Firm Capital Apartment REIT Reports Q3/2022 Results and Announces Strategic Review
November 15 2022 - 04:01PM
Firm Capital Apartment Real Estate Investment Trust (“the
“
Trust”), (TSXV: FCA.U), (TSXV: FCA.UN) is pleased
to report its financial results for the three months ended
September 30, 2022:
EARNINGS
- For the three months ended
September 30, 2022, net loss was approximately $1.4 million, in
comparison to the $10.3 million net loss reported for the three
months ended June 30, 2022 and the $2.6 million net income reported
for the three months ended September 30, 2021. For the nine months
ended September 30, 2022, net loss was $12.1 million in comparison
to the $0.4 million net income reported for the nine months ended
September 30, 2021;
- Excluding non-cash fair value
adjustments, net income was $0.4 million for the three months ended
September 30, 2022, in comparison to the $0.8 million reported for
the three months ended June 30, 2022 and the $0.6 million reported
for the three months ended September 30, 2021. Excluding non-cash
fair value adjustments, net income was $1.7 million in comparison
to the $1.7 million reported for the nine months ended September
30, 2021;
- For the three months ended
September 30, 2022, AFFO was approximately $0.7 million, in
comparison to the $0.7 million reported for the three months ended
June 30, 2022 and the $0.6 million reported for the nine months
ended September 30, 2021. For the nine months ended September 30,
2022, AFFO was $1.8 million in comparison to the $1.7 million
reported for the nine months ended September 30, 2021;
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
Sep 30,2022 |
|
Jun 30,2022 |
|
Sep 30,2021 |
|
|
Sep 30,2022 |
|
Sep 30,2021 |
|
|
Net Income/(Loss) |
|
$ |
(1,434,159 |
) |
$ |
(10,303,122 |
) |
$ |
2,553,930 |
|
|
$ |
(12,082,626 |
) |
$ |
361,525 |
|
|
Net Income Before Fair Value Adjustments |
|
$ |
384,679 |
|
$ |
806,599 |
|
$ |
595,520 |
|
|
$ |
1,723,377 |
|
$ |
1,695,070 |
|
|
FFO |
|
$ |
2,147,093 |
|
$ |
971,866 |
|
$ |
1,359,236 |
|
|
$ |
3,409,147 |
|
$ |
(1,148,170 |
) |
|
AFFO |
|
$ |
683,208 |
|
$ |
687,960 |
|
$ |
638,916 |
|
|
$ |
1,817,520 |
|
$ |
1,732,366 |
|
|
|
|
|
|
|
|
|
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- NAV AT $8.44 PER TRUST UNIT
(CAD $11.56):For the three months ended September 30,
2022, the Trust reported NAV at $8.44 per Trust Unit (CAD
$11.56);
- AVERAGE RENT INCREASES
ACROSS INVESTMENT PORTFOLIO:
Wholly-Owned
Real Estate Investments Portfolio: Average rents increased
by 4% to $1,186 per unit over the period ended June 30, 2022 and 3%
over the period ended September 30, 2021;
Joint Venture
Real Estate Investments Portfolio: For the three months
ended September 30, 2022, average rents increased by 1% to $1,452
per unit from the $1,443 per unit reported for the three months
ended June 30, 2022 and 18% from the $1,233 reported for the three
months ended September 30, 2021; and
- REFINANCING OF FLORIDA
PORTFOLIO: On August 31, 2022, the Trust closed the
refinancing of a first mortgage with the Federal National Mortgage
Association (“Fannie Mae”) on a multi-residential
property located in Sunrise, Florida for $18.37 million. Terms of
the mortgage are at 4.77% fixed interest rate, interest-only,
maturing on September 30, 2032. Net proceeds from the refinancing
were used to partially repay the bridge loan and repay the
revolving operating facility.
STRATEGIC REVIEW: The Trust
also announces today that the Board of Trustees (the
“Board”) have initiated a strategic review process
to identify, evaluate and pursue a range of strategic alternatives
with the goal of maximizing unitholder value (the
“Strategic Review”).
The Strategic Review will be overseen by a
special committee of trustees consisting of Geoffrey Blendin, Eli
Dadouch, Valentina Kalyk, Pat DiCapo and Sandy Poklar. There is no
definitive timeline of completion and there can be no assurance
that the process will result in any transaction, or as to the
timing of any such transaction.
Since its reformation in 2015, the Trust has
consistently delivered returns to unitholders in the form of
positive cash flows and distributions. Furthermore, senior
management and the Board have focused on various growth initiatives
which have seen the real estate investment portfolio grow to 1,846
apartment units. Despite its best efforts, the Trust is trading at
a material 46% discount to NAV and has been so for many years.
Consequently, we are unable to raise capital to pursue our business
plan without seriously diluting existing unitholders or raising
debt capital to unacceptable levels.
As outlined in the Trust’s August 18, 2022 press
release, the current macro environment of rapidly increasing
interest rates and persistent inflation is presenting a challenging
investing environment. Particularly, capitalization rates on
apartment buildings are below the cost of five-and ten-year
mortgage debt, resulting in a negative investing spread for the
first time in many years. Specifically, mortgage bond yields have
increased more than capitalization rates in the past 90 to 120
days. Yields in the multi-residential business are below the
returns generated from bank guaranteed instruments, such as GICs
and term deposits, and as such the current business model cannot
work. This in turn has caused the Trust units to trade at a larger
discount to NAV than before the interest rate hikes. As such, the
Board has determined that it is not possible to have a successful
and growing entity in an environment where investing spreads are
negative. Therefore, the Board has decided to explore various
options to maximize unitholder value, including liquidation or
exiting the business model. The Board will work towards maximizing
unitholder value by exploring the following options:
- MERGERS &
ACQUISITIONS: Pursue the possibility of merging the Trust
through either a take-over, reverse take-over, etc. with another
real estate owner/operator, REIT or REOC to gain critical mass,
size and scale. The Trust has had informal conversations with
certain third parties to explore this option;
- ASSET
DISPOSITIONS: As a result of the negative investing spread
environment, the Board takes the view that it may be in the Trust's
best interests to dispose of certain real estate properties. The
Board has commenced the process to opportunistically dispose of
certain wholly-owned and some of our joint venture partners have
started the process to realize value on some of our joint venture
real estate investments with a goal to crystalizing valuations and
realizing unitholder value, after the repayment of associated debt.
Furthermore, we were advised recently one of our preferred
investments will be repaid prior to maturity, thus bringing back to
the Trust approximately $3.5 million of capital by year end;
- CHANGE OF
BUSINESS: With the decision to opportunistically dispose
of certain real estate assets, the Trust may ultimately change the
operation of the business and become either: (i) a real estate
merchant bank, or (ii) an entity focused on value-added equity and
growth; and
- PRIVATIZATION:
With a $35 million market capitalization, the Trust is too small to
justify staying public, particularly in light of increasing public
company costs. Taking the Trust private and monetizing the assets
over time might be in the best interest for Unitholders and as such
the Board will also review this option.
In the interim and as part of the Strategic
Review, the Board will continue to assess matters on a quarterly
basis and determine if the Trust should: (i) distribute excess
income; (ii) distribute net proceeds from asset sales, after debt
repayment; (iii) reinvest net proceeds into other investments; (iv)
distribute proceeds as a return of capital or special distribution;
and/or (v) use excess proceeds to repurchase Trust units in the
marketplace. To maximize its financial flexibility and unitholder
value, the Trust has paused distributions until the Board has
considered the outcome of its Strategic Review and determined its
path forward.
It is the Trust’s current intention not to
disclose developments with respect to the Strategic Review unless
and until it is determined that disclosure is necessary or
appropriate, or as required under applicable securities laws.
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS:
Certain information in this news release
constitutes forward-looking statements under applicable securities
law. Any statements that are contained in this news release that
are not statements of historical fact may be deemed to be
forward-looking statements. Forward-looking statements are often
identified by terms such as "may", "should", "anticipate",
"expect", "intend" and similar expressions.
Forward-looking statements necessarily involve
known and unknown risks, including, without limitation, risks
associated with general economic conditions; adverse factors
affecting the U.S. real estate market generally or those specific
markets in which the Trust holds properties; volatility of real
estate prices; inability to access sufficient capital from internal
and external sources, the completion of the Strategic Review;
and/or inability to access sufficient capital on favourable terms;
industry and government regulation; changes in legislation, income
tax and regulatory matters; the ability of the Trust to implement
its business strategies; competition; currency and interest rate
fluctuations and other risks. Additional risk factors that may
impact the Trust or cause actual results and performance to differ
from the forward looking statements contained herein are set forth
in the Trust's Annual Information form under the heading Risk
Factors (a copy of which can be obtained under the Trust's profile
on www.sedar.com).
Readers are cautioned that the foregoing list is
not exhaustive. Readers are further cautioned not to place undue
reliance on forward-looking statements as there can be no assurance
that the plans, intentions or expectations upon which they are
placed will occur. Such information, although considered reasonable
by management at the time of preparation, may prove to be incorrect
and actual results may differ materially from those anticipated.
Forward-looking statements contained in this news release are
expressly qualified by this cautionary statement. Except as
required by applicable law, the Trust undertakes no obligation to
publicly update or revise any forward-looking statement, whether as
a result of new information, future events or otherwise
Certain financial information presented in this
press release reflect certain non-International Financial Reporting
Standards (“IFRS”) financial measures, which
include, but not limited to NOI, FFO and AFFO. These measures are
commonly used by real estate investment companies as useful metrics
for measuring performance, however, they do not have standardized
meaning prescribed by IFRS and are not necessarily comparable to
similar measures presented by other real estate investment
companies. These terms are defined in the Trust’s Management
Discussion and Analysis for the three months ended September 30,
2022 filed on www.sedar.com.
Neither the 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.
For further information, please contact:Sandy PoklarPresident &
Chief Executive Officer(416) 635-0221 |
Claudia AlvarengaChief Financial Officer(416) 635-0221 |
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For Investor Relations
information, please contact:Victoria MoayediDirector, Investor
Relations(416) 635-0221 |
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