- Total assets reached $634.7 million, a 24.5% year-over-year increase
- 40.9% year-over-year increase in property revenue from 2018
- Net operating income1 grew 36.2% on a year-over-year basis
- Net income and comprehensive income down by $3.8 million from 2018
- 42.4% year-over-year increase in AFFO1 from 2018
- Secured $30 million in additional operational liquidity in Q4-2019
- 52% of leases maturing in 2020 renewed
/NOT FOR DISSEMINATION IN THE UNITED STATES OR DISTRIBUTION THROUGH UNITED STATES NEWS OR WIRE SERVICES./
MONTREAL, March 25, 2020 /CNW Telbec/ - PRO Real Estate Investment Trust ("PROREIT" or the "REIT") (TSX: PRV.UN) today reported its financial and operating results for the three-month (or "fourth quarter") and twelve-month (or "full year") periods ended December 31, 2019.
"We are pleased with our solid 2019 results highlighting PROREIT's most successful year to date, while recognizing that the business environment has changed significantly since the beginning of the new year. Our 2019 achievements make us stronger and more resilient as we navigate the current unprecedented environment. As property owners and managers across Canada, that also involves doing our part to protect the well-being of our tenants, employees and real estate partners during this unusual time," said Jim Beckerleg, President and CEO, PROREIT.
"I am proud of all that was accomplished in 2019, both from a financial and operational standpoint. We significantly strengthened our portfolio, completed the internalization of our asset management platform and successfully graduated to the TSX," added Mr. Beckerleg.
"PROREIT is built on sound business fundamentals. Our same property income increased in all four asset class segments on a full year basis, underlying the quality of both our portfolio and tenant base. As we now benefit from the full impact of our internalized property management platform acquired in late 2018, we will also continue to generate internal growth and economies of scale.
"Our eight property acquisitions in 2019 and most recently in March 2020, subsequent to year-end, reflect our strong focus on maintaining a diversified portfolio, both from an asset class perspective and geography. With a greater emphasis on industrial and commercial mixed-used sectors during the year, these asset classes accounted for close to 65% of our GLA at year-end. As for the robust markets of Ottawa, Montreal, Halifax, Winnipeg, Moncton and Southwestern Ontario, they now account for more than 70% of our GLA.
"Our balance sheet remains strong. From a cash flow standpoint, we successfully renegotiated and renewed two lines of credit at better rates during the fourth quarter of 2019, adding $30 million to our operational liquidity. Our AFFO payout ratio1, while modestly down in the fourth quarter of 2019, was impacted by one-time year-end adjustments combined with the lag between the full deployment of our largest equity raise to date in August 2019 and the timing of our latest acquisitions. As these funds are now fully deployed, this will positively impact our AFFO1 and payout ratio in the first quarter of 2020 and be fully reflected in the 2020 second quarter results.
"Our occupancy rate increased for the third consecutive year and our ten largest tenants, eight of which are credit rated, accounted for approximately 34.4% of annualized in-place and committed base rent. We benefit from a strong tenant mix, well diversified by industry sector, with 8.8% of our base rent originating from government tenants. As for our necessity-based retail segment, 65% of tenants are groceries, drugstores, banks, government or medical offices," Mr. Beckerleg added.
"As we move into a new decade, we remain fully committed to protecting and creating value for our unitholders, through maintaining a strong balance sheet and managing capital on a long-term basis," Mr. Beckerleg concluded.
Table 1- FINANCIAL HIGHLIGHTS |
||||||||
(CAD $ thousands except unit, per unit amounts and unless otherwise stated) |
3 Months |
3 Months |
Year Ended |
Year Ended |
||||
|
||||||||
Property revenue |
$ |
17,315 |
$ |
12,207 |
$ |
57,627 |
$ |
40,889 |
Net operating income (NOI) (1) |
$ |
10,050 |
$ |
7,661 |
$ |
35,481 |
$ |
26,049 |
Total assets |
$ |
634,737 |
$ |
509,663 |
$ |
634,737 |
$ |
509,663 |
Debt to Gross Book Value (1) |
57.52% |
58.63% |
57.52% |
58.63% |
||||
Interest Coverage Ratio (1) |
2.6x |
2.6x |
2.6x |
2.6x |
||||
Debt Service Coverage Ratio (1) |
1.6x |
1.6x |
1.6x |
1.6x |
||||
Weighted average interest rate on mortgage debt |
3.74% |
3.89% |
3.74% |
3.89% |
||||
Net cash flows provided from operating activities |
$ |
7,937 |
$ |
5,076 |
$ |
17,435 |
$ |
14,100 |
Funds from Operations (FFO) (2) |
$ |
5,017 |
$ |
3,921 |
$ |
15,296 |
$ |
12,255 |
Basic FFO per unit (1)(2) |
$ |
0.1259 |
$ |
0.1251 |
$ |
0.4417 |
$ |
0.4678 |
Diluted FFO per unit (1)(2) |
$ |
0.1233 |
$ |
0.1229 |
$ |
0.4314 |
$ |
0.4586 |
Adjusted Funds from Operations (AFFO) (1) |
$ |
5,676 |
$ |
4,234 |
$ |
20,422 |
$ |
14,340 |
Basic AFFO per unit (1)(2) |
$ |
0.1425 |
$ |
0.1351 |
$ |
0.5897 |
$ |
0.5474 |
Diluted AFFO per unit (1)(2) |
$ |
0.1395 |
$ |
0.1327 |
$ |
0.5759 |
$ |
0.5366 |
AFFO Payout Ratio – Basic (1) |
110.5% |
116.7% |
106.8% |
115.1% |
||||
AFFO Payout Ratio – Diluted (1) |
112.9% |
118.8% |
109.4% |
117.4% |
||||
(1) |
Non‑IFRS measure. See "Non‑IFRS and Operational Key Performance Indicators". |
(2) |
Total basic units consist of Units (as defined herein) and Class B LP Units (as defined herein). Total diluted units also include deferred trust units and restricted trust units issued under the REIT's long‑term incentive plan. |
PROREIT owned 92 investment properties as at December 31, 2019 compared to 84 properties at the end of 2018. Total assets amounted to $634.7 million as at December 31, 2019, representing an increase of $125.1 million, or 24.5%, compared to $509.7 million as at December 31, 2018. The increase is mainly due to the acquisition of 8 investment properties on an accretive basis in the twelve-month period ended December 31, 2019.
During the fourth quarter of 2019, PROREIT acquired one light-industrial property in Halifax, Nova Scotia, for $8.5 million. Subsequent to year-end, on March 16, 2020, PROREIT announced the closing of its acquisition of a light-industrial property in Moncton, New Brunswick, for $8.4 million, bringing total investment properties to 93.
For the twelve-month period ended December 31, 2019:
- Property revenue amounted to $57.6 million, an increase of $16.7 million, or 40.9%, compared to $40.9 million for the same prior year period. The increase was mainly driven by the incremental revenue from property acquisitions made in 2019.
- Same property net operating income1 amounted to $23.6 million, an increase of $0.9 million, or 3.8%, compared to the same prior year period. This increase was primarily driven by contractual rent increases and higher rental rates as well as property management synergies compared to the same period in 2018.
- Net operating income1 was $35.5 million, an increase of $9.4 million compared to $26.0 million in 2018, or 36.2% year-over-year. The increase results mainly from the favorable impact of property acquisitions completed in the twelve-month period ended December 31, 2019.
- AFFO1 totaled $20.4 million, a $6.1 million increase compared to $14.3 million for the same prior year period, or a 42.4% increase year-over-year. The increase mainly relates to the 8 property acquisitions made during the year.
- AFFO payout ratio1 stood at 106.8% compared to 115.1% for the same prior year period. The improvement mainly relates to the impact of funds raised in September 2018 from a public offering being fully deployed in the first quarter of 2019, partially offset by the impact of the lag between the deployment of funds from the mid-August 2019 equity offering and the acquisitions of properties at the end of December 2019 when a portion of funds were deployed. Funds have been fully deployed subsequent to 2019 year-end. The current participation level under the REIT's distribution reinvestment plan ("DRIP") is approximately 10% and reduces the cash requirements of the REIT to pay distributions, which is not positively reflected in the AFFO payout ratio.
For the fourth quarter ended December 31, 2019:
- Property revenue amounted to $17.3 million, an increase of $5.1 million, or 41.8%, compared to $12.2 million for the same prior year period. The increase was mainly driven by the incremental revenues derived from property acquisitions completed in the twelve-month period ended December 31, 2019.
- Same property net operating income1 amounted to $6.7 million, an increase of $0.1 million, or 2.0%, compared to the same prior year period. The increase resulted from the same reasons noted for the twelve-month period above.
- Net operating income1 reached $10.1 million, an increase of $2.4 million, or 31.2%, compared to $7.7 million for the comparable period in 2018. The increase resulted from the same reasons noted for the twelve-month period above.
- AFFO1 totaled $5.7 million, a $1.4 million, or 34.1%, increase compared to $4.2 million for the same prior year period. The increase resulted from the same reasons noted for the twelve-month period above.
- AFFO payout ratio1 stood at 110.5% compared to 116.7% for the same prior year period. The improvement mainly relates to the impact of funds raised in September 2018 from a public offering being fully deployed in the first quarter of 2019, partially offset by the impact of one-time year-end adjustments and the lag between the deployment of funds from the mid-August 2019 equity offering and the acquisition of a property in mid-December 2019 when a portion of funds were deployed. Funds have been fully deployed subsequent to 2019 year-end. The current participation level under the DRIP is approximately 10% and reduces the cash requirements of the REIT to pay distributions, which is not positively reflected in the AFFO payout ratio.
TABLE 2- RECONCILIATION OF NET OPERATING INCOME TO NET INCOME AND COMPREHENSIVE INCOME |
||||||||
(CAD $ thousands) |
3 Months |
3 Months |
Year Ended |
Year Ended |
||||
Net operating income (NOI) (1) |
10,050 |
7,661 |
35,481 |
26,049 |
||||
General and administrative expenses |
598 |
513 |
2,318 |
1,845 |
||||
Long‑term incentive plan expense |
714 |
(305) |
3,043 |
402 |
||||
Depreciation of property and equipment |
60 |
19 |
197 |
52 |
||||
Amortization of intangible assets |
93 |
185 |
372 |
185 |
||||
Interest and financing costs |
3,847 |
2,922 |
13,491 |
9,827 |
||||
Distributions ‑ Class B LP Units |
407 |
452 |
1,662 |
1,618 |
||||
Fair value adjustment ‑ Class B LP Units |
466 |
(3,100) |
4,547 |
(3,360) |
||||
Fair value adjustment ‑ investment properties |
2,554 |
588 |
(7,429) |
(4,236) |
||||
Other income |
(425) |
(646) |
(2,369) |
(1,199) |
||||
Other expenses |
287 |
557 |
1,467 |
925 |
||||
Transaction costs |
131 |
- |
3,207 |
501 |
||||
Debt settlement costs |
- |
- |
- |
719 |
||||
Net income and comprehensive income |
$ |
1,318 |
$ |
6,476 |
$ |
14,975 |
$ |
18,770 |
(1) |
See "Non‑IFRS and Operational Key Performance Indicators". |
For the year ended December 31, 2019, net income and comprehensive income amounted to $15.0 million, a decrease of $3.8 million compared to $18.8 million for the same prior year period. This mainly results from a $7.9 million change in the non-cash fair value adjustment on Class B LP Units (as defined herein) in the 2019 fiscal year compared to the 2018 fiscal year, the $3.7 million increase in interest and financing costs related to the eight acquisitions made during the 2019 fiscal year, transaction costs of $3.2 million relating to the internalization of PROREIT's asset management function and graduation to the Toronto Stock Exchange ("TSX") in 2019, and $2.6 million non-cash long-term incentive plan expense in the 2019 fiscal year, partially offset by the impact of property acquisitions completed in the 2019 fiscal year, and a $3.2 million increase in the non-cash fair value gain on investment properties in the 2019 fiscal year.
For the three months ended December 31, 2019, net income and comprehensive income amounted to $1.3 million, compared to $6.5 million for the same prior year period. The $5.2 million decrease mainly relates to a $3.6 million difference in the non-cash fair value adjustment on Class B LP Units for the quarter ended December 31, 2019 compared to the same period in 2018, the $2.0 million change in the non-cash fair value adjustment on investment properties for the fourth quarter of 2019 compared to the same prior year period, partially offset by the impact of property acquisitions completed in the twelve-month period ended December 31, 2019.
Balance Sheet Strength
PROREIT continued to exercise prudent capital management and remains committed to a strong balance sheet. Debt to gross book value1 ratio improved from 58.6% at December 31, 2018 to 57.5% at December 31, 2019. The weighted average interest on mortgage debt was 3.74% at the end of 2019, compared to 3.89% at December 31, 2018.
In November 2019, PROREIT increased its revolving credit facility from $30 million to $45 million, which bears interest at prime plus 125.0 basis points or bankers' acceptance rate plus 225.0 basis points.
In December 2019, PROREIT also renewed and increased one of its two term loans from $15 million to $30 million. The term loan is interest bearing only at a rate equal to the greater of 7.95% or the financial institution prime rate plus 4.50% per annum and matures February 2022. Effective February 1, 2020 the interest has decreased to a rate equal to the greater of 7.50% or the financial institution prime rate plus 3.55% per annum.
TABLE 3- TOTAL PORTFOLIO BASE RENT BY ASSET CLASS |
||||
December 31, 2019 |
December 31, 2018 |
|||
Number of |
% |
Number of |
% |
|
Retail |
49 |
36.7 |
49 |
46.0 |
Office |
10 |
16.1 |
9 |
16.5 |
Commercial Mixed-Use |
8 |
18.0 |
7 |
10.6 |
Industrial |
25 |
29.2 |
19 |
27.0 |
TOTAL |
92 |
100.0 |
84 |
100.0 |
BY PROVINCE |
||||
December 31, 2019 |
December 31, 2018 |
|||
Number of |
% |
Number of |
% |
|
Maritime Provinces |
38 |
41.8 |
32 |
43.3 |
Quebec |
16 |
15.4 |
16 |
19.0 |
Western Canada |
26 |
14.1 |
26 |
18.2 |
Ontario |
12 |
28.7 |
10 |
19.5 |
TOTAL |
92 |
100.0 |
84 |
100.0 |
Acquisitions made during the year contributed to the diversification of PROREIT's asset portfolio. PROREIT's industrial and commercial mixed-used exposure in base rent rose to 47.2% and office exposure increased to 16.1% at December 31, 2019. The acquisitions also increased exposure to Central and Eastern Canada which accounted for more than 85% in base rent at the end of December 31, 2019.
TABLE 4- OPERATIONAL HIGHLIGHTS |
||
December 31 |
December 31 |
|
Operational data |
||
Number of properties |
92 |
84 |
Gross leasable area (square feet) ("GLA") |
4,445,498 |
3,702,901 |
Occupancy rate (1) |
98.4% |
98.2% |
Weighted average lease term to maturity (years) |
5.6 |
6.1 |
(1) |
Occupancy rate includes lease contracts for future occupancy of currently vacant space. Management believes the inclusion of this committed space provides a more balanced reporting. The committed space at December 31, 2019 was approximately 33,464 square feet of GLA (27,925 square feet of GLA at December 31, 2018). |
GLA increased 20.1% to 4,445,498 square feet at December 31, 2019, compared to 3,702,901 square feet at year-end 2018. The increase of 742,597 square feet in GLA is mainly attributable to the acquisitions made in 2019.
Occupancy rate continued to increase for the third consecutive year and stood at 98.4% as at December 31, 2019, up from 98.2% a year earlier. The ten largest tenants, eight of which are credit rated, in the REIT's portfolio accounted for approximately 34.4% on annualized in-place and committed base rent as at December 31, 2019 and comprise approximately 7.3 years of remaining lease term. Credit quality tenants represent 44.4% of in-place annualized base rent. 52% of leases maturing in 2020 are currently renewed.
PROREIT's diverse tenant base has a staggered lease maturity profile with no more than 12.0% of base rent maturing in any given period before 2025.
Distributions
Distributions to unitholders totaling $0.0525 per trust unit of the REIT ("Units") were declared monthly during the three months ended December 31, 2019, representing distributions of $0.63 per Unit on an annual basis. Equivalent distributions are paid on the Class B limited partnership units ("Class B LP Units") of PRO REIT Limited Partnership, a subsidiary of the REIT. PROREIT has declared uninterrupted monthly distributions since January 2014.
SUBSEQUENT EVENT
On March 16, 2020, the REIT announced the closing of its acquisition of a 100% interest in a 135,494 square‑foot light-industrial property in Moncton, New Brunswick for $8.4 million before closing costs representing a going‑in capitalization rate of 6.8%. The building is 100% occupied by a national logistics company with a long‑term lease that includes annual rent step-ups until December 2032. The purchase price was financed in part by proceeds from a new $5.8 million 7‑year first mortgage at a rate of 2.64% per annum. The balance of the purchase price of $2.6 million was satisfied through a draw on available operating facilities that were previously paid down from the August 2019 public offering of the REIT.
STRATEGY AND OUTLOOK
PROREIT remains committed to driving growth and creating value for its unitholders, while maintaining a strong balance sheet and managing capital on a long-term basis.
PROREIT benefits from a sound financial position and solid organizational structure, backed by an experienced management team with deep industry knowledge. PROREIT is actively monitoring the current pandemic situation and is working to be proactive in mitigating the risks facing its business. In these challenging times, PROREIT will need to support some of its smaller tenants over the coming months. When a more usual business context returns, PROREIT plans to be well positioned to leverage its strengths and return to its growth strategy, including the acquisition of high-quality, low-risk real estate in favourable secondary markets.
Investor Conference Call and Webcast Details
PROREIT will hold a conference call to discuss its 2019 fiscal year and fourth quarter 2019 results on March 26, 2020, at 10:30 a.m. EDT. There will be a question period reserved for financial analysts. To access the conference call, please dial 888-390-0605 or 416-764-8609 or 514-225-7341. A recording of the call will be available until April 2, 2020 by dialing 888‑390‑0541 or 416-764-8677, access code for participants 901685#.
The conference call will also be accessible via live webcast on PROREIT's website at www.proreit.com or at https://event.on24.com/wcc/r/2193053/5EB8ADBC7E01C570774C9E1AB79C18B7
Annual Meeting of Unitholders
All unitholders are invited to participate in the Annual Meeting of Unitholders, which will be held this year on June 11, 2020 in Montreal, at 11:00 a.m., or by electronic means if current conditions related to COVID-19 prevail. Additional information regarding the meeting will be contained in the REIT's information circular to be prepared in connection with the meeting.
About PROREIT
PROREIT (www.proreit.com) is an unincorporated open-ended real estate investment trust owning a diversified portfolio of 93 commercial properties across Canada representing over 4.5 million square feet of GLA. Established in March 2013, PROREIT is mainly focused on strong primary and secondary markets in Québec, Atlantic Canada and Ontario, with selective exposure in Western Canada.
Non-IFRS and Operational Key Performance Indicators
PROREIT's consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). In this press release, as a complement to results provided in accordance with IFRS, PROREIT discloses and discusses certain non-IFRS financial measures, including net operating income ("NOI"), adjusted funds from operations ("AFFO"), debt to gross book value, interest coverage ratio, debt service coverage ratio, funds from operations ("FFO"), AFFO payout ratio and same property net operating income ("same property NOI"). These non-IFRS measures are not defined by IFRS, do not have a standardized meaning and may not be comparable with similar measures presented by other issuers. PROREIT has presented such non-IFRS measures as management of the REIT believes they are relevant measures of PROREIT's underlying operating performance and debt management. Non-IFRS measures should not be considered as alternatives to net income, cash generated from (utilized in) operating activities or comparable metrics determined in accordance with IFRS as indicators of PROREIT's performance, liquidity, cash flow, and profitability. For a full description of these measures and, where applicable, a reconciliation to the most directly comparable measure calculated in accordance with IFRS, please refer to the "Non-IFRS and Operational Key Performance Indicators" section in PROREIT's management's discussion and analysis for the three months and year ended December 31, 2019, available under PROREIT's profile on SEDAR at www.sedar.com.
Forward-Looking Statements
This news release contains forward-looking statements within the meaning of applicable securities legislation. Forward-looking statements are based on a number of assumptions and are subject to a number of risks and uncertainties, many of which are beyond PROREIT's control, that could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking statements.
Forward-looking statements contained in this press release include, without limitation, statements pertaining to PROREIT's future financial performance, the execution of its growth strategy and the performance of the financial markets. PROREIT's objectives and forward-looking statements are based on certain assumptions, including that (i) PROREIT will receive financing on favourable terms; (ii) the future level of indebtedness of PROREIT and its future growth potential will remain consistent with the REIT's current expectations; (iii) there will be no changes to tax laws adversely affecting PROREIT's financing capacity or operations; (iv) the impact of the current economic climate and the current global financial conditions on PROREIT's operations, including its financing capacity and asset value, will remain consistent with PROREIT's current expectations; (v) the performance of PROREIT's investments in Canada will proceed on a basis consistent with PROREIT's current expectations; and (vi) capital markets will provide PROREIT with readily available access to equity and/or debt.
The forward-looking statements contained in this news release are expressly qualified in their entirety by this cautionary statement. All forward-looking statements in this press release are made as of the date of this press release. PROREIT does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise, except as required by law.
Additional information about these assumptions and risks and uncertainties is contained under "Risk Factors" in PROREIT's latest annual information form, which is available on SEDAR at www.sedar.com.
Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.
_________________________ |
|
1 |
Non-IFRS measure. See "Non-IFRS and Operational Key Performance Indicators". |
SOURCE PROREIT
Investor Relations: PRO Real Estate Investment Trust, James W. Beckerleg, President and Chief Executive Officer, 514-933-9552; PRO Real Estate Investment Trust, Gordon G. Lawlor, CPA, CA, Executive Vice President, Chief Financial Officer and Secretary, 514-933-9552
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