TRADING SYMBOL: RLX and RLX.A (TSXV)
CALGARY, May 13 /CNW/ - The results for Realex Properties Corp. ("Realex" or "Corporation") second quarter of fiscal 2010 ended March 31, 2010, show improved property revenues with stable occupancy levels. Net Operating Income increased significantly compared to the second quarter of fiscal 2009 ended March 31, 2009 and the Corporation's overall office and industrial portfolio occupancy rate now stands at 96%. Subsequent to the quarter end 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 entire
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. Our leasing group was successful in renewing and expanding two
government tenants, one in the Western region for 15,000 square feet
ten year term, and one in the Southwestern Ontario region for 21,000
square feet for a five year term.
4. Realex's Board of Director authorized an increase to the annual
dividend from $0.03 to $0.04.
Income Statement Summary Data
Three Months Ended Six Months Ended
March 31, March 31,
($000's except -------------------------- --------------------------
per share amounts) 2010 2009 % change 2010 2009 % change
-------- -------- -------- -------- -------- --------
Revenues 14,845 15,201 (2)% 29,855 29,808 - %
Net Income 630 189 233% 1,316 332 296%
Net income per share
- basic/diluted 0.004 0.001 300% 0.008 0.002 300%
NOI(1) 8,189 7,503 9% 15,935 15,049 6%
FFO(1) 5,179 4,064 27% 10,170 9,108 12%
FFO per share -
basic/diluted 0.032 0.026 23% 0.064 0.059 8%
AFFO(1) 3,912 3,929 - % 7,403 7,722 (4)%
AFFO per share -
basic/diluted 0.024 0.026 (8)% 0.046 0.050 (8)%
Dividends on common
shares 1,198 1,151 4% 2,396 2,301 4%
(000's) 160,786 153,396 5% 159,652 153,380 4%
(1) Refer to the "Non-GAAP Measures" section for further details.
Balance Sheet Summary Data
($000's) March 31, 2010 September 30, 2009
Income Properties 373,878 366,242
Assets 434,141 435,565
Debt 249,663 250,740
Shares outstanding (000's) 159,732 158,951
Review of Q2 2010 Operations
When comparing the financial results for the six months ended March 31, 2010, to the same period in the prior year, net income increased by $984,000 (296%), net income per share increased by $0.006 (300%), revenue increased by $47,000 (-%), NOI increased by $886,000 (6%), FFO increased by $1,062,000 (12%) (FFO per share increased by $0.005 (8%)). FFO for the six months ended March 31, 2010 increased as a result of the mortgages receivable impairment recorded in the prior year. Excluding the impairment provision in the prior year, FFO increased by $82,000 as increases in rent from income properties and decreased operating costs offset a decrease in management fee income and interest income. FFO per share was negatively impacted due to increased number of shares outstanding during the current period. AFFO decreased by $319,000 (4%) (AFFO per share decreased by $0.004 (8%)) when comparing the results for the six months ended March 31, 2010 with the prior year. The decrease is the result of decreased management and other fee income and interest income. 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 March 31, 2010, 902 square feet have been renewed and 6,006 square feet were vacated. Of the 30,379 square feet of remaining expiries for calendar 2010, 25,389 square feet is expected to renew.
The Corporation's forward re-leasing exposure in downtown Calgary is limited, with only 8% (32,157 square feet) of Realex's downtown leased area currently vacant or 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.
Subsequent to the quarter ended March 31, 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 May 13, 2010 have a 100% occupancy rate.
Occupancy levels in the Western region stood at 97.52% at March 31, 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 March 31, 2010, 19,379 square feet have been renewed and 13,123 square feet was vacated. In addition, 25,968 square feet of vacant space was leased and space expiring in years later than 2010 totaling 4,271 square feet was vacated during the six months ended March 31, 2010. Of the 37,464 square feet of remaining expiries for calendar 2010, 10,741 square feet is expected to renew.
Subsequent to the quarter ended March 31, 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 94.37% at March 31, 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, 67,843 square feet of leases are expiring and it is anticipated that 36,130 square feet will renew.
The weighted average occupancy rate of the Corporation's office and industrial portfolio was 95.91% at March 31, 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 have been leasing well and are in line with management absorption expectations. The current occupancy of the portfolio is 50.7%. The partnership has two additional properties in the development planning and approval stage which could add a further 185,000 square feet of net rentable area to the portfolio upon completion. The five operating storage facilities are state of the art and considered to be amongst the finest in the provinces of Alberta and BC. The partnership's continued focus will be on leasing and cash flow improvement and will not proceed with acquisitions or developments for the foreseeable future.
Through the process of refining our strategic plan and determining that our focus will be on the growth of the office and industrial portfolio, the Corporation has determined to seek a thoughtful exit from the self storage asset class in 2010. We believe that the Real Storage partnership's position in the self storage market and its current growth prospects will be seen as having significant value by those interested in pursuing the opportunities that this asset class presents.
Mezzanine Loan Portfolio
Realex's mezzanine loan portfolio consists of a partial interest in eight loans with a total principal balance for Realex's share being $5.13 million, which represents 1% of Realex's total asset base. Of the principal balance owed to Realex, $1.05 million is performing and $4.08 million is non-performing. An impairment provision totalling $1.84 million at March 31, 2010 has been provided for and is considered adequate (no change from September 30, 2009). In total, Realex has provisioned the portfolio by 36% of the total principal balance owed or 45% of the non-performing principal portion of the portfolio. 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 of Realex has approved an increase in the Corporation's annual dividend from $0.03 per Common Share and Non-Voting Share per annum to $0.04 per Common Share and Non-Voting Share per annum.
The Board of Directors has authorized the payment of a dividend for the quarter ended March 31, 2010 to common and non-voting shareholders at the rate of $0.01 per share (the "Dividend"). The Dividend will be paid June 15, 2010 to shareholders of record on May 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.
In recent weeks, the Corporation completed a new share issue and in doing so was able to retire significant short term debt, expand our investor base, position Realex for new acquisitions and initiate steps allowing us to (subject to shareholder approval) consolidate the Corporation's non-voting and common share classes into one single voting class. In coming months, the Corporation hopes to complete a share consolidation of 1 share for 10 shares. All of these steps are intended to widen investor appeal for Realex and provide the Corporation with the greatest degree of flexibility in achieving maximum share value for our investors.
Realex will focus in coming months on potential new accretive property acquisitions most likely in conjunction with joint venture partners that provide Realex with strong co-investor support, an expanded array of opportunities and an opportunity to enhance revenues through services we provide to the joint-venture ownership entity. Although in recent reports Realex indicated it would acquire new properties in conjunction with a new property fund it would raise, throughout the past few months the Corporation concluded that greater flexibility, better opportunities and stronger prospects for growth would come through our ability to acquire assets with varied partners thus allowing Realex to be a more competitive bidder for acquisitions.
These initiatives, when combined with an already stable property portfolio, an experienced management and operations team, a strong balance sheet and a high quality tenant base, are expected to position Realex for growth and for its primary goal of realizing the maximum share value possible for all shareholders.
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 believes that risk adjusted returns on office and industrial properties in select parts of Canada are amongst the best they have been in sometime, although it is clear that the commercial real estate market has become quite competitive again. There are indeed select opportunities to buy on a "value" basis which is at the core of Realex's philosophy yet there are indications 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 acquisition opportunities which meet value and risk profile criteria," said Mr. Tom Heslip, Realex's President and CEO, "but it is, first and foremost, the Corporation's objective is to increase share value, share trade price levels 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 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