Allied Properties Real Estate Investment Trust Announces Third-Quarter Results for 2010 and Provides IFRS Update
November 10 2010 - 5:35AM
Marketwired Canada
Allied Properties REIT (TSX:AP.UN) today announced results for its third quarter
and nine-month period ended September 30, 2010. Allied also provided an update
on its preparation for adoption of International Financial Reporting Standards
("IFRS") in January, 2011.
"We made progress in all aspects of our business in the third quarter and took
advantage of receptive capital markets to accelerate external growth, improve
liquidity and secure capital at a very favourable cost," said Michael Emory,
President & CEO. "In addition, we completed the external appraisal of our
portfolio as at December 31, 2009, in preparation for the adoption of IFRS. It
indicates an un-audited appraisal increment of $190 million without assigning
value to the very significant intensification potential in our portfolio."
Leasing
Allied finished the quarter with leased area of 95%. It renewed or replaced 64%
of the leases that mature in 2010, in most cases at rental rates equal to or
above in-place rents. This will result in a very slight overall increase in the
net rental income per square foot from the affected space.
Allied is very close to eliminating the bulge in its lease-maturity schedule
that arose from the scheduled expiry of large tenancies in 2010, 2011 and 2012.
It addressed the large expiry in 2012 with the early renewal of Desjardins Visa
at 425 Viger Avenue West in Montreal. It also addressed the two large expiries
in 2011 when it replaced Motorola with Morgan Stanley and finalized the early
renewal and expansion of SAP Labs at Cite Multimedia in Montreal. This left
Allied with two large expiries at Cite Multimedia this year, Compuware and CGI.
With Compuware's partial renewal and GFI's expansion, it addressed the former
expiry. Knowing it could achieve a better long-term outcome for Cite Multimedia
with replacement tenants, Allied decided in the second quarter not to renew
CGI's lease when it expires on December 31 of this year.
At the outset of the third quarter, Allied had five of CGI's office floors to
lease. During the quarter, it negotiated a conditional lease transaction with a
high-quality tenant for two of the five floors. The transaction is subject to
approval later this month by the tenant's board of directors, which will also be
considering a competing alternative. If Allied's transaction is approved, the
lease will have a term of 20 years commencing November 1, 2011, and will be at
net rental rates above in-place rents with escalations every five years. Allied
also responded to a request for proposal from a high-quality tenant for two of
the remaining three floors. The tenant has narrowed the alternatives under
consideration to three, of which Allied's is one. Finally, two existing tenants
at Cite Multimedia have expressed interest in expanding within CGI's office
space. While the re-leasing is ongoing, Allied expects the process to be largely
complete by year-end.
The success Allied has had in reconfiguring its tenant-base at Cite Multimedia
put downward pressure on same-asset NOI in the third quarter. Also, because of
the long-term leases Allied is putting in place at the complex, its leasing
costs were higher than normal, increasing its AFFO pay-out ratio temporarily.
The benefit going forward will be a complex with a higher level of net rent than
anticipated at the time of acquisition, a considerably improved tenant-mix and a
better than normal lease-maturity schedule.
Financial Results
The financial results for the quarter are summarized below and compared to the
prior quarter and the same quarter in 2009:
(In thousands except
for per unit and %
amounts) Q3 2010 Q2 2010 Change %Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income 5,462 4,608 854 18.5%
Funds from operations
("FFO") 16,486 15,882 604 3.8%
FFO per unit (diluted) $ 0.41 $ 0.41 $ 0.00 0.0%
FFO pay-out ratio 80.1% 81.1% (1.0%)
Adjusted FFO ("AFFO") 11,472 11,641 (169) (1.5%)
AFFO per unit
(diluted) $ 0.29 $ 0.30 ($0.01) (3.3%)
AFFO pay-out ratio 115.1% 110.6% 4.5%
Debt ratio 46.1% 48.0% (1.9%)
----------------------------------------------------------------------------
(In thousands except for
per unit and % amounts) Q3 2010 Q3 2009 Change %Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income 5,462 3,789 1,673 44.2%
Funds from operations
("FFO") 16,486 13,480 3,006 22.3%
FFO per unit (diluted) $ 0.41 $ 0.43 ($0.02) (4.7%)
FFO pay-out ratio 80.1% 76.6% 3.5%
Adjusted FFO ("AFFO") 11,472 12,401 (929) (7.5%)
AFFO per unit (diluted) $ 0.29 $ 0.40 ($0.11) (27.5%)
AFFO pay-out ratio 115.1% 83.2% 31.9%
Debt ratio 46.1% 49.4% (3.3%)
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The financial results for the nine-month period are summarized below and
compared to the same period in 2009:
(In thousands except for 9-Month 9-Month
per unit and % amounts) Period 2010 Period 2009 Change %Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income 14,651 11,615 3,036 26.1%
Funds from operations
("FFO") 49,237 41,337 7,900 19.1%
FFO per unit (diluted) $ 1.25 $ 1.32 ($0.07) (5.3%)
FFO pay-out ratio 79.1% 74.8% 4.3%
Adjusted FFO ("AFFO") 37,793 37,303 490 1.3%
AFFO per unit (diluted) $ 0.96 $ 1.19 ($0.23) (19.3%)
AFFO pay-out ratio 103.0% 82.9% 20.1%
Debt ratio 46.1% 49.4% (3.3%)
----------------------------------------------------------------------------
The decline in FFO per unit for the nine-month period was largely attributable
to lower average occupancy and a lower Debt Ratio. The decline in AFFO per unit
was largely attributable the costs associated with the leasing success referred
to above.
Acquisitions
Allied's acquisition activity accelerated in the third quarter, bringing its
total acquisitions for the year to $60 million. It completed its first
acquisition in downtown Calgary, moving its urban office platform ever closer to
a national scale. Allied also completed two acquisitions in downtown Toronto.
Earlier today, Allied announced the acquisition of a 50% interest in The
Breithaupt Block, a property under redevelopment in the Warehouse District of
downtown Kitchener. On completion in 2013, it will compliment Allied's property
at 72 Victoria Street. In addition, Allied is examining acquisition
opportunities in Toronto, Winnipeg and Calgary. As a result, it remains
committed to its 2010 target of $100 to $150 million in acquisitions.
Liquidity
Allied finished the quarter in a strong liquidity position with a conservative
Debt Ratio of 46%. It had $24.6 million drawn on its $70 million line of credit
at the end of the quarter. The mortgage financings scheduled for completion in
the fourth quarter will enhance Allied's liquidity position considerably.
International Financial Reporting Standards
Continuing its preparation for adoption of IFRS in January, 2011, Allied
completed the external valuation of its portfolio as at December 31, 2009. Fair
valuing the portfolio using external appraisers will underpin the most
substantive change to Allied's financial statements upon its adoption of IFRS.
Allied has chosen the "Fair Value" approach to investment properties for its
going-forward IFRS financial statements. This accounting policy choice means
that, starting in 2011, investment properties will be recorded at fair value on
the Statement of Financial Position. Periodic changes in fair value will be
recorded in the Statement of Operations. This could lead to increased volatility
in reported net income and net income per unit but should not impact FFO or
AFFO.
Allied's portfolio was appraised in its entirety by an independent, appraiser,
Cushman & Wakefield. The appraiser used capitalization rates ranging from 7% to
10.2%, the high-point being the capitalization rate associated with Allied's
property at 151 Front Street West in Toronto at the time of acquisition. The
weighted average capitalization rate for the portfolio was 8.2%. In accordance
with the requirements of IFRS, the appraiser did not assign value to the very
significant intensification potential in Allied's portfolio.
The external appraisals indicate an un-audited value for our investment
properties of $1.27 billion, which is $190 million above the value reported on
December 31, 2009. The appraisal increment represents an 18% increase in the
value of total assets at that time.
Allied Debt Ratio as at December 31, 2009, was 47%. As a percentage of the
un-audited appraised value for Allied's investment properties at that time,
Allied's Debt Ratio would have been 41%.
While there are certain industry-related issues that have not yet been resolved,
Allied's IFRS transition project is progressing in accordance with its plan to
be compliant by March 31, 2011, the first IFRS reporting date.
Cautionary Statements
FFO and AFFO are not financial measures defined by Canadian GAAP. Please see
Allied's MD&A for a description of these measures and their reconciliation to
net income or cash flow from operations, as presented in Allied's consolidated
financial statements for the quarter ended September 30, 2010. These statements,
together with accompanying notes and MD&A, have been filed with SEDAR,
www.sedar.com, and are also available on Allied's web-site,
www.alliedpropertiesreit.com.
This press release may contain forward-looking statements with respect to
Allied, its operations, strategy, financial performance and condition. These
statements generally can be identified by use of forward looking words such as
"may", "will", "expect", "estimate", "anticipate", intends", "believe" or
"continue" or the negative thereof or similar variations. Allied's actual
results and performance discussed herein could differ materially from those
expressed or implied by such statements. Such statements are qualified in their
entirety by the inherent risks and uncertainties surrounding future
expectations, including that the transactions contemplated herein are completed.
Important factors that could cause actual results to differ materially from
expectations include, among other things, general economic and market factors,
competition, changes in government regulations and the factors described under
"Risk Factors" in the Allied's Annual Information Form which is available at
www.sedar.com. The cautionary statements qualify all forward-looking statements
attributable to Allied and persons acting on its behalf. Unless otherwise
stated, all forward-looking statements speak only as of the date of this press
release, and Allied has no obligation to update such statements.
Allied Properties REIT is a leading owner, manager and developer of urban office
environments that enrich experience and enhance profitability for business
tenants operating from Toronto, Montreal, Winnipeg, Quebec City, Kitchener and
Calgary. Its objectives are to provide stable and growing cash distributions to
unitholders and to maximize unitholder value through effective management and
accretive portfolio growth.
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