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%)
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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.
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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