News Column

FAM REIT announces Q2 2014 results

August 8, 2014

TORONTO, Aug. 8, 2014 /CNW/ - FAM Real Estate Investment Trust ("FAM REIT", or the "REIT") (TSX: F.UN) (TSX: F.WT) announced today its financial results for the three months and six months ended June 30, 2014.

KEY HIGHLIGHTS

•Same-property occupancy of 97.8% as at June 30, 2014, consistent with the occupancy rate on a sequential basis as at March 31, 2014 and slightly lower than occupancy of 98.3% on a year-over-year basis as at June 30, 2013. •Overall portfolio occupancy of 97.8% as at June 30, 2014, compared to 97.9% on sequential basis as at March 31, 2014 and 96.9% on a year-over-year basis as at June 30, 2013. •FFO – As Reported per unit of $0.15 for the current quarter, compared to $0.34 for the same period last year.  FFO – As Reported per unit of $0.26 for the six months ended June 30, 2014, compared to $0.64 for the same period last year.   •FFO – Core per unit of $0.22 for the current quarter, compared to $0.25 for the same prior period. FFO – Core per unit of $0.43 for the six months ended June 30, 2014, compared to $0.48 for the same prior period. •Strong financial position with a 47.6% indebtedness ratio at June 30, 2014 compared to 56.6% at June 30, 2013; Approximately $21 million of liquidity consisting of cash and unused revolver capacity at June 30, 2014. •Construction of the MTS Data Centre development is progressing as planned, and is slated for substantial completion in May 2015 with rent commencement in June 2015. On an annualized basis, the incremental year one contribution from the MTS Data Centre to FFO – Core will be approximately $2.4 million, or $0.16 per unit, upon rent commencement.

Shant Poladian, Chief Executive Officer of FAM REIT, commented, "FAM REIT's operating performance showed sequential quarterly improvement as the impact of unusually cold weather and a prolonged winter gave way to more normal operating costs and margins. On a relative basis, our indebtedness ratio and liquidity profile are among the strongest in the Canadian REIT industry. Achieving this strong financial position has clearly come at the expense of short term earnings performance on a per unit basis. In an adverse capital market environment for small cap REITs, we believe that the quality of balance sheet is a differentiating factor which will allow us to capitalize on attractive investment opportunities as they arise. We are confident our strategy will bear fruit for long-term unitholders."

Financial Highlights and Key Performance Indicators 

($000s unless otherwise

 noted and except per unit amounts)





Three months ended

June 30, 2014


Three months ended

March 31, 2014


Three months ended

June 30, 2013


Revenue from investment properties



$

7,972

$

8,207

$

6,601

Net operating income(1)







4,927



4,765



4,130

Same-property net operating income, cash basis





3,221



3,120



3,390

Net income (loss)  and comprehensive income (loss)





(1,872)



(354)



4,162



















Funds from operations – As Reported(1)





2,074



1,189



2,879

Funds from operations – Core(1)





2,930



2,598



2,081

FFO per unit (basic and diluted) – As Reported(1)



$

0.15

$

0.10

$

0.34

FFO per unit (basic and diluted) – Core(1)



$

0.22

$

0.22

$

0.25



















Adjusted funds from operations – As Reported(1)





2,029



2,268



1,121

Adjusted funds from operations – Core(1)





2,249



2,386



2,046

AFFO per unit (basic and diluted) – As Reported(1)

$

0.15

$

0.19

$

0.13

AFFO per unit (basic and diluted) – Core(1)



$

0.17

$

0.20

$

0.24



















Distributions per unit – basic and diluted(2)



$

0.19

$

0.19

$

0.19

AFFO – Core pay-out ratio(3)





112%



95%



76%

Cash distributions per unit – basic and diluted(2)



$

0.13

$

0.13

$

0.19

AFFO – Core pay-out ratio, net of DRIP(3)





76%



65%



79%



















Net operating income by asset class

















Industrial



$

1,387

$

1,448

$

1,447



Office





3,226



3,039



2,256



Retail





314



278



427







$

4,927

$

4,765

$

4,130



















Net operating income by geographic location

















Manitoba



$

1,822

$

1,697

$

1,866



Ontario





2,383



2,314



1,261



Saskatchewan





148



128



385



Alberta





443



497



482



Northwest Territories





131



129



136







$

4,927

$

4,765

$

4,130



















Interest coverage ratio (times)(4)





2.8x 



2.7x



2.4x 

Debt to EBITDA leverage ratio (times)(5)





8.2x 



8.6x



9.3x 

Net Debt to EBITDA leverage ratio (times)(5)





7.8x 



8.4x



9.1x 

Debt service coverage ratio (times)(6)





1.7x 



1.6x



1.5x 

Indebtedness ratio (%) – period end(7)





47.6%



52.6%



56.6%

Weighted average mortgage interest rate – period end



4.7%



4.7%



4.8%

Same-property occupancy – period end





97.8%



97.8%



98.3%

Occupancy – period end

















Industrial





100.0%



100.0%



100.0%



Office





95.8%



96.0%



95.4%



Retail





100.0%



100.0%



90.4%









97.8%



97.9%



96.9%



















Leased square footage (sq. ft.) – period end





1,789,026



1,790,104



1,690,701

Rentable square footage (sq. ft.) – period end





1,829,096



1,829,096



1,745,292



FINANCIAL

Funds From Operations ("FFO"): FFO – As Reported for the three months ended June 30, 2014 was $0.15 per unit. After adjusting for $0.05 per unit non-cash fair value loss on the interest rate swaps and $0.02 per unit Special Committee related expenses, FFO – Core was $0.22 per unit, consistent with the three months ended March 31, 2014. The decrease in FFO – Core of $0.03 per unit on a year-over-year basis was primarily due to:

    •Equity issued to fund development of the MTS Data Centre which is not generating any FFO contribution during the construction period; •Deleveraging to a 47.6% indebtedness ratio at June 30, 2014 compared to 56.6% at June 30, 2013; •The dilutive impact of a higher uninvested cash balance which stood at $6.7 million at June 30, 2014 compared to $1.4 million at June 30, 2013; and •The decline in same-property NOI.
Adjusted Funds From Operations ("AFFO"): AFFO – As Reported for the three months ended June 30, 2014 was $0.15 per unit. After adjusting for $0.02 per unit Special Committee related expenses, AFFO – Core was $0.17 per unit. The decrease in AFFO – Core per unit on a sequential and year-over-year basis was due to the above noted factors accounting for the decrease in FFO – Core as well as higher capital expenditures and leasing costs in the current quarter.

OPERATIONAL

Net Operating Income ("NOI"): The REIT achieved NOI of $4.9 million for the three months ended June 30, 2014 and $4.1 million for the three months ended June 30, 2013. The acquisitions of 4211 Yonge, The Promontory, and 1700 Ellice generated NOI of $1.7 million during the current quarter, compared to $0.4 million in the prior quarter. This increase was partially offset by the loss of NOI attributable to properties that were sold in 2013, including the 220 Portage and Humboldt Mall, which contributed $0.2 million in NOI during the three months ended June 30, 2013. •Operating cost recoveries: The operating cost recovery included in revenue amounted to $2.8 million for the three months ended June 30, 2014, compared to $2.3 million for the same period in 2013. •Occupancy: Occupancy on a same-property basis was 97.8% as at June 30, 2014, consistent with the occupancy rate at March 31, 2014 and lower than the occupancy rate of 98.3% as at June 30, 2013 due to office space turnover at Saskatchewan Place. Overall portfolio occupancy was 97.8%, largely unchanged compared to 97.9% on a sequential basis as at March 31, 2014 and 96.9% on a year-over-year basis as at June 30, 2013. On a year-over-year basis, the overall portfolio occupancy gain was due to the lease up of vacant space in Toronto, Winnipeg, and Calgary, the acquisition of two fully leased properties (The Promontory and 1700 Ellice), the sale of Humboldt Mall, which was partly offset by turnover at Saskatchewan Place. •MTS Data Centre: Development is proceeding as planned, with the building shell expected to be complete in November 2014, substantial completion in May 2015, and building turnover to the tenant in June 2015. Construction change orders totaling $2.2 million have been approved by all parties, and will result in a proportionate increase in annual base rent over the 15-year lease term. Year one annualized cash NOI will increase from $5.8 million to $6.1 million (on a 100% ownership basis) as a result of change orders. •Leasing Profile: Month-to-month and lease maturities were 116,000 sf during the three months ended June 30, 2014. The REIT has continuing month-to month leases of 2,400 sf, completed lease renewals of 24,000 sf, and signed binding offers to lease for 87,000 sf of tenancies. •Debt Strategy: The REIT deleveraged to a 47.6% indebtedness ratio at June 30, 2014, and had approximately $21 million of available liquidity, which provides significant flexibility to fund growth and downside protection in the event of prolonged adverse capital market conditions. FAM REIT has only $0.8 million of mortgage principal maturities prior to November 2015.

OUTLOOK

Based on our current outlook of leasing activity, we expect FAM REIT's occupancy to remain above 96% throughout 2014 with tenant retention at or above 90%, assuming no acquisitions, dispositions or redevelopment initiatives. There are approximately 254,000 of lease maturities during the six months ending December 31, 2014. FAM REIT has completed lease renewals for 142,000 sf, signed binding offers to lease for 24,000 sf, is in long-term lease renewal negotiations for 76,000 of tenancies, with 2,700 sf continuing as month-to-month leases.

On February 20, 2014, FAM REIT announced that it has formed a Special Committee comprised of its Independent Trustees, Chaired by Gary Samuel, FAM REIT's Lead Independent Trustee in response to Huntingdon's initiation of a Strategic Review as announced on February 19, 2014.

The Special Committee's mandate is to evaluate the impact of the strategic review, and if advisable, to respond to such review. While Huntingdon undertakes its strategic review, FAM REIT expects to continue to carry on normal operations with Huntingdon acting as its manager.

Please refer to the disclosures contained in FAM REIT's final prospectus dated May 5, 2014 for additional information.

Other information

Information appearing in this press release is a select summary of results. The consolidated financial statements and management's discussion and analysis for the REIT are available at www.sedar.com and our website at www.famreit.com.

Footnotes

(1)      



Net operating income, FFO – As Reported, FFO – Core, AFFO – As Reported, AFFO – Core, and earnings before interest, taxes, depreciation and amortization ("EBITDA") are not measures defined under International Financial Reporting Standards ("IFRS"). Management believes that these are useful supplemental measures, but may not be comparable to other REITs. Please refer to the REIT's MD&A for a description of these measures.

(2)      



The weighted average number of units outstanding used in the per unit calculations includes the weighted average of all REIT units and Class B LP units.

(3)      



The AFFO – Core pay-out ratio is calculated as total distributions divided by AFFO – Core for the period. The AFFO – Core pay-out ratio, net of DRIP reflects the actual amount of cash paid or payable after taking into account unitholders who have elected to take their distributions in the form of trust units instead of cash.

(4)      



The interest coverage ratio is calculated as EBITDA for the period divided by interest expensed during the period.

(5)      



The debt to EBITDA leverage ratio is calculated as the average debt outstanding divided by annualized EBITDA. Debt consists of mortgages payable, vendor take-back loan, and the revolving credit facility at face value, excluding deferred transaction costs. The net debt to EBITDA ratio takes into consideration the cash on hand to decrease debt.

(6)      



The debt service coverage ratio is calculated as EBITDA divided by the debt service requirements for the period. Debt service requirements reflects principal repayments and interest expensed during the period. Payments related to defeasance, prepayment penalties, or payments upon discharge of a mortgage are excluded from the calculation.

(7)      



The indebtedness ratio is calculated as total debt divided by total assets at period end.



About FAM Real Estate Investment Trust

The REIT is a diversified commercial real estate investment trust focused on owning and acquiring strategically well-located office, industrial and retail real estate located primarily across Canada's large population centres.

Forward looking information

This press release contains forward-looking information within the meaning of applicable securities legislation, which reflects the REIT's current expectations regarding future events. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the REIT's control, that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to, general and local economic and business conditions; the financial condition of tenants; our ability to refinance maturing debt; leasing risks, including those associated with the ability to lease vacant space; and interest rate fluctuations. Our objectives and forward-looking statements are based on certain assumptions, including that the general economy remains stable, interest rates remain stable, conditions within real estate market remain consistent, competition for acquisitions remains consistent with the current climate and that the capital markets continue to provide ready access to equity and/or debt. All forward-looking information in this press release speaks as of the date of this press release. The REIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise. Additional information about these assumptions and risks and uncertainties is contained in the REIT's filings with securities regulators, including its latest annual information form and MD&A.

SOURCE FAM Real Estate Investment Trust


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