TORONTO, Nov. 6, 2018 /CNW/ – Summit Industrial Income REIT (“Summit II” or the “REIT”) (TSX: SMU.UN) announced today a significant increase in its operating and financial results for the three and nine months ended September 30, 2018.
Nine Month Highlights:
- Completed successful $115.0 million bought-deal equity offering on June 15, 2018.
- Obtained $189.7 million in new mortgage financings at an average term of eight years and average rate of 4.0%.
- Acquired eight income-producing properties to date in 2018 totalling 1,497,079 sq. ft. of GLA for $216.2 million at a 5.45% average cap rate1.
- Industrial occupancy strong at 98.4% as at September 30, 2018 with average lease term of 6.1 years and contractual rent steps of 1.6% per year.
- Successful leasing activities with 93.3% retention ratio for 2018 and lease expiries as at September 30, 2018 of 6.0% remaining for 2019.
- Fully leased the GTA data centre property, commencing October 2018, resulting in an accretive yield over 10%.
- Same property net operating income (“NOI”)1 increased 1.5% with Toronto and Montreal contributing 5.0% and 5.9%, respectively.
- Net income rose to $121.1 million ($1.635 per Unit) due to acquisitions, strong operating performance, and fair value gains on the property portfolio.
- Fair value gain in the property portfolio of $93.9 million or $1.27 per Unit.
- Total NOI up 60.1% on revenue increase, organic growth and strong operating performance.
- Sold 75% interest in four properties in May 2018 for total proceeds of $46.4 million and realized gain of approximately $7.2 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.
- Manager and Insiders fully aligned with 7.4% interest in REIT Units outstanding.
Subsequent Events:
- Completed acquisition on October 26, 2018, of a property in Mississauga, Ontario aggregating 262,610 sq. ft. of GLA for $33.5 million.
“Our growth and strong operating performance continued in the third quarter, and we are confident 2018 will be another record year for Summit,” commented Paul Dykeman, Chief Executive Officer. “During the quarter we made significant progress in our leasing activities, completing all 2018 expiries and significant progress on 2019 lease expiries with a very strong overall 9.6% increase over the expiring rents and 14.1% in the GTA, as well as the leasing of all our Western Canada vacancies. As a result, occupancy for the total portfolio will rise to 99.3% at year end, up from 98.1% last year.”
PORTFOLIO GROWTH GENERATES STRONG OPERATING AND FINANCIAL RESULTS
Revenue from income producing properties rose 56.8% to $65.4 million for the nine months ended September 30, 2018 compared to the same period last year. For the three months ended September 30, 2018 revenues rose 56.1% to $23.1 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 98.4% at September 30, 2018.
Net operating income (“NOI”)1 for the nine months ended September 30, 2018 increased 60.1% to $46.1 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 the three months ended September 30, 2018, NOI rose 61.1% to $16.9 million. For properties acquired prior to January 1, 2017 and owned during both periods, same property NOI rose 1.5% for the nine months ended September 30, 2018compared to the same period in 2017. For the REIT’s target GTA and Montreal portfolios, same property NOI rose 5.0% and 5.9%, respectively, compared to the same nine-month period last year. The REIT’s target GTA and Montreal markets represent approximately 80.4% of its total portfolio.
For the nine months ended September 30, 2018, Funds from Operations (“FFO”)1 were $30.9 million ($0.418 per Unit) compared to $19.2 million ($0.425 per Unit) last year. For the three months ended September 30, 2018, FFO was $11.7 million ($0.138 per Unit) compared to $7.2 million ($0.138 per Unit) last year. The increase in FFO is due primarily to the acquisitions completed over the last twelve months and strong operating performance. Per Unit amounts were impacted by the 61.2% and 64.1% increase in the weighted average number of Units outstanding for the three and nine months ended September 30, 2018, respectively, due to successful bought-deal equity offerings and the issuance of Class B shares related to an acquisition over the prior twelve months.
The REIT’s regular FFO payout ratio1 for the nine months ended September 30, 2018 was 92.7% (80.1% including the benefit of the REIT’s DRIP program) compared to 90.2% (76.5% including the benefit of the REIT’s DRIP program) last year. The REIT’s payout ratio for the nine months ended September 30, 2018 was impacted by the 64.1% increase in the weighted average number of Units outstanding in the period.
Net income for the nine months ended September 30, 2018 was $121.1 million compared to $31.7 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 nine months ended September 30, 2018 of $93.9 million.
ACTIVE LEASING PROGRAM
Occupancy in the industrial portfolio remained strong at 98.4% at September 30, 2018. The weighted average lease term for the portfolio is approximately 6.1 years. The leases contain average contractual steps in rent of approximately 1.6% per year over the term. The REIT is proactive in addressing lease expiries well in advance of the expiry date.
As at September 30, 2018, all 2018 lease renewals totaling 398,492 square feet have been completed with a very strong 93.3% retention rate. Overall the 2018 renewals have generated an average 9.5% increase in monthly rents from the expiring rates, with a significant 12.7% increase over expiring rents in the REIT’s Greater Toronto Area (“GTA”) target market.
The REIT has also made significant progress in proactively completing renewals for 520,076 square feet of space expiring in 2019. The REIT has also completed the early renewal of 53,253 square feet expiring in 2023. This tenant is adding 49,719 square feet of adjacent space in the property which expires in 2019. This lease renewal and expansion includes a 20% increase in monthly rents for the total 102,972 square feet beginning in November 2019. With these 2019 renewals and expansion, only 6.0% of the portfolio now has lease renewals remaining to be completed in 2019. The lease renewals completed to date for 2019 have resulted in a 9.6% increase in rents with a very strong 15.6% increase for the GTA properties. Including all the lease renewals and expansions completed to date, totaling 1,021,540 square feet, the renewals have generated an average 9.6% increase over the expiring rents with a 14.1% increase in the GTA.
The REIT has also successfully committed and leased effective December 31, 2018 110,652 square feet of vacant space, with all vacancies in the REIT’s Western Canada portfolio now fully leased. Included in this vacancy leasing is 25,500 square feet of vacancy that was in place when the REIT acquired a property in Calgary in July 2018. The increased revenue from this lease will improve the going in yield on the initial cost of the acquisition from 5.86% to 6.90%. With these vacancies leased, occupancy for the total portfolio will rise to approximately 99.3% as of December 31, 2018, up from 98.1% as at December 31, 2017.
In May 2018, the tenant at the 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 $1.3 billion at September 30, 2018, up from $1.0 billion as at December 31, 2017. Total debt was $594.4 million at September 30, 2018 compared to $515.7 million at December 31, 2017. During the first nine months of 2018 new mortgage financings of $189.7 million were obtained with an average eight-year term and an average interest rate of 4.0%. As at September 30, 2018, there was $34.6 million drawn from the available $73.1 million revolving operating facility.
As at September 30, 2018 the REIT’s debt leverage ratio1 was 44.4% compared to 48.8% at September 30, 2017. Acquisition capacity to bring leverage to 52% was approximately $210.0 million as at September 30, 2018. Financing activities included locking in longer-term mortgages which added a full year of average term to maturity. The weighted average effective interest rate on the REIT’s mortgage portfolio was 3.72% at September 30, 2018 compared to 3.38% at September 30, 2017 with a weighted average term to maturity of 5.3 years compared to 4.3 years at September 30, 2017. Debt service1 and interest coverage1 ratios were 1.87 times and 3.08 times, respectively, compared to 1.89 times and 3.27 times respectively, at September 30, 2017.
INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II’s management team on Wednesday, November 7, 2018 at 9:00 am EST. The telephone numbers to participate in the conference call are North America Toll Free: (800) 377-0758 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 2877961#. A webcast of the call will also be archived on the REIT’s web site at www.summitIIreit.com.
|
FOOTNOTE |
|
FINANCIAL AND OPERATING HIGHLIGHTS |
|||||||||||
|
(in thousands of Canadian dollars) |
Three months ended September |
Nine months ended September |
|||||||||
|
(except per Unit amounts) |
2018 |
2017 |
2018 |
2017 |
|||||||
|
Portfolio Performance |
|||||||||||
|
Industrial occupancy (%) |
98.4% |
99.2% |
98.4% |
99.2% |
|||||||
|
Revenue from income properties |
$ |
23,081 |
$ |
14,863 |
$ |
65,360 |
$ |
41,652 |
|||
|
Property operating expenses |
6,207 |
4,389 |
19,223 |
12,843 |
|||||||
|
Net operating income (1) |
16,874 |
10,474 |
46,137 |
28,809 |
|||||||
|
Interest expense (finance costs) |
5,801 |
2,755 |
15,448 |
8,016 |
|||||||
|
Net income |
13,920 |
13,169 |
121,087 |
31,663 |
|||||||
|
Operating Performance |
|||||||||||
|
FFO (1) |
11,660 |
7,220 |
30,928 |
19,166 |
|||||||
|
Net income per unit – basic (4) |
0.164 |
0.251 |
1.635 |
0.702 |
|||||||
|
FFO per Unit (1)(2)(3)(4) |
0.138 |
0.138 |
0.418 |
0.425 |
|||||||
|
Regular Distributions per Unit declared to Unitholders (4) |
0.129 |
0.129 |
0.387 |
0.383 |
|||||||
|
Special Distributions per Unit declared to Unitholders (5) |
– |
– |
0.018 |
– |
|||||||
|
Regular FFO payout ratio without DRIP benefit (1) |
93.7% |
93.8% |
92.7% |
90.2% |
|||||||
|
Regular FFO payout ratio with DRIP benefit (1) |
82.4% |
81.4% |
80.1% |
76.5% |
|||||||
|
FFO including net realized gains (1)(6) |
11,312 |
7,220 |
37,779 |
19,166 |
|||||||
|
FFO per Unit plus net realized (loss) gain (1)(6) |
0.134 |
0.138 |
0.510 |
0.425 |
|||||||
|
Total Distributions per Unit declared to Unitholders (4)(5) |
0.129 |
0.129 |
0.405 |
0.383 |
|||||||
|
FFO plus net realized (loss) gain payout ratio without DRIP benefit (1)(6) |
96.6% |
93.8% |
79.4% |
90.2% |
|||||||
|
FFO including net realized gain payout ratio with DRIP benefit (1)(6) |
84.9% |
81.4% |
68.4% |
76.5% |
|||||||
|
Weighted average Units outstanding(2)(3)(4) |
84,666 |
52,508 |
74,044 |
45,124 |
|||||||
|
Liquidity and Leverage |
|||||||||||
|
Total assets |
1,338,406 |
705,654 |
1,338,406 |
705,654 |
|||||||
|
Total debt (loans and borrowings) |
594,407 |
344,416 |
594,407 |
344,416 |
|||||||
|
Weighted average effective mortgage interest rate |
3.72% |
3.38% |
3.72% |
3.38% |
|||||||
|
Weighted average mortgage term (years) |
5.34 |
4.25 |
5.34 |
4.25 |
|||||||
|
Leverage ratio (1) |
44.4% |
48.8% |
44.4% |
48.8% |
|||||||
|
Interest coverage (times) (1) |
3.08 |
3.49 |
2.98 |
3.27 |
|||||||
|
Debt service coverage (times) (1) |
1.87 |
1.96 |
1.80 |
1.89 |
|||||||
|
Debt-to-adjusted EBIDTA (times) (1) |
8.96 |
8.93 |
10.03 |
9.84 |
|||||||
|
Other |
|||||||||||
|
Properties acquired |
3 |
3 |
8 |
10 |
|||||||
|
(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. On August 15, 2018, |
|||||||||||
|
approximately 1,005,780 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 nine months ended September 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 September 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 â Key Performance Indicators â Financial Indicators” in the REIT’s MD&A for the three months ended September 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/November2018/06/c4479.html