TORONTO, ONTARIO--(Marketwired - March 17, 2014) -
NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES WIRE SERVICES
WPT Industrial Real Estate Investment Trust (TSX:WIR.U) (the "REIT") announced today that its board of trustees has approved the acquisition of two industrial properties (together, the "Acquisitions") representing approximately 1.8 million square feet of gross leasable area ("GLA") for an aggregate purchase price of approximately US$64.8 million (exclusive of closing and transaction costs and acquisition fee). The Acquisitions consist of (i) a 1.5 million square foot distribution facility located in Atlanta, Georgia (the "Atlanta Property") to be acquired from a third party vendor, and (ii) a 300,000 square foot distribution facility located in Hebron, Kentucky (near Cincinnati, Ohio) (the "Kentucky Property") to be acquired from an affiliate of Welsh Property Trust, LLC ("Welsh"), the REIT's external asset manager and property manager.
"The attributes of these properties are complementary to and consistent with the REIT's existing portfolio, and each property is leased on a net basis to high-quality credit tenants", commented Scott Frederiksen, Chief Executive Officer of the REIT. "Furthermore, we are delighted to announce the acquisition of two additional institutional quality distribution centres within a year of completing our initial public offering bringing our total acquisitions to over 3 million square feet of GLA in our first year. The Acquisitions are expected to be immediately accretive to the REIT's AFFO per unit and to lower the REIT's payout ratio."
The REIT also announced today that it has entered into an agreement to sell to a syndicate of underwriters co-led by RBC Capital Markets and CIBC, on a bought deal basis, 3,122,700 trust units ("Units") at a price of US$9.30 per Unit (the "Offering Price") for gross proceeds to the REIT of US$29,041,110 (the "Offering"). The REIT has granted the underwriters an option (the "Over-Allotment Option"), exercisable for a period of 30 days following the closing of the Offering, to purchase up to an additional 355,500 Units to cover over-allotments, if any. The Offering is expected to close on or about April 4, 2014.
As part of the Offering, Welsh has agreed to purchase approximately US$7 million of the Units being offered, being 752,700 Units, at the Offering Price, pursuant to the exercise of its pre-emptive right under the agreement of limited partnership governing WPT Industrial, LP (the "Partnership"), the REIT's operating subsidiary.
Net proceeds of the Offering (after deducting the underwriting fee and estimated offering expenses) will be used by the REIT to partially fund the Acquisitions and for general trust purposes. In the event that the Offering is completed but the acquisition of one or both of the Acquisitions is not completed, the aggregate net proceeds of the Offering will be used by the REIT to fund future acquisitions, the repayment of indebtedness and for general trust purposes.
The Units will be offered in Canada pursuant to a short form prospectus to be filed with the securities commissions and other similar regulatory authorities in each of the provinces and territories of Canada, pursuant to National Instrument 44-101 - Short Form Prospectus Distributions.
The Offering is subject to certain conditions, including, but not limited to, receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange. The Acquisitions are subject to certain conditions, including the negotiation of a purchase agreement for the Kentucky Property, and there can be no assurance that either of the Acquisitions will be completed on their terms or at all. The REIT continues to actively pursue acquisition and investment opportunities.
Overview of the Acquisitions
The Acquisitions will be financed with: (i) the net proceeds from the Offering; (ii) approximately US$28.3 million of new property-level mortgage debt in respect of the Atlanta Property with an expected interest rate of 3.25%; and (iii) the REIT drawing on its existing revolving credit facility to fund the remaining portion of the purchase price for the Acquisitions.
The Atlanta Property is a LEED gold certified, state-of-the-art, cross-dock distribution facility, built in 2010, with approximately 1.5 million square feet of GLA. It is located on the eastern edge of Atlanta at a major I-20 interchange, and is 100% leased on a net basis to General Mills Operations, LLC (guaranteed by General Mills Inc.) with a remaining lease term of approximately 6.2 years. The lease contains a contractual 10% increase in the tenant's rental rate commencing in June 2015.
The REIT has entered into a purchase and sale agreement with a third party vendor pursuant to which the REIT will indirectly, through the Partnership, acquire the Atlanta Property for a purchase price of approximately US$51.5 million (exclusive of closing and transaction costs and acquisition fee), representing a capitalization rate of approximately 6.8%. The capitalization rate is expected to increase to approximately 7.3% once the contractual increase in rental rate takes effect. The acquisition of the Atlanta Property is expected to close on or about April 30, 2014.
The Kentucky Property is a bulk distribution facility with approximately 300,000 square feet of GLA. It is located in Hebron, Kentucky in the Park West International Business Park within the airport submarket of Greater Cincinnati, Ohio, and is 100% leased on a net basis to UPS Supply Chain Solutions, Inc., a division of UPS with a remaining lease term of approximately 4.8 years. The lease contains annual rental rate escalations ranging from approximately 2.4% to 2.6%.
The Kentucky Property was acquired by an affiliate of Welsh from a third party vendor earlier in March 2014. Pursuant to a call right granted to the REIT in respect of the Kentucky Property, the REIT has delivered notice to Welsh requiring Welsh to sell the Kentucky Property to the REIT for a purchase price equal to Welsh's cost of acquisition plus certain expenses incurred by Welsh in connection with its acquisition of the Kentucky Property. The REIT intends to negotiate the terms of a purchase agreement with Welsh pursuant to which the REIT will indirectly, through the Partnership, acquire the Kentucky Property for a purchase price of approximately US$13.3 million (exclusive of closing and transaction costs and acquisition fee), representing a capitalization rate of approximately 6.5%. The REIT intends to place new, fixed-rate term mortgage financing on the Kentucky Property following closing. The acquisition of the Kentucky Property is expected to close on or about the date of the closing of the Offering.
The acquisition of the Kentucky Property and the purchase by Welsh of Units under the Offering pursuant to its pre-emptive right constitute "related party transactions" under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"). Pursuant to sections 5.5(a) and 5.7(1)(a) of MI 61-101, the REIT is exempt from obtaining a formal valuation and minority approval of the REIT's unitholders due to the fair market value of the acquisition and the Units to be acquired by Welsh under the Offering being below 25% of the REIT's market capitalization for purposes of MI 61-101. The acquisition and Welsh's participation in the Offering were reviewed and considered by the independent members of the REIT's board of trustees.
This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. The Units have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.
About WPT Industrial Real Estate Investment Trust:
WPT Industrial Real Estate Investment Trust is an unincorporated, open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. The REIT has been formed to own and operate an institutional-quality portfolio of primarily industrial properties located in the United States, with a particular focus on warehouse and distribution industrial real estate. WPT Industrial, LP (the REIT's operating subsidiary) indirectly owns a portfolio of properties consisting of approximately 9.9 million square feet of gross leasable area, comprised of 36 industrial properties and two office properties located in 12 states within the United States.
About Welsh Property Trust, LLC:
Welsh Property Trust, LLC ("Welsh"), a privately held real estate investment management company, is the external asset manager and property manager of the REIT. The Welsh organization was founded in 1977 and has extensive experience in the acquisition, management and disposition of industrial and office real estate assets in attractive markets throughout the United States.
This press release contains "forward-looking information" as defined under applicable Canadian securities law ("forward-looking information" or "forward-looking statements") which reflect management's expectations regarding objectives, plans, goals, strategies, future growth, results of operations, performance, business prospects and opportunities of the REIT. The words" plans", "expects", "does not expect", "scheduled", "estimates", "intends", "anticipates", "does not anticipate", "projects", "believes" or variations of such words and phrases or statements to the effect that certain actions, events or results "may", "will", "could", "would", "might", "occur", "be achieved" or "continue" and similar expressions identify forward-looking statements. Some of the specific forward-looking statements in this press release include, but are not limited to, statements with respect to: the closing of the Offering and the Acquisitions and the expected closing dates thereof; the REIT's intended use of proceeds of the Offering; the REIT's plans for financing the Acquisitions, including expected interest rate for new property-level debt for the Atlanta Property; the REIT's pursuit of acquisition and investment opportunities; the purchase by Welsh of Units under the Offering pursuant to the exercise of its pre-emptive right; expectations regarding accretion to the REIT's AFFO per unit and the effect of the Acquisitions on the REIT's payout ratio; the REIT's intention to negotiate a purchase agreement for the Kentucky Property; expected future increase in the capitalization rate for the Atlanta Property; and the REIT's intention to place new, fixed-rate term mortgage financing on the Kentucky Property following closing of the acquisition. Forward-looking statements are necessarily based on a number of estimates and assumptions that, while considered reasonable by management of the REIT as of the date of this press release, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The REIT's estimates, beliefs and assumptions, which may prove to be incorrect, include the various assumptions set forth herein, including, but not limited to, the REIT's and each property's future growth potential, results of operations, future prospects and opportunities, the demographic and industry trends remaining unchanged, no change in legislative or regulatory matters, future levels of indebtedness, the tax laws as currently in effect remaining unchanged, the continual availability of capital, the current economic conditions remaining unchanged, and continued positive net absorption and declining vacancy rates in the markets in which the REIT's properties are located.
When relying on forward-looking statements to make decisions, the REIT cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results and will not necessarily be accurate indications of whether or not the times at or by which such performance or results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under "Risk Factors" in the REIT's final prospectus dated April 18, 2013, which is available under the REIT's profile on SEDAR at www.sedar.com. These forward-looking statements are made as of the date of this press release and, except as expressly required by applicable law, the REIT assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Funds from operations ("FFO"), adjusted funds from operations ("AFFO"), net operating income ("NOI"), capitalization rate and payout ratio are not measures recognized under International Financial Reporting Standards as issued by the International Accounting Standards Board and as adopted by the Canadian Institute of Chartered Accountants in Part I of The Canadian Institute of Chartered Accountants Handbook - Accounting, as amended from time to time ("IFRS") and do not have standardized meanings prescribed by IFRS. Management believes that these terms are supplemental measures of a Canadian real estate investment trust's performance and the REIT believes they are relevant measures of the ability of the REIT to earn and distribute cash returns to investors in the REIT's trust units and to evaluate the REIT's performance. The IFRS measurement most directly comparable to FFO, AFFO and NOI is net income.
"FFO" is defined as net income in accordance with IFRS, (i) plus or minus fair value adjustments on investment properties; (ii) plus or minus gains or losses from sales of investment properties; (iii) plus or minus other fair value adjustments; (iv) plus amortization of tenant incentives; (v) plus transaction costs expensed as a result of the purchase of a property being accounted for as a business combination; (vi) plus distributions on redeemable or exchangeable units treated as interest expense; (vii) plus or minus any negative goodwill or goodwill impairment; and (viii) plus deferred income tax expense, after adjustments for equity accounted entities and joint ventures calculated to reflect FFO on the same basis as consolidated properties. FFO has been prepared consistently with the definition presented in the White Paper on funds from operations prepared by the Real Property Association of Canada for all periods presented.
"AFFO" is defined as FFO subject to certain adjustments, including: (i) amortization of fair value mark-to-market adjustments on long-term debt and amortization of financing costs; (ii) adjusting for any differences resulting from recognizing property rental revenues or expenses on a straight-line basis; (iii) amortization of grant date fair value related to compensation incentive plans; (iv) adjusting for any non-cash compensation expense; and (v) deducting a reserve for normalized maintenance capital expenditures, tenant inducements and leasing commissions, as determined by the REIT. Other adjustments may be made to AFFO as determined by the trustees of the REIT in their sole discretion. FFO and AFFO should not be construed as alternatives to net income and comprehensive income determined in accordance with IFRS as indicators of the REIT's performance. The REIT's method of calculating FFO and AFFO may differ from other issuers' methods and accordingly may not be comparable to measures used by other issuers.
"NOI" is used by industry analysts, investors and management to measure operating performance of real estate investment trusts. NOI represents revenue from properties less property operating expenses as presented in the consolidated statements of net income and comprehensive income prepared in accordance with IFRS.
"capitalization rate" is defined as NOI divided by purchase price.
"payout ratio" is defined as distributions of the REIT (including distributions on the Class B Units) divided by AFFO.