Summit Industrial Income REIT Announces Solid Growth in Second Quarter 2016 Results

TORONTO, Aug. 9, 2016 /CNW/ - Summit Industrial Income REIT ("Summit II" or the "REIT") (TSX: SMU.UN) announced today its results for the three and six months ended June 30, 2016.

2016 Highlights:

  • Acquired four properties totalling 383,439 sq. ft. for cost of $45.0 million at average cap rate of 6.7%.
  • Entered into first value-add transaction with acquisition of 50% interest in 155,730 sq. ft. property. 
  • 100% occupancy at June 30, 2016.
  • 10% revenue increase generates 5.6% rise in FFO for first six months of 2016.
  • Growth accretive as FFO per Unit up despite increase in Units outstanding.
  • 84.4% FFO payout ratio (69.7% with DRIP benefit) for six months ended June 30, 2016.
  • Completed successful $34.2 million bought-deal equity offering on June 17, 2016.
  • Manager and Insiders interest remains strongly aligned with Unitholders through 12.1% insider ownership of REIT Units outstanding.
  • Only 1.3% of leases up for renewal through balance of 2016.
  • Subsequent to quarter end acquired 50% interest in a 56,208 sq. ft. Montreal property and 100% interest in a 141,628 sq. ft. Calgary property for total costs of $16.1 million at average cap rate of 7.4%.

"Our portfolio growth and strong operating performance generated solid increases in our results through the first six months of 2016," commented Paul Dykeman, Chief Executive Officer. "We have been very active on the leasing front, and as a result only 1.3% of our leases remain to be renewed through the balance of the year. With the portfolio fully occupied, lower anticipated leasing costs, and the contribution from our recent acquisitions, we look for another strong year."

STRONG OPERATING AND FINANCIAL RESULTS
Operating revenues increased to $10.5 million and $20.7 for the three and six months ended June 30, 2016 respectively, from $9.7 million and $18.8 million, respectively, in the same periods last year due primarily to the REIT's portfolio growth and successful leasing activities. Occupancy increased to 100% at June 30, 2016 from 99.8% at the end of the first quarter. Net Operating Income (NOI) rose to $7.0 million and $13.9 million in the second quarter and first six months of 2016 compared to $6.7 million and $13.0 million in the same prior year periods.

Funds from Operations (FFO) for the three and six months ended June 30, 2016 were $4.5 million ($0.149 per Unit) and $8.9 million ($0.299 per Unit) compared to $4.2 million ($0.148 per Unit) and $8.3 million ($0.293 per Unit) in the same periods last year. The REIT's FFO payout ratio was 84.4% (69.7% including benefit of DRIP) for the first six months of 2016 compared to 86.0% (71.9% including benefit of DRIP) last year.

ACTIVE LEASING PROGRAM
Portfolio occupancy at June 30, 2016 was 100%, up from 99.8% at the end of the first quarter of 2016. The weighted average lease term for the portfolio was approximately 5.8 years at June 30, 2016 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. Leasing costs were approximately $1.5 million through the first six months of 2016 compared to $810,000 in the same period last year. During the first six months of 2016, 322,738 square feet of renewal leasing was completed as well as 135,992 square feet of new leases for a total of 458,730 square feet compared to 81,500 square feet in the first six months of 2015. As a result, as at June 30, 2016, only 1.3% of the total portfolio is up for lease renewal through the remainder of 2016. Management is confident leasing costs will decline significantly through the remainder of the year. For the balance of this year, the REIT expects to complete approximately 215,000 square feet of leasing at an average cost of approximately $2.25 per square foot.

SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $459.7 million at June 30, 2016, up from $406.4 million at December 31, 2015 due to the acquisition of interests in one value-add and four income producing properties during the first six months of 2016, partially offset by the sale of a 75% interest in two properties for $24.9 million in April 2015.

Total debt was $236.2 million at June 30, 2016 compared to $218.4 million at December 31, 2015. The increase was due primarily to financings related to property acquisitions completed through the first six months of 2016, offset by the $32.5 million in net proceeds from a public offering of approximately 5.7 million Trust Units completed on June 17, 2016. As of June 30, 2016, $16.8 million was drawn on the revolving credit facility.

 As at June 30, 2016 the REIT's debt leverage ratio was 51.4% compared to 53.7% at December 31, 2015. The weighted average effective interest rate on the REIT's mortgage portfolio reduced to 3.45% at June 30, 2016, down from 3.52% at the prior year end, with a weighted average term to maturity of 4.8 years, consistent with the prior year end. Debt service and interest coverage ratios were 1.74 times and 2.93 times, respectively, compared to 1.77 times and 3.01 times, respectively, at December 31, 2015.

SUBSEQUENT EVENTS
On July 6, 2016, the REIT acquired a 50% interest in a 56,208 square foot light industrial property in the Greater Montreal Region for approximately $3.4 million satisfied by a new $2.5 million mortgage with a term of 10 years and an average interest rate of 3.38%, with the balance in cash from the REIT's operating credit facility. 

On July 19, 2016, the REIT acquired 100% of a 141,628 square foot light industrial property in Calgary, Alberta, for approximately $12.7 million financed by a new $7.5 million mortgage with a 7-year term and an average interest rate of 3.12% with the balance in cash from the REIT's operating credit facility. 

On July 21, 2016, the REIT renewed a $1.5 million mortgage maturing August 1, 2016 for a one-year term at a floating interest rate of 1.32% plus the bank's prime lending rate.

INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II's management team on Wednesday, August 10, 2016 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) 340-2219. 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 8989580#. 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



2016


2015


2016


2015










Portfolio Performance









Occupancy (%) 


100.0%


99.0%


100.0%


99.0%

Revenue from income properties


$

10,504


$

9,717


$

20,668


$

18,766

Property operating expenses


3,480


3,042


6,786


5,792

Net operating income


7,024


6,675


13,882


12,974

Interest expense


2,165


2,088


4,255


4,013

Net income


3,869


6,012


8,154


9,650










Operating Performance









FFO per Unit (1)


0.149


0.148


0.299


0.293

Regular Distributions per Unit declared to Unitholders


0.126


0.126


0.252


0.252

Special Distributions per Unit declared to Unitholders (2)


-


0.016


-


0.016

Regular FFO payout ratio without DRIP benefit


84.3%


85.3%


84.4%


86.0%

Regular FFO payout ratio with DRIP benefit (3)


68.4%


72.6%


69.7%


71.9%

Total Distributions per Unit declared to Unitholders


0.126


0.142


0.252


0.268










Weighted average Units outstanding(1)


29,934


28,657


29,448


28,442










Liquidity and Leverage









Total assets


459,711


401,457


459,711


401,457

Total debt (loans and borrowings)


236,155


216,425


236,155


216,425

Weighted average effective mortgage interest rate


3.45%


3.52%


3.45%


3.52%

Weighted average mortgage term (years)


4.77


4.97


4.77


4.97

Leverage ratio (4)


51.4%


53.9%


51.4%


53.9%

Interest coverage (times) 


2.93


2.89


2.93


2.90

Debt service coverage (times) 


1.74


1.77


1.75


1.79










Other









Properties acquired


1


1


5


11

Non-core properties disposed


-


-


-


-










(1)On June 17, 2016, approximately 5,650,000 Units were issued on completion of a public offering. On January 7, 2015, approximately 5,130,000
Units were issued on completion of a public offering.

(2)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.

(3)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.

(4)Average leverage was 54.3% during the second quarter of 2016 compared to 53.4% in the same period of 2015.

 

Summit II's Interim Consolidated Financial Statements and MD&A for the three and six months ended June 30, 2016 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

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