[November 14, 2018] |
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Agellan Commercial Real Estate Investment Trust Releases Third Quarter 2018 Results
Agellan Commercial Real Estate Investment Trust (the "REIT")
(TSX:ACR.UN) is pleased to report its financial results for the
three and nine month periods ended September 30, 2018. All dollar
amounts (except per Unit amounts) are in thousands of Canadian dollars,
unless otherwise stated.
HIGHLIGHTS
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Subsequent to quarter end the REIT entered into an arrangement
agreement pursuant to which Elad Genesis Limited Partnership ("El-Ad")
has agreed to acquire all of the outstanding trust units of the REIT
for $14.25 in cash per unit, other than Units already owned by El-Ad
or its affiliates. This transaction values the REIT at approximately
$680 million, including the REIT's net debt.
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The REIT acquired two industrial properties located in Newnan, Georgia
and Austin, Texas for an aggregate purchase price of US$34.85 million
(before closing costs and other adjustments) in respect of the REIT's
ownership interest.
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Significant leasing was completed at the REIT's Naperville office
property improving the property profile and solidifying future cash
flows.
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The REIT disposed of its Charlotte, North Carolina office property for
$22.65 million (before closing costs and other adjustments).
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FINANCIAL AND OPERATIONAL HIGHLIGHTS
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September 30, 2018
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December 31, 2017
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Summary of Operational Information
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Number of Properties
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45
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44
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Gross Leasable Area ("GLA") (in 000's)
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6,921
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6,652
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Occupancy % (at period end)
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93.7%
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96.2%
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Average lease term to maturity (years)
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5.3
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4.0
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Summary of Financial Information
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Gross Book Value(1)
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$724,549
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$832,768
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Debt (face value)
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$235,389
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$392,507
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Debt to Gross Book Value(1)
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32%
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47%
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Interest Coverage Ratio (annual)(1)
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3.4x
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2.3x
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Weighted average interest rate
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4.3%
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4.2%
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For the three month period ended
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For the year to date period ended
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September 30, 2018
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September 30, 2017
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September 30, 2018
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September 30, 2017
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Total Revenue
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$19,983
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$26,270
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$70,810
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$75,149
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Net Operating Income ("NOI")(1)
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$12,019
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$15,439
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$42,600
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$44,297
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Net Income
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$5,704
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$18,412
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$56,541
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$36,290
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Funds From Operations ("FFO")(1)
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$7,473
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$9,848
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$27,036
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$28,176
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Adjusted Funds From Operations ("AFFO")(1)
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$7,122
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$8,364
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$24,572
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$23,039
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Adjusted Cash Flow From Operations ("ACFO")(1)
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$4,929
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$4,493
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$21,708
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$9,326
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Basic and Diluted FFO per Unit(1)
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$0.221
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$0.300
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$0.799
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$0.885
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Basic and Diluted AFFO per Unit(1)
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$0.210
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$0.255
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$0.726
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$0.724
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Distributions Declared
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$6,851
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$6,363
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$20,534
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$18,756
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Distributions per Unit
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$0.202
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$0.194
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$0.607
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$0.589
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Payout Ratio(1)
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139%
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142%
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95%
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201%
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Units Outstanding at Period-end
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33,845,879
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32,847,481
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33,845,879
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32,847,481
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Weighted Average Units Outstanding (Basic and Diluted)
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33,857,029
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32,863,965
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33,835,749
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31,823,875
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(1) This is a non-IFRS financial measures. Please see
"Non-IFRS supplemental measures" below.
Summary of Significant Events:
Financial Highlights
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For the three month period ended September 30, 2018, the REIT achieved
net income of $5,704, compared to net income of $18,412 for the three
month period ended September 30, 2017. This represents a decrease in
net income of $0.392 per Unit.
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For the three month period ended September 30, 2018, the REIT achieved
FFO per Unit of $0.221, compared to $0.300 for the three month period
ended September 30, 2017.
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For the three month period ended September 30, 2018, the REIT achieved
AFFO per Unit of $0.210, compared to $0.255 for the three month period
ended September 30, 2017.
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Although both FFO and AFFO for the three month period ended September
30, 2018 were negatively impacted due to the timing of recent office
asset sales and the deployment of funds into industrial acquisitions
consistent with the REIT's previously disclosed strategy, the REIT's
Debt to Gross Book Value ratio was significantly below historical
averages and was 32% as of September 30, 2018.
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For the three month period ended September 30, 2018, the REIT's ACFO
was $4,929 and its Payout Ratio was 139%.
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For the nine month period ended September 30, 2018, the REIT achieved
net income of $56,541, compared to net income of $36,290 for the nine
month period ended September 30, 2017. This represents an increase in
net income of $0.531 per Unit.
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For the nine month period ended September 30, 2018, the REIT achieved
FFO per Unit of $0.799, compared to $0.885 for the nine month period
ended September 30, 2017.
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For the nine month period ended September 30, 2018, the REIT achieved
AFFO per Unit of $0.726, compared to $0.724 for the nine month period
ended September 30, 2017.
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Although both FFO and AFFO for the nine month period ended September
30, 2018 were negatively impacted due to the timing of recent office
asset sales and the deployment of funds into industrial acquisitions
consistent with the REIT's previously disclosed strategy, the REIT's
Debt to Gross Book Value ratio was significantly below historical
averages and was 32% as of September 30, 2018.
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For the nine month period ended September 30, 2018, the REIT's ACFO
was $21,708 and its Payout Ratio was 95%.
Operational Highlights
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As at October 1, 2018, the overall occupancy rate of the REIT's
portfolio was 93.7%, representing a decrease from the July 1, 2018
occupancy rate of 96.8%. This decrease was primarily the result of the
acquisition of a large distribution facility located at 60 Herring
Road, in Newnan, Georgia, which was acquired on September 28, 2018,
and the decrease in occupancy at the REIT's Naperville office property
due to the timing of the commencement of new leases, as further
described below.
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During the three months ended September 30, 2018, the REIT announced
that it entered into a lease with Aldi Inc. ("Aldi") with respect
approximately 113,000 square feet at the REIT's Naperville office
property. Aldi will occupy approximately 80% of the approximately
141,000 square feet of space that the REIT previously announced would
be surrendered by Health Care Service Corporation ("HCSC"). Aldi's
lease will commence on January 1, 2019 and will have a term of 10
years.
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Also during the three months ended September 30, 2018, the REIT
announced it had entered into a lease amendment agreement with HCSC
whereby HCSC will extend its current lease with respect to
approximately 25,000 square feet of space at the REIT's Naperville
office property that HCSC previously advised would be surrendered. The
amended lease will be coterminous with the lease for the remainder of
the spaced leased to HCSC at the Naperville office property and will
expire in November 2025. HCSC will expand its presence at the REIT's
Naperville office property by leasing approximately 32,000 square feet
of additional space commencing December 1, 2018, which lease will also
be coterminous with the rest of HCSC's leased space.
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After the aforementioned leasing at the REIT's Naperville office
property takes effect, the property's expected occupancy will be 95%
and it will have a weighted average occupancy of approximately 7.6
years.
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On July 13, 2018, the REIT completed the sale of its approximately
118,500 square foot, five story multi-tenant office building located
at 10130 Perimeter Parkway in Charlotte, North Carolina. The sale
price for this non-core asset was approximately US$22.65 million
(before closing costs) and represented an in-place capitalization rate
of 7.46%.
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On September 13, 2018, the REIT confirmed that a review process to
explore strategic alternatives, which may include a sale of all or
substantially all of the assets of the REIT or the Units, is ongoing
and that its board of trustees has engaged RBC Capital Markets and
Wells Fargo (News - Alert) Securities, LLC as financial advisors.
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On September 28, 2018, the REIT completed the acquisition of a 50%
interest in an industrial distribution centre in the I-85 submarket of
Atlanta, Georgia. The property comprises approximately 1.9 million
square feet of GLA and was acquired for an aggregate purchase price of
approximately US$53 million (before closing costs), representing a
going-in capitalization rate of approximately 5.5% and a stabilized
capitalization rate of approximately 7.25%. The property is currently
87% occupied and has a weighted average lease term of 16.4 years.
Subsequent Events
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On October 1, 2018 the REIT completed the acquisition of an industrial
property located in Austin, Texas. The property is comprised of four
suites that are all currently leased to a single tenant with
approximately three years of lease term remaining. The property was
purchased for approximately US$8.35 million (before closing costs),
representing a going-in capitalization rate of approximately 7.59%.
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On October 5, 2018 the REIT amended the terms of its credit facility.
Subject to certain covenants, the maximum amount available to the REIT
under its credit facility was reduced to US$75 million. The credit
facility is now secured by a charge on the REIT's Naperville office
property, however, no draws have been made on the facility. The
maturity date of the credit facility is unchanged, being January 25,
2020.
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On October 20, 2018, the REIT declared a monthly distribution for the
month ended October 31, 2018 of $0.0675 per Unit, consistent with an
annual distribution rate of $0.81 per Unit.
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On November 13, 2018, the REIT entered into an arrangement agreement
(the "Arrangement Agreement") pursuant to which El-Ad has agreed to
acquire all of the outstanding Units of the REIT for $14.25 in cash
per unit (the "Transaction"), other than units already owned by El-Ad
or its affiliates. The Transaction values the REIT at approximately
$680 million, including the REIT's net debt. The Transaction is
structured as a statutory plan of arrangement under the Business
Corporations Act (Ontario) and the Trustee Act (Ontario). The
Transaction requires approval of at least 66 2/3% of the votes cast by
unitholders, as well as the approval by a simple majority of votes
cast by disinterested unitholders, excluding El-Ad and its affiliates
and any other unitholders required to be excluded under Multilateral
Instrument 61-101 - Protection of Minority Security Holders in
Special Transactions. The Transaction is also subject to approval
of the Ontario Superior Court of Justice. The Arrangement Agreement
provides for, among other things, customary representations,
warranties and covenants, including customary non-solicitation
covenants from the REIT and a "fiduciary out" that allows the Board to
accept a superior proposal in certain circumstances subject to a
"right to match" in favour of El-Ad and payment by the REIT of a $16
million termination fee to El-Ad. A management information circular of
the REIT will be prepared in connection with a special meeting of
Unitholders anticipated to be held in January 2019 to consider and
vote on the Transaction. The REIT will send the circular and certain
related documents to Unitholders and copies will be filed under the
REIT's profile on SEDAR at www.sedar.com.
The REIT will hold a conference call to discuss the REIT's financial
performance for the three and nine month periods ended September 30,
2018 on Wednesday, November 14, 2018 at 2:00 p.m. (Toronto time). To
access the call, please dial 1-416-641-6104 or 1-800-806-5484 and enter
the participant pass code: 8420153. For operator assistance during the
call, please press *0.
A replay of the conference call will be available from 5:00 p.m.
(Toronto time) on November 14, 2018 until midnight (Toronto time) on
December 14, 2018. To access the replay, please call 1-905-694-9451 or
1-800-408-3053 and enter participant pass code: 5088701.
Other information:
Information appearing in this news release is a select summary of
results. The REIT's consolidated financial statements along with
management's discussion and analysis for the three and nine month
periods ended September 30, 2018 ("MD&A") are available electronically
on the REIT's website at www.agellanreit.com
and under the REIT's issuer profile at 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 46 properties contain 8.3 million square feet of gross
leasable area, with the REIT's ownership interest at 7.0 million square
feet. The properties are primarily located in major urban markets in the
United States.
Non-IFRS supplemental measures:
Certain terms used in this news release are not recognized under
International Financial Reporting Standards ("IFRS") and therefore these
terms should not be construed as alternatives to IFRS measures, such as
net income or cash flow from operating activities nor are these terms
necessarily comparable to similar measures presented by other reporting
issuers. These terms are used by management to measure, compare and
explain the operating results and financial performance of the REIT.
Management believes that these terms are relevant measures in comparing
the REIT's performance to industry data and the REIT's ability to earn
and distribute cash to holders of Units. These non-IFRS measures,
including FFO, AFFO, ACFO, Payout Ratio, Gross Book Value, Interest
Coverage Ratio, NOI, and related per Unit amounts are defined, FFO, is
reconciled to net income, and AFFO and ACFO are reconciled to cash flows
from (used in) operating activities in the REIT's MD&A, which should be
read in conjunction with this news release.
Forward-looking information:
This news release contains forward-looking information within the
meaning of applicable securities legislation. Forward-looking
information can be identified by words or expressions including, but not
limited to, "plans", "expects", "scheduled", "estimates", "intends",
"anticipates", "predicts", "projects", "believes", or variations of such
words and phrases or statements to the effect that certain actions,
events or results "may", "will", "could", "would", "should", "might",
"occur", "be achieved" or "continue" or similar expressions.
Forward-looking information is necessarily based on a number of
estimates and assumptions that are inherently subject to significant
business, economic and competitive risks, uncertainties and
contingencies, 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. As such, management
can give no assurance that actual results will be consistent with the
forward-looking information. While such assumptions are considered
reasonable by management of the REIT based on the information currently
available, any of these assumptions could prove to be inaccurate and, as
a result, the forward-looking information based on those assumptions
could be incorrect. These risks and uncertainties include, but are not
limited to: the REIT's future growth potential; results of operations;
future prospects for additional investment opportunities in Canada and
the US, including access to debt and equity capital at acceptable costs,
the ability to obtain necessary approvals and to minimize any unexpected
costs or liabilities, environmental or otherwise, relating to any
acquisitions or dispositions; demographic and industry trends remaining
unchanged, including occupancy levels, lease renewals, the exercise of
any early termination rights, rental increases and retailer competition;
future levels of the REIT's indebtedness remaining at acceptable levels,
including its credit rating; tax laws as currently in effect remaining
unchanged, including applicable specified investment flow-through rules;
and current economic conditions remaining unchanged, including interest
rates and applicable foreign exchange rates. Readers, therefore, should
not place undue reliance on any such forward-looking statements, as
forward-looking information involves significant risks and uncertainties
and should not be read as guarantees of future performance or results,
and will not necessarily be accurate indications of whether or not the
times at or by which such performance or results will be achieved. All
forward-looking information in this news release speaks only as of the
date of this news release. The REIT does not undertake to update any
such forward-looking information whether as a result of new information,
future events or otherwise, except as required by applicable securities
laws. All forward-looking statements in this news release are qualified
by these cautionary statements. Additional information about these
assumptions and risks and uncertainties is contained in the REIT's
filings with securities regulators, including its current annual
information form and MD&A.
View source version on businesswire.com: https://www.businesswire.com/news/home/20181114005338/en/
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