Allied Properties Real Estate Investment Trust ("Allied") (TSX:
"AP.UN") today announced results for the three months ended
March 31, 2022. “Allied’s first-quarter results for 2022 met
or exceeded expectations, with AFFO per unit and average in-place
net rent per occupied square foot rising to record levels,” said
Michael Emory, President & CEO. “FFO per unit was 61 cents and
AFFO per unit 56 cents, up from the comparable quarter last year by
4% and 7%, respectively. NAV per unit at quarter-end was $50.92, up
from the end of the first quarter last year by 5% and up from the
end of 2021 by 1%. Leasing activity continued to accelerate through
the quarter, with average in-place net rent per occupied square
foot rising to $25.13, up from the comparable quarter last year by
4% and up from the end of 2021 by 2%.”
Financial Results
Allied’s financial results for the first quarter are summarized
below:
|
As at March 31 |
(In thousands except for per unit and % amounts) |
2022 |
2021 |
Change |
% Change |
Investment properties (1)(4) |
$ |
10,488,178 |
$ |
8,801,525 |
$ |
1,686,653 |
19.2% |
Unencumbered
investment properties (2) |
$ |
9,257,667 |
$ |
6,942,140 |
$ |
2,315,527 |
33.4% |
Total Assets
(1)(4) |
$ |
11,413,692 |
$ |
9,154,712 |
$ |
2,258,980 |
24.7% |
Cost of PUD as a % of GBV
(2) |
10.8% |
10.0% |
0.8% |
— |
NAV per unit
(6) |
$ |
50.92 |
$ |
48.72 |
$ |
2.20 |
4.5% |
Debt
(1) |
$ |
3,769,606 |
$ |
2,660,170 |
$ |
1,109,436 |
41.7% |
Total indebtedness
ratio (2) |
33.3% |
31.1% |
2.2% |
— |
Annualized Adjusted
EBITDA (2) |
$ |
366,888 |
$ |
356,184 |
$ |
10,704 |
3.0% |
Net debt as a multiple
of Annualized Adjusted EBITDA
(2) |
10.2x |
7.9x |
2.3x |
— |
Pro forma
net debt as a multiple of Annualized Adjusted
EBITDA (2)(7) |
9.4x |
N/A |
N/A |
N/A |
Interest-coverage ratio including capitalized interest and
excluding financing prepayment costs
(2)(3) |
3.4x |
3.3x |
0.1x |
— |
|
For the three months ended March 31 |
(In thousands except for per unit and % amounts) |
2022 |
2021 |
Change |
% Change |
Rental Revenue (1)(4) |
$ |
144,820 |
$ |
140,835 |
$ |
3,985 |
2.8% |
Net income
(1) |
$ |
187,190 |
$ |
77,522 |
$ |
109,668 |
141.5% |
Net income excluding
fair value adjustments and financing prepayment costs
(2)(3)(5) |
$ |
74,184 |
$ |
63,917 |
$ |
10,267 |
16.1% |
Adjusted
EBITDA (2) |
$ |
91,722 |
$ |
89,046 |
$ |
2,676 |
3.0% |
Same asset NOI -
rental portfolio (2) |
$ |
84,631 |
$ |
82,979 |
$ |
1,652 |
2.0% |
Same asset NOI - total
portfolio (2) |
$ |
85,952 |
$ |
84,527 |
$ |
1,425 |
1.7% |
FFO
(2) |
$ |
77,340 |
$ |
59,415 |
$ |
17,925 |
30.2% |
FFO per
unit |
$ |
0.603 |
$ |
0.467 |
$ |
0.136 |
29.1% |
FFO pay-out
ratio |
72.4% |
91.1% |
(18.7%) |
— |
All amounts below are
excluding condominium related items, financing prepayment costs and
the mark-to-market expense on unit-based compensation
(2)(3) |
|
|
|
|
FFO |
$ |
77,573 |
$ |
73,797 |
$ |
3,776 |
5.1% |
FFO per unit (diluted) |
$ |
0.605 |
$ |
0.580 |
$ |
0.025 |
4.3% |
FFO pay-out ratio |
72.1% |
73.3% |
(1.2%) |
— |
AFFO |
$ |
71,571 |
$ |
66,329 |
$ |
5,242 |
7.9% |
AFFO per unit (diluted) |
$ |
0.558 |
$ |
0.521 |
$ |
0.037 |
7.1% |
AFFO pay-out ratio |
78.2% |
81.6% |
(3.4%) |
— |
(1) This measure is presented on an IFRS
basis.(2) This is a non-IFRS measure. Refer to the Non-IFRS
Measures section below and on page 21 of the Management's
Discussion and Analysis of Results of Operations and Financial
Condition (the "MD&A") as at March 31, 2022.(3) For the
three months ended March 31, 2022, Allied incurred $nil
(March 31, 2021 - $14,161) of financing prepayment costs in
connection with the favourable refinancing of unsecured debentures
and first mortgages. (4) Prior to Q4 2021, the comparative figures
for investment properties, total assets, and rental revenue were
reported on a proportionate share basis. The comparative figures
for the prior period have been revised to an IFRS basis.(5) Prior
to Q4 2021, the comparative figure for net income excluding fair
value adjustments and financing prepayment costs was calculated on
a proportionate share basis. The comparative figure for the prior
period has been revised to be calculated on an IFRS basis.(6) Net
asset value per unit is calculated as follows: total equity as at
the corresponding period ended, (per the consolidated balance
sheets) divided by the actual number of Units and class B limited
partnership units of Allied Properties Exchangeable Limited
Partnership ("LP Units") outstanding at period end.(7) The
acquisition of six properties from Choice Properties Real Estate
Investment Trust was completed on March 31, 2022. This resulted in
the associated debt but none of the associated EBITDA being
recorded in our results for the three months ended March 31, 2022.
This pro forma metric includes the expected annualized EBITDA from
the six properties.
Leasing Results and
Highlights
Allied’s leasing results for the first quarter
are summarized below:
|
For the three months ended March 31 |
|
|
2022 |
|
|
2021 |
|
Change |
% Change |
Leased area |
|
89.3% |
|
|
91.9% |
|
|
(2.6%) |
|
— |
|
Occupied
area |
|
88.3% |
|
|
91.4% |
|
|
(3.1%) |
|
— |
|
Average in-place net
rent per occupied square foot |
$ |
25.13 |
|
$ |
24.13 |
|
$ |
1.00 |
|
4.1% |
|
Leased rate for leases
maturing in the period |
|
47.1% |
|
|
71.8% |
|
|
(24.7%) |
|
— |
|
Increase in net rent
on renewing leases - total rental portfolio |
|
8.4% |
|
|
(0.1)% |
|
|
8.5% |
|
— |
|
Increase in net rent on renewing leases - excluding
Calgary |
|
12.5% |
|
|
8.2% |
|
|
4.3% |
|
— |
|
Given the scale of Allied’s rental portfolio,
upgrade activity is now constant in all markets, particularly
Montréal, Toronto and Vancouver. The goal of the upgrade activity
is to serve users better and to boost net rent per occupied square
foot over time. At the end of the first quarter, Allied’s rental
portfolio was comprised of (i) 14,647,691 square feet of GLA in
buildings that are largely stabilized and (ii) 769,149 square feet
of GLA in buildings that are undergoing active upgrade. The
occupied area of the former was 89.5%, with leased area at 90.6%.
The occupied area of the latter was 65.5%, with leased area at
65.6%. Management expects the occupied and leased areas of its
entire rental portfolio to increase over the course of 2022, with
concurrent increases in same-asset NOI and net rent per occupied
square foot.
Allied leased 47.1% of the space that matured in
the quarter, considerably lower than normal because of deliberate
vacancy at buildings undergoing active upgrade. With respect to the
leases that were renewed other than in Calgary, the net rent per
square foot increased by 12.5% in the first year of the new term
compared to the last year of the prior term and by 20.6% comparing
the annual average net rent per square foot over the respective
terms. The weighted-average lease term for the entire rental
portfolio at the end of the first quarter was 5.5 years.
While not exhaustive, the following lease
transactions or pending lease transactions are highlights
year-to-date:
— the pending lease of 24,452 square feet of GLA at 250 Front
Street West to two interconnection users, which if completed will
increase the leased area to 100%;
— the extension of 73,844 square feet of GLA
leased to Ontario Health at 525 University Avenue in Toronto for
three years from September 30, 2024, to September 30, 2027;
— the lease of 26,013 square feet of GLA (13,007
square feet at Allied's ownership) of the office component at The
Well in Toronto (a property under development) to a media user;
— the lease of 62,006 square feet of GLA (31,003
square feet at Allied's ownership) of the office component at The
Well to a technology user;
— the lease of 22,000 square feet of GLA to two
new technology users at 312 Adelaide Street West in Toronto;
— the lease of 41,485 square feet of GLA to a
new media user at Cité Multimédia;
— the pending leases of 35,000 square feet of
GLA at 400 Avenue Atlantic in Montréal (a property under
development) to a business-services user and a media user;
— the pending lease of 30,000 square feet of GLA
at the RCA Building in Montréal (a building undergoing active
upgrade) to a communications and marketing user;
— the renewal of 16,626 square feet of GLA to an
existing technology user at Cité Multimédia;
— the pending lease of 15,000 square feet of GLA
to a technology user at 740 Saint-Maurice Street in Montréal;
— the pending renewal of 12,099 square feet of
GLA to an existing technology-based user at 645 Wellington Street
in Montréal, which is effectively part of Cité Multimédia;
— the lease of 11,512 square feet of GLA to a
new business-services user at Gare Viger in Montréal;
— the lease of 21,000 square feet of GLA to a
new business-services user at Vintage Towers in Calgary;
— the lease of 13,194 square feet of GLA to a
technology user at LocalMotive in Calgary; and
— the lease of 15,755 square feet of GLA to an
institutional user at Cooper Block in Calgary.
Allocation of Capital and Funding
At the end of the first quarter, Allied
completed its largest acquisition ever, along with its largest
equity issuance ever, with equity being issued at $50.30 per unit.
Allied published its preliminary vision for integrating the Choice
Properties Office Portfolio into its large, focused and distinctive
rental portfolio. The vision document is available on Allied’s
website.
Allied is committed to remaining within two
capital-allocation guiderails over the remainder of the year. The
first is not to increase its ratio of net debt to annualized EBITDA
in funding discretionary acquisitions. The second is not to issue
large amounts of equity significantly below NAV per unit in funding
such acquisitions.
Allied did not offer any units under its ATM
program in the first quarter. It currently has over $475 million
available on its revolving credit facility, with another $100
million available through the accordion feature. This liquidity is
more than sufficient to meet Allied’s current commitments over the
remainder of 2022 and well into 2023.
Allied continues to allocate large amounts of
capital to development activity with completion and return
estimates remaining intact. Management estimates that current
developments will increase Allied’s annual EBITDA by approximately
$82 million upon stabilization of occupancy with an expected
timeframe of three to five years, and have a weighted average lease
term of 12.2 years.
Outlook
Allied’s internal forecast for 2022 calls for
low-to-mid-single-digit percentage growth in each of same-asset
NOI, FFO per unit and AFFO per unit. While Allied does not forecast
NAV per unit growth, it does expect to propel further growth in
2022. Allied also expects to allocate a large amount of capital in
2022 with the same strategic coherence and discipline it
demonstrated in prior years.
Allied continues to have deep confidence in, and
commitment to, its strategy of consolidating and intensifying
distinctive urban workspace and network-dense UDCs in Canada’s
major cities. Allied firmly believes that its strategy is
underpinned by the most important secular trends in Canadian and
global real estate. Allied also firmly believes that it has the
properties, the financial strength, the people and the platform
necessary to execute its strategy for the ongoing benefit of its
Unitholders and other constituents.
Non-IFRS MeasuresManagement
uses financial measures based on International Financial Reporting
Standards ("IFRS") and non-IFRS measures to assess Allied's
performance. Non-IFRS measures do not have any standardized meaning
prescribed under IFRS, and therefore, should not be construed as
alternatives to net income or cash flow from operating activities
calculated in accordance with IFRS. Refer to the Non-IFRS Measures
section on page 21 of the MD&A as at March 31, 2022,
available on www.sedar.com, for an explanation of the composition
of the non-IFRS measures used in this press release and their
usefulness for readers in assessing Allied's performance. Such
explanation is incorporated by reference herein.
Reconciliations of Non-IFRS
Measures
The following tables reconcile the non-IFRS
measures to the most comparable IFRS measures for the three months
ended March 31, 2022 and the comparable period in 2021. These
terms do not have any standardized meaning prescribed under IFRS
and may not be comparable to similarly titled measures presented by
other publicly traded entities.
Adjusted Earnings Before Interest,
Taxes, Depreciation and Amortization ("Adjusted
EBITDA")The following table reconciles Allied's net income
and comprehensive income to Adjusted EBITDA, a non-IFRS measure,
for the three months ended March 31, 2022 and March 31,
2021.
|
Three months ended |
|
March 31, 2022 |
March 31, 2021 |
Net income and comprehensive income for the period |
$ |
187,190 |
|
$ |
77,522 |
|
Interest expense |
|
16,669 |
|
|
31,850 |
|
Amortization of other
assets |
|
261 |
|
|
306 |
|
Amortization of improvement
allowances |
|
7,900 |
|
|
8,181 |
|
Fair value gain on investment
properties and investment properties held for sale |
|
(101,220 |
) |
|
(8,248 |
) |
Fair value gain on derivative
instruments |
|
(19,198 |
) |
|
(20,565 |
) |
Mark-to-market expense on unit-based compensation |
|
120 |
|
|
— |
|
Adjusted EBITDA |
$ |
91,722 |
|
$ |
89,046 |
|
Net income excluding fair value
adjustments and financing prepayment costsThe following
table reconciles Allied's net income and comprehensive income to
net income excluding fair value adjustments and financing
prepayment costs, a non-IFRS measure, for the three months ended
March 31, 2022 and March 31, 2021.
|
Three months ended |
|
March 31, 2022 |
March 31, 2021 |
Net income and comprehensive income |
$ |
187,190 |
|
$ |
77,522 |
|
Less: Fair value gain on
investment properties and investment properties held for sale |
|
(93,928 |
) |
|
(7,201 |
) |
Less: Fair value gain on
derivative instruments |
|
(19,198 |
) |
|
(20,565 |
) |
Add: Mark-to-market expense on
unit-based compensation |
|
120 |
|
|
— |
|
Add:
Financing prepayment costs |
|
— |
|
|
14,161 |
|
Net income excluding fair value adjustments and financing
prepayment costs (1) |
$ |
74,184 |
|
$ |
63,917 |
|
(1) Prior to Q4 2021, the comparative figures
for net income excluding fair value adjustments and financing
prepayment costs were calculated on a proportionate share basis.
The comparative figure for the prior period has been revised to be
calculated on an IFRS basis.
Same Asset NOISame asset NOI, a
non-IFRS measure, is measured as the net operating income for the
properties that Allied owned and operated for the entire duration
of both the current and comparative period. Same asset NOI of the
assets held for sale for the three months ended March 31,
2022, consists of four investment properties that Allied classified
as assets held for sale. The following table reconciles Allied's
same asset NOI to operating income for the three months ended
March 31, 2022 and March 31, 2021.
|
Three months ended |
Change |
|
March 31, 2022 |
March 31, 2021 |
$ |
% |
Rental Portfolio - Same Asset NOI |
$ |
84,631 |
|
$ |
82,979 |
|
$ |
1,652 |
|
2.0% |
Development Portfolio - Same Asset NOI |
$ |
803 |
|
$ |
1,090 |
|
$ |
(287 |
) |
(26.3)% |
Assets Held for Sale - Same Asset NOI |
$ |
518 |
|
$ |
458 |
|
$ |
60 |
|
13.1% |
Total Portfolio - Same Asset NOI |
$ |
85,952 |
|
$ |
84,527 |
|
$ |
1,425 |
|
1.7% |
Acquisitions |
|
1,849 |
|
|
58 |
|
|
1,791 |
|
|
Lease terminations |
|
124 |
|
|
182 |
|
|
(58 |
) |
|
Development fees and corporate items |
|
3,189 |
|
|
2,841 |
|
|
348 |
|
|
NOI |
$ |
91,114 |
|
$ |
87,608 |
|
$ |
3,506 |
|
4.0% |
Amortization of improvement allowances |
|
(7,900 |
) |
|
(8,181 |
) |
|
281 |
|
|
Amortization of straight-line rents |
|
459 |
|
|
1,927 |
|
|
(1,468 |
) |
|
Operating income, proportionate basis |
$ |
83,673 |
|
$ |
81,354 |
|
$ |
2,319 |
|
2.9% |
Less: investment in joint venture |
|
439 |
|
|
237 |
|
$ |
202 |
|
85.2% |
Operating income, IFRS basis |
$ |
83,234 |
|
$ |
81,117 |
|
$ |
2,117 |
|
2.6% |
Funds from operations ("FFO") and
Adjusted funds from operations ("AFFO")The following table
reconciles Allied's net income to FFO, FFO excluding condominium
related items, financing prepayment costs and the mark-to-market
expense on unit-based compensation, AFFO, and AFFO excluding
condominium related items, financing prepayment costs and the
mark-to-market expense on unit-based compensation, which are
non-IFRS measures, for the three months ended March 31, 2022
and March 31, 2021.
|
Three months ended |
|
March 31, 2022 |
March 31, 2021 |
Change |
Net income and comprehensive income |
$ |
187,190 |
|
$ |
77,522 |
|
$ |
109,668 |
|
Adjustment to fair value of
investment properties and investment properties held for sale |
|
(93,928 |
) |
|
(7,201 |
) |
|
(86,727 |
) |
Adjustment to fair value of
derivative instruments |
|
(19,198 |
) |
|
(20,565 |
) |
|
1,367 |
|
Incremental leasing costs |
|
2,353 |
|
|
1,958 |
|
|
395 |
|
Amortization of improvement
allowances |
|
7,767 |
|
|
8,067 |
|
|
(300 |
) |
Adjustments relating to joint
venture: |
|
|
|
Adjustment to fair value on investment properties |
|
(7,292 |
) |
|
(1,047 |
) |
|
(6,245 |
) |
Amortization of improvement allowances |
|
133 |
|
|
114 |
|
|
19 |
|
Interest expense (1) |
|
315 |
|
|
567 |
|
|
(252 |
) |
FFO |
$ |
77,340 |
|
$ |
59,415 |
|
$ |
17,925 |
|
Condominium marketing
costs |
|
113 |
|
|
221 |
|
|
(108 |
) |
Financing prepayment
costs |
|
— |
|
|
14,161 |
|
|
(14,161 |
) |
Mark-to-market expense on unit-based compensation |
|
120 |
|
|
— |
|
|
120 |
|
FFO excluding condominium related items, financing prepayment costs
and mark-to-market expense on unit-based compensation |
$ |
77,573 |
|
$ |
73,797 |
|
$ |
3,776 |
|
Amortization of straight-line
rents |
|
(209 |
) |
|
(1,673 |
) |
|
1,464 |
|
Regular leasing
expenditures |
|
(3,195 |
) |
|
(2,491 |
) |
|
(704 |
) |
Regular maintenance capital
expenditures |
|
(386 |
) |
|
(708 |
) |
|
322 |
|
Incremental leasing costs
(related to regular leasing expenditures) |
|
(1,647 |
) |
|
(1,370 |
) |
|
(277 |
) |
Recoverable maintenance
capital expenditures |
|
(315 |
) |
|
(972 |
) |
|
657 |
|
Adjustment relating to joint
venture: |
|
|
|
Amortization of straight-line rents |
|
(250 |
) |
|
(254 |
) |
|
4 |
|
AFFO excluding condominium related items, financing prepayment
costs and mark-to-market expense on unit-based compensation |
$ |
71,571 |
|
$ |
66,329 |
|
$ |
5,242 |
|
|
|
|
|
Weighted average number of
units (2) |
|
|
|
Basic |
|
128,074,012 |
|
|
127,259,218 |
|
|
814,794 |
|
Diluted |
|
128,279,982 |
|
|
127,329,378 |
|
|
950,604 |
|
|
|
|
|
Per unit - basic |
|
|
|
FFO |
$ |
0.604 |
|
$ |
0.467 |
|
$ |
0.137 |
|
FFO excluding condominium
related items, financing prepayment costs and mark-to-market
expense on unit-based compensation |
$ |
0.606 |
|
$ |
0.580 |
|
$ |
0.026 |
|
AFFO excluding condominium
related items, financing prepayment costs and mark-to-market
expense on unit-based compensation |
$ |
0.559 |
|
$ |
0.521 |
|
$ |
0.038 |
|
|
|
|
|
Per unit - diluted |
|
|
|
FFO |
$ |
0.603 |
|
$ |
0.467 |
|
$ |
0.136 |
|
FFO excluding condominium
related items, financing prepayment costs and mark-to-market
expense on unit-based compensation |
$ |
0.605 |
|
$ |
0.580 |
|
$ |
0.025 |
|
AFFO excluding condominium
related items, financing prepayment costs and mark-to-market
expense on unit-based compensation |
$ |
0.558 |
|
$ |
0.521 |
|
$ |
0.037 |
|
|
|
|
|
Pay-out Ratio |
|
|
|
FFO |
|
72.4 |
% |
|
91.1 |
% |
|
(18.7 |
%) |
FFO excluding condominium
related items, financing prepayment costs and mark-to-market
expense on unit-based compensation |
|
72.1 |
% |
|
73.3 |
% |
|
(1.2 |
%) |
AFFO
excluding condominium related items, financing prepayment costs and
mark-to-market expense on unit-based compensation |
|
78.2 |
% |
|
81.6 |
% |
|
(3.4 |
%) |
(1) This amount represents interest expense on Allied's joint
venture investment in TELUS Sky and is not capitalized under IFRS,
but is allowed as an adjustment under REALPAC's definition of FFO.
(2) The weighted average number of units includes Units and
Exchangeable LP Units. The Exchangeable LP Units are classified as
equity in the unaudited condensed consolidated balance sheets as
non-controlling interests.
Cautionary Statements
This press release may contain forward-looking
statements with respect to Allied, its operations, strategy,
financial performance and condition and the expected impact of the
global pandemic and consequent economic disruption. These
statements generally can be identified by use of forward-looking
words such as "forecast", “may”, “will”, “expect”, “estimate”,
“anticipate”, “intends”, “believe” or “continue” or the negative
thereof or similar variations. Allied’s actual results and
performance discussed herein could differ materially from those
expressed or implied by such statements. Such statements are
qualified in their entirety by the inherent risks and uncertainties
surrounding future expectations, including the effect of the global
pandemic and consequent economic disruption. Important factors that
could cause actual results to differ materially from expectations
include, among other things, general economic and market factors,
competition, changes in government regulations and the factors
described under “Risk Factors” in Allied’s Annual Information Form
which is available at www.sedar.com. The cautionary statements
qualify all forward-looking statements attributable to Allied and
persons acting on its behalf. Unless otherwise stated, all
forward-looking statements speak only as of the date of this press
release, and Allied has no obligation to update such
statements.
About Allied
Allied is a leading operator of distinctive
urban workspace in Canada’s major cities and network-dense UDC
space in Toronto. Allied’s mission is to provide knowledge-based
organizations with workspace and UDC space that is sustainable and
conducive to human wellness, creativity, connectivity and
diversity. Allied’s vision is to make a continuous contribution to
cities and culture that elevates and inspires the humanity in all
people.
FOR FURTHER INFORMATION, PLEASE
CONTACT:
Michael EmoryPresident & Chief Executive
Officer(416) 977-0643memory@alliedreit.com
Tom BurnsExecutive Vice President & Chief Operating
Officer(416) 977-9002tburns@alliedreit.com
Cecilia WilliamsExecutive Vice President &
Chief Financial Officer(416) 977-9002cwilliams@alliedreit.com
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