Allied Properties REIT (TSX: AP.UN) today announced results for its
first quarter ended March 31, 2011. Allied also announced continued
portfolio growth in Western Canada.
"Our financial results for the first quarter were modestly ahead
of internal forecast, and we've seen a pronounced increase in
leasing and acquisition velocity across our target markets, which
bodes well going forward," said Michael Emory, President & CEO.
"Leasing velocity is particularly evident in Toronto and Montreal,
where we've completed a series of pivotal lease transactions.
Acquisition velocity is particularly evident in Western Canada,
where we've rapidly propelled our portfolio to early-stage critical
mass."
Financial Results
The financial results for the first quarter are summarized below
and compared to the same quarter in 2010:
(In thousands except for
per unit and % amounts) Q1 2011 Q1 2010 Change %Change
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Net income 12,836 15,849 (3,013) (19.0%)
Net income per unit $ 0.30 $ 0.41 (0.11) (26.8)
Funds from operations
("FFO") under IFRS 13,143 - - -
FFO per unit (diluted)
under IFRS $ 0.31 - - -
FFO pay-out ratio under
IFRS 109.1% - - -
Adjusted FFO ("AFFO") under
IFRS 10,515 - - -
AFFO per unit (diluted)
under IFRS $ 0.24 - - -
AFFO pay-out ratio under
IFRS 136.4% - - -
Funds from operations
("FFO") under GAAP 14,033 15,369(i) ($1,336) (8.7%)
FFO per unit (diluted)
under GAAP $ 0.33 $ 0.39(i) ($0.06) (15.4%)
FFO pay-out ratio under
GAAP 102.2% 83.7(i)% 18.5% -
Adjusted FFO ("AFFO") under
GAAP 10,688 13,181(i) ($2,493) (18.9%)
AFFO per unit (diluted)
under GAAP $ 0.25 $ 0.34(i) ($0.09) (25.8%)
AFFO pay-out ratio under
GAAP 134.2% 97.5(i)% 36.7% -
Debt ratio (% of fair
value) 41.6% 46.1% (4.5%) -
Interest coverage ratio 2.4:1 2.9:1 (0.5:1) -
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(i)Excluding a one-time lease termination payment.
Net income, net income per unit, FFO, FFO per unit, AFFO and
AFFO per unit were down significantly quarter-over-quarter due to
an unusually large amount of turnover vacancy at Cite Multimedia in
Montreal. This is a temporary situation that was fully anticipated.
Most of the affected space either has been, or is about to be,
re-leased. Once this re-leasing is completed, Cite Multimedia will
have a higher level of net rent than Allied anticipated at the time
of acquisition in 2007, a considerably improved tenant-mix and a
better than normal lease-maturity schedule.
Leasing
Allied leased over 740,000 square feet of space in the first
quarter. This extended its weighted average lease term to 5.6 years
and reduced the average annual amount of area maturing from 2011 to
2015 to 8.7% of its total rental portfolio.
Allied finished the first quarter with leased area of 92.5%, up
110 basis points from year-end 2010. During the quarter, it renewed
or replaced 47% of the leases maturing in 2011, in most cases at
net rental rates equal to or above in-place rents. This will result
in a an overall increase of 13.9% in net rental income per square
foot from the affected space.
Allied completed several large renewals and expansions in its
Toronto target market, including
-- the renewal of Algorithmic's lease of 55,814 square feet at 185 Spadina
Avenue for a term of five years from December 31, 2011;
-- the renewal of Publicis' lease of 64,821 square feet plus and expansion
of 3,084 square feet for a term of just under 11 years from December 31,
2011; and
-- the expansion of Kobo to 36,585 square feet at 135 Liberty Street and 53
Fraser Avenue and Critical Mass to 23,097 square feet at 312 Adelaide
Street West.
Allied has moved steadily toward completion of the re-leasing of
six contiguous office floors at Cite Multimedia in Montreal, having
now leased (i) one and one-half floors to an existing tenant, SAP
Labs, for a term of 10 years commencing September 1, 2011, and (ii)
two floors to a new tenant, Abitibi Bowater, for a term of 10 years
commencing January 1, 2012. Allied is finalizing the lease of two
floors to another new tenant for a term of 10 years commencing
September 1, 2011, and the lease of the remaining half-floor, along
with space on the ground floor, to yet another new tenant for a
term of 10 years commencing January 1, 2012. The annual net rental
rates achieved or near finalization fully validate Allied's
decision in 2010 not to renew the prior lease of the six office
floors.
Acquisitions
In addition to the $102 million in acquisitions completed or
announced earlier this year, Allied today announced that it has
entered into agreements to purchase the following properties for
$62 million:
Total Office Retail Parking
Address GLA GLA GLA Spaces
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100 West Pender Street, Vancouver 81,590 75,858 5,732 0
10190-104 Street N.W., Edmonton 22,581 16,814 5,767 0
605-11th Avenue S.W., Calgary 51,173 23,245 27,928 3
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Total 155,344 115,917 39,427 3
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Vancouver
The Sun Tower (100 West Pender Street) is located in Crosstown
(between Yaletown and Gastown) at the intersection of West Pender
and Beatty Streets, in relatively close proximity to Allied's
properties in Yaletown. It is a landmark heritage property with
81,590 square feet of GLA and is fully leased to tenants consistent
in character and quality with Allied's tenant base. On completion
in 1912, it was the tallest building in the British Empire, known
as The World Building, and served as the home of The Vancouver
World newspaper. The building was renamed when the Vancouver Sun
bought it in 1937 and is still known as The Sun Tower. The building
was extensively restored, renovated and re-leased in the past 24
months. It is designated by the City of Vancouver as a Class A
Heritage Property.
Edmonton
The Metals Limited Building (10190-104 Street N.W.) is located
in the central business district on the southwest corner of the
intersection of 104 and 102 Streets N.W.. It is a Class I property
with 22,581 square feet of GLA and is fully leased to tenants
consistent in character and quality with Allied's tenant base.
Built in 1914 to house a warehousing and distribution business, the
building on the property was extensively restored and renovated in
2004. It is designated by the City of Edmonton as a Municipal
Historical Resource.
Calgary
The Roberts Block (605-11th Avenue S.W.) is located in the
Beltline area on the southwest corner of 11th Avenue S.W. and 5th
Street S.W.. It is a Class I property with 51,173 square feet of
GLA and three surface parking spaces and is 98% leased to tenants
consistent in character and quality with Allied's tenant base.
Built in 1912 to house three different distribution businesses, the
building on the property was extensively restored and renovated in
the late 1990s. It is on the Inventory of Evaluated Historic
Resources maintained by the City of Calgary.
Closing and Financing
The acquisitions are expected to close in July and August of
2011, subject to customary conditions. The purchase price for the
acquisitions represents a capitalization rate of approximately 6.5%
applied to the current annual NOI. On closing, all but the Calgary
property will be free and clear of mortgage financing. Allied will
place first mortgage financing on the Vancouver and Edmonton
properties as it deems advisable. The Calgary property will be
subject to a first mortgage in the approximate principal amount of
$7 million, having a term expiring in February 29, 2012, bearing
interest at an effective rate of 4.25% per year.
Rising Values and Liquidity
As part of its preparation for the adoption of IFRS, Allied
completed an external valuation of its portfolio at year-end 2009,
indicating a value of $1.3 billion, and another at year-end 2010,
indicating a value of $1.55 billion. $104 million of the increase
over the 12 months resulted from acquisitions, with the remaining
$146 million resulting from appreciation in value. In conjunction
with its first set of financial statements prepared in accordance
with IFRS, Allied completed an external valuation of its portfolio
at the end of the first quarter, indicating a value of $1.6
billion. The entire increase over the three months resulted from
appreciation in value. In establishing the value at the end of the
quarter, the appraiser used capitalization rates ranging from 6.3%
to 8.5%, with the high-point being the capitalization rate
associated with 151 Front. The weighted average capitalization rate
for the portfolio was 7.2%.
The largest single value increase related to 151 Front. Allied
took advantage of this by obtaining a commitment from the
first-mortgage holder for $72 million in additional first-mortgage
financing at an annual interest rate of approximately 5.5% and
otherwise on the terms of the current first mortgage.
Allied has maintained a clean and conservative balance sheet.
Expressed as a percentage of fair value under IFRS, its debt ratio
was 41.6% at the end of the first quarter. Its interest-coverage
ratio in the first quarter was 2.4:1.
On closing of the upward financing of 151 Front, Allied's debt
ratio will increase to approximately 46.1%. While it plans to use
its borrowing power to facilitate portfolio growth and
value-creation, Allied fully intends to maintain its conservative
approach to financial management.
Value-Creation
Allied accelerated its value-creation activity in the first
quarter as part of an ongoing effort to build a value-creation
pipeline that, in time, will make a recurring, annual contribution
to the growth of its business.
Upgrade Activity
645 Wellington Street in Montreal is an upgrade project that is
well underway. Milgram took occupancy of over 30,000 square feet on
May 1. Allied expects to complete this project early next year.
Allied recently announced two new upgrade projects, one in
Montreal, a 530,000 square foot Class I property on de Gaspe in the
Plateau area, and one in Vancouver, a 45,000 square foot Class I
property on Homer Street in Yaletown. These acquisitions are
scheduled to close in June of 2011.
Redevelopment Activity
At 905 King Street West in Toronto, Allied has leased the first
10,000 square feet to a key tenant and is close on the lease-up of
the remainder, in all cases at considerably higher than anticipated
net rental rates. Allied expects 905 King to become a rental
property in the third quarter of this year. With its partner,
Perimeter Developments, Allied also initiated the redevelopment of
The Breithaupt Block in Kitchener, which is scheduled for
completion in 2013.
Intensification Activity
The first phase of Allied's QRC West project involves the
restoration of an existing Class I building and the addition of a
new, LEED-certified component for combined leasable area of
approximately 300,000 square feet. Allied expects to be in a
position to commence the restoration of the existing Class I
building shortly and is well advanced in negotiations with a
prospective lead-tenant for the new component. In addition, Allied
is in the process of initiating the approval process for three
intensification opportunities in Toronto. QRC West, Phase II, has
the potential for 74,000 of GLA, with a significant component being
high-value retail space on Queen West. 388 King West and 82 Peter
Street, which comprise a site on the northwest corner of King &
Peter, have the potential for up to 800,000 square feet of space.
489, 495 and 499 King West, which constitute the best remaining
development site at King & Spadina, have the potential for as
much as 500,000 square feet of space. At least a year will be
required to obtain municipal approval for each project.
Cautionary Statements
FFO and AFFO are not financial measures defined by International
Financial Reporting Standards ("IFRS"). Please see Allied's
MD&A for a description of these measures and their
reconciliation to net income and comprehensive income under IFRS,
as presented in Allied's consolidated financial statements for the
quarter ended March 31, 2011. 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.
"Capitalization rate" is not a measure recognized under
International Financial Reporting Standards ("IFRS") and does not
have any standardized meaning prescribed by IFRS. Capitalization
rate is presented in this press release because management of
Allied believes that this non-IFRS measure is relevant in
interpreting the purchase price of the properties being acquired.
Capitalization rate, as computed by Allied, may differ from similar
computations as reported by other similar organizations and,
accordingly, may not be comparable to capitalization rate reported
by such organizations.
NOI is not a measure recognized under IFRS and does not have any
standardized meaning prescribed by IFRS. NOI is presented in this
press release because management of Allied believes that this
non-IFRS measure is relevant in interpreting the purchase price of
the property being acquired. NOI, as computed by Allied, may differ
from similar computations as reported by other similar
organizations and, accordingly, may not be comparable to NOI
reported by such organizations.
Allied Properties REIT is a leading owner, manager and developer
of urban office environments that enrich experience and enhance
profitability for business tenants operating in Canada's major
cities. Its objectives are to provide stable and growing cash
distributions to unitholders and to maximize unitholder value
through effective management and accretive portfolio growth.
Contacts: Allied Properties REIT Michael R. Emory President and
Chief Executive Officer (416) 977-9002
memory@alliedpropertiesreit.com www.alliedpropertiesreit.com
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