KEYreit announces financial results for the fourth quarter and year ended December 31, 2012 and March 2013 distribution

Record Revenue of $26.4 million for the year
Record Net Operating Income of $21.9 million for the year

TORONTO, March 6, 2013 /CNW/ - KEYreit (TSX: KRE.UN) ("KEYreit" or "the REIT") today reported its financial results for the fourth quarter and year ended December 31, 2012.

As previously disclosed in the REIT's press release of February 27, 2013, the following represents financial highlights for the fourth quarter and year ended December 31, 2012:

Fourth Quarter 2012 Financial Highlights
Three months ended December 31, 2012

• Record Revenues of $6.9 million, a 11.2 percent increase versus same quarter last year (excluding one-time item⁽¹⁾, revenues of $6.8 million, a 8.5 percent increase)
• Record Net Operating Income⁽²⁾ of $5.9 million, a 14.8 percent increase versus same quarter last year (excluding one-time item⁽¹⁾, net operating income of $5.7 million, a 11.6 percent increase)
• Adjusted Funds From Operations ("AFFO")⁽²⁾ per Unit of $0.174
• AFFO per Unit excluding non-recurring major tenant default-related legal fees of $0.183
• AFFO payout ratio⁽²⁾ of 82.1 percent, adjusted for non-recurring major tenant default-related legal fees

Fiscal 2012 Financial Highlights
Twelve months ended December 31, 2012

• Record Revenues of $26.4 million, a 13.3 percent increase versus same period last year (excluding one-time item⁽¹⁾, revenues of $25.7 million, an 10.5 percent increase)
• Record Net Operating Income⁽²⁾ of $21.9 million, a 12.9 percent increase versus same period last year (excluding one-time item⁽¹⁾, net operating income of $21.2 million, an 9.5 percent increase)
• AFFO⁽²⁾ per Unit of $0.501
• AFFO per Unit excluding non-recurring major tenant default-related legal fees of $0.581
• AFFO payout ratio⁽²⁾ of 121.2 percent, adjusted for non-recurring major tenant default-related legal fees

		^(1)	Other revenue of $0.165 million and $0.651 million recognized in the fourth quarter and fiscal year 2012, respectively, relating to insurance proceeds received.
		^(2)	See section entitled Non-IFRS measures.

"Our strong fourth quarter sets the stage for the REIT's growth plans, ultimately increasing unitholder value for the REIT," said John Bitove, Chief Executive Officer of the REIT. "2012 was a transformational year for the REIT. We dealt with each and every perceived business risk: returning our occupancy to historical levels, righting our distribution, refinancing our debt maturities, and lowering our total cost of debt. This hard work will allow KEYreit to focus on aggressive acquisition growth moving forward."

Financial and Operational Summary

• Net operating income ("NOI") for Q4 2012 was $5.9 million, an increase of $0.8 million as compared to NOI for the same period of 2011. During the quarter, the REIT recognized $0.165 million of other income relating to the receipt of insurance proceeds. Excluding the other income, NOI increased $0.6 million as compared to NOI for the same period of 2011. Excluding this other income, NOI for the quarter increased by 4.2 percent on a same asset basis as compared to last year as a result of the increased occupancy arising in the fourth quarter of 2012. On an annual basis, excluding non-cash items and other income, same-asset NOI declined 5.7 percent relative to the prior year largely due to the increased vacancy throughout 2012 relative to 2011. NOI from acquisitions increased to $0.4 million in the fourth quarter as a result of the acquisition of three Dundee REIT (defined below) properties effective October 4, 2012. For the year ended December 31, 2012, NOI, in comparison to fiscal 2011, was higher by $2.5 million due to the Shoppers Drug Mart acquisition effective September 23, 2011 and the aforementioned Dundee REIT acquisition.

• AFFO for Q4 2012 totaled $1.9 million ($0.174 per unit basic and $0.147 per unit diluted) as compared to $1.2 million ($0.130 per unit basic and diluted) for Q4 2011. AFFO for Q4 2012, excluding the non-recurring major tenant default-related legal fees, totaled $2.04 million ($0.183 per unit, basic and $0.153 per unit, diluted) as compared to $1.39 million ($0.150 per unit basic and diluted) for Q4 2011. The increase in Q4 2012 AFFO is primarily a result of the increase in NOI of $0.6 million, excluding one-time items referenced above. AFFO for fiscal 2012 was $5.0 million ($0.501 per unit basic and $0.415 per unit diluted) as compared to $6.0 million ($0.649 per unit basic and $0.643 per unit diluted) for fiscal 2011. AFFO, excluding the non-recurring major tenant default-related legal fees, for fiscal 2012 was $5.8 million ($0.581 per unit basic and $0.469 per unit diluted) as compared to $6.6 million ($0.715 per unit basic and $0.696 per unit diluted) for fiscal 2011.

• The portfolio occupancy rate as at December 31, 2012 was 95.3 percent versus the prior year at 95.1 percent. Pro-forma occupancy including acquisitions and one disposition subsequent to the quarter- end, and all committed leases reaches 97.2 percent.

• The REIT's average cost of mortgage debt was 5.00 percent at the end of Q4 2012, as compared to 5.27 percent at the end of Q4 2011. The reduction in the average cost of mortgage debt is a direct result of the refinancing of the original Ontario IPO property portfolio in September 2012, replacing a high-interest rate bridge loan with a fixed term first mortgage at a significantly lower interest rate.

• The REIT's leverage ratio as at December 31, 2012 was 52.03 percent excluding convertible debentures and 68.14 percent including convertible debentures, versus 53.84 percent and 70.98 percent, respectively, as at December 31, 2011.

• On October 4, 2012, KEYreit closed the acquisition of three retail properties from companies affiliated with Dundee Real Estate Investment Trust ("Dundee REIT") for a purchase price of $16.07 million (excluding transaction costs). The acquisition is comprised of two properties located in Charlottetown, Prince Edward Island and one property in Halifax, Nova Scotia, totaling 101,473 square feet of gross leasable area ("GLA"). The property portfolio is currently 97.9 percent leased with an overall average lease term of approximately four years. The total purchase price was satisfied through the assumption of existing mortgage debt of $6.981 million bearing a weighted average interest rate of 5.43 percent, and net proceeds received from KEYreit's equity offering completed in August 2012.

• On October 24, 2012, KEYreit completed the sale of one property, located in Halifax, Nova Scotia for gross proceeds of $0.6 million. The property was vacant at that time, and there were no liabilities associated with this property.

• On December 20, 2012, KEYreit completed the sale of three properties located in the province of Quebec for gross proceeds of $1.9 million. The three properties, representing 8,020 square feet of gross leasable area, were located in the cities of Chateauguay, Cowansville and Jonquiere, were vacant at that time and had been previously leased to Priszm with the related leases being disclaimed. The REIT used $1.843 million of the net proceeds from the sales to pay down a portion of the REIT's IPO Mortgage. As a result of this partial repayment, the IPO Mortgage was reduced to a balance outstanding of $21.757 million at as December 31, 2012.

• Further, on December 21, 2012, KEYreit completed the sale of one property located in Pictou, Nova Scotia representing 1,050 square feet of GLA for gross proceeds of $0.095 million. The property was vacant at that time, and had been previously leased to Priszm with the related lease being disclaimed. There were no liabilities associated with this property.

• On December 11, 2012, KEYreit completed the issuance of $20 million convertible unsecured subordinated debentures due December 31, 2017. The convertible debentures will pay interest at a rate of 7.00 percent payable in equal semi-annual payments in arrears on June 30 and December 31 in each year commencing on June 30, 2013, with the initial interest payment accrued from December 11, 2012 up to, but excluding, June 30, 2013. The 2012 Convertible Debentures are convertible into fully paid and non-assessable units of KEYreit at a conversion price of $8.00 per unit.

• On December 19, 2012 (the "Redemption Date"), KEYreit redeemed all of its 2007 Convertible Debentures due December 31, 2012 (total amount of $20 million) in accordance with their terms. The redemption price was paid in cash totaling $1.034 million, including $0.34 million of accrued and unpaid interest, for each $1,000 principal amount of the 2007 Convertible Debentures outstanding on the Redemption Date. Interest on the 2007 Debentures ceased to accrue and be payable from and after the Redemption Date. The redemption price was satisfied with the net proceeds of the offering of the 2012 Convertible Debentures due December 31, 2017, that closed on December 11, 2012, and with cash on hand.

• Effective December 1, 2012, KEYreit amended and extended eight first mortgages with an outstanding balance of $21.857 million. The first mortgages were assumed by IMC Limited Partnership from Pacific and Western Bank of Canada, are secured by eight properties tenanted by Shoppers Drug Mart and bear a new term of ten years maturing on December 1, 2022, and a new interest rate of 4.65 percent. The previous nine mortgages with an outstanding balance of $21.857 million as at December 1, 2012, had a term of five years maturing on October 1, 2016 and bore an interest rate of 4.5 percent. No fee was paid to extend the mortgages. In addition, KEYreit repaid fully one first mortgage with an outstanding balance of $0.165 million as part of this transaction.

• In July 2012, KEYreit completed and filed with the court an agreed statement of fact and factum on KEYreit's entitlement to Priszm's sales proceeds. The REIT presented its submission to the court at a hearing held on July 18 and 19, 2012. This hearing dealt exclusively with the REIT's entitlement to the proceeds and not to the quantification of the claim. On December 27, 2012, the Ontario Superior Court had rendered a decision that the claims of Priszm's secured creditor take priority to the lease compensation claims advanced by KEYreit and therefore KEYreit is not entitled to any sales proceeds generated by the sales of Priszm's restaurant operations.
  
  The Court also held that the two parties to the claim may make submissions on costs if they are unable to agree. The Court may order the REIT to pay Priszm's secured creditor, a portion of its legal fees incurred in connection with the claim. Priszm's secured creditor has not yet submitted a request for costs to the Court and the REIT is unable to determine what amount, if any, shall be payable.
  
  Subsequent to the year-end, on January 18, 2013, the REIT filed a Notice of Appeal with the Court of Appeal for Ontario. The REIT has until March 29, 2013 to file, among other documents, a formal legal argument and supporting documentation with the Court of Appeal relating to this matter.

• Subsequent to the year-end, on January 16, 2013, KEYreit completed the issuance of an additional $1.2 million of the 7.0 Convertible Debentures (the "Additional Debentures") in connection with the 2012 Convertible Debentures offering that closed on December 11, 2012. The Additional Debentures were issued pursuant to the partial exercise of the over-allotment option granted to a syndicate of underwriters. As of the date of this press release the total amount of outstanding on the 2012 Convertible Debentures is $21.2 million.

• Subsequent to the year-end, on January 29, 2013, KEYreit closed a public offering of 3,740,950 Units at a price of $6.15 per Unit for aggregate gross proceeds of $23.007 million. The net proceeds from the offering, together with certain cash on hand, were used to repay the full balance of the REIT's IPO Mortgage of $21.757 million on its maturity date.

• Subsequent to the year-end, on February 1, 2013, the outstanding balance of the IPO Mortgage of $21.757 million was repaid in full on its maturity date. The loan repayment was made with the net proceeds from the REIT's equity offering which closed on January 29, 2013. After the repayment, the former properties securing the IPO Mortgage became available for future refinancing at the REIT's discretion.

• Subsequent to the year-end, on February 4, 2013, KEYreit completed the sale of one property that was vacant at that time and previously disclaimed by Priszm, located in Quebec City, Quebec for gross proceeds of $0.27 million. There were no liabilities associated with this property.

Financial Highlights

The following selected financial information, has been derived from and should be read in conjunction with the audited consolidated financial statements of KEYreit for the three months ended December 31, 2012 and 2012, and twelve months ended December 31, 2012, 2011 and 2010, and the notes thereto included in KEYreit's filings at www.sedar.com.

(in thousands of dollars, except Unit and per Unit amounts)	Three-month period ended December 31,		Twelve-month period ended December 31,
Financial Information	2012	2011	2012	2011	2010
Revenue	$6,932	$6,235	$26,396	$23,301	$22,342
Net operating income ^(1)	5,904	5,142	21,850	19,352	18,654
Net income (loss) ^(2)	853	(8,665)	11,141	3,248	12,872
FFO^(3)	630	851	2,659	3,821	7,070
FFO per Unit^(4)	0.057	0.092	0.266	0.413	0.791
FFO per Unit - Fully Diluted^(4)	0.057	0.092	0.266	0.413	0.737
FFO, Adjusted ^(5)	1,859	877	3,888	4,932	7,070
FFO per Unit, Adjusted	0.167	0.095	0.389	0.534	0.791
FFO per Unit, Adjusted  - Fully Diluted	0.167	0.095	0.389	0.534	0.737
AFFO^(6)	1,938	1,203	5,016	5,996	7,394
AFFO per Unit ^(7)	0.174	0.130	0.501	0.649	0.827
AFFO per Unit  - Fully Diluted ^(7)	0.147	0.130	0.415	0.643	0.761
AFFO, Adjusted ^(8)	2,037	1,388	5,814	6,611	7,394
AFFO per Unit, Adjusted	0.183	0.150	0.581	0.715	0.827
AFFO per Unit, Adjusted  - Fully Diluted	0.153	0.150	0.469	0.696	0.761
Total Units ^(9)	11,144,929	9,249,607	11,144,929	9,249,607	9,236,945
Weighted Average Number of Units ^(10)	11,144,929	9,249,607	10,005,382	9,243,952	8,939,658
Weighted Average Number of Units - Fully Diluted - for FFO^(10)	11,144,929	9,249,607	10,005,382	9,243,952	13,629,269
Weighted Average Number of Units - Fully Diluted - for AFFO^(10)	16,132,491	11,737,169	14,992,945	11,731,515	13,629,269
Total distributions declared to Unitholders ^(11)	1,672	1,965	6,990	7,854	7,708
Total distributions to Unitholders, cash basis^(12)	1,672	1,965	7,085	7,854	7,708
Total distributions per Unit	0.150	0.213	0.704	0.850	0.850
Payout ratio^(13)	86.3%	163.3%	140.4%	131.0%	102.8%
Adjusted payout ratio ^(14)	82.1%	141.5%	121.2%	118.8%	102.8%

(in thousands of dollars, except Unit and per Unit amounts)	Three-month period ended December 31,		Twelve-month period ended December 31,
Financial Metrics	2012	2011	2012	2011	2010
Total assets as at period end	$324,706	$299,572	$324,706	$299,572	$263,910
Debt, excluding convertible debentures as at period end ^(15)	168,953	161,299	168,953	161,299	130,757
Debt to gross book value  ^(17)	52.03%	53.84%	52.03%	53.84%	49.55%
Debt, including convertible debentures as at period end ^(16)	221,266	212,639	221,266	212,639	171,907
Debt to gross book value including convertible debentures  ^(18)	68.14%	70.98%	68.14%	70.98%	65.14%
Interest coverage ratio ^(19)	1.68	1.45	1.43	1.54	1.80
Weighted average mortgage contract interest rate	5.00%	5.27%	5.00%	5.27%	5.07%

	As at December 31,		As at December 31,
Operational Information	2012	2011	2012	2011	2010
Portfolio Occupancy	95.34%	95.12%	95.34%	95.12%	98.38%
Gross Leasable Area	1,194,600	1,103,156	1,194,600	1,103,156	955,537
Number of Properties	227	229	227	229	220

Notes:
(1)	A non-IFRS measurement, calculated by KEYreit as rental revenue (net rents, property tax and operating cost recoveries, as well as other miscellaneous income from tenants) less operating expenses from rental properties and property management fees.
(2)	Refer to this MD&A for a discussion and analysis of the fourth quarter results compared to the corresponding periods in the previous year.
(3)	A non-IFRS measure for which a reconciliation to net income can be found in this MD&A in the discussion under "Funds from Operations ("FFO") and Adjusted Funds From Operations ("AFFO")".
(4)	FFO per Unit is calculated using the weighted average number of Units outstanding including the Class B Exchangeable Units of Scott's LP while they were outstanding for the period.
(5)	FFO is adjusted for in 2012 and 2011 for the transaction costs incurred on the issuance of convertible debentures which are expensed to general and administrative costs.
(6)	A non-IFRS measure for which a reconciliation to net income can be found in this MD&A in the discussion under "Funds From Operations and Adjusted Funds From Operations".
(7)	AFFO per Unit is calculated using the weighted average number of Units outstanding including the Class B Exchangeable Units of Scott's LP while they were outstanding for the period.
(8)	AFFO is adjusted for the legal expenses related to the claim on Priszm's sales proceeds. See "2012 - Fourth Quarter Highlights - Claim on Sales Proceeds".
(9)	Calculated using the number of Units outstanding including the Class B Exchangeable Units of Scott's LP while they were outstanding during the period.
(10)	For the three and twelve-month period ending December 31, 2012, fully diluted units assume the conversion of the 2009 Convertible Debentures and 2012 Convertible Debentures for the AFFO per unit calculation. For the three and twelve-month period ending December 31, 2011, fully diluted units assume the conversion of the 2009 Convertible for the AFFO per unit calculation. For the three and twelve-month period ending December 31, 2012 and three months and twelve-month period ending December 31, 2011, all convertible debentures are anti-dilutive for the FFO per unit calculation. For the twelve-month period ending December 31, 2010, fully diluted units assume the conversion of the 2007 Convertible Debentures and 2009 Convertible Debentures for the FFO and AFFO per unit calculation.
(11)	Distributions declared include the distributions declared on the Class B Exchangeable Units of Scott's LP while they were outstanding during the period.
(12)	Distributions on a cash basis include the distributions paid on the Class B Exchangeable Units of Scott's LP while they were outstanding during the period.
(13)	A non-IFRS measure calculated by dividing distributions paid to Unitholders, including the Class B Exchangeable Units of Scott's LP while they were outstanding during the period, by AFFO as defined in this MD&A.
(14)	A non-IFRS measure calculated by dividing distributions paid to Unitholders, including the Class B Exchangeable Units of Scott's LP while they were outstanding during the period, by AFFO, adjusted, as defined in this MD&A.
(15)	Debt is defined as mortgages payable, term debt and land lease liability.
(16)	A non-IFRS measurement defined in KEYreit's Declaration of Trust.
(17)	Debt is defined as mortgages payable, term debt, land lease liability and convertible debentures.
(18)	A non-IFRS measurement commonly used in the real estate industry to measure total leverage.
(19)	Interest coverage ratio is calculated as IFRS net income, plus interest expense (including the distribution on the Class B Exchangeable Units and financing fees amortization expense), plus transaction costs incurred on the issuance of convertible debentures, plus amortization, and adjusted for unrealized gains/losses on financial instruments and investment properties measured at fair value, divided by the total interest expense (excluding the distribution on the Class B Exchangeable Units of Scott's LP and financing fees amortization expense).

March 2013 Distribution

KEYreit also today announced a cash distribution of $0.05 per unit for the month of March 2012. The distribution will be payable on April 15, 2013 to Unitholders of record on March 28, 2013.

Non-IFRS Measures

Funds From Operations ("FFO") and FFO, Adjusted
FFO is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. FFO is presented because management of KEYreit believes this non-IFRS measure is a relevant measure of KEYreit's operating performance. KEYreit calculates FFO according to the industry standard definition stated in the REALpac Whitepaper on FFO dated November 20, 2012. FFO as computed by KEYreit may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable. FFO in this press release represents net income of KEYreit, plus depreciation, amortization of intangible assets, amortization expense relating to tenant allowances, interest expense on the Class B Exchangeable Units; and fair value adjustments on investment properties, convertible debentures and the Class B Exchangeable Units. FFO, Adjusted represents FFO, as computed by KEYreit, plus transaction costs incurred on the issuance of convertible debentures and recognized in general and administrative expenses.

Adjusted Funds From Operations ("AFFO") and AFFO, Adjusted
AFFO is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. AFFO is presented because management of KEYreit believes this non-IFRS measure is a relevant measure of the ability of KEYreit to earn and distribute cash returns to Unitholders. AFFO as computed by KEYreit may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable. AFFO in this represents net income of KEYreit, plus depreciation, amortization of intangible assets, amortization expense relating to tenant allowances, amortization of financing fees, stock-based compensation, interest expense on the Class B Exchangeable Units, acquisition write-offs and non-recurring write-off of prepaid transaction costs, less, the straight-line rent revenue accrual and non-recurring other income, and, fair value adjustments on investment properties, convertible debentures and the Class B Exchangeable Units. The amount of distributions paid in a period relative to the AFFO generated in the same period is referred to as the "payout ratio". AFFO, Adjusted represents AFFO, as computed by KEYreit, less legal costs expensed relating to the REIT's claim on Priszm's sales proceeds.

Net Operating Income ("NOI")
NOI is not a measure recognized under IFRS and does not have a standardized meaning prescribed by IFRS. NOI is presented because management of KEYreit believes that this non-IFRS measure is a relevant measure of the ability of KEYreit to earn and distribute cash to Unitholders. NOI as computed by KEYreit may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable. NOI computed by KEYreit represents total revenue from investment properties less property operating expenses.

Forward-Looking Statements

This press release and KEYreit's MD&A for the quarter contain certain information or statements that may constitute forward-looking information within the meaning of securities laws, which reflect the current view of KEYreit with respect to the REIT's objectives, plans, goals, strategies, future growth, results of financial performance, financial and operating performance and business prospectus and opportunities. In some cases, forward-looking information can be identified by the use of terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts. In particular, forward-looking information included in this press release and KEYreit's MD&A for the quarter includes, but is not limited to, statements with respect to the REIT's ability to lease vacant property units, collect minimum rents, diversify its tenant base, undertake land intensification projects, refinance loans and mortgages at their maturity, complete accretive acquisitions, and maintain or grow monthly cash distribution levels, and also with respect to the timing of such events. Forward-looking information should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the statements and information in this press release and the REIT's MD&A for the quarter containing forward-looking information are qualified by these cautionary statements.

Forward-looking statements are based on information available at the time they are made, underlying estimates and assumptions made by management and management's good faith belief with respect to future events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally which could cause actual results to differ materially from what is currently expected. Such risks and uncertainties include, but are not limited to the REIT's reliance on key tenants, risks associated with investment in real property, competition, reliance on key personnel, financing and refinancing risks, distributions, environmental matters, tenant risks, risks related to current economic conditions and other risk factors more particularly described in the REIT's most recent Annual Information Form available on SEDAR at www.sedar.com. Additional risks and uncertainties not presently known to the REIT or that the REIT currently believes to be less significant may also adversely affect the REIT.

KEYreit cautions readers that the list of factors is not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by the REIT will be realized or, even if substantially realized, that they will have the expected consequences to, or effect on, the REIT. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date. The REIT disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

About KEYreit
KEYreit (TSX: KRE.UN) is Canada's premier small-box retail property owner with 226 properties in nine provinces across Canada. KEYreit's properties are well-located and geographically diverse across Canada with the majority of all properties containing long-term quadruple net leases.

To find out more about KEYreit (TSX: KRE.UN), visit our website at www.KEYreit.com.

 

SOURCE: KEYreit

Teresa Neto
Chief Financial Officer
[email protected]
416-361-9953

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