WPT Industrial Real Estate Investment Trust

• High-quality US industrial REIT offering investors access to a well-located portfolio of assets that service e-commerce, distribution and logistics users.
• Fortune 500 tenant base with high credit quality; ~40% of the portfolio is occupied by top 10 tenants including General Mills, Unilever, Zulily, Radial (eBay) and Amazon.
• Attractive source of US income (distributions are paid in US dollars, ~6% cash yield).

WPT is a pure-play industrial real estate investment trust (REIT) which provides investors with exposure to a growing portfolio of institutional-quality industrial properties located in the US. The portfolio is comprised of 52 distribution-style properties (and one office property) encompassing ~17.6 million square feet, primarily concentrated in the Midwestern and southern regions of the US and, more recently, expanding into the US west coast.

Our positive investment thesis is based on the quality and nature of WPT's portfolio offering. Compared with its Canadian-listed industrial peers, WPT has the highest-quality asset base, which is primarily comprised of newer-vintage, institutional-quality distribution facilities that cater to e-commerce, distribution and logistics users. Further proliferation of e-commerce is likely to drive incremental demand that should result in stable occupancy, rent growth and asset pricing improvements which benefit WPT unitholders over the long run.

We believe WPT's high-quality, Fortune 500 tenant base speaks to the desirability and functionality of its portfolio. Specifically, its top 10 tenant roster—which includes General Mills, Unilever, Continental Tire, Zulily, Keystone Automotive, Radial (eBay), CEVA and Amazon—generate ~40% of total revenue.

WPT is managed by WPT Capital Advisors, LLC, an entity jointly owned by senior management of Welsh, and Alberta Investment Management Corporation (AIMCo). In addition to providing asset and property management services to the REIT, the entity has established a privately held value-add development fund that should over time provide WPT with a captive pipeline of attractively priced assets. Combined, Welsh and AIMCo own ~31% of the REIT, which serves to enhance alignment, in our view. Internalization of the management function is automatically triggered when the REIT's market capitalization surpasses the US$750m threshold, a goal management hopes to achieve by the end of the year.

The REIT's annual distribution of US$0.76 (paid monthly) offers investors an attractive US dollar cash yield of ~6%. Attributable to healthy forecast organic growth combined with incremental net operating income from acquisitions and its low-capital-intensity portfolio, we estimate a 2018 payout ratio based on funds from operations (FFO) of ~80%, demonstrating the sustainability of the distribution.

WPT trades at a 6.4% implied capitalization rate and a 4% discount to our US$13.40 net asset value (NAV). Our US$14.50 target is based on a
5–10% NAV premium and equates to ~14.0x our 2019 FFO per unit estimate. WPT is rated Buy–Average Risk.