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Agellan Commercial Real Estate Investment Trust Releases Fourth Quarter Results

TORONTO, March 3, 2014 /CNW/ - Agellan Commercial Real Estate Investment Trust (the "REIT") (TSX:ACR.UN) is pleased to report its financial results for the year ended December 31, 2013. For 2013 the REIT has compared its results to the 2013 Forecast of Financial Information ("Forecast") disclosed in the REIT's offering prospectus dated January 17, 2013, which is available on the SEDAR website at www.sedar.com.

Summary of Financial Information:

(all dollar amounts in 000's, except per Unit amounts)
  January 25, 2013 December 31, 2013
Summary of Operational Information      
Number of Properties                             23                                  26
Gross Leasable Area ("GLA") (in 000's)   4,210 4,575
Occupancy % (Current)   91% 93%
Average lease term to maturity (years)                            4.4                                4.3
Summary of Financial Information      
Gross Book Value   $430,404 $555,558
Debt   $243,695 $301,991
Debt to Gross Book Value   57% 54%
Interest Coverage   N/A                                3.4
Weighted average mortgage interest rate   4.0% 3.8%
  For the year to date period ended December 31, 2013
  Actual Forecast(1) Variance
Total property and property related revenue $58,246 $54,127 $4,119
Net Operating Income ("NOI") $34,690 $32,193 $2,497
Funds from Operations ("FFO") $22,429 $20,704 $1,725
Adjusted Funds from Operations ("AFFO") $16,129 $15,417 $712
Basic FFO per Unit $1.11 $1.07 $0.04
Basic AFFO per Unit $0.80 $0.80 $0.00
Distributions per Unit $0.73 $0.73 $0.00
Payout Ratio 92%    
Units outstanding at period-end (in 000's): 23,270    
Weighted average Units outstanding (in 000's): 20,281    

(1) Forecast figures have been prorated to reflect the REIT's actual operational period to date, being January 25, 2013 to December 31, 2013

Highlights of the Year:

  • Operating results for the year ended December 31, 2013 exceeded the Forecast.  While there were subtle negative variances to the forecasted operating assumptions impacting the 23 properties acquired by the REIT pursuant to its initial public offering on January 25, 2013 (the "Initial Properties"), the REIT's performance benefited from USD $63.25 million of acquisitions made in 2013, as well as, a strong U.S. dollar.  The REIT's strategy of holding a geographically diversified portfolio with substantial exposure to the United States, helped the Initial Properties to exceed the forecasted results.
  • AFFO for the three month period ended December 31, 2013 was $4,616, which compared favourably to forecasted AFFO of $4,236 by $380 or 9.0%.  AFFO for the year ended December 31, 2013 was $16,129, which also compared favourably to forecasted AFFO of $15,417 by $712 or 4.6%.  Both positive variances were due primarily to the acquisitions made in 2013.
  • AFFO per Unit for the three month period ended December 31, 2013 was $0.203, compared to forecasted AFFO per Unit of $0.218, unfavourable by $0.015 or 6.9%.  AFFO per Unit for the year ended December 31, 2013 was $0.795 compared to forecasted AFFO per Unit of $0.796, unfavourable by $0.001 or 0.1%. The unfavourable results were due primarily to the difference in timing between the REIT's first follow-on offering completed on October 9, 2013 and the closing of the REIT's acquisitions of Beltway 8 Corporate Center III & IV and the Linville Building (defined below).
  • On June 12, 2013, the REIT acquired 11000 Corporate Center Drive, Houston, Texas ("Beltway 8 Corporate Center II") for a total purchase price of USD $18.25 million excluding acquisition costs, representing an implied capitalization rate of 8.16%.  The property is a two-storey commercial office facility located in the fast growing Techway and Energy Corridor in Houston, Texas. The property has approximately 101,000 square feet of GLA, and is 100% occupied by three tenants.  Constructed in 2003, the building is part of a larger corporate office park which has attracted many investment grade tenants. The lead tenant, National Oilwell Varco, is S&P rated "A" and is expected to occupy approximately 75% of the property until 2020.
  • On July 1, 2013, the REIT completed an early lease renewal of IBM Canada's premises comprising approximately 102,000 square feet at Parkway Place for an additional ten years at market rates.  IBM Canada's renewal premises comprises both office and data centre space.  In addition, the tenant renewed approximately 22,000 square feet of enclosed space outside the building's BOMA GLA that is used to support IBM's data centre space. The early renewal extends the lease until 2025. Further, the REIT has reduced the scope of the former restrictive covenant in favour of IBM, which allows for greater leasing flexibility for the REIT moving forward.
  • On July 1, 2013, the REIT entered into two new leases at Parkway Place for a combined 36,289 square feet, resulting in a reduction of approximately 36% of the original 101,000 square feet of vendor lease space at Parkway Place.
  • On July 8, 2013, the REIT completed an early lease renewal with CH2M Hill Canada for one additional year at market rates.  CH2M Hill Canada occupies 57,713 square feet at Parkway Place, expiring March 2018.
  • On September 9, 2013, the REIT entered into a lease for approximately 15,000 square feet at Parkway Place commencing January 1, 2014 resulting in further reduction of the vendor lease space at Parkway Place.
  • On October 9, 2013 the REIT closed a public offering of 3.4 million Units at a price of $8.70 per Unit for aggregate gross proceeds of approximately $30.0 million (the "October 2013 Public Offering").  The REIT also granted the underwriters to the October 2013 Public Offering an over-allotment option to purchase an additional 345,000 Units on the same terms and conditions, which was exercised in full on November 4, 2013.
  • On November 12, 2013, the REIT acquired 10900 Corporate Center Drive ("Beltway 8 Corporate Center III"), and 4920 Westway ("Beltway 8 Corporate Center IV") for a total purchase price of USD $45.0 million excluding acquisition costs, representing an implied capitalization rate of 8.47%. The properties were constructed in 2006 and are located in the fast growing Techway and Energy Corridor in Houston, Texas. The properties have approximately 130,000 square feet of GLA each and are part of a larger corporate office park, which, includes the previously acquired Beltway 8 Corporate Center II.  The properties are leased to six investment grade tenants, with weighted average term to maturity of 4.3 years.
  • Subsequent to year end, the REIT acquired a property located in Charlotte, North Carolina known as the "Linville Building" on January 10, 2014. The property was acquired for a total purchase price of USD $19.0 million excluding acquisition costs, representing an implied capitalization of 8.2%.  The property was constructed in 2008 and has approximately 118,000 square feet of GLA.  The property is considered the premier building in its submarket, ideally positioned between Charlotte's central business district and Lake Norman, an affluent residential area.  The property is 91% occupied by strong national credit tenants, who have a weighted average term to maturity of approximately 6 years.
  • Subsequent to year end the REIT has finalized several new leases and lease renewals.  The renewals noted below account for 12% of the total 2014 lease expirations and were executed at rates more favourable than the 2013 in place rents.  The result, consistent with management's belief, shows an improvement in market conditions for the REIT's asset portfolio.
  • Significant leasing activity subsequent to year end includes:
    • 1100 Warrenville - Renewal - 32,205 square feet - Expiring 2025
    • 5975 South Loop - Renewal -20,137 square feet - Expiring 2019
    • 3707 Interchange - New Lease - 14,400 square feet - Expiring 2021
  • Subsequent to year end, the REIT entered into an "Agreement to Lease" with a prestigious European car manufacturer, to develop and lease a minimum of 3.30 acres at Parkway Place. The Agreement to Lease is subject to certain obligations of both parties.

"For the fourth consecutive quarter, our results demonstrate our ability to drive leasing and deliver both internal and external growth in our portfolio," says Frank Camenzuli, Chief Executive Officer of the REIT. "We are excited about the pace of leasing activity seen so far in 2014, as well as the advancements of the development activity at Parkway Place.  We feel that our portfolio is well positioned to drive substantial internal growth going forward as a result of our exposure to high growth US markets such as Texas.  In addition, the REIT's portfolio value and AFFO are expected to continue to reap the benefit of the strengthening U.S. dollar."

Senior management will host a conference call to discuss the results on Wednesday, March 5, 2014 at 2:00 p.m. EST. In order to participate, please dial 1-416-340-2217 or 1-866-696-5910 and enter participant pass code: 4526238. You will be required to identify yourself and the organization on whose behalf you are participating. For operator assistance during the call, please press *0.

If you cannot participate on March 5, 2014 a replay of the conference call will be available by dialing 1-905-694-9451 or 1-800-408-3053 and entering participant pass code: 3880896. The replay will be available until March 19, 2014.

Other information:

Information appearing in this news release is a select summary of results. The consolidated financial statements along with management's discussion and analysis for the REIT are available at www.agellancommercialreit.com and on www.sedar.com.

The REIT is an unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. The REIT has been created for the purpose of acquiring and owning industrial, office and retail properties in select major urban markets in the United States and Canada.

The REIT's current portfolio aggregates approximately 4.7 million square feet of gross leasable area in 27 properties. The properties are primarily located in major urban markets in the United States and Canada.

Non-IFRS supplemental measures:

NOI, FFO and AFFO are key measures of performance used by real estate operating companies; however, they are not defined by International Financial Reporting Standards ("IFRS"), do not have standard meanings and may not be comparable with other industries or income trusts. These Non-IFRS measures are more fully defined and discussed in the REIT's Management Discussion and Analysis for the year ended December 31, 2013, which is available on SEDAR at www.sedar.com.

Forward looking information:

This press release may contain forward-looking information within the meaning of applicable securities legislation. 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, which could cause actual results 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; the REIT's ability to refinance maturing debt; leasing risks, including those associated with the ability to lease vacant space; and interest and currency rate functions. The REIT's objectives and forward-looking statements are based on certain assumptions, including that the general economy remains stable, interest rates remain stable, conditions within the 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 Agellan Commercial Real Estate Investment Trust

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