The past year has been something of a roller-coaster ride for REITs given the mid-year plunge most suffered in public markets following a surprise hike in interest rates.
For WPT Industrial Real Estate Investment Trust (WIR.U-T), the year was even more eventful. The REIT managed to complete its initial public offering in April, just prior to the REIT market downturn sparked by comments from the U.S. Federal Reserve, and it has grown its asset base through a series of acquisitions as a public entity.
“The good news is we got public, we got done, and the window was open when we went through and it has been shut pretty solidly ever since,” said Scott Frederiksen, WPT’s chief executive officer.
“Like most of the REITs, our stock hasn’t met our expectations. We are trading to a discount to what we think the assets are worth and to our NAV (net asset value) and we think that offers an opportunity for people, like I think most REIT CEOs would say.”
That said, the Minneapolis-based REIT outperformed the REIT index from the time it went public to the close of 2013. “We’re doing better than the index and I think especially when you load in currency,” he said.
WPT unitholders have benefited from the run of the U.S. dollar versus Canada’s loonie as the REIT is one of a few that pays out its distributions in American greenbacks.
“Having said all that, we are still trading below where we came public,” he said. “We are at between $8.50 and $9 and we became public at $10, so that does not feel very good.”
Better than priced
WPT’s slumping share price does not reflect the REIT’s current position or prospects, Frederiksen said, which as he noted is a common refrain among real estate execs.
“The good news is we are growing, the tenants are renewing, the rents are rolling up, most of the markets are seeing good increases in occupancy and absorption and decreases in occupancy. If you ask how it is going, the business is going good, the capital markets are not going so good.”
In the nine months or so since WPT went public, it has added about 1.4 million square feet to a base of approximately 8.5 million sq. ft., which represents 16 to 17% growth and currently has a “deep pipeline of opportunities that we are looking at.” (Photo: 1105 Northfield Drive, Brownsburg, Indiana)
Today, the REIT owns 39 properties comprising about 10 million sq. ft. in the U.S. Midwest and U.S. Southeast stretching from the Carolinas to Florida. WPT boasts an occupancy rate of between 96% to 97% and rents that typically rise on renewal, he said.
Frederiksen expects WPT to easily surpass the pace of acquisitions it made in 2013. “There is a lot to absorb when you first become a public company. Now we have got all that other stuff done and we are really focused on doing deals in ’14. I would be disappointed if our growth wasn’t a lot more than that in ’14.”
A household name
The only Canadian REIT exclusively focused on U.S. industrial real estate, WPT bills itself as a blue-chip buyer of industrial properties.
“We know what we are looking for,” said Frederiksen. “What we are focused on is typically buildings over 300,000 sq. ft. and are high-function, high-clear, state-of-the-art distribution centres. It might be five per cent of the total industrial space, so if it is a 20-billion-square-foot universe in the U.S., we are focused on a billion feet of it.”
According to an investor presentation on its website, its portfolio averages 31-foot ceiling heights and its average tenant size is 150,000 sq. ft. Its top 10 tenants include the likes of Unilever Home and Personal Care, Honeywell International and women’s wear retailer OSP Group, Inc.
WPT does not have any difficulty finding prospective properties to purchase, its CEO said. “We are looking at five per cent of the market and in that niche we are famous because we have been doing it 30 years, everybody knows that is the niche we play in.”
About half of the properties the REIT buys never hit the general market but come to them as would-be sellers look to be tenants or brokers approach them for off-market, private sales.
“We have got relationships with the tenants whether it is Amazon or eBay or UPS, those guys all know us because we are their landlord and all the brokers know what we buy so we are really famous in a small niche of the market which is high-function distribution space.”
Consider it a “no-fixer-uppers” strategy. “We have bought vacant and lease up and developed, but we don’t buy old crap.”