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Agellan Commercial Real Estate Investment Trust

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Agellan Commercial Real Estate Investment Trust Releases Fourth 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 month period and year ended December 31, 2016. All dollar amounts (except per Unit amounts) are in thousands of Canadian dollars (“CAD”), unless otherwise stated.

             
FINANCIAL AND OPERATIONAL HIGHLIGHTS       December 31, 2016   December 31, 2015
     
Summary of Operational Information
Number of Properties 34 32
Gross Leasable Area ("GLA") (in 000's) 5,896 4,711
Occupancy % (at period end) 93.2% 92.6%
Average lease term to maturity (years) 4.0 3.4
 
Summary of Financial Information
Gross Book Value(1) $777,013 $678,211
Debt (face value) $412,902 $354,757
Debt to Gross Book Value(1) 53% 52%
Interest Coverage Ratio (annual)(1) 3.2x 3.2x
Weighted average interest rate 4.1% 4.0%
 
For the three month period ended
    December 31, 2016   December 31, 2015   Variance
 
Total Property and Property Related Revenue $23,167 $22,533 $634
Net Operating Income ("NOI")(1) $13,387 $12,538 $849
Funds From Operations ("FFO")(1) $8,715 $7,416 $1,299
Adjusted Funds From Operations ("AFFO")(1) $7,447 $5,923 $1,524
 
Basic and Diluted FFO per Unit(1) $0.31 $0.32 ($0.01)
Basic and Diluted AFFO per Unit(1) $0.27 $0.25 $0.02
Distributions per Unit $0.194 $0.194 $0.00
 
Payout Ratio(1) 73% 77%
Units Outstanding at Period-end: 27,947,350 23,395,139
Weighted Average Units Outstanding (Basic) 27,955,963 23,407,174
Weighted Average Units Outstanding (Diluted)   27,955,963   23,407,174    
 

(1)

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

Summary of Significant Events:

  • For the three month period ended December 31, 2016, the REIT achieved FFO per Unit of $0.312 and AFFO per Unit of $0.266 compared to $0.317 and $0.253, respectively, for the three month period ended December 31, 2015. This represents a 1.6% decrease in FFO and a 5.1% increase in AFFO, respectively.
  • For the year ended December 31, 2016, the REIT achieved FFO per Unit of $1.278 and AFFO per Unit of $1.076 compared to $1.229 and $0.965, respectively, for the year ended December 31, 2015. This increase in FFO and AFFO represents growth of 4.0% and 11.5%, respectively.
  • For the three month period ended December 31, 2016, the REIT achieved NOI of $13,387 compared to $12,538 for the three month period ended December 31, 2015, representing growth of 6.8%, and, excluding the impact of straight-line rent and amortization of tenant incentives, two non-cash items impacting NOI, the REIT had NOI growth of 9.1% quarter-over-quarter.
  • For the year ended December 31, 2016, the REIT achieved NOI of $51,175 compared to $48,474 for the year ended December 31, 2015. This increase represents growth of 5.6% attributable to improved operating fundamentals, such as increased leasing activity and rental rate growth, appreciation of the United States Dollar (“USD” or “US$”) relative to the CAD and the net impact of acquisitions and dispositions made since the beginning of 2015.
  • During the year ended December 31, 2016, the REIT benefited from increased Canadian dollar income generated from its U.S. assets due to a 3.6% increase in the average valuation of the USD relative to the CAD compared to the year ended December 31, 2015. The REIT generated approximately 73% of its NOI from assets located in the United States for the year ended December 31, 2016 and this appreciation increased the NOI the REIT generated from its U.S. assets during the period.
  • The REIT’s Payout Ratios for the three month period and year ended December 31, 2016 were 73% and 72%, respectively, compared to 77% and 80% for the three month period and year ended December 31, 2015, respectively. For the three month period and year ended December 31, 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 and year ended December 31, 2016), and increased general and administrative costs. However, the REIT’s Payout Ratios were positively impacted by the appreciation of the USD relative to the CAD for the year ended December 31, 2016, and currency hedges used to minimize the impact of changes in the USD/CAD exchange rate between the time the REIT entered into the definitive agreements in respect of these acquisitions and the dates of closing.
  • As at January 1, 2017, the overall occupancy rate of the REIT’s portfolio was 93.1%, up from 91.5% as of October 1, 2016, primarily due to the acquisitions of 6100 McIntosh Road, which is 100% occupied, and positive leasing activity in Plainfield, Indiana, where, during the three month period ended December 31, 2016, the REIT entered into a new lease for approximately 100,000 sqft at 2151 Airwest Boulevard.
  • During the three month period ended December 31, 2016, the REIT entered into three new leases totalling approximately 95,000 sqft at 10900 Corporate Center Drive (III) in Houston, Texas, accounting for approximately 100% of the leases that were set to expire in 2016 and 2017 at the property, thus increasing the weighted average lease term for the property to approximately 7 years.
  • During the three month period ended December 31, 2016, the REIT renewed its largest tenant at 4920 Westway (IV) in Houston, Texas, whose lease was set to expire in May 2017. Although this tenant renewed 76% of their currently occupied 100,000 sqft, their lease was extended for an additional 7 years beginning in June 2017.
  • During the three month period ended December 31, 2016, and subsequent to year end, the REIT also entered into new leases and renewals at its Warrenville property totalling approximately 104,000 sqft, which leases were previously set to expire during 2017.
  • On April 7, 2016, the REIT announced the amendment and reinstatement of its Unitholder Distribution Reinvestment Plan (the “DRIP”). Eligible unitholders that choose to participate in the DRIP will have their monthly cash distributions used to purchase Units of the REIT. While the amended DRIP no longer provides participants with a 3% bonus distribution of Units, it still provides participants with the opportunity to accumulate additional Units without incurring any commissions, service charges or brokerage fees.
  • On May 3, 2016, the REIT disposed of its multi-tenant retail plaza located at 195-215 Rue Bellehumeur, in Gatineau, Quebec (“Plaza Bellehumeur”). The sale price for this non-core asset of the REIT was approximately $9,200 before closing costs and represents an in-place capitalization rate of approximately 7.2%. The proceeds of disposition were used by the REIT to temporarily reduce the outstanding balance on its credit facility, which was partially secured by Plaza Bellehumeur.
  • 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 included 585,000 Units issued as a result of the exercise in full of the underwriters’ over-allotment option.
  • 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 and are a good complement to the seven properties previously 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 capitalization rate of approximately 7.25%.
  • On December 6, 2016, the REIT completed the acquisition of a multi-tenanted distribution centre located in Sarasota, Florida. The distribution centre is one of the largest distribution facilities in the State of Florida and comprises approximately 903,000 sqft and is 100% occupied. The aggregate consideration was approximately US$52,500 (excluding acquisition costs) representing a going in capitalization rate of approximately 8.1%.
  • Subsequent to year end, on 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 performing certain work described in the previously executed site plan and plan of subdivision.
  • Subsequent to year end, 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 as a result of the exercise in full of the underwriters’ over-allotment option. The REIT intends to use 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 to fund potential future acquisitions and for general business purposes.

“The REIT continues to experience benefits from its U.S. focused investment strategy, achieving AFFO growth for the fourth consecutive fiscal year,” said Frank Camenzuli, Chief Executive Officer of the REIT, “our relationships, knowledge, hard work, and experience have continued to benefit the REIT, and we expect to utilize our expertise towards further growth in 2017.”

The REIT will hold a conference call to discuss the REIT’s financial performance for the year ended December 31, 2016 on Tuesday, March 7, 2017 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: 3457695. 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 March 7, 2017 until midnight EST on March 22, 2017. To access the replay, call 905-694-9451 or 1-800-408-3053 and enter participant pass code: 1754396.

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 twelve month periods ended December 31, 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 5.9 million square feet of gross leasable area in 34 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, 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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