WPT Industrial REIT Announces First Quarter 2021 Results
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, 2021. All dollar amounts are stated in U.S. funds.
"WPT produced solid quarterly results driven by robust operating activity, meaningful progress on our capital recycling initiative and a strengthened balance sheet. The formation of a new stabilized joint venture demonstrates the REIT's ability to attract and expand relationships with strong institutional capital partners to diversify our capital resources. With our modern, well-located distribution and logistics portfolio, deepening partnerships with global institutional capital partners, and a growing development pipeline, we expect our momentum to continue throughout the remainder of the year," commented Scott Frederiksen, Chief Executive Officer.
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, 2021 2020 Operating Results: Investment properties revenue $ 47,396 $ 32,481 Management fee revenue $ 8,475 $ 273 NOI (1) $ 33,205 $ 23,381 Net income and comprehensive income $ 74,307 $ 86,368 Net income and comprehensive income per Unit (basic) (2)(3) $ 0.866 $ 1.181 Net income and comprehensive income per Unit (diluted) (2)(4) $ 0.844 $ 1.153 FFO (1) $ 26,196 $ 13,749 FFO per Unit (diluted) (1)(2)(4) $ 0.298 $ 0.184 AFFO (1) (5) $ 22,560 $ 10,284 AFFO per Unit (diluted) (1)(2)(4) $ 0.256 $ 0.137 Cash flows from operations $ 19,709 $ 16,389 Adjusted Cash Flows from Operations ("ACFO") (1) $ 23,642 $ 14,018 Book value per Unit (1) $ 14.77 $ 12.98 Distributions: Distributions per Unit (2)(5) $ 0.190 $ 0.190 Distributions declared (3)(5) $ 16,454 $ 15,087 ACFO payout ratio (1)(5) 69.6% 107.6% Weighted average number of Units (basic) (2)(3) 85,769 73,143 Weighted average number of Units (diluted) (2)(4) 88,000 74,886
As at March 31, 2021 December 31, 2020 Consolidated Consolidated Consolidated Consolidated properties properties and properties properties and proportionate proportionate share basis (6) share basis (6) Operational Information: Number of investment properties 89 102 100 102 Number of investment properties under development (PUD) 2 6 1 5 GLA 28,526,275 31,511,638 32,674,589 33,080,567 Occupancy 97.6% 97.8% 98.2% 98.2% Average remaining lease term (years) 4.1 4.3 4.4 4.4 Fair value of investment properties 2,223,909 2,390,091 2,408,849 2,428,738 Debt Metrics: Weighted average effective interest rate (1) 3.0% 2.9% 2.9% 2.9% Weighted average effective interest rate on fixed rate debt (2) 3.2% 3.2% 3.1% 3.1% Weighted average effective interest rate on variable rate debt (3) 1.6% 1.9% 1.7% 1.7% Variable interest rate debt as percentage of total debt (3) (4) 3.3% 11.2% 13.6% 13.6% Debt-to-assets (6) 43.1% 45.1% 47.1% 47.6% Interest coverage ratio (5) 4.0x 3.9x 3.2x 3.2x Fixed charge coverage ratio (5) 3.6x 3.6x 2.9x 3.6x Debt to Adjusted EBITDA (5) 9.1x 9.2x 9.3x 9.4x
(1) Includes mortgages payable, term loans, the unsecured revolving credit facility, derivative instruments, mark-to-market adjustments and financing costs.
(2) Includes mortgages payable, and the hedged portions of term loans.
(3) Variable interest rate debt includes unhedged mortgages payable and unhedged amounts outstanding under the REIT's credit facility.
(4) Excludes variable rate debt which is effectively fixed using an interest rate swap.
(5) Interest coverage ratio, fixed charge coverage ratio and debt to Adjusted EBITDA are key measures of performance used by real estate operating companies, however, they are not defined by 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 MD&A.
(6) Number of investment properties and properties under development from joint ventures are included at 100%
RENT COLLECTION UPDATE
As of May 13, 2021, the REIT has received over 99% of contractual rents for the first quarter and 99.9% for April 2021 and 96.9% for May 2021.
FFO and AFFO for the three months ended March 31, 2021 were up 90.5% and 119.4%, respectively, compared to the same period last year. Growth in FFO and AFFO was positively impacted by increased properties revenue from acquisitions, higher management fee revenues, increases in base rent, and a reduction in general and administrative expenses (excluding fair value adjustments) compared to the prior period. Both FFO per Unit and AFFO per Unit for the three months ended March 31, 2021 were up 62.0% and 86.9%, respectively compared to the same period last year. This strong growth in FFO per Unit and AFFO per Unit was positively impacted by the factors listed above, and partially offset by a 17.5% increase in the weighted average number of Units outstanding for the three months ended March 31, 2021 compared to the same period last year.
Same properties NOI increased 2.5% for the three months ended March 31, 2021, primarily due to increases in contractual base rent, partially offset by reductions in occupancy in properties held in both periods.
Cash flows from operations and ACFO were up 20.3% and 70.2%, respectively, for the quarter compared to the same period last year. The REIT's ACFO payout ratio for the three months ended March 31, 2021 was 69.6%. The ACFO payout ratio for the year was directly affected by the timing of an equity financing in February 2020 relative to the timing of deployment of such proceeds and early repayment of secured indebtedness. Cash flows from operations and ACFO were higher compared to the same period last year, primarily due to increased NOI from 2020 acquisition activity and a decrease in free rent.
OPERATING AND LEASING UPDATE
As at March 31, 2021, the REIT's occupancy for its Consolidated Properties was 97.6% and 97.8% including the REIT's proportionate share of investment properties held in joint ventures. Leased occupancy increased to 99.1% and 99.2% as of May 13, 2021.
The REIT had 67,644 square feet of new and expansion leases, and 553,514 square feet of lease renewals commence in the first quarter. Lease renewals commencing in the three months ended March 31, 2021 had a weighted average cash re-leasing spread and straight-line rent re-leasing spread of 7.1% and 14.7%, respectively.
During the three months ended March 31, 2021, the REIT signed 63,078 square feet of new leases and 931,306 square feet of lease renewals. These renewals had a weighted average cash re-leasing spread and straight-line rent re-leasing spread of 5.3% and 11.4%, respectively. Excluding tenants exercising fixed rate renewal options, the remaining 137,306 square feet of lease renewals signed in the quarter had a weighted average cash re-leasing spread and straight-line rent re-leasing spread of 10.9% and 20.4%, respectively.
The REIT signed 412,254 square feet of new leases and 38,029 square feet of lease renewals subsequent to quarter-end at a 28.3% and 28.2% weighted average cash re-leasing spread and straight-line re-leasing spread, respectively.
FINANCIAL & LIQUIDITY POSITION
As at March 31, 2021, the REIT had approximately $149.3 million available to be drawn on its credit facility and cash on hand of $23.4 million, for total liquidity of approximately $172.7 million. During the quarter, the REIT repaid two mortgages totaling approximately $60.8 million and paid down its revolving credit facility by $92.7 million, net of amounts drawn to fund new investment activity. The REIT has no mortgages maturing in 2021, and only one, $24.1 million mortgage, maturing in 2022.
Repayment of debt in the first quarter increased the REIT's capacity to reinvest capital into its growing development pipeline. The REIT will continue to focus on strategic capital recycling to further strengthen the REIT's balance sheet and currently expects to close on an additional property disposition prior to the end of the second quarter with expected proceeds of approximately $22.8 million.
PRIVATE CAPITAL AND DEVELOPMENT ACTIVITY
The REIT generated $8.5 million of management fee revenue during the three months ended March 31, 2021, consisting of $8.0 million in promote fees and $0.5 million in asset and construction management fees.
The REIT has 13 active development projects representing a total of approximately 6.9 million square feet of modern distribution and logistics real estate and another approximately 3.5 million square feet of projects under exclusive negotiation in its development pipeline. The REIT expects active projects to include approximately $334.0 million of total contributed equity, with $274.4 million funded by third-party partners.
The REIT also recently entered into full building leases for its private capital development projects in: Perris, California; Houston, Texas; Mansfield, New Jersey; and Eagan, Minnesota. These new leases are comprised of over one million square feet of gross leasable area and have a weighted average lease term of 8.0 years.
RECENT INVESTMENT ACTIVITY
Bayonne, New Jersey
On January 28, 2021, the REIT completed the indirect acquisition of two distribution buildings located at 99 and 105 Avenue A in Bayonne, New Jersey (the "Bayonne Properties"). The Bayonne Properties total 348,918 square feet and are 100% leased to two strong credit profile tenants with a weighted average remaining lease term of approximately 8.5 years. The Bayonne Properties were originally developed by the REIT through a private capital joint venture, with the REIT owning an initial 10% interest in the joint venture. Through the exercise of the REIT's right of first opportunity to acquire additional joint venture equity interests in the projects, the REIT acquired the remaining 90% equity interest in the Bayonne Properties through an off-market transaction for approximately $61.4 million, representing a going-in capitalization rate of approximately 4.0%. As part of the acquisition, the REIT also assumed a $36.0 million loan.
On February 25, 2021, the REIT completed the off-market acquisition of a 14.4-acre infill industrial parcel located in Carson, California (the "Carson Development") near the Port of Long Beach for approximately $30.0 million. The purchase price of the Carson Development was satisfied with cash on hand and proceeds from the REIT's credit facility. The REIT is in the process of contributing the Carson Development into a private capital development joint venture, with the REIT retaining a 51% ownership interest in the joint venture, and the remaining 49% interest held by one or more of the REIT's third-party capital partners. The REIT anticipates developing approximately 250,000 square feet of state-of-the-art, modern distribution space on the premier infill site.
Formation of Stabilized Joint Venture
On March 29, 2021, the REIT contributed 13 stabilized U.S. distribution and logistics properties with a value of approximately $370 million into a newly established joint venture with the Investment Management Corporation of Ontario (the "Stabilized Joint Venture"). The Stabilized Joint Venture, which will hold stabilized, income producing properties, expands the REIT's base of recurring third-party management fee income and includes future leasing and incentive fees. Net proceeds from the contribution were approximately $255 million. Completion of the Stabilized Joint Venture advances the REIT's previously announced capital recycling initiative, strengthens the balance sheet, and provides additional capacity to fund the REIT's growing development pipeline. The REIT will retain a majority ownership interest in the Stabilized Joint Venture and continue to manage and operate the properties.
The REIT continues to enhance the integrity and competitiveness of its business through expanded environmental, social and governance (ESG) initiatives. During the first quarter, the REIT established an ESG Leadership Team and is continuing to integrate ESG into its investment and development strategies, including the pursuit of LEED certification for 4.2 million square feet of recent development projects in California, Minnesota, Texas, New Jersey and Arizona.
INVESTOR CONFERENCE CALL
A conference call will be hosted by the REIT's management team on Friday, May 14, 2021 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 10155062#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, manages and owns distribution and logistics properties located in the United States. WPT Industrial, LP (the REIT's operating subsidiary) indirectly owns or manages a portfolio of properties across 20 U.S. states consisting of approximately 37.5 million square feet of GLA and 110 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
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, but not limited to, 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 REIT's plans with respect to pursuing LEED certification on development projects, (iv) the REIT's expectations regarding joint venture initiatives in respect of the Carson Development and (v) the REIT's expectations with respect to completing expected property dispositions. 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, future growth opportunities for the REIT and its properties, 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 the scope and duration of the COVID-19 pandemic and its impact on the REIT.
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.
Certain statements included in this press release, including the increase to REIT's annual private capital fee guidance for 2021, may be considered a "financial outlook" for purposes of applicable Canadian securities laws, and as such, the financial outlook may not be appropriate for purposes other than to understand management's current expectations and plans relating to the future, as disclosed in this press release. These forward-looking statements have been approved by management to be made as at the date of this press release. 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. All forward-looking statements in this MD&A are qualified by these cautionary statements.