/NOT FOR DISSEMINATION IN THE
UNITED STATES OR DISTRIBUTION THROUGH UNITED STATES NEWS OR WIRE SERVICES./
- 49.4% year-over-year increase in property revenue from Q2
2018
- 7.4% year-over-year increase in same property
NOI1 from Q2 2018
- Successful renewal of over 82% of leases maturing in
2019
- Agreements to acquire seven properties for $97.8 million and $50
million bought deal public offering announced subsequent to
quarter end
MONTRÉAL, Aug. 13, 2019 /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 period (or "second quarter") ended
June 30, 2019.
"PROREIT continues to build on its
momentum, delivering robust financial and operational results
in the second quarter of 2019 while continuing to create strong
value for its unitholders," said Jim
Beckerleg, President and CEO, PROREIT.
"We are executing our growth strategy and strategically
diversifying our portfolio in strong primary and secondary markets.
We are pleased with the planned acquisition of seven high-quality
properties announced subsequent to quarter end, as these will
further strengthen our portfolio bringing increased exposure in the
Ottawa and Halifax markets, and adding to the industrial
and mixed-used sectors," added Mr. Beckerleg.
"PROREIT also announced a $50
million equity financing on a bought-deal basis following
quarter end, demonstrating our continued ability to effectively
raise capital as well as the confidence investors place in our
strategy and strong team," concluded Mr. Beckerleg.
TABLE 1- FINANCIAL
HIGHLIGHTS
|
|
(CAD $ thousands
except unit, per unit amounts and
unless otherwise stated)
|
|
3 Months
Ended
June 30
2019
|
|
3 Months
Ended
June 30
2018
|
|
6 Months
Ended June 30
2019
|
|
6 Months
Ended
June 30
2018
|
Financial
data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
revenue
|
$
|
13,561
|
$
|
9,075
|
$
|
27,071
|
$
|
18,472
|
Net operating income
(NOI) (1)
|
$
|
8,448
|
$
|
5,855
|
$
|
16,906
|
$
|
11,746
|
Total
assets
|
$
|
524,217
|
$
|
415,268
|
$
|
524,217
|
$
|
415,268
|
Debt to Gross Book
Value (1)
|
|
58.26%
|
|
60.11%
|
|
58.26%
|
|
60.11%
|
Interest Coverage
Ratio (1)
|
|
2.6x
|
|
2.7x
|
|
2.6x
|
|
2.6x
|
Debt Service Coverage
Ratio (1)
|
|
1.6x
|
|
1.6x
|
|
1.6x
|
|
1.6x
|
Weighted average
interest rate on mortgage debt
|
|
3.87%
|
|
3.80%
|
|
3.87%
|
|
3.80%
|
Net cash flows
provided from operating activities
|
$
|
(382)
|
$
|
2,682
|
$
|
4,159
|
$
|
5,358
|
Funds from Operations
(FFO) (1)(3)
|
$
|
1,509
|
$
|
2,522
|
$
|
5,869
|
$
|
4,991
|
Basic FFO per unit
(1)(2)
|
$
|
0.0480
|
$
|
0.1021
|
$
|
0.1865
|
$
|
0.2081
|
Diluted FFO per unit
(1)(2)
|
$
|
0.0467
|
$
|
0.0998
|
$
|
0.1818
|
$
|
0.2038
|
Adjusted Funds from
Operations (AFFO) (1)
|
$
|
4,848
|
$
|
3,256
|
$
|
9,677
|
$
|
6,455
|
Basic AFFO per unit
(1)(2)
|
$
|
0.1541
|
$
|
0.1318
|
$
|
0.3075
|
$
|
0.2691
|
Diluted AFFO per unit
(1)(2)
|
$
|
0.1501
|
$
|
0.1289
|
$
|
0.2998
|
$
|
0.2636
|
AFFO Payout Ratio –
Basic (1)
|
|
102.2%
|
|
119.6%
|
|
102.4%
|
|
117.1%
|
AFFO Payout Ratio –
Diluted (1)
|
|
104.9%
|
|
122.1%
|
|
105.1%
|
|
119.5%
|
|
|
(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.
|
(3)
|
Includes one-time
transaction costs relating to management internalization and
graduation to the TSX (as defined herein) of $3,045 and $3,076
respectively for the three and six months ended June 30,
2019.
|
PROREIT owned 84 investment properties at June 30, 2019, compared to 73 properties at the
same time last year. Total assets amounted to $524.2 million at June 30,
2019, representing an increase of $108.9 million, or 26.2%, compared to
$415.3 million at June 30, 2018. The increase is mainly due to the
acquisition of 11 investment properties in the twelve-month period
ended June 30, 2019.
For the second quarter ended June 30,
2019:
- Property revenue amounted to $13.6
million. The increase of $4.5
million, or 49.4%, compared to the same period last year, is
primarily due to incremental revenues from the property
acquisitions completed in the twelve-month period ended
June 30, 2019.
- Same property net operating income1 amounted to
$6.0 million, an increase of
$0.4 million, or 7.4%, compared to
the same period last year. This increase is primarily driven by an
approximately 100 basis points same property occupancy rate
increase, property management synergies, and a higher rental rate
on lease renewals compared to the same period in 2018.
- Net operating income1 was $8.4
million, an increase of $2.6
million, or 44.3%, compared to $5.9
million for the same period last year. This increase results
primarily from the favourable impact of property acquisitions
completed in the twelve-month period ended June 30, 2019.
- AFFO1 totalled $4.8
million, a $1.5 million
increase compared to $3.3 million
last year, or a 48.9% increase year-over-year. This increase is
mainly due to the property acquisitions completed in the
twelve-month period ended June 30,
2019.
- AFFO payout ratio1 stood at 102.2% compared to
119.6% for the same period last year, a 14.2% improvement. The
favourable variance mainly relates to the impact of the funds
raised in September 2018 from a
public offering being fully deployed in the first quarter of 2019.
The current participation level under the REIT's distribution
reinvestment plan ("DRIP") is approximately 10%, which reduces the
cash requirements of the REIT to pay distributions and is not
reflected in the AFFO payout ratio.
- Total debt to gross book value1 stood at 58.3% at
June 30, 2019, compared to 60.1% at
the same date in 2018. The weighted average interest rate on
mortgage debt was 3.87% at the end of the second quarter, up
slightly from 3.80% at June 30,
2018.
For the six-month period ended June 30,
2019:
- Property revenue amounted to $27.1
million. The increase of $8.6
million, or 46.6%, compared to the same period last year, is
primarily due to incremental revenues from property acquisitions
completed in the twelve-month period ended June 30, 2019.
- Same property net operating income1 amounted to $12.1 million, an increase of $0.9 million, or 8.3%, compared to the same
period last year. This increase is primarily driven by an
approximately 100 basis points same property occupancy rate
increase, property management synergies, and a higher rental rate
on lease renewals compared to the same period in 2018.
- Net operating income1 was $16.9
million, an increase of $5.2
million, or 43.9%, compared to $11.7
million for the same period last year. This increase results
primarily from the favourable impact of property acquisitions
completed in the twelve-month period ended June 30, 2019.
- AFFO1 totalled $9.7
million, a $3.2 million
increase compared to $6.5 million
last year, or a 49.9% increase year-over-year. This increase is
mainly due to property acquisitions completed in the twelve-month
period ended June 30, 2019.
- AFFO payout ratio1 stood at 102.4% compared to
117.1% for the same period last year, a 12.6% improvement. The
favourable variance mainly relates to the impact of the funds
raised in September 2018 from a
public offering being fully deployed in the first quarter of 2019.
The current participation level under the DRIP is approximately
10%, which reduces the cash requirements of the REIT to pay
distributions and is not reflected in the AFFO payout ratio.
TABLE 2-
RECONCILIATION OF NET OPERATING INCOME TO NET COMPREHENSIVE
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
3 Months
Ended
June 30
2019
|
|
3 Months
Ended
June 30
2018
|
|
6 Months
Ended
June 30
2019
|
|
6 Months
Ended
June 30
2018
|
Property
revenue
|
$
|
13,561
|
$
|
9,075
|
$
|
27,071
|
$
|
18,472
|
Property operating
expenses
|
|
5,113
|
|
3,220
|
|
10,165
|
|
6,726
|
Net operating
income1
|
|
8,448
|
|
5,855
|
|
16,906
|
|
11,746
|
|
|
|
|
|
|
|
|
|
General and
administrative expenses
|
|
574
|
|
472
|
|
1,097
|
|
874
|
Long‑term incentive
plan expense
|
|
395
|
|
383
|
|
1,667
|
|
373
|
Depreciation of
property and equipment
|
|
54
|
|
10
|
|
72
|
|
21
|
Amortization of
intangible assets
|
|
93
|
|
-
|
|
186
|
|
-
|
Interest and
financing costs
|
|
3,325
|
|
2,096
|
|
6,550
|
|
4,269
|
Distributions ‑ Class
B LP Units
|
|
419
|
|
372
|
|
848
|
|
729
|
Fair value adjustment
‑ Class B LP Units
|
|
571
|
|
459
|
|
3,926
|
|
(153)
|
Fair value adjustment
‑ investment properties
|
|
(6,777)
|
|
444
|
|
(6,728)
|
|
1,942
|
Other
income
|
|
(819)
|
|
-
|
|
(1,345)
|
|
-
|
Other
expenses
|
|
491
|
|
-
|
|
810
|
|
-
|
Transaction
costs
|
|
3,045
|
|
475
|
|
3,076
|
|
475
|
Debt settlement
costs
|
|
-
|
|
-
|
|
-
|
|
719
|
|
|
|
|
|
|
|
|
|
Net comprehensive
income
|
$
|
7,077
|
$
|
1,144
|
$
|
6,747
|
$
|
2,497
|
For the three months ended June 30,
2019, net comprehensive income amounted to $7.1 million, compared to $1.1 million for the same period last year. The
$6.0 million increase mainly relates
to the favourable impact of property acquisitions completed in the
twelve-month period ended June 30,
2019, combined with $6.7
million in net property fair value adjustments, partially
offset by one-time transaction costs of $3.0 million relating to the internalization
of PROREIT's asset management function combined with the Toronto
Stock Exchange ("TSX") graduation costs.
For the six months ended June 30,
2019, net comprehensive income amounted to $6.7 million, an increase of $4.2 million compared to $2.5 million for the same period last year,
mainly as a result of the favourable impact of property
acquisitions completed in the twelve-month period ended
June 30, 2019, combined with
$6.7 million in net million property
fair value adjustments, partially offset by one-time transaction
costs of $3.1 million relating
to the internalization of PROREIT's asset management function
combined with the TSX graduation costs.
TABLE 3- TOTAL
PORTFOLIO BASE RENT
|
|
|
|
BY ASSET
CLASS
|
|
June 30,
2019
|
June 30,
2018
|
|
Number of properties
|
% Base
Rent
|
Number
of properties
|
% Base
Rent
|
Retail
|
49
|
46.3
|
46
|
53.5
|
Commercial Mixed
Use
|
7
|
10.1
|
7
|
12.6
|
Office
|
9
|
16.1
|
4
|
7.4
|
Industrial
|
19
|
27.6
|
16
|
26.4
|
TOTAL
|
84
|
100.0
|
73
|
100.0
|
|
BY
PROVINCE
|
|
June 30,
2019
|
June 30,
2018
|
|
Number of properties
|
% Base
Rent
|
Number
of properties
|
% Base
Rent
|
Maritime
Provinces
|
32
|
43.7
|
32
|
52.1
|
Quebec
|
16
|
18.3
|
12
|
18.7
|
Western
Canada
|
26
|
18.3
|
26
|
21.8
|
Ontario
|
10
|
19.7
|
3
|
7.5
|
TOTAL
|
84
|
100.0
|
73
|
100.0
|
Acquisitions made during the last twelve-month period
contributed to the diversification of PROREIT's asset portfolio.
PROREIT's industrial exposure rose to 27.6% while office exposure
increased to 16.1% at the end of the second quarter of 2019. The
acquisitions also increased exposure to the Ontario market to 19.7% at the end of the
three-month period ended June 30,
2019.
TABLE 4-
OPERATIONAL HIGHLIGHTS
|
|
|
|
|
June 30
2019
|
June 30
2018
|
Operational
data
|
|
|
Number of
properties
|
84
|
73
|
Gross leasable area
(square feet)
|
3,701,132
|
3,039,510
|
Occupancy rate
(1)
|
97.9%
|
97,6%
|
Weighted average
lease term to maturity (years)
|
5.7
|
6.6
|
|
|
(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 June 30,
2019 was approximately 8,787 square feet of GLA (98,408 square feet
of GLA at June 30, 2018).
|
Gross leasable area ("GLA") increased 21.8% to 3,701,132 square
feet at June 30, 2019, compared to
3,039,510 square feet at June 30,
2018. The increase of 661,622 square feet in GLA is a result
of the acquisition of 11 investment properties in the twelve-month
period ended June 30, 2019.
Occupancy rate remained firm at 97.9% as at June 30, 2019, compared to 97.6% a year earlier.
The 10 largest tenants in PROREIT's portfolio accounted for
approximately 36.0% of annualized in-place and committed base rent
at June 30, 2019 and comprise
approximately 7.5 years of remaining lease term, while credit
quality tenants represent 51.1% of in-place annualized base
rent.
Weighted average lease term to maturity stood at 5.7 years for
the three months ended June 30, 2019,
compared to 6.6 years for the same period in 2018. Over 82% of
PROREIT's leases maturing in 2019 have been renewed as of
June 30, 2019.
Internalization of Asset Management
On April 1, 2019 the REIT
internalized its asset management function in accordance with the
terms of a management agreement with the REIT's former external
manager, Labec Realty Advisors Inc. (the "Manager"). The
internalization resulted in the termination of the management
agreement and the elimination of the asset management and
acquisition fees payable to the Manager thereunder. As a result of
the internalization, the REIT's executive officers, James W. Beckerleg and Gordon G. Lawlor, are employed directly by the
REIT since April 1, 2019. In
accordance with the terms of the management agreement, the Manager
received upon completion of the internalization a termination
payment of approximately $2.3
million, representing one time the management fees and
expenses paid to it in the most recent fiscal year prior to the
internalization.
TSX Graduation and Unit Consolidation
On May 7, 2019, the trust units of
PROREIT ("Units") commenced trading on the TSX under the symbol
"PRV.UN" at which time the Units were delisted from, and ceased
trading on, the TSX Venture Exchange. In connection with the TSX
listing, the Units and the special voting units of the REIT were
consolidated on the basis of one post‑consolidation unit for three
pre‑consolidation units and the Class B limited partnership
units of PRO REIT Limited Partnership ("Class B LP Units"), a
subsidiary of the REIT, and the units under the REIT's long term
incentive plan were concurrently consolidated on the basis of the
same consolidation ratio (the "Consolidation").
Distributions
Distributions to unitholders totaling $0.0525 per Unit (on a post-Consolidation basis)
were declared during the three months ended June 30, 2019. As a result of the Consolidation,
the monthly distributions of the REIT of $0.0175 per Unit on a pre-Consolidation basis
were adjusted to $0.0525 per Unit on
a post-Consolidation basis, representing annualized distributions
of $0.63 per Unit on a
post-Consolidation basis. Equivalent distributions are paid on the
Class B LP Units.
Distributions on the Class B LP Units were $419 for the three-month period ended June
30, 2019. The increase is due to the increase in the number of
Class B LP Units in 2019, compared to the same period in 2018.
On July 23, 2019, PROREIT
announced a cash distribution of $0.0525 per Unit for the month of July 2019. The distribution is payable on
August 15, 2019 to unitholders of
record as at July 31, 2019.
SUBSEQUENT EVENTS
Strategic Acquisition of Seven Properties
On August 7, 2019, PROREIT
announced that it had entered into three separate agreements to
acquire seven properties, for $97.8
million, representing a total of 696,000 square feet of GLA.
The properties include a boutique office tower in the central
business district in Ottawa and a
Class-A mixed-used industrial property located in Kanata, Ontario, in addition to a
five-property light industrial portfolio in Halifax, Nova Scotia. Upon completion of the
acquisition of the seven properties, the REIT's portfolio will be
comprised of 91 income producing commercial properties representing
approximately 4.4 million square feet of GLA and $625 million of gross book value1 with
a weighted average lease term of 5.7 years. The addition of these
properties will improve portfolio balance by increasing PROREIT's
portfolio exposure to the Ontario
market and to the industrial and mixed-use asset classes. The
acquisitions are subject to customary due diligence and closing
conditions, including with respect to financing.
$50-Million Bought Deal
On August 7, 2019, PROREIT
announced that it had entered into an agreement to issue 7,150,000
Units from treasury on a bought-deal basis at a price of
$7.00 per Unit for gross proceeds of
approximately $50 million. The
underwriters have elected to exercise their over-allotment option
in full, which will increase the total gross proceeds to the REIT
under the offering to approximately $57.6
million.
The offering is expected to close on August 16, 2019
and is subject to customary conditions. The REIT intends to use net
proceeds from the offering to partially fund its announced
acquisitions, to repay certain indebtedness which may be
subsequently redrawn, and the balance, if any, to fund future
acquisitions and for general business and working capital
purposes.
The completion of the announced acquisitions together with the
offering and the repayment of certain indebtedness under the
intended use of proceeds of the offering is expected to be
immediately accretive to AFFO per unit1 and to reduce the
REIT's AFFO payout ratio1.
STRATEGY AND OUTLOOK
Management currently expects the real estate market to remain
strong and the low-interest rate context to be maintained. In this
favorable environment, Management is actively seeking opportunities
to continue to strategically grow and diversify its asset
portfolio, while achieving additional economies of scale.
Investor Conference Call and Webcast Details
PROREIT will hold a conference call to discuss its second
quarter 2019 results on August 14,
2019, at 11:00 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 from August 14 to November
14, 2019 by dialing 888-390-0541 or 416-764-8677,
access code for participants 802290#. The conference call will also
be accessible via live webcast on PROREIT's website at
www.proreit.com.
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 same property net
operating income (or same property NOI), adjusted funds from
operations or AFFO, AFFO payout ratio, net operating income or NOI,
debt to gross book value, gross book value, interest coverage
ratio, debt service coverage ratio, funds from operations or FFO.
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 ended June 30, 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 the closing
of the REIT's announced public offering and proposed acquisitions,
the use of the net proceeds of the offering, the impact of the
announced acquisitions on the REIT's future financial performance,
the debt to gross book value of the REIT following the closing of
the transaction, the impact of the transaction on the REIT's AFFO
per unit and AFFO payout ratio, the ability of the REIT to
executive its growth strategy and the payment and level of future
distributions. PROREIT's objectives and forward-looking statements
are based on certain assumptions, including management's
perceptions of historical trends, current conditions and expected
future developments.
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.
About PROREIT
PROREIT (www.proreit.com) is an unincorporated open-ended real
estate investment trust owning a diversified portfolio of 84
commercial properties across Canada representing over 3.7 million
square feet of GLA, which following the completion of the
REIT's announced acquisitions will increase to 91 commercial
properties representing over 4.4 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.
The securities offered under PROREIT's offering have not and
will not be registered under the United States Securities Act of
1933, as amended (the "U.S. Securities Act"), or any U.S. State
securities laws and may not be offered or sold, directly or
indirectly, within the United
States or its territories or possessions or to or for the
account of any U.S. person (as defined in Regulation S under the
U.S. Securities Act) other than pursuant to an available
exemption from the registration requirements of the U.S. Securities
Act. This press release does not constitute an offer to sell or a
solicitation of an offer to buy any such securities within
the United States, or its
territories or possessions, or to or for the account of any U.S.
person.
_______________________
|
1
|
Non-IFRS measure. See
"Non-IFRS and Operational Key Performance Indicators"
|
SOURCE PROREIT