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Summit Industrial Income REIT Announces Continued Strong Growth in Second Quarter 2018

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Summit Industrial Income REIT Announces Continued Strong Growth in Second Quarter 2018

Canada NewsWire

TORONTO, Aug. 8, 2018 /CNW/ - Summit Industrial Income REIT ("Summit II" or the "REIT") (TSX:SMU) announced today a significant increase in its operating and financial results for the three and six months ended June 30, 2018.

Six Month Highlights:

  • Completed successful $115.0 million bought-deal equity offering on June 15, 2018.
  • Acquired five income-producing properties totalling 899,307 sq. ft. of GLA for $150.0 million at a 5.1% average cap rate1.
  • Industrial occupancy strong at 98.6% as at June 30, 2018 with average lease term of 6.0 years and contractual rent steps of 1.5% per year.
  • Revenues rose 57.8% on portfolio growth, high stable occupancies and rent increases.
  • Net operating income ("NOI")1 up 59.6% on revenue increase and strong operating performance.
  • Fair value gain in value of property portfolio of $90.0 million or $1.31 per Unit.
  • Same property NOI1 increased 2.4% with Toronto and Montreal contributing 5.6% and 6.7%, respectively.
  • Funds from operations("FFO")1 increased 61.3% year-over-year.
  • Successful leasing activities as only 2.7% of the 2018 lease expiries remain as at June 30, 2018.
  • Fully leased the GTA data centre property, commencing October 2018, resulting in an accretive yield over 10%.
  • Sold 75% interest in four properties for total proceeds of $46.4 million and realized gain of approximately $6.8 million or $0.10 per Unit to fund growth in target markets. 
  • Paid special cash distribution of $0.018 per Unit applicable to Unitholders on May 31, 2018 related to realized gain from property sales.
  • Leverage ratio1 of 41.1% at June 30, 2018 creates immediate $280.0 million capacity for further property acquisitions to bring leverage to approximately 52.0%.
  • Net income rose to $107.2 million ($1.561 per Unit) due to acquisitions, strong operating performance, and fair value gains on the property portfolio.
  • Manager and Insiders fully aligned with 7.7% interest in REIT Units outstanding.

Subsequent Events:

  • Acquired two properties in Calgary, Alberta, aggregating 227,645 sq. ft. of GLA for $29.6 million.
  • Announced the acquisition of a property in Oshawa, Ontario aggregating 369,935 sq. ft. of GLA for $36.6 million, on or before August 15, 2018.

"Our portfolio growth continued through the first six months of 2018 as we maintained our focus on the strong GTA and Montreal markets," commented Paul Dykeman, Chief Executive Officer. "We are also pleased with our entry into the date centre market, and the recent 100% leasing of our first data centre property in the GTA. We look for our portfolio growth and strong operating performance to continue going forward."

PORTFOLIO GROWTH GENERATES STRONG OPERATING AND FINANCIAL RESULTS
Revenue from income producing properties rose 57.8% to $42.3 million for the six months ended June 30, 2018 compared to the same period last year. For the three months ended June 30, 2018 revenues rose 51.0% to $20.9 million. The increases were due to the significant growth in the REIT's property portfolio over the last twelve months, continuing high stable occupancies and increased rents, partially offset by the sale of a 75% interest in four properties in May 2018.  Occupancy was 98.6% at June 30, 2018.

Net operating income ("NOI")1 for the six months ended June 30, 2018 increased 59.6% to $29.3 million compared to the same period last year due to the contribution from acquisitions completed over the prior twelve months, strong occupancies, higher rental rates and contractual steps in rent, partially offset by the sale of a 75% in four properties in May 2018. For properties acquired prior to January 1, 2017 and owned during both periods, same property NOI rose 2.4% and 1.8% for the six and three months ended June 30, 2018, respectively, compared to the same periods in 2017.

For the six months ended June 30, 2018, Funds from Operations ("FFO")1 were $19.3 million ($0.281 per Unit) compared to $11.9 million ($0.289 per Unit) last year. For the three months ended June 30, 2018, FFO was $9.5 million ($0.136 per Unit) compared to $6.4 million ($0.150 per Unit) last year The increase in FFO is due primarily to the acquisitions over the last twelve months and strong operating performance. Per Unit amounts were impacted by the 64.1% and 65.9% increase in the weighted average number of Units outstanding for the three and six months ended June 30, 2018, respectively, due to the successful $115.0 million bought-deal equity offering completed on June 15, 2018 and the issuance of Class B shares related to a recent acquisition.

The REIT's regular FFO payout ratio1 for the six months ended June 30, 2018 was 91.9% (78.7% including the benefit of the REIT's DRIP program) compared to 88.0% (73.6% including the benefit of the REIT's DRIP program) last year. The REIT's payout ratio for the six months ended June 30, 2018 was impacted by the 65.9% increase in the weighted average number of Units outstanding in the period.

Net income for the six months ended June 30, 2018 was $107.2 million compared to $18.5 million for the same period in 2017. The increase is due to the REIT's significant portfolio growth in 2017, as well as fair value gains for the six months ended June 30, 2018 of $90.0 million.

ACTIVE LEASING PROGRAM
Occupancy in the industrial portfolio remained strong at 98.6% at June 30, 2018. The weighted average lease term for the portfolio is approximately 6.0 years. The leases contain average contractual steps in rent of approximately 1.5% per year over the term. The REIT is proactive in addressing lease expiries well in advance of the expiry date.

During the first six months of 2018, approximately 619,763 square feet of lease renewals were completed, as well as 22,114 square feet of new lease deals for a total of 641,907 square feet. The lease renewals were completed at rental rates that start, on average, 7.2% higher than the expiring rent. Of the lease renewals completed in the first six-month period of 2018, 291,891 square feet were in the GTA and were, on average, 15.4% higher than the expiring rent.

As of June 30, 2018, the REIT has leased 11,700 square feet of vacancy that was in place when the REIT acquired the property at 1980 Matheson in Mississauga in December 2017. The increased revenue from this lease will improve the going in yield on the initial cost of the acquisition from 5.9% to 6.2%.

Of the leasing completed during the first six-month period, 20,121 square feet of lease renewals and 10,414 square feet of the new lease deals for a total of 30,535 square feet relate to leases that started within the six-month period ended June 30, 2018. The leasing costs incurred for the first six months of 2018 totaled $63,000 compared to $246,000 for the same period last year.

The REIT only has 2.7% of the 2018 lease expiries remaining as at June 30, 2018, contributing to the stability of the REIT's cash distributions.

In June 2018, the tenant at the GTA data centre property exercised its option to expand, commencing October 2018, into the remaining 59,000 square feet of the 118,000 square foot building on the same terms and conditions under its existing lease, generating a highly accretive yield above 10%.

SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $1.2 billion at June 30, 2018, up from $1.0 billion as at December 31, 2017. Total debt was $509.6 million at June 30, 2018, down from $515.7 million at December 31, 2017. During the first six months of 2018 new mortgage financing of $88.0 million was obtained with a ten-year term and an interest rate of 4.10%. Proceeds of the new mortgage financing and the balance from the revolving operating facility were used to repay the $90.0 million non-revolving bridge credit facility obtained to acquire properties in December 2017. As at June 30, 2018, there was $33.6 million drawn from the available $50.7 million revolving operating facility compared to $42.0 million at the same time last year.

On Jun 15, 2018 the REIT completed a bought-deal offering of 13.3 million Units at a price of $8.65 per Unit for total net proceeds of $110.0 million.

As at June 30, 2018 the REIT's debt leverage ratio1 was 41.1% compared to 44.9% at June 30, 2017. Acquisition capacity was approximately $280.0 million as at June 30, 2018. The weighted average effective interest rate on the REIT's mortgage portfolio was 3.63% at June 30, 2018 compared to 3.34% at June 30, 2017 with a weighted average term to maturity of 4.9 years compared to 4.2 years at June 30, 2017. Debt service1 and interest coverage1 ratios were 1.85 times and 2.93 times, respectively, compared to 1.85 times and 3.15 times respectively, at June 30, 2017.

INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II's management team on Thursday, August 9, 2018 at 10.00 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 3928205#. A webcast of the call will also be archived on the REIT's web site at www.summitIIreit.com.

FOOTNOTE

1. Non-GAAP measures refer to the "Non-GAAP Measures" section of this document, and "Section II – Key Performance Indicators – Financial Indicators" in the Management's Discussion and Analysis for the three months and year ended June 30, 2018 for further information on non-GAAP measures (including definitions and reconciliations of the non-GAAP measures).

FINANCIAL AND OPERATING HIGHLIGHTS






(in thousands of Canadian dollars)


Three months ended June 


Six months ended June

(except per Unit amounts)


2018


2017


2018


2017










Portfolio Performance









Industrial occupancy (%) 


98.6%


99.7%


98.6%


99.7%

Revenue from income properties


$

20,871


$

13,818


$

42,279


$

26,789

Property operating expenses


6,383


3,988


13,016


8,454

Net operating income (1)


14,488


9,830


29,263


18,335

Interest expense (finance costs)


4,944


2,859


9,647


5,621

Net income


80,611


12,307


107,167


18,494










Operating Performance









FFO (1)


9,542


6,411


19,268


11,946

Net income per unit - basic (4)


1.150


0.288


1.561


0.447

FFO per Unit (1)(2)(3)(4)


0.136


0.150


0.281


0.289

Regular Distributions per Unit declared to Unitholders (4)


0.129


0.128


0.258


0.254

Special Distributions per Unit declared to Unitholders (5)


0.018


-


0.0180


-

Regular FFO payout ratio without DRIP benefit (1)


94.8%


85.3%


91.9%


88.0%

Regular FFO payout ratio with DRIP benefit (1)


79.6%


70.7%


78.7%


73.6%










FFO including net realized gains


16,741


4,817


26,467


9,805

FFO per Unit plus net realized (loss) gain


0.239


0.113


0.386


0.237

Total Distributions per Unit declared to Unitholders


0.147


0.128


0.276


0.254

FFO plus net realized (loss) gain payout ratio without DRIP benefit (6)


61.6%


113.5%


71.6%


107.2%










Weighted average Units outstanding(2)(3)(4)


70,116


42,722


68,645


41,370










Liquidity and Leverage









Total assets


1,238,894


639,474


1,238,894


639,474

Total debt (loans and borrowings)


509,583


287,019


509,583


287,019

Weighted average effective mortgage interest rate


3.63%


3.34%


3.63%


3.34%

Weighted average mortgage term (years)


4.94


4.23


4.94


4.23

Leverage ratio (1)


41.1%


44.9%


41.1%


44.9%

Interest coverage (times) (1)


2.89


3.13


2.93


3.15

Debt service coverage (times) (1)


1.71


1.85


1.76


1.85

Debt-to-adjusted EBIDTA (times) (1)


9.16


7.99


9.14


8.62










Other









Properties acquired


5


1


5


7











(1) Non-GAAP measure. Refer to "Section II - Key Performance Indicators - Financial Indicators" of the MD&A for further information (including  

definitions and measures).

(2) On June 15, 2018, approximately 13,299,750 Units were issued on completion of a public offering. On January 31, 2017, approximately 7,423,250 Units

were issued on completion of a public offering.  On June 30, 2017, approximately 9,763,500 Units were issued on completion of a public offering.   

On December 13, 2017, approximately 14,375,000 Units were issued on completion of a public offering. 

(3) On June 18, 2018, approximately 3,292,091 Class B exchangeable Units were issued toward funding a property acquisition.

(4) Includes REIT Units and Class B exchangeable Units (collectively, the "Units").

(5) On the sale of a 75% interest in four properties, the Trustees approved a special distribution of $0.018 per Unit payable to shareholders of record

May 16, 2018 which was paid May 31, 2018.

(6) The realized gain on sale of investment property is calculated as net proceeds on sale less the actual costs incurred to initially acquire the 

property and the capital and leasing cost incurred since ownership. 

 

Summit II's Consolidated Financial Statements and MD&A for the three and six months ended June 30, 2018 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 and other 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.

Non-GAAP Measures
The REIT prepares and releases condensed consolidated interim financial statements prepared in accordance with IFRS (GAAP). In this release, the REIT discloses and discusses certain non-GAAP financial measures, including FFO, FFO per Unit, net operating income (NOI), interest coverage ratio, debt service coverage ratio and capitalization rate. The non-GAAP measures are further defined and discussed in the MD&A for the three months ended June 30, 2018 and filed on SEDAR, which should be read in conjunction with this release. Since these measures are not determined by IFRS, such measures may not be comparable to similar measures reported by other issuers. The REIT has presented such non-GAAP measures as management believes the measures are a relevant measure of the ability of the REIT to earn and distribute cash returns to Unitholders and to evaluate the REIT's performance.  These non-GAAP measures should not be construed as alternatives to net income (loss) or cash flow from operating activities determined in accordance with GAAP as an indicator of the REIT's performance. Please refer to "Section II – Key Performance Indicators – Financial Indicators" in the REIT's MD&A for the three months ended June 30, 2018.

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 undertakes 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

View original content: http://www.newswire.ca/en/releases/archive/August2018/08/c6853.html

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