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Homburg Canada Real Estate Investment Trust releases second quarter results

^{Published on 2011-08-04 04:11:29 - Market Wire}
 

MONTREAL, Aug. 4, 2011 /CNW Telbec/ - Homburg Canada Real Estate Investment Trust (TSX: HCR.UN) (the "REIT") today reported its financial results for the second quarter, being the period from April 1, 2011 to June 30, 2011.

"Our net operating income for the quarter greatly benefited from the acquisitions we completed in the first half of the fiscal year," said Jim Beckerleg, President and Chief Executive Officer. "We continue to see interesting growth opportunities in the retail and office segments across Canada and we are confident to deliver on additional accretive acquisitions in the months to come."

Financial Results

Homburg Canada REIT commenced operations on May 25, 2010. The REIT's first financial statements were prepared for the 37-day period ended June 30, 2010 under Canadian GAAP rules. The REIT has now adopted International Financial Reporting Standards ("IFRS"). Given these factors, it is not possible to directly compare the second quarter 2011 results with the second quarter, 37-day period in 2010.  The most meaningful comparison of financial results for the quarter is with the three-month period ended March 31, 2011.

Full financial statements and management's discussion and analysis of results will be posted on SEDAR at [ www.sedar.com ] and on the REIT's website at [ www.homburgcanadareit.com ].

Highlights

• NOI was $24.28 million for the second quarter, a 20.1% increase compared to the $20.22 million recorded for the first quarter ended March 31, 2011. NOI was positively impacted by the acquisition of a 50-percent interest in the Scotia Centre on April 13, 2011, as well as the impact of a full quarter of operating results from the retail property acquisitions completed during the first quarter of 2011, namely Place Longueuil, Les Halles de l'Île and Carrefour Les Saules. The acquisition of two office properties in Quebec and of Centron Park, all completed on June 27, 2011, did not significantly impact the second quarter results. These acquisitions are expected to make a full contribution towards NOI in the third quarter of 2011. NOI was also positively impacted by approximately $0.3 million due to lower seasonal, non-recoverable costs incurred on the multi-family residential portfolio as compared with the first quarter of 2011, combined with stronger occupancy rates at June 30, 2011, as compared to March 31, 2011.
  
  
• Diluted AFFO per unit was 24.0 cents for the second quarter, resulting in an AFFO payout ratio of 98.8%, compared to an AFFO payout ratio of 117.5% in the first quarter of 2011. The improvement is mainly due to the acquisitions which occurred during the first quarter of 2011 which are now fully contributing towards the operating results of the REIT, as well as the acquisition of a 50-percent interest in the Scotia Centre on April 13, 2011, on which the REIT also earns property management income. However, the acquisitions of the two office properties in Quebec and the three office buildings located at Centron Park, completed just prior to June 30, 2011, did not significantly impact the second quarter operating results or the AFFO payout ratio in the second quarter. Had all of the acquisitions completed during the second quarter of 2011 made a full contribution to the REIT's operating results for the three months ended June 30, 2011, it is estimated that the AFFO payout ratio would have further improved to approximately 95%.
  
  
• Occupancy rates for the REIT's 84 commercial income properties were stable during the second quarter, increasing slightly to 95.5% at June 30, 2011 from 95.4% at March 31, 2011. The multi-family residential portfolio experienced strong occupancy of 98.5% during the second quarter, a 2.2% increase from the March 31, 2011 occupancy rate, which stood at 96.3%.
  
  
• Average lease term to maturity on the REIT's commercial properties was approximately 8.5 years at June 30, 2011.
  
  
• During the second quarter, the REIT entered into an agreement to increase its floating rate credit facility from $45 million to $70 million, including a $5 million overdraft facility, and to reduce the interest rate applicable to the facility of 100 basis points. The new $70 million credit facility expires on November 25, 2013, and bears interest at prime plus 175 basis points or bankers' acceptance rate plus 275 basis points. The facility is secured by a pool of first and second mortgages on certain income-producing properties totaling approximately $199.2 million. At June 30, 2011, the REIT had utilized $35 million of the facility.
  
  
• Debt as a percentage of gross book value is at 51.73%, which remains below the REIT's target range of 55% to 60%.
  
  
• On April 14, 2011, the REIT announced that it had closed the previously announced transaction to acquire a 50-percent interest in the Scotia Centre, a 630,432 square foot office and retail complex in downtown Calgary, Alberta. Scotiabank maintained a 50-percent interest in the property, which is managed by the REIT. The $116 million purchase price was funded by a 7-year, 4.60%, $69.6 million first mortgage financing provided by Scotiabank and the use of $46.4 million of cash-on-hand from the proceeds of the REIT's public offering completed in March, 2011.
  
  
• On June 13, 2011, the REIT announced that it had entered into a binding agreement to acquire two properties in the province of Quebec: a two-storey office building in Longueuil and a four-storey office building in Levis, for a gross purchase price of $17 million, excluding closing and transaction costs. The transactions, which subsequently closed on June 27, 2011, added about 1.5%, or 113,259 square feet, of new assets to the REIT's portfolio.
  
  
• On June 27, 2011, the REIT acquired from CP Developments Inc., a wholly owned subsidiary of Homburg Invest Inc., the three existing office buildings that currently comprise the Centron Park Complex in Calgary's suburban south district, and an interest in lands by way of a purchase option providing the REIT with the right to acquire the four remaining buildings of the Complex, as developed. The three buildings acquired, identified as 100, 200 and 300 Centron Park, added 119,832 square feet of new assets to the REIT's portfolio. The four additional office buildings, to be known as 400, 500, 600 and 700 Centron Park, could, when built and purchased, add a further 286,000 square feet to the REIT's portfolio over the next few years. The gross purchase price for the existing buildings and the purchase option is $39.7 million, excluding closing and transaction costs.

Conference Call

The REIT's management team will be holding a conference call today at 10 a.m. (EDT) to discuss the results for the second quarter. To access the conference call, please call 1-888-612-1052. A taped replay of the call will be available until September 3, 2011 by dialling 1-416-626-4100 or 1-800-558-5253 and entering the playback code 21533167. An audio replay of the conference call will also be available in podcast format in the Investors section of the REIT's website at [ www.homburgcanadareit.com ].

Forward-looking Statements

This news 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 that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. Such risks and uncertainties include, but are not limited to, the factors discussed under "Risk Factors" in the REIT's latest annual information form.

The REIT's objectives and forward-looking statements are based on certain assumptions, including that (i) the REIT will receive financing on favourable terms; (ii) the future level of indebtedness of the REIT and its future growth potential will remain consistent with the REIT's current expectations; (iii) there will be no changes to tax laws adversely affecting the REIT's financing capacity or operations; (iv) the impact of the current economic climate and the current global financial conditions on the REIT's operations, including its financing capacity and asset value, will remain consistent with the REIT's current expectations; (v) the performance of the REIT's investments in Canada will proceed on a basis consistent with the REIT's current expectations; and (vi) capital markets will provide the REIT with readily available access to equity and/or debt.

The forward-looking statements contained in this news release are expressly qualified in their entirety by this cautionary statement. All forward-looking statements in this press release are made as of the date of this press release. The REIT, except as required by applicable securities legislation, 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 regulatory authorities, including its latest annual information form, which are available on SEDAR at [ www.sedar.com ].

About Homburg Canada Real Estate Investment Trust

Homburg Canada Real Estate Investment Trust is an unincorporated open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Quebec. Managed internally, the REIT owns a portfolio of Canadian income-producing commercial properties, consisting mainly of retail and office properties with certain industrial properties, as well as certain income-producing multi-family residential properties. The properties comprise approximately 8.0 million square feet of commercial gross leasable area and 1,725 multi-family residential units located in Quebec, Atlantic Canada, Western Canada and Ontario.

Note regarding Non-IFRS Financial Measures

Funds from operations ("FFO"), adjusted funds from operations ("AFFO") and net operating income ("NOI") are not measures recognized under IFRS and do not have standardized meanings prescribed by IFRS. FFO, AFFO and NOI are supplemental measures of a Canadian real estate investment trust's performance and the REIT believes that FFO, AFFO and NOI are relevant measures of its ability to earn and distribute cash returns to the unitholders. The IFRS measurement most directly comparable to FFO, AFFO and NOI are cash flow from operating activities and net income.

FFO is defined as net income in accordance with IFRS, excluding distributions on Class B LP Units, fair value adjustments relating to Class B LP Units, investment property and long-term investments, bargain purchase gain, expenses associated with business combinations, sales of investment property, and extraordinary items, plus depreciation and amortization, impairment provisions and after adjustments for equity accounted entities, joint ventures and non-controlling interests, if any, calculated to reflect FFO on the same basis as consolidated properties.

FFO calculated from net income in accordance with IFRS differs from FFO calculated from net income in accordance with Canadian GAAP as reported in prior MD&A's. FFO, as currently presented, no longer includes net amortization of above and below market leases. In-place leases are included in the value of investment property in accordance with IFRS and are not separately recorded and amortized. Additionally, depreciation expense associated with property, plant and equipment is now added back to calculate FFO based on IFRS, and was previously excluded from the calculation based on Canadian GAAP.

AFFO is defined as FFO subject to certain adjustments, including: (i) amortization of fair value mark-to-market adjustments on mortgages acquired, amortization of deferred financing and leasing costs, and compensation expense related to unit plans; (ii) adjusting for any differences resulting from recognizing property incomes on a straight line basis; (iii) adjusting for non-recurring costs associated with the IFRS conversion; and (iv) deducting maintenance capital expenditures and leasing costs, as determined by the REIT, net of the allocation of cash from reserves for capital expenditure programs. Other adjustments may be made to AFFO as determined by the Trustees of the REIT in their discretion. There has been no significant change in calculated AFFO after adoption of IFRS, other than the exclusion of non-recurring costs associated with the IFRS conversion, and depreciation expense associated with property, plant and equipment which is now added back to calculate AFFO based on IFRS, and was previously excluded from the calculation based on Canadian GAAP.

"NOI" is defined as property income, which includes rental income plus service charge income, less directly attributable property operating expenses. There has been no significant change in calculated NOI after adoption of IFRS, other than NOI no longer includes net amortization of above and below market leases, as these items are included in the fair value of investment property in accordance with IFRS, and are not separately recorded and amortized.

FFO, AFFO and NOI should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS as indicators of the REIT's performance. The REIT's method of calculating FFO, AFFO and NOI may differ from other issuers' methods and accordingly may not be comparable to measures used by other issuers.