Agellan Commercial Real Estate Investment Trust Releases First Quarter 2015 Results

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

TORONTO--()--AGELLAN COMMERCIAL REAL ESTATE INVESTMENT TRUST (the “REIT”) (TSX:ACR.UN) is pleased to report its financial results for the three month period ended March 31, 2015. All dollar amounts (except per Unit amounts) are in thousands of Canadian dollars (“CAD”), unless otherwise stated.

“As evidenced by the leasing activity that our portfolio experienced during the first quarter of 2015, the U.S. commercial real estate market has continued to gain momentum”

                 
FINANCIAL AND OPERATIONAL HIGHLIGHTS         March 31, 2015   December 31, 2014
(all dollar amounts in 000s, except per Unit amounts)                
 
Summary of Operational Information
Number of Properties 32 27
Gross Leasable Area ("GLA") (in 000's) 4,613 4,349
Occupancy % (at period end) 93.7% 92.6%
Average lease term to maturity (years) 3.8 3.9
 
Summary of Financial Information
Gross Book Value(1) $634,229 $597,461
Debt (face value) $335,056 $316,546
Debt to Gross Book Value(1) 53% 53%
Interest Coverage(1) 3.9x 3.3x
Weighted average annual interest rate 4.0% 3.9%
                 
For the three month period ended
March 31, 2015 March 31, 2014 Variance
 
Total property and property related revenue $20,663 $18,868 $1,795
Adjusted net operating income(1)(2) $12,091 $10,995 $1,096
Funds from operations ("FFO")(1) $7,283 $6,894 $389
Adjusted funds from operations ("AFFO")(1) $5,565 $5,014 $551
 
Basic and Diluted FFO per Unit(1) $0.31 $0.30 $0.01
Basic and Diluted AFFO per Unit(1) $0.24 $0.22 $0.02
Distributions per Unit $0.194 $0.194 $0.00
 
Payout Ratio(1) 82%
Units outstanding at period-end: 23,537,359
Weighted average Units outstanding       23,521,585        

(1) This is a non-IFRS measure. Please see “Non-IFRS supplemental measures” below.
(2) Adjusted for the application of IFRIC 21. Please refer to the REIT’s Management’s Discussion and Analysis for the three month period ended March 31, 2015 for discussion of IFRIC 21.

Summary of Significant Events:

  • For the three month period ended March 31, 2015, the REIT achieved FFO per Unit of $0.310 and AFFO per Unit of $0.237. For the three month period ended March 31, 2014, the REIT reported FFO and AFFO per Unit of $0.296 and $0.215, respectively. The increases in FFO and AFFO represent FFO and AFFO growth of 5.6% and 10.4%, respectively.
  • The REIT’s payout ratio for the three month period ended March 31, 2015 decreased to 82% from the payout ratio of 90% for the three month period ended March 31, 2014.
  • During the three month period ended March 31, 2015, the REIT’s Board of Trustees approved a new U.S.-focused investment strategy that was recommended by the REIT’s external asset manager pursuant to which the REIT intends to seek to dispose of all or substantially all of its existing Canadian real estate assets and reinvest the related proceeds of disposition in real estate assets in the United States. The REIT believes that acquiring additional assets located in the United States will be in the best interest of the REIT and its Unitholders as valuations, financing and operating fundamentals in the United States are currently more attractive than in Canada. The disposition of all or substantially of the REITs existing Canadian real estate assets would increase the taxable portion of the REIT’s distribution to its Unitholders in the year of disposition.
  • The REIT has experienced strong NOI, FFO and AFFO growth during the first quarter of 2015 primarily as a result of occupancy gains from the REIT’s U.S. assets, and strength in the U.S. economy displayed through the increased value in the United States Dollar (“USD” or “US$”) compared to the CAD.
  • As at January 1, 2015, the occupancy rate of the REIT’s U.S. assets was 93.4%, and increased during the first quarter of 2015. As at April 1, 2015, the comparable occupancy rate of the REIT’s U.S. assets was 94.0%, excluding the Oakbrook Technology Center (as defined below), which was acquired on February 9, 2015.
  • The aforementioned occupancy gains and strength in the USD compared to the CAD were positively reflected in the REIT’s Same Store Adjusted NOI, which grew $977, or 9.5%, quarter over quarter, including the impact of foreign exchange.
  • On February 2, 2015, the REIT completed the lease renewal of 103,645 square feet of the expiring 117,437 square feet in Austin, Texas to Life Technologies Corporation, a wholly-owned subsidiary of Thermo Fisher Scientific Inc., for a term of 5 years ending June 2020. The lease includes an increase in net rent per square foot of approximately 27% versus the tenant’s in-place net rent per square foot. As well, the lease renewal represented approximately 33% of all of the REIT’s Texas lease expiries during 2015.
  • On February 5, 2015, consistent with the REIT’s strategy of disposing all or substantially all of its existing Canadian real estate assets, the REIT completed the sale of 20 Valleywood Drive in Markham, Ontario to a third party purchaser for approximately $8.2 million before closing costs, which represented an in-place capitalization rate of approximately 5.9%.
  • On February 9, 2015, the REIT completed the acquisition of 6 industrial properties (the “Oakbrook Technology Center”) located in Atlanta, Georgia for an aggregate purchase price of approximately US$12.9 million before closing costs. The purchase price represented a going-in capitalization rate of approximately 8.4%. The Oakbrook Technology Centre consists of approximately 299,000 square feet in a park-like setting, and is 95% occupied with 28 tenants.
  • On March 2, 2015, the REIT obtained US$10 million of additional debt financing on three office properties located in Houston, Texas. The interest rate on this additional debt was effectively fixed by the REIT by entering into an interest rate swap agreement, at a weighted average interest rate of approximately 3.5% per annum. These funds were used to temporarily reduce the amount drawn from the REIT’s credit facility.
  • On March 6, 2015, the REIT announced that Anthony Messina was appointed by the Board of Trustees of the REIT to serve as a new independent trustee of the REIT. In addition, the REIT announced that Richard Dansereau, an independent trustee of the REIT and former Interim Chair of the Board of Trustees of the REIT, was appointed as Chair of the Board of Trustees of the REIT.
  • On April 21, 2015, the REIT disposed of a 70,000 square foot single-tenant industrial building located at 8271 Anderson Court in Odenton, Maryland. The sale price for this non-core asset of the REIT was approximately US$11.3 million before closing costs, which represented an in-place capitalization rate of approximately 6.5%. A US$3.7 million mortgage of the REIT that was previously secured by the property is now secured by cash until a replacement property is acquired by the REIT and secured under the mortgage.
  • Subsequent to March 31, 2015, the occupancy rate of the REIT’s Consumers Road complex decreased by 7% due to the impact of IBM Canada’s early renewal that was completed during the second quarter of 2013. IBM Canada’s renewal premises comprises both office and data centre space, as well as approximately 20,000 square feet of enclosed space outside the building’s BOMA GLA that is used to support IBM’s data centre space. The lease renewal consisted of IBM renewing approximately 102,000 square feet (which commenced on April 1, 2015) compared to approximately 168,000 square feet that was previously occupied. IBM’s lease term, however, was extended for an additional 10 years until March 31, 2025, and reflected an increase in the net rent per square foot paid by IBM. The reduction in occupancy was partially offset by approximately 10,000 square feet of new leasing that was completed at the Consumers Road complex within the three month period ended March 31, 2015. The result of this renewal and new leasing represents a decrease of approximately $0.0125 of AFFO per Unit per quarter assuming no other changes at the Consumers Road Complex.

“As evidenced by the leasing activity that our portfolio experienced during the first quarter of 2015, the U.S. commercial real estate market has continued to gain momentum,” said Frank Camenzuli, Chief Executive Officer of the REIT. “We continue to be strong believers in the U.S. commercial real estate market and intend to invest in specific areas where we can maximize the growth potential of the assets.”

The REIT will hold a conference call to discuss the REIT’s financial performance for the period ended March 31, 2015 on Tuesday, May 5, 2015 at 4:00 p.m. EST. To access the call, please dial 1-416-695-7806 or 1-866-696-5910 and enter the participant pass code: 2232295. For operator assistance during the call, please press *0. A replay of the conference call will be available from 5:00 p.m. EST on May 5, 2015 until midnight EST, May 19, 2015. To access the replay, call 1-905-694-9451 or 1-800-408-3053 and enter participant pass code: 2288555.

Other information:

Information appearing in this news release is a select summary of results. The REIT’s consolidated financial statements along with management’s discussion and analysis for the three month period ended March 31, 2015 (“MD&A”) are available electronically on the REIT’s website at www.agellanreit.com and under the REIT’s issuer profile at www.sedar.com.

The REIT is an unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. The REIT has been created for the purpose of acquiring and owning industrial, office and retail properties in select major urban markets in the United States and Canada.

The REIT's current portfolio comprises approximately 4.5 million square feet of gross leasable area in 31 properties. The properties are primarily located in major urban markets in the United States and Canada.

Non-IFRS supplemental measures:

Certain terms used in this news release are not recognized under International Financial Reporting Standards (“IFRS”) and therefore these terms should not be construed as alternatives to IFRS measures, such as net income or cash flow from operating activities, nor are these terms necessarily comparable to similar measures presented by other reporting issuers. These terms are used by management to measure, compare and explain the operating results and financial performance of the REIT. Management believes that these terms are relevant measures in comparing the REIT’s performance to industry data and the REIT’s ability to earn and distribute cash to holders of the REIT’s units. These non-IFRS measures, including FFO, AFFO, Payout Ratio, Gross Book Value, Adjusted net operating income, and related per Unit amounts are defined and FFO and AFFO are reconciled to net income in the REIT’s MD&A, which should be read in conjunction with this news release.

Forward-looking information:

This press release contains forward-looking information within the meaning of applicable securities legislation. Forward-looking information can be identified by words or expressions including, but not limited to, “plans”, “expects”, “scheduled”, “estimates”, “intends”, “anticipates”, “predicts”, ”projects”, “believes”, or variations of such words and phrases or statements to the effect that certain actions, events or results “may”, “will”, “could”, “would”, “should”, “might”, “occur”, “be achieved” or “continue” or similar expressions. Forward-looking information is necessarily based on a number of estimates and assumptions that are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies, many of which are beyond the REIT’s control, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to: the REIT’s future growth potential; results of operations; future prospects for additional investment opportunities in Canada and the U.S., including access to debt and equity capital at acceptable costs and the ability to obtain necessary approvals and to minimize any unexpected costs or liabilities, environmental or otherwise, relating to any acquisitions or dispositions; demographic and industry trends remaining unchanged, including occupancy levels, lease renewals, rental increases and retailer competition; future levels of the REIT’s indebtedness remaining at acceptable levels, including its credit rating; tax laws as currently in effect remaining unchanged, including applicable SIFT rules; and current economic conditions remaining unchanged, including interest rates and applicable foreign exchange rates. Readers, therefore, should not place undue reliance on any such forward-looking statements. All forward-looking information in this press release speaks only as of the date of this press release. The REIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise, except as required by applicable securities laws. All forward-looking statements in this press release are qualified by these cautionary statements. Additional information about these assumptions and risks and uncertainties is contained in the REIT’s filings with securities regulators, including its latest annual information form and MD&A.

Contacts

Agellan Commercial Real Estate Investment Trust
Derek Dermott, (416) 593-6800, ext. 269
President
ddermott@agellancapital.com
or
Frank Camenzuli, (416) 593-6800, ext. 226
Chief Executive Officer
fcamenzuli@agellancapital.com

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