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 t