TORONTO, May 8, 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 months ended March 31, 2018.
Highlights:
- Acquisitions, strong property performance drive significant growth in revenues, net operating income (“NOI”)1 and funds from operations (“FFO”)1.
- Industrial occupancy strong at 98.5% with average lease term of 5.7 years and contractual rent steps of 1.4% per year.
- Revenues rise 64.6% on portfolio growth, high stable occupancies and rent increases.
- NOI up 74.1% on revenue increase and strong operating performance.
- Same property NOI1 increases 2.7%.
- FFO rises 75.7%.
- Growth accretive as FFO per Unit up 5.1% despite 67.9% increase in weighted average number of Units outstanding.
- Successful leasing activities as only 2.9% of 2018 lease expiries remain as at March 31, 2018.
- New $88 million ten-year mortgage financing at 4.10% interest rate repays $90 million bridge facility.
- Leverage ratio1 of 50.3% creates immediate $160.1 capacity for further property acquisitions to bring leverage to approximately 57.0%.
- Net income rises to $26.6 million ($0.395 per Unit) due to acquisitions, strong operating performance, and fair value gains on property portfolio.
- Manager and Insiders fully aligned with 8.5% interest in REIT Units outstanding.
Subsequent Events:
- Sold 75% interest in four properties for total proceeds of $46.4 million generating realized gain of approximately $6.8 million or $0.10 per Unit to fund growth in target markets.
- Announced a special cash distribution of $0.018 per Unit applicable to Unitholders of record May 16, 2018 and payable on May 31, 2018.
- Announced the acquisition of a property in Stratford, Ontario, aggregating 141,034 square feet of GLA for $14.9 million.
“Our record portfolio growth in 2017 generated a significant and accretive increase in our key financial and operating benchmarks compared to last year’s first quarter,” commented Paul Dykeman, Chief Executive Officer. “Looking ahead, the contribution from our 2017 acquisitions will continue to enhance our results this year, augmented by ongoing strong organic growth and further accretive acquisitions.”
PORTFOLIO GROWTH & DIVERSIFICATION
For the year ended December 31, 2018 the REIT acquired interests in 30 light industrial properties and one data centre property primarily located in its targeted Greater Toronto Area (“GTA”) and Greater Montreal Area (“GMA”) markets totaling over 3.6 million square feet of gross leasable area for a total acquisition costs of $409.5 million generating an average capitalization rate of 6.2%. With the completion of these acquisitions, at March 31, 2018 the REIT owned interests in 84 income producing properties totaling 8.9 million square feet of gross leasable area.
On December 22, 2017 the REIT further strengthened and diversified its property portfolio by entering into a joint venture partnership with Urbacon Montreal Limited Partnership (“Urbacon”) to develop, own and operate high-yielding digital data centres in key markets across Canada. Summit has exclusive rights to participate in Urbacon’s future data centre projects in Canada. Urbacon is Canada’s most experienced developer, and manager of data centre properties.
PORTFOLIO GROWTH GENERATES STRONG OPERATING AND FINANCIAL RESULTS
With the significant growth in the REIT’s property portfolio in 2017, combined with continuing high stable occupancies and increased rents, revenue from income producing properties rose 64.6% to $21.4 million for the three months ended March 31, 2018 compared to the same period last year. Industrial occupancy was 98.5% at March 31, 2018.
Net operating income (“NOI”)1 for the three months ended March 31, 2018 increased 74.1% to $14.8 million compared to the same period last year due to the contribution from acquisitions completed in 2017, higher rental rates and contractual steps in rent. For properties acquired prior to January 1, 2017 and owned during both periods, same property NOI1 rose 2.7% for the three months ended March 31, 2018 compared to the first quarter of 2017.
For the three months ended March 31, 2018, Funds from Operations (“FFO”)1 were $9.7 million ($0.145 per Unit1) compared to $5.5 million ($0.138 per Unit) in the first quarter of 2017. The increase in FFO is due primarily to the acquisitions completed in 2017 and strong operating performance. For the three months ended March 31, 2018 the REIT’s growth was accretive to Unitholders as FFO per Unit rose 5.1% compared to the same prior year period despite the significant 67.9% increase in the weighted average number of Units outstanding due to two successful equity offerings completed over the prior twelve months.
The REIT’s FFO payout ratio1 for the three months ended March 31, 2018 improved to 89.1% (77.9% including the benefit of the REIT’s DRIP program) compared to 91.1% (76.9% including the benefit of the REIT’s DRIP program) in the first quarter of 2017 and 92.0% (74.9% including the benefit of the REIT’s DRIP program) in the fourth quarter of 2017.
Net income for the three months ended March 31, 2018 was $26.6 million compared to $6.2 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 three months ended March 31, 2018 of $16.9 million compared to $0.7 million for the same period last year.
ACTIVE LEASING PROGRAM
Industrial portfolio occupancy at March 31, 2018 was essentially full at 98.5%. The weighted average lease term for the portfolio was 5.7 years at March 31, 2018 with leases containing contractual steps in rent of approximately 1.4% per year over this term. The REIT continues to be proactive in addressing lease expiries well in advance of their expiry date. During the first quarter of 2018 approximately 180,269 square feet of lease renewals were completed, as well as 40,825 square feet of new leases, for a total of 221,094 square feet compared to a total of 42,463 square feet in the same period of 2017. The lease renewals were completed at rental rates that start, on average, 8.1% higher than the expiring rent. Of the leases renewals completed in the first quarter of 2018, 68,827 square feet were in the GTA and were, on average, 19.1% higher than the expiring rent. As a result, the REIT only has 2.9% of the 2018 lease expiries remained as at March 31, 2018, contributing to the stability of the REIT’s cash distributions.
Of the leasing completed during the first quarter of 2018, 9,308 square feet of the lease renewals and 10,414 square feet of the new leases for a total of 19,722 square feet relate to leases that start in the quarter. The leasing costs incurred on these transactions totaled $56,000 for the first quarter of 2018 compared to $246,000 for the same period prior year. The remaining 160,547 square feet of leases completed during the first quarter of 2018 start later in the year and thus will not contribute to increased revenues until these leases start.
SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $1.0 billion at March 31, 2018, consistent with the prior year end. Total debt was $515.7 million at March 31, 2018, consistent with the prior year end. During the quarter, 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 March 31, 2018, there was $47.8 million drawn from the available $57.6 million revolving operating facility compared to $44.0 million for the same period in the prior year.
As of March 31, 2018, the REIT’s debt leverage ratio1 was 50.3% compared to 53.2% at March 31, 2017. Average leverage during the first quarter of 2018 was 51.3% compared to 50.5% for the same period in 2017. Acquisition capacity, to bring the portfolio leverage to approximately 57.0%, was approximately $161.0 million as at March 31, 2018. The weighted average effective interest rate on the REIT’s mortgage portfolio was 3.62% at March 31, 2018 compared to 3.38% at March 31, 2017 with a weighted average term to maturity of 4.9 years, compared to 4.4 years at March 31, 2017. Debt service1 and interest coverage1 ratios were 1.81 times and 2.97 times, respectively, compared to 1.84 times and 3.18 times respectively, at March 31, 2017.
INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II’s management team on Wednesday, May 9, 2018 at 8.30 am ET. The telephone numbers to participate in the conference call are North America Toll Free: (800) 377-0758 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 3977906#. A webcast of the call will also be archived on the REIT’s web site at www.summitIIreit.com.
ANNUAL UNITHOLDERS MEETING
Summit II’s 2017 Annual Meeting of Unitholders will be held on Wednesday, May 9, 2018 at 10:30 am ET in the TD Bank Tower, 66 Wellington Street West, Suite 5300, Toronto, Ontario M5K 1E6.
FOOTNOTE
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1. Non-GAAP measures refer to the “Non-GAAP Measures” section of this document, and “Section II â Key Performance Indicators â Financial Indicators” in the Management’s Discussion and Analysis for the three months and year ended March 31, 2018 for further information on non-GAAP measures (including definitions and reconciliations of the non-GAAP measures). |
FINANCIAL AND OPERATING HIGHLIGHTS
|
(unaudited) |
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|
(in thousands of Canadian dollars) |
Three months ended |
||||||||
|
(except per Unit amounts) |
March 31, 2018 |
December 31, 2017 |
March 31, 2017 |
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|
Portfolio Performance |
|||||||||
|
Industrial occupancy (%) |
98.5% |
98.4% |
99.7% |
||||||
|
Revenue from income properties |
$ |
21,408 |
$ |
16,921 |
$ |
12,971 |
|||
|
Property operating expenses |
6,633 |
5,153 |
4,466 |
||||||
|
Net operating income (1) |
14,775 |
11,768 |
8,505 |
||||||
|
Interest expense (finance costs) |
4,703 |
3,397 |
2,402 |
||||||
|
Net income |
26,556 |
31,237 |
6,187 |
||||||
|
Operating Performance |
|||||||||
|
FFO (1) |
9,726 |
7,794 |
5,535 |
||||||
|
Net income per unit – basic and diluted |
0.395 |
0.562 |
0.155 |
||||||
|
FFO per Unit (1)(2) |
0.145 |
0.140 |
0.138 |
||||||
|
Regular Distributions per Unit declared to Unitholders |
0.129 |
0.129 |
0.126 |
||||||
|
Regular FFO payout ratio without DRIP benefit (1) |
89.1% |
92.0% |
91.1% |
||||||
|
Regular FFO payout ratio with DRIP benefit (1) |
77.9% |
74.9% |
76.9% |
||||||
|
Total Distributions per Unit declared to Unitholders |
0.129 |
0.129 |
0.126 |
||||||
|
Weighted average Units outstanding(2) |
67,158 |
55,611 |
40,003 |
||||||
|
Liquidity and Leverage |
|||||||||
|
Total assets |
1,025,350 |
1,003,239 |
590,990 |
||||||
|
Total debt (loans and borrowings) |
515,710 |
515,018 |
314,233 |
||||||
|
Weighted average effective mortgage interest rate |
3.62% |
3.50% |
3.38% |
||||||
|
Weighted average mortgage term (years) |
4.89 |
3.97 |
4.38 |
||||||
|
Leverage ratio (1) |
50.3% |
51.3% |
53.2% |
||||||
|
Interest coverage (times) (1) |
2.97 |
3.18 |
3.18 |
||||||
|
Debt service coverage (times) (1) |
1.81 |
1.90 |
1.84 |
||||||
|
Debt-to-adjusted EBIDTA (times) (1) |
9.23 |
11.90 |
10.25 |
||||||
|
Other |
|||||||||
|
Properties acquired |
– |
21 |
6 |
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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 and measures). |
||||||
|
(2)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. |
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Summit II’s Consolidated Financial Statements and MD&A for the three months ended March 31, 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), same property NOI, interest coverage ratio, debt service coverage ratio, debt-to-adjusted EBITDA, and capitalization rate. The non-GAAP measures are further defined and discussed in the MD&A for the three months ended March 31, 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 March 31, 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
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