PRO Real Estate Investment Trust (“PROREIT” or the “REIT”) (TSXV: PRV.UN) is pleased to report financial and operating results for the three-months (or “first quarter”) ended March 31, 2018. PROREIT is reporting strong gains in net assets, property revenue, net operating income (“NOI”) (1) and adjusted funds from operations (“AFFO”)(1). The REIT also reports solid operating results, including increases in the occupancy rate of the portfolio and weighted average lease term to maturity, and expansion in gross leasable area (“GLA”).
“Following an active year during which we made 27 acquisitions, the first quarter of 2018 was one focused on integration of our new properties and, we believe, setting up for excellent new opportunities during the balance of the year. During the last two months we have aggressively pursued new acquisition opportunities in several regions of the country,” noted James W. Beckerleg, President and Chief Executive Officer. “We have seen several opportunities to acquire good quality real estate that fits our strategy well and could contribute to building the quality of our portfolio, while providing above average returns. We expect to announce new acquisitions in the second quarter. We are also seeing good leasing activities at existing properties which will positively impact future quarters.”
“The first quarter was also highlighted by a successful equity raise of $29 million.”
The REIT’s first quarter financial results improved on most key measures, due primarily to the successful integration of new properties into the portfolio, compared to the first quarter in 2017. The REIT reported significant year-over-year growth in property revenues, NOI(1) and AFFO(1) compared to the first quarter in 2017.
As of March 31, 2018, total assets increased 39.3% to $366.6 million, compared to $263.2 million at March 31, 2017.
For the three months ended March 31, 2018, property revenues increased 25.7% to $9.40 million, compared to $7.48 million in the first quarter of 2017. The increase in property revenues for the three-month period is due to the incremental revenues from the 26 property acquisitions completed in the twelve months ended March 31, 2018 and the completion of two pad developments in the fourth quarter of 2017, offset in part by the sale of two properties during the course of the 2017 fiscal year.
NOI (1) grew 30.0% to $5.89 million in the first quarter, compared to $4.53 million for the same quarter in 2017.
The substantial portfolio expansion achieved over the last year means that only 37 of the REIT’s 66 properties were owned during the first quarter of 2017. Same property NOI(1) for these 37 properties during the first quarter declined modestly to $3.72 million compared to $3.93 million for the first quarter of last year.
As discussed last quarter, net same property NOI(1) included significant positive leasing and renewals but these were somewhat offset by vacancies at a retail and two industrial properties. In each case however, PROREIT sees the opportunity for strengthening of tenant profiles in improving markets at these properties. This proactive strengthening is well underway and should show positive financial results in the second half of 2018. This is in part reflected in the 58,108 square feet of space which is now committed upon, as discussed below.
AFFO(1) increased 24.5% to $3.20 million for the quarter ended March 31, 2018 compared to $2.57 million for the comparable three months in 2017. AFFO per basic unit(1) was $0.0459 for the first quarter of 2018, compared to $0.0539 for the same three months in 2017. The decline is the result of the timing of the successful January 29, 2018 equity financing, the majority of the proceeds of which was principally used to repay credit facilities and has not yet been redeployed to fund acquisitions or other REIT purposes.
Similarly to AFFO(1), the AFFO payout ratio per basic unit(1) was 114.4% for the first quarter, compared to 97.3% for the first quarter of 2017. Again, the elevated payout ratio is the result of the January 29, 2018 equity financing, the majority of the proceeds of which has not yet been redeployed as mentioned above.
The redeployment of liquidity from the equity raise will expand NOI(1), FFO(1) and corresponding AFFO(1). The portfolio is stable and is generating expected cash flows.
Distributions to unitholders totaling $0.0525 per unit were declared during the three-months ended March 31, 2018.
Total debt to gross book value(1) stood at 55.42% at March 31, 2018, compared to 58.72% on the same date in 2017. The weighted average interest rate on mortgage debt was 3.73% at the end of the first quarter, up slightly from 3.70% at December 31, 2017.
PROREIT recorded a very strong first quarter on a year-over-year basis.
At March 31, 2018, the PROREIT portfolio was comprised of 66 properties, compared to 40 on the same date in 2017.
Gross leasable area increased 28.4% to 2,684,653 square feet at March 31, 2018 compared to 2,090,214 square feet at the end of the first quarter in 2017. The weighted average lease term increased to 6.7 years, compared to 6.4 years twelve months earlier. The increase is a result of successful lease renewals and acquisitions with long average lease terms.
PROREIT continues its success at maintaining high occupancy rates throughout its portfolio. At March 31, 2018, its occupancy rate increased to 96.0%, from 95.2% a year earlier. The REIT continues to achieve a high rate of success renewing lease maturities. At March 31, 2018, Management has renewed or is in advanced discussions to renew 79% of 2018 expiries.
It should be noted however that this occupancy rate reflects 58,108 square feet of committed space, the revenues of which are not yet contributing to cash flows. Those revenues will begin to contribute mostly in the fourth quarter of 2018 and create an annualized amount that will be in excess of $0.8 million.
Significant Events in the First Quarter
Strong equity markets in the first weeks of January 2018 provided an opportunity for PROREIT to announce and close a bought deal equity financing of trust units at attractive prices for unitholders. The REIT issued, at closing of the offering on January 29, 2018, a total of 12,500,500 units at a price of $2.30 per unit for total gross proceeds of $28.8 million including 1,630,500 units issued pursuant to the full exercise of an over‑allotment option. The REIT used the net proceeds from the offering to repay certain indebtedness, a significant portion of which should be subsequently redrawn as needed to fund future acquisitions or other REIT purposes.
Strategy and Outlook
The timing of the January 29, 2018 bought deal transaction mentioned above was fortuitous and should serve the REIT well going forward. As a result of the financing, our current cash position and related liquidity put PROREIT in excellent position to complete new acquisitions.
As mentioned in PROREIT’s year-end message to unitholders, commercial real estate markets in Canada continue to be very strong and pricing is competitive. Management continues to be very focused on finding the right opportunities in this environment.
PROREIT has only a modest level of debt maturing in the coming year and does not currently expect a significant negative impact on the REIT from increases in interest rates, should that occur. Currently, the average term of the REIT’s mortgage debt outstanding is over five years. Also, the Bank of Canada has now indicated that interest rates are expected to remain stable for the foreseeable future.
PROREIT’s newest acquisitions are now integrated and are contributing to our solid financial and operating results. For the balance of 2018, Management expects strong growth and improved operating results for our unitholders.
PROREIT is an unincorporated open-ended real estate investment trust established pursuant to a declaration of trust under the laws of the Province of Ontario. PROREIT was established in March 2013 to own a portfolio of diversified commercial real estate properties in Canada, with a focus on primary and secondary markets in Québec, Atlantic Canada and Ontario with selective expansion into 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 Adjusted Funds From Operations (“AFFO”), Funds From Operations (“FFO”), Net Operating Income (“NOI”), same property NOI, debt to gross book value, interest coverage ratio, debt service coverage ratio, and payout ratios as well as other measures discussed elsewhere in this release. 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 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 March 31, 2018, available on SEDAR at www.sedar.com.
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 is 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 includes, without limitation, statements pertaining to the ability of the REIT to execute its business and growth strategies; the performance of the capital markets in the future; the REIT’s future financial performance; the impact of any increases in interest rates; and the impact of the REIT’s acquisitions on the REIT’s future results. 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 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 Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
NOT FOR DISSEMINATION IN THE UNITED STATES OR DISTRIBUTION THROUGH UNITED STATES NEWS OR WIRE SERVICES.
For further information:
PRO Real Estate Investment Trust
James W. Beckerleg
President and Chief Executive Officer
PRO Real Estate Investment Trust
Gordon G. Lawlor, CPA, CA
Chief Financial Officer
 Non-IFRS measure. See “Non-IFRS and Operational Key Performance Indicators".Download