TRADING SYMBOL: RP (TSXV)
CALGARY, Aug. 12 /CNW/ - The results for Realex Properties Corp. ("Realex" or "Corporation") third quarter of fiscal 2010 ended June 30, 2010, show stable property revenues and occupancy levels. Net Operating Income increased compared to the third quarter of fiscal 2009 and the Corporation's overall office and industrial portfolio occupancy rate now stands at 96%. During the quarter several significant events took place and can be summarized as follows:
1. The Corporation completed a common share offering with gross proceeds
of $17.5 million, and used the net proceeds to retire the balance of
the 2008 Southwestern Ontario transaction acquisition loan and reduce
the Corporation's operating facility balance.
2. The Corporation renewed its operating facility for a two year term.
3. The Corporation's leasing group was successful in renewing and
expanding two government tenants, one in the Western region for
15,000 square feet for a ten year term and one in the Southwestern
Ontario region for 21,000 square feet for a five year term.
4. The Corporation completed a consolidation of all non-voting shares
with the common shares to simplify its capital structure into one
common voting class of shares and a 1 share for 10 shares
5. Realex's Board of Directors authorized an increase to the annual
dividend from $0.30 to $0.40.
6. The Corporation is seeking an efficient but expeditious exit from the
self storage asset class. The Corporation has now classified all
seven properties as held for sale with results disclosed in
discontinued operations. In Q3, an impairment loss of $11.34 million
7. The Corporation's overall debt now stands at 51% of assets at gross
book value versus 55% at the commencement of the fiscal year.
8. AFFO per share from continuing operations was 22 cents per share for
Income Statement Summary Data
Three Months Ended June 30, Nine Months Ended June 30,
($000's except ---------------------------- ----------------------------
per share % %
amounts) 2010 2009 change 2010 2009 change
-------- -------- -------- -------- -------- --------
Revenues 14,116 14,327 (1)% 43,682 44,135 (1)%
(loss) (6,957) 115 (6,150)% (5,641) 447 (1,362)%
basic/diluted (0.38) 0.01 (3,900)% (0.34) 0.03 (1,233)%
Net Income -
operations 4,157 146 2,747% 5,689 517 1,000%
Net income per
basic/diluted 0.22 0.01 2,100% 0.34 0.03 1,033%
NOI 7,949 7,729 3% 23,783 22,778 4%
FFO 4,187 4,810 (13)% 14,342 13,918 3%
FFO per share
- basic 0.23 0.31 (26)% 0.86 0.90 (4)%
FFO per share
- diluted 0.23 0.31 (26)% 0.85 0.90 (6)%
AFFO 3,439 3,524 (2)% 10,827 11,246 (4)%
AFFO per share
- basic 0.19 0.22 (14)% 0.65 0.73 (11)%
AFFO per share
- diluted 0.19 0.22 (14)% 0.64 0.73 (12)%
Dividends 1,871 1,172 60% 4,267 3,473 23%
(000's) 18,545 15,669 18% 16,863 15,448 9%
(1) Refer to the "Non-GAAP Measures" section for further details.
Balance Sheet Summary Data
June 30, September 30,
($000's) 2010 2009
Income Properties 357,285 366,242
Assets 419,351 435,565
Debt 211,401 250,740
Shares outstanding (000's) 18,713 15,895
Review of Q3 2010 Operations
When comparing the financial results for the nine months ended June 30, 2010 to the same period in the prior year, net income decreased by $6,088,000 (1,362%), net income per share decreased by $0.37 (1,233%), revenue decreased by $453,000 (1%), NOI increased by $1,005,000 (4%) and FFO increased by $424,000 (3%) (FFO per share decreased by $0.05 (6%)). FFO for the nine months ended June 30, 2010 increased as a result of the mortgages receivable impairment recorded in the prior year. Excluding the impairment provision in the prior year, FFO decreased by $556,000 as a result of losses from discontinued operations and decreases in management fee income and interest income which were offset by increased NOI. FFO per share was negatively impacted due to the increased number of shares outstanding during the current period. AFFO for the nine months ended June 30, 2010 decreased by $419,000 (4%) (AFFO per share decreased by $0.09 (12%)). The decrease is the result of decreased management and other fee income and interest income and increased expenses related to discontinued operations. These amounts were partially offset by increased NOI. In addition to the factors previously described, AFFO per share was negatively impacted due to increased number of shares outstanding during the current period.
A discussion of Realex's business units follows.
The Western region at the beginning of the fiscal year had lease expiries totaling 37,287 square feet in calendar 2009 and calendar 2010. As of June 30, 2010, 19,396 square feet have been renewed and 6,689 square feet were vacated. Of the 11,202 square feet of remaining expiries for calendar 2010, 7,242 square feet is expected to renew.
The Corporation's forward re-leasing exposure in downtown Calgary is limited, with only 4% (16,470 square feet) of Realex's downtown leased area expiring before the end of calendar 2012. Although the Western portfolio has a low vacancy rate and limited exposure to lease expiries within the next three years, the significant supply of office space expected to be completed in the 2010 to 2012 period in Calgary, along with the continued weaknesses in the oil and gas sector, will foster an increased likelihood that rates of default and vacancy will rise. It is also anticipated that lease rates, when compared to those achieved in the past few years, will be lower.
Within the Corporation's Western portfolio, one tenant occupying 29,000 square feet of rentable office space has undergone a financial and operational restructuring. Realex has negotiated a rent abatement program with the tenant, the terms of which provide for reduced base rent for a period of one year commencing September 1, 2009. Total rent to be abated amounts to $819,000 which will be recovered over the remaining term of the lease commencing September 1, 2010.
During the quarter ended June 30, 2010, the Corporation's Western region renewed 15,687 square feet of 2010 expiries with a government tenant in a downtown Calgary property for a ten year term expiring October 31, 2020. In addition, the tenant expanded into 2,250 square feet of space that was previously occupied by the Corporation. As a result of this renewal and expansion, the downtown Calgary properties at June 30, 2010 have a 100% occupancy rate.
Occupancy levels in the Western region stood at 97.94% at June 30, 2010 compared to 97.96% at September 30, 2009.
Southwestern Ontario Region
The Southwestern Ontario region at the beginning of the fiscal year had lease expiries totaling 58,852 square feet in calendar 2009 and calendar 2010. As of June 30, 2010, 33,376 square feet have been renewed and 14,636 square feet was vacated. In addition, 32,891 square feet of vacant space was leased and space expiring in years later than 2010 totaling 4,271 square feet was vacated during the nine months ended June 30, 2010. Of the 21,954 square feet of remaining expiries for calendar 2010, 4,991 square feet is expected to renew.
During the quarter ended June 30, 2010, the Corporation's Southwestern Ontario region completed the leasing of an additional 21,000 square feet to an existing government tenant for a five year term.
Occupancy levels in the Southwestern Ontario region stood at 94.38% at June 30, 2010 compared to 93.45% at September 30, 2009.
Summary - Office and Industrial Portfolio
Realex strives to negotiate leases ahead of their expiry dates and, as current economic conditions have increased the cost sensitivities of many tenants, additional effort is being expended by our leasing teams to demonstrate the added value of retaining tenants in a Realex owned and managed property. For the remainder of calendar year 2010, 33,156 square feet of leases are expiring and it is anticipated that 12,233 square feet will renew.
The weighted average occupancy rate of the Corporation's office and industrial portfolio was 96.12% at June 30, 2010, compared to 95.65% at September 30, 2009.
The Real Storage partnership continued its lease marketing program for its five, newly completed operating properties now totalling 368,565 square feet of net rentable area. The current occupancy of the portfolio is 48.9%. The partnership has two additional properties in the development planning and approval stage.
As a result of refining our strategic plan and determining that our focus will be on the growth of the office and industrial portfolio, the Corporation is seeking an efficient but expeditious exit from the self storage asset class. The Corporation has now classified all seven properties as held for sale with results disclosed in discontinued operations. For the three months ended June 30, 2010 an impairment loss of $11.34 million was recognized.
Mezzanine Loan Portfolio
Realex's mezzanine loan portfolio consists of a partial interest in seven loans with a total principal balance for Realex's share being $4.69 million. Of the principal balance owed to Realex, $0.75 million is performing and $3.94 million is non-performing. An impairment provision totalling $1.84 million at June 30, 2010 has been provided for (no change from September 30, 2009). In total, Realex has provisioned the portfolio by 39% of the total principal balance owed or 47% of the non-performing principal portion of the portfolio. The net carrying amount of $3.2 million represents less than 1% of Realex's total asset base. Realex will retain loan repayment proceeds for general corporate purposes as they are received and will discontinue further investment in mezzanine lending.
The Board of Directors has authorized the payment of a dividend for the quarter ended June 30, 2010 to common shareholders at the rate of $0.10 per share (the "Dividend"). The Dividend will be paid September 15, 2010 to shareholders of record on August 31, 2010 and is designated as an eligible dividend pursuant to subsection 89(14) of the Income Tax Act. An eligible dividend paid to a Canadian resident individual is entitled to the enhanced dividend tax credit.
Realex is now in the best position it has been since it went public in 2006 to address the opportunities in the Canadian real estate market. On a selective and disciplined basis, the Corporation will continue to explore office and industrial property opportunities in selected parts of Canada. There are indeed select opportunities to buy on a "value" basis which is at the core of Realex's philosophy yet there is clear evidence that prices have risen in some areas such that "opportunistic sales" cannot be ruled out. It is the Corporation's expectation that it will realize on the best opportunities the current market has to offer. The current market simultaneously has attractive opportunities while experiencing a significant reduction in the number of properties and portfolios for sale, during a time when capital in the market place for acquisitions is abundant and financing rates and availability are very attractive. "It is a time where opportunities to realize and unlock true shareholder value in Realex could come from both potential new acquisitions, sales and strategic initiatives," said Mr. Tom Heslip, Realex's President and CEO, "that give Realex the greatest degree of flexibility and opportunity to increase share value and shareholder return."
Net Operating Income (NOI) - is a measure used to assist management to evaluate the Corporation's profitability from its principal business activities without regard to the manner in which these activities are financed or amortized, the allocation of general, administrative and stock-based compensation costs, or the manner in which the results are taxed. Realex defines NOI as rent from income properties, excluding straight lining of rents and amortization of above- and below-market leases, less property operating costs.
Funds From Operations (FFO) - is a measure used to assist Management to evaluate the Corporation's operating performance. As FFO excludes, among other items, depreciation, leasing cost amortization, future income tax and gains and losses from certain property dispositions, it provides an operating performance measure that, when compared period over period, reflects the impact on operations of trends in occupancy levels, rentals rates, operating costs and realty taxes, acquisition activities and interest costs and provides a perspective of the financial performance that is not immediately apparent from net income determined in accordance with GAAP. FFO as presented should not be viewed as an alternative to cash from operating activities, net income, or other measures calculated in accordance with GAAP. Realex defines FFO as being net income for the period before amortization (which includes amortization of buildings, tenant improvements, in place lease values, tenant relationship values and deferred leasing costs), gains or losses on sale and impairment of property, future income tax expense and extraordinary items.
Adjusted Funds From Operations (AFFO) - is a measure used to assist Management to evaluate the Corporation's ability to generate cash, evaluate its return on projects and evaluate the performance of the enterprise as a whole. AFFO as presented should not be viewed as an alternative to cash from operating activities, net income, or other measures calculated in accordance with GAAP. Users are cautioned that this measure may not be comparable to other issuer's calculation of AFFO. Realex defines AFFO as being FFO for the period, adjusted for amortization of above- and below-market leases, straight-lining of rents, amortization of fair value mortgages payable adjustment and deferred financing costs, stock based compensation expense, internalization costs, amortization of non-recoverable maintenance capital expenditures, amortization of deferred leasing costs and impairment losses on mortgages receivable.
NOI, FFO and AFFO do not have any standardized meaning prescribed by GAAP and users are cautioned that these measures may not be comparable to similar measures presented by other issuers, and should not be construed as an alternative or replacement to GAAP measures.
Full reports of the financial results are outlined in the audited Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations, which are available on SEDAR and on the Realex Properties Corp. website at www.realexproperties.ca.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
This news release contains forward looking statements subject to various significant risks and uncertainties which may cause actual results, performances and achievements of Realex to be materially different from any future results, performances or achievements, expressed or implied by such forward looking statements. Realex cannot assure investors that actual results will be consistent with these forward looking statements and Realex assumes no obligation to update or revise them to reflect new events or circumstances.
SOURCE REALEX PROPERTIES CORP.
For further information: For further information: Tom Heslip, President and Chief Executive Officer, Realex Properties Corp., Telephone: (403) 264-5889, Facsimile: (403) 264-5892; Mark Suchan, Chief Financial Officer, Realex Properties Corp., Telephone: (403) 206-3143, Facsimile: (403) 264-5892