Company successfully defeated hostile bid to recommend sale for $325 million
Total leverage falls below 60%
TORONTO, May 9, 2013 /CNW/ - KEYreit (TSX: KRE.UN) ("KEYreit" or "the REIT") today reported its financial results for the first quarter ended March 31, 2013.
First Quarter 2013 Financial Highlights
Three months ended March 31, 2013
- Revenues of $7.0 million, a 9.7 percent increase versus same quarter last year (excluding one-time item(1), revenues of $6.9 million, an 8.3 percent increase)
- Net Operating Income(2) of $5.6 million, a 8.1 percent increase versus same quarter last year (excluding one-time item(1), net operating income of $5.6 million, a 6.5 percent increase)
- Adjusted Funds From Operations ("AFFO")(2) per Unit of $0.111
- AFFO payout ratio(2) of 143.3 percent, adjusted for non-recurring legal fees associated with the REIT's claim on Priszm Income Fund's ("Priszm") sales proceeds
- Total leverage reduced to below 60%
(1) Other revenue of $0.09 million recognized in the first quarter 2013, relating to insurance proceeds received.
(2) See section entitled Non-IFRS measures.
Other Highlights from the First Quarter
- KEYreit agrees to sale for $325 million as Board of Trustees recommends Unitholders accept offer from Plazacorp Retail Properties Ltd. ("Plazacorp") at $8.35 per Unit
- Acquires 2 additional properties
- Secures Credit Facility of $15 million with major Canadian Chartered Bank
- Closed $23.0 million equity offering
- Repaid in full IPO Mortgage Loan of $21.8 million
"We had a very active quarter and are pleased with the results as the bulk of the time was spent on the initial hostile bid by Huntingdon Capital Corp. and subsequent friendly takeover bid by Plazacorp at $8.35 per Unit, valuing KEYreit at $325 million," said John Bitove, Chief Executive Officer of KEYreit.
"Since the time of our IPO in 2005, KEYreit has achieved a 6.63% total return on equity, a noted achievement versus the Dow Jones Industrial Average of 4.79% and TSX Composite Index of 1.82% over the same time period. Despite the global recession and other extraneous factors, we are proud of our Unitholder returns compared to major indexes, and while we would have liked to stay independent, our future growth will carry on for our Unitholders who accept shares from Plazacorp," added Mr. Bitove.
Financial and Operational Summary
- Net operating income ("NOI") for Q1 2013 was $5.6 million, an increase of $0.4 million as compared to NOI for the same period of 2012. NOI for the quarter increased by 2.1 percent on a same asset basis in comparison to last year as a result of the increased occupancy relative to the same period last year. NOI from acquisitions was $0.5 million in the first quarter due to the acquisition of three properties in Eastern Canada effective October 4, 2012.
- AFFO for Q1 2013 totaled $1.5 million ($0.111 per unit basic and diluted) as compared to $1.4 million ($0.153 per unit basic and diluted) for Q1 2012. The increase in Q1 2013 AFFO is primarily a result of the increase in NOI of $0.4 million, offset by increases in general and administrative expenses relating to the timing of legal, financial reporting and consulting costs relative to the same period in the prior year. AFFO excludes costs incurred upon the issuance of the 2012 Convertible Debentures and expenses incurred due to the REIT's defense against Huntingdon Capital Corp.'s hostile bids, the Board's value maximization process and the take-over bid by Plazacorp for 100% of KEYreit's Units at $8.35 per Unit (the "Plazacorp Offer"). For complete details of the Plazacorp Offer, please refer to KEYreit's Management's Discussion & Analysis ("MD&A") report for the first quarter ended March 31, 2013 or KEYreit's website at www.keyreit.com.
- The AFFO, adjusted payout ratio for the first quarter of 2013 is 143.3 percent, an increase from 139.0 percent in the same period last year. The increase in the payout ratio is a direct result of the dilutive effect from the equity offering completed in January 2013 (noted below).
- The portfolio occupancy rate as at March 31, 2013 was 95.9 percent versus the prior year at 93.3 percent. Pro-forma occupancy including all committed leases reaches 97.1 percent.
- The REIT's average cost of mortgage debt was 5.01 percent at the end of Q1 2013, as compared to 5.35 percent at the end of Q1 2012. The reduction in the average cost of mortgage debt is largely a result of the refinancing of the original Ontario IPO property portfolio in September 2012, replacing a high-interest rate bridge loan with a fixed term first mortgage at a significantly lower interest rate.
- The REIT's leverage ratio as at March 31, 2013 was 43.9 percent excluding convertible debentures and 59.8 percent including convertible debentures, versus 53.6 percent and 70.5 percent, respectively, as at March 31, 2012. The reduction in total leverage is due to the full repayment of the IPO Mortgage Loan on February 1, 2013 with proceeds from the equity offering that closed in January 2013 (noted below).
- In the first quarter of 2013, KEYreit completed the sale of two properties, located in Quebec City, Quebec and Winkler, Manitoba, respectively, for gross proceeds of $0.7 million. The properties were vacant at the time of sale and there were no liabilities associated with these properties.
- On January 16, 2013, KEYreit completed the issuance of an additional $1.2 million of the 7.0 percent 2012 Convertible Debentures in connection with the offering that closed on December 11, 2012. The additional debentures were issued pursuant to the partial exercise of the over-allotment option granted to a syndicate of underwriters. As of today's date, the total amount outstanding on the 2012 Convertible Debentures is $21.2 million.
- On January 29, 2013, KEYreit closed a public offering of 3,740,950 Units at a price of $6.15 per Unit for aggregate gross proceeds of $23.007 million. The net proceeds from the offering, together with certain cash on hand, were used to repay the full balance of the REIT's IPO Mortgage of $21.757 million on its maturity date of February 1, 2013.
- On March 20, 2013, KEYreit announced jointly with The Rockport Group ("Rockport") an agreement for the sale and future redevelopment of KEYreit's property located at 829 St. Clair Avenue West, Toronto (the "St. Clair Property"). KEYreit has agreed to sell the St. Clair Property to Rockport for $3.29 million (the "Sale Price"), in exchange for a promissory note equal to the Sale Price. Upon completion of the redevelopment, KEYreit has the option of purchasing the retail component of the project at a discount to its future market value. If KEYreit exercises this option, the promissory note and accrued interest may be used towards the purchase price. The closing of the sale of the St. Clair Property is conditional upon a number of factors with the latest possible date being October 1, 2017. The St. Clair Property lands are approximately 11,000 square feet in size and currently contain a 2,593 square foot single-tenant leased to one of KEYreit's key tenants, operating as a KFC restaurant. Rockport has purchased the adjacent lands at 833 and 835 St. Clair Avenue West and intends to develop a nine story premium condominium complex of approximately 125 suites, totaling up to 110,000 square feet of residential development. The redevelopment will also consist of retail at street-level of approximately 10,000 square feet that KEYreit has the option of purchasing as described above.
- Further to a decision by the Ontario Superior Court in December 2012 that KEYreit was not entitled to any sales proceeds generated by the sales of Priszm's restaurants, the court may have ordered KEYreit to pay Priszm's secured lender a portion of its legal fees incurred in connection with KEYreit's claim. On January 18, 2013, KEYreit filed a Notice of Appeal with the Court of Appeal for Ontario regarding KEYreit's entitlement to Priszm's sales proceeds. On March 21, 2013, KEYreit negotiated a settlement with Priszm's secured lender, evidenced by a court order, whereby Priszm's secured lender agreed not to pursue a legal cost award against KEYreit and KEYreit agreed to terminate its appeal. This settlement concludes KEYreit's claim on Priszm's sales proceeds and no further action will be taken on this matter.
- Subsequent to the first quarter, on April 18, 2013, KEYreit entered into a credit agreement for a $15 million revolving credit facility (the "Credit Facility") with a Canadian Chartered Bank. The Credit Facility is secured by 22 of the REIT's properties and is renewable annually at the lender's discretion. The Credit Facility is in the form of rolling one-month bankers' acceptances ("BAs") bearing interest at the BA rate plus 3.00 percent or at the bank's prime rate plus 2.00 percent. The Credit Facility also bears a stand-by fee of 0.75 percent on any undrawn portion. As at today's date, the formula-based amount available under this Credit Facility is $14.1 million and $8.0 million has been drawn.
- Subsequent to the first quarter, on April 24, 2013, KEYreit closed an acquisition of two retail investment properties located in the Province of Alberta for a purchase price of $10 million comprising 50,494 square feet of gross leasable area. One property is a single-tenant site leased to Shoppers Drug Mart and located in Olds, Alberta, while the second property is a two-tenant asset anchored by The Brick and located in Lloydminster, Alberta. The portfolio is 100% leased with an overall average remaining lease term of approximately 5.1 years and with 82% of the GLA comprising national tenants. The total purchase price was satisfied by new mortgage debt of $6.3 million bearing an interest rate of 3.8 percent, term of 5 years, and amortization period of 20 years, and funds drawn from KEYreit's Credit Facility (noted above).
- Subsequent to the first quarter, $80 thousand of KEYreit's 7.75% 2009 Convertible Debentures were converted into 9,949 KEYreit Units. As of today's date, there are 14,895,828 KEYreit Units issued and outstanding and the aggregate principal amount outstanding on the 7.75% 2009 Convertible Debentures is $19.920 million.
"Our leverage ratio was at an all-time low at the end of the first quarter, and with the capital markets activity undertaken in the past six months, KEYreit is in great shape as we now transition to Plazacorp as the new owners of our assets," stated Teresa Neto, Chief Financial Officer of KEYreit.
The following selected financial information, has been derived from and should be read in conjunction with the unaudited consolidated interim financial statements of KEYreit for the three months ended March 31, 2013 and 2012, and the notes thereto included in KEYreit's filings at www.sedar.com.
|(in thousands of dollars, except Unit and per Unit amounts)|| Three-month period ended
|Net operating income (1)||5,643||5,216|
|Net income (loss) (2)||7,466||2,454|
|FFO per Unit(4)||(0.113)||0.102|
|FFO per Unit - Fully Diluted(4)||(0.113)||0.102|
|FFO, Adjusted (5)||1,440||947|
|FFO per Unit, Adjusted||0.105||0.102|
|FFO per Unit, Adjusted - Fully Diluted||0.105||0.102|
|AFFO per Unit (7)||0.111||0.151|
|AFFO per Unit - Fully Diluted (7)||0.111||0.151|
|AFFO, Adjusted (8)||1,559||1,414|
|AFFO per Unit, Adjusted||0.114||0.153|
|AFFO per Unit, Adjusted - Fully Diluted||0.114||0.153|
|Total Units (9)||14,885,879||9,249,607|
|Weighted Average Number of Units (10)||13,722,028||9,249,607|
|Weighted Average Number of Units - Fully Diluted - for FFO(10)||13,722,028||9,249,607|
|Weighted Average Number of Units - Fully Diluted - for AFFO(10)||13,722,028||9,249,607|
|Total distributions declared to Unitholders||2,233||1,966|
|Total distributions to Unitholders, cash basis||2,046||1,966|
|Total distributions per Unit||0.150||0.213|
|Adjusted payout ratio (12)||143.3%||139.0%|
|(in thousands of dollars, except Unit and per Unit amounts)|| As at
|Total assets as at period end||$332,905||$302,330|
|Debt, excluding convertible debentures as at period end (13)||146,118||162,137|
|Debt to gross book value (14)||43.89%||53.63%|
|Debt, including convertible debentures as at period end (15)||199,095||213,052|
|Debt to gross book value including convertible debentures (16)||59.81%||70.47%|
|Interest coverage ratio (17)||1.55||1.47|
|Weighted average mortgage contract interest rate||5.01%||5.35%|
| As at
|Gross Leasable Area||1,189,176||1,103,156|
|Number of Properties||225||229|
|(1)||A non-IFRS measurement, calculated by KEYreit as rental revenue (net rents, property tax and operating cost recoveries, as well as other miscellaneous income from tenants) less operating expenses from rental properties and property management fees.|
|(2)||Refer to the REIT's Q1 2013 MD&A for a discussion and analysis of the first quarter results compared to the corresponding period in the previous year.|
|(3)||A non-IFRS measure for which a reconciliation to net income can be found in the REIT's Q1 2013 MD&A in the discussion under "Funds from Operations ("FFO") and Adjusted Funds From Operations ("AFFO")".|
|(4)||FFO per Unit and FFO, Adjusted per Unit are calculated using the weighted average number of Units outstanding.|
|(5)||FFO is adjusted for in 2013 for the transaction costs incurred on the issuance of convertible debentures ($84) and non-recurring hostile bid defense costs ($2,911) which are expensed to general and administrative costs.|
|(6)||A non-IFRS measure for which a reconciliation to net income can be found in the REIT's Q1 2013 MD&A in the discussion under "Funds From Operations and Adjusted Funds From Operations".|
|(7)||AFFO per Unit and AFFO, Adjusted per Unit are calculated using the weighted average number of Units outstanding.|
|(8)||AFFO is adjusted for the legal expenses related to the claim on former tenant Priszm Income Fund's sales proceeds, $43 in first quarter 2013 and $19 in first quarter 2012.|
|(9)||Calculated using the number of Units outstanding as at the end of the period.|
|(10)||For the three month period ending March 31, 2013 and March 31, 2012, the Convertible Debentures are anti-dilutive for the FFO per Unit and AFFO per Unit calculations.|
|(11)||A non-IFRS measure calculated by dividing distributions paid to Unitholders, by AFFO as defined in the REIT's Q1 2013 MD&A.|
|(12)||A non-IFRS measure calculated by dividing distributions paid to Unitholders, by AFFO, adjusted, as defined in the REIT's Q1 2013 MD&A.|
|(13)||Debt is defined as mortgages payable, term debt and land lease liability.|
|(14)||A non-IFRS measurement defined in KEYreit's Declaration of Trust.|
|(15)||Debt is defined as mortgages payable, term debt, land lease liability and convertible debentures.|
|(16)||A non-IFRS measurement commonly used in the real estate industry to measure total leverage.|
|(17)||Interest coverage ratio is calculated as IFRS net income, plus interest expense (including financing fees amortization expense), plus transaction costs incurred on the issuance of convertible debentures, plus hostile bid defense costs, plus amortization, and adjusted for unrealized gains/losses on financial instruments and investment properties measured at fair value, divided by the total interest expense (excluding financing fees amortization expense).|
In accordance with the amended and restated support agreement with Plazacorp, dated April 4, 2013, KEYreit may not declare distributions on KEYreit's Units in the month in which the Plazacorp Offer expires and Plazacorp takes up KEYreit Units tendered to their offer. If the Plazacorp Offer is successful on May 16, 2013, no distribution shall be declared on the KEYreit Units for the month of May 2013 and any months thereafter.
Funds From Operations ("FFO") and FFO, Adjusted
FFO is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. FFO is presented because management of KEYreit believes this non-IFRS measure is a relevant measure of KEYreit's operating performance. KEYreit calculates FFO according to the industry standard definition stated in the REALpac Whitepaper on FFO dated November 20, 2012. FFO as computed by KEYreit may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable. FFO in this press release represents net income of KEYreit, plus amortization of intangible assets, amortization expense relating to tenant allowances; and fair value adjustments on investment properties and convertible debentures. FFO, Adjusted represents FFO, as computed by KEYreit, plus transaction costs incurred on the issuance of convertible debentures, and expenses incurred in KEYreit's defense against Huntingdon Capital Corp.'s hostile bids and the Board's value maximization process, both recognized in general and administrative expenses.
Adjusted Funds From Operations ("AFFO") and AFFO, Adjusted
AFFO is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. AFFO is presented because management of KEYreit believes this non-IFRS measure is a relevant measure of the ability of KEYreit to earn and distribute cash returns to Unitholders. AFFO as computed by KEYreit may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable. AFFO in this press release represents net income of KEYreit, plus amortization of intangible assets, amortization expense relating to tenant allowances, amortization of financing fees, stock-based compensation, and acquisitions-in-progress write-offs, less, the straight-line rent revenue accrual and non-recurring other income, and, fair value adjustments on investment properties and convertible debentures. The amount of distributions paid in a period relative to the AFFO generated in the same period is referred to as the "payout ratio". AFFO, Adjusted represents AFFO, as computed by KEYreit, less legal costs expensed relating to the REIT's claim on Priszm Income Fund's sales proceeds.
Net Operating Income ("NOI")
NOI is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. NOI is presented because management of KEYreit believes that this non-IFRS measure is a relevant measure of the ability of KEYreit to earn and distribute cash to Unitholders. NOI as computed by KEYreit may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable. NOI computed by KEYreit represents total revenue from investment properties less property operating expenses.
This press release and KEYreit's MD&A for the first quarter of 2013 contain certain information or statements that may constitute forward-looking information within the meaning of securities laws, which reflect the current view of KEYreit with respect to the REIT's objectives, plans, goals, strategies, future growth, results of financial performance, financial and operating performance and business prospectus and opportunities. In some cases, forward-looking information can be identified by the use of terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts. In particular, forward-looking information included in this press release and KEYreit's MD&A for the quarter includes, but is not limited to, statements with respect to the Plazacorp Offer, the REIT's ability to lease vacant property units, collect minimum rents, diversify its tenant base, undertake land intensification projects, refinance loans and mortgages at their maturity, complete accretive acquisitions, and maintain or grow monthly cash distribution levels, and also with respect to the timing of such events. Forward-looking information should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the statements and information in this press release and the REIT's MD&A for the quarter containing forward-looking information are qualified by these cautionary statements.
Forward-looking statements are based on information available at the time they are made, underlying estimates and assumptions made by management and management's good faith belief with respect to future events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally which could cause actual results to differ materially from what is currently expected. Such risks and uncertainties include, but are not limited to the Plazacorp Offer, the REIT's reliance on key tenants, risks associated with investment in real property, competition, reliance on key personnel, financing and refinancing risks, distributions, environmental matters, tenant risks, risks related to current economic conditions and other risk factors more particularly described in the REIT's most recent Annual Information Form available on SEDAR at www.sedar.com. Additional risks and uncertainties not presently known to the REIT or that the REIT currently believes to be less significant may also adversely affect the REIT.
KEYreit cautions readers that the list of factors is not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by the REIT will be realized or, even if substantially realized, that they will have the expected consequences to, or effect on, the REIT. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date. The REIT disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required under applicable securities laws.
KEYreit (TSX: KRE.UN) is Canada's premier small-box retail property owner with 227 properties in nine provinces across Canada. KEYreit's properties are well-located and geographically diverse across Canada with the majority of all properties containing long-term quadruple net leases.
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