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Agellan Commercial Real Estate Investment Trust

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Agellan Commercial Real Estate Investment Trust Releases Third Quarter 2016 Results

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 nine month periods ended September 30, 2016. All dollar amounts (except per Unit amounts) are in thousands of Canadian dollars (“CAD”), unless otherwise stated.

FINANCIAL AND OPERATIONAL HIGHLIGHTS               September 30, 2016       December 31, 2015
                 
 
Summary of Operational Information
Number of Properties 33 32
Gross Leasable Area ("GLA") (in 000's) 4,992 4,711
Occupancy % (at period end) 92.0% 92.6%
Average lease term to maturity (years) 3.5 3.4
 
Summary of Financial Information
Gross Book Value(1) $668,949 $678,211
Debt (face value) $331,743 $354,757
Debt to Gross Book Value(1) 50% 52%
Interest Coverage Ratio (annual)(1) 3.3x 3.2x
Weighted average interest rate 3.8% 4.0%
 
For the three month period ended
        September 30, 2016       September 30, 2015       Variance
 
Total Property and Property Related Revenue $21,765 $21,792 ($27)
Net Operating Income ("NOI")(1) $12,585 $12,565 $20
Funds From Operations ("FFO")(1) $7,921 $7,573 $348
Adjusted Funds From Operations ("AFFO")(1) $6,810 $6,146 $664
 
Basic and Diluted FFO per Unit(1) $0.30 $0.32 ($0.02)
Basic and Diluted AFFO per Unit(1) $0.26 $0.26 $0.00
Distributions per Unit $0.195 $0.194 $0.00
 
Payout Ratio(1) 75% 74%
Units Outstanding at Period-end: 27,928,574 23,449,410
Weighted Average Units Outstanding (Basic) 26,228,514 23,561,989
Weighted Average Units Outstanding (Diluted)       26,228,514       23,561,989        

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

Summary of Significant Events:

  • For the three month period ended September 30, 2016, the REIT achieved FFO per Unit of $0.302 and AFFO per Unit of $0.260 compared to $0.321 and $0.261, respectively, for the three month period ended September 30, 2015. This decrease in FFO and AFFO represents a decline of 5.9% and 0.4%, respectively.
  • For the nine month period ended September 30, 2016, the REIT achieved FFO per Unit of $0.968 and AFFO per Unit of $0.810 compared to $0.913 and $0.711, respectively, for the nine month period ended September 30, 2015. This increase in FFO and AFFO represents growth of 6.0% and 13.9%, respectively.
  • For the three month period ended September 30, 2016, the REIT achieved NOI of $12,585 compared to $12,565 for the three month period ended September 30, 2015, representing growth of 0.2%. However, excluding the impact of straight-line rent and amortization of tenant incentives, two non-cash items impacting NOI, the REIT had NOI growth of 3.7% quarter-over-quarter.
  • For the nine month period ended September 30, 2016, the REIT achieved NOI of $37,788 compared to $35,936 for the nine month period ended September 30, 2015. This increase represents growth of 5.2% attributable to improved operating fundamentals, such as increased leasing activity and rental rate growth, appreciation of the USD relative to the CAD, and the net impact of acquisitions and dispositions made since the beginning of 2015.
  • During the nine month period ended September 30, 2016, the REIT benefited from increased Canadian dollar income generated from its U.S. assets due to a 4.9% increase in the average valuation of the United States Dollar (“USD” or “US$”) relative to the CAD compared to the nine month period ended September 30, 2015. The REIT generated approximately 73% of its NOI from assets located in the United States for the nine month period ended September 30, 2016, and this appreciation increased the net operating income the REIT generated from its U.S. assets during the period.
  • The REIT’s Payout Ratio for the three and nine month periods ended September 30, 2016 were 75% and 72%, respectively compared to 74% and 82% for the three and nine month periods ended September 30, 2015. For the three and nine month periods ended September 30, 2016, the REIT’s Payout Ratios were negatively impacted by the REIT’s issuance of Units on August 4, 2016 as the funds received by the REIT from the public offering were not fully deployed into acquisitions during the quarter.
  • As at October 1, 2016, the overall occupancy rate of the REIT’s portfolio was 91.5%, down from 93.4% as of July 1, 2016, primarily due to two tenants vacating approximately 47,000 sqft at 1000 Warrenville Road and 53,000 sqft at 2301 Minimax Drive.
  • During the three month period ended September 30, 2016, the REIT has leased approximately 13,000 sqft of the 53,000 sqft vacancy, at 2301 Minimax Drive, with net rents approximately 35.4% higher than the expiring net rents on the 13,000 sqft. The REIT does not expect the remaining space to remain vacant for a prolonged period due to the strength of the industrial leasing activity in Houston, Texas.
  • During the three month period ended September 30, 2016, the REIT entered into a lease for approximately 11,000 sqft of vendor lease space at the REIT’s Consumers Road property, which is expected to commence March 1, 2017 and further reduce the total area subject to the vendor lease to approximately 10,000 sqft. The lease was completed with net rents approximately 8% higher than the net rent paid by the vendor tenant.
  • Also during the three month period ended September 30, 2016, the REIT extended the lease relating to the single-tenant building located at 1201 John Burgess Road, in Fort Worth, Texas for an additional seven year term. The rental rate for the first year of the extension represents an increase of approximately 2% over the expiring rate, which lease term expires on September 30, 2025.
  • Subsequent to September 30, 2016 the REIT entered into a new lease for approximately 100,000 sqft at 2151 Airwest Boulevard in Plainfield, Indiana, increasing the occupancy of this property to 100%.
  • Subsequent to September 30, 2016 the REIT entered into two new leases totalling approximately 65,000 sqft at 10900 Corporate Center Drive (III) in Houston, Texas, accounting for approximately 67% of the leases set to expire in 2016 and 2017 at the property, thus increasing the weighted average lease term for the property to approximately 4.92 years.
  • Subsequent to September 30, 2016 the REIT also entered into new leases, and renewals at its Warrenville property accounting 86% of the 64,170 sqft expiring at the property during 2017.
  • On July 15, 2016, the REIT announced the resignation of Robert P. Perry from the board of trustees of the REIT and the appointment of Terra Attard to the trustees of the REIT, effective August 2, 2016.
  • On July 27, 2016, the REIT announced that it had entered into agreements with certain private purchasers to sell a portion of the REIT’s Consumers Road property in Toronto, Ontario. The transaction involves the sale to arms-length purchasers of the REIT's partnership interest in 165 Yorkland LP, a limited partnership created by the REIT to own and operate a car dealership and corporate head office at the REIT’s Consumers Road property pursuant to a lease agreement with Porsche Cars Canada. The transaction is expected to close during the second quarter of 2017 and is subject to numerous closing conditions, including the REIT substantially completing the construction of the dealership and the occupancy thereof by Porsche Cars Canada. The gross sale price for the transaction will be determined based on a capitalization rate applied to the annual minimum rent payable, as determined under the lease agreement with Porsche Cars Canada. Such gross sale price represented the fair value of the partnership as of the date of the sale agreements. The disposition is consistent with the REIT's previously announced strategy of recycling capital by selling assets in certain markets that are no longer aligned with its core strategies in order to fund new investment opportunities.
  • On August 4, 2016, the REIT closed a public offering of 4,485,000 units at a price of $10.25 per Unit for aggregate gross proceeds of approximately $45,971, which includes 585,000 Units issued as a result of the exercise in full of the underwriters’ over-allotment option.
  • On September 6, 2016, the REIT announced that is entered into an agreement to acquire a multi-tenant, industrial distribution facility located in Sarasota, Florida (the “Meridian Distribution Center”). The Meridian Distribution Center comprises approximately 907,000 sqft of GLA and is expected to be acquired for an aggregate purchase price of approximately US$52.5 million (before closing costs), representing a going-in capitalization rate of approximately 8.1%. The Meridian Distribution Center is one of the largest distribution facilities in the State of Florida and is 100% occupied by four national and regional tenants. The REIT expects to finance the Meridian Distribution Center with proceeds from its recently completed public Unit offering and the assumption of an existing mortgage that is secured by the property. The acquisition is expected to close in the fourth quarter of 2016 and is subject to certain closing conditions typical for a transaction of this type.
  • On September 8, 2016, the REIT completed the purchase of two multi-tenanted light industrial properties located in Atlanta, Georgia. The two properties consist of four buildings containing an aggregate of approximately 322,000 sqft of GLA. The properties are approximately 92% occupied, have 22 tenants and are a good complement to the seven properties currently owned by the REIT in the Atlanta area. The aggregate purchase price for the properties is US$15,760 (excluding acquisition costs) representing a going in cap rate of approximately 7.25%.

“The REIT has displayed exceptional operational performance over the past three years, and we continue to show advancement on our strategic initiatives,” said Frank Camenzuli, Chief Executive Officer of the REIT, “recent leasing achievements at our Houston and Toronto office assets prove our ability to perform in difficult markets and demonstrate the dedication of the Agellan team.”

The REIT will hold a conference call to discuss the REIT’s financial performance for the period ended September 30, 2016 on Tuesday, November 1, 2016 at 2:00 p.m. EST. To access the call, please dial 1-416-340-2217 or 1-888-789-9572 and enter the participant pass code: 8830471. 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 November 1, 2016 until midnight EST on November 16, 2016. To access the replay, call 905-694-9451 or 1-800-408-3053 and enter participant pass code: 6167618.

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 nine month periods ended September 30, 2016 (“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 5 million square feet of gross leasable area in 33 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, Interest Coverage Ratio, NOI, 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 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 U.S., 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, 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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