TRADING SYMBOL: RLX and RLX.A (TSXV)
CALGARY, Feb. 11 /CNW/ - Realex Properties Corp. ("Realex" or "Corporation") today announced its fiscal 2010 first quarter results from operations.
Financial highlights for the three months ended December 31, 2009 are as follows:
Income Statement Summary Data
Three Months Ended December 31,
($000's except per share amounts) 2009 2008 % change
---------- ---------- ----------
Revenues 15,010 14,607 3%
Net Income 686 143 380%
Net income per share - basic/diluted 0.004 0.001 300%
NOI(1) 7,746 7,546 3%
FFO(1) 4,991 5,044 (1)%
FFO per share - basic/diluted 0.031 0.033 (6)%
AFFO(1) 3,491 3,793 (8)%
AFFO per share - basic/diluted 0.022 0.025 (12)%
Dividends on common and non-voting shares 1,198 1,150 4%
Weighted average shares outstanding
(000's) 159,255 153,364 4%
Balance Sheet Summary Data
($000's) December 31, 2009 September 30, 2009
Income Properties 369,089 366,242
Assets 435,378 435,565
Debt 250,325 250,740
Shares outstanding (000's) 159,732 158,951
(1) Refer to the "Non-GAAP Measures" section for further details.
The results for Realex Properties Corp. first quarter of fiscal 2010 ended December 31, 2009, show improved property revenues with stable occupancy levels. Revenues were up 3% compared to the first quarter of fiscal 2009 ended December 31, 2008, and the Corporation's overall office and industrial portfolio occupancy rate now stands at 95%. During the quarter, rental payments commenced for a new lease at our St. Albert Trail, Edmonton property. The Corporation was able to refinance the property and use the proceeds to pay down higher cost, short term debt with a lower cost long term mortgage. During this quarter Realex initiated its streamlined management structure and its plans to simplify the Corporation's business lines. It also was the first quarter where the benefits of the internalization of all remaining external property management took effect. Though FFO and AFFO per share were down modestly (first quarter 2010 compared to first quarter in the prior year) both were up significantly from the previous quarter ended September 30, 2009. We are pleased to provide you with our 2010 first quarter report for the period ended December 31, 2009.
Review of Q1 2010 Operations
When comparing the financial results for the three months ended December 31, 2009, to the prior year, net income increased by $543,000 (380%), net income per share increased by 0.003 (300%), revenue increased by $403,000 (3%), NOI increased by $200,000 (3%), FFO decreased by $53,000 (1%) and AFFO decreased by $302,000 (8%). FFO per share ($0.031) and AFFO per share ($0.022) decreased when comparing the results for the three months ended December 31, 2009 with the prior year. FFO per share and AFFO per share were negatively impacted due to decreased management fee income and interest income, and dilution due to shares issued under the DRIP. In addition, AFFO and AFFO per share were negatively impacted as a result of the rental abatement commenced in September 2009, and free rent periods in two other properties.
A discussion of Realex's business units follows.
The Western region at the beginning of the year had lease expiries totaling 37,287 square feet in calendar 2009 and calendar 2010. As of December 31, 2009, 402 square feet have been renewed and 4,968 square feet were vacated. Of the 31,917 square feet of expiries for calendar 2010, 21,893 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.
Occupancy levels in the Western region stood at 97.40% at December 31, 2009 compared to 97.96% at September 30, 2009.
Southwestern Ontario Region
The Southwestern Ontario region at the beginning of the year had lease expiries totaling 58,852 square feet in calendar 2009 and calendar 2010. As of December 31, 2009, 7,835 square feet have been renewed and 6,230 square feet was vacated. In addition, space expiring in years later than 2010 totaling 4,271 square feet was vacated during the quarter. Of the 46,853 square feet of remaining expiries for calendar 2010, 32,724 square feet is expected to renew.
Occupancy levels in the Southwestern Ontario region stood at 92.23% at December 31, 2009 compared to 93.45% at September 30, 2009.
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 calendar year 2010, 78,770 square feet of leases are expiring and it is anticipated that 54,617 square feet will renew.
The weighted average occupancy rate of the Corporation's office and industrial portfolio was 94.81% at December 31, 2009, 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 360,000 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 51.7%. The partnership has two additional properties in the development planning and approval stage which would 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 10 loans with a total principal balance for Realex's share being $5.56 million, which represents 1% of Realex's total asset base. Of the principal balance owed to Realex, $1.33 million is performing and $4.23 million is non-performing. An impairment provision totalling $1,84 million at December 31, 2009 has been provided for and is considered adequate (no change from September 30, 2009). In total, Realex has provisioned the portfolio by 27% of the total principal balance owed or 36% 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 has authorized the payment of a dividend for the quarter ended December 31, 2009 to common and non-voting shareholders at the rate of $0.0075 per share (the "Dividend"). The Dividend will be paid March 15, 2010 to shareholders of record on February 26, 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.
During the first quarter of 2010 our management team made numerous investor presentations across Canada. It was apparent that investor awareness of the Corporation was not at a level deemed acceptable by either the Corporation's management or Board of Directors and these presentations helped to bring an understanding and awareness of the Corporation that had not previously existed. By the end of the first quarter the Corporation's share price had reached an eighteen month high of $0.84 per common share which the Corporation believes begins to reflect our underlying value. This initiative has helped position the Corporation to move toward the next step in its strategic plan; the formation of a real estate fund in which Realex will co-invest, act as sourcing manager, and underwrite and manage all new acquisitions.
In recent quarterly reports, we noted that commercial property sales were near their lowest levels in years. The overall activity level in sales transactions was at a near standstill for the most part of Realex Properties Corp. fiscal 2009. During the past three months of calendar 2009 (the corresponding period of Realex's first quarter 2010), sales transactions picked up significantly. The volume of sales transactions in these three months was up over 70% from previous quarters in certain markets. This opening up of acquisition opportunities is very much aligned with our strategy at Realex and is further reinforced as we see purchase prices considerably more favourable to buyers than was the case at any time in the past several years. Although sales are increasing and competitive capital is in the market for acquisitions, buyers have been relatively disciplined and cautious in their pricing and the yield targets we have set for new acquisitions in Realex and our proposed Canadian real estate fund are consistent with the in-going yields buyers have been achieving on recent transactions in Ontario and western Canada. As we move into our second quarter, our focus will be on positioning the Corporation for new acquisitions and acting on buying opportunities which meet our targets.
Realex is moving forward with raising capital in its new proposed Canadian real estate fund. This fund will be the primary acquisition vehicle for Realex for its ownership participation and management of office and industrial properties in Canada. It broadens the range and quality of new acquisitions for Realex giving the Corporation partial ownership in new acquisitions with full management service and corresponding property revenues.
Realex is now well positioned 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 nearly a decade. It is the Corporation's primary objective to realize on the acquisition opportunities it can secure which meet value and risk profile criteria. "The Canadian economy has both signs of stability and signs of uncertainty," said Mr. Tom Heslip, Realex's President and CEO. "This is a time to act on growth through acquisition by recognizing opportunities while underwriting and valuing acquisitions to reflect a cautious outlook."
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