TORONTO, Feb. 21, 2017 /CNW/ - Summit Industrial Income REIT ("Summit II" or the "REIT") SMU announced today solid growth and strong operating performance for the three months and year ended December 31, 2016.
2016 Highlights:
- Acquired seven income-producing properties totaling 763,898 sq. ft. for $80.9 million at average cap rate of 7.05%.
- Entered into first value-add transaction with acquisition of 50% interest in 156,925 sq. ft. Montreal property. Property has been leased for a 15-year term commencing February 15, 2017.
- Portfolio growth generates 17.1% increase in revenues.
- FFO up 15.6% due to revenue growth and strong operating performance. Fourth quarter FFO up 27.5%.
- Growth accretive as FFO per Unit up 2.9% despite 12.4% increase in Units outstanding.
- Strong 82.6% FFO payout ratio - 69.1% with DRIP benefit.
- Completed successful $34.2 million bought-deal equity offering on June 17, 2016.
- Occupancy remains strong at 98.9% at December 31, 2016 with average lease term of 5.4 years and contractual rent steps of 1.7% per year.
- A strong year of leasing, completing 633,291 sq. ft. of new and renewal leasing compared to 372,270 sq.ft. in 2015.
- Obtained $20.4 million in new mortgage financings at average 3.2% fixed interest rate for average eight-year term to maturity.
- Manager and Insiders interest remains strongly aligned with Unitholders through 12.9% insider ownership of REIT Units outstanding.
- 100% of 2016 distributions tax deferred as a return of capital.
Subsequent to Year End:
- Completed successful $46.0 million bought-deal equity offering on January 31, 2017.
- Acquired a $17.0 million income-producing property and waived conditions and proceeding to close on an additional $28.2 million of acquisitions.
- In addition, we are currently performing due diligence on three acquisitions for a total of approximately $54.0 million.
- Expected to finance the various acquisitions with new and assumed 5 year mortgages at interest rates between 3.00% and 3.15%.
"2016 was another active and successful year for Summit as we continued to execute our focused value-enhancing strategies. We expanded and strengthened our property portfolio with strategic and accretive acquisitions in our target markets, we embarked on our first joint venture property development project, and we generated solid organic growth through our proactive leasing and property management programs," commented Paul Dykeman, Chief Executive Officer. "Looking ahead, we are confident this growth and strong operating performance will continue, leading to solid, stable and sustainable returns for our Unitholders over the long term."
STRONG OPERATING AND FINANCIAL RESULTS
Operating revenues increased to $12.8 million and $45.0 for the three months and year ended December 31, 2016 respectively, from $9.7 million and $38.4 million, respectively last year due primarily to the REIT's portfolio growth, strong operating performance, and successful leasing activities. Occupancy increased to 98.9% at December 31, 2016 from 98.1% at the end of 2015. Net Operating Income (NOI) rose to $8.3 million and $30.3 million in the fourth quarter and year ended December 31, 2016 compared to $6.7 million and $26.5 million in the same prior year periods.
Funds from Operations (FFO) for the three months and year ended December 31, 2016 were $5.5 million ($0.157 per Unit) and $19.6 million ($0.610 per Unit) compared to $4.3 million ($0.150 per Unit) and $17.0 million ($0.593 per Unit) in the same periods last year. The REIT's FFO payout ratio was 82.6% (69.1% including benefit of DRIP) in 2016 compared to 85.0% (71.4% including benefit of DRIP) last year.
SOLID PORTFOLIO GROWTH
During 2016 the REIT acquired seven income producing properties in the Greater Montreal Area, Edmonton and Calgary, adding approximately 763,898 square feet to the property portfolio for a total cost of approximately $80.9 million, generating a very strong 7.05% capitalization rate. In addition, pursuant to its stated growth strategy, the REIT acquired its first value-add property with the purchase of a 50% interest in a 156,925 square foot Montreal property for a cost to the REIT of $3.6 million. With these acquisitions, at December 31, 2016 the portfolio totaled 53 properties well diversified in major Canadian industrial markets totaling 5.2 million square feet of Gross Leasable Area.
ACTIVE LEASING PROGRAM
Portfolio occupancy at December 31, 2016 was 98.9%, up from 98.1% at the end of 2015. The weighted average lease term for the portfolio was approximately 5.4 years at December 31, 2016 with leases containing contractual steps in rent of approximately 1.7% per year over this term. The REIT continues to be proactive in addressing lease expiries well in advance of their expiry date. Leasing costs were approximately $1.87 million in 2016 compared to $1.40 million in 2015. During 2016, 440,244 square feet of renewal leasing was completed as well as 193,047 square feet of new leases for a total of 633,291 square feet compared to 372,270 square feet in 2015.
For the year ended December 31, 2017, approximately 390,000 square feet, or 7.7% of the total portfolio, is up for lease renewal. In Q1 2017, approximately 121,138 square feet (31% of the 2017 expiries) has been renewed for a five-year term with rent starting 4.4% higher than the expiring rent. Discussions are also underway on the renewal of an additional 114,275 square feet (29% of the 2017 expiries).
In Q1 2017, the value add property in Montreal has been leased for a 15-year term commencing February 15, 2017. The property will produce an average yield of approximately 8.5%. Also, in Q1 2017, 38,386 square feet of the vacancy at December 31, 2016 has been leased to a short-term tenant.
STRONG BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $500.8 million at December 31, 2016, up from $406.4 million at December 31, 2015 due to the acquisition of interests in seven income-producing properties and one value-add property in 2016. Fair value gains for the year ended December 31, 2016, were $5.6 million, compared to fair value losses of $27,000, for the same period in 2015. This is mainly attributable to increasing market values of the properties in the GTA.
Total debt was $270.6 million at December 31, 2016 compared to $218.4 million at December 31, 2015. The increase was due primarily to financings related to property acquisitions completed through 2016, offset by the $32.5 million in net proceeds from a public offering of approximately 5.7 million Trust Units completed on June 17, 2016. As of December 31, 2016, $34.3 million was drawn on the available $39.2 million revolving credit facility.
As at December 31, 2016 the REIT's debt leverage ratio was 54.0% compared to 53.7% at December 31, 2015. The weighted average effective interest rate on the REIT's mortgage portfolio reduced to 3.43% at December 31, 2016, down from 3.52% at the prior year end, with a weighted average term to maturity of 4.5 years, consistent with the prior year end. Debt service and interest coverage ratios were 1.80 times and 3.05 times, respectively, compared to 1.77 times and 2.94 times, respectively, at December 31, 2015.
SUBSEQUENT EVENTS
On January 31, 2017, the Trust completed a public offering of approximately 7.4 million units at a price of $6.20 for total gross proceeds of approximately $46.0 million. The offering incurred issue costs of $2.1 million for net proceeds of $43.9 million. The offering proceeds were used to repay outstanding debt under the revolving credit facility and will be used to fund subsequent acquisitions.
On February 14, 2017, the Trust acquired a light industrial property in Calgary, aggregating 120,690 square feet of GLA for $17.0 million. The acquisition was satisfied with proceeds from the offering. The Trust expects to finance this property with approximately $11.2 million in new mortgage financing at an indicative rate of 3.00% for a term of 5 years. The property is fully leased to two tenants with a weighted average lease term of 7.7 years.
The Trust waived conditions on acquiring a light industrial property in the Greater Toronto Area, aggregating 260,830 square feet of GLA for $28.2 million. The acquisition is expected to be satisfied by a new mortgage of $17.7 million bearing an interest rate to be set at 5-year Government of Canada Bonds plus 1.90% and term to maturity of 5 years with the balance from the offering. The expected closing date is on or before February 28, 2017. This property is a single tenant building with a remaining lease term of 10-year term.
With the completion of these recent acquisitions, the REIT's total property portfolio will comprise of interests in 55 light industrial properties totaling 5.6 million square feet of GLA.
INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II's management team on Wednesday, February 22, 2017 at 9:30 am ET. The telephone numbers to participate in the conference call are North America Toll Free: (866) 225-0198 and Local Toronto / International: (416) 340-2218. The live audio conference call will also be available as a webcast. To access the audio webcast please access the link on the Investor Information page on our web site at www.summitIIreit.com. The telephone numbers to listen to the call after it is completed (Instant Replay) are North American Toll Free (800) 408-3053 or Local Toronto / International (905) 694-9451. The Passcode for the Instant Replay is 6712799#. A webcast of the call will also be archived on the REIT's web site at www.summitIIreit.com.
FINANCIAL AND OPERATING HIGHLIGHTS
|
(in thousands of Canadian dollars) |
||||||||||||
|
(except per Unit amounts) |
Three months ended December 31 |
Year ended December 31 | ||||||||||
|
2016 |
2015 |
2016 |
2015 | |||||||||
|
Portfolio Performance |
||||||||||||
|
Occupancy (%) |
98.9% |
98.1% |
98.9% |
98.1% | ||||||||
|
Revenue from income properties |
$ |
12,766 |
$ |
9,708 |
$ |
44,950 |
$ |
38,377 | ||||
|
Property operating expenses |
4,429 |
2,966 |
14,697 |
11,865 | ||||||||
|
Net operating income |
8,337 |
6,742 |
30,253 |
26,512 | ||||||||
|
Interest expense |
2,382 |
2,008 |
8,943 |
8,100 | ||||||||
|
Net income |
9,830 |
4,956 |
24,376 |
17,935 | ||||||||
|
Operating Performance |
||||||||||||
|
FFO per Unit (1) |
0.157 |
0.150 |
0.610 |
0.593 | ||||||||
|
Regular Distributions per Unit declared to Unitholders |
0.126 |
0.126 |
0.504 |
0.504 | ||||||||
|
Special Distributions per Unit declared to Unitholders (2) |
- |
- |
- |
0.016 | ||||||||
|
Regular FFO payout ratio without DRIP benefit |
80.0% |
84.3% |
82.6% |
85.0% | ||||||||
|
Regular FFO payout ratio with DRIP benefit |
67.5% |
70.8% |
69.1% |
71.4% | ||||||||
|
Total Distributions per Unit declared to Unitholders |
0.126 |
0.126 |
0.504 |
0.520 | ||||||||
|
Weighted average Units outstanding(1) |
34,934 |
28,860 |
32,178 |
28,628 | ||||||||
|
Liquidity and Leverage |
||||||||||||
|
Total assets |
500,807 |
406,411 |
500,807 |
406,411 | ||||||||
|
Total debt (loans and borrowings) |
270,635 |
218,369 |
270,635 |
218,369 | ||||||||
|
Weighted average effective mortgage interest rate |
3.43% |
3.52% |
3.43% |
3.52% | ||||||||
|
Weighted average mortgage term (years) |
4.51 |
4.47 |
4.51 |
4.47 | ||||||||
|
Leverage ratio |
54.0% |
53.7% |
54.0% |
53.7% | ||||||||
|
Interest coverage (times) |
3.16 |
3.01 |
3.05 |
2.94 | ||||||||
|
Debt service coverage (times) |
1.83 |
1.77 |
1.80 |
1.77 | ||||||||
|
Other |
||||||||||||
|
Properties acquired |
- |
- |
8 |
11 | ||||||||
|
Non-core properties disposed |
- |
- |
- |
- | ||||||||
|
(1)On June 17, 2016, approximately 5,650,000 Units were issued on completion of a public offering. On January 7, 2015, approximately 5,130,000 Units | ||||||||||||
|
were issued on completion of a public offering. |
||||||||||||
|
(2)On the sale of a 75% interest in two properties, the Trustees approved a special distribution of $0.016 per Unit payable to shareholders of record | ||||||||||||
|
May 31, 2015 which was paid June 15, 2015. |
||||||||||||
Summit II's Audited Consolidated Financial Statements and MD&A for the three months and year ended December 31, 2016 are available on the REIT's website at www.summitIIreit.com.
About Summit II
Summit Industrial Income REIT is an unincorporated open-end trust focused on growing and managing a portfolio of light industrial properties across Canada. Summit II's units are listed on the TSX and trade under the symbol SMU.UN. For more information, please visit our web site at www.summitIIreit.com.
Caution Regarding Forward Looking Information
This news release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "goal" and similar expressions are intended to identify forward-looking information or statements. More particularly and without limitation, this news release contains forward looking statements and information concerning the goal to build Summit II's property portfolio. The forward-looking statements and information are based on certain key expectations and assumptions made by Summit II, including general economic conditions. Although Summit II believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward looking statements and information because Summit II can give no assurance that they will prove to be correct. By its nature, such forward-looking information is subject to various risks and uncertainties, which could cause the actual results and expectations to differ materially from the anticipated results or expectations expressed. These risks and uncertainties include, but are not limited to, tenant risks, current economic environment, environmental matters, general insured and uninsured risks and Summit II being unable to obtain any required financing and approvals. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date hereof, and to not use such forward looking information for anything other than its intended purpose. Summit II undertake no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.
SOURCE Summit Industrial Income REIT
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