TORONTO, ONTARIO -- (Marketwired) -- 11/13/14 -- DREAM OFFICE REIT (TSX: D.UN) today announced its financial results for the three and nine months ended September 30, 2014. Senior management will host a conference call to discuss the results tomorrow, November 14, 2014 at 2:00 p.m. (ET).
HIGHLIGHTS FOR THE QUARTER
Highlights of our 2014 third quarter results is included in table below.
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HIGHLIGHTS FOR THE QUARTER
Three months ended Nine months ended
(unaudited) September 30, September 30,
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($000's except unit and
per unit amounts) 2014 2013 2014 2013
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Basic:
Adjusted funds from
operations ("AFFO")(1) $ 0.63 $ 0.63 $ 1.89 $ 1.85
Funds from operations
("FFO")(1) 0.71 0.73 2.17 2.16
Diluted:
FFO(1) 0.71 0.73 2.16 2.15
Operating results
Comparative properties
net operating income
("NOI")(1)(2) $ 106,128 $ 106,125 $ 318,122 $ 317,305
NOI(1)(3) 113,785 115,216 344,680 333,195
Investment properties
revenue(4) 201,716 204,320 612,809 592,113
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See footnotes.
-- Comparable properties NOI stable to prior year and prior quarter -
reflected in the overall NOI is year-over-year comparable properties NOI
growth of 2.1% in our downtown Toronto portfolio, 0.5% in our Calgary
portfolio and 4.3% in our Quebec portfolio, offset by comparable
properties NOI decline of 5.3% in our suburban Toronto portfolio.
Comparative properties NOI increased by 0.1% over the prior quarter,
with 1.6% increase in our largest market downtown Toronto, 5.6% increase
in our Quebec portfolio and 5.9% increase in suburban Calgary.
-- Portfolio occupancy remained strong at 93.0%, well above the national
average of 89.7% - 648,900 square feet of leasing was completed during
the quarter. 298,300 square feet of renewals completed at rents 9%
higher than expiring rent; decline in occupancy reflects previously
announced tenant departures in downtown Calgary and suburban Toronto.
-- Fundamentals to stabilize in Q4 2014 - to date, the Trust has 818,000
square feet of leasing completed for Q4 2014, equivalent to 95% of Q4
2014 lease maturities. Leasing is comprised of 470,000 square feet of
lease renewals, resulting in tenant retention of 55%, and 348,000 square
feet of new leasing. Total leasing to date for 2014 is 2.8 million
square feet.
-- Strong head start for 2015 - the Trust has already leased 810,000 square
feet to date relating to 2015 lease maturities, which represents 33% of
next year's lease maturities.
-- Focus on building improvement and tenant retention - the Trust has
invested $20 million year-to-date in building improvements aimed at
attracting and retaining tenants, with another $15 million to be spent
in Q4 2014.
-- Dispositions of five non-core assets - during the quarter, the Trust
sold five non-core assets for total gross proceeds of approximately
$44.9 million. Total dispositions for the year totalled $71.5 million.
SELECTED FINANCIAL INFORMATION
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SELECTED FINANCIAL INFORMATION
(unaudited) As at
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($000's except unit and per September 30, September 30,
unit amounts) 2014 June 30, 2014 2013
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Portfolio
Number of properties 177 182 185
Investment properties value(5) 7,226,450 7,266,166 7,271,915
Gross leasable area ("GLA")(6) 24,219 24,509 24,539
Occupancy rate - including
committed (period-end)(5) 93.0% 94.1% 94.6%
Occupancy rate - in place
(period-end)(5) 91.1% 92.5% 93.6%
Average in-place net rent per
square foot (period-end)(5) $ 18.21 $ 18.14 $ 17.85
Market rent / average in-place
net rent (%) 8.2% 8.0% 9.4%
Units (period end)
REIT Units, Series A ("REIT A
Units") 108,064,862 104,582,468 104,979,020
LP Class B Units, Series 1
("LP B Units") 602,434 3,538,457 3,538,457
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Total number of units 108,667,296 108,120,925 108,517,477
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See footnotes.
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SELECTED FINANCIAL
INFORMATION
Three months ended Nine months ended
(unaudited) September 30, September 30,
------------------------ ------------------------
($000's except unit and
per unit amounts) 2014 2013 2014 2013
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Operating results
Investment properties
revenue(4) $ 201,716 $ 204,320 $ 612,809 $ 592,113
NOI(1)(3) 113,785 115,216 344,680 333,195
Comparative properties
NOI(1)(2) 106,128 106,125 318,122 317,305
FFO(1) 77,389 79,298 234,680 228,005
AFFO(1) 68,060 68,298 204,490 194,792
Distributions
Declared distributions $ 61,387 $ 60,873 $ 181,351 $ 175,762
DRIP participation ratio
(for the period) 26% 22% 24% 19%
Per unit amounts(7)
Distribution rate $ 0.56 $ 0.56 $ 1.68 $ 1.67
Basic:
FFO(1) 0.71 0.73 2.17 2.16
AFFO(1) 0.63 0.63 1.89 1.85
Diluted:
FFO(1) 0.71 0.73 2.16 2.15
Payout ratio (%):
FFO (basic) 79% 77% 77% 77%
AFFO (basic) 89% 89% 89% 90%
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See footnotes.
OPERATIONAL HIGHLIGHTS
-- Leasing activity - The Trust has completed 648,900 square feet of
leasing in the quarter. Deal velocity was strong this quarter in our
larger markets with 219,000 square feet of new leasing completed in the
Greater Toronto Area, 81,000 square feet in Calgary, and 36,000 square
feet in Eastern Canada. Tenant interest remains strong in our largest
market, downtown Toronto. The Trust has already leased 810,000 square
feet to date relating to 2015 lease maturities, with 315,000 square
completed in Greater Toronto Area and 110,000 square feet in Calgary.
Total leasing to date represents 33% of next year's lease maturities.
-- Portfolio occupancy remained strong at 93.0% - The overall percentage of
occupied and committed space remains strong at 93.0%, well above the
national average of 89.7%. Leasing velocity has been strong in many of
our markets. The decline in occupancy is primarily attributed to a
previously announced tenant departure in downtown Calgary of 100,000
square feet and negative absorption in our suburban Toronto portfolio.
-- Average in-place net rents 8.2% below market rents - The Trust continues
to capture rental rate gains in connection with leasing activity. At the
end of Q3 2014, the portfolio average in-place net rent was $18.21 per
square feet, up from $18.14 per square feet at June 30, 2014 and $17.85
per square feet at September 30, 2013.
FINANCIAL HIGHLIGHTS
-- AFFO per unit remained stable over the same quarter in the prior year -
AFFO per unit for the third quarter was flat over the same period in the
prior year as comparative property NOI remained stable. AFFO per unit
was down one cent compared to Q2 2014 mainly due to fewer lease
termination fees during the quarter and property dispositions during the
year, offset by marginal growth in comparative properties NOI, interest
expense savings and incremental increase in AFFO from our investment in
Dream Industrial REIT ("DIR").
-- FFO per unit decreased 2.7% over the same quarter in the prior year -
FFO per unit decreased by two cents compared to the same period in the
prior year and Q2 2014, mainly due to a one-time write-off of straight
line rent during the quarter and the reasons noted above.
CAPITAL INITIATIVES
-- Strong and conservative capital structure maintained - The Trust's
leverage improved to 46.9% compared to 47.6% at December 31, 2013 and
47.0% at September 30, 2013. Interest coverage ratio remains strong at
2.9 times and net average debt-to-EBITDFV ratio improved to 7.8 years
compared to 8.0 years at December 31, 2013 and stable compared to
September 30, 2013. The Trust's pool of unencumbered assets remains well
over $790 million.
-- Exchange of units - During the quarter, one of the holders of the LP B
Units surrendered approximately 2.9 million LP B Units and received a
corresponding amount of REIT B Units. Such REIT B units were converted
by the holder into REIT A Units.
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KEY FINANCIAL PERFORMANCE
METRICS
(unaudited) As at
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($000's except unit and per September 30, December 31, September 30,
unit amounts) 2014 2013 2013
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Financing
Weighted average effective
interest rate (period-end) 4.20% 4.18% 4.22%
Weighted average face interest
rate (period-end) 4.21% 4.22% 4.28%
Interest coverage ratio(1) 2.9 times 2.9 times 2.9 times
Net average debt-to-EBITDFV
(years)(1) 7.8 8.0 7.8
Net debt-to-adjusted EBITDFV
(years)(1) 7.8 8.0 7.8
Level of debt (net debt-to-
gross book value)(1) 46.9% 47.6% 47.0%
Debt - average term to maturity
(years) 4.2 4.6 4.8
Unencumbered assets $ 794,000 $ 622,000 $ 568,000
Unsecured convertible and non-
convertible debentures 533,795 385,532 261,246
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See footnotes.
PORTFOLIO ACTIVITY
-- Focused on building improvement and tenant retention - The Trust is
focused on asset management strategies that provide both near-term
stability and long term growth. The Trust has invested $20 million year-
to-date in building improvements aimed at attracting and retaining
tenants such as lobby enhancements, common area upgrades, elevator
replacement and sustainability initiatives, with another $15 million to
be spent in Q4 2014.
-- Dispositions of five non-core assets - During the quarter, the Trust
completed the disposition of four wholly owned properties to DIR
totalling approximately 248,200 square feet for total gross proceeds of
$33.0 million, net of mark-to-market adjustments on mortgages assumed by
DIR. The sale price was satisfied by the Trust receiving approximately
2.3 million Class B limited partnership units of DIR at $9.40 per unit,
offset by mortgages assumed by DIR on disposition. The Trust also
disposed of its 50% interest in one of the properties totalling
approximately 48,400 square feet for total gross proceeds of
approximately $12.1 million. The net proceeds of $11.7 million was used
to repay debt.
CONFERENCE CALL
Senior management will host a conference call to discuss the results tomorrow, November 14, 2014 at 2:00 p.m. (ET). To access the conference call, please dial 1-866-229-4144 in Canada and the United States or 416-216-4169 elsewhere and use passcode 7678 875#. To access the conference call via webcast, please go to Dream Office REIT's website at www.dreamofficereit.ca and click on the link for News & Events, then click on Calendar of Events. A taped replay of the conference call and the webcast will be archived for 90 days.
Other information
Information appearing in this news release is a select summary of results. The condensed consolidated financial statements and management's discussion and analysis of the Trust are available at www.dreamofficereit.ca and on www.sedar.com.
Dream Office REIT is an unincorporated, open-ended real estate investment trust. Dream Office REIT is focused on owning, acquiring, leasing and managing well-located, high-quality central business district and suburban office properties. Its portfolio currently comprises approximately 24.3 million square feet of gross leasable area in major urban centres across Canada. Dream Office REIT's portfolio is well diversified by geographic location and tenant mix. For more information, please visit our website at www.dreamofficereit.ca.
FOOTNOTES
(1) AFFO, FFO, comparative properties NOI, NOI, interest coverage ratio, net average debt-to-EBITDFV, net debt-to-adjusted EBITDFV and level of debt are non-GAAP measures used by Management in evaluating operating performance. Please refer to the cautionary statements under the heading "Non-GAAP Measures" in this press release. (2) Comparative properties NOI (non-GAAP measure) includes NOI of same properties owned by the Trust in the current and comparative period and excludes leases termination fees and certain one-time adjustments, property held for redevelopment, straight-line rent and amortization of lease incentives. (3) NOI (non-GAAP measure) is defined as total of net rental income, including the share of net rental income from investment in joint ventures and property management income, excluding net rental income from properties sold and assets held for sale. (4) Includes investments in joint ventures. (5) Includes investments in joint ventures and excludes redevelopment properties and assets held for sale. (6) In thousands of square feet and excludes redevelopment properties and assets held for sale. (7) A description of the determination of basic and diluted amounts per unit can be found in section "Non-GAAP measure and other disclosures" under the heading "Weighted average number of units" of the MD&A.
Non-GAAP Measures
The Trust's condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). In this press release, as a complement to results provided in accordance with IFRS, the Trust discloses and discusses certain non-GAAP financial measures, including Adjusted Funds From Operations ("AFFO"), Funds From Operations ("FFO"), comparative properties Net Operating Income ("NOI"), NOI, interest coverage ratio, net average debt-to-EBITDFV, net debt-to-adjusted EBITDFV and level of debt as well as other measures discussed elsewhere in this release. These non-GAAP measures are not defined by IFRS, do not have a standardized meaning and may not be comparable with similar measures presented by other issuers. The Trust has presented such non-GAAP measures as Management believes they are relevant measures of the Trust's underlying operating performance and debt management. Non-GAAP measures should not be considered as alternatives to net income, cash generated from (utilized in) operating activities or comparable metrics determined in accordance with IFRS as indicators of the Trust's performance, liquidity, cash flow, and profitability. For a full description of these measures and, where applicable, a reconciliation to the most directly comparable measure calculated in accordance with IFRS, please refer to the "Non-GAAP Measures and Other Disclosures" in Dream Office REIT's Management's Discussion and Analysis for the three and nine months ended September 30, 2014.
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 Dream Office 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; our ability to refinance maturing debt; leasing risks, including those associated with the ability to lease vacant space; and interest and currency rate functions. Our 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. Dream Office 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 Dream Office REIT's filings with securities regulators, including its latest annual information form and MD&A. These filings are also available at Dream Office REIT's website at www.dreamofficereit.ca.
Contacts:
P. Jane Gavan
Chief Executive Officer
(416) 365-6572
Mario Barrafato
Chief Financial Officer
(416) 365-4132
Ana Radic
Chief Operating Officer
(416) 365-4136
