PURE INDUSTRIAL REAL ESTATE TRUST 2013 ANNUAL REPORT. A Canadian Blue Chip Industrial REIT. Containerworld Development

Size: px

Start display at page:

Download "PURE INDUSTRIAL REAL ESTATE TRUST 2013 ANNUAL REPORT. A Canadian Blue Chip Industrial REIT. Containerworld Development"

Evan Mason
5 years ago
Views:

1 PURE INDUSTRIAL REAL ESTATE TRUST 2013 ANNUAL REPORT Containerworld Development A Canadian Blue Chip Industrial REIT

2 High Quality Industrial Properties

..7 Financial Statements...33 Trustees and Management.

3 in Canada s Strongest Economies Table of Contents Letter to Unitholders...2 Management s Discussion & Analysis...7 Financial Statements...33 Trustees and Management...60 Corporate Information...61 Pure Indsutrial Real Estate Trust 2013 Annual Report 1

Letter to Unitholders 2013 Earnings by Province BC AB SK MB ON QC NB ON 41.6% QC 1.8% NB SK 0.7% 1.5% in place Rent per Square foot Cross-dock $ 5.78 $ 5.56 $ 5.60 MB 4.2% $ 7.67 $ 7.20 $ 6.00 $ 7.

53 To our valued Unitholders, 2013 was a transformational year for the Trust, as we completed our most active year to date by acquiring 77 industrial properties and adding 6 million square feet of

4 Letter to Unitholders 2013 Earnings by Province BC AB SK MB ON QC NB ON 41.6% QC 1.8% NB SK 0.7% 1.5% in place Rent per Square foot Cross-dock $ 5.78 $ 5.56 $ 5.60 MB 4.2% $ 7.67 $ 7.20 $ 6.00 $ 7.30 BC 22.0% $ 8.22 AB 28.1% Other $ $ To our valued Unitholders, 2013 was a transformational year for the Trust, as we completed our most active year to date by acquiring 77 industrial properties and adding 6 million square feet of high-quality product to our portfolio. PIRET successfully completed two equity offerings in 2013, a $69.7 million bought deal in February, and a $184.1 million bought deal that closed in May - our largest equity offerings to date. By the end of May 2013, the fear of rapidly rising interest rates took the momentum out of the Canadian REIT industry as Canadian equity capital markets cooled and many REITs suffered significant decreases in their share price. During this period, PIRET s share price dropped as well, but by year end had recovered to $4.82 which was only 6.4% off the May 28th price of $5.13. Notably, PIRET actually recorded a positive total return in By year end, PIRET s portfolio grew to 156 industrial properties comprising over 12.6 million square feet, while continuing to increase our weighting in distribution and logistics product and lowering the average age of our assets by 1.2 years. Our People In September 2013, the PIRET family was saddened by the untimely departure of our founder, visionary and Co-CEO, Darren Latoski. Darren passed away unexpectedly after being diagnosed with an illness that ultimately claimed his life. Darren s large and entertaining personality will be missed, but his legacy will remain intact as we continue to think big, operate in a manner that is respectful of investors money, and move quickly to capitalize on the right opportunities. Much of our recent success comes from our ability to attract outstanding people. During 2013, PIRET made several key additions, as our real estate management team doubled in size. Namely, in June, we welcomed Allan Saito as Vice President of Property Management & Leasing. This hire was seen as a critical Annual Report Pure Indsutrial Real Estate Trust

Allan brings over twenty years of real estate experience to the role and used his particular knowledge of the 59-asset portfolio acquired by PIRET on May 15th to successfully integrate the 12-member

5 asset type mix Flex 3.4% 3.6% 5.0% role for PIRET, as Allan was brought on board to provide senior leadership to our property management and leasing teams nationally during a time of significant growth in our company. Allan brings over twenty years of real estate experience to the role and used his particular knowledge of the 59-asset portfolio acquired by PIRET on May 15th to successfully integrate the 12-member property management and leasing team with our existing platform. As we added critical mass in our target markets in 2013, PIRET opened office locations in Vaughan, Ontario and Calgary, Alberta, facilitating a scalable national management platform. Internal Growth Across our tenant base, our weighted average remaining lease term was 7.0 years, and over 64% of these leases are not up for renewal until 2017 or later. The vast majority of these leases contain built-in rental escalations, enabling us to increase revenues and AFFO per unit over time without having to incur the cost associated with releasing the space. NCIB In August, PIRET announced a normal course issuer bid ( NCIB ), allowing PIRET to purchase a number of units in the market for cancellation. In management s opinion, our Units had been trading in a price range which did not adequately reflect the value of the Units. During the course of the year PIRET purchased 1.5 million outstanding Units under the NCIB at an average price of $4.37 per Unit. This average price of $4.37 represented a discount to consensus NAV of 9.9%, which was an appropriate use of available resources and benefited our remaining unitholders by increasing their proportionate equity interest in PIRET. Selling Non-core Assets During the year, PIRET announced the sale of 8 properties throughout the year: one in January for $8.3 million, three properties in August for $12.6 million, and four properties in December for $12.4 million. All the properties were sold to end users at pricing that significantly exceeded PIRET s acquisition cost. 10.8% 11.4% Warehouse / Distribution 51.1% 53.5% 60.1% Light Manufacturing 45.5% 42.9% 34.9% 2011 Lease expiries by year 17.3% 2016 other 9.0% % 6.2% % top 10 tenants by noi Other 69.9% 2012 Transforce 6.0% % Thereafter Containerworld 4.6% Tervita 3.7% HBC 3.0% Ackland-Granger 2.6% Advance 2.6% PFB 2.3% RSAC 1.8% Weldco 1.7% Kingspan 1.7% Pure Indsutrial Real Estate Trust 2013 Annual Report 3

Debt to GBV 55.7% 51.9% 54.1% 2011 2012 2013 NOI Per Unit $ 0.633 $ 0.581 $ 0.567 2011 2012 2013 AFFO PAYOUT RATIO 99.0% 97.5% 87.4% 2011 2012 2013 FFO and affo per unit $ 0.396 $ 0.357 $ 0.354 $ 0.

to expand their facility in Richmond, BC by approximately 151,200 square feet. ContainerWorld currently occupies 484,429 square feet at the building, located at 16133 Blundell Road, Richmond, BC.

6 Debt to GBV 55.7% 51.9% 54.1% NOI Per Unit $ $ $ AFFO PAYOUT RATIO 99.0% 97.5% 87.4% FFO and affo per unit $ $ $ $ $ $ Development Opportunities In August, PIRET entered into an agreement with ContainerWorld Forwarding Services Inc. to expand their facility in Richmond, BC by approximately 151,200 square feet. ContainerWorld currently occupies 484,429 square feet at the building, located at Blundell Road, Richmond, BC. The expansion will increase their gross leasable area to approximately 635,000 square feet, representing one of the largest single industrial properties in Greater Vancouver. PIRET has significant excess density across our existing portfolio for future expansion projects, and we will continue to focus on sourcing additional expansion and development opportunities. Building Momentum Within our success lies greater opportunity, as ownership across the Canadian industrial marketplace remains fragmented, and PIRET will continue to prudently explore opportunities for strategic and accretive growth. Investment in PIRET offers investors exposure to a healthy Canadian economy and an improving U.S. economy, as the significant growth in the e-commerce and home shopping activity drives the increasing demand for storage and logistics space. In time, as our market cap increases, so too does the likelihood of inclusion in several REIT indexes, including the S&P/TSX Composite index, which we strongly believe will increase liquidity and investor demand, while continuing to diversify our investor base. Summary PIRET grew significantly in 2013, but in a disciplined and targeted manner. We improved our balance sheet, and we raised capital by disposing of some of our non-core assets at a significant profit. We maintained a straightforward balance sheet and we continued to lower our payout ratio while sustaining conservative leverage. We controlled management expenses with our 2013 G&A as a percentage of revenues of 3.7%, positioned amongst the lowest in the Canadian REIT Universe, and management continues to believe that our fully internalized structure is the right one for our investors FFO AFFO Annual Report Pure Indsutrial Real Estate Trust

We believe that our strategy of acquiring high quality properties in Canada s leading economies, and our efficient and experienced management team will provide superior long term results for our

PIRET will continue to focus on strategies that increase NOI and drive returns, while lowering our overall leverage and payout ratio.

7 We believe that our strategy of acquiring high quality properties in Canada s leading economies, and our efficient and experienced management team will provide superior long term results for our investors. In 2014, the investment environment has shifted for Canadian REITs as the volume of property transactions and issuance of equity capital is likely to decrease from PIRET will continue to focus on strategies that increase NOI and drive returns, while lowering our overall leverage and payout ratio. We would like to thank our management team, employees, Trustees and Unitholders for their continued support. Sincerely, 6.00% 5.50% Vancouver high / low cap rate a industrial 6.00% 6.00% 6.25% 5.50% Calgary Edmonton Toronto 6.25% 5.50% 6.00% 5.50% 5.75% Ottawa 7.25% Montreal 7.00% 6.50% 6.25% Halifax vacancy and net asking rent Vacancy 7.90% Steve Evans Co-CEO Trustee Kevan Gorrie President and Co-CEO Trustee 4.20% 5.10% 2.60% 2.70% 6.50% 6.90% $ 7.96 $ 8.10 $ $ 5.04 $ 8.53 $ 5.17 $ 7.43 Vancouver Calgary Edmonton Toronto Ottawa Montreal Halifax Pure Indsutrial Real Estate Trust 2013 Annual Report 5

8 Annual Report Pure Indsutrial Real Estate Trust First-class portfolio concentrated in Canada s strongest growth market.

9 Management s Discussion and Analysis For the Year Ended December 31, 2013 MD&A Pure Indsutrial Real Estate Trust 2013 Annual Report 7

10 Annual Report Pure Indsutrial Real Estate Trust

11 (1) Pure Indsutrial Real Estate Trust 2013 Annual Report 9

12 Annual Report Pure Indsutrial Real Estate Trust

13 Pure Indsutrial Real Estate Trust 2013 Annual Report 11

14 Annual Report Pure Indsutrial Real Estate Trust

15 Pure Indsutrial Real Estate Trust 2013 Annual Report 13

16 Annual Report Pure Indsutrial Real Estate Trust

17 Pure Indsutrial Real Estate Trust 2013 Annual Report 15

18 Annual Report Pure Indsutrial Real Estate Trust

19 Pure Indsutrial Real Estate Trust 2013 Annual Report 17

20 Annual Report Pure Indsutrial Real Estate Trust

21 Pure Indsutrial Real Estate Trust 2013 Annual Report 19

22 Annual Report Pure Indsutrial Real Estate Trust

23 Pure Indsutrial Real Estate Trust 2013 Annual Report 21

24 Annual Report Pure Indsutrial Real Estate Trust

25 Pure Indsutrial Real Estate Trust 2013 Annual Report 23

26 Annual Report Pure Indsutrial Real Estate Trust

27 Pure Indsutrial Real Estate Trust 2013 Annual Report 25

28 Annual Report Pure Indsutrial Real Estate Trust

29 Pure Indsutrial Real Estate Trust 2013 Annual Report 27

30 Annual Report Pure Indsutrial Real Estate Trust

31 Pure Indsutrial Real Estate Trust 2013 Annual Report 29

32 Annual Report Pure Indsutrial Real Estate Trust

33 Pure Indsutrial Real Estate Trust 2013 Annual Report 31

34 Annual Report Pure Indsutrial Real Estate Trust

35 FS Financial Statements For the Year Ended December 31, 2013 Pure Indsutrial Real Estate Trust 2013 Annual Report 33

36 PURE INDUSTRIAL REAL ESTATE TRUST Suite 910, 925 West Georgia Street Vancouver British Columbia Canada V6C 3L2 Telephone (604) Fax (604) Annual Report Pure Indsutrial Real Estate Trust

37 KPMG LLP Chartered Accountants PO Box Dunsmuir Street Vancouver BC V7Y 1K3 Canada Telephone (604) Fax (604) Internet INDEPENDENT AUDITORS' REPORT To the Unitholders of Pure Industrial Real Estate Trust We have audited the accompanying financial statements of Pure Industrial Real Estate Trust, which comprise the statements of financial position as at December 31, 2013, and 2012, the statements of net earnings and comprehensive income, changes in unitholders equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Pure Industrial Real Estate Trust as at December 31, 2013 and 2012, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards. Chartered Accountants March 11, 2014 Vancouver, Canada KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. KPMG Canada provides services to KPMG LLP. Pure Indsutrial Real Estate Trust 2013 Annual Report 35

38 Annual Report Pure Indsutrial Real Estate Trust

39 Pure Indsutrial Real Estate Trust 2013 Annual Report 37

40 Annual Report Pure Indsutrial Real Estate Trust

41 Pure Indsutrial Real Estate Trust 2013 Annual Report 39

42 Annual Report Pure Indsutrial Real Estate Trust

43 Pure Indsutrial Real Estate Trust 2013 Annual Report 41

44 Annual Report Pure Indsutrial Real Estate Trust

45 Pure Indsutrial Real Estate Trust 2013 Annual Report 43

46 Annual Report Pure Indsutrial Real Estate Trust

47 Pure Indsutrial Real Estate Trust 2013 Annual Report 45

48 Annual Report Pure Indsutrial Real Estate Trust

49 Pure Indsutrial Real Estate Trust 2013 Annual Report 47

50 Annual Report Pure Indsutrial Real Estate Trust

51 Pure Indsutrial Real Estate Trust 2013 Annual Report 49

52 Annual Report Pure Indsutrial Real Estate Trust

53 (i) Pure Indsutrial Real Estate Trust 2013 Annual Report 51

54 Annual Report Pure Indsutrial Real Estate Trust

55 Pure Indsutrial Real Estate Trust 2013 Annual Report 53

56 Annual Report Pure Indsutrial Real Estate Trust

57 Pure Indsutrial Real Estate Trust 2013 Annual Report 55

58 Annual Report Pure Indsutrial Real Estate Trust

59 Pure Indsutrial Real Estate Trust 2013 Annual Report 57

60 Annual Report Pure Indsutrial Real Estate Trust

61 Pure Indsutrial Real Estate Trust 2013 Annual Report 59

62 Management Stephen J. Evans Trustee and Co-Chief Executive Officer Kevan S. Gorrie Trustee, President and Co-Chief Executive Officer Francis Tam Chief Financial Officer Allan Saito Vice President, Property Manager and Leasing Trustees T. Richard Turner Independent Chair Chair of Compensation Committee Member of Nominating and Corporate Governance Committee Douglas R. Scott Chair of Audit Committee Member of Nominating and Corporate Governance Committee Robert W. King Member of Audit Committee Member of Compensation Committee James K. Bogusz Member of Audit Committee Member of Compensation Committee Annual Report Pure Indsutrial Real Estate Trust

Corporate Information Vancouver Office 910-925 West Georgia Street Vancouver, BC V6C 3L2 T: 604-398-2836 E: info@piret.

ca Toronto Office Suite 2420-150 King Street West Toronto, ON M5H 1J9 T: 416-479-8590 Investor Relations Andrew Greig, Director of Investor Relations T: 604-681-5959 TF: 1-888-681-5959 E:

63 Corporate Information Vancouver Office West Georgia Street Vancouver, BC V6C 3L2 T: E: Toronto Office Suite King Street West Toronto, ON M5H 1J9 T: Investor Relations Andrew Greig, Director of Investor Relations T: TF: E: Transfer Agent Computershare Trust Company of Canada 100 University Avenue, 9th Floor Toronto, ON M5J 2Y1 T: TF: F: TFF: Auditors KPMG LLP Chartered Accountants PO Box 10426, 777 Dunsmuir Street Vancouver, BC V7Y 1K3 T: F: Corporate Counsel Clark Wilson LLP West Georgia Street Vancouver, BC V6C 3H1 T: F: Stock Exchange Listing TSX Listing Symbol AAR.UN Annual Meeting of Shareholders 9:00 am Pacific Daylight Time Wednesday, May 21, 2014 The Sutton Place Hotel Chateau Belair 845 Burrard Street Vancouver, BC V6C 3L2 Pure Indsutrial Real Estate Trust 2013 Annual Report 61

2012 Annual Report. From the date of formation on May 8, 2012 to December 31, 2012

2012 Annual Report. From the date of formation on May 8, 2012 to December 31, 2012 2012 Annual Report From the date of formation on May 8, 2012 to December 31, 2012 Our high quality apartment portfolio is unparalleled amongst our Canadian apartment REIT peers. Table of Contents 1. Letter