SOURCE: WPT Industrial REIT

WPT Industrial REIT

November 09, 2016 18:05 ET

WPT Industrial REIT Announces Third Quarter 2016 Results and Key Lease Renewals

TORONTO, ON--(Marketwired - November 09, 2016) - WPT Industrial Real Estate Investment Trust (the "REIT") (TSX: WIR.U) (OTCQX: WPTIF) announced today its results for the three and nine months ended September 30, 2016, as well as four key tenant lease renewals. All dollar amounts are stated in US funds.

2016 HIGHLIGHTS:

  • Successful equity offering in July raised net proceeds of $80.7 million to fund growth
  • Occupancy increases to 99.0% as at September 30, 2016
  • AFFO for the three and nine months ended September 30, 2016 were up 8.8% and 7.3%, respectively, on portfolio growth and strong operating performance
  • Same properties net operating income ("NOI") up 3.9% and 2.6% for the three and nine months ended September 30, 2016, respectively on increased occupancy and average rents
  • Renewal rate for leases expiring during the three and nine months ended September 30, 2016, was 100.0% and 97.7%, respectively
  • Extended 57% of the 2.9 million square feet of leases expiring in 2017, while increasing the REIT's weighted average remaining lease term by 16%
  • Announced two property acquisitions totaling 787,178 sq. ft. of gross leasable area ("GLA") for $60.1 million in November 2016

"Our solid operating and financial performance continued in the third quarter of 2016, as we continue to focus on tenant retention, rent growth and long-term stability in the portfolio. And with the recent announcement of two new acquisitions, we continue to demonstrate our ability to expand and diversify the REIT's portfolio by sourcing high-quality assets in the REIT's target markets," commented Scott Frederiksen, Chief Executive Officer of the REIT.

SOLID OPERATING PERFORMANCE
For the three and nine months ended September 30, 2016, investment properties revenue was $17.3 million and $52.4 million, respectively, compared to $17.7 million and $51.7 million, respectively, in the same periods last year. The increase for the nine months ended September 30, 2016 is primarily due to the full period's contribution of the REIT's Memphis portfolio acquisition and an increase in occupancies, base rent and higher recoveries of operating expenses compared to the prior year, partially offset by the sale of a non-core property in July 2016. The decrease in the three months ended September 30, 2016, is primarily due to the decrease in non-cash straight-line rent and the sale of a non-core property in July 2016, which is offset by increased base rent and higher recoveries of $0.6 million.

NOI for the three and nine months ended September 30, 2016 was $13.0 million and $39.0 million, respectively, compared to $13.4 million and $39.2 million, respectively, in the same periods last year. Same properties NOI increased 3.9% and 2.6%, respectively, for the three and nine months ended September 30, 2016 compared to the same periods last year due primarily to increased occupancy and increases in contractual base rent and higher recoveries of operating expenses.

Adjusted Funds from Operations ("AFFO") for the three and nine months ended September 30, 2016 were $8.0 million ($0.202 per trust unit and class B partnership unit (collectively, "Units")) and $22.8 million ($0.636 per Unit), respectively, compared to $7.4 million ($0.218 per Unit) and $21.2 million ($0.637 per Unit) in the same periods last year. The REIT's AFFO payout ratio for the three and nine months ended September 30, 2016 was 98.1% and 90.8% compared to 82.5% and 84.3% in the same periods last year. Per Unit amounts and the AFFO payout ratio were impacted by the 17.8% and 7.3% increase in the weighted average number of Units outstanding for the three and nine months ended September 30, 2016, respectively, due to a successful equity offering completed in July 2016.

STRONG FINANCIAL & LIQUIDITY POSITION
As at September 30, 2016, the REIT's debt-to-gross-book-value ratio was 42.2% with an interest coverage ratio of 3.4 times, a debt-to-EBITDA ratio ("EBITDA" is defined as earnings before interest, taxes, depreciation and amortization) of 8.0 times, and a fixed charge coverage ratio of 2.9 times, all improved as compared to the prior year end. The weighted average effective interest rate on outstanding debt was 4.0% compared to 3.8% at December 31, 2015. As at September 30, 2016, the REIT had no variable interest rate debt compared to 12.9% of total debt at December 31, 2015. The weighted average term to maturity on its mortgages payable was 4.2 years as at September 30, 2016, with a weighted average remaining lease term of 3.7 years.

RECENT EVENTS
On July 19, 2016, the REIT issued 5,429,900 trust units at a price of $11.05 per trust unit to a syndicate of underwriters on a bought deal basis for net cash proceeds to the REIT of approximately $57.2 million. In addition, the REIT completed a concurrent private placement, issuing 1,357,475 trust units to Alberta Investment Management Corporation and affiliates ("AIMCo") at a purchase price of $11.05 per trust unit for additional net cash proceeds to the REIT of approximately $14.9 million. On July 25, 2016, the REIT issued 814,485 trust units at a price of $11.05 per trust unit pursuant to the exercise in full of an over-allotment option for net cash proceeds of approximately $8.6 million. The REIT used a portion of the net proceeds from the offering to repay the $46.5 million outstanding balance of its senior secured revolving credit facility (the "Revolving Facility").

On July 26, 2016, the REIT sold the investment property located at 224 North Hoover Road, Durham, North Carolina to a third-party purchaser for net cash proceeds of $7.2 million.

PROACTIVE LEASING
Subsequent to quarter end, the REIT has renewed four leases totaling 1,663,211 square feet set to expire in 2017.

Property  Tenant  Square Feet  Original
 Lease Expiration
 Term (months)  New
Lease Expiration
5300 Hickory Hill Road, Memphis, Tennessee  Essendant Co.  654,080  July 31, 2017  84  July 31, 2024
40 Logistics Boulevard, Richwood, Kentucky  Radial, Inc.  543,512  April 30, 2017  62  June 30, 2022
600 Hartman Industrial Court, Atlanta, Georgia  Keystone Automotive Operations Inc.  350,819  April 30, 2017  62  June 30, 2022
5405 Hickory Hill Road, Memphis, Tennessee  Bryce Corporation  114,800  February 28, 2017  79  September 30, 2023
                

5300 Hickory Hill Road Property
The REIT renewed a 654,080 square foot lease with Essendant Co., one of the largest wholesale distributors of business products in North America and currently the REIT's fifth largest tenant, at the REIT's distribution property located at 5300 Hickory Hill Road, Memphis, Tennessee. The original lease, set to expire on July 31, 2017, was renewed for a period of 84 months, expiring on July 31, 2024. The lease extension includes an initial reduction to base rent of 9.7% with 2.0% annual increases thereafter.

Built in 1999, the 888,262 square foot multi-tenant distribution property features 32-foot clear ceiling heights, ample dock doors, an ESFR sprinkler system, T-5 lighting and ample trailer and auto parking.

40 Logistics Boulevard Property
The REIT renewed a 543,512 square foot lease with Radial, Inc, (formerly eBay Enterprises), a leading provider of e-commerce and interactive marketing services and currently the REIT's eighth largest tenant, at the REIT's distribution property located at 40 Logistics Boulevard, Richwood, Kentucky. The original lease, set to expire on April 30, 2017, was renewed for a period of 62 months, expiring June 30, 2022. The lease extension includes an 8.1% base rent increase at renewal.

Built in 2007, the 543,512 single-tenant modern distribution facility features 32-foot clear ceiling height, ample dock doors, an ESFR sprinkler system, T-5 lighting and ample trailer and auto parking.

600 Hartman Industrial Court Property
The REIT renewed a 350,819 square foot lease with Keystone Automotive Operations, Inc., a leading distributer of specialty automotive equipment and currently the REIT's 13th largest tenant, at the REIT's distribution property located at 600 Hartman Industrial Court, Atlanta, Georgia. The original lease, set to expire on April 30, 2017, was renewed for a period of 62 months, expiring June 30, 2022, with annual base rent flat to the expiring lease and annual increases of 2.0% for the renewal term.

Built in 2005, the 525,627 square foot multi-tenant distribution property features a 32-foot clear ceiling height, ESFR sprinkler system, T-5 lighting and ample dock doors and trailer / auto parking.

5405 Hickory Hill Road Property
The REIT has renewed a 114,800 square foot lease with Bryce Corporation, an industry leading supplier of innovative flexible packaging and prepress solutions, at the REIT's distribution property located at 5405 Hickory Hill Road, Memphis, Tennessee. The original lease term, set to expire on February 28, 2017, has been extended for 79 months, expiring September 30, 2023. The renewal aligns the lease expiration with the expiration of Bryce's other lease in the building and has Bryce committed to the entire building through September 30, 2023. The lease extension includes a 5.3% base rent increase with 2.0% annual increases thereafter.

Built in 2000, the 338,000 single-tenant property features 32-foot clear ceiling heights, ample dock doors, an ESFR sprinkler system, T-5 lighting and ample trailer and auto parking.

"To date our team has successfully extended 57% of the 2.9 million square feet of leases expiring in 2017, while increasing the REIT's weighted average remaining lease term by 16%. We are pleased to continue our strong track record of tenant retention and stable occupancy," noted Scott Frederiksen, Chief Executive Officer of the REIT.

The REIT has no lease expirations remaining in 2016.

SUBSEQUENT EVENTS
On October 7, 2016, the REIT announced an agreement to indirectly acquire from a third party, an 86% occupied investment property located in Minneapolis, MN totaling 560,378 square feet for a purchase price of $46.2 million (exclusive of closing and transaction costs). The purchase price will be satisfied with a combination of cash on hand, funds from the Revolving Facility and the assumption of a $26.0 million mortgage payable bearing a fixed interest rate of 3.62% maturing on October 1, 2021. The REIT expects to finalize the acquisition in November 2016.

On November 1, 2016, the REIT indirectly acquired from a third party a 100% occupied 226,800 square foot investment property located in Columbus, OH for a purchase price of $13.9 million (exclusive of closing and transaction costs) representing a capitalization rate of approximately 6.8%. The purchase price was satisfied with cash on hand.

On November 4, 2016 the REIT repaid a $21.0 million mortgage bearing a fixed interest rate of 5.77% with available cash. Four of the properties previously encumbered by the mortgage are in process of being added as borrowing base collateral for (and will increase the availability on) the Revolving Facility.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

(In thousands of US dollars, except per Unit amounts, number of investment properties, and GLA)    Three months ended September 30,   
Nine months ended September 30,
       2016    2015    2016    2015
Operating Results:                    
  Investment properties revenue (1)  $ 17,334  $ 17,705  $ 52,448  $ 51,654
  NOI (1) (2)    12,966    13,420    39,041    39,230
  Net income and comprehensive income (1)    4,128    33,999    32,425    24,120
  Funds from Operations ("FFO") (1) (2) (3)    8,586    8,617    24,373    24,750
  AFFO (2) (4)    8,012    7,361    22,761    21,214
  FFO per Unit (1) (2) (5) (6) (7)    0.216    0.255    0.681    0.743
  AFFO per Unit (2) (5) (6)    0.202    0.218    0.636    0.637
Distributions:                    
  Distributions per Unit (5) (6) (8)    0.190    0.180    0.570    0.530
  Distributions declared (6) (8)    7,856    6,071    20,676    17,877
  AFFO payout ratio (2) (8)    98.1%    82.5%    90.8%    84.3%
  Weighted average number of Units (5) (6)    39,752    33,748    35,767    33,322
              
              
As at    September 30, 2016    December 31, 2015
Operational Information:          
  Number of investment properties    47    48
  GLA    14,845,006    15,097,471
  Occupancy    99.0%    98.6%
  Average remaining lease term (years)    3.7    3.9
  Fair value of investment properties  $ 740,158  $ 742,592
Ratios:          
  Weighted average effective interest rate (9)    4.0%    3.8%
  Variable interest rate debt as percentage of total debt (10)    -    12.9%
  Debt-to-gross book value (2)    42.2%    48.6%
  Interest coverage ratio(2)    3.4x    3.2x
  Fixed charge coverage ratio(2)    2.9x    2.8x
  Debt to EBITDA (2)    8.0x    8.1x
        
(1) The three months ended December 31, 2015 includes a cumulative non-recurring adjustment of $1,652 due to the overstatement of straight-line rent. Refer to the REIT's MD&A for the year ended December 31, 2015 for further details.
(2) NOI, FFO, AFFO, FFO per Unit, AFFO per Unit, AFFO payout ratio, EBITDA, debt-to-gross book value, interest coverage ratio, fixed charge coverage ratio and debt to EBITDA are key measures of performance used by real estate operating companies, however, they are not defined by IFRS, do not have standard meanings and may not be comparable with other industries or issuers. This data should be read in conjunction with the "Non-IFRS Measures" section of the REIT's MD&A.
(3) Reconciliations of FFO to net income (loss) can be found on page 16 of the REIT's MD&A for the three and nine months ended September 30, 2016 and 2015. Refer to the REIT's respective annual or interim MD&As issued for a reconciliation of FFO to net income (loss) relating to all other periods.
(4) Reconciliations of AFFO to FFO can be found on page 16 of the REIT's MD&A for the three and nine months ended September 30, 2016 and 2015. Refer to the REIT's respective annual or interim MD&As issued for a reconciliation of AFFO to FFO relating to all other periods.
(5) Includes trust units and class B partnership units.
(6) Excludes options and deferred trust units outstanding under the REIT's equity compensation plans.
(7) Excluding strategic process expenses and the cumulative non-recurring adjustment to straight-line rent (see footnote 1 above), FFO per Unit would have been $0.241, $0.248, $0.263 and $0.255 for the three months ended March 31, 2016, December 31, 2015, September 30, 2015 and June 30, 2015, respectively.
(8) Includes distributions on trust units and class B partnership units.
(9) Includes mortgages payable, the Revolving Facility, mark-to-market adjustments and financing costs.
(10) Includes amounts outstanding under the Revolving Facility.

INVESTOR CONFERENCE CALL

A conference call will be hosted by the REIT's management team on Thursday, November 10, 2016 at 9:00 am ET. The telephone numbers to participate in the conference call are Canada Toll Free: (855) 669-9657, U.S. Toll Free (888) 249-8268 and International: (412) 902-4153. The live audio conference call will also be available as a webcast. To access the live audio webcast please access the link on the "Investors" page on our web site at www.wptreit.com. The telephone numbers to listen to the call after it is completed (Instant Replay) are Canada Toll Free (855) 669-9658, U.S. Toll Free (877) 344-7529 and International (412) 317-0088. The Passcode for the Instant Replay is 10093582#. A recording of the call will also be archived on the REIT's web site at www.wptreit.com.

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 was formed for the purpose of acquiring, owning and developing primarily industrial investment 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 15.1 million square feet of gross leasable area, comprised of 46 industrial properties and two office properties located in 12 states in the United States. The REIT pays monthly cash distributions, currently at $0.0633 per Unit, or approximately $0.76 per Unit on an annualized basis, in US funds.

Forward-Looking Statements

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", "scheduled", "estimates", "intends", "anticipates", "projects", "believes" or variations of such words and phrases (including negative variations) 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. 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. Such estimates, beliefs and assumptions include the various assumptions set forth herein, including, but not limited to, the REIT's and the property's future growth potential, anticipated amounts of expenses, 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, if achieved at all. 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 or referenced under "Risk Factors" in the REIT's annual information form for the year ended December 31, 2015, which is available under the REIT's profile on SEDAR at www.sedar.com. These forward-looking statements have been approved by management to be 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.

Contact Information

  • For more information, please contact:
    Scott Frederiksen
    Chief Executive Officer

    WPT Industrial Real Estate Investment Trust
    Tel: (952) 897-7737
    Fax: (952) 842-7737