FAM REIT announces Q1 2014 results

TORONTO, May 9, 2014 /CNW/ - FAM Real Estate Investment Trust ("FAM REIT", or the "REIT") (TSX: F.UN) (TSX: F.WT) announced today its financial results for the three months ended March 31, 2014.

KEY HIGHLIGHTS

  • Same-property occupancy of 97.8% as at March 31, 2014, compared to 98.2% on a sequential basis as at December 31, 2013 and 98.4% on a year-over-year basis as at March 31, 2013.
  • Overall portfolio occupancy of 97.9% as at March 31, 2014, compared to 98.2% on sequential basis as at December 31, 2013 and 97.4% on a year-over-year basis as at March 31, 2013.
  • FFO - As Reported per unit of $0.10 for the current quarter, compared to $0.30 for the same period last year; FFO - Core per unit of $0.22 for the current quarter, compared to $0.24 for the same prior period.
  • AFFO - As Reported per unit of $0.19 for the current quarter, compared to $0.23 for the same period last year; AFFO - Core per unit of $0.20 per unit for the current quarter, compared to $0.23 for the same prior period.
  • AFFO - Core payout ratio of 95% for the three months ended March 31, 2014.
  • In April 2014, FAM REIT entered into an agreement to invest $16.0 million in the development of the MTS Data Centre in Winnipeg which will be financed through a $21.4 million equity issue, consisting of a bought-deal equity offering and a $6.4 million concurrent private placement.

Shant Poladian, Chief Executive Officer of FAM REIT, commented, "Our results for the first quarter of 2014 reflect the same challenges we experienced in the fourth quarter of 2013, namely office space turnover at Saskatchewan Place and adverse weather conditions in Manitoba. Notwithstanding the impact of these short-term issues on our first quarter results, our financial performance remains healthy with a 95% AFFO-Core payout ratio, an interest coverage ratio of 2.7x, and a 52.6% indebtedness ratio which is well within our target operating range. Post-closing of our MTS Data Centre investment and the equity financing announced in April, our pro-forma leverage ratio will decline to approximately 48% and our liquidity will be approximately $23.7 million consisting of cash and unused revolver capacity. Our focus is on the long-term, with the strength of our financial position and liquidity affording us the opportunity to execute transactions such as the MTS Data Centre. We continue to be innovative in our approach to create value for our long-term unitholders on a risk-adjusted and leverage-neutral basis. "

Financial Highlights and Key Performance Indicators

($000s unless otherwise
noted and except per unit amounts)
  Three months ended
March 31, 2014
  Three months ended
December 31, 2013
  Three  months ended
March 31, 2013
Revenue from investment properties   $ 8,207   $ 8,228   $ 6,081
Net operating income(1)     4,765     4,823     3,886
Same-property net operating income     3,205     3,332     3,490
Net income and comprehensive income     (354)     1,827     6,998
                     
Funds from operations - As Reported(1)     1,189     3,141     2,489
Funds from operations - Core(1)     2,598     2,703     1,978
FFO per unit (basic and diluted) - As Reported(1)   $ 0.10   $ 0.27   $ 0.30
FFO per unit (basic and diluted) - Core(1)   $ 0.22   $ 0.23   $ 0.24
                     
Adjusted funds from operations - As Reported(1)     2,268     2,186     1,910
Adjusted funds from operations - Core(1)     2,386     2,126     1,910
AFFO per unit (basic and diluted) - As Reported(1)   $ 0.19   $ 0.19   $ 0.23
AFFO per unit (basic and diluted) - Core(1)   $ 0.20   $ 0.18   $ 0.23
                     
Distributions per unit - basic and diluted(2)   $ 0.19   $ 0.19   $ 0.19
AFFO - Core pay-out ratio(3)       95%       106%     82%
Cash distributions per unit - basic and diluted(2)   $ 0.13   $ 0.13   $ 0.19
AFFO - Core pay-out ratio, net of DRIP(3)     65%     72%     82%
                     
Net operating income by asset class                    
  Industrial   $ 1,448   $ 1,448   $ 1,449
  Office     3,039     2,999     2,040
  Retail     278     376     397
     $ 4,765   $ 4,823   $ 3,886
                     
Net operating income by geographic location                  
  Manitoba   $ 1,697   $ 1,706   $ 2,100
  Ontario     2,314     2,210     811
  Saskatchewan     128     291     348
  Alberta     497     484     493
  Northwest Territories     129     132     134
    $ 4,765   $ 4,823   $ 3,886
                     
Interest coverage ratio (times)(4)     2.7x     2.9x     2.8x
Leverage ratio (times) - period end(5)     8.6x     8.0x     8.1x
Debt service coverage ratio (times)(6)     1.6x     1.8x     1.8x
Indebtedness ratio (%) - period end(7)     52.6%     52.2%     51.6%
Weighted average mortgage interest rate - period end     4.7%     4.7%     5.1%
Same-property occupancy - period end     97.8%     98.2%     98.4%
Occupancy - period end                  
  Industrial     100.0%     100.0%     100.0%
  Office     96.0%     96.5%     96.5%
  Retail     100.0%     100.0%     90.4%
        97.9%     98.2%     97.4%
                       
Leased square footage (sq. ft.) - period end     1,790,104     1,795,277     1,616,126
Rentable square footage (sq. ft.) - period end     1,829,096     1,828,574     1,659,633
                   

FINANCIAL

  • Funds From Operations ("FFO") - FFO - As Reported for the three months ended March 31, 2014 was $0.10 per unit. After adjusting for a $0.11 per unit non-cash fair value loss on the interest rate swaps and $0.01 per unit for Special Committee related expenses, FFO - Core was $0.22 per unit, relatively consistent with $0.23 for the three months ended December 31, 2013. The decrease in FFO - Core of $0.02 per unit on a year-over-year basis was primarily due to the decline in same-property net operating income resulting from the office space turnover at Saskatchewan Place and the negative impact of adverse weather conditions on operating costs.
  • Adjusted Funds From Operations ("AFFO") - AFFO - As Reported and AFFO - Core was $0.19 per unit and $0.20 per unit, respectively, for the three months ended March 31, 2014. The year-over-year decrease in AFFO - As Reported and AFFO - Core was due to a decline in same property net operating income.

OPERATIONAL

  • Net Operating Income ("NOI") - The REIT achieved NOI of $4.8 million for the three months ended March 31, 2014 and $3.9 million for the three months ended March 31, 2013. The acquisitions of 4211 Yonge, The Promontory, and 1700 Ellice generated $1.6 million of incremental NOI during the current quarter, partially offset by the loss of NOI attributable to properties that were sold in 2013, including the 220 Portage and Humboldt Mall, which contributed $0.4 million in NOI during the three months ended March 31, 2013.
  • Operating cost recoveries - The operating cost recovery for the three months ended March 31, 2014 was negatively impacted by adverse weather conditions in Manitoba and resulted in higher snow removal and utility costs, which were not fully recoverable from certain tenants under their respective lease arrangements.
  • Occupancy - Occupancy on a same-property basis was 97.8% as at March 31, 2014, which was below the occupancy rate of 98.2% as at December 31, 2013 and 98.4% as at March 31, 2013 due to office space turnover at Saskatchewan Place. Overall portfolio occupancy was 97.9%, compared to 98.2% on a sequential basis as at December 31, 2013 and 97.4% on a year-over-year basis as at March 31, 2013. The sequential decrease in occupancy was due to office space turnover at Saskatchewan Place in downtown Regina. As noted in our year end 2013 press release, we expected modest additional turnover in Regina during 2014 as we work to optimize the long-term leasing profile and tenant mix through new leasing, relocations, early renewal and tenant expansion.
  • Leasing Profile - Month-to-month and lease maturities were 112,000 sf during the three months ended March 31, 2014. The REIT has completed lease renewals of 90,000 sf and in long-term lease renewal negotiations for 17,000 sf of tenancies.
  • Debt Strategy - In February 2014, the REIT increased its revolving credit facility limit from $14.0 million to $17.0 million, and extended the expiry date to November 30, 2015.

OUTLOOK

On a pro-forma basis, the MTS Data Centre is expected to have a significant positive impact on FAM REIT's financial performance upon rent commencement in mid-2015. As outlined in the press release dated April 22, 2014, FAM REIT's $9.5 million equity investment is projected to generate, on a pro-forma basis, $2.9 million of NOI, $2.0 million of AFFO, and $1.2 million of free cash flow after deducting mortgage principal repayments in the first full year following rent commencement in mid-2015.

FAM REIT's $6.5 million mezzanine loan at a 13.3% interest rate to its joint venture partner partner's share of incremental project equity provides an appropriate risk-adjusted return on our capital, de-risks the project's equity capital requirements, and allows the REIT to increase its ownership to 80% in the project in the event the loan is not repaid. In the event that at least 50% of the mezzanine loan is not repaid, the put-call feature provides the opportunity for the REIT to increase its ownership to 100%.

On February 20, 2014, FAM REIT announced that it has formed a Special Committee comprised of its Independent Trustees, Chaired by Gary Samuel, FAM REIT's Lead Independent Trustee in response to Huntingdon's initiation of a Strategic Review as announced on February 19, 2014.

The Special Committee's mandate is to evaluate the impact of the strategic review, and if advisable, to respond to such review. While Huntingdon undertakes its strategic review, FAM REIT expects to continue to carry on normal operations with Huntingdon acting as its manager. Please refer to the disclosures contained in FAM REIT's final prospectus dated May 5, 2014 for additional information.

Other information

Information appearing in this press release is a select summary of results. The consolidated financial statements and management's discussion and analysis for the REIT are available at www.sedar.com and our website at www.famreit.com.

Footnotes

(1)  Net operating income, FFO - As Reported, FFO - Core, AFFO - As Reported, AFFO - Core, and earnings before interest, taxes, depreciation and amortization ("EBITDA") are not measures defined under International Financial Reporting Standards ("IFRS"). Management believes that these are useful supplemental measures, but may not be comparable to other REITs. Please refer to the REIT's MD&A for a description of these measures.
(2)  The weighted average number of units outstanding used in the per unit calculations includes the weighted average of all REIT units and Class B LP units.
(3)   The AFFO - Core pay-out ratio is calculated as total distributions divided by AFFO - Core for the period. The AFFO - Core pay-out ratio, net of DRIP reflects the actual amount of cash paid or payable after taking into account unitholders who have elected to take their distributions in the form of trust units instead of cash.
(4)   The interest coverage ratio is calculated as EBITDA for the period divided by interest expensed during the period.
(5)   The leverage ratio is calculated as the average debt outstanding divided by annualized EBITDA. Debt consists of mortgages payable, vendor take-back loan, and the revolving credit facility at face value, excluding deferred transaction costs.
(6)   The debt service coverage ratio is calculated as EBITDA divided by the debt service requirements for the period. Debt service requirements reflects principal repayments and interest expensed during the period. Payments related to defeasance, prepayment penalties, or payments upon discharge of a mortgage are excluded from the calculation.
(7)  The indebtedness ratio is calculated as total debt divided by total assets at period end.



About FAM Real Estate Investment Trust

The REIT is a diversified commercial real estate investment trust focused on owning and acquiring strategically well-located office, industrial and retail real estate located primarily across Canada's large population centres.

Forward looking information

This press release contains forward-looking information within the meaning of applicable securities legislation, which reflects the REIT's current expectations regarding future events. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the REIT's control, that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, general and local economic and business conditions; the financial condition of tenants; our ability to refinance maturing debt; leasing risks, including those associated with the ability to lease vacant space; and interest rate fluctuations. Our objectives and forward-looking statements are based on certain assumptions, including that the general economy remains stable, interest rates remain stable, conditions within real estate market remain consistent, competition for acquisitions remains consistent with the current climate and that the capital markets continue to provide ready access to equity and/or debt. All forward-looking information in this press release speaks as of the date of this press release. The REIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise. Additional information about these assumptions and risks and uncertainties is contained in the REIT's filings with securities regulators, including its latest annual information form and MD&A.

SOURCE FAM Real Estate Investment Trust

For further information:

Shant Poladian, Chief Executive Officer
FAM Real Estate Investment Trust
Telephone: (647) 256-5002
Email: spoladian@famreit.com