TORONTO, Aug. 11, 2020 /CNW/ – Summit Industrial Income REIT (“Summit II” or the “REIT”) (TSX: SMU.UN) announced solid operating and financial performance for the three and six months ended June 30, 2020.
Highlights:
- Revenues increased by 35.9% in second quarter and 36.8% year-to-date on portfolio growth, high stable occupancies and rent increases.
- Occupancy strong at 98.8%, up from 98.4% at March 31, 2020 and 98.5% at December 31, 2019, with average lease term of 5.4 years and 1.6% annual contractual rent steps.
- Net rental income increased by 41.6% in second quarter and 40.6% year-to-date on revenue increase, organic growth and strong operating performance.
- FFO1 increased 47.4% to $23.3 million ($0.168 per Unit) in second quarter and 42.7% to $44.8 million ($0.324 per Unit) year-to-date.
- FFO per Unit1 increased 13.5% to $0.168 per Unit in second quarter, despite 29.6% increase in Units outstanding. Year-to-date, FFO per Unit increased 7.3% to $0.324 per Unit despite 33.1% increase in Units outstanding.
- Same property NOI1 increased 1.5% in second quarter and 2.9% year-to-date with Montreal and Toronto contributing 5.0% and 1.9%, respectively (2.8% and 4.2%, respectively, year-to-date).
- Sold interest in DC2 data centre project in GTA in May 2020 for realized gain of $21.0 million ($0.153 per Unit).
- Up-financed and extended assumed mortgage at 7474 McLean Road to $40.0 million from $21.0 million at an interest rate of 3.05% with a blended average interest rate of 3.45% on an 8-year term. Proceeds were used to partially pay down unsecured credit facility.
- Strong liquidity with approximately $220.0 million available including cash, borrowing capacity on the revolving credit facility, and potential new financing that could be placed on a portion of the $637.5 million.
- Rent collection remained strong during the quarter, with an average of 92.3% of rents collected during the quarter (97.6% including rent deferral agreements in place). As a result, available liquidity remained untouched during the second quarter.
- Completed 1.6 million sq. ft. of 2020 renewals with a very strong 88.0% retention rate, generating a 14.0% increase in rents (21.5% in the GTA). Only 2.0% of the total portfolio remains to be renewed in 2020.
- Pre-leased 212,953 sq. ft. at Guelph development project commencing November 15, 2020 on a 10-year term at higher than pro forma monthly rent.
- Insider ownership fully aligned with 9.8% interest in REIT Units outstanding.
Subsequent Events:
- Collected approximately 96.0% of July rents (98.8% including rent deferral agreements in place) and 94.0% of August rents to date (97.0% including rent deferral agreements in place).
- Entered into agreement to sell non-core Edmonton property aggregating 41,487 square feet for $1.95 million closing on September 25, 2020.
“Our programs to mitigate the impact of the COVID-19 pandemic continue to prove effective as our operating performance remains strong and stable and we are collecting the vast majority of our rents,” commented Paul Dykeman, Chief Executive Officer. “Looking ahead, as economies in our markets are re-opening, we are confident we will return to our historic pattern of portfolio growth and delivering strong and stable returns to our Unitholders.”
PORTFOLIO GROWTH
For the first six months of 2020 the REIT acquired nine light industrial properties, all well-located in the strong Greater Toronto Area market, adding approximately 747,000 square feet of gross leasable area to the portfolio for total costs of approximately $180.3 million. At June 30, 2020, the REIT’s portfolio totaled 154 properties aggregating 18.2 million square feet with a net book value of approximately $2.7 billion.
Concurrent with national re-opening strategies, Summit has resumed new development project starts and assessing acquisition opportunities on a selective basis.
GROWTH AND STRONG OPERATING PEFORMANCE GENERATE SOLID RESULTS
Revenue from income producing properties for the three and six months ended June 30, 2020 rose 35.9% and 36.8%, respectively, due primarily to acquisitions completed over the prior twelve months, continuing strong occupancies and increased rents.
For properties acquired prior to January 1, 2019 and owned during both six-month periods, same property NOI1 rose 2.9% for the six months ended June 30, 2020 compared to the prior year. In the REIT’s target markets of Toronto and Montreal, same property NOI1 for the six months ended June 30, 2020 rose 4.2% and 2.8%, respectively, compared to the same prior year period, while the Alberta portfolio contributed 0.5% to same property NOI1 growth. Same property NOI1 for the six months ended June 30, 2020 was negatively impacted by provisions for tenant receivables of approximately $1.0 million, including approximately $0.4 million representing the 25% rent reduction required for certain tenants approved for the government-operated Canadian Emergency Commercial Rent Assistance (“CECRA”) program. Same property NOI1 represented approximately 64.0% of total NOI1 and 72.4% of total GLA for the six months ended June 30, 2020.
Net rental income for the three and six months ended June 30, 2020 increased 41.6% and 40.6%, respectively, compared to the same prior year periods due to the increase in same property NOI1, higher overall rental rates on leasing activities, contractual steps in rent, and accretive acquisitions.
For the three months ended June 30, 2020, FFO1 was $23.3 million ($0.168 per Unit) up 47.4% from the same prior year period. For the six months ended June 30, 2020, FFO1 was $44.7 million ($0.324 per Unit) up 42.7% from the same prior year period. The increase in FFO1 is due primarily to acquisitions completed over the prior twelve months and strong operating performance, partially offset by the sale of the REIT’s 50% interest in a data centre property in September 2019.
The REIT’s FFO payout ratio1 for the six months ended June 30, 2020 was a conservative 83.4% (68.4% including the benefit of the REIT’s DRIP program) compared to 86.6% (74.8% including the benefit of the REIT’s DRIP program) in the same prior year period.
PROACTIVE LEASING PROGRAM
Occupancy in the industrial portfolio was 98.8% at June 30, 2020, up from 98.4% at March 31, 2020 with a weighted average lease term of approximately 5.4 years. The REIT continues to be proactive in addressing lease expiries well in advance of the expiry date.
The REIT completed 1.6 million square feet of 2020 lease renewals to date with a strong retention rate of 88.0%. The retention rate included one vacated property in Edmonton that was re-leased with under 30 days of downtime. Overall, the 2020 renewals generated an average 14.0% increase in monthly rents from the expiring rent with a significant 21.5% increase over expiring rents in the REIT’s GTA target market. At June 30, 2020, only 2.0% of the portfolio remains to be renewed in 2020.
SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $2.8 billion at June 30, 2020, up from $2.6 billion as at December 31, 2019 due to the acquisition of nine properties to date in 2020. Total debt was $1.3 billion at June 30, 2020 compared to $1.1 billion at December 31, 2019. Financing activities in the first six months of 2020 included securing a new $300.0 million unsecured revolving credit facility on March 23, 2020, which matures on March 23, 2023. This unsecured facility replaced the $150.0 million secured revolving credit facility, which was discharged on closing of the new unsecured facility. At June 30, 2020, $224.2 million of the available $300.0 million was drawn from the unsecured facility, which was used to fund the acquisitions to date in 2020, as well as to repay $43.6 million in maturing mortgage debt and $32.2 million on the non-revolving bridge credit facility.
On June 30, 2020 the REIT completed a blend and extend of an existing mortgage on a recent acquisition in Guelph, Ontario that was to mature in 2021. The new mortgage was increased by $20.0 million for an eight-year term at an interest rate of 3.05% with a blended average interest rate of approximately 3.45%. The mortgage proceeds were used to paydown a portion of the unsecured revolving credit facility.
At June 30, 2020, the REIT’s debt leverage ratio was 46.2% compared to 40.6% at June 30, 2019. The weighted average effective interest rate on the REIT’s mortgage portfolio was 3.64% at June 30, 2020 compared to 3.75% at June 30, 2019. Debt service and interest coverage ratios1 were 2.04 times and 2.96 times, respectively, for the six months ended June 30, 2020, compared to 1.75 times and 2.74 times respectively, for the same prior year period.
STRONG AND STABLE RENT COLLECTION
The REIT collected approximately 90.7% of June rents (98.4% including rent deferral agreements in place), 96.0% of July rents (98.8% including rent deferral agreements in place), and 94.0% of August rents to date (97.0% including rent deferral agreements in place).
SUBSEQUENT EVENTS
On July 17, 2020, the REIT entered into an agreement to sell a non-core Edmonton investment property aggregating 41,487 square feet for $1.95 million. The transaction is expected to close on September 25, 2020. At June 30, 2020, this property was classified as an investment property held for sale.
On June 30, 2020, the Government of Canada (the “Government”) announced the extension of the CECRA program for the month of July 2020. As a result, the Trust extended applications for an additional $0.4 million of July rents for qualifying tenants, resulting in approximately $0.1 million in additional rent reductions (25%), as required under the program. As of August 11, 2020, the Trust had over 87% of the portion of rents receivable from the Government under the CECRA program, covering the period April to July 2020. In addition, on July 31, 2020, the Government announced the extension of the CECRA program for the month of August 2020. The Trust is currently evaluating the extension of this program to qualifying tenants.
INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II’s management team on Wednesday, August 12, 2020 at 8.30 am EST. The telephone numbers to participate in the conference call are North America Toll Free: (833) 714-0924 and International: (778) 560-2693. Please use the access code 6178046 when requested.
A slide presentation to accompany management’s comments during the conference call will be available prior to the conference call. To view the slides, access the Summit II website at www.summitiireit.com and follow the link on the page. The live call will also be available as a webcast. To access the audio webcast please access the link on our website at www.summitiireit.com.
FINANCIAL AND OPERATING HIGHLIGHTS
|
Three months ended June 30 |
Six months ended June 30 |
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|
(in $ thousands, except per Unit amounts) |
2020 (4) |
2019 |
2020 (4) |
2019 |
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|
Portfolio Performance |
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|
Industrial occupancy (%) (3) |
98.8% |
99.5% |
98.8% |
99.5% |
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|
Revenue from investment properties |
$ |
46,318 |
$ |
34,082 |
$ |
92,832 |
$ |
67,861 |
||||
|
Property operating expenses |
11,825 |
9,718 |
24,388 |
19,169 |
||||||||
|
Net rental income |
34,493 |
24,364 |
68,444 |
48,692 |
||||||||
|
Interest expense (finance costs) |
10,480 |
8,808 |
21,912 |
17,909 |
||||||||
|
Net income (loss)(6) |
24,828 |
(38,061) |
67,780 |
(27,200) |
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|
Operating Performance |
||||||||||||
|
FFO (1) |
23,273 |
15,788 |
44,708 |
31,357 |
||||||||
|
Net income (loss) per unit – basic (2) |
0.180 |
(0.357) |
0.491 |
(0.262) |
||||||||
|
FFO per Unit (1)(2) |
0.168 |
0.148 |
0.324 |
0.302 |
||||||||
|
Regular Distributions per Unit declared to Unitholders (2) |
0.135 |
0.133 |
0.270 |
0.262 |
||||||||
|
Regular FFO payout ratio without DRIP benefit (1) |
80.1% |
89.8% |
83.4% |
86.6% |
||||||||
|
Regular FFO payout ratio with DRIP benefit (1) |
67.3% |
75.2% |
68.4% |
0.0% |
||||||||
|
FFO including net realized gains (1)(5) |
44,319 |
15,788 |
65,754 |
31,357 |
||||||||
|
FFO per Unit including net realized gain (1)(5) |
0.321 |
0.148 |
0.476 |
0.302 |
||||||||
|
FFO including net realized gain payout ratio without DRIP benefit (1)(5) |
42.1% |
89.8% |
56.7% |
86.6% |
||||||||
|
FFO including net realized gain payout ratio with DRIP benefit (1)(5) |
35.4% |
75.2% |
46.5% |
74.8% |
||||||||
|
Total Distributions per Unit declared to Unitholders (2) |
0.135 |
0.133 |
0.270 |
0.262 |
||||||||
|
Weighted average Units outstanding(2) |
138,170 |
106,644 |
138,023 |
103,690 |
||||||||
|
Liquidity and Leverage |
||||||||||||
|
Total assets |
2,820,762 |
1,882,661 |
2,820,762 |
1,882,661 |
||||||||
|
Total debt (loans and borrowings and lease liability) |
1,304,523 |
763,772 |
1,304,523 |
763,772 |
||||||||
|
Weighted average effective mortgage interest rate |
3.64% |
3.75% |
3.64% |
3.75% |
||||||||
|
Weighted average mortgage term (years) |
5.76 |
5.68 |
5.76 |
5.68 |
||||||||
|
Leverage ratio (1) |
46.2% |
40.6% |
46.2% |
40.6% |
||||||||
|
Interest coverage (times) (1) |
3.13 |
2.74 |
2.96 |
2.74 |
||||||||
|
Debt service coverage (times) (1) |
2.14 |
1.70 |
2.04 |
1.75 |
||||||||
|
Debt-to-adjusted EBIDTA (times) (1) |
9.71 |
7.92 |
9.86 |
7.98 |
||||||||
|
Other |
||||||||||||
|
Properties acquired |
– |
– |
9 |
1 |
||||||||
|
Number of properties(3) |
154 |
109 |
154 |
109 |
||||||||
|
Total GLA (in thousands of square feet)(3) |
18,229 |
13,631 |
18,229 |
13,631 |
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|
(1) Non-GAAP measure. Refer to “Section II – Key Performance Indicators – Financial Indicators” of the MD&A for further information (including definitions |
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|
and measures). |
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(2) Includes REIT Units and Class B exchangeable units (collectively, the “Units”). |
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|
(3) Excludes four non-core properties held for sale at June 30, 2020, as disclosed in the “Investment Properties Held for Sale” section of this MD&A. |
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|
(4) Financial metrics include the four non-core properties held for sale at June 30, 2020, as disclosed in the “Investment Properties Held for Sale” |
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|
section of this MD&A. |
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|
(5) 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 |
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|
any capital and leasing cost incurred since ownership. |
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|
(6) Includes non-recurring costs of $96.6 million associated with the property and asset management internalization on May 17, 2019. |
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Summit II’s Condensed Consolidated Interim Financial Statements and MD&A for the three and six months ended June 30, 2020 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 website 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, FFO payout ratio, 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 and six months ended June 30, 2020 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 or cash flow from operating activities determined in accordance with GAAP as an indicator of the REIT’s performance. Please refer to “Section II â Key Performance Indicators â Financial Indicators” in the REIT’s MD&A for the period ended June 30, 2020.
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
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