ISG CAPITAL'S VALUE ENHANCEMENT METHODOLOGY VALIDATED - CONTRIBUTES TO 22% IRR
Thursday, May 19th 2011 9:38:15am
Utility costs reduced by 50% - Prototype property receives Energy Star Rating of 90
Toronto, Ontario (May 18, 2011) - ISG Capital Corporation (TSX-V: SUS) ("ISG" or the "Corporation") is pleased to report that its proprietary greening methodology has resulted in a 22% internal rate of return ("IRR") since inception on the Company's prototype industrial property, a 200,615 square foot distribution center on 19.98 acres of land in Ingersoll, Ontario (the "Ingersoll Property"). The Ingersoll Property was purchased by ISG in February of 2009 for $9,908,500 and the Corporation has recently received an appraisal update letter from the Altus Group confirming a valuation of $11,000,000 as at April 15, 2011.
A report prepared by Abraxas Energy Consulting ("Abraxas") confirmed that utility costs at the Ingersoll Property dropped from a 36 month average of $0.83 p.s.f. per year ending in July 2009 to $0.41 p.s.f. per year as of February 2011, a reduction of approximately 50%. This significant decrease in utility costs allowed ISG to work with its tenant to increase net rent and cash flow and extend the term of the lease while actually lowering the tenant's gross occupancy costs.
The Energy Star rating of the building has dramatically improved, moving from 72 at acquisition to 90 after the ISG improvements. Savings were realized by installing (i) a control system with software to accurately control HVAC equipment and heat-flow and (ii) state of the art lighting throughout the building. In total, the retrofits installed by ISG had an initial capital cost of $158,983 ($0.79 p.s.f.), which was reduced to a net cost of $83,759 ($0.42 p.s.f.) after subsidies. These retrofits resulted in normalized savings of approximately $59,397 in the first year alone.
ISG used the 12 month period beginning March 1, 2010 and ending February 28, 2011 (the "Data Period") for its data sample. During that time, the proprietary heating automation system reduced natural gas consumption from 234,693 M3 to 134,216 M3, representing a reduction in normalized heating costs of $23,794. Similarly, the installation of energy efficient lighting and control technology cut electricity usage from 833,677 kWh to 467,775 kWh equal to a normalized reduction in electricity costs of $35,603. To determine the normalized heating and electricity cost savings, Abraxas calculated baseline natural gas and electricity usage for the three years prior to the start of the data period. The actual electricity and natural gas usage over the measurement period was then normalized against this baseline for rate, climate and usage by Abraxas to ensure that the reported savings are the result of the initiatives undertaken by ISG and not the result of a drop in rates, differences in climate or changes in the facilities operating schedule.
"We have exceeded our performance goals with our initial property. The data is in and we have an evidence-based investment model which can now be implemented across a portfolio of income producing properties" noted David Ogden, ISG's President and CEO.
New Lease Agreement
As part of its overall methodology, ISG and its tenant the Hercules Tire & Rubber Company ("Hercules") amended their lease to increase the base rent, return it to a simple net structure and extend the term to December 31, 2017. By dramatically reducing energy costs ISG was able to increase the base rent - and related cash flow, while reducing the overall occupancy costs for Hercules. In this way, both parties were able to economically benefit from the implementation of ISG's greening methodology.
Third party consultants were retained to verify the Corporation's IRR on the Ingersoll Property assuming a disposition at the updated value in May of 2011. Operating gains from ISG's energy saving initiatives and the new property value produced an IRR of 22% from the date of acquisition in February of 2009. This IRR was 37.5% higher than the 16% level that would have been achieved without the ISG process.
"By taking our business model full circle from property acquisition, through retrofit and finally resulting in an accretive lease amendment, we have demonstrated how our proprietary methodology can add significant value to the owners and tenants of industrial properties. We are now focused on aligning ourselves with an operating partner with a national platform capable of acquiring, managing and growing free cash flow using our unique methodology on a portfolio of income producing industrial properties", added Ogden.
For further information, contact:
President and Chief Executive Officer
(416) 203-7538 or (877) 877-0213
ISG is a publicly-traded commercial real-estate company (www.isgcapital.ca) focused on enhancing the environmental and financial performance of industrial buildings. The company is committed to creating shareholder value by incorporating environmentally and socially responsible approaches in its growth strategy.
The TSXV has neither approved nor disapproved the contents of this press release and does not accept responsibility for its adequacy or accuracy.