VANCOUVER, May 13, 2016 /CNW/ – Pure Industrial Real Estate Trust (the “Trust”) (TSX: AAR.UN) is pleased to announce the release of its financial results for the three months ended March 31, 2016.
Q1 2016 Financial Results
The Q1-2016 financial results, consisting of the Trust’s unaudited condensed consolidated interim financial statements for the three months ended March 31, 2016, and management’s discussion and analysis of results of operations and financial condition (“MD&A”) dated May 13, 2016, are available on SEDAR (www.sedar.com) and the Trust’s website (www.piret.ca). Unless otherwise indicated, all amounts are in Canadian dollars.
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 March 31, 2016, the Trust’s portfolio under management consists of 166 income producing properties representing gross leasable area (“GLA”) of approximately 17.3 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 development; one property under development, which will comprise 422,433 sf of GLA upon completion; and one property under expansion, which will comprise an additional 59,600 sf of GLA upon completion in Q2-2016.
- Investment properties decreased to $2.03 billion as at March 31, 2016 from $2.07 billion at December 31, 2015 due primarily to the decrease in the US exchange rate at period end compared to December 31, 2015. In addition, the disposition of four properties offset by the acquisition of one property during the three months ended March 31, 2016 contributed to the decrease.
- For the three months ended March 31, 2016, the Trust purchased and cancelled 1,114,000 Class A Units pursuant to a normal course issuer bid at an average cost of $4.28 per Class A Unit for a total cost of $4.8 million.
- Loan to Gross Book Value as at March 31, 2016 was 48.8%, remaining unchanged from December 31, 2015.
- Funds From Operations per Unit (“FFOPU”) increased by 1.0% for three months ended March 31, 2016, over the prior year due primarily to higher net operating income (“NOI”), offset by an increase in interest and income tax expense. FFOPU decreased 2.4% when compared to the fourth quarter due primarily to a slight decrease in NOI related to dispositions and higher property tax savings in the fourth quarter, an increase in general and administrative (“G&A”) expenses and income tax expense. The increase in G&A expenses of approximately $400,000 is related to the non-cash compensation increasing due to the increase in the Trust’s unit price from $4.37 at December 31, 2015 to $4.76 at March 31, 2016.
- Adjusted Funds From Operations per Unit (“AFFOPU”) for the three months ended March 31, 2016 increased 0.4 cents or 4.5% for the three months ended March 31, 2016 over the prior year; and increased 0.2 cents or 1.8% over the fourth quarter due to a decrease in capital expenditures.
- Revenue for the three months ended March 31, 2016 increased 2.9% to $43.5 million from $42.3 million for the same period in 2015.
- For the three months ended March 31, 2016, the Trust’s adjusted NOI, increased 2.5% for the three months ended March 31, 2016 compared to the prior year.
- The Trust’s same property NOI (“SPNOI”) for the first quarter decreased by approximately $68,000 or 0.25% from 15.9 million sf, representing 92% of the Trust’s overall portfolio. The small decrease in NOI is due primarily to vacancy of 180,000 sf in Calgary, 78,000 sf in Edmonton, 110,000 sf of flex office space at the Airport Corporate Centre property in the Greater Toronto Area (“GTA”) and free rent associated with a new lease in the Greater Vancouver Area (“GVA”). The impact of the vacancy loss on SPNOI was partially offset by an average increase of 3.7% in rental rates and a currency exchange gain. When including additional property and asset management fee revenue, SPNOI decreased by 0.08% over that period.
- G&A expenses for the three months ended March 31, 2016 increased slightly to $1.6 million from $1.5 million in 2015 and represent 3.8% of rental revenue, unchanged from the prior year.
- The development in Vaughan, Ontario and expansion in Barrington, New Jersey have been delivered to the tenant for fixturing and rent for both properties commenced on April 15. The Vaughan property and Barrington property will generate additional annual rents of over $8 million and US$900,000, respectively.
- The occupancy of the portfolio was 95.3% as at March 31, 2016, an increase of 0.7% from Q4-2015, with a weighted average lease term of 6.3 years. Including committed space, the occupancy was 96.6% at March 31, 2016, an increase of 0.4% from Q4-2015.
- Approximately 467,500 sf, or 63.1%, of the 741,000 sf of expiring space in the quarter was renewed and approximately 21,000 sf of new leases were signed. The average rental rate increase was 0.4% on renewals and new leases for expiries in the quarter. A total of 799,500 sf of leasing was completed in the three months ended March 31, 2016, much of it related to leases which expire in 2016.
Ontario Acquisition
On January 8, 2016, the Trust acquired a 25% joint interest in an investment property located in Ontario and subsequently entered into a co-ownership agreement with a third party to own and operate the property. The Trust acquired its interest in the property for a total purchase price of $1,650,000, plus standard closing costs and adjustments of $28,815.
Dispositions
During the three months ended March 31, 2016, the Trust sold its interest in four investment properties located in Vaughan, Ontario for gross proceed of $18.5 million less standard closing costs and adjustments of $1.3 million resulting in net proceeds of $17.2 million.
Selected Financial Information
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Three months ended March 31 |
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($000s, except per unit basis) |
2016 |
2015 |
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Revenue |
$ 43,546 |
$ 42,304 |
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Net operating income (1) |
$ 30,219 |
$ 29,480 |
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Distributions declared per Class A Unit |
$ 0.08 |
$ 0.08 |
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FFO(2) per unit (fully diluted) |
$ 0.10 |
$ 0.10 |
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Payout Ratio(3) |
79.2% |
80.0% |
||
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AFFO(2) per unit (fully diluted) |
$ 0.09 |
$ 0.09 |
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Payout ratio(3) |
85.2% |
89.0% |
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|
G&A as a Percent of Revenue |
3.8% |
3.7% |
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|
(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 year. |
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(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 measures and an IFRS to non-IFRS reconciliation, see the Trust’s MD&A under “Distributable Income” and “Liquidity and Capital Resources” and “Non-IFRS Measures”. The Trust’s MD&A is available on SEDAR at www.sedar.com. |
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(3) |
FFO and AFFO payout ratios are calculated based on the ratio of distribution rate to fully diluted FFO and AFFO per unit. |
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March 31, |
December 31, |
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Debt-to-GBV |
48.8% |
48.8% |
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Employees |
39 |
38 |
Outlook
Real Estate Fundamentals
From a leasing market perspective, according to CBRE, the Canadian National availability rate remained steady as of Q1-2016 at 5.5%, with declining availability in the GVA and Edmonton and offset by increasing availability in Calgary (due to new supply) and Halifax. Approximately 6.0 million sf of positive net absorption occurred in the quarter, led by the GVA at 1.7 million sf, Edmonton at 1.1 million sf, and Montreal at 1.4 million sf; and offset by 0.6 million sf of negative absorption in Winnipeg. Notably, Calgary recorded 0.4 million sf of positive net absorption in the quarter. According to CBRE, absorption nationally was driven primarily by demand for large-bay warehouse space from e-commerce, transportation and logistics users. The average net asking rent rose slightly from $6.47 per sf (“psf”) in the fourth quarter in 2015 to $6.50 psf in this quarter led by rental rate increases of 4.5% and 1.3% respectively in the GVA and the GTA, offset by rental rate declines of 1.4% and 1.3% respectively in Calgary and Edmonton.
According to the CBRE cap rate survey for the first quarter, demand for stabilized Class A industrial real estate nationally across Canada remains extremely strong as investors continue to look for safety and security in the industrial asset class. Estimated cap rates remained steady or lower from the previous quarter across all markets. The overall cap rate for the quarter fell slightly to 5.89%, the change being mostly attributable to the strength of demand in the Vancouver market. The national Class B Industrial real estate overall cap rate rose from 6.89% to 6.92% this quarter, primarily driven by an ease in demand in the Edmonton market for such product.
Outlook for Remainder of 2016
Leasing activity continues to be strong across our markets and management remains focused on renewals and releasing efforts. To date, 54% of the roughly 2.5 million sf of expiries in 2016 have been renewed or re-leased, and consequently our occupancy rate has increased from 94.6% at the end of 2015 to 95.3% as at March 31. Through the first quarter we have also seen an increase in rental rate of 0.4% on average, despite ongoing weakness in Alberta.
As a market, Alberta remains in our focus. While we have not, to date, dealt with any major disruptions in tenancy, management remains cautious about the impact of a prolonged commodity slump on the real estate market in Alberta and on our tenants. Hence we have proactively maintained dialogue with select tenants to ensure we remain current on their situation and continue to evaluate available options to mitigate risk in the portfolio.
One such way of mitigating market risk is to increase our exposure elsewhere, through selective acquisition and development. As mentioned in previous statements, the development projects in Vaughan and Barrington will deliver substantial per unit NOI, FFO and AFFO growth commencing in the second quarter and thereby increasing our relative exposure to the Ontario and US markets. Both projects are now currently being fixtured by the tenant and rent commenced as scheduled on April 15, 2016.
In addition to the Vaughan and Barrington projects, management has been in dialogue with existing tenants in Ontario and the US on future expansions, and recently executed a lease amending agreement with an existing tenant in Woodstock to expand their premises by approximately 43,760 sf. The expansion will generate an additional $327,300 in NOI annually, with completion scheduled for Q4-2016, and will be funded with existing working capital.
Finally, as discussed on our Q4-2015 Investor’s call, management is focused on improving our disclosure. The Q1 MD&A includes significantly more detail on our operational performance and future portfolio lease expiries, and we will continue to consult with stakeholders to ensure we’re delivering relevant and meaningful disclosure and analysis.
Conference Call
As previously announced on April 25, 2016 management will host the conference call at 1:00 pm (EDT), 10:00 am (PDT), on Monday, May 16, 2016, to review the financial results and corporate developments for the three months ended March 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 May 16, 2016, 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 May 23, 2016.
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
The Trust is an unincorporated, open-ended investment trust that owns and operates a diversified portfolio of income-producing industrial properties in leading markets. The Trust is an internally managed REIT that focuses exclusively on investing in industrial properties.
Additional information about the Trust is available at www.piret.ca and www.sedar.com.
TSX â AAR.UN
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 the Trust, including: (i) Trust’s portfolio consists of: 26.4 acres of land held for development; one property under development, which will comprise 422,433 sf of GLA upon completion; and one property under expansion, which will comprise an additional 59,600 sf of GLA upon completion in Q2-2016; (ii) the Vaughan property and Barrington property will generate additional annual rents of over $8 million and US$900,000, respectively; (iii) , the development projects in Vaughan and Barrington will deliver substantial per unit NOI, FFO and AFFO growth commencing in the second quarter and thereby increasing our relative exposure to the Ontario and US markets; and (iv) the expansion will generate an additional $327,300 in NOI annually, with completion scheduled for Q4-2016, and will be funded with existing working capital.
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.
SOURCE Pure Industrial Real Estate Trust (PIRET)
