TORONTO, Nov. 10, 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 nine months ended September 30, 2015.
2015 Highlights:
- Acquired interests in 11 properties totaling 850,646 sq. ft. for $79.0 million.
- Sold 75% interest in two properties for $24.9 million generating $2.0 million realized gain.
- Occupancy strong at 99.1% with 5.7 year average lease term and 1.6% annual contractual rent increases.
- 25.5% increase in NOI through first nine months of 2015.
- Nine months FFO and AFFO up 37.7% and 28.7%, respectively.
- 91.4% AFFO payout ratio including realized gain on property sale.
- Leverage ratio of 54.1% creates capacity for further growth through property acquisitions.
- Manager and Principals interest remains strongly aligned with Unitholders through 13.4% insider ownership of REIT Units outstanding.
“It was another solid quarter for the REIT as our portfolio expansion, property management and leasing activities generated strong growth compared to last year,” commented Paul Dykeman, Chief Executive Officer. “We continue to evaluate accretive growth and development opportunities in our target Toronto and Montreal markets, and look for further progress in the quarters ahead.”
STRONG OPERATING AND FINANCIAL RESULTS
Operating revenues increased to $9.9 million and $28.7 million for the three and nine months ended September 30, 2015, respectively, from $7.0 million and $21.2 million, respectively, in the same periods last year due primarily to the REIT’s portfolio growth over the prior twelve months and successful leasing activities through the first nine months of 2015. Occupancy remained strong at 99.1% at September 30, 2015.
Net Operating Income (NOI) rose to $6.8 million and $19.8 million in the third quarter and first nine months of 2015, respectively, compared to $5.3 million and $15.8 million, respectively, in the same prior year periods.
Funds from Operations (FFO) for the three and nine months ended September 30, 2015, were $4.3 million ($0.151 per Unit) and $12.7 million ($0.444 per Unit), respectively, up from $3.2 million ($0.139 per Unit) and $9.2 million ($0.450 per Unit) in the third quarter and first nine months of 2014, respectively. Adjusted Funds from Operations (AFFO) for the three and nine months ended September 30, 2015 were $3.6 million ($0.125 per Unit) and $10.3 million ($0.362 per Unit), respectively, up from $2.8 million ($0.120 per Unit) and $8.0 million ($0.393 per Unit) in the third quarter and first nine months of 2014, respectively. The increases in FFO and AFFO are due primarily to the contribution from acquisitions completed over the prior twelve months.
Per Unit amounts in 2015 have been impacted by the 23.4% and 39.8% increase in the weighted average number of Units outstanding for the three and nine months ended September 30, 2015, respectively, compared to the same prior year periods, resulting from 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 until June 2015.
The REIT’s AFFO payout ratio was 104.5% for the nine months ended September 30, 2015. Including the benefit of the REIT’s DRIP program, the effective AFFO payout ratio was 87.8%. On June 15, 2015 a special distribution of $459,000 ($0.016 per Unit) was paid to Unitholders related to the $2.0 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 was 91.4% (76.9% including benefit of REIT’s DRIP program).
ACTIVE LEASING PROGRAM
Leasing activity was very successful in the first nine months of 2015. The weighted average lease term for the portfolio is approximately 5.7 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 September 30, 2015 only 2.5% 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 $403.7 million at September 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 nine 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 in April 2015.
Total debt was $218.5 million at September 30, 2015, compared to $188.7 million at the prior year end. In conjunction with the acquisition of interests 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 September 30, 2015, $30.9 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 14.6% of total debt as at September 30, 2015. In September 2015, the revolving credit facility maturity date was extended to January 1, 2016.
As at September 30, 2015 the REIT’s debt leverage ratio was 54.1% 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 $125 million in new properties as of September 30, 2015.
The weighted average effective interest rate on the REIT’s mortgage portfolio was 3.52% at September 30, 2015, down from 3.68% at the prior year end, with a weighted average term to maturity of 4.7 years, up from 4.5 years at December 31, 2014. Debt service and interest coverage ratios improved at September 30, 2015 to 1.76 times and 2.92 times, respectively, compared to 1.72 times and 2.63 times, respectively, at December 31, 2014.
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, November 11, 2015 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 4304839#. A webcast of the call will also be archived on the REIT’s web site at www.summitIIreit.com.
FINANCIAL AND OPERATING HIGHLIGHTS
Summit II’s Interim Consolidated Financial Statements and MD&A for the three and nine months ended September 30, 2015 are available on the REIT’s website at www.summitIIreit.com.
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(in Thousands of Canadian dollars) |
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(except per Unit amounts) |
Three months ended September 30 |
Nine months ended September 30 |
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|
2015 |
2014 |
2015 |
2014 |
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|
Portfolio Performance |
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|
Occupancy (%) |
99.1% |
100.0% |
99.1% |
100.0% |
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|
Revenue from income properties |
$ 9,903 |
$ 6,987 |
$ 28,669 |
$ 21,208 |
||
|
Property operating expenses |
3,107 |
1,736 |
8,899 |
5,453 |
||
|
Net operating income |
6,796 |
5,251 |
19,770 |
15,755 |
||
|
Interest expense |
2,079 |
1,684 |
6,092 |
5,393 |
||
|
Net income |
3,329 |
3,157 |
12,979 |
8,318 |
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|
Operating Performance |
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|
FFO per Unit (1) |
0.151 |
0.139 |
0.444 |
0.450 |
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|
AFFO per Unit (1) |
0.125 |
0.120 |
0.362 |
0.393 |
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|
Regular Distributions per Unit declared to Unitholders |
0.1260 |
0.1260 |
0.3780 |
0.3732 |
||
|
Special Distributions per Unit declared to Unitholders (3) |
– |
– |
0.0160 |
– |
||
|
Regular FFO payout ratio without DRIP benefit |
83.6% |
90.8% |
85.2% |
82.9% |
||
|
Regular AFFO payout ratio without DRIP benefit |
100.9% |
105.2% |
104.5% |
94.9% |
||
|
Regular AFFO payout ratio with DRIP benefit (2) |
85.6% |
91.5% |
87.8% |
77.2% |
||
|
AFFO per Unit plus net realized (loss) gain |
0.109 |
0.120 |
0.431 |
0.597 |
||
|
Total Distributions per Unit declared to Unitholders |
0.1260 |
0.1260 |
0.3940 |
0.3732 |
||
|
AFFO plus net realized (loss) gain payout ratio without DRIP benefit |
115.6% |
105.2% |
91.4% |
62.5% |
||
|
Weighted average Units outstanding(1) |
28,761 |
23,308 |
28,550 |
20,421 |
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|
Liquidity and Leverage |
||||||
|
Total assets |
403,693 |
313,542 |
403,693 |
313,542 |
||
|
Total debt (loans and borrowings) |
218,536 |
162,007 |
218,536 |
162,007 |
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|
Weighted average effective mortgage interest rate |
3.52% |
3.68% |
3.52% |
3.68% |
||
|
Weighted average mortgage term (years) |
4.72 |
4.71 |
4.72 |
4.71 |
||
|
Leverage ratio (4) |
54.1% |
51.7% |
54.1% |
51.7% |
||
|
Interest coverage (times) |
2.95 |
2.80 |
2.92 |
2.60 |
||
|
Debt service coverage (times) |
1.71 |
1.83 |
1.76 |
1.74 |
||
|
Other |
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|
Properties acquired |
– |
1 |
11 |
5 |
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|
Non-core properties disposed |
– |
– |
– |
– |
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(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, 2015. |
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(4)Average leverage was 53.7% during the third quarter of 2015 compared to 50.9% in the same period of 2014. |
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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
