Summit Industrial Income REIT Announces Continued Growth & Solid Operating Performance in 2015

TORONTO, Feb. 16, 2016 /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 and year ended December 31, 2015.

2015 Highlights:

  • Acquired interests in 11 properties totaling 850,602 sq. ft. for $81.8 million.
  • Financed with bought-deal equity offering in January 2015 for proceeds of $30 million.
  • Sold 75% interest in two properties in April 2015 for $24.9 million generating a net realized gain of $2.0 million.
  • 25.0% increase in NOI generated a 36.4% and 28.7% increase, respectively, in FFO and AFFO.
  • Paid special cash distribution of $0.016 per unit on June 15, 2015, in line with the Trustees' policy to distribute up to 20% of the gain from a property sale.
  • Occupancy strong at 98.1% with an average lease term of 5.6 years and contractual rent steps of 1.6% per year.
  • Amended and extended revolving operating credit facility to $44 million maturing September 27, 2017 and a $16 million acquisition line maturing November 1, 2016. 
  • 85.0% FFO payout ratio without DRIP benefit and 71.4% with DRIP benefit.
  • Leverage ratio of 53.7% at December 31, 2015 creates immediate capacity for further growth through property acquisitions.
  • Manager and Principals interest remains strongly aligned with Unitholders through 13.7% insider ownership of REIT Units outstanding.

Subsequent to year end:

  • Acquired a 50% interest in two properties in Montreal for a purchase price of $6.7 million.
  • Entered into joint venture property acquisition and development agreement and purchased a value-add Montreal property for $3.6 million.
  • Secured $7.5 million in mortgage debt at a rate of 2.78% with a five year term to maturity

"2015 was another year of solid portfolio growth as we expanded our presence and critical mass in our target Toronto and Montreal regions, the two largest industrial markets in the country with continuing strong demand," commented Paul Dykeman, Chief Executive Officer. "Our proven property management and proactive leasing programs also generated strong operating results, and we look for this growth and performance to continue in the years ahead."

STRONG OPERATING AND FINANCIAL RESULTS
Operating revenues increased to $9.7 million and $38.4 million for the three months and year ended December 31, 2015, respectively, from $7.5 million and $28.7 million, respectively, in the same periods last year due primarily to the REIT's portfolio growth and successful leasing activities through 2015. Occupancy remained strong at 98.1% at December 31, 2015.

Net Operating Income (NOI) rose to $6.7 million and $26.5 million in the fourth quarter and year ended December 31, 2015, respectively, compared to $5.5 million and $21.2 million, respectively, in the same prior year periods.

Funds from Operations (FFO) for the three months and year ended December 31, 2015 were $4.3 million ($0.150 per Unit) and $17.0 million ($0.593 per Unit), respectively, up from $3.3 million ($0.139 per Unit) and $12.4 million ($0.588 per Unit) in the same prior year periods, respectively. Adjusted Funds from Operations (AFFO) for the three months and year ended December 31, 2015 were $3.9 million ($0.134 per Unit) and $14.2 million ($0.496 per Unit), respectively, up from $3.0 million ($0.129 per Unit) and $11.0 million ($0.521 per Unit) in the fourth quarter and year ended December 31, 2014, respectively. The increases in FFO and AFFO are due primarily to the contribution from acquisitions completed over the prior twelve months.

The REIT's FFO payout ratio was 85.0% for the year ended December 31, 2015. Including the benefit of the REIT's DRIP program, the effective FFO payout ratio was 71.4%. 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.

ACTIVE LEASING PROGRAM
The portfolio occupancy at December 31, 2015 is 98.1%. There are lease commitments in place for the vacancy (2 units) with occupancy commencing March 1, 2016 which will bring the portfolio back to full occupancy. The weighted average lease term for the portfolio was approximately 5.6 years at December 31, 2015 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 December 31, 2015, only 7.7% of the total portfolio is up for lease renewal 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 $406.8 million at December 31, 2015, up from $341.6 million at December 31, 2014 due to the acquisition of eleven properties in the targeted Greater Toronto and Greater Montreal Areas during the year 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 $218.4 million at December 31, 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 the 75% interest in one of the properties in April 2015, the co-owner assumed $9.0 million of the associated debt on this property.

In December 2015, the revolving credit facility was amended and the maturity was extended to September 27, 2017. The amended operating facility bears interest at a variable rate based on bank prime plus 1% for prime rate loans or banker's acceptance rates plus 2% for banker's acceptances for amounts up to $44 million. Amounts drawn in excess of $44 million, to a maximum of $60 million, bear a variable interest rate based on bank prime plus 2.25% for prime rate loans or banker's acceptance rates plus 3.25% for banker's acceptances. The $16 million excess amount is to fund acquisitions and matures October 27, 2016. As of December 31, 2015, $32.1 million was drawn on the revolving credit facility of a total available of $60 million. The Trust's exposure to floating rate debt was 15.1% of total debt as at December 31, 2015.

As at December 31, 2015 the REIT's debt leverage ratio was 53.7% compared to 55.2% at December 31, 2014, both well within management's target range.

The weighted average effective interest rate on the REIT's mortgage portfolio was 3.52% at December 31, 2015, down from 3.68% at the prior year end, with a weighted average term to maturity of 4.5 years, consistent with the prior year. Debt service and interest coverage ratios improved at December 31, 2015 to 1.77 times and 2.94 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.

SUBSEQUENT EVENTS
On January 15, 2016 and February 16, 2016, the REIT acquired a 50% interest in two of the previously announced three properties in Montreal for a purchase price of $6.7 million at a capitalization rate of 6.57%. The acquisition was financed by assumed mortgages of $4.2 million with an average remaining term to maturity of 7.8 years at an average interest rate of 3.58%. The third property is expected to close within the first quarter of 2016.

On February 12, 2016, the REIT entered into a value add joint venture property acquisition and development agreement and acquired a 50% interest in a 155,730 square foot light industrial property in Montreal for a purchase price of $3.6 million financed by a new mortgage of $1.8 million at an interest rate of prime plus 0.65% and utilizing funds from the revolving credit facility. Summit and its joint venture partner will upgrade and then lease the property, expected to take approximately twelve to eighteen months.

On January 4, 2016, $4.9 million in mortgage debt matured and was paid utilizing funds from the revolving credit facility. The property has been added as security on the credit line.

On February 16, 2016, $7.5 million in mortgage debt was secured on Summit's 25% interest in two properties at a rate of 2.78% and with a five year term to maturity. The proceeds will be applied to the REIT's revolving credit facility.

INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II's management team on Wednesday, February 16, 2016 at 11:00 am ET. The telephone numbers to participate in the conference call are North America Toll Free: (866) 223-7781 and Local Toronto / International: (416) 340-2218. 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 3466003#. 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
December 31

Year ended December 31



2015


2014



2015


2014











Portfolio Performance










Occupancy (%) 


98.1%


100.0%



98.1%


100.0%

Revenue from income properties

$

9,708

$

7,532


$

38,377

$

28,740

Property operating expenses


2,966


2,073



11,865


7,526

Net operating income


6,742


5,459



26,512


21,214

Interest expense


2,008


1,767



8,100


7,160

Net income


4,956


3,158



17,935


11,476











Operating Performance










FFO per Unit (1)


0.150


0.139



0.593


0.588

AFFO per Unit (1)


0.134


0.129



0.496


0.521

Regular Distributions per Unit declared to Unitholders


0.1260


0.1260



0.5040


0.4992

Special Distributions per Unit declared to Unitholders (3)


-


-



0.0160


-

Regular FFO payout ratio without DRIP benefit


84.3%


90.6%



85.0%


84.9%

Regular FFO payout ratio with DRIP benefit (2)


70.8%


80.4%



71.4%


70.7%

Regular AFFO payout ratio without DRIP benefit


93.9%


98.0%



101.6%


95.8%

Regular AFFO payout ratio with DRIP benefit (2)


78.9%


87.0%



85.4%


79.8%











AFFO per Unit plus net realized (loss) gain


0.135


0.114



0.566


0.702

Total Distributions per Unit declared to Unitholders


0.1260


0.1260



0.5200


0.4992

AFFO plus net realized (loss) gain payout ratio without DRIP benefit


93.6%


110.6%



91.9%


71.1%











Weighted average Units outstanding (1)


28,860


23,368



28,628


21,164











Liquidity and Leverage










Total assets


406,411


341,646



406,411


341,646

Total debt (loans and borrowings)


218,369


188,677



218,369


188,677

Weighted average effective mortgage interest rate


3.52%


3.68%



3.52%


3.68%

Weighted average mortgage term (years)


4.47


4.45



4.47


4.45

Leverage ratio (4)


53.7%


55.2%



53.7%


55.2%

Interest coverage (times) 


3.01


2.72



2.94


2.63

Debt service coverage (times) 


1.77


1.69



1.77


1.72











Other










Properties acquired


-


1



11


5

Non-core properties disposed


-


1



-


1












(1) On January 7, 2015, approximately 5,130,000 Units were issued on completion of a public offering.

(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
record on March 29, 2013. On May 6, 2014, the Trust announced a cash distribution increase to $0.042 per Trust Unit.

(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
May 31, 2015 which was paid June 15, 2015.

(4) Average leverage was 54.0% during the fourth quarter of 2015 compared to 52.0% in the same period of 2014.

Summit II's Interim Consolidated Financial Statements and MD&A for the three months and year ended December 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

For further information: Paul Dykeman, CEO at (902) 405-8813, pmdykeman@sigmarea.com

RELATED LINKS
www.summitiireit.com

Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890