Friday, August 12, 2016
Vancouver, BC – August 12, 2016: Pure Industrial Real Estate Trust (the “Trust”) (TSX: AAR.UN) is pleased to announce the release of its financial results for the three and six months ended June 30, 2016. 
 
Q2-2016 Financial Results 
 
The Q2-2016 financial results, consisting of the Trust’s unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2016, and management’s discussion and analysis of results of operations and financial condition (“MD&A”) dated August 12, 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 year.)
 
  • As at June 30, 2016, the Trust’s portfolio under management consists of 167 income producing properties representing gross leasable area (“GLA”) of approximately 17.8 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 and one property under expansion, which will add 43,760 sf of GLA to the Trust’s portfolio upon completion in Q4-2016.  
  • Investment properties remained unchanged at $2.07 billion as at June 30, 2016 from December 31, 2015.  The increase in investment properties relating to the acquisition of 2 investment properties, capital expenditures, development costs, and fair value increases were offset by the disposition of 5 income producing assets and the decrease in the US exchange rate at period end compared to December 31, 2015.
  • The development in Vaughan, Ontario and expansion in Barrington, New Jersey were completed in Q2-2016 and rent for both properties commenced on April 15.  The Vaughan property and Barrington property will generate additional annual rents of over $8.5 million and US$900,000, respectively.     
  • On June 15, 2016, the Trust completed a bought deal offering (“Bought Deal”) for 29,670,000 Class A units priced at $5.05 per unit, which includes the full over-allotment option for 3,870,000 Class A units, for total gross proceeds of $149,833,500.
  • Loan to Gross Book Value as at June 30, 2016 was 42.7%, a 6.1% decrease from 48.8% as at December 31, 2015. 
  • Funds From Operations per Unit (“FFOPU”) increased by 13.4% for the three months ended June 30, 2016, over the prior year due to higher net operating income (“NOI”), lower interest expense and lower general and administrative (“G&A”) expenses.  FFOPU increased by 5.2% when compared to Q1-2016 due primarily to an increase in NOI, offset by an increase in G&A expenses, interest expense, income tax expense and the impact of the Bought Deal on the number of Class A units outstanding.  Excluding the impact of the additional units as a result of the Bought Deal, the Trust’s FFOPU is estimated to be 20.5 cents for the six months ended June 30, 2016 and 10.6 cents for Q2-2016.
  • Adjusted Funds From Operations per Unit (“AFFOPU”) for the three months ended June 30, 2016 increased 11.1% over the same period for the prior year and increased slightly by 0.7% when compared to Q1-2016 due to an increase in NOI, offset by an increase in G&A expenses, interest expense, income tax expense, non-recoverable capital expenditures related primarily to leasing commissions and the impact of the Bought Deal on the number of outstanding Class A units outstanding.  Excluding the impact of the additional units as a result of the Bought Deal, the Trust’s AFFOPU is estimated to be 18.6 cents for the six months ended June 30, 2016 and 9.5 cents for Q2-2016.
  • Revenue for the six months ended June 30 increased 4.9% from $84.7 million in 2015 to $88.9 million in 2016. For the three months ended June 30, the Trust’s revenues increased 6.9% from $42.4 million in 2015 to $45.3 million in 2016.
  • For the six months ended June 30, 2016, the Trust’s adjusted NOI increased 4.6% compared to the prior year.  For the three months ended June 30, 2016, the Trust’s adjusted NOI increased 6.7% over the prior year.
  • For the six months ended June 30, 2016, the Trust’s same property NOI (“SPNOI”) increased by $433,000 or 0.8% from 15.3 million sf, representing 86% of the Trust’s overall portfolio. The increase in SPNOI was more modest year over year compared to the increase in the second quarter alone due to higher vacancy in the Greater Toronto Area (“GTA”) and free rent corresponding to a new lease in the Greater Vancouver Area (“GVA”) included in the first quarter. 
  • SPNOI for the three months ended June 30, 2016 increased by $497,000 or 1.8% from 15.3 million sf, representing 86% of the Trust’s overall portfolio.  The increase in SPNOI is due primarily to lease up of 88,000 sf in British Columbia and 133,000 sf in Ontario, and the successful expansion of the FedEx facility in Barrington, New Jersey and favorable foreign exchange rates compared to the same quarter in 2015.  The increase in NOI is offset by vacancies of 221,000 sf in Alberta and 178,500 sf in North Carolina.  Excluding the Barrington expansion, SPNOI increased by 0.9%.
  • G&A expenses for the three months ended June 30, 2016 decreased to $1.9 million from $2.6 million in 2015 and represents 4.2% of rental revenue, a decrease of 200 basis points from the prior year.  G&A expenses increased by $0.3 million over the previous quarter due primarily to a higher unit based compensation adjustment and costs associated with the annual general meeting.
  • The occupancy of the portfolio was 95.6% as at June 30, 2016, an increase of 1.0% from December 31, 2015, with a weighted average lease term of 6.7 years.  Including committed space, the occupancy was 97.3% at June 30, 2016, an increase of 1.1% from the end of 2015.   
  • Of the 1.7 million sf of expiring space in the 6 months ended June 30, 2016, approximately 1.23 million sf, or 72.4% was renewed and approximately 200,000 sf was signed as new leases.  Approximately 766,000 sf, or 75.0% of expiring space in the quarter was renewed at an average rental rate increase of 8.5%.  
Acquisitions and Dispositions
 
The Trust acquired an investment property located in Montreal, Quebec for a total purchase price of $6.7 million, plus standard closing costs and adjustments of $0.2 million.
 
During the six months ended June 30, 2016, the Trust sold its interest in five investment properties located in Vaughan and Oakville, Ontario for gross proceeds of $21.8 million less standard closing costs and adjustments of $1.7 million resulting in net proceeds of $20.1 million.    
Selected Financial Information
 

 

For the six months

ended June 30

For the three months

ended June 30

($000s, except per unit basis)

2016

2015

2016

2015

 

Revenue

$ 88,850

$ 84,678

$ 45,304

$ 42,375

 

Net operating income (1)

$ 62,468

$ 59,703

$ 32,249

$ 30,222

 

Distributions declared per Class A Unit

$ 0.16

$ 0.16

$ 0.08

$ 0.08

 

FFO(2) per unit (fully diluted)

$ 0.20

$ 0.19

$ 0.10

$ 0.09

 

Payout Ratio(3)

77.2%

82.5%

75.3%

85.4%

 

AFFO(2) per unit (fully diluted)

$ 0.18

$ 0.17

$ 0.09

$ 0.08

 

Payout ratio(3)

84.9%

91.4%

84.6%

94.0%

 

G&A as a Percent of Revenue

4.0%

5.0%

4.2%

6.2%

 

 

(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.

 (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 “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. 

 

June 30, 2016

December 31, 2015

Debt-to-GBV

42.7%

48.8%

Employees

42

38

Outlook
 
Real Estate Fundamentals
 
According to CBRE, the Canadian National availability rate remained steady as of 2016-Q2 at 5.6%, with declining availability in Toronto and Vancouver and offset by increasing availability in Montreal, Calgary, Edmonton (resulting from new supply) and Halifax.  Similar to 2016-Q1, approximately 1.2 million sf of positive net absorption occurred in the quarter, led by Toronto and Vancouver at 3.4 and 1.1 million sf respectively, offset by negative absorption of 0.5 million sf in Calgary and 2.8 million sf in Montreal.  Notably, net absorption YTD is only slightly negative in Calgary and positive 1.1 million sf in Edmonton, and consequently the increase in availability has resulted primarily from new supply.  The average net asking rent fell slightly from $6.50 per sf (“psf”) in 2016-Q1 to $6.49 psf in this quarter, led by declines in Edmonton and Vancouver and offset by gains in Winnipeg and Toronto. 
 
According to the CBRE cap rate survey for the second 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 for class A and B product remained steady or lower from the previous quarter across all markets.  The overall cap rate for the quarter fell slightly to 5.86%, led by a decline in cap rates in Calgary and Waterloo.  The national Class B Industrial real estate overall cap rate fell from 6.92% to 6.86% this quarter, led by declines in Calgary, Waterloo and Montreal.
 
Outlook for Remainder of 2016
 
Leasing activity continues to be strong across the Trust’s markets.  The Trust has completed roughly 2.2 million sf of leasing YTD and 1.4 million sf in the quarter, including expiring space, vacancy and future expiries, resulting in a 1.1% increase in occupancy since December 31, 2015.  As a result, same-property NOI is expected to increase throughout 2016. 
 
As a market, Alberta remains a focus.  While the Trust has not, to date, dealt with any major disruptions to its tenancy, management remains cautious about the impact of a prolonged commodity slump on the real estate market in Alberta and the corresponding financial health of its tenants.  Hence the Trust has proactively maintained dialogue with select tenants to ensure it remains current on their situation and continues to evaluate available options to mitigate risk in the portfolio.
 
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, Ontario to expand their premises by approximately 44,000 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.
 
Capital expenditures increased significantly over the previous quarter due primarily to commissions related to leasing activity in the quarter, which impacted AFFO.  With turnover higher in 2016 than in previous years, leasing commissions are expected to remain relatively high throughout as the Trust releases its expiries and continue to increase occupancy.  The impact of leasing commissions is expected to decline in 2017 in line with lower turnover and occupancy stabilization, resulting in stronger same-property AFFO growth.
 
Conference Call 
 
As previously announced on July 19, 2016 management will host the conference call at 1:00 pm (EDT), 10:00 am (PDT), on Monday, August 15, 2016, to review the financial results and corporate developments for the three and six months ended June 30, 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 August 15, 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 August 22, 2016. 
 
Please enter the Replay ID# 583608, 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.
For more information please contact:
Andrew Greig,
Director of Investor Relations
 
Pure Industrial  Real Estate Trust
Suite 910, 925 West Georgia Street
Vancouver, BC  V6C 3L2
Phone:  (604) 398-2836 or (888) 681-5959
E-mail:  agreig@piret.ca

TSX – 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; and one property under expansion, which will add 43,760 sf of GLA to the Trust’s portfolio upon completion in Q4-2016; (ii) same-property NOI is expected to increase throughout 2016; (iii) 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; and (iv) the impact of leasing commissions is expected to decline in 2017 in line with lower turnover and occupancy stabilization, resulting in stronger same-property AFFO growth.
 
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.