,219	)	-3.4	%
	$	468	$	468	$	(0	)	-0.1	%	$	1,418,766	$	1,406,596	$	12,170		0.9	%

The same tenants' sales per square foot was virtually unchanged, while the national average tenant sales as reported by the International Council of Shopping Centers ("ICSC") for the 12-month period ended May 31, 2012, increased 2.1%. Primaris' sales productivity of $468 is lower than the ICSC average of $597, largely because the ICSC includes sales from super regional malls that have the highest sales per square foot in the country.

Leasing Activity

Primaris Retail REIT's property portfolio remains well leased.

The portfolio occupancy rate is relatively stable. It was 97.4% at June 30, 2012, compared to 96.7% at March 31, 2012, and 95.7% at June 30, 2011. These percentages include space for which signed leases are in place but where the tenant may not yet be in occupancy.

Primaris renewed or leased 435,241 square feet of space during the second quarter of 2012. Approximately 74.3% of the leased spaces during the second quarter of 2012 consisted of the renewal of existing tenants. The weighted average new rent in these leases, on a cash basis, represented a 2.3% increase over the previous rent (5.6% if the major tenants are excluded).

At year end, Primaris had a weighted average term to maturity of leases of 5.4 years.

Development Activity

During 2009 and 2011, Primaris completed phases one and two of a three phase redevelopment at Lambton Mall in Sarnia, Ontario.

Work has just begun on the third phase of the Lambton Mall redevelopment. The project involves the redevelopment of the vacant anchor space (approximately 92,000 square feet), formerly occupied by Canadian Tire. Part of the existing building will be demolished and replaced with a new Galaxy Theatre building comprising approximately 32,000 square feet, an approximately 31,000 square foot Sport Chek and 1,000 square feet of commercial retail space. The plan also creates a new mall entrance next to H&M. The project includes the acquisition of the existing 5.9 acre Cineplex property located at 1450 London Road, adjacent to Lambton Mall. Upon opening of the new Galaxy Theatre at Lambton Mall, Cineplex will close its existing theatre. This phase will cost approximately $16 million, including the purchase of 1450 London Road. A spring 2013 opening of both Galaxy and Sport Chek is expected.

A multi-phased redevelopment project is well underway at Grant Park Shopping Centre in Winnipeg, Manitoba to accommodate an expanded and repositioned Manitoba Liquor Control Commission ("MLCC") store. This project also includes the realignment and upgrade of almost 11,500 square feet of common area with new floor and ceiling finishes which has revitalized the west end of the shopping centre. A portion of the exterior of the building and the west mall entrance are also being renovated to provide a marquee entry to the new redevelopment inside. Construction activities commenced in June 2011, with relocated retail tenants opening October 2011, and an end of August 2012 opening for the flagship MLCC. The project is on budget and is expected to cost $6.5 million. This phased redevelopment has already created an additional consumer draw to the centre.

The second phase of the redevelopment at Grant Park comprises a 5,000 square foot expansion of the shopping centre, re-leasing and remerchandising of approximately 23,000 square feet of other retail area, renovation and expansion of washrooms, and upgrade of an additional 5,000 square feet of common area. Landlord pre-construction activities commenced in June 2012. Common area improvements and washroom renovations are expected to be completed by November 2012, and the expansion is expected to open in July 2013. This second phase has a $5.4 million budget.

A freestanding pad development is now complete at Place d'Orleans for a 21,000 square foot Farm Boy, an Ottawa-based specialty grocery retailer. Primaris invested $3.0 million in this project. Farm Boy will act as a driver of mid-week traffic to the mall.

Redevelopment projects will be funded through a combination of cash, draws on the operating line and mortgage refinancing.

Supplemental Information

Primaris' condensed interim consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the three and six months periods ended June 30, 2012 and 2011 are available on Primaris' website at www.primarisreit.com.

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)	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;

(ii)	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;

(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.

Non-IFRS 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 others in the marketplace. Primaris' MD&A describes FFO, NOI and EBITDA and provides reconciliations to net income, as defined under IFRS, for FFO and EBITDA. A reconciliation of FFO to net income, as defined by IFRS, and a calculation of NOI also appear at the end of the press release. 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.

Conference Call

Primaris invites you to participate in the conference call that will be held on Wednesday August 8, 2012 at 9am EST to discuss these results. Senior management will speak to the results and provide a brief corporate update. The telephone numbers for the conference call are: 416-340-8530 (within Toronto), and 1-877-240-9972 (within North America).

Audio replays of the conference call will be available immediately following the completion of the conference call, and will remain active for 24 hours, by dialling 905-694-9451 or 1-800-408-3053 and using pass code 1208535. The audio replay will also be available for download at www.primarisreit.com/q2conference.

Primaris is a TSX listed real estate investment trust (TSX:PMZ.UN). Primaris owns 33 income-producing properties comprising approximately 13.7 million square feet located in Canada. As of July 31, 2012, Primaris had 91,132,528 units issued and outstanding (including exchangeable units for which units have yet to be issued).

PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST

Condensed Consolidated Interim Statements of Financial Position

(In thousands of dollars)

(Unaudited)

		June 30,		December 31,
		2012		2011

Assets

Non-current assets:
	Investment properties	$	3,637,750	$	3,557,900

Current assets:
	Rents receivable		6,139		7,387
	Other assets and receivables		31,301		25,010
	Cash and cash equivalents		34,758		-
			72,198		32,397

		$	3,709,948	$	3,590,297

Liabilities and Equity

Non-current liabilities:
	Mortgages payable	$	1,249,817	$	1,372,871
	Convertible debentures		232,685		268,766
	Exchangeable units		50,000		45,079
	Accounts payable and other liabilities		3,089		1,205
			1,535,591		1,687,921

Current liabilities:
	Current portion of mortgages payable		159,840		53,004
	Bank indebtedness		-		6,779
	Accounts payable and other liabilities		51,632		61,744
	Distribution payable		9,026		8,251
			220,498		129,778
			1,756,089		1,817,699

Equity			1,953,859		1,772,598

		$	3,709,948	$	3,590,297

PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST

Interim Consolidated Statements of Income and Comprehensive Income

(In thousands of dollars, except per unit amounts)

		(Unaudited)						(Unaudited)
		Three months ended						Six months ended
		June 30,						June 30,
		2012			2011			2012			2011

Revenue:
	Minimum rent	$	59,385		$	49,817		$	118,408		$	98,706
	Recoveries from tenants		36,132			30,415			74,272			61,286
	Percentage rent		609			632			1,174			1,048
	Parking		1,742			1,596			3,435			3,075
	Other income		1,013			292			2,030			586
			98,881			82,752			199,319			164,701

Expenses:
	Property operating		23,901			20,188			49,323			41,481
	Property taxes		18,794			16,202			38,073			31,681
	Ground rent		331			295			662			589
	General and administrative		3,773			2,523			6,202			5,650
	Depreciation		362			284			743			471
			47,161			39,492			95,003			79,872

Income from operations			51,720			43,260			104,316			84,829

Finance income			54			73			59			83
Finance costs			(36,902	)		(20,787	)		(63,114	)		(56,927	)
Fair value adjustment on investment properties			24,329			18,604			24,814			18,154

Income before income taxes			39,201			41,150			66,075			46,139

Other comprehensive income
Deferred gain on cash flow hedge			35			-			35			-
Amortization of deferred net loss on cash flow hedges			56			57			113			115
Comprehensive income		$	39,292		$	41,207		$	66,223		$	46,254

PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST

Interim Consolidated Statements of Cash Flows

(In thousands of dollars)

			Three months ended
			June 30,
			2012			2011
			(Unaudited)
Cash flows from operating activities:
	Net income		$	39,201		$	41,150
	Adjustments for:
		Amortization of tenant improvement allowances		2,340			1,679
		Amortization of tenant inducements		55			31
		Amortization of straight-line rent		(588	)		(328	)
		Value of units and options granted under unit-based compensation plan		1,931			352
		Depreciation of fixtures and equipment		362			284
		Net finance costs		36,848			20,714
		Fair value adjustments on investment properties		(24,329	)		(18,604	)
				55,820			45,278
		Other non-cash operating working capital		5,420			(6,531	)
		Leasing commissions		(231	)		(104	)
		Tenant improvements		(3,604	)		(3,488	)
	Cash generated from operating activities			57,405			35,155
	Interest received			54			73
	Net cash from operating activities			57,459			35,228

Cash flows from financing activities:
	Mortgage principal repayments			(8,245	)		(6,351	)
	Proceeds of new mortgage financing			-			223,600
	Repayment of financing			-			-
	Advance (repayment) of bank indebtedness			(27,000	)		10,000
	Interest paid on financing			(26,017	)		(19,987	)
	Capitalized debt placement costs			(21	)		(1,877	)
	Cash received on exercise of options			257			161
	Issuance of units			115,058			260,590
	Unit issue costs			(5,256	)		(11,076	)
	Issuance of convertible debentures			-			75,000
	Convertible debenture issue costs			-			(3,029	)
	Distributions to Unitholders			(22,613	)		(18,905	)
	Net cash flow from financing activities			26,163			508,126

Cash flows used in investing activities:
	Acquisitions of investment properties			(44,694	)	(582,383		)
	Additions to buildings and building improvements			(4,159	)		(2,670	)
	Additions to recoverable improvements			(2,314	)		(1,175	)
	Additions to fixtures and equipment			(823	)		(39	)
	Net cash flow used in investing activities			(51,990	)	(586,267		)

Increase (decrease) in cash and cash equivalents				31,632			(42,913	)

Cash and cash equivalents, beginning of period				3,126			54,146

Cash and cash equivalents, end of period			$	34,758		$	11,233
Supplemental disclosure of non-cash operating, financing and investing activities:
	Value of units issued from conversion of convertible debentures			7,233			6,467
	Value of units issued upon exchange			-			-
	Value of units issued under distribution reinvestment plan			3,875			2,327
	Value of units issued under unit-based compensation plan			38			381
	Deferred gain on cash flow hedge			35			-

PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST

Interim Consolidated Statements of Cash Flows

(In thousands of dollars)

			Six months ended
			June 30,
			2012			2011
			(Unaudited)
Cash flows from operating activities:
	Net income		$	66,075		$	46,139
	Adjustments for:
		Amortization of tenant improvement allowances		4,615			3,460
		Amortization of tenant inducements		110			60
		Amortization of straight-line rent		(949	)		(727	)
		Value of units and options granted under unit-based compensation plan		2,936			1,724
		Depreciation of fixtures and equipment		743			471
		Net finance costs		63,055			56,844
		Fair value adjustments on investment properties		(24,814	)		(18,154	)
				111,771			89,817
		Other non-cash operating working capital		(14,830	)		(18,891	)
		Leasing commissions		(457	)		(150	)
		Tenant improvements		(6,540	)		(4,046	)
	Cash generated from operating activities			89,944			66,730
	Interest received			59			83
	Net cash from operating activities			90,003			66,813

Cash flows from financing activities:
	Mortgage principal repayments			(16,381	)		(12,468	)
	Proceeds of new mortgage financing			-			333,600
	Repayment of financing			-			(37,039	)
	Advance (repayment) of bank indebtedness			(6,779	)		-
	Interest paid on financing			(44,672	)		(38,597	)
	Capitalized debt placement costs			(295	)		(2,752	)
	Cash received on exercise of options			829			356
	Issuance of units			115,058			260,590
	Unit issue costs			(5,256	)		(11,076	)
	Issuance of convertible debentures			-			75,000
	Convertible debenture issue costs			-			(3,029	)
	Distributions to Unitholders			(44,699	)		(38,138	)
	Net cash flow from (used in) financing activities			(2,195	)		526,447

Cash flows used in investing activities:
	Acquisitions of investment properties			(44,694	)	(582,383		)
	Additions to buildings and building improvements			(4,256	)		(4,834	)
	Additions to recoverable improvements			(2,739	)		(1,268	)
	Additions to fixtures and equipment			(1,361	)		(42	)
	Net cash flow used in investing activities			(53,050	)	(588,527		)

Increase in cash and cash equivalents				34,758			4,733

Cash and cash equivalents, beginning of period				-			6,500

Cash and cash equivalents, end of period			$	34,758		$	11,233
Supplemental disclosure of non-cash operating, financing and investing activities:
	Value of units issued from conversion of convertible debentures			46,688			13,751
	Value of units issued upon exchange			1,409			597
	Value of units issued under distribution reinvestment plan			7,155			4,155
	Value of units issued under unit-based compensation plan			481			384
	Deferred gain on cash flow hedge			35			-

PRIMARIS RETAIL REAL ESTATE

INVESTMENT TRUST

Reconciliation of Net Income to Funds from Operations

(In thousands of dollars)

	(unaudited) Three Months Ended			(unaudited) Three Months Ended
	June 30, 2012			June 30, 2011

Net income	$	39,201		$	41,150
Fair value adjustment on investment properties		(24,329	)		(18,604	)
Fair value adjustment on convertible debentures		9,936			(2,626	)
Fair value adjustment on exchangeable units		4,075			(547	)
Fair value adjustment on unit-based compensation		1,558			88
Distributions on exchangeable units		644			666
Amortization of tenant improvement allowances		2,340			1,679

Funds from operations	$	33,425		$	21,806

Funds from Operations, which is not a defined term within IFRS, has been calculated by management, using International Financial Reporting Standards, in accordance with REALpac's White Paper on Funds from Operations. The White Paper adds back to net income items that do not arise from operating activities, such as amortization of tenant improvements, deferred income taxes and certain fair value adjustments. Funds from Operations may not be comparable to similar measures used by other entities.

Calculation of Net Operating Income All Properties

(In thousands of dollars)

		(unaudited) Three Months Ended			(unaudited) Three Months Ended
		June 30, 2012			June 30, 2011

Revenue		$	98,881		$	82,752

Add:	Amortization of leasing costs		1,807			1,382
Less:	Property operating expenses		(23,901	)		(20,188	)
	Property tax expense		(18,794	)		(16,202	)
	Ground Rent		(331	)		(295	)
Net operating income		$	57,662		$	47,449

Net Operating Income is not a defined term within IFRS. Net Operating Income may not be comparable to similar measures used by other entities.

Contact Information

Primaris Retail REIT
John R. Morrison
President & Chief Executive Officer
(416) 642-7860

Primaris Retail REIT
Louis M. Forbes
Executive Vice President & Chief Financial Officer
(416) 642-7810