Pure Industrial Real Estate Trust Announces Release of Q1-2018 Financial Results

VANCOUVER, May 14, 2018 /CNW/ - Pure Industrial Real Estate Trust (the "Trust") (TSX: AAR.UN) is pleased to announce the release of its financial results for the three months ended March 31, 2018.

Q1-2018 Financial Results

The Q1-2018 financial results, consisting of the Trust's unaudited consolidated interim financial statements for the three months ended March 31, 2018, and management's discussion and analysis of results of operations and financial condition ("MD&A") dated May 14, 2018, are available on SEDAR (www.sedar.com) and the Trust's website (www.piret.ca). Unless otherwise indicated, all amounts are in thousands of Canadian dollars.

Q1-2018 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 March 31, 2018, the Trust's portfolio under management consists of 173 income producing properties representing gross leasable area ("GLA") of 25.4 million square feet ("sf"), an increase from 25.3 million sf as at December 31, 2017. In addition, the Trust's portfolio consists of 145.8 acres of land held for future development and three properties under development.
  
  
• Investment properties fair value, including properties classified as assets held for sale as at March 31, 2018, is $3,231,286, a $101,892 increase from December 31, 2017. The increase in investment properties is due primarily to net acquisition activities during the three months ended March 31, 2018 and a foreign exchange related increase due to the U.S. exchange rate increasing from USD:CAD 1.2545 as at December 31, 2017 to USD:CAD 1.2894 as at March 31, 2018, partially offset by an aggregate fair value loss across the portfolio of $1,549.
  
  
• The occupancy of the Trust's portfolio was 93.1% as at March 31, 2018, excluding properties classified as assets held for sale, a decrease of 230 basis points from December 31, 2017. Including committed leasing, the occupancy is 95.7% as at March 31, 2018 compared to 95.6% as at December 31, 2017. On December 14, 2017, the Trust acquired a newly-constructed 760,256 sf distribution centre, as vacant. Normalizing for this vacancy, the occupancy as at March 31, 2018 would be 95.9%, and including committed leasing, the occupancy would be 98.6%. The weighted average lease term for the Trust's portfolio increased from 6.3 years to 6.5 years between Q4-2017 and Q1-2018.
  
  
• Net asset value per unit increased to $6.23 as at March 31, 2018 from $6.19 as at December 31, 2017.
  
  
• Debt to Gross Book Value, as defined in the MD&A, as at March 31, 2018 was 39.4%, a 160 basis point increase from 37.8% as at December 31, 2017. The increase in the leverage metric was predominately attributable to the Trust drawing the remaining $25,000 available on its unsecured term loan, draws on the operating line, as well as the assumption of three new mortgages, all pertaining to acquisitions completed in the quarter.
  
  
• Revenues for the three months ended March 31, 2018 increased by 17.3% compared to the same period in the prior year. The increase is primarily related to the acquisition activity in 2017 and Q1-2018, contributions from the development in Richmond, British Columbia which became income producing during December 2017.
  
  
• Adjusted Net Operating Income ("NOI"), as defined in the MD&A, for the three months ended March 31, 2018 increased 15.5% to $44,272 from $38,317 for the same period in 2017. The increase in NOI is primarily due to the impact from fifteen properties acquired from April 2017 to March 2018 and the contribution from the development in Richmond, British Columbia which became income producing in December 2017. The increase was partially offset by the disposition of sixteen properties from April 2017 to March 2018 and an unfavourable average US dollar exchange rate for the three months ended March 31, 2018 (US$1:00:C$1.2647) compared to the same period in the prior year (US$1.00:C$1.3238).
  
  
• For the three months ended March 31, 2018, the Trust's same property NOI ("SPNOI"), as defined in the MD&A, increased by $36 or 0.1% compared to the same period in 2017, from 19.2 million sf representing 75.1% of the Trust's overall portfolio. On a constant currency basis, eliminating for the impact of the change in the U.S. dollar exchange rate quarter over quarter, the Trust's SPNOI increased 1.1% for the three months ended March 31, 2018 relative to the same period in the prior year. SPNOI was also impacted by the departure of tenant Best Buy from the Trust's Bolton, ON property effective February 28, 2018. Adjusting for this vacancy in the quarter, SPNOI was 1.27% higher when compared to the same period in 2017.
  
  
• Funds from Operations ("FFO"), as defined in the MD&A, for the three months ended March 31, 2018 increased 20.6% over the same period in the prior year and was relatively flat when compared to Q4-2017, increasing by $13 or an increase of 0.04%. FFO in the first quarter of 2018 relative to the first quarter of 2017 was positively impacted by SPNOI increases, FFO from net new acquisitions, and from the completion of the development in Richmond, British Columbia which became income producing in December 2017, offset partially by the unfavourable average US dollar exchange rate in the period.
  
  
• FFO per Unit ("FFOPU"), as defined in the MD&A, of $0.10 decreased by 4.0% for the three months ended March 31, 2018 over the same quarter in the prior year and was flat when compared to Q4-2017. The flat FFOPU during the quarter compared to Q4-2017 is due to incremental NOI earned from the three properties acquired during the quarter, offset by the unfavourable average US dollar exchange rate in the periods.
  
  
• Adjusted Funds from Operations ("AFFO"), as defined in the MD&A, for the three months ended March 31, 2018 increased 17.8% over the same period in the prior year and increased by 0.9% when compared to Q4-2017. The increase in AFFO over the same period in the prior year is due to higher SPNOI and successful acquisition and development activity during the 2017 and the current year, offset partially by the unfavourable average US dollar exchange rate in the period.
  
  
• Adjusted Funds from Operations per Unit ("AFFOPU"), as defined in the MD&A, of $0.09 decreased by 5.4% for the three months ended March 31, 2018 compared to the prior year and increased by 0.9% from Q4-2017, mostly due to lower capital expenditures in Q1-2018 compared to Q4-2017.
  
  
• G&A expenses for the three months ended March 31, 2018 increased $3,363 or 145% relative to the same period in the prior year, representing 9.0% and 4.3% of rental and recoveries revenue, respectively. The increase is primarily due to the increase in non-cash compensation and $2,068 in special transactions costs which relate to the Trust's announced transaction with Blackstone Property Partners (see "Subsequent Events" below). Included in G&A expense for the three months ended March 31, 2018 is the non-cash fair value adjustment relating to the re-measurement of the Trust's unit-based compensation liabilities, totaling $1,773 expense, an increase of $1,138 relative to Q1-2017. G&A expenses excluding the special transaction costs and the non-cash fair value component of unit-based compensation, represents 2.9% and 3.1% of rental and recoveries revenue, for the three months ended March 31, 2018 and for the same period in the prior year, respectively.
  
  
• During the three months ended March 31, 2018, approximately 101,000 sf of new leases were signed and 340,000 sf of expiring space was renewed.

Acquisitions and Dispositions

• On January 31, 2018 the Trust completed the acquisition of a 14,818 sf property in Acheson, Alberta for a purchase price of $1,900, plus standard closing costs and adjustments of $50, which was immediately transferred to properties under development. As at March 31, 2018, the costs incurred to date amounted to $226 and the total costs for the redevelopment are estimated to be approximately $1,070.
  
  
• On February 1, 2018, the Trust completed the acquisition of a newly-constructed 287,338 sf property in Montreal, Quebec for a purchase price of $32,500 plus standard closing costs and adjustments of $30. The property includes a 40-year ground lease with Aéroports de Montreal. The acquisition was funded with the Trust's operating line and an assumed mortgage in the amount of $22,807 with a remaining term of 7.5 years and annual interest rate of 3.48%, fixed with an interest rate swap.
  
  
• On February 22, 2018, the Trust completed the acquisition of a 12,647 sf building on 38.1 acres of land, and an adjacent 14.2 acres of income-producing land located in Acheson, Alberta for a purchase price of $48,000 plus standard closing costs and adjustments of $40. The acquisition was funded with the Trust's operating line and two assumed mortgages totaling $25,482 with 3 years remaining on the terms and with fixed interest rates of 3.47% and 3.75% per annum (weighted average interest rate of 3.53%).
  
  
• During the three months ended March 31, 2018, the Trust completed the disposition of a 17,180 sf investment property located in Vaughan, Ontario, for gross proceeds of $3,608. The property was unencumbered at the time of sale and was not classified as held for sale as at December 31, 2017.

Subsequent events

• On January 9, 2018, the Trust announced that it entered into an arrangement agreement with an affiliate of Blackstone Property Partners ("Blackstone"), pursuant to which Blackstone will acquire all of the outstanding trust units of the Trust ("the Transaction") for $8.10 per unit in cash. The Transaction is structured as a statutory plan of arrangement under the British Columbia Business Corporations Act. Completion of the Transaction, is subject to customary conditions, including approval of at least 66 2/3% of the votes cast by Unitholders at a special meeting of Unitholders, court approval and regulatory approval (Investment Canada Act).
  
  
• On February 26, 2018, the Commissioner of Competition issued an Advance Ruling Certificate approving the Transaction.
  
  
• On March 23, 2018, at a special meeting of Unitholders, the Transaction was approved by Unitholders where approximately 99.66% of the votes cast were voted in favour of the Transaction.
  
  
• On March 29, 2018, the Supreme Court of British Columbia issued a final order approving the plan of arrangement for the Transaction.
  
  
• On April 11, 2018, Blackstone received Investment Canada Act approval in connection with the Transaction.

Completion of the Transaction is expected to occur in the second quarter of 2018.

• On May 1, 2018, the Trust completed the disposition of the Trust's 50% interest in four investment properties, three located in Alberta and one in Manitoba, to an existing joint venture partner, for gross proceeds of $23,750. The joint venture paid out four mortgages associated with the sold properties, with the Trust's share totaling $10,059.
  
  
• On May 14, 2018, the Trust completed the disposition of an investment property located in Edmonton, Alberta for gross proceeds of $2,400. The property was classified as held for sale as at March 31, 2018 and was unencumbered at the time of sale.

Selected Financial Information

		March 31, 2018	December 31, 2017
Investment properties ($000s)		$3,209,951	$3,108,059
Mortgages payable and other loans ($000s)		$1,292,753	$1,211,920
Weighted average debt term to maturity on mortgages (years)		4.6	4.7
Debt to gross book value^1		39.4%	37.8%
Debt to EBITDA^1		8.4	8.0
		March 31, 2018	December 31, 2017
Occupancy, end of period including committed*^2		95.7%	95.6%
Occupancy, end of period*^2		93.1%	95.4%
Occupancy, average for the three months ended		94.4%	96.8%

*	Includes 760,256 sf vacant space acquired in December 2017 ("King Mill II Acquisition", as defined in the MD&A). Excluding this space, occupancy at the end of the period is 95.9% and committed occupancy is 98.6%.

		Three months ended March 31
($000s, except per unit basis)		2018	2017
Revenue		$62,832	$53,574
Net operating income ^3		$44,272	$38,317
Distributions declared per unit		$0.08	$0.08
FFO^4per unit (fully diluted)		$0.10	$0.10
Payout Ratio^5		77.8%	75.3%
AFFO^4per unit (fully diluted)		$0.09	$0.09
Payout Ratio^5		89.6%	84.7%
G&A as a Percent of Revenue		9.0%	4.3%

^1	Non-IFRS measure and further defined in Section VI "Additional IFRS and Non-IFRS Measures" in the Trust's MD&A.
^2	Excludes properties classified as assets held for sale.
^3	Net operating income has been normalized for IFRIC 21 ("Adjusted NOI") and assumes all property taxes have been pro-rated and accrued based on number of days of ownership within the reporting year.
^4	FFO and AFFO are widely accepted supplemental measures of financial performance for real estate entities.  These measures are not defined under the International Financial Reporting Standards ("IFRS"). 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.
^5	FFO and AFFO payout ratios are calculated based on the ratio of distribution rate to fully diluted FFO and AFFO per unit.

About Pure Industrial Real Estate Trust

Pure Industrial Real Estate Trust is an unincorporated, open-ended investment trust that owns and operates a diversified portfolio of income-producing industrial properties in leading markets across Canada and key distribution and logistics markets in the United States. The Trust is an internally managed REIT and is one of the largest publicly-traded REITs in Canada that offers investors exposure to industrial real estate assets in Canada and the United States. Additional information about the Trust is available at www.piret.ca and www.sedar.com.

TSX – AAR.UN

Non-GAAP Measures:

The Trust prepares and releases audited consolidated annual financial statements prepared in accordance with IFRS (GAAP). In this release, the Trust discloses and discusses certain non-GAAP financial measures, including FFO, FFO per Unit, AFFO, AFFO per Unit, adjusted net operating income (Adjusted NOI), Net Asset Value per Unit, occupancy, Loan to Gross Book Value, and capitalization rate. The non-GAAP measures are further defined and discussed in the MD&A dated May 14, 2018 and filed on SEDAR, which should be read in conjunction with this release. Since FFO, FFO per Unit, AFFO, AFFO per Unit, adjusted net operating income (Adjusted NOI), Net Asset Value per Unit, occupancy, Loan to Gross Book Value, and capitalization rate are not determined by IFRS, such measures may not be comparable to similar measures reported by other issuers. The Trust has presented such non-GAAP measures as management believes the measures are a relevant measure of the ability of the Trust to earn and distribute cash returns to Unitholders and to evaluate the Trust's performance. These non-GAAP measures should not be construed as alternatives to net income (loss) or cash flow from operating activities determined in accordance with GAAP as an indicator of the Trust's performance. Please refer to "Additional IFRS Measures and Non-IFRS Measures" in the Trust's MD&A.

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 such as "outlook", "believe", "expect", "may", "anticipate", "should", "intend", "estimates" 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) the accretive acquisition of properties and the anticipated extent of the accretion of any acquisitions, which could be impacted by demand for properties and the effect that demand has on acquisition capitalization rates and changes in the cost of capital; (ii) the maintaining of occupancy levels and rental revenue, which could be impacted by changes in demand for the Trust's properties, tenant bankruptcies, the effects of general economic conditions and supply of competitive locations in proximity to the Trust's locations; (iii) the overall indebtedness levels and the Trust's ability to refinance expiring debt, which could be impacted by the level of acquisition activity and the state of debt markets in general; (iv) The Trust's REIT status, which can be impacted by regulatory changes enacted by governmental authorities; (v) The Trust's cost estimates and expected yields pertaining to development activity which could be impacted by construction cost overruns or delays; (vi) the anticipated distributions and payout ratios, which could be impacted by capital expenditures, results of operations and capital resource allocation decisions; and (vii) the anticipated replacement of expiring tenancies, which could be impacted by the effects of general economic conditions and the supply of competitive locations.

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.

SOURCE Pure Industrial Real Estate Trust (PIRET)

Sylvia Slaughter, Director of Investor Relations, [phone] Ext 267, E-mail: [email protected]

Related Links

www.piret.ca