American Financial Realty Trust Announces 2006 Second Quarter Results
JENKINTOWN, Pa., Aug. 8 -- American Financial
Realty Trust (AFR) (NYSE: AFR), today reported financial results for the
second quarter ended June 30, 2006. The Company reported second quarter
revenues from continuing operations of $141.7 million, an increase in
revenue of approximately $21.2 million compared to the second quarter of
2005, and $2.1 million better than the first quarter of 2006. The primary
improvement over prior year resulted from approximately $18.5 million of
incremental rent and operating expense reimbursement revenues from new
acquisitions.
Second quarter adjusted funds from operations ("AFFO") were $72.1
million, an increase over the first quarter of $40.8 million, which
includes $46.1 million in net gains on proceeds from the Resnick sale, and
which is net of $2.1 million of charges related to the impairment of
certain leasehold obligations, broken deal and repositioning costs incurred
during the quarter.
The weighted average diluted common shares and Operating Partnership
units outstanding were 131.8 million for the period.
2006 Second Quarter Dividend
AFR declared a quarterly dividend for shareholders of beneficial
interest of $0.27 per share totaling $35.9 million. The dividend was paid
on July 21, 2006, to shareholders of record and Operating Partnership
unitholders on July 1, 2006.
Highlights
Lewis S. Ranieri, Chairman of the Board of Trustees for AFR, said, "The
Company continues to work diligently on ways to maximize shareholder value
and will announce a set of strategic decisions toward that end in the near
future. While we are conducting this review, we continue to focus on our
previously stated objectives of non-core asset dispositions, improving core
operating performance through leasing and operating expense control as
outlined in this press release."
Nicholas S. Schorsch, President and Chief Executive Officer, said,
"This quarter demonstrated our continuing focus on our real estate
portfolio and the improvement of our core operating performance through the
disposition of 43 non-core properties (exclusive of the Resnick asset
sale), while at the same time completing a major transaction in partnership
with our new joint venture partner Dillon Read that resulted in the
acquisition of 236 fully occupied net leased bank branches from Citizens
Bank. The unique nature of the mix of these assets, Dillon Read's capital
base and AFR's branch banking real estate capabilities came together
perfectly in completing this $317 million acquisition."
Occupancy: Stable occupancy was 86.5% as of June 30, 2006. Stable
occupancy, benchmarked to the prior quarter total occupancy, was up
0.6%. Total Portfolio occupancy for the current period was 86.2%, up
0.3% from the March quarter. Same Store occupancy for the period was
89.2%.
Recapture space: This quarter the Company recaptured approximately
101,000 square feet under contract terms. Total potential recapture
space remaining in three portfolios is approximately 499,000 square
feet.
Acquisitions: At the end of the quarter, the Company closed on the first
installment of 120 out of a pool of 236 net leased bank branches from
Citizens Bank, aggregating approximately 476,000 rentable square feet.
The properties were 100% occupied at an overall capitalization rate of
7.0%. The remainder of the properties closed early in the third
quarter. These assets were acquired in a joint venture with Dillon
Read, a new institutional resource for AFR. The Company will retain
approximately a 25.4% interest in the venture's net cash flow and act as
the venture's manager, for which it will receive both a management fee
and promoted interests. Total equity capital committed by the Company
to the acquisition of all 236 properties was approximately
$19.7 million, net of lender reserves of $3.9 million.
During the quarter, the Company directly acquired 12 properties
aggregating approximately 80,400 rentable square feet, for a net
purchase price of approximately $20.8 million. A majority of these
properties are bank branch facilities, acquired under sale leaseback
transactions, and are 100% occupied with terms ranging from ten to
twenty years, at an overall capitalization rate of 7.27%.
Leasing: Activity for the quarter added approximately 255,400 square
feet of new occupied space with average rent per square foot of $14.76,
generating approximately $3.8 million on an annualized basis.
Associated tenant improvement costs, calculated on a weighted average
lease term of 8.2 years, were $1.50 per square foot per year.
Additionally during the quarter a new sublease was signed for
approximately 25,800 square feet at Harborside Plaza.
Dispositions: Excluding the Resnick strategic asset sale, the Company
generated gross proceeds of approximately $64.9 million from the
disposition of 43 non-core properties which were approximately 64%
occupied at the time of sale, comprising approximately 911,000 rentable
square feet and resulting in net proceeds of $48.8 million. The
dispositions eliminated approximately 328,000 square feet of vacant
space, eliminated or defeased approximately $25.9 million of property
level debt and improved actual future quarter net operating income by
$0.4 million through the elimination of carrying costs from the vacant
space. These dispositions will result in improving future period
operating margins by approximately 39 basis points.
Consistent with our program to actively manage our debt portfolio, the
debt related to these dispositions had an average constant of 7.30%,
which was above the Company's average debt constant of 6.93%. This debt
reduction resulted in a $0.9 million prepayment charge. Included in the
$25.9 million of debt prepayment was $7.5 million from an "in-kind"
defeasance; there was no charge taken for this defeasance since it was
not an extinguishment of the debt.
Strategic Repositioning: As a part of the Company's strategic
repositioning it closed on the previously announced sale of five assets
to Resnick Development Corp. The sale of these assets, in addition to
realizing approximately $46.1 million in gains, net of related
defeasance costs, lowered our net debt to asset ratio by 140 basis
points.
Second Quarter Results
The Company reported adjusted funds from operations ("AFFO")(1) of
$21.6 million in the second quarter of 2006, before net gains and inclusive
of $2.1 million of expenses related to the impairments of leasehold
interests and costs related to the Company's repositioning measures. For
the three months ended June 30, 2006, the Company's weighted average
diluted common shares and Operating Partnership units outstanding totaled
131.8 million. The Company reported net income of $13.5 million, or $0.10
per share for the second quarter of 2006, compared to a net loss of $(23.4)
million or $(0.19) per share in the first quarter of 2006 and a net loss of
$(25.2) million or $(0.21) per share reported in the second quarter of
2005. The Company's net income is largely attributable to a gain from
discontinued operations, which totaled $46.1 million resulting from a
strategic disposition in the second quarter of 2006.
Funds from operations ("FFO")(2), including gains on sales of assets,
was $55.2 million, or $0.42 per share, an increase of $36.5 million over
the first quarter of 2006, when FFO was $18.7 million or $0.14 per share
and an increase of $42.3 million or $0.32 from $12.9 million reported in
the second quarter of 2005. Excluding gains, FFO, computed in accordance
with the definition of the National Association of Real Estate Investment
Trusts ("NAREIT FFO")(3), was $(8.2) million or ($0.06) per share.
EBITDA decreased by $1.9 million or 3.2% from first quarter of 2006 and
increased by approximately $10.3 million or 21.5% over the second quarter
of 2005. The decrease from the first quarter was primarily due to special
charges of $1.2 million related to additional impairment charges of certain
leasehold obligations compared to the first quarter, the closing of the
Company's London office and costs related to banking and consulting fees
related to the Company's repositioning plan. The decrease is also
attributable to certain lease true-up adjustments recorded in the second
quarter of approximately $0.5 million relating primarily to real estate
taxes and non-billable expenses in addition to higher payroll costs and
professional fees of approximately $0.5 million.
MG&A expenses increased $1.0 million compared to the first quarter
2006, resulting from costs incurred in developing our repositioning plan,
the closing of our London office, higher internal audit fees related to
additional internal audit services currently being performed and additional
staff in our information technology area primarily to support the
enterprise resource planning system.
Property net operating income remained constant compared to the prior
quarter excluding the effect of special charges related to the impairments
of leasehold interests of $1.1 million and $0.9 million incurred in the
second and first quarters, respectively, which were classified as property
operating expenses.
Interest expense from continuing operations is $(1.4) million higher
than the prior quarter. This increase is related to an additional day of
interest in the current period of $(0.4) million, higher amortization of
deferred financing costs of $(0.1) million, an increase in the interest
rates on floating rate debt of $(0.2) million and $(0.7) million of higher
interest on debt balances which increased just at the end of the first
quarter.
Portfolio and Tenant Overview
The following table provides portfolio statistics on the AFR portfolio
as of June 30, 2006, with comparisons to the portfolio as of March 31,
2006. The portfolio statistics report the Company's consolidated joint
venture properties, including the State Street Financial Center that is 70%
owned by the Company, as if such properties were 100% owned by the Company.
The table excludes the Company's unconsolidated partnership investment with
Dillon Read in the portion of the Citizens Bank portfolio that was acquired
by the joint venture on June 29, 2006.
(1) The Company calculates AFFO by subtracting from or adding to FFO (i)
non-real estate related depreciation and amortization, (ii)
un-reimbursable recurring capital expenditures associated with the
ongoing operation of real property and tenant improvement allowances
and leasing commissions associated with the re-leasing of previously
occupied non-bank tenanted spaces, which occurred during the period,
(iii) straight-lining of rents and fee income, and (iv) amortization
of various deferred costs. The SEC classifies AFFO as a non-per share
reportable statistic and as such the Company does not report AFFO on a
per share basis. Please see the section that follows on "Non-GAAP
Financial Measures" for a further description of the Company's use of
NAREIT FFO, FFO and AFFO.
(2) The Company calculates FFO pursuant to an alternative definition that
includes both gains and losses, including impairments taken in
anticipation of the sale of real estate property. The Company
includes gains and losses from property sales in its definition of FFO
because it believes that strategic disposition of properties is a
significant component of its business model and that gains (and
losses) from property sales, as well as impairments taken in
anticipation of such sales, demonstrate (in part) the Company's
execution of its business model. The Company also believes that an
inclusive presentation of gains, losses and impairments in FFO more
accurately reflects the Company's overall performance. The Company's
definition of FFO differs from NAREIT FFO only with respect to its
treatment of gains and losses from property sales.
(3) NAREIT FFO is defined as net income (loss) before minority interest,
in our operating partnership (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructuring and gains (or losses) from sales of property, less any
impairments of asset values at cost (unrealized loss), plus real
estate related depreciation and amortization (excluding amortization
of deferred costs) and after adjustments for unconsolidated
partnerships and joint ventures.
As of As of
June 30, March 31,
2006 2006
Number of Properties(1) 1,142 1,178(1)
-- Branches 669 679
-- Office Buildings 448 470
-- Land 25 29
Number of States 38 & DC 39 & DC
Total Square Feet 35,169,201 37,147,132
-- Branches 4,672,492 4,694,904
-- Office Buildings 30,496,709 32,452,228
Occupancy
--Total Occupancy 86.2% 85.9%
--Stable Occupancy 86.5% 87.4%
--Same Store Occupancy 89.2% 89.2%
% Rent from Financial Institutions 84.8% 85.6%
% Rent from "A-" Rated Tenants 81.5% 82.9%
% Rent from Net Leases 81.6% 83.2%
Lease Expirations (within 1 year) 1.4% 2.0%
Average Remaining Lease Term (years) 12.8 13.1
Average Remaining Debt Term (years) 10.6 11.0
% Fixed Rate Debt to Total Debt 87.9% 88.7%
(1) Land is now included in Total Number of Properties
Balance Sheet
As of June 30, 2006, the Company's total debt (net of cash and certain
escrow balances) to adjusted enterprise value (net debt and equity market
capitalization) was 69.4%, an increase over the previous quarter resulting
from a changing share price. The ratio of net debt to total real estate
investments and real estate intangibles (at cost) was 67.0%, an improvement
of 160 basis points.
As of June 30, 2006, the Company had total indebtedness of
approximately $3.0 billion, with a weighted average remaining term of 10.6
years and a weighted average interest rate (including amortized hedging
costs) of 5.73%. Debt decreased by approximately $282.3 million, $231.4
million resulting from the Resnick asset sale, the balance primarily
resulting from our non-core asset disposition program, the payoff of the
mortgage on One Montgomery, which expired in June, and scheduled principal
amortization. The debt comprising the Resnick sale portfolio had an average
constant of 8.05%. As such this disposition improved our overall portfolio
cost of debt by reducing our average debt constant by 8 basis points.
In June, the Company repaid $19.0 million in debt relating to the
maturity of the One Montgomery Street property level debt. The Company also
repaid another $0.7 million property level loan at maturity during the
quarter.
Conference Call
As the Company's Chairman has previously stated, the Company is engaged
in a review and evaluation of a number of ways to enhance shareholder
value. The Company is postponing its previously scheduled conference call
until a date in the near future, when it will be prepared to more
completely discuss this review and the decisions resulting from it.
Supplemental Quarterly Financial and Operating Data
American Financial publishes supplemental quarterly financial and
operating data, which can be found under the Investor Relations section of
the Company's website at http://www.afrt.com. These materials are also available
via e-mail by calling 312-640-6770.
Non-GAAP Financial Measures
The Company believes that FFO is helpful to investors as a measure of
the Company's performance as an equity REIT because it provides investors
with an understanding of the Company's operating performance and
profitability. The Company includes gains and losses from property sales in
its definition of FFO because it believes that the strategic disposition of
properties is a significant component of the Company's business model, and
that gains and losses from dispositions demonstrate (in part) the Company's
execution of its business model. FFO is a non-GAAP financial measure
commonly used in the REIT industry, and therefore this measure may be
useful in comparing the Company's performance with that of other REITs.
However, the Company's definition of FFO differs from NAREIT FFO (which is
also disclosed by the Company) and investors should take definitional
differences into account when comparing FFO reported by other REITs
(including particularly those REITs that exclude gains and losses from
property sales in their definition of FFO). Additionally, FFO and FFO per
share should be evaluated along with GAAP net income and net income per
share (the most directly comparable GAAP measures) in evaluating the
performance of equity REITs.
The Company believes that AFFO is helpful to investors as a measure of
its liquidity position, because, along with cash flows from operating
activities, this measure provides investors with an understanding of its
ability to pay dividends. In addition, because this measure is commonly
used in the REIT industry, the Company's use of AFFO may assist investors
in comparing the Company's liquidity position with that of other REITs. The
Company's definition of AFFO differs from that of other equity REITs and
investors should take definitional differences into account when comparing
AFFO reported by other REITs (including particularly those REITs that
exclude gains and losses from property sales in their definition of AFFO).
The Company believes that EBITDA, which represents earnings before
interest, taxes, depreciation and amortization is also helpful to investors
as a measure of the Company's performance.
About American Financial Realty Trust
American Financial Realty Trust is a self-administered, self-managed
real estate investment trust that acquires properties from, and leases
properties to, regulated financial institutions. The Company owns and
manages its assets primarily under long-term triple net and bond net leases
with banks. The Company is led by chief executive officer Nicholas S.
Schorsch and non- executive chairman Lewis S. Ranieri. The Company is
traded on the New York Stock Exchange under the ticker symbol AFR.
For more information on American Financial Realty Trust, visit the
Company's website at http://www.afrt.com.
Forward-Looking Statements
Certain statements in this press release constitute forward-looking
statements within the meaning of the federal securities laws. You can
identify these statements by our use of the words "expects," "anticipates,"
"estimates," "intends," "believes" and similar expressions that do not
relate to historical information. You should exercise caution in
interpreting and relying on forward-looking statements because they involve
known and unknown risks and uncertainties which are, in some cases, beyond
the Company's control and could materially affect actual results,
performance or achievements. These risks and uncertainties include the
risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission, and include, without limitation,
changes in general economic conditions and the extent of any tenant
bankruptcies and insolvencies; the Company's ability to maintain and
increase occupancy; the Company's ability to timely lease or re-lease space
at anticipated net effective rents; the cost and availability of debt and
equity financing; and the Company's ability to acquire and dispose of
certain of its assets from time to time on acceptable terms. The Company
assumes no obligation to update or supplement forward-looking statements
that become untrue because of subsequent events.
Financial Statements
The attached financial statements and data are presented to supplement
the Company's audited and unaudited regulatory filings and should be read
in conjunction with those filings. The unaudited financial data presented
herein is provided from the perspective of timeliness to assist readers of
quarterly and annual financial filings. This financial data was prepared
prior to the Company's auditors completing their audit. As such, data
otherwise contained in future regulatory filings covering this same time
period may differ from the data presented herein. The Company does not
accept responsibility for highlighting these changes in its subsequent
filings.
AMERICAN FINANCIAL REALTY TRUST
CONSOLIDATED BALANCE SHEETS
June 30, 2006 and December 31, 2005
(Unaudited in thousands, except share and per share data)
June 30, December 31,
2006 2005
Assets:
Real estate investments, at cost:
Land $473,870 $475,457
Land held for development 18,930 24,563
Buildings and improvements 2,658,484 2,645,618
Equipment and fixtures 400,768 401,661
Leasehold interests 9,283 9,579
Investment in joint venture 19,876 -
Total real estate investments, at cost 3,581,211 3,556,878
Less accumulated depreciation (324,688) (260,852)
Total real estate investments, net 3,256,523 3,296,026
Cash and cash equivalents 82,707 110,245
Restricted cash 83,309 73,535
Marketable investments and accrued interest 3,676 3,353
Pledged government securities, net 7,349 -
Tenant and other receivables, net 61,392 51,435
Prepaid expenses and other assets 40,977 37,789
Assets held for sale 103,651 341,338
Intangible assets, net of accumulated
amortization of $82,480 and $64,369 612,658 642,467
Deferred costs, net of accumulated
amortization of $18,163 and $13,179 72,127 67,388
Total assets $ 4,324,369 $ 4,623,576
Liabilities and Shareholders' Equity:
Mortgage notes payable $ 2,377,605 $ 2,467,596
Credit facilities 223,713 171,265
Convertible notes, net 446,239 446,134
Accounts payable 4,979 4,350
Accrued interest expense 18,803 19,484
Accrued expenses and other liabilities 67,524 55,938
Dividends and distributions payable 35,876 35,693
Below-market lease liabilities,
net of accumulated amortization of $10,040
and $8,912 61,966 67,613
Deferred revenue 191,632 150,771
Liabilities related to assets held for sale 10,731 243,665
Total liabilities 3,439,068 3,662,509
Minority interest 48,425 53,224
Shareholders' equity:
Preferred shares, 100,000,000 shares
authorized at $0.001 per share, no shares
issued and outstanding at June 30, 2006 and
December 31, 2005 - -
Common shares, 500,000,000 shares
authorized at $0.001 per share, 129,511,868
and 128,712,181 issued and outstanding
at June 30, 2006 and December 31, 2005,
respectively 130 129
Capital contributed in excess of par 1,378,797 1,371,648
Accumulated deficit (537,193) (457,313)
Accumulated other comprehensive loss (4,858) (6,621)
Total shareholders' equity 836,876 907,843
Total liabilities and shareholders' equity $ 4,324,369 $ 4,623,576
AMERICAN FINANCIAL REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended June 30, 2006 and 2005
(Unaudited and in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Revenues:
Rental income $91,664 $77,480 $182,243 $149,183
Operating expense reimbursements 48,489 41,249 94,995 82,398
Interest and other income, net 1,507 1,806 2,538 2,379
Equity income from joint venture 19 - 19 -
Total revenues 141,679 120,535 279,795 233,960
Property operating expenses 72,927 59,513 142,455 117,752
Property net operating income 68,752 61,022 137,340 116,208
Expenses:
Marketing, general and
administrative 7,370 5,607 13,722 11,200
Broken deal costs 124 192 132 940
Amortization of deferred equity
compensation 2,765 2,788 5,322 5,550
Severance and related accelerated
amortization of deferred
compensation 282 4,503 282 4,503
EBITDA 58,211 47,932 117,882 94,015
Interest expense on mortgages
and other debt 46,569 35,501 91,753 68,272
Depreciation and amortization 44,632 37,697 90,047 72,605
Loss before net loss on investments,
gain on sale of properties in
continuing operations,
minority interest and discontinued
operations (32,990) (25,266) (63,918) (46,862)
Net loss on investments - (530) - (530)
Net gain on disposal of properties
in continuing operations 349 122 807 122
Loss from continuing operations
before minority interest (32,641) (25,674) (63,111) (47,270)
Minority interest 1,735 1,275 2,879 2,503
Loss from continuing operations (30,906) (24,399) (60,232) (44,767)
Discontinued operations:
Loss from operations,
net of minority interest of
$147, $64, $151 and $187
for the three and six months
ended June 30, 2006 and 2005,
respectively (5,663) (2,442) (5,821) (7,072)
Yield maintenance fees,
net of minority interest of
$296, $3, $352 and $3 for the
three and six months ended
June 30, 2006 and 2005,
respectively (11,412) (120) (13,553) (120)
Net gains on disposals,
net of minority interest of
$1,595, $48, $1,808 and $123
for the three and six months
ended June 30, 2006 and 2005,
respectively 61,438 1,810 69,655 4,667
Income (loss) from discontinued
operations 44,363 (752) 50,281 (2,525)
Net income (loss) $13,457 $(25,151) $(9,951) $(47,292)
Basic and diluted income (loss)
per share:
From continuing operations $(0.24) $(0.21) $(0.47) $(0.40)
From discontinued operations 0.34 - 0.39 (0.02)
Total basic and diluted income
(loss) per share $0.10 $(0.21) $(0.08) $(0.42)
Set forth below is a reconciliation of our calculations of FFO and AFFO
to net loss (unaudited, in thousands except per share data):
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
Funds from operations (NAREIT defined):
Net loss $13,457 $(25,151) $(9,951) $(47,292)
Add:
Minority interest -
Operating Partnership 350 (695) (272) (1,402)
Depreciation and amortization 42,430 40,083 85,952 77,607
Less:
Non-real estate depreciation
and amortization (954) (338) (1,738) (626)
Amortization of fair market rental
adjustment, net (53) (1,047) (94) (1,018)
Net gains from disposals,
net of income taxes (63,382) (1,979) (72,270) (4,912)
Funds from operations
(NAREIT defined) $(8,152) $10,873 $1,627 $ 22,357
Funds from operations -
diluted per share $(0.062) $0.088 $0.012 $0.187
Funds from operations (AFR defined):
Funds from operations
(NAREIT defined) $(8,152) $10,873 $1,627 $22,357
Add:
Net gains from disposals,
net of income taxes 63,382 1,979 72,270 4,912
Funds from operations (AFR defined) $55,230 $12,852 $73,897 $27,269
Funds from operations -
diluted per share $0.419 $0.104 $0.560 $0.228
Adjusted funds from operations:
Funds from operations (AFR defined) $55,230 $12,852 $73,897 $27,269
Add:
Non-real estate depreciation and
amortization 954 338 1,738 626
Reverse straightline rental income 10,342 11,810 20,111 23,869
Amortization of deferred compensation 2,765 2,788 5,321 5,550
Amortization of deferred costs and
interest rate cap adjustment 6,571 1,532 9,136 3,687
Straightline fee income (66) 949 403 1,798
Accelerated amortization of deferred
compensation - severance - 3,026 - 3,026
Less:
Straightline rental income (2,344) (2,240) (4,664) (4,586)
Recurring capex and tenant
improvements (1,337) - (2,375) -
Amortization of tenant improvements
and leasing commissions - (556) - (1,000)
Capital expenditure reimbursement
revenue (28) - (145) -
Adjusted funds from operations $72,087 $30,499 $103,422 $60,239
