Summit Industrial Income REIT Announces Continued Growth in First Quarter of 2014 and Monthly Cash Distribution Increase

TORONTO, May 6, 2014 /CNW/ - Summit Industrial Income REIT ("Summit II" or the "REIT") (TSX: SMU.UN) announced today its operating and financial results for the three months ended March 31, 2014.

SUMMARY OF QUARTERLY RESULTS:

Three Months Ended
($,000 except per Unit amounts)
  Mar 31, 2014   Dec 31, 2013   Sept 30, 2013   Jun 30, 2013   Mar 31, 2013
Revenue from Income properties   7,068   7,570   6,139   5,655   2,683
Property operating expenses
Net Operating Income (NOI)
  1,700
5,368
  2,240
5,330
  1,505
4,634
  1,236
4,419
  574
2,109
Funds from Operations (FFO)   3,080   2,934   2,866   2,715   1,229
FFO per Unit   $0.169   $0.162   $0.158   $0.151   $0.111
Adjusted Funds from Operations (AFFO)   2,816   2,677   2,595   2,502   1,161
AFFO per Unit   $0.155   $0.148   $0.144   $0.139   $0.105
Weighted Average Units Outstanding   18,201   18,126   18,083   18,029   11,090
FFO Payout Ratio (%)   72.3%   75.6%   77.2%   81.3%   -
AFFO Payout Ratio (%)   79.1%   82.9%   85.3%   88.2%   -
Debt Service Coverage (times)
Interest Coverage (times)
Total Debt to Gross Book Value (%)
  1.73
2.54
60.8%
  1.69
2.47
60.9%
  1.97
2.87
60.3%
  2.04
2.90
53.9%
  2.39
2.87
54.6%

HIGHLIGHTS:

  • Monthly cash distributions increased to $0.042 per unit, or $0.504 annualized, a 3% increase
  • Acquisition, strong property performance drive strong Q1 year-over-year growth in revenues, NOI, FFO and AFFO
  • Strong accretive growth on a per unit basis
  • AFFO payout ratio strengthens further to 79.1% from 82.9% in fourth quarter of 2013
  • DRIP participation rate of 21.7% during the quarter
  • Strong leasing activity as 123,252 sq. ft. of 168,255 sq. ft. of 2014 renewals completed results in only 1.3% of portfolio remaining to renew in 2014
  • We have leased 207,453 sq. ft. of the 287,000 sq. ft. of head lease space with negotiations currently under way on the remaining 79,547 sq. ft. of head lease space
  • Innovative sale of 75% property interest establishes new partnership for portfolio growth

"Following strong growth and performance through the first full year we have managed Summit II's assets and business, progress continued in the first quarter of 2014" stated Paul Dykeman, CEO. "Our portfolio growth and strong property-level performance drove significant increases in our key results benchmarks compared to last year's first quarter. We will continue to evaluate acquisition opportunities and intend to grow the portfolio this year."

"In addition, with nearly full occupancies, the majority of our 2014 lease renewals completed, and continued strength in our payout ratios, going forward we are confident our monthly cash distributions will remain stable and secure," Mr. Dykeman added.

STRONG FINANCIAL RESULTS

Operating revenues increased to $7.1 million for the three months ended March 31, 2014 from $2.7 million in the same quarter last year. The REIT's revenue growth is due primarily to acquisitions completed in 2013, continuing strong occupancies and steady progress in leasing activities. Revenues in the first quarter of 2014 were consistent with the fourth quarter of 2013.

Net Operating Income (NOI) rose to $5.4 million in the first quarter of 2014 compared to $2.1 million in the prior year's first quarter and $5.3 million in the fourth quarter of 2013.

Funds from Operations (FFO) for the three months ended March 31, 2013 were $3.1 million ($0.169 per Unit), up from $1.2 million ($0.111 per Unit) in the first quarter of 2013 and $2.9 million ($0.162 per Unit) in the fourth quarter of 2013. The year-over-year increase in the first quarter of 2014 is primarily due to the contribution from acquisitions.

Adjusted Funds from Operations (AFFO) in the first quarter of 2014 were $2.8 million ($0.155 per Unit) compared to $1.2 million ($0.105 per Unit) in the first quarter of 2013 and $2.7 million ($0.148 per Unit) in the fourth quarter of 2013. The REIT's AFFO payout ratio continued to strengthen to 79.1% in the first quarter of 2014 compared to 82.9% in the fourth quarter of 2013. Including the benefit of the REIT's DRIP program, the effective AFFO payout ratio was a conservative 61.9% in the first quarter of 2014 compared to 71.7% in the fourth quarter of 2013.

The REIT established its monthly distribution policy of $0.0408 per Unit, or $0.4896 on an annual basis, on March 15, 2013. DRIP participation in the first quarter of 2014 was at a rate of 21.7% compared to 13.4% in the fourth quarter of 2013.

ACTIVE LEASING PROGRAM

The REIT continues to make progress in leasing approximately 287,000 square feet of space subject to leases with applicable property vendors (Head Leases) with terms ending December 2016 and September 2015. To date, leases have been secured for 207,453 square feet of Head Lease space with negotiations currently under way for another 79,547 square feet with tenants currently in month-to-month occupancy.

Lease renewals of 123,252 square feet of the total 168,255 square feet of 2014 renewals were completed in 2013, leaving leases representing only 1.3% of the total property portfolio, or 45,003 square feet, remaining to renew in 2014. The weighted average term to maturity for the overall lease portfolio at March 31, 2014 is approximately 5.8 years.

SOLID BALANCE SHEET AND LIQUIDITY POSITION

Total assets increased to $312.0 million at March 31, 2014, up from $257.5 million at March 31, 2013 due to acquisitions completed over the prior twelve months.  At March 31, 2014 the REIT's debt leverage ratio was 60.8% consistent with the 60.9% at December 31, 2013. The weighted average effective interest rate on the REIT's mortgage portfolio was 3.68% at March 31, 2014 and December 31, 2013, with a weighted average term to maturity of 4.7 years. Debt service and interest coverage ratios for the three months ended March 31, 2014 were 1.73 times and 2.54 times, respectively, compared to 1.69 times and 2.47 times at December 31, 2013.

On August 15, 2013 the REIT increased its revolving credit facility to $68 million, of which $64.2 million was drawn as at March 31, 2014. Upon the sale of 501 Palladium Drive, the revolving credit facility has been amended. The maximum available has been reduced from $68 million to $49 million. If the REIT increased its borrowing to the 65% maximum allowed under its Declaration of Trust, it would have the capacity to purchase approximately $37.5 million in new properties as of March 31, 2014. Summit intends to maintain its leverage ratio in the mid 50% range over the long term.

CASH DISTRIBUTION INCREASE

On May 6, 2014, the Board of Trustees approved a cash distribution increase to $0.042 per unit per month or $0.504 per unit on an annualized basis, representing a 3% annualized increase over the current distribution.  This increase will apply to the unitholders of record on May 30, 2014. The Board of Trustees have adopted a policy to consider annually increasing the cash distribution by between 2% and 4% while maintaining an AFFO payout ratio below 90%.

SUBSEQUENT EVENT

On May 6, 2014 the REIT announced it had sold a 75% interest in an Ottawa property to a major Canadian institution for proceeds of approximately $25.3 million and generating a realized gain on the sale of approximately $4.9 million. The proceeds of the sale were used to reduce the REIT's floating-rate credit line.

"After significantly enhancing the value of the property through the efforts of our proven and experienced leasing team, we have crystallized a solid gain on the sale and reduced our floating rate debt exposure. We anticipate this new co-venture will acquire future properties together and increase the size and scale of our portfolio," Mr. Dykeman commented.

INVESTOR CONFERENCE CALL

A conference call will be hosted by Summit II's management team on Wednesday, May 7, 2014 at 8.30 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 1925669#. 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 2013 Annual Meeting of Unitholders will be held on Wednesday, May 7, 2014 at 10.00 am ET at the TD Bank Tower, 66 Wellington Street West, Suite 5300, Toronto, Ontario M5K 1E6.

FINANCIAL AND OPERATING HIGHLIGHTS

             
(in Thousands of Canadian dollars)            
(except per unit amounts)   Three months ended 
    March 31, 2014   December 31, 2013   March 31, 2013
             
Portfolio Performance            
Occupancy (%) (1)   98.7%   98.9%   99.0%
Revenue from income properties $    7,068 $   7,570  $   2,683
Property operating expenses   1,700   2,240   574
Net operating income   5,368   5,330   2,109
Interest expense   1,863   1,857   620
Net income   3,114   3,300   1,229
             
Operating Performance            
FFO   3,080   2,934   1,229
AFFO   2,816   2,677   1,161
Net income per unit - Basic and diluted(2)   0.171   0.182   0.111
FFO per unit (2)   0.169   0.162   0.111
AFFO per unit (2)   0.155   0.148   0.105
Distributions declared to Unitholders   2,230   2,220   735
Distributions per unit declared to Unitholders   0.1224   0.1224   0.0408
Distributions paid (3)   1,743   1,920   -
FFO payout ratio without DRIP benefit   72.3%   75.6%   36.8%
FFO payout ratio with DRIP benefit (3)   56.6%   65.4%   N/A
AFFO payout ratio without DRIP benefit    79.1%   82.9%   39.0%
AFFO payout ratio with DRIP benefit (3)   61.9%   71.7%   N/A
Weighted average units outstanding (2)   18,201   18,126   11,090
             
Liquidity and Leverage            
Total assets   312,039   310,413   257,453
Total debt (loans and borrowings and preferred units payable)   189,599   189,045   140,606
Weighted average effective mortgage interest rate   3.68%   3.68%   3.70%
Weighted average mortgage term (years)   4.71   4.95   5.80
Leverage ratio   60.8%   60.9%   54.6%
Interest coverage (times)    2.54   2.47   2.87
Debt service coverage (times)    1.73   1.69   2.39
             
Other            
Properties acquired   -   4   15
Non-core properties disposed   -   -   -
             

(1) Approximately 207,453 square feet (6.2% of total GLA) Head Lease space has been leased to date. Negotiations are under way for 79,547 square feet (2.4% of total GLA) under head lease.
(2) A unit consolidation was completed in January 2013 where the REIT consolidated all of its issued and outstanding units on the basis of one post consolidation Unit for every twelve pre-consolidation Unit. As well, 11,120,000 units were issued February 26, 2013 on completion of a publc offering.
(3) On March 15, 2013, the Trust announced a cash distribution policy to pay $0.0408 per Trust Unit. The first cash distribution was paid on April 15, 2013, to Unitholders of record on March 29, 2013. 

 

Summit II's audited Consolidated Financial Statements and MD&A for the year ended December 31, 2013 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


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