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Agellan Commercial Real Estate Investment Trust

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Agellan Commercial Real Estate Investment Trust Releases First Quarter 2017 Results

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

             
FINANCIAL AND OPERATIONAL HIGHLIGHTS       March 31, 2017   December 31, 2016
     
Summary of Operational Information
Number of Properties 34 34
Gross Leasable Area ("GLA") (in 000's) 5,896 5,896
Occupancy % (at period end) 94.2% 93.2%
Average lease term to maturity (years) 4.0 4.0
 
Summary of Financial Information
Gross Book Value(1) $788,956 $777,013
Debt (face value) $371,168 $412,902
Debt to Gross Book Value(1) 47% 53%
Interest Coverage Ratio (annual)(1) 2.9x 3.2x
Weighted average interest rate 4.2% 4.1%
 
For the three month period ended
March 31, 2017 March 31, 2016 Variance
 
Total Property and Property Related Revenue $24,063 $22,369 $1,694
Net Operating Income ("NOI")(1) $14,024 $13,087 $937
Net Income (Loss) $6,949 ($1,154) $8,103
Funds From Operations ("FFO")(1) $8,313 $7,964 $349
Adjusted Funds From Operations ("AFFO")(1) $7,051 $6,509 $542
Adjusted Cash Flow From Operations ("ACFO")(1) $6,633 $6,474 $159
 
Basic and Diluted FFO per Unit(1) $0.28 $0.34 ($0.06)
Basic and Diluted AFFO per Unit(1) $0.24 $0.28 ($0.04)
Basic and Diluted ACFO per Unit(1) $0.23 $0.28 ($0.05)
Distributions per Unit $0.206 $0.194 $0.012
 
Payout Ratio(1) 86% 70%
Units Outstanding at Period-end: 32,770,050 23,395,139
Weighted Average Units Outstanding (Basic) 29,401,636 23,430,333
Weighted Average Units Outstanding (Diluted)   29,401,636   23,432,073    
 

(1) This is a non-IFRS measure. Please see “Non-IFRS supplemental measures” below.

Summary of Significant Events:

  • For the three month period ended March 31, 2017, the REIT achieved net income of $6,633, compared to a net loss of $1,154 for the three month period ended March 31, 2016. This increase represents an increase in net income per unit of $0.285 per unit.
  • For the three month period ended March 31, 2017, the REIT achieved FFO of $8,313, AFFO of $7,051 and ACFO of $6,633, compared to $7,964, $6,509, and $6,474, respectively for the three month period ended March 31, 2016. This represents a 4.4% increase in FFO, an 8.3% increase in AFFO, and a 2.5% increase in ACFO.
  • For the three month period ended March 31, 2017, the REIT achieved FFO per Unit of $0.283, AFFO per Unit of $0.240, and ACFO per Unit of $0.226, compared to $0.340, $0.278, and $0.276 respectively, for the three month period ended March 31, 2016. This represents a 16.8% decrease in FFO per Unit, a 13.7% decrease in AFFO per Unit, and an 18.1% decrease in ACFO per Unit.
  • For the three month period ended March 31, 2017, the REIT achieved NOI of $14,024 compared to $13,087 for the three month period ended March 31, 2016, representing growth of 7.2%.
  • During the three month period ended March 31, 2017, the REIT was negatively affected by the increase in the average valuation of the CAD relative to the United States Dollar (“USD” or “US$”) compared to the three month period ended March 31, 2016, which reduced income generated from the REIT’s US assets relative to the three month period ended March 31, 2016. The REIT generated approximately 73% of its NOI from assets located in the United States for the three month period ended March 31, 2017, and the increase in the average valuation of the CAD relative to the USD reduced the NOI the REIT generated from its US assets during the period.
  • The REIT’s Payout Ratio for the three month periods ended March 31, 2017 and March 31, 2016 were 86% and 70%, respectively. For the three month period ended March 31, 2017, the REIT’s Payout Ratio was negatively impacted by the REIT’s public offering of Units on February 27, 2017 as the purchasers of these Units were entitled to participate in the distribution payable for the month of February 2017. As well, funds received from the public offering were not fully deployed into acquisitions during the quarter ended March 31, 2017 and additional listing fees payable to the TSX increased general and administrative costs.
  • As at April 1, 2017, the overall occupancy rate of the REIT’s portfolio was 94.5%, up from 93.1% as of January 1, 2017. This increase was primarily due to tenants that had entered into previously announced leases taking occupancy at the REIT’s Toronto and Houston office properties.
  • During, and subsequent to, the three month period ended March 31, 2017, the REIT entered into leases at its Consumers Road complex to replace approximately 44% of leases that were scheduled to expire during 2017 and 2018. These new and amended leases reflect weighted average net rents that are comparable to the weighted average net rents of the expiring leases, but include contractual increases over the terms of the leases.
  • At its industrial properties in Atlanta, Georgia, during the three month period ended March 31, 2017, the REIT entered into new leases representing approximately 11,000 square feet (“sqft”) and lease renewals representing approximately 42,000 sqft. The lease renewals account for approximately 33% of all 2017 scheduled lease expiries in the REIT’s Atlanta portfolio and were completed at weighted average net rents that were approximately 18% higher than the comparable weighted average net rents of the expiring leases.
  • The REIT has continued to enter into new leases at its Houston-area office and industrial properties. During the first quarter of 2017, the REIT leased approximately 40,000 sqft of industrial space at its Minimax Drive property, thereby eliminating the remaining vacancy at the property effective as of May 1, 2017. This industrial space was re-leased with an approximate 32% increase in net rental rates as compared with the net rental rate of the previous tenant.
  • Within the REIT’s Houston industrial portfolio, during the three month period ended March 31, 2017, approximately 70,000 sqft of GLA was renewed. These lease renewals account for approximately 25% of the 2017 scheduled lease expiries at the REIT’s Houston industrial properties, and were completed at weighted average net rental rates that were approximately 4% higher than the comparable weighted average net rental rates of the expiring leases.
  • 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, as well as the 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.
  • The REIT secured new leases at the retail and parking development at the REIT’s Consumers Road complex in Toronto, Ontario, with approximately 13,000 sqft of such space having been leased or being subject to binding offers to lease. The REIT is currently in discussions with several other retailers for the remaining 30,000 sqft of retail space within the complex and has seen an increase in leasing momentum as development activities near completion.
  • 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 and the remainder will be used to fund future acquisitions and for general business purposes.
  • On March 16, 2017, the REIT extended the maturity of its credit facility for an additional year with its current lenders. The credit facility now matures on January 25, 2019.
  • 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 aforementioned public offering. In conjunction with the repayment, the REIT extended the mortgage maturity dates to November 12, 2019.
  • Subsequent to quarter end, 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 this 9% non-controlling interest through a strategic partnership with a private Canadian based investor. The property is 88% occupied, has a weighted average lease term of 4.27 years from the date of acquisition, and was purchased 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 US that can generate superior cash flow and returns.
  • Subsequent to quarter end, on April 25, 2017, the REIT acquired an industrial distribution facility located in Flint, Michigan. The facility comprises approximately 400,000 sqft of gross leasable area 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 for a remaining term of 4.35 years from the date of acquisition. The REIT financed the acquisition by drawing down funds under its credit facility.

“The REIT has begun to realize the hard work of its leasing efforts at its Consumers Road complex, achieving the property’s highest occupancy in recent history,” said Frank Camenzuli, Chief Executive Officer of the REIT. “With continued dedication to leasing and ongoing access to acquisition opportunities, the REIT is poised for further growth through 2017 and beyond.”

The REIT will hold a conference call to discuss the REIT’s financial performance for the three month period ended March 31, 2017 on Tuesday, May 9, 2017 at 2:00 p.m. (Toronto time). To access the call, please dial 1-416-340-2217 or 1-800-806-5484 and enter the participant pass code: 3660591. 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 May 9, 2017 until midnight (Toronto time) on May 24, 2017. To access the replay, please call 905-694-9451 or 1-800-408-3053 and enter participant pass code: 6267024.

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, 2017 (“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 36 properties contain 6.7 million sqft of gross leasable, with the REIT’s ownership interest at 6.3 million sqft. 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, and FFO, AFFO and ACFO 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 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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