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Pure Industrial Real Estate Trust Announces Release of Q4-2016 and 2016 Annual Financial Results
VANCOUVER, BC--(Marketwired - March 08, 2017) - Pure Industrial Real Estate Trust (the "Trust") (TSX:AAR.UN) is pleased to announce the release of its financial results for the year ended December 31, 2016.
2016 Financial Results
The 2016 annual financial results, consisting of the Trust's audited consolidated financial statements for the year ended December 31, 2016, and management's discussion and analysis of results of operations and financial condition ("MD&A") dated March 8, 2017, are available on SEDAR (www.sedar.com) and the Trust's website (www.piret.ca). Unless otherwise indicated, all amounts are in thousands of Canadian dollars.
Q4-2016 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 year.)
As at December 31, 2016, the Trust's portfolio under management consists of 162 income producing properties representing gross leasable area ("GLA") of 19.6 million square feet ("sf"), a decrease from 169 properties as at December 31, 2015. In addition, the Trust's portfolio consists of 26.4 acres of land held for future development and one property under development, which will add 330,000 sf of GLA to the Trust's portfolio, upon completion.
As at December 31, 2016, the Trust identified 16 properties with a book value of $110,832 and associated mortgages payable of $21,709 for future disposition as part of its overall capital recycling initiative, representing 950,000 sf of GLA.
Investment properties fair value as at December 31, 2016 is $2,320,845, a $255,210 increase from December 31, 2015. The increase in investment properties is due primarily to the acquisition of 16 income producing properties, development and expansion projects, and a total fair value increase of $51,045 in Q4-2016 and $71,601 for the year, partially offset by the disposition of 8 income producing assets and the impact of a lower U.S. exchange rate at year end compared to December 31, 2015 on the Trust's U.S. assets.
Net asset value per unit increased to $5.50 as at December 31, 2016 from $5.34 per unit as at December 31, 2015 driven by fair value gains in the Trust's portfolio, particularly in its British Columbia and Greater Toronto Area regions, and the net positive effect of the Trust's portfolio upgrading initiatives.
Debt to Gross Book Value, as defined in the MD&A, as at December 31, 2016 was 42.3%, a 650 basis point decrease from 48.8% as at December 31, 2015 due to the repayment of the Trust's revolving credit facility in June 2016 and mortgage repayments in Q4-2016, following the Trust's equity offerings completed in both June and October 2016.
Revenues for the three months ended December 31, 2016 increased 18.8% to $52,142 from $43,902 in the same period of 2015, primarily related to the acquisition of eight properties in Alberta (the "Alberta Acquisition") and six properties in the southeast U.S. (the "U.S. Acquisition"), both closing in November 2016. For the year ended December 31, the Trust's revenues increased 9.1% to $186,943 from $171,365 in 2015.
Adjusted NOI, as defined in the MD&A, for the three months ended December 31, 2016 increased 23.8% to $37,124 from $29,988 in 2015, primarily due to the Alberta Acquisition and U.S. Acquisition in Q4-2016 and the Vaughan Distribution Facility that become income producing and the completion of the Barrington, New Jersey expansion in Q2-2016. For the year ended December 31, 2016, the Trust's adjusted NOI increased 10.7% to $132,842 from $120,021 in 2015.
For the three months ended December 31, 2016, the Trust's same property NOI ("SPNOI"), as defined in the MD&A, increased by $1,229 or 4.3% compared to the prior year, from 17.2 million sf representing 87.3% of the Trust's overall portfolio. The increase in SPNOI is primarily due to an average occupancy increase of 189,000 sf in Ontario, the expansion of 56,000 sf of a FedEx facility in Barrington, New Jersey completed in Q2-2016, and the 44,000 sf expansion of a facility in Woodstock, Ontario, completed at the beginning of Q4-2016. Excluding the expansions, SPNOI increased by 2.8% in aggregate and for the U.S. segment specifically, SPNOI decreased by 1.5% (1.4% decrease - US$).
For the year ended December 31, 2016, the Trust's SPNOI increased by $2,921 or 2.6% from 16.9 million sf, compared to the prior year, representing 93.2% of the Trust's overall portfolio.
Funds from Operations ("FFO"), as defined in the MD&A, for the three months ended December 31, 2016 increased 27.8% over the prior year and also increased 19.0% when compared to Q3-2016. FFO in the fourth quarter of 2016 relative to the fourth quarter of 2015 was positively affected by increased NOI on a same- property basis and from net new acquisitions.
FFO per Unit ("FFOPU"), as defined in the MD&A, of $0.10 remained consistent for the three months ended December 31, 2016 over the prior year and increased 7.4% when compared to Q3-2016.
Adjusted Funds from Operations ("AFFO"), as defined in the MD&A, for the three months ended December 31, 2016 increased 24.3% over the same period in the prior year and increased 9.2% when compared to Q3-2016. The increase in AFFO, compared to the prior year, is primarily due to an increase in SPNOI, and a result of development and acquisition activities during fiscal 2016, offset by higher non-recoverable capital expenditures related to leasing activity and higher general and administrative ("G&A") expenses.
Adjusted Funds from Operations per Unit ("AFFOPU"), as defined in the MD&A, of $0.09 for the three months ended December 31, 2016 remained relatively flat to the prior year comparative and from Q3-2016.
G&A expenses for the three months ended December 31, 2016 increased to $1,626 from $1,058 in 2015. G&A expenses represent 3.1% of rental and recoveries revenue, an increase of approximately 70 basis points from the prior year comparative. The increase is due primarily to the opening of the Trust's Edmonton office including the addition of five employees in October 2016 as a result of the Trust's increased presence in Alberta following the Alberta Acquisition. G&A expenses decreased by $1,176 relative to Q3-2016 primarily due to the inclusion of incremental severance costs of $691 in Q3-2016 and lower non-cash compensation expense of $332 due to fewer restricted units outstanding in Q4-2016.
The occupancy of the portfolio was 97.7% as at December 31, 2016, excluding properties classified as assets held for sale, an increase of 310 basis points from December 31, 2015. Including committed space, the occupancy is 98.4% as at December 31, 2016, an increase of 220 basis points from December 31, 2015. The weighted average remaining lease term decreased slightly from 6.5 years to 6.4 years between the years ended December 31, 2015 and 2016.
During the three months ended December 31, 2016, leasing activity totaled approximately 0.99 million sf which comprised of approximately 0.52 million sf of expiring space that was renewed and approximately 0.47 million sf of new leases that were signed.
During the year ended December 31, 2016, expiring space accounted for approximately 2.95 million sf. The Trust completed 2.14 million sf lease renewals, or 72.5% of the 2.95 million sf of expiring space in 2016.
On October 13, 2016, the Trust completed an equity offering for 26,875,000 Class A units priced at $5.35 per unit, which included the full over-allotment option for 3,505,500 Class A units, for total gross proceeds of $143,784.
Acquisitions and Dispositions
On November 1, 2016, the Trust completed the acquisition of a portfolio of eight industrial properties in Alberta ("the Alberta Acquisition") for $171,080, plus standard closing costs and adjustments of $558. The Alberta Acquisition consists of four single-tenant and four multi-tenant industrial properties comprising an aggregate of approximately 1.2 million sf of GLA and is leased to quality international, national and regional tenants, and is situated within prime industrial nodes in Calgary and Edmonton. The Alberta Acquisition was funded through new and assumed mortgage financing in the amount of $86,482, with a weighted average term of 5.1 years and a weighted average interest rate of 3.0% per annum, and net proceeds from the Trust's October 2016 equity offering.
On November 14, 2016, the Trust completed the acquisition of a portfolio of six industrial properties in the Southeastern U.S. ("the U.S. Acquisition") for approximately $109,755 (US$81,000) plus standard closing costs and adjustments of approximately $695 (US$513). The U.S. Acquisition comprises approximately 1.6 million sf of functional warehouse and distribution buildings: four located in Atlanta, Georgia and two located in Charlotte, North Carolina, and is 100% leased to seven high quality tenants with a weighted average lease term of 4.5 years. The U.S. Acquisition was financed with a new mortgage in the amount of approximately $54,400 (US$40,500) with an eight-year term and fixed interest rate of 3.06% per annum, and net proceeds from the Trust's October 2016 equity offering.
During the three months ended December 31, 2016 the Trust completed the disposition of two investment properties located in Alberta and Ontario for gross proceeds of $9,650, less standard closing costs and adjustments of $444.
Subsequent Events
On February 1, 2017, the Trust completed the acquisition of an 800,000 SF cross-dock distribution centre located in Atlanta, Georgia ("the DHL Atlanta Acquisition") for a purchase price of approximately $52,500 (US$39,500). The Atlanta Acquisition was financed with existing cash and the Trust's operating line. On February 6, 2017, the Trust obtained a new mortgage in the amount of approximately $25,500 (US$19,150), secured by the Atlanta Acquisition, with an eight-year term and a fixed interest rate of 3.82% per annum.
On February 16, 2017, the Trust completed the disposition of an investment property located in North York, Ontario for gross proceeds of $9,400. The property was classified as held for sale as at December 31, 2016.
On February 22, 2017, the Trust announced that it entered into an unconditional agreement to acquire the Cedar Port Distribution Centre located in Houston, Texas, consisting of two newly-constructed buildings comprising of 996,482 sf, for a purchase price of $83,200 (US$ 63,500) ("the Houston Acquisition"). The Trust will acquire the Houston Acquisition using cash on hand and its existing operating line. The assets are expected to be subsequently financed with a new mortgage following the closing for approximately 50% of the purchase price on terms yet to be determined. The Houston Acquisition is expected to close in March of 2017.
On February 22, 2017, the Trust announced a commitment with two Canadian chartered banks for a $150,000 unsecured credit facility. The new facility will replace the Trust's current $110,000 secured credit facility. The new facility will have a three-year term, will bear interest at more favourable rates than the current facility and will contain customary financial covenants for an unsecured credit facility. The Trust will have the option to increase the new facility up to an additional $100,000 for a total facility limit of $250,000.
On February 28, 2017, the Trust completed the disposition of an investment property located in Crossfield, Alberta for gross proceeds of $18,800 and transferred the related mortgage with a balance of $9,153, net of discharge fees, to the purchaser, for net proceeds of $9,647, before selling costs.
Selected Financial Information | ||||
Three months ended | Years ended | |||
December 31 | December 31 | |||
($000s, except per unit basis) | 2016 | 2015 | 2016 | 2015 |
Revenue | $52,142 | $43,902 | $186,943 | $171,365 |
Net operating income (1) | $37,124 | $29,988 | $132,842 | $120,021 |
Distributions declared per Class A Unit | $0.08 | $0.08 | $0.31 | $0.31 |
FFO(2) per unit (fully diluted) | $0.10 | $0.10 | $0.40 | $0.39 |
Payout Ratio(3) | 76.9% | 77.3% | 78.4% | 80.1% |
AFFO(2) per unit (fully diluted) | $0.09 | $0.09 | $0.36 | $0.35 |
Payout ratio(3) | 88.7% | 86.7% | 86.6% | 89.8% |
G&A as a Percent of Revenue | 3.1% | 2.4% | 4.3% | 3.8% |
Debt to Gross Book Value | - | - | 42.3% | 48.8% |
(1) | Net operating income has been normalized for IFRIC 21 ("Adjusted NOI") and assumes all property taxes have been pro-rated and accrued based on number of days of ownership within the reporting year. |
(2) | FFO and AFFO are widely accepted supplemental measures of financial performance for real estate entities. These measures are not defined under the International Financial Reporting Standards ("IFRS"). For a description of these measures and an IFRS to non-IFRS reconciliation, see the Trust's MD&A under "Funds from Operations and Adjusted Funds from Operations" and "Operational and Financial Highlights" and "Non-IFRS Measures". The Trust'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. |
Outlook
Real Estate Fundamentals
According to CBRE, the Canadian National availability rate fell slightly in Q4-2016 to 5.3%, with availability declines in Toronto, Montreal, London and Winnipeg offset by increasing availability in Vancouver, Calgary, Edmonton and Halifax. Approximately 6.7 million sf of positive net absorption occurred in the quarter following a relatively strong Q3-2016, led by Toronto, Montreal and Winnipeg at 2.9, 2.9 and 0.6 million sf respectively, partially offset by negative absorption of 0.2 and 0.3 million sf in Calgary and Edmonton respectively. Net absorption year to date of approximately 17.9 million sf has been led by gains in Toronto, Vancouver, Montreal, London and Edmonton at 9.3, 4.0, 2.9, 1.0 and 0.4 million sf, respectively. The average net asking rent increased over the previous quarter to $6.60 from $6.46 per sf, led by gains in Toronto, Vancouver and Edmonton and offset by declines in Calgary, Winnipeg and Montreal.
According to the CBRE Capitalization Rate Survey for Q4-2016, demand for stabilized Class A industrial real estate remains extremely strong nationally as investors continue to look for safety and growth in the industrial asset class. Coupled with continued tight supply of available product for sale, estimated capitalization rates for Class A and B product remained steady or lower from the previous quarter across all markets. The overall capitalization rate nationally for the quarter fell from 5.73% in Q3-2016 to 5.66% this quarter, led by a large decline in Toronto (-0.50%). The national Class B industrial real estate overall capitalization rate fell slightly from 6.77% to 6.73% this quarter, led primarily again by a decline in Toronto.
Outlook for 2017
Leasing activity continues to be strong across the Trust's portfolio. The Trust has completed roughly 3.8 million sf of leasing year to date and approximately 1.0 million sf in Q4-2016, including expiring space, vacancy and future expiries, resulting in a 220 basis point increase in committed occupancy since December 31, 2015 and contributing to SPNOI increases of 4.3% for Q4-2016 relative to Q4-2015 and 2.6% for fiscal year 2016 relative to fiscal year 2015. SPNOI growth is expected to remain positive through 2017.
Development and expansions contributed significantly to the Trust's performance in 2016, and management expects future expansions to continue to generate additional NOI and AFFO on an accretive basis. As previously announced, the Trust has entered into a conditional agreement to acquire 16 acres of land adjacent to an existing property in San Antonio, Texas (the "Texas Land Acquisition") for a purchase price of $3,700 (US$2,800), with an expected closing in Q1-2017.
The Trust has entered into an agreement with Hopewell Development to construct a new 330,000 sf state-of-the- art distribution facility in Richmond, BC. The project represents the fourth and final phase of the Trust's existing business park, with the costs being funded by a $22,263 construction loan and the Trust's existing working capital. Construction is underway and project completion is estimated for Q2-2017.
Capital expenditures in Q4-2016 increased after a relatively quiet Q3-2016 as the Trust continued to secure creditworthy tenants on long lease terms. Although the leasing activity is initially unfavourable to AFFO, these leases are expected to have a positive impact on the Trust's financial metrics for the next five to ten years.
The Alberta Acquisition successfully closed on November 1, 2016 and is expected to generate approximately $11,000 in NOI annually. The portfolio is predominantly comprised of modern distribution assets, consistent with the Trust's growth strategy. As announced, although the acquisition increases our concentration in Alberta in the short term, the Trust intends to reduce its overall exposure in 2017 through the sale of a partial interest in certain assets to joint- venture partners and the selective disposition of non-core assets. As previously announced on January 30, 2017, the Trust has entered into a conditional agreement for the sale of a partial interest in six assets to an existing joint- venture partner, with five of the six properties being located in Alberta. One of the six assets, located in Crossfield, Alberta, has since been sold outright to the existing tenant. The Trust also disposed of an asset in Calgary, Alberta and a non-core asset in Ontario in December 2016, and two additional assets in Alberta and Ontario in February 2017.
On December 14, 2016, Tervita Corporation ("Tervita"), one of the Trust's Top 10 tenants in respect of revenue, announced that their voluntary recapitalization transaction, as previously reported by the Trust in Q3-2016, was completed upon implementation of a court-approved plan of arrangement under the Canada Business Corporations Act. The transaction resulted in a reduction of Tervita's total debt from approximately $2.6 billion to approximately $475 million. The obligations under Tervita's leases have remained unchanged and the Trust suffered no losses throughout this process. The Trust is encouraged by Tervita's improved financial position going forward.
Following the completion of the Alberta acquisition in November, 2016, the Trust opened a new office in Edmonton, Alberta. The new office and team will enable the Trust to better serve our customers in Edmonton and the surrounding markets and execute on the Trust's strategy.
The U.S. Acquisition successfully closed on November 14, 2016, for $109,755 (US$81,000). The portfolio, with a going-in capitalization rate of 6.9%, comprises approximately 1.6 million sf of functional warehouse and distribution centres. Four of the properties are located in Atlanta, Georgia and two are located in Charlotte, North Carolina, and the portfolio is 100% leased to seven high quality tenants. The acquisition was financed with a new mortgage in the amount of approximately $54,400 (US$40,500) with an eight-year term and fixed interest rate of 3.06% per annum and existing working capital.
Subsequent to the end of Q4-2016, the Trust closed on the acquisition of an 800,000 sf cross-dock distribution centre located in Atlanta, Georgia, 100% leased to DHL Supply Chain, on February 1, 2017 for approximately $52,500 (US$39,500), representing an approximately going-in capitalization rate of 5.3%. The current rental rate of US$2.56 per sf is well below market, resulting in a price per sf of approximately US$48.
Additionally, the Trust has entered into an unconditional agreement to acquire two newly constructed buildings totaling almost one million sf in Houston, Texas for $83,200 (US$63,500), representing a going-in capitalization rate of 6.8%. The buildings are 100% leased to IKEA Distribution Services Inc. The acquisition is expected to close in Q1- 2017.
In Q1-2017, the Trust announced that it had entered into a commitment with two Canadian chartered banks for a $150,000 unsecured credit facility. The new facility will replace the Trust's current $110,000 secured credit facility. The new facility will have a three-year term, will bear interest at more favourable rates than the current facility and will contain customary financial covenants for an unsecured credit facility. The Trust will have the option to increase the new facility up to an additional $100,000 for a total facility limit of $250,000, further enhancing the Trust's liquidity and financial flexibility. The Trust anticipates that upon closing, expected in Q1-2017, of this new facility, it will hold an unencumbered investment property portfolio with a value of over $350,000 representing approximately 15% of the Trust's aggregate investment property portfolio.
The Trust's capital structure has become simplified with the holders of the Class B units exercising their rights pursuant to the Trust Declaration and choosing to re-designate all of the 278,947 Class B Units outstanding into 2,535,118 Class A Units in December 2016. Currently there are no Class B Units outstanding.
Portfolio rebalancing will continue to be a focus for the Trust in 2017. As previously announced, the trust will continue to dispose of non-core assets on an accretive basis and redeploy the proceeds in new acquisitions and development in our target markets. The acquisitions noted above and the new development in Richmond, British Columbia are consistent with that strategy and are expected to contribute to NOI growth and portfolio quality in 2017 and beyond.
As at December 31, 2016, the Trust's Debt to Gross Book Value ratio was 42.3% down from 48.8% at the end of 2015. The decrease in our leverage ratio was a continuation of a financial de-risking strategy commenced in 2014. For 2017, indebtedness is expected to be managed toward our long-term leverage goal of 40%.
Conference Call
As previously announced on January 10, 2017, management will host the conference call at 10:00 am (EST) on Thursday, March 9, 2017, to review the financial results and corporate developments for the year ended December 31, 2016.
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 March 9, 2017, 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 March 16, 2017.
Please enter the Replay ID# 752491, 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
Pure Industrial Real Estate Trust is an unincorporated, open-ended investment trust that owns and operates a diversified portfolio of income-producing industrial properties in leading markets across Canada and key distribution and logistics markets in the United States. The Trust is an internally managed REIT and is one of the largest publicly- traded REITs in Canada that offers investors exposure to industrial real estate assets in Canada and the United States. Additional information about the Trust is available at www.piret.ca and www.sedar.com.
TSX - AAR.UN
Non-GAAP Measures:
The Trust prepares and releases audited consolidated annual financial statements prepared in accordance with IFRS (GAAP). In this release, the Trust discloses and discusses certain non-GAAP financial measures, including FFO, FFO per Unit, AFFO, AFFO per Unit, adjusted net operating income (Adjusted NOI), Net Asset Value per Unit, occupancy, Loan to Gross Book Value, and capitalization rate. The non-GAAP measures are further defined and discussed in the MD&A dated March 8, 2017 and filed on SEDAR, which should be read in conjunction with this release. Since FFO, FFO per Unit, AFFO, AFFO per Unit, adjusted net operating income (Adjusted NOI), Net Asset Value per Unit, occupancy, Loan to Gross Book Value, and capitalization rate are not determined by IFRS, such measures may not be comparable to similar measures reported by other issuers. The Trust has presented such non-GAAP measures as management believes the measures are a relevant measure of the ability of the Trust to earn and distribute cash returns to Unitholders and to evaluate the Trust's performance. These non-GAAP measures should not be construed as alternatives to net income (loss) or cash flow from operating activities determined in accordance with GAAP as an indicator of the Trust's performance. Please refer to "Additional IFRS Measures and Non-IFRS Measures" in the Trust's MD&A.
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 such as "outlook", "believe", "expect", "may", "anticipate", "should", "intend", "estimates" 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 the Trust, including: (i)the accretive acquisition of properties and the anticipated extent of the accretion of any acquisitions, which could be impacted by demand for properties and the effect that demand has on acquisition capitalization rates and changes in the cost of capital; (ii) the maintaining of occupancy levels and rental revenue, which could be impacted by changes in demand for the Trust's properties, tenant bankruptcies, the effects of general economic conditions and supply of competitive locations in proximity to the Trust's locations; (iii) the overall indebtedness levels and the Trust's ability to refinance expiring debt, which could be impacted by the level of acquisition activity and the state of debt markets in general; (iv) The Trust's REIT status, which can be impacted by regulatory changes enacted by governmental authorities; (v) The Trust's cost estimates and expected yields pertaining to development activity which could be impacted by construction cost overruns or delays; (vi) the anticipated distributions and payout ratios, which could be impacted by capital expenditures, results of operations and capital resource allocation decisions; and (vii) the anticipated replacement of expiring tenancies, which could be impacted by the effects of general economic conditions and the supply of competitive locations.
Although the Trust 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 the Trust 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 the Trust operates, prevailing economic conditions, and other factors, many of which are beyond the control of the Trust.
The forward-looking statements contained in this press release represent the Trust's expectations as of the date hereof, and are subject to change after such date. The Trust 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.
