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WPT Industrial REIT Announces Second Quarter Results

TORONTO, Aug. 07, 2019 (GLOBE NEWSWIRE) -- WPT Industrial Real Estate Investment Trust (the “REIT”) (TSX: WIR.U - OTCQX: WPTIF) announced today its results for the three and six months ended June 30, 2019.  All dollar amounts are stated in U.S. funds. 

Highlights for the three months ended June 30, 2019, including events subsequent to the end of the quarter:

  • Investment properties revenue and net operating income (“NOI”)(1) were up 28.5% and 27.6%, respectively, over the same period last year
  • Funds from operations (“FFO”)(1) and adjusted funds from operations (“AFFO”)(1) were up 18.5% and 3.9%, respectively, over the same period last year
  • Same properties NOI(1) was up 4.1% over the same period last year
  • Approximately 1.0 million square feet of renewals or new leases for space expiring in the quarter
  • Approximately 1.1 million square feet of renewals or new leases for space expiring after June 30, 2019; reducing lease expirations in 2019 and 2020 to 1.5% and 4.2% of gross leasable area (“GLA”), respectively
  • Occupancy increased to 99.4% and average remaining lease term rose to 4.9 years at June 30, 2019
  • Cash re-leasing spread(1) and straight-line rent re-leasing spreads(1) of 5.1% and 10.4%, respectively, for all lease renewals commencing in the second quarter
  • Acquired a 13-building / three land parcel portfolio (the “Infill Logistics Portfolio”) totaling approximately 2.2 million square feet of GLA for approximately $226 million (exclusive of closing and transaction costs)
  • Agreed to acquire four stabilized properties totaling approximately 1.5 million square feet of GLA for $109.3 million (exclusive of credits, closing and transaction costs) from the REIT’s private capital value-add and development pipeline

“During the quarter we saw significant growth to NOI and FFO as a result of the REIT’s purchase of the Infill Logistics Portfolio.  Quarterly growth was also driven by solid same properties NOI growth of 4.1% for the quarter and 3.8% year-to-date.  Our asset management team continues to maintain high occupancy in the portfolio while generating meaningful leasing spreads and term extensions on leasing activity,” commented Scott Frederiksen, Chief Executive Officer. “We are also pleased to be adding approximately 1.5 million square feet of modern, highly-functional properties from our private capital pipeline.  We expect these new acquisitions to be immediately accretive to the REIT’s AFFO.  Moreover, the opportunity to acquire high quality properties on an off-market basis at attractive pricing demonstrates the competitive advantage and long-term value proposition of the REIT’s value-add and development platform and private capital partnerships.”  

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 June 30, Six months ended June 30,
As at and for the quarter ended March 31,     2019   2018   2019     2018
Operating Results:        
  Investment properties revenue $    28,714 $    22,344 $    53,912 $    44,882
  Management fee revenue $   358 $   - $   849 $   - 
  NOI (1) $   21,164 $   16,591 $   39,305 $  32,993
  Net income and comprehensive income $   40,670 $   12,654 $   50,277 $  20,412
  Net income and comprehensive income per Unit (basic) (2) (3) $   0.690 $   0.263 $   0.899 $   0.424
  Net income and comprehensive income per Unit (diluted) (2) (4) $   0.670 $   0.258 $   0.872 $    0.416
  FFO (1) $   12,961 $   10,939 $   22,575 $   22,067
  FFO per Unit (diluted) (1) (2) (4) $   0.213 $   0.223 $   0.392 $   0.450
  AFFO (1) (5) $   9,759 $   9,396 $   16,457 $   18,877
  AFFO per Unit (diluted) (1) (2) (4) $   0.161 $   0.191 $   0.285 $    0.385
  Cash flows from operations $   18,236 $   16,801 $   33,032 $    32,299
  Adjusted Cash Flow from Operations (“ACFO”) (1) $   11,471 $   9,827 $   20,956 $   19,823
  Book value per Unit (1) $   12.88 $   12.05 $   12.88 $   12.05
Distributions:        
  Distributions per Unit (2) (5) $   0.190 $   0.190 $   0.190 $   0.380
  Distributions declared (3) (5) $   11,344 $   9,145 $   22,032 $   18,290
  ACFO payout ratio (1) (5)   98.9%   93.1%   105.1%   92.3%
  Weighted average number of Units (basic) (2) (3)   58,977   48,158   55,907   48,158
  Weighted average number of Units (diluted) (2) (4)   60,729   49,021   57,663   49,066


As at   June 30, 2019   December 31, 2018
Operational Information:        
  Number of investment properties   69   57
  GLA     20,767,799   18,850,627
  Occupancy   99.4%   99.3%
  Average remaining lease term (years)   4.9   4.7
  Fair value of investment properties $ 1,390,441 $ 1,117,672
Ratios:        
  Weighted average effective interest rate (6)   3.8%   3.9%
  Variable interest rate debt as percentage of total debt (7)   17.0%   9.8%
  Debt-to-gross book value (1)   45.0%   46.5%
  Interest coverage ratio (1)   3.0x   3.5x
  Fixed charge coverage ratio (1)   2.6x   2.9x
  Debt to Adjusted EBITDA (1)   7.6x   7.6x
(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 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.
(6) Includes mortgages payable, the construction loan, the unsecured credit facility, mark-to-market adjustments and financing costs.
(7) Includes amounts outstanding under the unsecured credit facility.


SOLID OPERATING PERFORMANCE

For the three and six months ended June 30, 2019, investment properties revenue increased 28.5% and 20.1%, respectively, compared to the same periods last year.  The increase was primarily due to the contribution from 2018 and 2019 acquisitions, an increase in base rent in existing properties and higher recoveries of operating expenses.  Net income and comprehensive income for the three and six months ended June 30, 2019 increased 321.4% and 246.3%, respectively, compared to the same periods last year.  The increase in net income is mainly due to fair value adjustments to investment properties of $32.8 million ($0.48 per Unit) in the three months ended June 30, 2019. 

NOI for the three and six months ended June 30, 2019 was up 27.6% and 19.1%, respectively, compared to the same periods last year. Same properties NOI increased 4.1% and 3.8% for the three and six months ended June 30, 2019, respectively, primarily due to increases in contractual base rent, higher recoveries of operating expenses, and an increase in occupancy.

FFO for the three and six months ended June 30, 2019 was up 18.5% and 2.3%, respectively, compared to the same periods last year. AFFO for the three and six months ended June 30, 2019 was up 3.8% and down (12.8%), respectively, compared to the same periods last year. FFO per Unit for the three and six months ended June 30, 2019 was down $0.01 per Unit (4.5%) and $0.058 per Unit (12.9%), respectively.  AFFO per Unit for the three and six months ended was down $0.03 per Unit (15.7%) and $0.10 per Unit (26.0%), respectively.  AFFO for the three and six months was mainly impacted by free rent of $979 and $2,271, or $0.016 and $0.039 per Unit (diluted), respectively, and for the six-month period both FFO and AFFO were impacted by one-time severance costs of $1.5 million ($0.027 per Unit) in the first quarter.  FFO per Unit and AFFO per Unit were also impacted by a 26.1% and 19.7% increase in the weighted average number of Units outstanding for the three and six months ended June 30, 2019, respectively.

Cash flow from operations and ACFO were up 8.5% and 16.7%, respectively, for the quarter and 2.2.% and 5.7%, respectively, year to date. The REIT’s ACFO payout ratio for the three and six months ended June 30, 2019 was 98.9% and 105.1%, an increase of 5.8% and 12.8%, respectively, compared to last year.  Cash flow from operations and ACFO were up mainly due to 2018 and 2019 acquisition activity but were offset by free rent.  ACFO Payout ratio was up due to the increased free rent and the timing difference between the additional distributions from the REIT’s February equity raise and the closing of the Infill Logistics Portfolio. 

PROACTIVE LEASING RESULTS
For the three and six months ended June 30, 2019, the REIT entered into approximately 950,000 and 2,844,000 square feet of new and renewal leases, respectively.  Renewals in the three months ended June 30, 2019 had a weighted average cash re-leasing spread and straight-line rent re-leasing spread of 5.1% and 10.4%, respectively.  During the three months ended June 30, 2019, the REIT also renewed approximately 1,137,000 square feet of leases starting after June 30, 2019, reducing the remaining lease expirations in 2019 and 2020 to 1.5% and 4.2%, respectively, of the portfolio’s GLA.

The following significant leases were signed during the three months ended June 30, 2019:

On May 2, 2019, the REIT renewed a 648,750 square foot lease with the REIT’s tenth largest tenant, located at 5166 Pleasant Hill Road, Memphis, Tennessee. The original lease term, set to expire on May 31, 2019, has been renewed for a period of three years, expiring May 31, 2022, with contractual rent increasing 1.7% beginning June 1, 2019 and annual escalations of 1.6% thereafter.

On May 21, 2019, the REIT renewed a 526,200 square foot lease with the REIT’s eleventh largest tenant, located at 1105 East Northfield Drive, Indianapolis, Indiana. The original lease term, set to expire on June 30, 2020, has been renewed for a period of ten years, expiring June 30, 2030, with contractual rent increasing 6.4% beginning July 1, 2020 and annual escalations of 2.25% thereafter.

STRONG FINANCIAL & LIQUIDITY POSITION
As at June 30, 2019, the REIT’s debt-to-gross-book-value ratio was 45.0% with interest and fixed charge coverage ratios of 3.0 and 2.6 times, respectively, and a debt-to-Adjusted EBITDA ratio of 7.6 times. The weighted average effective interest rate on outstanding debt was 3.8% at June 30, 2019 with a weighted average term to maturity on the REIT’s mortgages payable and total debt of 2.8 years and 3.4 years, respectively, with a weighted average remaining lease term of 4.9 years.

As at June 30, 2019, the REIT had approximately $85.3 million available to be drawn on the unsecured credit facility, in addition to cash on hand of $13.8 million.  In addition, the REIT expects to generate additional liquidity through capital recycling and is currently evaluating the potential sale of several assets, including the REIT’s only office property.

RECENT EVENTS
On April 5, 2019, the REIT acquired the Infill Logistics Portfolio for a purchase price of $226,000 (exclusive of closing and transaction costs), representing a going-in capitalization rate of 5.1% and a stabilized capitalization rate of approximately 5.3%. The purchase price was satisfied with cash on hand and funds from the unsecured credit facility.

On April 25, 2019, the REIT repaid a mortgage payable bearing a fixed interest rate of 3.41% with a remaining principal balance of $28,325, with funds from the unsecured credit facility.  The property, previously encumbered by the mortgage payable, was subsequently added to the unencumbered asset pool of the unsecured credit facility.

On May 23, 2019, the REIT sold the investment property located at 500 Sumner Way, New Century, Kansas for net cash proceeds of $4,174 (inclusive of closing and working capital adjustments).

On August 7, 2019, the REIT reached an agreement to acquire four investment properties from the REIT’s private capital pipeline which are currently owned by certain affiliates of Alberta Investment Management Corporation and a nominal interest (<1%) by the former principals of WPT Capital Advisors, LLC (which includes certain members of the REIT’s management team).  The properties are 100% occupied, modern, highly-functional distribution properties totaling 1,492,688 square feet of GLA which the REIT expects to acquire for a purchase price of $109,300 (exclusive of credits, closing and transaction costs) sometime in the third quarter of 2019. 

The following is a summary of the properties:

Property Market Square
Feet
Purchase
Price
Cap
Rate
WALT Annual
Rent steps
5201 International Drive, Cudahy, Wisconsin Milwaukee 153,300 $  12,900 6.3 % 9.5 2.5 %
5235 International Drive, Cudahy, Wisconsin Milwaukee 147,213 $ 12,900 6.6 % 6.6 2.5 %
440 Interstate West Parkway, Austell, Georgia Atlanta 780,575 $ 57,100 5.0 % 7.8 2.0 %
7437 Polk Lane, Olive Branch, Mississippi Memphis 411,600 $ 26,400 6.6 % 7.3 2.3 %
    1,493,548 $ 109,300 5.7 % 7.7 2.2 %

INVESTOR CONFERENCE CALL
A conference call will be hosted by the REIT’s management team on Thursday, August 8, 2019 at 9:30 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 10133085#. 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 acquires, develops and manages 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 17 states in the United States consisting of approximately 21.1 million square feet of GLA, comprised of 70 industrial properties, one office property.  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 the REIT anticipated acquisition of four investment properties from its private capital pipeline and the expected purchase price therefor and timing for completion thereof, as well as the immediately accretive impact on the REIT’s AFFO expected from this acquisition. 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 formalize its agreement to acquire four investment properties from its private capital pipeline and the timely meeting or waiving of the conditions to closing of such acquisitions, the REIT’s and the property’s future growth potential, anticipated amounts of expenses (or whether such expenses will be non-recurring), 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, 2018, which is available under the REIT’s profile on SEDAR at www.sedar.com and, in particular, include the risks that the REIT’s acquisition of four investment properties from its private capital pipeline may not occur on the timeline and for the purchase price as expected, may occur only in part if it is completed at all, and the properties’ financial performance could differ from the forecasted performance. 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.