- 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
Ended
December 31 2019
|
|
3 Months
Ended
December 31 2018
|
|
Year
Ended
December 31 2019
|
|
Year Ended
December 31 2018
|
Financial data
|
|
|
|
|
|
|
|
|
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
Ended
December 31
2019
|
|
3 Months
Ended
December 31
2018
|
|
Year
Ended
December 31
2019
|
|
Year Ended
December 31
2018
|
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 properties
|
%
Base Rent
|
Number of
properties
|
%
Base Rent
|
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 properties
|
%
Base Rent
|
Number of
properties
|
%
Base Rent
|
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
2019
|
December 31
2018
|
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.
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1
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Non-IFRS measure. See
"Non-IFRS and Operational Key Performance Indicators".
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SOURCE PROREIT