FAM REIT announces 2013 results

TORONTO, March 7, 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 twelve months ended December 31, 2013.

KEY HIGHLIGHTS

• Same-property occupancy of 98.2% as at December 31, 2013, compared to 95.2% for the initial public offering ("IPO") forecast; Overall portfolio occupancy of 98.2% as at December 31, 3013, compared to 93.6% for the IPO forecast
• Same-property net operating income of $13.9 million for the year ended December 31, 2013, compared to $13.0 million for the IPO forecast
• FFO - As Reported per unit of $1.13 and FFO - Core per unit of $0.96 for the year ended December 31, 2013, compared to $0.96 per unit for the IPO forecast
• AFFO - As Reported per unit of $0.70 and AFFO - Core per unit of $0.79 per unit for the year ended December 31, 2013, compared to $0.80 per unit for the IPO forecast
• AFFO - Core per unit of $0.89 excluding $0.10 per unit of leasing costs to lease-up 21,400 sf of previously vacant space
• AFFO - Core payout ratio of 95% for the year ended December 31, 2013, or 84% excluding $0.10 per unit of year-to-date leasing costs on the above noted lease up of vacant space, which increased occupancy in the fourth quarter of 2013
• Reduced leverage as indebtedness ratio decreased to 52.2% as at December 31, 2013, from 53.8% as at December 31, 2012
• Subsequent to year end, FAM REIT increased its secured revolving credit facility limit from $14 million to $17 million, and extended the maturity date by one year to November 30, 2015

Shant Poladian, Chief Executive Officer of FAM REIT, commented, "We are a performance driven organization, and this is evident in our results. In achieving these operational results, I would like to personally thank all members of our team who have worked diligently to maximize tenant retention, lease vacant space and are proactively engaged with our tenants to optimize their long-term space requirements. While our results could have been higher on a per unit basis had we operated with higher financial leverage, we are strategically focused on deleveraging as an important risk management tool in order to navigate within the current environment of capital market volatility and potentially rising long-term interest rates. This is an example of how our short and medium term decision making is calibrated with our long-term strategic objectives."

Financial Highlights and Key Performance Indicators

($000s unless otherwise noted and except per unit amounts)					Three months ended December 31, 2013							Forecast - Three months ended December 31, 2013^(1)					Twelve months ended December 31, 2013					Forecast - Twelve months ended December 31, 2013^(1)
Revenue from investment properties					$	8,228						$	5,793				$	28,478				$	23,525
Net operating income^(2)						4,823							3,491					17,559					14,305
Same-property net operating income						3,332							3,178					13,868					12,985
Net income and comprehensive income						1,827							1,437					14,215					6,127
Funds from operations - As Reported^(2)						3,141							1,935					10,927					8,046
Funds from operations - Core^(2)						2,703							1,935					9,281					8,046
FFO per unit (basic and diluted) - As Reported^(2)					$	0.27						$	0.23				$	1.13				$	0.96
FFO per unit (basic and diluted) - Core^(2)					$	0.23						$	0.23				$	0.96				$	0.96
Adjusted funds from operations - As Reported^(2)						2,186							1,571					6,746					6,665
Adjusted funds from operations - Core^(2)						2,126							1,571					7,611					6,665
AFFO per unit (basic and diluted) - As Reported^(2)					$	0.19						$	0.19				$	0.70				$	0.80
AFFO per unit (basic and diluted) - Core^(2)					$	0.18						$	0.19				$	0.79				$	0.80
Distributions per unit - basic and diluted^(3)					$	0.19						$	0.19				$	0.75				$	0.75
AFFO - Core pay-out ratio^(4)						106%							100%					95%					94%
Cash distributions per unit - basic and diluted^(3)					$	0.13						$	0.19				$	0.64				$	0.75
AFFO - Core pay-out ratio, net of DRIP^(4)						72%							100%					81%					94%
Net operating income by asset class
	Industrial				$	1,448						$	1,409				$	5,789				$	5,589
	Office					2,999							1,709					10,153					7,224
	Retail					376							373					1,617					1,492
					$	4,823						$	3,491				$	17,559				$	14,305
Net operating income by geographic location
	Manitoba				$	1,706						$	1,810				$	7,523				$	7,469
	Ontario					2,210							804					6,158					3,215
	Saskatchewan					291							266					1,404					1,237
	Alberta					484							481					1,950					1,864
	Northwest Territories					132							130					524					520
					$	4,823						$	3,491				$	17,559				$	14,305
Interest coverage ratio (times)^(5)						2.9x							2.6x					2.7x					2.7x
Leverage ratio (times) - period end^(6)						8.0x							NF					8.4x					NF
Debt service coverage ratio (times)^(7)						1.8x							NF					1.7x					NF
Indebtedness ratio (%) - period end^(8)						52.2%							NF
Weighted average mortgage interest rate - period end						4.7%							NF
Same-property occupancy - period end						98.2%							95.2%
Occupancy - period end
	Industrial					100.0%							100.0%
	Office					96.5%							89.6%
	Retail					100.0%							82.9%
						98.2%							93.6%
Leased square footage (sq. ft.) - period end						1,795,277							1,553,431
Rentable square footage (sq. ft.) - period end						1,828,574							1,659,633

FINANCIAL

• Funds From Operations ("FFO") - As Reported for the three months ended December 31, 2013 was $0.27 per unit. After adjusting for a $0.03 per unit fair value gain on interest rate swaps and $0.01 per unit reimbursement of aborted transaction costs, FFO - Core was $0.23 per unit, consistent with the IPO forecast of $0.23 per unit.
  
  
• FFO - As Reported for the twelve months ended December 31, 2013 was $1.13. After adjusting for $0.18 per unit fair value gain on interest rate swaps, $0.08 per unit gain from mark-to-market adjustments on mortgages that were refinanced or repaid, $0.06 per unit of defeasance costs related to the discharge of the 220 Portage mortgage (in conjunction with the sale of this property), and $0.03 per unit of aborted transaction costs, FFO - Core per unit was $0.96 and consistent with the IPO forecast of $0.96 per unit.
  
  
• Adjusted Funds From Operations ("AFFO") - As Reported and AFFO - Core was $0.19 and $0.18 for the three months ended December 31, 2013, respectively, compared to the IPO forecast of $0.19 per unit. AFFO - Core for the fourth quarter would have been $0.21 per unit excluding $0.03 per unit of leasing costs associated with the lease-up of 21,400 sf of vacant space which increased occupancy during the fourth quarter of 2013. As previously disclosed in our earnings release for the third quarter of 2013, the lease-up of this vacant space is projected to generate approximately $0.5 million of gross annual rental revenue for a weighted average lease term of 10.7 years.
  
  
• AFFO - As Reported per unit was $0.70 for the twelve months ended December 31, 2013. After adjusting for $0.06 per unit of defeasance costs related to the discharge of the 220 Portage mortgage and $0.03 per unit of aborted transaction costs, AFFO - Core per unit was $0.79 and in line with the IPO forecast of $0.80.  Excluding the $0.10 per unit of leasing costs associated with the lease up of 21,400 sf of vacant space, AFFO - Core for the year would have been $0.89 per unit.

OPERATIONAL

• Net Operating Income ("NOI"). The REIT achieved NOI of $4.8 million for the three months and $17.6 million for the twelve months ended December 31, 2013 compared to the IPO forecast of $3.5 million and $14.3 million for the same periods. NOI was ahead of IPO forecast due to higher than forecasted tenant retention, lease-up of vacant space, and the acquisitions of 4211 Yonge and The Promontory office buildings in the Greater Toronto Area. These were slightly offset by the sale of 220 Portage and office space turnover in Regina.
  
  
• Operating cost recoveries. Operating cost recoveries as a percentage of property operating costs were 88% for the three months and 90% for the twelve months ended December 31, 2013.  The operating cost recovery in the three months ended December 31, 2013 was negatively impacted by adverse weather conditions across most of Canada and resulted in higher snow removal and utility costs of $0.2 million, which were not fully recoverable from certain tenants under their respective lease arrangements.
  
  
• Occupancy. Occupancy on a same-property basis was 98.2% as at December 31, 2013, which was well ahead of the forecasted occupancy rate of 95.2% driven by higher than forecasted tenant retention and lease-up of vacant space. The sequential improvement was due to the acquisition of 1700 Ellice, which was 100.0% occupied, the disposition of Humboldt Mall, which had an occupancy rate of 81.6%, and the lease up of vacant space in Toronto and Winnipeg, partly offset by office space turnover in Regina. Overall portfolio occupancy was 98.2%, up from 97.1% as at September 30, 2013 and well ahead of the 93.6% forecasted year end occupancy.
  
  
• Leasing Profile. Lease maturities were 107,000 sf during the three months ended December 31, 2013. Of the total 107,000 sf, we completed lease renewals of 15,000 sf during the quarter, and are in long-term lease renewal negotiations for 75,000 sf of tenancies. Lease maturities were 284,000 sf for the twelve months ended December 31, 2013. Of the total 284,000 sf, we completed lease renewals of 188,000 sf, and are in long-term lease renewal negotiations for 75,000 sf of tenancies.
  
  
• Debt Strategy. In February 2014, the REIT increased its revolving credit facility limit from $14.0 million to $17.0 million, and extended the expiry date to November 30, 2015.

OUTLOOK

FAM REIT is well positioned in the current environment. There are no mortgage debt maturities during 2014, our secured revolving credit facility limit was recently increased from $14 million to $17 million, and the DRIP participation rate currently stands at 32%, generating $2.9 million of annual cash retention, which can be used to prudently reinvest the retained cash flow and/or to fund additional deleveraging.

Based on our current outlook for leasing activity, we expect FAM REIT's occupancy to remain above 96% throughout 2014 with tenant retention in the range of approximately 90%, assuming no acquisitions, dispositions or redevelopment initiatives.

On February 19, 2014, Huntingdon Capital Corp announced that it has commenced a strategic review process to enhance shareholder value. Huntingdon has assured FAM REIT of its continued sponsorship of FAM REIT and commitment to the management of FAM REIT during its review.

In response, FAM REIT announced on February 20, 2014, that it has formed a Special Committee comprised of its Independent Trustees, Chaired by Gary Samuel, FAM REIT's Lead Independent Trustee. 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.

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
NF		Not forecasted
(1)		For information purposes only, select forecast financial information for the three months ended December 31, 2013 has been included in this press release, based on the financial forecast in the IPO documents.
(2)		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.
(3)		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.
(4)		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.
(5)		The interest coverage ratio is calculated as EBITDA for the period divided by interest expensed during the period.
(6)		The 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.
(7)		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.
(8)		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

Shant Poladian, Chief Executive Officer
FAM Real Estate Investment Trust
Telephone: [phone]
Email: [email protected]