Summit Industrial Income REIT Announces Strong Operating Performance in First Quarter 2015 and Special Distribution of $0.016 per Unit

TORONTO, May 12, 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 months ended March 31, 2015.

Q1 2015 Highlights:

• Occupancy maintained at 100%.
• On January 7, 2015 completed successful $30 million bought-deal equity offering.
• On February 11, 2015, completed the acquisition of a 50% interest in six properties in Montreal for a purchase price of $39.2 million at a cap rate of 6.63 %. Financed by assumed mortgages and loans of $11.4 million with an average remaining term to maturity of 9.6 years at an average interest rate of 3.49%.
• On February 23, 2015 acquired four GTA properties, adding 339,404 square feet for $25.3 million at a cap rate of 7.3%. Financed with new $15.2 million 7-year mortgage at 3.30% with the balance from the REIT’s line of credit.
• Completed five year lease renewal of 150,000 square feet of the acquired GTA portfolio.
• Placed permanent financing on 3720 Des Grandes Tourelles, Boisbriand, QC, with a 10-year mortgage for $12.9 million (Summit’s 50% interest) at an interest rate of 3.25%.   
• Manager and Principals interest remains strongly aligned with Unitholders through 12.6% insider ownership of REIT Units outstanding.

Subsequent events

• Sold a 75% interest in Ottawa and Moncton properties for total proceeds of $24.9 million and realized gain of approximately $2.3 million to fund growth in target markets.
• Announced a special cash distribution of $0.016 per Unit applicable to Unitholders of record May 31, 2015 and payable on June 15, 2015.

“We continue to leverage the significant expertise and experience of our management team to deliver very strong property-level operating results,” stated Paul Dykeman, CEO. “Looking ahead, we are focusing our efforts on accelerating the growth and re-positioning of our property portfolio to increase cash flows and deliver enhanced returns to our Unitholders. We are examining a number of accretive growth opportunities and additional joint venture opportunities, primarily in our target GTA market, and look to significantly increase the size and scale of our portfolio in the coming quarters.”

STRONG OPERATING AND FINANCIAL RESULTS
Operating revenues increased to $9.0 million for the three months ended March 31, 2015 from $7.5 million in the same quarter last year due to increased occupancies and the accretive acquisition of five properties in 2014, interests in a further ten properties in February 2015, and steady progress in leasing activities. Occupancy remained full at 100% at quarter end compared to 98.7% at March 31, 2014.

Net Operating Income (NOI) rose to $6.3 million in the first quarter of 2015 compared to $5.4 million in the prior year’s first quarter.

Funds from Operations (FFO) for the three months ended March 31, 2015 were $4.1 million ($0.145 per Unit), up from $3.1 million ($0.170 per Unit) in the first quarter of 2014. The increase is due primarily to the contribution from acquisitions completed over the last twelve months and increased occupancies. Per Unit amounts in the first quarter of 2015 were negatively impacted by the 55.1% increase in the weighted average number of Units outstanding compared to the prior year’s first quarter resulting from two equity offerings over the prior twelve months, and the fact that the funds from the January 2015 offering were not fully invested until the end of February 2015.

Adjusted Funds from Operations (AFFO) in the first quarter of 2015 were $3.5 million ($0.125 per Unit) compared to $2.8 million ($0.155 per Unit) in the first quarter of 2014. The REIT’s AFFO payout ratio was 100.8% for the three months ended March 31, 2015. Including the benefit of the REIT’s DRIP program, the effective AFFO payout ratio was 82.7%. Per Unit amounts in the first quarter of 2015 were negatively impacted by the 55.1% increase in the weighted average number of Units outstanding compared to the prior year’s first quarter resulting from two equity offerings over the prior twelve months, and the fact that the funds from the January 2015 offering were not fully invested until the end of February 2015. During the first quarter of 2015, the average leverage was approximately 51.8% due to the delay in investing funds from the January offering. If the funds had been fully invested at the time the offering was completed, the AFFO payout ratio would have been below 95%.

ACTIVE LEASING PROGRAM
The portfolio is fully occupied. The weighted average lease term for the portfolio is approximately 5.9 years. The leases contain 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. The REIT has already completed renewals on approximately 158,000 square feet. Subsequent to quarter end the REIT completed a five year renewal on 150,000 square feet of the remaining 397,011 square feet of lease expiries. The majority of the head lease space acquired in March 2013 has now been leased.

SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $402.9 million at March 31, 2015, up from $310.4 million at December 31, 2014. The increase is due primarily to interests in acquisitions completed in the first quarter of the year.

Total debt decreased to $225.6 million at March 31, 2015 from $188.7 million at the prior year end.  Proceeds from the successful January equity offering were used to complete the property acquisitions in the quarter. In conjunction with the acquisition of interests in the six properties in Montreal on February 11, 2015, mortgages and loans 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 purchase of the four GTA properties on February 23, 2015  were satisfied by a new seven year mortgage of $15.2 million bearing an average interest rate of 3.30%.

As at March 31, 2015 the REIT’s debt leverage ratio was 55.3% compared to 55.2% at December 31, 2014, both well within management’s target range. If the REIT increased its borrowing to the 65% maximum allowed under its Declaration of Trust, it would have the capacity to purchase approximately $112.0 million in new properties as of March 31, 2015. The weighted average effective interest rate on the REIT’s mortgage portfolio was 3.57% at March 31, 2015, down from 3.68% at the prior year end, with a weighted average term to maturity of 5.1 years, up from 4.5 years at December 31, 2014. Debt service and interest coverage ratios improved at March 31, 2015 to 1.82 times and 2.90 times, respectively, from 1.69 times and 2.72 times at December 31, 2013.

On January 7, 2015 the Trust completed a public offering of 5,130,000 units at a price of $5.85 per unit for total gross proceeds of approximately $30.0 million. The offering incurred issue costs of $1.5 million for net proceeds of $28.5 million. The offering proceeds were used to repay outstanding debt under the revolving credit facility and to fund acquisitions during the quarter.

On February 11, 2015, the Trust entered into a joint venture with Montreal’s Groupe Montoni and acquired a 50% interest in six light industrial properties in Montreal aggregating 326,409 square feet (Summit II’s 50% interest) of GLA for approximately $39.2 million, satisfied by the assumption of approximately $11.4 million in existing mortgages and loans with a weighted average remaining term of 9.6 years bearing an average interest rate of 3.49% and the balance in cash. The properties are 100% occupied.

On February 23, 2015, the Trust acquired four single-tenant light industrial properties in the Greater Toronto Area, aggregating 339,404 square feet of GLA for approximately $25.3 million. The properties are 100% occupied. The acquisition was satisfied by a new $15.2 million seven-year mortgage bearing an interest rate of 3.30% and the balance in cash. 

With the completion of the above acquisitions and equity offering, the REIT’s property portfolio as at March 31, 2015, totaled 44 properties aggregating approximately 4.4 million square feet of GLA with approximately 67.5% of the total portfolio located in the REIT’s target GTA region.

SUBSEQUENT EVENTS
On April 30, 2015, the Trust announced it had sold a 75% interest in its properties at 200 Iber Road, Ottawa and 290 Frenette, Moncton to a major Canadian institution for proceeds of approximately $24.9 million, generating a realized gain on the sale of approximately $2.3 million. The proceeds of the sale were used to reduce the Trust’s floating-rate revolving operating facility. 

On April 30, 2015, excess land at 350 Hazelhurst Road, Mississauga, ON 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 May 12, 2015 the Board of Trustees approved a special cash distribution of $0.016 per Unit. This special distribution will apply to Unitholders of record May 31, 2015 and will be paid on June 15, 2015. 

SPECIAL DISTRIBUTION
The Board of Trustees have adopted a policy to distribute a special distribution when the REIT produces a realized gain upon 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 $2.3 million or $0.08 per Unit on the sale of a 75% interest in two properties, the Trustees approved a special distribution of $0.016 per Unit which represents 20% of the realized gain.  The total distributions (regular distributions plus special distribution) is expected to be less than 90% cash available from AFFO and realized gains.

INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II’s management team on Wednesday, May 13 at 9.00 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 7460176#. A webcast of the call will also be archived on the REIT’s web site at www.summitIIreit.com.

2014 ANNUAL UNITHOLDER MEETING
Summit II’s Annual Meeting of Unitholders will be held on Wednesday, May 13, 2015 at 11.00 am at the TD Bank Tower, 66 Wellington Street West, Suite 5300, Toronto, Ontario M5K 1E6.

Summit II’s Audited Consolidated Financial Statements and MD&A for the three months ended March 31, 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