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Agellan Commercial Real Estate Investment Trust

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Agellan Commercial Real Estate Investment Trust Releases Second Quarter 2018 Results

TORONTO

Agellan Commercial Real Estate Investment Trust (the “REIT”) (TSX:ACR.UN):

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

Agellan Commercial Real Estate Investment Trust (the “REIT”) (TSX:ACR.UN) is pleased to report its financial results for the three and six month periods ended June 30, 2018. All dollar amounts (except per Unit amounts) are in thousands of Canadian dollars (“CAD”), unless otherwise stated.

HIGHLIGHTS

  • Further advancements on the REIT’s strategic initiatives with the disposition of its Consumers Road complex for $256.3 million (before closing costs and other adjustments) and its office property in Charlotte, North Carolina for US$22.65 million (before closing costs and other adjustments);
  • Acquisition of two industrial properties during the second quarter of 2018 located in Dallas, Texas and Laurel, Maryland for an aggregate purchase price of US$17.48 million (before closing costs and other adjustments);
  • Portfolio occupancy of 96.7% further secured by significant leasing activity at the REIT’s Naperville office property.

“Operational achievements at the REIT’s Naperville office property have strengthened the profile of the REIT’s largest asset, allowing management to focus on further growing the REIT’s presence in U.S. industrial real estate,” said Frank Camenzuli, the REIT’s Chief Executive Officer.

                               
FINANCIAL AND OPERATIONAL HIGHLIGHTS       June 30, 2018   December 31, 2017
       
Summary of Operational Information
Number of Properties 45 44
Gross Leasable Area ("GLA") (in 000's) 6,080 6,652
Occupancy % (at period end) 96.9% 96.2%
Average lease term to maturity (years) 3.5 4.0
 
Summary of Financial Information
Gross Book Value(1) $752,549 $832,768
Debt (face value) $255,684 $392,507
Debt to Gross Book Value(1) 34% 47%
Interest Coverage Ratio (year to date period)(1) 3.3x 2.3x
Weighted average interest rate       4.2%   4.2%
 
             
      For the three month period ended   For the year to date period ended
        June 30, 2018   June 30, 2017   June 30, 2018   June 30, 2017
Net Operating Income ("NOI")(1) $15,087   $14,833 $30,557   $28,857
Net Income $10,177 $10,929 $50,832 $17,878
Funds From Operations ("FFO")(1) $9,349 $10,014 $19,539 $18,326
Adjusted Funds From Operations ("AFFO")(1) $8,847 $8,103 $17,434 $14,673
Adjusted Cash Flow From Operations ("ACFO")(1) $8,519 $264 $16,767 $5,145
Basic and Diluted FFO per Unit(1) $0.276 $0.305 $0.578 $0.586
Basic and Diluted AFFO per Unit(1) $0.261 $0.247 $0.515 $0.469
Distributions Declared $6,846 $6,357 $13,683 $12,393
Distributions per Unit $0.202 $0.194 $0.405 $0.396
Payout Ratio(1) 80% 2408% 82% 241%
Units Outstanding at Period-end 33,829,626 32,830,461 33,829,626 32,830,461
Weighted Average Units Outstanding (Basic and Diluted)       33,836,314   32,844,881   33,824,933   31,295,210
        (1)   This is a non-IFRS financial measures. Please see “Non-IFRS supplemental measures” below.
 

Summary of Significant Events:

Financial Highlights

  • For the three month period ended June 30, 2018, the REIT achieved net income of $10,177, compared to net income of $10,929 for the three month period ended June 30, 2017. This represents a decrease in net income of $0.032 per Unit.
  • For the three month period ended June 30, 2018, the REIT achieved FFO per Unit of $0.276, compared to $0.305 for the three month period ended June 30, 2017. FFO per Unit was negatively impacted by accruals for contingent consideration associated with the Asset Acquisition and Internalization totalling approximately $750. Excluding costs associated with the Asset Acquisition and Internalization FFO per Unit for the three month period ended June 30, 2018 was $0.298.
  • For the three month period ended June 30, 2018, the REIT achieved AFFO per Unit of $0.265, compared to $0.247 for the three month period ended June 30, 2017. This represents a 5.7% increase in AFFO per unit.
  • For the three month period ended June 30, 2018, the REIT’s ACFO was $8,519 and its Payout Ratio was 80%.
  • For the six month period ended June 30, 2018, the REIT achieved net income of $50,832, compared to net income of $17,878 for the six month period ended June 30, 2017. This represents an increase in net income of $0.932 per Unit.
  • For the six month period ended June 30, 2018, the REIT achieved FFO per Unit of $0.578, compared to $0.586 for the six month period ended June 30, 2017. FFO per Unit was negatively impacted by accruals for contingent consideration associated with the Asset Acquisition and Internalization totalling approximately $750. Excluding costs associated with the Asset Acquisition and Internalization FFO per Unit for the six month period ended June 30, 2018 was $0.600.
  • For the six month period ended June 30, 2018, the REIT achieved AFFO per Unit of $0.515, compared to $0.469 for the six month period ended June 30, 2017. This represents a 9.8% increase in AFFO per Unit.
  • For the six month period ended June 30, 2018, the REIT’s ACFO was $16,767 and its Payout Ratio was 82%.

Operational Highlights

  • As at July 1, 2018, the overall occupancy rate of the REIT’s portfolio was 96.7%, representing a decrease from the April 1, 2018 occupancy rate of 97.4%. This decrease was primarily the result of one tenant that occupied approximately 28,500 square feet of GLA vacating one of the REIT’s Chicago industrial properties during the quarter.
  • On April 30, 2018, the REIT acquired seven light industrial properties located in northeast Dallas, Texas. The properties comprise approximately 194,000 square feet of GLA, are 97% occupied and have a weighted average lease term of approximately 2.3 years. The acquisition price was approximately US$12.2 million (before closing costs), representing a going-in capitalization rate of approximately 7.7%. The transaction was financed with funds from the REIT’s credit facility and an US$8.0 million first mortgage secured by the property.
  • On May 18, 2018, the REIT acquired a 58,000 square foot multi-tenant industrial property located in Laurel, Maryland. The property is currently 92% occupied by 6 tenants with a weighted average remaining lease term of 4.15 years. The acquisition price was approximately US$5.28 million (excluding closing costs), representing a going-in capitalization rate of 8.1%.
  • On May 31, 2018, the REIT disposed of its Consumers Road complex, including the four office properties and newly developed retail space and parking garage. The sale price for the property was approximately $256.3 million (excluding closing costs) and was subject to certain adjustments in respect of, among other things, certain committed leasing costs. In conjunction with the sale of the REIT’s Consumers Road complex, the REIT has also agreed to an approximately $2.8 million vendor head lease with the purchaser in respect of certain vacant retail space. A portion of the sale proceeds were used to repay all outstanding amounts owing under the REIT’s credit facility secured by the REIT’s Consumers Road complex and to repay certain other outstanding debt, including mortgages secured by the REIT’s Naperville and Ottawa office properties. The REIT intends to use the remaining proceeds to: (i) to acquire industrial assets located in the REIT’s target markets in the United States, (ii) to make a special distribution to Unitholders (as described in “Part IV – Distributions and Adjusted Cash Flow from Operations” of the REIT’s MD&A), and (iii) for general business and working capital purposes.

Subsequent Events

  • On July 13, 2018, the REIT completed the sale of its approximately 118,500 square foot, five story multi-tenant office building located at 10130 Perimeter Parkway in Charlotte, North Carolina. The sale price for this non-core asset was approximately US$22.65 million (before closing costs) and represented an in-place capitalization rate of 7.46%.
  • On July 16, 2018 the REIT announced that it has entered into a lease with Aldi Inc. (“Aldi”) at the REIT’s Naperville, Illinois office property for approximately 113,000 square feet of GLA at current market rates. Aldi is expected to occupy approximately 80% of the approximately 141,000 square feet of GLA that the REIT previously announced would be surrendered by Health Care Service Corporation (“HCSC”). Aldi’s lease will commence on January 1, 2019 and will have a term of 10 years.
  • Also on July 16, 2018 the REIT announced that it has entered into a lease amendment with HCSC whereby HSCS will extend its current lease term in respect of approximately 25,000 square feet of GLA at the REIT’s Naperville office property, which HCSC previously advised would be surrendered. The amended lease will be coterminous with the lease for the remainder of the space leased to HCSC, which will expire in November 2025. In addition, HCSC will expand its presence at the property by leasing approximately 32,000 square feet of additional space at lease rates that are consistent with those contained in the previously described lease amendment between the REIT and HCSC. The term of this expansion will also be coterminous with the rest of HCSC’s leased area.
  • On July 19, 2018, the REIT declared a monthly distribution for the month ended July 31, 2018 of $0.0675 per Unit, consistent with an annual distribution rate of $0.81 per Unit.

The REIT will hold a conference call to discuss the REIT’s financial performance for the three and six month periods ended June 30, 2018 on Tuesday, August 14, 2018 at 2:00 p.m. (Toronto time). To access the call, please dial 1-416-641-6104 or 1-800-806-5484 and enter the participant pass code: 5276411. For operator assistance during the call, please press *0.

A replay of the conference call will be available from 5:00 p.m. (Toronto time) on August 14, 2018 until midnight (Toronto time) on September 14, 2018. To access the replay, please call 1-905-694-9451 or 1-800-408-3053 and enter participant pass code: 4332539.

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 and six month periods ended June 30, 2018 (“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 44 properties contain 6.3 million square feet of gross leasable area, with the REIT’s ownership interest at 6.0 million square feet. The properties are 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 Units. These non-IFRS measures, including FFO, AFFO, ACFO, Payout Ratio, Gross Book Value, Interest Coverage Ratio, NOI, and related per Unit amounts are defined, FFO, is reconciled to net income, and AFFO and ACFO are reconciled to cash flows from (used in) operating activities in the REIT’s MD&A, which should be read in conjunction with this news release.

Forward-looking information:

This news 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. As such, management can give no assurance that actual results will be consistent with the forward-looking information. While such assumptions are considered reasonable by management of the REIT based on the information currently available, any of these assumptions could prove to be inaccurate and, as a result, the forward-looking information based on those assumptions could be incorrect. 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 US, including access to debt and equity capital at acceptable costs, 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, the exercise of any early termination rights, 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 specified investment flow-through 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, as forward-looking information involves significant risks and uncertainties and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not the times at or by which such performance or results will be achieved. All forward-looking information in this news release speaks only as of the date of this news 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 news 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 current annual information form and MD&A.

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

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