Pure Industrial Real Estate Trust Announces Release of Q3-2015 Financial Results
VANCOUVER, Nov. 12, 2015 /PRNewswire/ - Pure Industrial Real Estate Trust ("PIRET" or the "Trust") (TSX: AAR.UN) is pleased to announce the release of its financial results for the three and nine months ended September 30, 2015.
Q3-2015 Financial Results
The Q3-2015 financial results, consisting of PIRET's unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2015, and Management's Discussion and Analysis ("MD&A") dated November 12, 2015, are available on SEDAR (www.sedar.com) and PIRET's website (www.piret.ca).
Highlights
(All metrics have been normalized for IFRIC 21 and assumes all property taxes have been pro-rated and accrued based on the number of days of ownership within the reporting period.)
- As at September 30, 2015, PIRET's portfolio under management consists of 170 income producing properties representing gross leasable area ("GLA") of approximately 17.4 million square feet ("sf"), a decrease from 171 properties but an increase from 15.6 million sf of GLA at December 31, 2014. In addition, PIRET's portfolio consists of one property under development which will comprise 422,433 sf of GLA when completed and one property under expansion which will comprise an additional 59,600 sf of GLA upon completion anticipated in Q2-2016.
- Investment properties increased to $2.02 billion as at September 30, 2015 from $1.74 billion at December 31, 2014 due to the acquisition of six properties comprising 1.5 million sf of GLA, the acquisition of a property under development as noted above and the increase in the fair market value of the properties since December 31, 2014. Investment properties increased by $70.9 million from June 30, 2015 due primarily to the acquisition of a 50% joint interest in a three-asset portfolio, progress on the Vaughan and Barrington developments, as described below, US Dollar ("USD") appreciation relating to investment properties held in the USA, and fair value increases. The increase has been offset by the disposition of $35.5 million in properties since December 31, 2014.
- For the nine months ended September 30, 2015, PIRET purchased and cancelled 1,376,500 Class A Units (each, a "Unit") under its NCIB program at an average cost of $4.45 per Unit for a total cost of $6.2 million.
- Loan to Gross Book Value as at September 30, 2015 was 49.1%, representing a 1.2% increase from a ratio of 48.5% at December 31, 2014 due primarily to the new financing for the three-asset portfolio acquisition, as described above, the construction financing for the Vaughan development and the financing for one property under expansion as previously noted. Loan to Gross Book Value decreased from 49.6% at June 30, 2015 due primarily to the increase in the investment properties as described above in addition to principal repayments of mortgages and vendor take-back loans.
- Funds from operations ("FFO") for the nine months ended September 30 increased from $45.7 million in 2014 to $55.1 million in 2015. On a per unit basis, FFO for the nine months ended September 30 increased 4.2% from $0.28 in 2014 to $0.29 in 2015. The payout ratio for the nine months ended September 30 decreased from 84.8% in 2014 to 81.4% in 2015. The Trust's FFO per unit of $0.29 for the nine months ended September 30, 2015 includes the dilutive effects of the one-time general and administrative ("G&A) costs incurred in Q2-2015 related to the transition to a single Chief Executive Officer ("CEO") and the development of a new compensation plan for the Trust.
- FFO for the three months ended September 30 increased from $16.5 million in 2014 to $19.2 million in 2015. On a per unit basis, FFO for the three months ended September 30 increased 17.1% from $0.09 in 2014 to $0.10 in 2015 and the corresponding payout ratio decreased from 90.8% in 2014 to 77.5% in 2015.
- Adjusted funds from operations ("AFFO") for the nine months ended September 30 increased from $38.9 million in 2014 to $49.2 million in 2015. On a per unit basis, AFFO for the nine months ended September 30 increased 9.1% from $0.24 in 2014 to $0.26 in 2015. The AFFO payout ratio for the nine months ended September 30 decreased from 99.5% in 2014 to 91.2% in 2015. Similar to FFO, the Trust's AFFO for the nine months ended September 30, 2015 includes the dilutive effects of the one-time G&A costs incurred in Q2-2015 as described above.
- AFFO for the three months ended September 30 increased from $14.6 million in 2014 to $16.8 million in 2015. On a per unit basis, AFFO for the three months ended September 30 increased 15.7% from $0.08 in 2014 to $0.09 in 2015 and the corresponding payout ratio decreased from 102.7% in 2014 to 88.8% in 2015.
- Revenue for the nine months ended September 30 increased 23.8% from $102.9 million in 2014 to $127.5 million in 2015. For the three months ended September 30, PIRET's revenues increased 18.8% from $36.0 million in 2014 to $42.8 million in 2015.
- The adjusted earnings from property operations ("NOI"), after accounting for the IFRIC 21 fair value adjustment, for the nine months ended September 30, 2015 increased 22.8% from $73.1 million in 2014 to $89.9 million in 2015. For the three months ended September 30, 2015, PIRET's adjusted NOI increased 18.2% from $25.5 million in 2014 to $30.2 million in 2015. Same property NOI ("SPNOI"), from 147 properties, decreased 2.8% over the previous year's quarter, led by a decrease in occupancy at those properties since Q3-2014 and free rent related to a large renewal, partially offset by a 2.5% average increase in rental rate and a partial quarter of currency exchange gain. SPNOI in the quarter was particularly impacted by a full quarter of vacancy of 180,000 sf in Calgary and 110,000 sf of flex office space in the GTA. When including additional property and asset management fee revenue from tenants and co-owners, SPNOI decreased by 2.3% over that period.
- G&A expenses for the nine months ended September 30 increased from $3.8 million in 2014 to $5.4 million in 2015. Expenses were significantly higher year-to-date due to a one-time charge of $1.4 million related to the transition to a single CEO and the development of the Trust's new compensation plan. The one-time charge impacted the Trust's results year-to-date. G&A expenses for the three months ended September 30 decreased from $1.34 million in 2014 to $1.25 million in 2015.
- The occupancy of the portfolio was 94.0% as at September 30, 2015, unchanged from Q2-2015, with a weighted average lease term of 6.6 years. The Trust's committed occupancy is currently at 95.0%, an increase of 0.4% from Q2-2015.
- PIRET achieved an average increase on rental rates of -0.3% on renewals and an average increase of 6.0% on new leases expiring in Q3-2015. PIRET renewed 67% of leases expiring in Q3-2015. The decrease of 0.3% in rates on renewal was primarily due to the renewal of a large tenant in the GTA on a new 10-year term where the new rental rate decreased from $7.75 per square feet ("psf") to $7.50 psf in year one.
- In April 2015, Advance Engineered Products ("Advance") filed for protection from its creditors under the Companies' Creditors Arrangement Act (Canada) ("CCAA"). Effective October 1, 2015, and pursuant to the CCAA proceedings, it was announced that Advance's interest in the leases with PIRET were transferred to Advance Engineered Products Ltd., formerly 9369058 Canada Inc., which will continue as tenant on substantially the same terms as Advance, except that the average lease term remaining will be 9.1 years.
Vaughan Development, Barrington Expansion, and AB & MB Acquisition
In February 2015, the Trust acquired 60 acres of development land in Vaughan, Ontario for $44.4 million for the construction of a state-of-the-art distribution and sorting facility that will serve the Greater Toronto Area ("GTA"). The building, when completed, will comprise approximately 422,000 sf in respect of which the tenant has entered into a binding fifteen year lease with 2 five year renewal options. Development is progressing on schedule. The distribution and sorting facility is substantially complete, and the tenant was provided access on November 2 to install fixtures and equipment. Upon rent commencement in Q2-2016, the property will deliver approximately $8.0 million in additional NOI, representing an increase of approximately 6.5% over annualized Q3 adjusted NOI.
In June 2015, the Trust entered into a binding agreement with its largest tenant to expand an existing property in Barrington, New Jersey. The tenant currently occupies a 197,649 sf sorting and distribution facility and the expansion will comprise a total of 59,600 sf. The tenant is expected to commence occupancy of the expansion premises on April 15, 2016 for a term of ten years and has agreed to extend its existing lease by approximately four years making it co-terminus with the expansion premises. The total project cost is estimated to be US$9.1 million and will be funded with PIRET's existing working capital. The expansion is now substantially complete and the tenant is expected to commence installation of equipment and fixtures in January, 2016. The expansion is expected to increase the property's annual net rent by approximately US$0.9 million.
In September 2015, the Trust acquired a 50% joint interest in a three-asset portfolio located in Alberta and Manitoba and subsequently entered into a co-ownership agreement with Fiera Properties to own and operate the properties. PIRET and the third party co-owner acquired the three-asset portfolio for a total purchase price of $32.9 million. The portfolio consists of three industrial properties located in Calgary, Edmonton and Winnipeg that comprise 191,380 sf of GLA on 47.3 acres of land, and is 100% leased to a single credit-rated tenant with 21 years of lease term remaining. PIRET will provide, through its property management entity, certain asset management, administrative and related services to the portfolio for various fees as outlined in the co-ownership agreement.
Dispositions
During the nine months ended September 30, 2015, PIRET sold its interest in ten investment properties located in Brampton, Burlington, Mississauga, and Vaughan, Ontario for gross proceeds of $35.5 million less standard closing costs and adjustments of $2.4 million resulting in net proceeds of $33.1 million. The properties were originally acquired for $27.9 million in 2013 as part of a larger portfolio deal. Included in the net proceeds was financing by way of a vendor take-back receivable in the amount of $10.1 million. The vendor take-back receivable is secured by the two investment properties sold and bears an interest rate of 4% for a one year term. The sale properties generated approximately $0.9 million in NOI for the nine months ended September 30, 2015.
Selected Financial Information
| For the nine months ended September 30 |
For the three months ended September 30 |
||||
| ($000s, except per unit basis) |
2015 |
2014 |
2015 |
2014 |
|
| Revenue |
$ 127,463 |
$ 102,945 |
$ 42,785 |
$ 36,001 |
|
| Net operating income (1) |
$ 89,854 |
$ 73,139 |
$ 30,151 |
$ 25,498 |
|
| Distributions declared per Unit |
$ 0.23 |
$ 0.23 |
$ 0.08 |
$ 0.08 |
|
| FFO(2) per unit (fully diluted) |
$ 0.29 |
$ 0.28 |
$ 0.10 |
$ 0.09 |
|
| Payout Ratio(3) |
81.4% |
84.8% |
77.5% |
90.8% |
|
| AFFO(2) per unit (fully diluted) |
$ 0.26 |
$ 0.24 |
$ 0.09 |
$ 0.08 |
|
| Payout ratio(3) |
91.2% |
99.5% |
88.8% |
102.7% |
|
| G&A as a Percent of Revenue |
4.3% |
3.7% |
2.9% |
3.7% |
|
| (1) |
Net operating income has been normalized for IFRIC 21 and assumes all property taxes have been pro-rated and accrued based on number of days of ownership within the reporting period. |
|
| (2) |
FFO and AFFO are widely accepted supplemental measures of financial performance for real estate entities. These measures are not defined under IFRS, however. For a description of these and other measures and an IFRS to non-IFRS reconciliation, see PIRET's MD&A under "Distributable Income and Liquidity and Capital Resources" and "Non-IFRS Measures". PIRET's MD&A is available on SEDAR at www.sedar.com. |
|
| (3) |
FFO and AFFO payout ratios are calculated based on the ratio of distribution rate to fully diluted FFO and AFFO per unit. |
| September |
Dec 31, |
||||
| Debt-to-GBV |
49.1% |
48.5% |
|||
| Employees |
40 |
36 |
Outlook
From a leasing market perspective, according to CBRE, the Canadian National availability rate remained steady from Q1-2015 at 5.6%, with approximately 3.0 million square feet of positive net absorption in the quarter, led by the GTA and offset by negative absorption in Edmonton. The average net asking rent rose from $6.28 psf to $6.39 psf, an increase of 1.8% from Q2-2015, led by increases in Winnipeg and London and offset by declines in Calgary and, to a lesser extent, Montreal.
According to the CBRE cap rate survey for Q3-2015, demand for stabilized Class A industrial real estate nationally across Canada remains extremely strong as investors look for safety and security in the industrial asset class. Estimated cap rates remained steady or lower from the previous quarter, led by cap rate compression in British Columbia. The overall cap rate now sits at 5.92%.
Conference Call
As previously announced on October 16, 2015, management will host the conference call at 3:00 pm (EST), 12:00 pm (PST), on Thursday, November 12, 2015, to review the financial results and corporate developments for the three and nine months ended September 30, 2015.
To participate in this conference call, please dial one of the following numbers approximately 10 minutes prior to the commencement of the call, and ask to join the Pure Industrial Real Estate Trust Conference Call.
Dial in numbers:
Toll free dial in number (from Canada and USA)............................................................................. 1-888-390-0546
International or Local Toronto........................................................................................................... 1-416-764-8688
Conference Call Replay
If you cannot participate on November 12, 2015, a replay of the conference call will be available by dialing one of the following replay numbers. You will be able to dial in and listen to the conference 120 minutes after the meeting end time, and the replay will be available until November 19, 2015.
Please enter the Replay ID# 874640, followed by the # key.
Replay toll free dial in number (from Canada and USA)................................................................. 1-888-390-0541
Replay international or local Toronto................................................................................................ 1-416-764-8677
About Pure Industrial Real Estate Trust
PIRET is an unincorporated, open-ended investment trust that owns and operates a diversified portfolio of income-producing industrial properties in leading markets. PIRET is an internally managed REIT that focuses exclusively on investing in industrial properties.
Additional information about PIRET is available at www.piret.ca or www.sedar.com.
Forward-Looking Information:
Certain statements contained in this press release may constitute forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "plan", "expect", "may", "will", "intend", "should", and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The forward-looking statements contained in this news release are based on certain key expectations and assumptions made by PIRET, including: (i) PIRET's portfolio consists of one property under development which will comprise 422,433 sf of GLA when completed and one property under expansion which will comprise an additional 59,600 sf of GLA upon completion; (ii) the building, when completed, will comprise approximately 422,433 sf in respect of which the tenant has entered into a binding fifteen year lease with 2 five year renewal options; (iii) the property is expected to deliver approximately $8.0 million in annual NOI upon completion anticipated in Q2-2016; (iv) the tenant is expected to commence occupancy of the expansion premises on April 15, 2016 for a term of ten years and has agreed to extend its existing lease by approximately four years making it co-terminus with the expansion premises; (v) the total project cost is estimated to be US$9.1 million and will be funded with PIRET's existing working capital; (vi) the expansion is expected to increase the property's annual net rent by approximately US$900,000; (vii) PIRET will provide, through its property management entity, certain asset management, administrative and related services to the portfolio for various fees as outlined in the co-ownership agreement; and (viii) although the Trust's same-property NOI growth will be negatively impacted by vacancy and related releasing costs in the near term, rental rate increases being achieved are expected to provide strong NOI growth moving forward.
Although PIRET believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because PIRET can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the failure to obtain necessary regulatory approvals or satisfy the conditions to closing the property acquisitions, competitive factors in the industries in which PIRET operates, prevailing economic conditions, and other factors, many of which are beyond the control of the PIRET.
The forward-looking statements contained in this press release represent PIRET's expectations as of the date hereof, and are subject to change after such date. PIRET disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.
The Toronto Stock Exchange has not reviewed nor approved the contents of this press release and does not accept responsibility for the adequacy or accuracy of this press release.
SOURCE Pure Industrial Real Estate Trust (PIRET)
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