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Agellan Commercial Real Estate Investment Trust

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Agellan Commercial Real Estate Investment Trust Releases Fourth Quarter 2017 Results

TORONTO

Agellan Commercial Real Estate Investment Trust (“Agellan” or 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 month period and year ended December 31, 2017. All dollar amounts (except per Unit amounts) are in thousands of Canadian dollars (“CAD”), unless otherwise stated.

             
FINANCIAL AND OPERATIONAL HIGHLIGHTS     December 31, 2017     December 31, 2016
       
Summary of Operational Information
Number of Properties 44 34
Gross Leasable Area ("GLA") (in 000's) 6,652 5,896
Occupancy % (at fiscal period end) 96.2% 93.2%
Average lease term to maturity (years) 4.0 4.0
 
Summary of Financial Information
Gross Book Value(1) $832,768 $777,013
Debt (face value) $392,507 $412,902
Debt to Gross Book Value(1) 47% 53%
Interest Coverage Ratio (annual) (1) 2.3x 3.2x
Weighted average interest rate     4.2%     4.1%
         
  For the three month period ended   For the year ended,
    December 31, 2017   December 31, 2016   December 31, 2017   December 31, 2016
Total Revenue $26,450   $23,167 $101,599   $88,602
Net Operating Income ("NOI")(1) $15,402 $13,387 $59,699 $51,175
Net Income $16,353 $23,965 $52,643 $19,775
Funds From Operations ("FFO")(1) (2) ($3,245) $8,715 $24,930 $32,309
Adjusted Funds From Operations ("AFFO")(1) $8,750 $7,447 $33,281 $27,181
Adjusted Cash Flow From Operations ("ACFO")(1) (2) $3,472 $7,290 $26,943 $26,975
Basic and Diluted FFO per Unit(1) ($0.097) $0.312 $0.774 $1.278
Basic and Diluted AFFO per Unit(1) $0.262 $0.266 $1.033 $1.076
Basic and Diluted ACFO per Unit(1) $0.104 $0.261 $0.837 $1.067
Distributions Declared $6,479 $5,413 $25,235 $19,599
Cash Distributions Declared(1) $6,292 $5,217 $24,503 $19,184
Distributions per Unit $0.194 $0.194 $0.784 $0.775
Payout Ratio(1) 187% 74% 94% 73%
Cash Payout Ratio(1) 181% 72% 91% 71%
Units Outstanding at Period-end 33,734,508 27,947,350 33,734,508 27,947,350
Weighted Average Units Outstanding (Basic) 33,336,510 27,955,963 32,205,153 25,272,597
Weighted Average Units Outstanding (Diluted)   33,336,510   27,955,963   32,205,153   25,273,405
(1) This is a non-IFRS financial measures. Please see “Non-IFRS supplemental measures” below.
(2) These IFRS and non-IFRS financial measures were impacted by costs associated with the Asset Acquisition and Internalization and Proxy Matter (both defined below), both of which are further discussed in the REIT’s Management Discussion and Analysis for the three month period and year ended December 31, 2017 (the “MD&A”).
 

Summary of Significant Events:

Financial Highlights

  • For the three month period ended December 31, 2017, the REIT achieved net income of $16,353, compared to net income of $23,965 for the three month period ended December 31, 2016. This represents a decrease in net income of $0.366 per Unit.
  • For the three month period ended December 31, 2017, the REIT’s FFO and ACFO per Unit was negatively impacted by non-reoccurring expenses related to the Proxy Matter and the Asset Acquisition and Internalization, each of which are discussed further in the REIT’s the MD&A. For the three month period ended December 31, 2017, FFO per Unit was negative $0.097 and ACFO per Unit was $0.104 compared to $0.312 and $0.261, respectively, for the three month period ended December 31, 2016. Excluding costs associated with the Proxy Matter and Asset Acquisition and Internalization, FFO and ACFO per Unit for the three month period ended December 31, 2017 would have been $0.312 and $0.260, respectively.
  • For the three month period ended December 31, 2017, the REIT achieved AFFO per Unit of $0.262 compared to $0.266 for the three month period ended December 31, 2016. This represents a 1.5% decrease in AFFO per Unit.
  • For the year ended December 31, 2017, the REIT achieved net income of $52,643 compared to net income of $19,775 for the year ended December 31, 2016. This represents an increase in net income of $0.853 per Unit.
  • For the year ended December 31, 2017, the REIT achieved FFO per Unit and ACFO per Unit of $0.774 and $0.837, respectively, compared to $1.278 and $1.067, respectively, for the year ended December 31, 2016. These decreases are primarily the result of non-reoccurring expenses related to the Proxy Matter and the Asset Acquisition and Internalization, each of which are discussed further in the MD&A. Excluding these costs, FFO per Unit and ACFO per Unit for the year ended December 31, 2017 would have been $1.208 and $1.009, respectively.
  • For the year ended December 31, 2017, the REIT achieved AFFO per Unit of $1.033 compared to $1.076 for the year ended December 31, 2016. This represents a 4.0% decrease in AFFO per Unit.
  • The REIT’s Payout Ratios for the three month period and year ended December 31, 2017 were 187% and 94%, respectively. The REIT’s Payout Ratio was significantly impacted by non-reoccurring expenses related to the Proxy Matter and the Asset Acquisition and Internalization, each of which are discussed further in the MD&A. Excluding these costs the REIT’s Payout Ratio for the three month period and year ended December 31, 2017 would have been 75% and 78%, respectively.

Operational Highlights

  • As at January 1, 2018, the overall occupancy rate of the REIT’s portfolio was 95.7%, representing a slight decrease from the October 1, 2017 occupancy rate of 95.9%. This decrease was primarily the result of approximately 43,000 sqft of newly developed retail space being placed in service as of January 1, 2017. As at January 1, 2018 the retail space is approximately 7% occupied and the committed occupancy is approximately 53% with occupancy beginning throughout the first half of 2018.
  • On each of January 11, 2017 and January 31, 2017, the REIT received full building permits for the development of the retail and parking facility and car dealership to be constructed at the REIT’s Consumers Road complex in Toronto, Ontario. The building permits are conditional on the REIT performing certain work described in the previously executed site plan and plan of subdivision.
  • On February 27, 2017, the REIT closed a public offering of 4,807,000 Units at a price of $11.45 per Unit for aggregate gross proceeds of approximately $55,040, which included 437,000 Units issued pursuant to of the exercise in full of the underwriters’ over-allotment option. The REIT used the net proceeds from the offering to repay approximately US$9.0 million of outstanding mortgage debt as well as certain indebtedness owing under the REIT's existing credit facilities with the remainder to be used to fund future acquisitions and for general business purposes.
  • On March 31, 2017, the REIT repaid US$9.0 million of outstanding mortgage debt secured by the REIT’s Houston office properties with certain of the net proceeds from the February 27, 2017 public offering of Units. In conjunction with the repayment, the REIT extended the mortgage maturity dates to November 12, 2019.
  • On April 18, 2017, the REIT made an indirect investment in a 410,000 sqft multi-tenanted distribution centre located in Tampa, Florida. The total purchase price of the property was approximately US$15.2 million (before closing costs) and was financed, in part, by a US$7.8 million first mortgage, which matures on May 1, 2027 and bears interest at a fixed rate of 4.40% per annum. The REIT purchased its 9% non-controlling interest through a strategic partnership with a private Canadian-based investor. The property was purchased by the partnership at a capitalization rate of 9.2%. The REIT expects to make further investments in other properties through this partnership, which is focussed on acquiring quality value-add industrial properties located in the U.S. that can generate superior cash flow and returns.
  • On April 25, 2017, the REIT acquired an industrial distribution facility located in Flint, Michigan. The facility comprises approximately 400,000 sqft of GLA and was acquired for an aggregate purchase price of approximately US$16.0 million (before closing costs), representing a capitalization rate of approximately 12%. The facility is fully leased to General Motors LLC and was financed by drawing down funds under the REIT’s credit facility.
  • On June 27, 2017, the REIT acquired eight industrial properties located throughout suburban Chicago, Illinois. The properties are comprised of approximately 314,000 sqft of GLA and were acquired for an aggregate purchase price of approximately US$28.0 million (before closing costs), representing a capitalization rate of approximately 7.7%. The REIT financed the acquisition of the properties by drawing on its operating credit facility and obtaining a first mortgage.
  • On July 28, 2017, the REIT received an occupancy permit from the City of Toronto and Porsche Cars Canada Ltd. took occupancy of the newly constructed premises at the REIT’s Consumers Road complex. The REIT is required to complete certain development work in accordance with the lease agreement with the tenant.
  • On September 18, 2017, the REIT entered into an asset purchase agreement with ACPI to acquire substantially all of the assets of the REIT’s external manager and internalize the REIT’s asset management function (the “Asset Acquisition and Internalization”).
  • On September 28, 2017 the REIT disposed of its interest in 165 Yorkland LP, a limited partnership established by the REIT to own a car dealership and corporate head office at its Consumers Road complex pursuant to a lease agreement with Porsche Cars Canada Ltd. The REIT disposed of its partnership interest for approximately $42,276 before transaction costs, working capital adjustments and holdbacks. Certain proceeds from the disposition were used to repay the REIT’s construction facility in respect of the project and the remaining proceeds will be used by the REIT to complete the development of a retail and parking facility servicing the REIT’s Consumers Road complex.
  • On November 13, 2017, the REIT closed the Asset Acquisition and Internalization pursuant to an amended asset purchase agreement in respect thereof dated the same date. Upon closing of the Asset Acquisition and Internalization, a Canadian operating limited partnership of the REIT acquired all requisite assets of ACPI to internalize the REIT’s asset management function and all executives and other employees of ACPI became employees of the REIT or its subsidiaries. For further discussion regarding the Asset Acquisition and Internalization please refer to the MD&A.
  • Also on November 13, 2017, the REIT announced that it had entered into a settlement agreement with ELAD Canada Inc. and Sandpiper Group in respect of a potential proxy contest (the “Proxy Matter”). As part of the settlement agreement, Sandpiper Group withdrew its previously announced Unitholder meeting requisition and the REIT appointed Renzo Barazzuol, Dov Meyer, and Aida Tammer to the board of trustees of the REIT. For further discussion regarding the Proxy Matter please refer to the MD&A.

Subsequent Events

  • Subsequent to year end, on January 9, 2018 the REIT entered into an agreement to purchase 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 lease term of 4.6 years. The acquisition is expected to close towards the end of the first quarter of 2018 for U.S. $5,280, representing a capitalization rate of 8.1%. The REIT anticipates financing the transaction with funds from its credit facility.
  • Subsequent to year end, on February 28, 2018 the REIT extended the maturity of the REIT’s credit facility and increased the maximum funds available thereunder. The credit facility now matures on January 25, 2020 and the maximum availability thereunder has been increased from $120.0 million to $140.0 million.

“Operationally, it was an excellent year for us,” said Frank Camenzuli, Chief Executive Officer. “The average occupancy rate of the portfolio at year end was 95.7%, one of the highest levels ever reported by the REIT, we made excellent progress at Parkway Place, both in terms of leasing activity and completing our developments, we purchased an additional 800,000 sqft of industrial properties at favourable capitalization rates and, in the fourth quarter, we internalized management. As we look forward to 2018, we believe the REIT has many opportunities for growth and foresee further advancements on our strategic objectives as the year progresses.”

The REIT will hold a conference call to discuss the REIT’s financial performance for the three month period and year ended December 31, 2017 on Tuesday, March 6, 2018 at 2:00 p.m. (Toronto time). To access the call, please dial 1-416-340-2217 or 1-888-789-9572 and enter the participant pass code: 7097922. 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 March 5, 2018 until midnight (Toronto time) on March 20, 2018. To access the replay, please call 1-905-694-9451 or 1-800-408-3053 and enter participant pass code: 8596403.

Other information:

Information appearing in this news release is a select summary of results. The REIT’s consolidated financial statements along with the 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 45 properties contain 7.1 million square feet of gross leasable area, with the REIT’s ownership interest at 6.7 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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