WPT Industrial REIT Announces First Quarter 2020 Results and Provides Operational Update
TORONTO, May 13, 2020 (GLOBE NEWSWIRE) -- WPT Industrial Real Estate Investment Trust (the “REIT”) (TSX: WIR.U; WIR.UN; OTCQX: WPTIF) announced today its results for the three months ended March 31, 2020. All dollar amounts are stated in U.S. funds.
Highlights for the three months ended March 31, 2020:
- Investment properties revenue and net operating income (“NOI”)(1) both increased 28.9% over the same period last year
- Funds from operations (“FFO”)(1) and adjusted funds from operations (“AFFO”)(1) increased 43.0% and 53.5%, respectively, over the same period last year
- Same properties NOI(1) was up 1.4% in the quarter
- Completed a subscription receipt offering in February 2020, raising approximately $271 million in gross proceeds
- Amended the REIT’s senior unsecured credit facility (“Credit Facility”) in March 2020, increasing capacity from $575 million to $1,175 million
- Acquired a total of 27 distribution buildings representing approximately 9.2 million square feet of gross leasable area (“GLA”) and three land parcels for future development for a combined purchase price of approximately $760 million (exclusive of closing and transaction costs)
- Sold the REIT’s only office property and adjacent land parcel for net proceeds of approximately $29.4 million in January 2020
“During the first quarter, the REIT produced solid financial and operating results and, although the impact of the COVID-19 pandemic remains uncertain, the REIT has continued to collect rents at historical rates,” commented Scott Frederiksen, Chief Executive Officer. “On the investment front, we added more high-quality logistics properties to our portfolio, while also increasing our already strong roster of investment grade tenants. Over the long term, we expect supply chain disruption caused by the pandemic to benefit our sector by accelerating e-commerce adoption and increasing inventories. But, in the short term, as we navigate through the current period of economic uncertainty, we expect the meaningful scale and diversification from our recent acquisitions to enhance our ability to leverage fixed costs and add further stability to the REIT’s cashflows.”
FINANCIAL AND OPERATIONAL HIGHLIGHTS
(all figures in thousands of US dollars, except per Unit amounts, ratios, percentages, number of investment properties, amounts related to remaining lease term and GLA)
| Three months ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Operating Results: | ||||||||
| Investment properties revenue | $ | 32,481 | $ | 25,198 | ||||
| Management fee revenue | $ | 273 | $ | 419 | ||||
| NOI (1) | $ | 23,381 | $ | 18,141 | ||||
| Net income and comprehensive income | $ | 86,368 | $ | 9,607 | ||||
| Net income and comprehensive income per Unit (basic) (2)(3) | $ | 1.181 | $ | 0.182 | ||||
| Net income and comprehensive income per Unit (diluted) (2)(4) | $ | 1.153 | $ | 0.176 | ||||
| FFO (1) | $ | 13,749 | $ | 9,614 | ||||
| FFO per Unit (diluted) (1)(2)(4) | $ | 0.184 | $ | 0.176 | ||||
| AFFO (1) (5) | $ | 10,284 | $ | 6,698 | ||||
| AFFO per Unit (diluted) (1)(2)(4) | $ | 0.137 | $ | 0.123 | ||||
| Cash flows from operations | $ | 16,389 | $ | 14,796 | ||||
| Adjusted Cash Flow from Operations (“ACFO”) (1) | $ | 14,018 | $ | 9,486 | ||||
| Book value per Unit (1) | $ | 12.98 | $ | 12.40 | ||||
| Distributions: | ||||||||
| Distributions per Unit (2)(5) | $ | 0.190 | $ | 0.190 | ||||
| Distributions declared (3)(5) | $ | 15,087 | $ | 10,688 | ||||
| ACFO payout ratio (1)(5) | 107.6 | % | 112.7 | % | ||||
| Weighted average number of Units (basic) (2)(3) | 73,143 | 52,803 | ||||||
| Weighted average number of Units (diluted) (2)(4) | 74,886 | 54,589 | ||||||
| As at | March 31, 2020 | December 31, 2019 | ||||||
| Operational Information: | ||||||||
| Number of investment properties | 100 | 74 | ||||||
| GLA | 31,803,999 | 22,870,482 | ||||||
| Occupancy | 95.7 | % | 99.0 | % | ||||
| Average remaining lease term (years) | 4.7 | 4.9 | ||||||
| Fair value of investment properties | $ | 2,301,572 | $ | 1,573,077 | ||||
| Ratios: | ||||||||
| Weighted average effective interest rate (6) | 3.3 | % | 3.8 | % | ||||
| Variable interest rate debt as percentage of total debt (7) | 6.8 | % | 24.7 | % | ||||
| Debt-to-gross book value (1) | 52.1 | % | 43.7 | % | ||||
| Interest coverage ratio (1) | 2.9x | 3.1x | ||||||
| Fixed charge coverage ratio (1) | 2.5x | 2.7x | ||||||
| Debt to Adjusted EBITDA (1) | 8.5x | 8.2x | ||||||
| (1) NOI, same properties NOI, FFO, FFO per Unit (diluted), AFFO, AFFO per Unit (diluted), ACFO, Book value per Unit, ACFO payout ratio, cash re-leasing spread, straight-line rent re-leasing spread, debt-to-gross book value, interest coverage ratio, fixed charge coverage ratio, capitalization rate and debt to Adjusted EBITDA (“Adjusted EBITDA” is defined as earnings before fair value adjustments to investment properties, interest (inclusive of finance costs), taxes, depreciation and amortization) are key measures of operating results and financial performance used by real estate operating companies, however, they are not defined by International Financial Reporting Standards (“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. | ||||||||
| (2) Includes trust units of the REIT (“REIT Units”) and class B partnership units of WPT Industrial, LP (the “Partnership”) (“Class B Units”) (collectively, the “Units”). | ||||||||
| (3) Excludes all options, deferred trust units (“DTUs”), and deferred limited partnership units (“DPUs”) outstanding under the REIT’s deferred compensation plans. | ||||||||
| (4) Includes all options, DTUs, and DPUs outstanding under the REIT’s deferred compensation plans. | ||||||||
| (5) Includes distributions on the Units and Subscription Receipts (defined herein). | ||||||||
| (6) Includes mortgages payable, the Credit Facility, mark-to-market adjustments and financing costs. | ||||||||
| (7) Includes amounts outstanding under the Credit Facility. | ||||||||
SOLID OPERATING PERFORMANCE
For the three months ended March 31, 2020, investment properties revenue increased $7.3 million or 28.9% compared to the same period last year. The increase was primarily due to the contribution from 2019 and 2020 acquisitions and an increase in base rent in existing properties. Net income and comprehensive income for the three months ended March 31, 2020 was $86.4 million compared to $9.6 million in the same period last year. The increase in net income was primarily due to a non-cash fair value adjustment of $103.3 million related to the exchange of Subscription Receipts for REIT Units.
NOI for the three months ended March 31, 2020 was up 28.9% compared to the same period last year. Same properties NOI increased 1.4% for the three months ended March 31, 2020, primarily due to increases in contractual base rent.
FFO and AFFO for the three months ended March 31, 2020 were up 43.0% and 53.5%, respectively, compared to the same period last year. FFO and AFFO per Unit for the three months ended March 31, 2020 were up $0.008 per Unit or 4.5% and $0.014 per Unit or 11.4%, respectively. Both FFO and AFFO were mainly impacted by increased properties revenue due to acquisitions, increases in base rent, and a reduction in general and administrative expenses compared to the prior period. FFO per Unit and AFFO per Unit were also impacted by a 37.2% increase in the weighted average number of Units outstanding compared to the same period last year.
Cash flow from operations and ACFO were up 10.8% and 47.8%, respectively, compared to the same period last year. The REIT’s ACFO payout ratio for the three months ended March 31, 2020 was 107.6%, a decrease of 5.1% compared to last year. The ACFO payout ratio was directly affected by the timing of equity raises in October 2019 and February 2020 relative to the timing of deployment for such equity proceeds. Cash flow from operations and ACFO compared to the same period last year were both up mainly due to increased NOI from 2019 and 2020 acquisition activity and a decrease in free rent.
LEASING ACTIVITY
As at March 31, 2020, the REIT had renewed or leased to new or existing tenants approximately 3.0 million square feet, representing 89.3% of 2020 lease expirations. Lease renewals commencing in the quarter had a weighted average cash re-leasing spread and straight-line rent re-leasing spread of 4.5% and 17.1%, respectively.
During the three months ended March 31, 2020, the REIT renewed three leases totaling approximately 753,000 square feet, with renewal terms set to commence after March 31, 2020. These lease renewals had a weighted average cash re-leasing spread and straight-line rent re-leasing spread of 10.4% and 16.1%, respectively.
During the three months ended March 31, 2020, the REIT entered into new leases for two previously vacant spaces totaling approximately 488,800 square feet. Both new leases are expected to commence in the second quarter of 2020. Including these new leases, the REIT’s occupancy was 97.3%.
This recent leasing activity reduces the REIT’s remaining 2020 lease expirations to approximately 360,000 square feet or 1.1% of the portfolio’s leased GLA.
STRONG FINANCIAL & LIQUIDITY POSITION
As at March 31, 2020, the REIT’s debt-to-gross-book-value ratio was 52.1% with interest and fixed charge coverage ratios of 2.9 and 2.5 times, respectively, and a debt-to-Adjusted EBITDA ratio of 8.5 times. The weighted average effective interest rate on outstanding debt was 3.3% at March 31, 2020 with a weighted average term to maturity on the REIT’s mortgages payable and total debt of 3.1 years and 3.9 years, respectively. Weighted average remaining lease term was 4.7 years.
As at March 31, 2020, the REIT had approximately $112.3 million available to be drawn on the Credit Facility, in addition to cash on hand of $50.4 million. The REIT has only one mortgage loan totaling $31.8 million maturing in 2020 and five mortgage loans totaling approximately $72.5 million maturing in 2021. The REIT expects the refinancing of these 2020 and 2021 loan maturities to increase the REIT’s overall liquidity position.
The REIT is reviewing all planned discretionary capital expenditures and, where prudent, deferring such expenditures to the second half of 2020 or 2021. The REIT also expects to increase capital recycling in 2020 and 2021 in an effort to further strengthen the REIT’s balance sheet and create additional flexibility to invest in the REIT’s private capital development pipeline.
PRIVATE CAPITAL
The REIT generated $0.3 million of management fee revenue during the quarter consisting of ongoing management fees.
The REIT has 6 development projects currently underway in its private capital platform, comprising approximately 2.4 million square feet, at various stages of construction and lease-up. In addition, the REIT has approximately two million square feet of development projects in its private capital pipeline in various stages of due diligence. In some cases, the COVID-19 pandemic may delay the REIT’s ability to complete due diligence, entitlements, construction, financing and/or leasing for new and existing projects. In other cases, the REIT may elect not to pursue certain pipeline opportunities given current market conditions. If market conditions worsen, the REIT will have the option to further scale back or delay development activities. To date, however, the REIT continues to have compelling projects in its development pipeline in various stages of due diligence or entitlement and will continue to selectively pursue additional value-add and development opportunities alongside private capital partners.
RECENT EVENTS
On January 8, 2020, the REIT acquired a 100% occupied distribution property located in Portland, Oregon totaling 126,303 square feet for a purchase price of $16.2 million (exclusive of closing and transaction costs), representing a capitalization rate of 5.6%. The purchase price was satisfied with funds from the Credit Facility and cash on hand.
On January 16, 2020, the REIT acquired a land parcel located in Eagan (Minneapolis), Minnesota, for a purchase price of approximately $5.1 million (exclusive of closing and transaction costs). The REIT intends to contribute the property into a joint venture with one or more private capital partners and develop a distribution building totaling 206,384 square feet of GLA on the site.
On January 27, 2020, the REIT sold the its only office property and adjacent land parcel located at 4350 and 4400 Baker Road, Minnetonka, Minnesota for net cash proceeds of $29.4 million (inclusive of closing and working capital adjustments).
On February 3, 2020, the REIT entered into an agreement to economically fix the interest rate for a $125 million term loan under the Credit Facility using an interest rate swap at LIBOR of 1.31% plus an applicable margin based on leverage.
On February 5, 2020, the REIT acquired a land parcel located in Katy (Houston), Texas, for a purchase price of approximately $8.7 million (exclusive of closing and transaction costs). The REIT intends to contribute the property into a joint venture with one or more private capital partners and develop one or more industrial buildings totaling approximately 500,000 square feet of GLA on the site.
On February 27, 2020, the REIT issued 16,272,500 subscription receipts of the REIT (including subscription receipts issued pursuant to the exercise in full of the over-allotment option granted by the REIT to the underwriters of the offering) (the “Subscription Receipts”) at a price of $14.35 per Subscription Receipt to the Underwriters on a bought deal basis for gross cash proceeds to the REIT of approximately $233.5 million (exclusive of Underwriters’ fees of approximately $9.3 million and other issuance costs), and 2,578,400 Subscription Receipts at a price of $14.35 per Subscription Receipt to Alberta Investment Management Corporation (“AIMCo”) for cash proceeds to the REIT of approximately $37.0 million (the “February 2020 Offering”).
On February 28, 2020, the REIT entered into an agreement to economically fix the interest rate for $470 million of term loans using interest rate swaps at an average LIBOR of 0.93% plus an applicable margin based on leverage. The REIT drew the $470 million from increased capacity on the three delayed draw term loans under the Credit Facility on March 26, 2020.
On March 2, 2020, the REIT repaid a maturing mortgage payable bearing a fixed interest rate of 2.87% with a remaining principal balance of approximately $51.8 million, with funds from a term loan under the Credit Facility. The properties previously encumbered by the mortgage payable were added to the REIT’s unencumbered asset pool, thereby increasing the availability on the Credit Facility.
On March 26, 2020, the REIT acquired a portfolio of 26 distribution properties and one land parcel located in multiple states across the U.S. for a purchase price of $730,000 (exclusive of closing and transaction costs), representing a going-in capitalization rate of 5.5% and a stabilized capitalization rate of approximately 5.9%. The purchase price was satisfied with funds from the February 2020 Offering, funds from the Credit Facility and the assumption of three mortgages payable (the “PIRET Portfolio Acquisition”).
On March 26, 2020, the REIT amended and restated its unsecured credit facility (“Credit Facility”), thereby increasing availability from $575 million to approximately $1.175 billion (subject to requisite unencumbered assets). The increase was comprised of increasing the capacity of the unsecured revolving facility by $130 million to $375 million, delayed draw term loan I (“Term Loan I”) by $75 million to $200 million, delayed draw term loan II (“Term Loan II”) by $170 million to $250 million, and delayed draw term loan III (“Term Loan III”) by $225 million to $350 million. The amended and restated Credit Facility also contains an accordion feature which increases the REIT’s capacity to approximately $1.675 billion (subject to requisite unencumbered assets and lender approval). Additionally, the unsecured revolving facility’s maturity date was extended to March 26, 2024, with the option for two six-month extensions. On March 26, 2020, the REIT drew $75 million, $170 million and $225 million on Term Loan I, Term Loan II and Term Loan III, respectively. The REIT used a portion of the proceeds to fund the PIRET Portfolio Acquisition.
On March 26, 2020, upon completion of the PIRET Portfolio Acquisition, each outstanding Subscription Receipt was automatically exchanged for one REIT Unit, resulting in the issuance of 18,850,900 REIT Units in the aggregate to the holders of Subscription Receipts.
OPERATIONAL UPDATE
The REIT is closely monitoring developments regarding the COVID-19 pandemic and following all guidelines issued by the U.S. Centers for Disease Control and federal, state and municipal governments. The health and welfare of our employees and tenants continues to be our highest priority. Internally, in compliance with municipal stay-at-home orders, our employees have been working from home since mid-March. Many of the REIT’s tenants are considered essential businesses, or suppliers to essential businesses, and the REIT’s management team is actively working to ensure these businesses can serve their customers during the pandemic by having safe and continuous access to their leased facilities.
As at May 13, 2020, the REIT has received approximately 98% and 97% of contractual rents for April and May, respectively. The REIT has currently received requests for some form of short-term rent deferment from tenants representing approximately 15% of annualized gross rents, however, the REIT has yet to agree to any deferral of tenant rent related to the COVID-19 pandemic. Tenant requests for relief include generic inquiries from some large, strong credit tenants directed at all commercial landlords (including retail and office landlords) and the REIT expects the actual number of deferrals granted to be lower than the amount requested. However, pending further clarity on the full effect of the COVID-19 pandemic on certain portions of the REIT’s tenant base, including the duration of government stay-at-home orders, the timing and quantum of rent deferrals remains uncertain.
Further disclosure surrounding the impact of COVID-19 are included in the REIT’s management discussion and analysis for the three months ended March 31, 2020 under the REIT’s profile on SEDAR at www.sedar.com.
INVESTOR CONFERENCE CALL
A conference call will be hosted by the REIT’s management team on Thursday, May 14, 2020 at 10:00 am Eastern Time. 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 10142466#. A recording of the call will also be archived on the REIT’s web site at www.wptreit.com.
ANNUAL UNITHOLDERS’ MEETING
This year, out of an abundance of caution, to proactively deal with the unprecedented public health impact of COVID-19 and to mitigate risks to the health and safety of our community, Unitholders, employees and other stakeholders and to comply with certain guidelines and recommendations of the Ontario government, the REIT will hold the Annual General Meeting of its Unitholders virtually via live audio webcast at https://web.lumiagm.com/252047167 on Tuesday, June 16, 2020 at 1:00 p.m. Eastern Time.
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 acquires, develops, manages and owns industrial properties located in the United States, with a particular focus on warehouse and distribution properties. WPT Industrial, LP (the REIT’s operating subsidiary) indirectly owns a portfolio of properties across 20 states in the United States consisting of approximately 31.8 million square feet of GLA, comprised of 100 industrial properties. 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.
For more information, please contact:
Scott Frederiksen, Chief Executive Officer
WPT Industrial Real Estate Investment Trust
Tel: (612) 800-8501
Forward-Looking Statements
This press release contains “forward-looking information” as defined under applicable Canadian securities law (“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, including statements concerning (i) expected growth opportunities and the availability of acquisition opportunities from its private capital pipeline, (ii) expectations regarding debt refinancing, capital recycling and associated impacts on the REIT’s liquidity position, and (iii) the impact on the REIT of the occurrence of and response to the coronavirus disease 2019 (COVID-2019) pandemic. 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, but are not limited to, the REIT’s ability to complete due diligence and entitlements on private capital development pipeline opportunities, the REIT’s ability to complete development and investment transactions, the REIT’s ability to undertake capital recycling through asset sales, 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, continued positive net absorption and declining vacancy rates in the markets in which the REIT’s properties are located, and anticipated and potential adverse impacts resulting from the COVID-19 pandemic.
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 most recently filed annual information form and management’s discussion and analysis, each of which are 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.
The COVID-19 pandemic has cast additional uncertainty on the REIT’s prior expectations, future outlook, anticipated events and projections. There can be no assurance that they will continue to be valid. Given the rapid pace of change with respect to the impact of the COVID-19 pandemic, it is premature to make further assumptions about these matters. The duration, extent and severity of the impact the COVID-19 pandemic, including measures to prevent its spread, will have on the REIT’s business is highly uncertain and impossible to accurately predict at this time.
