TORONTO, Aug. 9, 2017 /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 six months ended June 30, 2017.
Highlights:
- Monthly cash distributions increased 2.4% to $0.043 per unit, $0.516 annualized.
- Completed successful $69.0 million bought-deal equity offering on June 30, 2017.
- Acquisition capacity at $184.0 million as at June 30, 2017.
- Occupancy strong at 99.7% with 5.8 year average lease term, 1.5% annual contractual rent steps.
- Operating revenues rose 31.5% and 29.6% through three and six months ended June 30, 2017 due to acquisitions and strong operating performance.
- FFO up 43.3% and 35.8% for three and six months ended June 30, 2017.
- Acquired seven income-producing properties year-to-date totaling 1.2 million sq. ft. for $98.6 million at 6.25% average cap rate.
- Completed new mortgage financing totaling $43.7 million for five-year terms at 2.82% average interest rate.
- Only 2.9% of 2017 lease expiries remain as at June 30, 2017.
- Manager and Insiders interest remains strongly aligned with Unitholders through 10.0% ownership of REIT Units outstanding.
“The property acquisitions completed so far this year have made a significant contribution to our results in the second quarter, augmented by our ongoing strong operating and leasing activities,” commented Paul Dykeman, Chief Executive Officer. “With the successful bought deal equity offering completed at quarter end, we have the financial resources and flexibility to continue growing and diversifying our property portfolio, adding to further increases in revenues and FFO through the balance of the year. We expect to deliver another strong year of growth in 2017.”
“Our acquisition pipeline remains strong and growing. We currently have four properties under contract or agreement well located in our key target markets that, once completed, will add 1.0 million square feet of GLA to the portfolio for a total purchase price of approximately $94.0 million with a very solid 6% capitalization rate. Looking ahead, we continue to evaluate additional acquisition and joint-venture development opportunities that we are confident will maintain our track record of strong accretive growth well into the future,” Mr. Dykeman concluded.
STRONG OPERATING AND FINANCIAL RESULTS
Operating revenues increased 31.5% and 29.6% for the three and six months ended June 30, 2017, respectively, due primarily to the REIT’s portfolio growth over the prior twelve months and successful leasing activities. Occupancy remained essentially full at 99.7% as at June 30, 2017. Net Operating Income (NOI) rose 39.9% and 32.1% in the second quarter and first six months of 2017 compared to the same periods last year.
Funds from Operations (FFO) for the three months ended June 30, 2017 were $6.4 million ($0.150 per Unit) up 43.3% from $4.5 million ($0.149 per Unit) in the same quarter of 2016. For the six months ended June 30, 2017 FFO was $11.9 million ($0.289 per Unit), up 35.8% from the same period last year. The REIT’s FFO payout ratio was 88.0% (73.6% including benefit of DRIP) through the first six months of 2017 compared to 84.4% (69.7% including benefit of DRIP) in the same prior year period. The REIT’s per Unit amounts and FFO payout ratio in the first half of 2017 were affected by the significant 40.5% increase in the weighted average number of units outstanding in the period due to the January 31, 2017 and June 30, 2017 equity offerings and the fact that the funds from the offering were not fully invested in the period. Also impacting FFO by 1.2% ($0.003 per Unit) during the period was a one-time bad debt including NOI downtime associated with a tenant failure. This space has been leased to a new tenant with leasing costs of $259,000 and a 4.2% increase in the rental rate.
ACTIVE LEASING PROGRAM
The portfolio occupancy at June 30, 2017 was essentially full at 99.7%. The weighted average lease term for the portfolio was approximately 5.8 years at June 30, 2017 with leases containing contractual steps in rent of approximately 1.5% per year over this term. The REIT continues to be proactive in addressing lease expiries well in advance of their expiry date. The renewals completed during the period represents an 89% retention rate. There was only one tenant who didn’t renew and their 21,426 square feet unit has been leased and downtime was limited to only two months. During the first six months of 2017 approximately 176,138 square feet of lease renewals were completed, as well as 57,634 square feet of new leases, for a total of 233,772 square feet compared to 458,730 square feet in the first six months of 2016. As a result, only 2.9% of the 2017 lease expiries remain to be renewed as at June 30, 2017. A tenant in 81,087 square feet of the expiring space has agreed to terms and the renewal is currently being finalized. Also, an early renewal on 163,000 square feet set to expire in 2019 has been completed.
Leasing costs for the three and six month periods ending June 30, 2017, were $1.2 million and $1.5 million, respectively, compared to $62,000 and $1.9 million for the same periods last year. For the three and six month periods ending June 30, 2017, straight lining of rents was $319,000 and $620,000, respectively, compared to $254,000 and $506,000, respectively, in the same prior year periods.
STRONG PORTFOLIO GROWTH
During the first six months of 2017 the REIT acquired seven light industrial properties in its targeted Greater Toronto Area, Greater Montreal Area and Calgary markets totaling 1.2 million square feet of gross leasable area for a total purchase price of $98.6 million and generating an average capitalization rate of 6.25%. With these acquisitions, the REIT’s total portfolio as at June 30, 2017 has grown to 60 income producing properties totaling 6.4 million square feet of gross leasable area with a net book value of approximately $608.8 million.
SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $639.5 million at June 30, 2017, up from $500.8 million at December 31, 2016 due to the acquisitions of interests in seven income producing properties during the first six months of 2017 as well as fair value gains of $6.7 million which is mainly attributable to increasing market values of the properties in GTA.
Total debt was $287.0 million at June 30, 2017 compared to $270.6 million at December 31, 2016. As of June 30, 2017, there was no amount drawn on an available $48.7 million revolving operating facility. The REIT’s exposure to floating rate debt was 1.2% of total debt as at June 30, 2017. During the second quarter of 2017, the Trust repaid $2.7 million in maturing mortgage debt bearing an interest rate of 3.70% and refinanced the property with a new $3.5 million mortgage with a five-year term and an interest rate of 2.91%. New mortgage financing of $18 million with a five-year term and an interest rate of 2.70% was also obtained during the quarter on a property that had been temporarily placed as security on the revolving operating facility. As a result of removing this security, the amount available to draw on the revolving operating facility was decreased from $64.0 million to $48.7 million.
On June 30, 2017, the REIT completed a public offering of 9,763,000 Units at a price of $7.07 for gross proceeds of $69.0 million. On January 31, 2017, it completed a public offering of 7,423,250 trust units at a price of $6.20 for gross proceeds of $46.0 million.
As of June 30, 2017, the REIT’s debt leverage ratio was 44.9% compared to 54.0% at December 31, 2016. Average leverage during the second quarter of 2017 was 54.3% compared to 54.3% for the same period in 2016. The weighted average effective interest rate on the REIT’s mortgage portfolio was 3.34% at June 30, 2017, down from 3.43% at the prior year end, with a weighted average term to maturity of 4.2 years, compared to 4.5 at the prior year end. Debt service and interest coverage ratios were 1.84 times and 3.13 times, respectively, compared to 1.80 times and 3.05 times respectively, at December 31, 2016.
SUBSEQUENT EVENTS
On August 9, 2017, the Trust announced it has waived conditions and would acquire a 116,818 square foot light industrial property located in Oakville, Ontario for $15.3 million on or before August 15, 2017. The acquisition will be financed by proceeds from the June 2017 equity offering. The property is 100% occupied by a single tenant with six years remaining on its lease term including 2.0% annual rent escalations.
DISTRIBUTION INCREASE
On May 9, 2017, the Board of Trustees approved a 2.4% increase in monthly cash distributions to $0.043 per unit, or $0.516 per unit on an annualized basis. The increase applied to unitholders of record on May 31, 2017.
INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II’s management team on Thursday, August 10, 2017 at 9:00 am ET. The telephone numbers to participate in the conference call are North America Toll Free: (866) 225-0198 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 2646232#. A webcast of the call will also be archived on the REIT’s web site at www.summitIIreit.com.
FINANCIAL AND OPERATING HIGHLIGHTS
|
(in thousands of Canadian dollars) |
||||||||
|
(except per Unit amounts) |
Three months ended June 30 |
Six months ended June 30 |
||||||
|
2017 |
2016 |
2017 |
2016 |
|||||
|
Portfolio Performance |
||||||||
|
Occupancy (%) |
99.7% |
100.0% |
99.7% |
100.0% |
||||
|
Revenue from income properties |
$ |
13,818 |
$ |
10,504 |
$ |
26,789 |
$ |
20,668 |
|
Property operating expenses |
3,988 |
3,480 |
8,454 |
6,786 |
||||
|
Net operating income |
9,830 |
7,024 |
18,335 |
13,882 |
||||
|
Interest expense |
2,859 |
2,165 |
5,621 |
4,255 |
||||
|
Net income |
12,307 |
3,869 |
18,494 |
8,154 |
||||
|
Operating Performance |
||||||||
|
FFO |
6,411 |
4,473 |
11,946 |
8,796 |
||||
|
FFO per Unit (1) |
0.150 |
0.149 |
0.289 |
0.299 |
||||
|
Regular Distributions per Unit declared to Unitholders |
0.128 |
0.126 |
0.254 |
0.252 |
||||
|
Regular FFO payout ratio without DRIP benefit |
85.3% |
84.3% |
88.0% |
84.4% |
||||
|
Regular FFO payout ratio with DRIP benefit |
70.7% |
68.4% |
73.6% |
69.7% |
||||
|
Total Distributions per Unit declared to Unitholders |
0.128 |
0.126 |
0.254 |
0.252 |
||||
|
Weighted average Units outstanding(1) |
42,722 |
29,934 |
41,370 |
29,448 |
||||
|
Liquidity and Leverage |
||||||||
|
Total assets |
639,474 |
459,711 |
639,474 |
459,711 |
||||
|
Total debt (loans and borrowings) |
287,019 |
236,155 |
287,019 |
236,155 |
||||
|
Weighted average effective mortgage interest rate |
3.34% |
3.45% |
3.34% |
3.45% |
||||
|
Weighted average mortgage term (years) |
4.23 |
4.77 |
4.23 |
4.77 |
||||
|
Leverage ratio |
44.9% |
51.4% |
44.9% |
51.4% |
||||
|
Interest coverage (times) |
3.11 |
2.93 |
3.13 |
2.93 |
||||
|
Debt service coverage (times) |
1.84 |
1.74 |
1.84 |
1.74 |
||||
|
Other |
||||||||
|
Properties acquired |
1 |
1 |
7 |
5 |
||||
|
Non-core properties disposed |
– |
– |
– |
– |
||||
|
(1) 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 June 17, 2016, approximately 5,650,000 Units were issued on completion of a public offering. FFO per Unit amounts were temporarily impacted by approximately $0.015 per Unit due to the January 31, 2017 equity offering and the fact that the funds from the offering were not fully invested until April 7, 2017. |
Summit II’s Interim Consolidated Financial Statements and MD&A for the three and six months ended June 30, 2017 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
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