Thursday, November 13, 2014
Vancouver, BC – November 13, 2014: Pure Industrial Real Estate Trust (“PIRET” or the “Trust”) (TSX: AAR.UN) is pleased to announce the release of its financial results for the three and nine months ended September 30, 2014. 
 
Q3 2014 Financial Results 
 
The financial results, consisting of PIRET’s unaudited interim consolidated condensed financial statements for the three and nine months ended September 30, 2014, and Management’s Discussion and Analysis (“MD&A”) dated November 13, 2014, are available on SEDAR (www.sedar.com) or PIRET’s website (www.piret.ca). 
 
Highlights
 
  • As at September 30, 2014, PIRET’s portfolio consists of 166 income producing properties representing gross leasable area (“GLA”) of approximately 15.2 million square feet (“sf”), an increase from 156 properties and 12.6 million sf of GLA at December 31, 2013.  In addition, PIRET’s portfolio consists of 4 properties under development representing 0.8 million sf of GLA.
  • PIRET raised $253.1 million by issuing 55,200,000 Class A units from two bought deal equity offerings. 
  • The occupancy for our portfolio was 96.8% as at September 30, 2014, with a weighted average lease term of 7.0 years.  Our occupancy rises to 97.7% when factoring in committed space.  PIRET completed approximately 1,300,000 of leasing year-to-date and 927,000 sf in Q3.  Rental rates increased on average by 6.9% in the quarter, led by a 17.5% increase on 87,000 sf of new leases and a 0.9% increase on 127,000 sf of renewals.
  • Investment properties increased to $1.71 billion as at September 30, 2014 from $1.31 billion at December 31, 2013 due primarily to the acquisition of 20 properties with 3.4 million sf of GLA.  With these acquisitions, PIRET continues to strengthen its cash flow and increase its predominance in modern distribution and logistics product with leading industry tenants.
  • Loan to Gross Book Value as at September 30, 2014 was 48.9%, down from 54.1% at December 31, 2013.
  • Revenue for the nine months ended September 30, 2014 increased 33% from $77.6 million in 2013 to $103.0 million in 2014.  For the three months ended September 30, 2014 PIRET’s revenues increased 11% from $32.6 million in 2013 compared to $36.0 million in 2014. 
  • Earnings from property operations (“NOI”) increased by 28% for the nine months ended September 30, 2014 compared to the same period in 2013 from $57.0 million to $73.1 million.  For the three months ended September 30, 2014 PIRET’s earnings from property operations increased 9% from $23.5 million in 2013 to $25.5 million in 2014. Same property NOI increased 0.5% quarter on quarter, led by a 2.6% increase in rents offset by a 1.5% decrease in occupancy at those properties since Q3 2013 from 97.6% to 96.1%.  On a stabilized basis, excluding the impact of the acquisitions and dispositions during the past two quarters, stabilized NOI increased by 0.5% over the previous quarter.
  • On a go-forward basis, the geographic concentration of PIRET’s portfolio by NOI is as follows:  Western Canada 41%, Ontario 38%, U.S. 14%, and others 7%.
  • Funds from operations (“FFO”) for the nine months ended September 30, 2014 increased to $45.7 million compared to $36.5 million for the same period in 2013.  On a per unit basis, FFO for the nine months ended September 30, 2014 decreased to $0.28 when compared to $0.30 for the same period in 2013.  The payout ratio for the nine months ended September 30, 2014 increased to 84.8% from 77.2% for the same period in 2013.  The FFO per unit and payout ratio were impacted significantly by the bought deal equity offerings in January and June and the subsequent timing of the corresponding acquisitions. 
  • For the three months ended September 30, 2014, FFO increased to $16.5 million compared to $14.9 million for the same period in 2013.  On a per unit basis, FFO for the three months ended September 30, 2014 was $0.09, compared to $0.11 for the same period in 2013 and the payout ratio increased to 90.8% from 72.2% in the same period in 2013.  The FFO per unit and payout ratio were negatively impacted by the timing of the acquisition of 11 properties during the quarter with 4 of the acquisition properties still under development at the end of the quarter.  Refer to the table on page 4 illustrating the impact of the acquisitions and development properties on FFO per unit and FFO payout ratio on a leverage-neutral basis.
  • On an adjusted funds from operations (“AFFO”) basis, there was an increase from $32.5 million for the nine months ended September 30, 2013 to $38.9 million for the same period in 2014.  On a per unit basis, AFFO was $0.24 for the nine months ended September 30, 2014 compared to $0.27 for the nine months ended September 30, 2013.  The AFFO payout ratio was 99.5% in 2014 compared to 86.8% in 2013 for the first nine months.  The AFFO per unit and payout ratio for the nine months ended September 30, 2014 were significantly impacted by the bought deal equity offerings in January and June and the subsequent timing of the acquisitions.
  • AFFO increased from $13.1 million to $14.6 million for the three months ended September 30, 2013 compared to 2014.  On a per unit basis, AFFO was $0.08 for the three months ended September 30, 2014 and $0.09 for the three months ended September 30, 2013.  The AFFO payout ratio for the three months ended September 30 increased from 82.3% in 2013 to 102.7% for the same period in 2014.  PIRET’s AFFO payout ratio in the quarter has been impacted by the bought deal public offering, the subsequent timing of closing the acquisitions and 4 properties which were still under development at the end of the quarter.  Refer to the table on page 4 illustrating the impact of the acquisitions and development properties on AFFO per unit and AFFO payout ratio on a leverage-neutral basis. 
 
Acquisition of FedEx Ground Portfolio
 
In June 2014, the Trust announced the acquisition of a portfolio consisting of 11 critical-use, ground distribution facilities totaling over 1.9 million sf leased entirely to FedEx for an average lease term of approximately 10 years. These properties are well-located in major industrial markets within the FedEx ground distribution network. The purchase price of the portfolio of approximately $243 million represented a capitalization rate of approximately 7.23% on year 1 stabilized NOI. 
 
The Portfolio is 100% leased to FedEx under double net leases. FedEx is considered investment grade and rated BBB by S&P and Baa1 by Moody’s and is publicly listed on the New York Stock Exchange with a market capitalization of over US$40 billion.
Eight of the properties closed on August 5, two properties on September 8 and the last of the eleven properties closed on September 26.  At the end of the quarter, 7 properties representing 1.1 million sf of GLA were income producing and 4 properties representing 0.8 million sf and over US$5.0 million in annual NOI are under development.  The Trust expects the remaining 4 properties under development to be on schedule and complete by February 2015.  
 
By adding FedEx as its largest tenant, PIRET has added significant value for unitholders by enhancing the quality of its portfolio and cash flow, and increasing its exposure to the growing e-commerce industry with one of the world’s leading services provider.
These properties represent the leading edge in e-commerce services facilities and this transaction is consistent with PIRET’s strategy of acquiring newer generation distribution and logistics properties in strong and liquid markets.  The properties are fully leased to an investment grade tenant under long-term leases and provide attractive growth opportunities through expansions and multiple renewal options with rent escalations.    
 
Q3 2014 Dispositions
 
On July 31, 2014 PIRET announced the sale of 8461 and 8481 Keele Street in Vaughan, Ontario for $6.2 million. The building was purchased as a part of a larger portfolio deal in June 2011 for $5.0 million.  For the nine months ended September 30, 2014, PIRET has sold six properties for $19.8 million that were purchased for $14.7 million, representing a 34.7% gain on the disposition of such properties.  
 
Selected Financial Information
 
 
For the nine months ended September 30
For the three months ended September 30
($000s, except per unit basis)
2014
2013*
2012
2014
2013*
2012
Revenue
$102,945
$77,575
$36,848
$36,001
$32,574
$13,338
Net Operating Income
$73,139
$56,967
$28,069
$25,498
$23,492
$10,147
Distributions Declared Per Unit
0.23
0.23
0.22
0.08
0.08
0.08
FFO ([1]) per unit (diluted)
0.28
0.30
0.27
0.09
0.11
0.09
Payout Ratio
84.8%
77.2%
85.8%
90.8%
72.2%
83.2%
AFFO (1) per unit (diluted)
0.24
0.27
0.24
0.08
0.09
0.09
Payout ratio
99.5%
86.8%
94.1%
102.7%
82.1%
89.8%
G&A as a Percent of Revenue
3.7%
3.7%
4.2%
3.7%
3.7%
4.4%
*    Includes a one-time termination fee of $875,000 for property disposed at 100 North Queen, Toronto.

 

 

 

 

 

As at September 30

 

 

 

 

2014

2013

2012

Debt-to-GBV

 

 

 

48.9%

53.8%

49.8%

Employees

 

 

 

36

32

17



([1])FFO and AFFO are widely accepted supplemental measures of financial performance for real estate entities.  However, these measures are not defined under IFRS.  PIRET’s MD&A, available on SEDAR at www.sedar.com, provides more detail regarding this measure.  

Stabilized Results and Neutral Leverage

PIRET’s year-to-date and third quarter results have been negatively impacted by the four properties still under development at the end of the quarter.  Furthermore, the reduction in leverage from 54.9% at the end of 2013 to 48.9% at the end of September 30, 2014 has also negatively impacted PIRET’s AFFO per unit basis and the corresponding payout ratio.  The table below illustrates the impact on PIRET’s quarterly stabilized NOI, AFFO per unit, and AFFO payout ratio post completion of the four FedEx properties, the last of which is expected to be completed in February 2015.  In addition, the table further illustrates the impact on a leverage neutral basis at 53%

 

 

NOI

AFFO

per unit

AFFO

Payout Ratio

For the 3 months ended September 30, 2014

$ 25,498

$0.076

102.7%

Incremental contribution from seven FedEx properties for full three months

1,835

0.007

 

Four FedEx properties under development

1,415

0.005

 

Stabilized

$ 28,748

$0.088

88.8%

Leverage neutral at 53% (1)

$ 28,748

$0.091

85.3%

(1) For purposes of reflecting the stabilized results assuming PIRET is leverage neutral at 53%, the total outstanding units have been reduced by 15 million Class A units.

Outlook

Our leasing activity year-to-date was very strong, particularly in Q3, with almost 1 million sf of leases signed in this quarter alone.  Much of the leasing activity in the third quarter related to major expiries in 2015, and from the corresponding increases in rental rate we anticipate improved NOI growth in Q4 and 2015.

The Trust’s acquisition of 10 critical-use, ground distribution facilities in the U.S. and one in Montreal during the third quarter was a transformational one for PIRET.  It provided a suitable entry to the U.S. industrial market with scale and, more significantly, added critical mass to the portfolio in the growing e-commerce sector with FedEx, a leader in the sector and a Fortune 100 company.  Upon completion of the 4 properties under development by February, 2015, FedEx will represent approximately 15% of our portfolio NOI.  As the 4 properties under development are delivered and generating income from November 2014 through February 2015, the transaction returns will increase but will be dilutive over the majority of that time period.  Further, as the 15% over-allotment option was fully exercised on the bought deal equity offering which closed on June 27, 2014, FFO and AFFO per unit will be negatively impacted until the proceeds from such offering are fully deployed.

Following the acquisitions in fiscal 2014 and equity issues that closed in January and June of 2014, PIRET believes that it has the asset quality and balance sheet flexibility and to execute our growth strategy in the near term without the need for additional equity.  The Trust continues to see a robust pipeline of off-market acquisition opportunities, but management intends to be targeted in deploying capital for growth, focusing on development and acquisition opportunities that will add value for our investors and continue to strengthen the quality of our portfolio and cash flow.  The Trust will continue to use debt financing prudently while reducing overall leverage over the next few years. 

For the remainder of 2014, PIRET will continue to focus on driving NOI growth through targeted leasing initiatives and asset repositioning, and leveraging the quality of our portfolio and management platform by executing on partnership opportunities that add value for our investors.  By leveraging our platform, management believes that it can significantly enhance return on equity, realize tangible net asset value growth and access competitive capital for growth by building effective institutional partnerships.

Conference Call

As previously announced on October 17, 2014, management will host the conference call at 5:00 pm (EST), 2:00 pm (PST), on Thursday, November 13, 2014, to review the financial results and corporate developments for the three and nine month period ended September 30, 2014.

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 November 13, 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 November 20, 2014.

Please enter the Replay ID# 150420, 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 

PIRET is an unincorporated, open-ended investment trust that owns and operates a diversified portfolio of income-producing industrial properties in leading markets. PIRET is an internally managed REIT that focuses exclusively on investing in industrial properties.

Additional information about PIRET is available at www.piret.ca or www.sedar.com.

For more information please contact:

 
Andrew Greig,
Director of Investor Relations
Suite 910, 925 West Georgia Street
Vancouver, BC  V6C 3L2
Phone: (604) 398-2836 or (888) 681-5959
 
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 PIRET, including:  (i) The Trust expects the remaining four properties under development to be completed on schedule in February 2015; (ii) Following the acquisitions in fiscal 2014 and equity issues that closed in January and June, 2014, PIRET believes that it has the asset quality and balance sheet flexibility and to execute its growth strategy in the near term without the need for additional equity; and (iii)  By leveraging the platform, management believes that it can significantly enhance return on equity, realize tangible net asset value growth and access competitive capital for growth by building effective institutional partnerships.

Although PIRET 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 PIRET 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 PIRET operates, prevailing economic conditions, and other factors, many of which are beyond the control of the PIRET.

The forward-looking statements contained in this press release represent PIRET's expectations as of the date hereof, and are subject to change after such date. PIRET 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.

Not for distribution to United States Newswire Services or for dissemination in the United States.