TORONTO, Aug. 11, 2015 /CNW/ – Summit Industrial Income REIT (“Summit II” or the “REIT”) (TSX: SMU.UN) announced today strong growth and solid operating performance for the three and six months ended June 30, 2015.
Q2 2015 Highlights:
- Occupancy remains strong at 99% with 1.6% annual contractual rent increases.
- Sold 75% interest in two properties generating $2.4 million realized net gain.
- Directing $24.9 million proceeds from property sales into growth in target markets.
- Acquired 183,989 sq. ft. property in target GTA for $14.5 million at 7.2% cap rate.
- Trustees adopt new policy to pay up to 20% of realized gains on property sales as special distributions.
- Paid special distribution of $0.016 per Unit related to above property sales.
- Manager and Principals interest remains strongly aligned with Unitholders through 12.9% insider ownership of REIT Units outstanding.
“We continue to generate strong property-level operating performance with nearly full occupancy and increasing average monthly rents,” commented Paul Dykeman, Chief Executive Officer. “Despite the current tight acquisition market, we remain focused on growing our property portfolio in our target Greater Toronto and Montreal markets, anticipating that we will have the proceeds from our January equity offering and property sales fully invested in the near term.”
STRONG OPERATING AND FINANCIAL RESULTS
Operating revenues increased to $9.7 million and $18.8 million for the three and six months ended June 30, 2015, respectively, from $7.2 million and $14.2 million, respectively, in the same periods last year due to increased occupancies, successful leasing activities through the first six months of 2015, and the REIT’s portfolio growth over the prior twelve months. Occupancy increased to 99.0% at June 30, 2015 from 98.9% at the same time last year.
Net Operating Income (NOI) rose to $6.7 million and $13.0 million in the second quarter and first six months of 2015, respectively, compared to $5.1 million and $10.5 million, respectively, in the same prior year periods.
Funds from Operations (FFO) for the three and six months ended June 30, 2015 were $4.2 million ($0.148 per Unit) and $8.3 million ($0.293 per Unit), respectively, up from $2.9 million ($0.146 per Unit) and $5.9 million ($0.314 per Unit) in the second quarter and first six months of 2014, respectively. Adjusted Funds from Operations (AFFO) for the three and six months ended June 30, 2015 were $3.2 million ($0.112 per Unit) and $6.7 million ($0.237 per Unit), respectively, up from $2.4 million ($0.123 per Unit) and $5.2 million ($0.276 per Unit) in the second quarter and first six months of 2014, respectively. The increases in FFO and AFFO are due primarily to the contribution from acquisitions completed over the prior twelve months and increased occupancies.
Per Unit amounts in 2015 have been impacted by the 45.5% and 50.1% increase in the weighted average number of Units outstanding for the three and six months ended June 30, 2015, respectively, compared to the same prior year periods, resulting from two equity offerings over the prior twelve months. In addition, proceeds from the January 2015 equity offering and from the sale of a 75% interest in two properties in April 2015 were not fully invested during the first six months of 2015.
Spreading the expected leasing costs evenly throughout the year would produce a normalized AFFO payout ratio for the quarter and six month period ended June 30, 2015, of 103% or 87% including the benefit of the DRIP program. The REIT’s AFFO payout ratio, based on the actual costs incurred, through the second quarter of 2015 was 112.6% or 95.9% including the benefit of the REIT’s DRIP program. For the six months ended June 30, 2015, the AFFO payout ratio was 106.4% or 89.0% including the benefit of the DRIP program. The actual leasing costs and capital expenditures are more heavily weighted toward the first two quarters of the year.
The AFFO was also impacted by the delay in investing the funds from the equity offering and re-investing the proceeds from the property sales. The funds from the January 2015 offering were not fully invested until February 23, 2015. As well, the funds from the sale of 75% interest in two properties at the end of April were not re-invested until June 11, 2015. Although leverage was 53.9% at June 30, 2015, the average during the quarter was approximately 53.4% and 52.6% for the six months ended June 30, 2015. The REIT intends to operate with a leverage ratio in the upper 50% range. Each 1% increase in leverage would be expected to improve the AFFO payout ratio by approximately 2%.
On June 15, 2015 a special distribution of $459,000 ($0.016 per Unit) was paid to Unitholders related to the $2.4 million net realized gain on the sale of a 75% interest in two properties in April 2015. Including this special distribution, the REIT’s AFFO payout ratio would be 83.1% (69.6% including benefit of REIT’s DRIP program).
ACTIVE LEASING PROGRAM
Leasing activity was strong in the first six months of 2015, typically the most active period in the year. The weighted average lease term for the portfolio is approximately 5.8 years with leases containing contractual steps in rent of approximately 1.6% per year over this term. The REIT continues to be proactive in addressing lease expiries well in advance of their expiry date. As of June 30, 2015 only 3.8% of the total portfolio is up for lease renewal for the remainder of the year, with only 8.7% of the total portfolio in 2016, adding to the stability of the REIT’s cash flows and cash distributions.
SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $401.5 million at June 30, 2015, up from $341.6 million at December 31, 2014 due to the acquisition of 11 properties in Ontario and Quebec through the first six months of 2015 for a purchase price of $79.0 million, partially offset by the sale of a 75% interest in two properties for $24.9 million.
Total debt was $216.4 million at June 30, 2015 compared to $188.7 million at the prior year end. In conjunction with the acquisition of a 50% interest in six Montreal properties on February 11, 2015, mortgages and debt of $11.4 million were assumed with a weighted average remaining term of 9.6 years bearing an average interest rate of 3.49%. Also, as part of the Montreal property acquisitions, new financing of $12.9 million (Summit’s 50% interest) was obtained on a ten year mortgage at an interest rate of 3.25%. The balance of the transaction was satisfied with funds from the revolving credit facility.
The four GTA property acquisitions completed on February 23, 2015 were satisfied by a new seven year mortgage of $15.2 million bearing an average interest rate of 3.30% with the balance from the revolving credit facility. The GTA property acquired on June 11, 2015, was satisfied by the assumption of an $8.9 million mortgage with a stated interest rate of 3.72% and maturing in September 2019.
On the sale of 75% interest in one of the properties in April 2015, the co-owner assumed $9.0 million of the associated debt on this property.
As of June 30, 2015, $27.2 million was drawn on the revolving credit facility of a total available of $36.8 million. The Trust’s exposure to floating rate debt was 13.0% of total debt as at June 30, 2015.
As at June 30, 2015 the REIT’s debt leverage ratio was 53.9% compared to 55.2% at December 31, 2014, both well within management’s target range.
The weighted average effective interest rate on the REIT’s mortgage portfolio was 3.52% at June 30, 2015, down from 3.68% at the prior year end, with a weighted average term to maturity of 5.0 years, up from 4.5 years at December 31, 2014. Debt service and interest coverage ratios improved at June 30, 2015 to 1.77 times and 2.89 times, respectively, compared to 1.69 times and 2.72 times, respectively, at December 31, 2014.
RECENT TRANSACTIONS
On April 30, 2015, the REIT sold a 75% interest in two properties, one in Ottawa and one in Moncton, for proceeds of approximately $24.9 million generating a realized gain on the sale of approximately $2.4 million. The proceeds of the sale were used to reduce the Trust’s floating-rate revolving operating facility. A special distribution related to these property sales was paid to Unitholders on June 15, 2015 (see below).
On April 30, 2015 excess land associated with a $650,000 interest free vendor take back mortgage was severed from the property. The purchase price for the excess lands was $650,000 and the proceeds were used to payout the vendor take back mortgage.
On June 11, 2015 the REIT acquired a property in the GTA, adding 183,989 square feet to the portfolio for a purchase price of $14.5 million generating a capitalization rate of approximately 7.2%. The acquisition was satisfied by an assumed $8.9 million mortgage maturing in September 2019 bearing an interest rate of 3.72%, with the balance of the purchase price from the REIT’s line of credit.
With the completion of the above transactions, the REIT’s property portfolio as at June 30, 2015, totaled 45 properties aggregating approximately 4.4 million square feet of GLA with approximately 86.1% of the total portfolio located in the REIT’s target GTA and Montreal markets.
SPECIAL DISTRIBUTION
On May 13, 2015 the Board of Trustees adopted a policy to pay a special distribution to Unitholders when the REIT generates a realized gain on the sale of a property. The special distribution will be up to 20% of the realized gain. As a result of the realized gain of $2.4 million or $0.08 per Unit on the sale of a 75% interest in two properties in April 2015, the REIT paid a special distribution of $0.016 per Unit on June 15, 2015, representing 20% of the realized gain. Total cash distributions for the full 2015 year, including this special distribution, are expected to be less than 90% cash available from AFFO and realized gains for the year.
INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II’s management team on Wednesday, August 12, 2015 at 10.00 am ET. The telephone numbers to participate in the conference call are North America Toll Free: (866) 223-7781 and Local Toronto / International: (416) 340-2216. 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 1591504#. 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) |
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|
(except per Unit amounts) |
Three months ended June 30 |
Six months ended June 30 |
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|
2015 |
2014 |
2015 |
2014 |
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|
Portfolio Performance |
||||||
|
Occupancy (%) |
99.0% |
98.9% |
99.0% |
98.9% |
||
|
Net operating income |
6,675 |
5,136 |
12,974 |
10,504 |
||
|
Interest expense |
2,088 |
1,846 |
4,013 |
3,709 |
||
|
Net income |
6,012 |
2,047 |
9,650 |
5,161 |
||
|
Operating Performance |
||||||
|
FFO per Unit (1) |
0.148 |
0.146 |
0.293 |
0.314 |
||
|
AFFO per Unit (1) |
0.112 |
0.123 |
0.237 |
0.276 |
||
|
Regular Distributions per Unit declared to Unitholders |
0.1260 |
0.1248 |
0.2520 |
0.2472 |
||
|
Special Distributions per Unit declared to Unitholders (3) |
0.0160 |
– |
0.0160 |
– |
||
|
Regular FFO payout ratio without DRIP benefit |
85.3% |
85.6% |
86.0% |
78.6% |
||
|
Regular AFFO payout ratio without DRIP benefit |
112.6% |
101.6% |
106.4% |
89.5% |
||
|
Regular AFFO payout ratio with DRIP benefit (2) |
95.9% |
78.4% |
89.0% |
69.5% |
||
|
AFFO per Unit plus net realized gain |
0.197 |
0.335 |
0.323 |
0.496 |
||
|
Total Distributions per Unit declared to Unitholders |
0.1420 |
0.1248 |
0.2680 |
0.2472 |
||
|
AFFO plus net realized gain payout ratio without DRIP benefit |
72.1% |
37.3% |
83.1% |
49.8% |
||
|
Weighted average Units outstanding(1) |
28,657 |
19,698 |
28,442 |
18,954 |
||
|
Liquidity and Leverage |
||||||
|
Total assets |
401,457 |
311,571 |
401,457 |
311,571 |
||
|
Total debt (loans and borrowings) |
216,425 |
159,872 |
216,425 |
159,872 |
||
|
Weighted average effective mortgage interest rate |
3.52% |
3.69% |
3.52% |
3.69% |
||
|
Weighted average mortgage term (years) |
4.97 |
4.68 |
4.97 |
4.68 |
||
|
Leverage ratio (4) |
53.9% |
51.3% |
53.9% |
51.3% |
||
|
Interest coverage (times) |
2.89 |
2.46 |
2.90 |
2.50 |
||
|
Debt service coverage (times) |
1.77 |
1.67 |
1.79 |
1.70 |
||
|
Other |
||||||
|
Properties acquired |
1 |
3 |
11 |
3 |
||
|
Non-core properties disposed |
– |
– |
– |
– |
||
|
(1) On January 7, 2015, approximately 5,130,000 Units were issued on completion of a public offering. |
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|
(2) On March 15, 2013, the Trust announced a cash distribution policy to pay $0.0408 per Trust Unit starting on April 15, 2013, to Unitholders of |
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|
record on March 29, 2013. On May 6, 2014, the Trust announced a cash distribution increase to $0.042 per Trust Unit. |
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|
(3) 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 |
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|
May 31, 2015 which was paid June 15, 5015. |
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(4) Average leverage was 53.4% during the second quarter of 2015 compared to 57.1% in the same period of 2014. |
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Summit II’s Interim Consolidated Financial Statements and MD&A for the three and six months ended June 30, 2015 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
