Revenue up 12.6%
96.7% committed occupancy rate
TORONTO, Aug. 9, 2012 /CNW/ - KEYreit (TSX: KRE.UN) ("KEYreit" or "the REIT") today reported its financial results for the second quarter ended June 30, 2012.
Second Quarter 2012 Financial Highlights
Three months ended June 30, 2012
- Revenues of $6.4 million, a 12.6 per cent increase versus same quarter last year
- Net operating income* of $5.3 million, a 9.6 per cent increase versus same quarter last year
- Adjusted Funds From Operations ("AFFO")* per Unit of $0.114
- AFFO payout ratio* of 146.9 per cent, adjusted for non-recurring Priszm-related legal fees
Year-to-Date 2012 Financial Highlights
Six months ended June 30, 2012
- Revenues of $12.8 million, a 11.5 per cent increase versus same period last year
- Net operating income* of $10.5 million, an 8.4 per cent increase versus same period last year
- Adjusted Funds From Operations ("AFFO")* per Unit of $0.258
- AFFO payout ratio* of 146.3 per cent, adjusted for non-recurring Priszm-related legal fees
*See section entitled Non-IFRS measures.
"KEYreit's payout ratio in the second quarter remains above 100% due to the temporary impact realized from a significant tenant failure. However, we expect the payout ratio to fall at or below 100% moving into 2013 as a result of KEYreit's amended distribution policy and the expected impact from the REIT's re-leasing efforts and refinancing plans," said Teresa Neto, Chief Financial Officer of KEYreit.
Financial and Operational Summary
- Net operating income ("NOI") for Q2 2012 was $5.3 million, an increase of $0.5 million as compared to NOI for the same period of 2011. NOI decreased by 8.1 per cent on a same asset basis as compared to last year as a result of the Priszm disclaimed leases representing mostly a temporary suspension of rent until committed leasing becomes effective and new tenants are found for the remaining vacant properties. NOI from acquisitions increased to $0.85 million in the second quarter as a result of the acquisition of nine Shoppers Drug Mart properties effective September 23, 2011. For the six months ended June 30, 2012, NOI, in comparison to the same period in 2011, was higher by $0.8 million due to the aforementioned Shoppers Drug Mart acquisition.
- AFFO for Q2 2012 totaled $1.06 million ($0.114 per unit, basic and diluted) as compared to $1.68 million ($0.181 per unit basic and $0.176 per unit diluted) for Q2 2011. The decrease in AFFO is a result of incremental cash NOI of $0.76 million driven by the 2011 Shoppers Drug Mart acquisition offset by the temporary reduction in same asset NOI, excluding non-cash items, of $0.61 million referenced above, and $0.75 million of primarily increased financing costs relating to acquisitions and refinancing. AFFO for the six months ended June 30, 2012 was $2.4 million ($0.258 per unit, basic and diluted) as compared to $3.4 million ($0.373 per unit basic and $0.360 per unit diluted) for the same period in 2011.
- The portfolio occupancy rate as at June 2012 was 94.8 per cent versus the prior year at 98.5 per cent. Pro-forma occupancy including one lease disclaimed subsequent to the quarter end, and all committed leases due to re-leasing efforts, reaches 96.7 per cent.
- The REIT's average cost of mortgage debt was 5.42 per cent at the end of Q2 2012, as compared to 5.36 per cent at the end of Q2 2011. The REIT's leverage ratio as at June 30, 2012 was 52.7 per cent excluding convertible debentures and 69.0 per cent including convertible debentures, versus 49.6 per cent and 64.7 per cent, respectively, as at June 30, 2011.
- On April 18, 2012, the Trustees approved amendments to the property management agreement and asset management services agreement, in each case between KEYreit, Scott's Real Estate Limited Partnership and JBM Properties Inc. ("JBM"), which amend the existing structure and increases fees payable to JBM. JBM is a related party of KEYreit. The terms of the amending agreements have been finalized however the amending agreements have not yet taken effect.
- In May 2012, Priszm announced the sale of its restaurants in Manitoba and Alberta to a Philippine-based franchisee, Hi-Flyer Food (Canada) Inc. ("Hi-Flyer") of which KEYreit is the landlord for 13 locations. The leases pertaining to the REIT's 13 properties were assigned to Hi-Flyer effective July 20, 2012. Consistent with Priszm's previous restaurant sales, KEYreit asserted a claim against the proceeds from the sale of restaurants to Hi-Flyer.
- On June 6, 2012, KEYreit announced that it had adopted a new distribution policy which would provide for a monthly cash distribution of $0.05 per unit, or $0.60 per unit on an annual basis, commencing with the distribution for the month of June 2012. KEYreit's distribution policy prior to this announcement was $0.85 per unit on an annual basis or $0.070833 per unit per month.
- Subsequent to the end of Q2 2012, on August 7, 2012, KEYreit announced that it had entered into a commitment for a first mortgage with First National Financial LP in the amount of $37 million. The proceeds from the mortgage will primarily be used to repay fully the $34 million outstanding on the Firm Capital Loan. The mortgage is expected to close by the end of the third quarter of 2012 and is subject to customary closing conditions.
- In addition, on August 7, 2012, KEYreit announced that it was under contract to acquire three investment properties, comprising of 101,473 square feet of gross leasable area, for a purchase price of $16.1 million. The total purchase price shall be satisfied through the assumption of existing mortgage debt and from the net proceeds received from KEYreit's equity offering referenced below. The acquisition is expected to close in the third quarter of 2012 and is subject to customary closing conditions.
- Further, on August 8, 2012, KEYreit completed a public offering of 1,886,000 Units at $6.10 per Unit for gross proceeds of $11.5 million.
"The second quarter of 2012 marked a couple of a new starts for KEYreit with a new tenant announced for our properties in Alberta and Manitoba and establishing a new identity that better represents the REIT," said Teresa Neto, Chief Financial Officer of the REIT. "We continue to maintain our focus on our three key objectives this year; of re-leasing vacant properties, refinancing debt maturing over the next twelve months; and growing through accretive acquisitions".
Name of REIT Changed
Effective, July 9, 2012, Scott's Real Estate Investment Trust changed its name to KEYreit, pursuant to a resolution passed by the Trustees on June 20, 2012. Concurrent with the name change, REIT's units ceased trading on the Toronto Stock Exchange (the "TSX") under the stock symbols "SRQ.UN" and commenced trading under the new symbol "KRE.UN". Similarly, the REIT's Series A, B and C convertible debentures ceased trading under the symbols SRQ.DB, SRQ.DB.A and SRQ.DB.B, respectively, and commenced trading under the symbols KRE.DB, KRE.DB.A and KRE.DB.B, respectively.
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 and six months ended June 30, 2012 and 2011, and the notes thereto included in KEYreit's quarterly filings at www.sedar.com.
|(in thousands of dollars, except Unit and per Unit amounts)|| Three-month period ended
| Six-month period ended
|Net operating income (1)||5,254||4,795||10,470||9,655|
|Net income (loss) (2)||7,569||1,233||10,023||6,469|
|FFO per Unit(4)||0.062||0.146||0.165||0.327|
|FFO per Unit - Fully Diluted(4)||0.062||0.146||0.165||0.323|
|FFO, Adjusted (5)||954||1,345||1,901||3,018|
|FFO per Unit, Adjusted||0.103||0.146||0.206||0.327|
|FFO per Unit, Adjusted - Fully Diluted||0.103||0.146||0.206||0.323|
|AFFO per Unit (7)||0.114||0.181||0.258||0.373|
|AFFO per Unit - Fully Diluted (7)||0.114||0.176||0.258||0.360|
|AFFO, Adjusted (8)||1,207||1,967||2,556||3,843|
|AFFO per Unit, Adjusted||0.130||0.213||0.276||0.416|
|AFFO per Unit, Adjusted - Fully Diluted||0.130||0.201||0.276||0.394|
|Total Units (9)||9,252,549||9,249,607||9,252,549||9,249,607|
|Weighted Average Number of Units (10)||9,250,189||9,239,450||9,249,898||9,238,197|
|Weighted Average Number of Units - Fully Diluted - for FFO(10)||9,250,189||9,239,450||9,249,898||11,725,759|
| Weighted Average Number of Units - Fully Diluted - for
|Total distributions declared to Unitholders (11)||1,774||1,965||3,740||3,927|
|Total distributions to Unitholders, cash basis(12)||1,966||1,965||3,931||3,927|
|Total distributions per Unit||0.192||0.213||0.404||0.425|
|Adjusted payout ratio (14)||146.9%||99.8%||146.3%||102.2%|
|(in thousands of dollars, except Unit and per Unit amounts)|| As at
| As at
|Total assets as at period end||$307,731||$271,422||$307,731||$271,422|
|Debt, excluding convertible debentures as at period end (15)||162,220||134,515||162,220||134,515|
|Debt to book value (16)||52.71%||49.56%||52.71%||49.56%|
|Interest coverage ratio (17)||1.26||1.57||1.35||1.65|
|Weighted average mortgage contract interest rate||5.42%||5.36%||5.42%||5.36%|
| As at
| As at
|Gross Leasable Area||1,103,156||959,863||1,103,156||959,863|
|Number of Properties||229||220||229||220|
|(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 this MD&A for a discussion and analysis of the second quarter results compared to the corresponding periods in the previous year.|
|(3)||A non-IFRS measure for which a reconciliation to net income can be found in this MD&A in the discussion under "Funds from Operations ("FFO") and Adjusted Funds From Operations ("AFFO")".|
|(4)||FFO per Unit is calculated using the weighted average number of Units outstanding including the Class B Exchangeable Units of Scott's LP while they were outstanding for the period.|
|(5)||FFO is adjusted for the write-off of prepaid financing costs of $377 included in general and administrative costs in the second quarter of 2012. See "Analysis of Financial Performance"|
|(6)||A non-IFRS measure for which a reconciliation to net income can be found in this MD&A in the discussion under "Funds From Operations and Adjusted Funds From Operations".|
|(7)||AFFO per Unit is calculated using the weighted average number of Units outstanding including the Class B Exchangeable Units of Scott's LP while they were outstanding for the period.|
|(8)||AFFO is adjusted for the legal expenses related to the claim on Priszm's sales proceeds. See "2012 - Second Quarter Highlights - Priszm".|
|(9)||Calculated using the number of Units outstanding including the Class B Exchangeable Units of Scott's LP while they were outstanding during the period.|
|(10)||For the six-month period ending June 30, 2011, fully diluted units assume the conversion of the 2009 Convertible Debentures for the FFO per unit calculation, and for the three and six-month period ending June 30, 2011 assumes the conversion of 2009 Convertible Debentures for the AFFO per unit calculation. For the three and six-month period ending June 30, 2012, all convertible debentures are anti-dilutive.|
|(11)||Distributions declared include the distributions declared on the Class B Exchangeable Units of Scott's LP while they were outstanding during the period.|
|(12)||Distributions on a cash basis include the distributions paid on the Class B Exchangeable Units of Scott's LP while they were outstanding during the period.|
|(13)||A non-IFRS measure calculated by dividing distributions paid to Unitholders, including the Class B Exchangeable Units of Scott's LP while they were outstanding during the period, by AFFO as defined in this MD&A.|
|(14)||A non-IFRS measure calculated by dividing distributions paid to Unitholders, including the Class B Exchangeable Units of Scott's LP while they were outstanding during the period by AFFO, adjusted, as defined in this MD&A.|
|(15)||Debt is defined as mortgages payable, term debt and land lease liability.|
|(16)||A non-IFRS measurement defined in KEYreit's Declaration of Trust.|
|(17)||Interest coverage ratio is calculated as IFRS net income, plus interest expense (including the distribution on the Class B Exchangeable Units and deferred financing amortization expense), plus transaction costs incurred on the issuance of convertible debentures, 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 the distribution on the Class B Exchangeable Units of Scott's LP and the deferred financing amortization expense).|
August 2012 Distribution
KEYreit also today announced a cash distribution of $0.05 per unit for the month of August 2012. The distribution will be payable on September 17, 2012 to Unitholders of record on August 31, 2012.
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 operating performance. KEYreit calculates FFO according to the industry standard definition stated in the REALpac Whitepaper on FFO dated June 2010. FFO as computed by KEYreit may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable. FFO in the MD&A represents net income of KEYreit, plus depreciation, amortization of intangible assets, amortization expense relating to tenant allowances, interest expense on the Class B Exchangeable Units; and fair value adjustments on investment properties, convertible debentures and the Class B Exchangeable Units. FFO, Adjusted represents FFO, as computed by KEYreit, plus non-recurring prepaid financing costs written-off and 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 the MD&A represents net income of KEYreit, plus depreciation, amortization of intangible assets, amortization expense relating to tenant allowances, amortization of financing fees, stock based compensation, interest expense on the Class B Exchangeable Units, acquisition write-offs and non-recurring write-off of prepaid transaction costs, less, the straight-line rent revenue accrual, and fair value adjustments on investment properties, convertible debentures and the Class B Exchangeable Units. 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'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 rental revenue less property operating expenses.
This MD&A contains 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 MD&A includes, but is not limited to, statements with respect to 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 MD&A 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 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 (formerly Scott's Real Estate Investment Trust,TSX: KRE.UN) is Canada's premier small-box retail property owner with 229 properties in eight 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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