KEYreit announces financial results for the third quarter ended September 30, 2012 and November 2012 distribution

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KEYreit

Nov 07, 2012, 17:00 ET

Revenue up 19.4%
Net Operating Income up 20.2%

TORONTO, Nov. 7, 2012 /CNW/ - KEYreit (TSX: KRE.UN) ("KEYreit" or "the REIT") today reported its financial results for the third quarter ended September 30, 2012.

Third Quarter 2012 Financial Highlights
Three months ended September 30, 2012

  • Revenues of $6.7 million, a 19.4 percent increase versus same quarter last year (excluding one-time item(1), revenues of $6.2 million, a 10.6 percent increase)
  • Net operating income(2) of $5.5 million, a 20.2 percent increase versus same quarter last year (excluding one-time item(1), net operating income of $5.0 million, a 9.5 percent increase)
  • Adjusted Funds From Operations ("AFFO")(2) per Unit of $0.066
  • AFFO per Unit excluding non-recurring major tenant default-related legal fees of $0.118
  • AFFO payout ratio(2) of 127.3 percent, adjusted for non-recurring major tenant default-related legal fees

Year-to-Date 2012 Financial Highlights
Nine months ended September 30, 2012

  • Revenues of $19.5 million, a 14.1 percent increase versus same period last year (excluding one-time item(1), revenues of $19.0 million, an 11.2 percent increase)
  • Net operating income(2) of $15.9 million, a 12.2 percent increase versus same period last year (excluding one-time item(1), net operating income of $15.5 million, an 8.8% increase)
  • AFFO(2) per Unit of $0.320
  • AFFO per Unit excluding non-recurring major tenant default-related legal fees of $0.392
  • AFFO payout ratio(2) of 141.2 percent, adjusted for non-recurring major tenant default-related legal fees

(1)Other revenue of $0.486 million recognized in the third quarter of 2012 relating to insurance proceeds received.
(2)See section entitled Non-IFRS measures.

"We had a strong quarter that delivered on three of our key objectives this year: one, refinancing debt with the closing of a new mortgage on our original Ontario IPO property portfolio at a substantially lower interest cost; two, growth through accretive acquisitions with the closing of three retail properties in Atlantic Canada; and three, overcoming a major tenant default with new and stronger tenants. The REIT can now move forward with a stronger, more diversified tenant base", said Teresa Neto, Chief Financial Officer of the REIT. "In addition, KEYreit's adjusted payout ratio declined relative to the second quarter of this year and we expect this trend to continue into 2013. We expect KEYreit's payout ratio to fall at or below 100% in 2013 as a result of KEYreit's growth and our expected impact from the REIT's re-leasing efforts and refinancing plans."

Financial and Operational Summary

  • Net operating income ("NOI") for Q3 2012 was $5.5 million, an increase of $0.9 million as compared to NOI for the same period of 2011. During the quarter, the REIT recognized $0.5 million of other income relating to the receipt of insurance proceeds. Excluding the other income, NOI increased $0.4 million as compared to NOI for the same period of 2011. Excluding this other income, NOI decreased by 7.0 percent on a same asset basis as compared to last year as a result of the vacancy arising from a major tenant default we had, resulting in disclaimed leases that caused a temporary suspension of rent and the recognition of non-recoverable operating expenses, until new committed leasing becomes effective and new tenants are found for the few remaining vacant properties. NOI from acquisitions increased to $0.82 million in the third quarter as a result of the acquisition of nine Shoppers Drug Mart properties effective September 23, 2011. For the nine months ended September 30, 2012, NOI, in comparison to the same period in 2011, was higher by $1.7 million (higher by $1.3 million excluding other revenue) due to the aforementioned Shoppers Drug Mart acquisition offset by same asset increased vacancy.
  • AFFO for Q3 2012 totaled $0.7 million ($0.066 per unit, basic and diluted) as compared to $1.4 million ($0.146 per unit basic and diluted) for Q3 2011. AFFO for Q3 2012, excluding the non-recurring major tenant default-related legal fees, totaled $1.22 million ($0.118 per unit, basic and diluted) as compared to $1.38 million ($0.149 per unit basic and diluted) for Q3 2011. The decrease in AFFO is primarily a result of the temporary reduction in same asset NOI, excluding non-cash and one-time items, of $0.34 million referenced above and $0.2 million of increased financing costs relating to acquisitions and refinancing, offset by incremental cash NOI of $0.67 million driven by the 2011 Shoppers Drug Mart acquisition. AFFO for the nine months ended September 30, 2012 was $3.1 million ($0.320 per unit, basic and diluted) as compared to $4.8 million ($0.519 per unit basic and $0.508 per unit diluted) for the same period in 2011. AFFO, excluding the non-recurring major tenant default-related legal fees, for the nine months ended September 30, 2012 was $3.8 million ($0.392 per unit basic and diluted) as compared to $5.2 million ($0.565 per unit basic and $0.544 per unit diluted) for the same period in 2011.
  • The portfolio occupancy rate as at September 30, 2012 was 94.1 percent versus the prior year at 95.5 percent. Pro-forma occupancy including acquisitions and a disposition subsequent to the quarter end, and all committed leases reaches 95.7 percent.
  • The REIT's average cost of mortgage debt was 4.96 percent at the end of Q3 2012, as compared to 5.27 percent at the end of Q3 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 mortgage at a significantly lower interest rate (details below on First National Financial mortgage). The REIT's leverage ratio as at September 30, 2012 was 51.2 percent excluding convertible debentures and 67.6 percent including convertible debentures, versus 52.7 percent and 68.5 percent, respectively, as at September 30, 2011.
  • On August 8, 2012, KEYreit completed a public offering of 1,886,000 Units at $6.10 per Unit for gross proceeds of $11.5 million.
  • Priszm is no longer a tenant of KEYreit.  On September 17, 2012, Priszm completed the sale of 65 restaurants located in Quebec to Olympus Food (Canada) Inc., a Canadian subsidiary of a pre-existing large multi-store KFC franchisee in the Philippines, and a related party to Hi-Flyer Food (Canada) Inc. ("Hi-Flyer"), the entity that purchased the Priszm restaurants in Alberta and Manitoba in May of this year. Of the restaurant locations sold, KEYreit is the landlord of 49 locations.
  • On September 19, 2012, KEYreit closed a first mortgage with First National Financial LP in the amount of $37 million. The mortgage is secured by 70 properties located in Ontario. The mortgage has a term of five years, is amortized over a twenty-year period and bears an interest rate of 4.60%. The net proceeds from the mortgage were used to repay fully the $34 million outstanding on the first and second mortgaged bridge loan which bore an interest rate of 7.0% and was set to mature on September 7, 2013.
  • Subsequent to the quarter-end, on October 4, 2012, KEYreit closed the acquisition of three retail properties 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 100% 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 $7.0 million bearing a weighted average interest rate of 5.43%, and net proceeds received from KEYreit's equity offering completed in August 2012.
  • In addition, subsequent to quarter-end, 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 represented 1,805 square feet of GLA, was currently vacant, and had been previously leased to Priszm with the related lease being disclaimed.

Financial Highlights

The following selected financial information, has been derived from and should be read in conjunction with the unaudited consolidated interim financial statements of KEYreit for the three and nine months ended September 30, 2012 and 2011, and the notes thereto included in KEYreit's quarterly filings at www.sedar.com.

     
(in thousands of dollars, except Unit and per Unit amounts) Three-month period ended
September 30, 		Nine-month period ended
September 30,
Financial Information 2012 2011 2012 2011
Revenue $6,661 $5,581 $19,464 $17,066
Net operating income (1)                      $5,476                      $4,555                    $15,946                   $14,210
Net income (loss) (2)                          $265                      $5,444                    $10,288                   $11,913
FFO(3)                          $505                          $(48)                      $2,029                      $2,970
FFO per Unit(4)                      $0.049                    $(0.005)                      $0.211                      $0.321
FFO per Unit - Fully Diluted(4)                      $0.049                    $(0.005)                      $0.211                      $0.321
FFO, Adjusted (5)                          $505                      $1,036                      $2,029                      $4,054
FFO per Unit, Adjusted                      $0.049                      $0.112                      $0.211                      $0.439
FFO per Unit, Adjusted  - Fully Diluted                      $0.049                      $0.112                      $0.211                      $0.439
AFFO(6)                          $688                      $1,352                      $3,077                      $4,793
AFFO per Unit (7)                      $0.066                      $0.146                      $0.320                      $0.519
AFFO per Unit  - Fully Diluted (7)                      $0.066                      $0.146                      $0.320                      $0.508
AFFO, Adjusted (8)                      $1,221                      $1,379                      $3,776                      $5,223
AFFO per Unit, Adjusted                       $0.118                      $0.149                      $0.392                      $0.565
AFFO per Unit, Adjusted  - Fully Diluted                      $0.118                      $0.149                      $0.392                      $0.544
Total Units (9)            11,144,929              9,249,607            11,144,929              9,249,607
Weighted Average Number of Units (10)            10,360,381              9,249,607              9,622,761              9,242,019
Weighted Average Number of Units - Fully Diluted - for FFO(10)            10,360,381              9,249,607              9,622,761              9,242,019
Weighted Average Number of Units - Fully Diluted - for AFFO(10)            10,360,381              9,249,607              9,622,761           11,729,581
Total distributions declared to Unitholders (11)                      1,577                      1,962                      5,317                      5,889
Total distributions to Unitholders, cash basis(12)                      1,482                      1,962                      5,413                      5,889
Total distributions per Unit                      0.150                      0.213                      0.554                      0.638
Payout ratio(13) 225.8% 145.1% 173.3% 122.8%
Adjusted payout ratio (14) 127.3% 142.2% 141.2% 112.7%
     
(in thousands of dollars, except Unit and per Unit amounts) As at
September 30, 		As at
September 30,
Financial Metrics 2012 2011 2012 2011
Total assets as at period end $321,185 $306,651 $321,185 $306,651
Debt, excluding convertible debentures as at period end (15)                  $164,383                 $161,553                  $164,383                 $161,553
Debt to gross book value  (17) 51.18% 52.68% 51.18% 52.68%
Debt, including convertible debentures as at period end (16)                  $217,049                 $210,107                  $217,049                 $210,107
Debt to gross book value including convertible debentures  (18) 67.58% 68.52% 67.58% 68.52%
Interest coverage ratio (19)                         1.35                        1.42                         1.35                        1.57
Weighted average mortgage contract interest rate 4.96% 5.27% 4.96% 5.27%
     
  As at
September 30, 		As at
September 30,
Operational Information 2012 2011 2012 2011
Portfolio Occupancy 94.07% 95.50% 94.07% 95.50%
Gross Leasable Area              1,103,156              1,103,156              1,103,156              1,103,156
Number of Properties                          229                         229                          229                         229
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 the MD&A for the third quarter of 2012 ("MD&A") for a discussion and analysis of the third 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 the 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 2011, for the transaction costs incurred on the issuance of unsecured 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 the 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.
(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 nine-month period ending September 30, 2011, fully diluted units assume the conversion of the 2009 Convertible Debentures for the AFFO per unit calculation. For the three and nine-month period ending September 30, 2012 and three months ending September 30, 2011, all convertible debentures are anti-dilutive.
(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 the 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 the MD&A.
(15) Debt is defined as mortgages payable, term debt and land lease liability.
(16) Debt is defined as mortgages payable, term debt, land lease liability and convertible debentures.
(17) A non-IFRS measurement defined in KEYreit's Declaration of Trust.
(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).

November 2012 Distribution

KEYreit also today announced a cash distribution of $0.05 per unit for the month of November 2012. The distribution will be payable on December 17, 2012 to Unitholders of record on November 30, 2012.

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 June 2010. FFO as computed by KEYreit may differ from similar computations as reported by other similar organizations and, accordingly, may not be comparable. FFO in the MD&A 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 the MD&A 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 (formerly Scott's Real Estate Investment Trust, TSX: KRE.UN) is Canada's premier small-box retail property owner with 231 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

For media information, please contact:
Trevor Boudreau
604-564-8209
[email protected]

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KEYreit