Summit Industrial Income REIT Announces Strong Growth and Operating Performance in 2014

TORONTO, Feb. 25, 2015 /CNW/ - Summit Industrial Income REIT ("Summit II" or the "REIT") (TSX: SMU.UN) announced today strong growth and solid operating performance for the year ended December 31, 2014.

2014 Highlights:

  • Acquired five properties totaling 593,239 sq. ft. of GLA for $47.5 million at an average cap rate of 6.66%.
  • Completed $29.6 million of mortgage financing at an average term of 6.93 years at an average interest rate of 3.65%.
  • Completed an equity offering in June, 2014 for proceeds of $28.8 million.
  • Completed the sale of a 75% interest in an Ottawa property in May, 2014 generating a $4.5 million realized gain.
  • Completed the lease up of 268,000 square feet of the total 287,000 square feet of head lease space.
  • Manager and Principals remain strongly aligned with Unitholders through 13.0% insider ownership of REIT Units.

Subsequent to year end

  • On January 7, 2015 completed an equity offering for proceeds of $30 million
  • Acquired a 50% interest in a portfolio of six properties in Montreal for a purchase price of $39.2 million and at a cap rate of 6.63 %. The acquisition was financed by assuming mortgages of $11.4 million with an average remaining term to maturity of 4.1 years at an average interest rate of 3.45%.
  • Placed permanent financing on 3720 Des Grandes Tourelles, Boisbriand, QC, with a 10 year mortgage for $12.9 million (Summit's 50% interest) at an interest rate of 3.25%.   
  • Acquired four properties in the GTA, adding a total of 339,404 square feet for $25.3 million at a cap rate of 7.3%. The acquisition was financed with a new $15.2 million 7 year mortgage at 3.30% with the balance from the REIT's line of credit.

"2014 was another solid year of growth and strong operating performance for the REIT as the significant experience in our management team continues to generate real benefits for our Unitholders," stated Paul Dykeman, CEO. "Looking ahead, the acquisitions, financings and equity offering completed subsequent to the year end further strengthen our property portfolio and liquidity position, and we expect to build on this progress through 2015 and going forward."

STRONG OPERATING AND FINANCIAL RESULTS
Operating revenues were $7.5 million for the three months ended December 31, 2014 compared to $7.6 million in the same quarter last year. For the year ended December 31, 2014 operating revenues increased to $28.7 million from $22.0 million last year. The REIT's revenue growth in 2014 is due primarily to the acquisition of five properties during the year, continuing strong occupancies, and steady progress in leasing activities.

Net Operating Income (NOI) rose to $5.5 million in the fourth quarter of 2014 compared to $5.3 million in the prior year's fourth quarter. For the year ended December 31, 2014 NOI was $21.2 million compared to $16.5 million in the prior year.

Funds from Operations (FFO) for the three months ended December 31, 2014 were $3.3 million ($0.139 per Unit), up from $2.9 million ($0.163 per Unit) in the fourth quarter of 2013. For the year ended December 31, 2014 FFO was $12.4 million ($0.588 per Unit) compared to $9.7 million ($0.593 per Unit) last year. The increases are primarily due to the contribution from acquisitions completed over the last twelve months. Per Unit amounts in the fourth quarter and year ended December 31, 2014 were negatively impacted by the fact that proceeds from the June 2014 equity offering were not fully invested by year end.

Adjusted Funds from Operations (AFFO) in the fourth quarter of 2014 were $3.0 million ($0.129 per Unit) compared to $2.7 million ($0.148 per Unit) in the fourth quarter of 2013. For the year ended December 31, 2014 AFFO was $11.0 million ($0.521 per Unit) compared to $8.9 million ($0.543 per Unit) last year. The REIT's AFFO payout ratio was 95.8% for the year ended December 31, 2014. Including the benefit of the REIT's DRIP program, the effective AFFO payout ratio was 79.8%. Per Unit amounts in the fourth quarter and year ended December 31, 2014 were negatively impacted by the fact that proceeds from the June 2014 equity offering were not fully invested by year end.

ACTIVE LEASING PROGRAM
The REIT has made significant progress in leasing the approximately 287,000 square feet of space that was subject to leases with applicable property vendors (Head Leases) with terms ending September 2015 and December 2016. As of February 25, 2015 leases have been secured for 268,000 square feet of this Head Lease space with discussions currently under way for the one remaining unit of 19,000 square feet. Approximately 254,000 square feet of GLA is up for lease renewal in 2015, representing only 6.8% of the total portfolio. The 2015 lease expiries would have been 450,217 square feet but renewals of 196,318 square feet have already been completed.

Overall portfolio occupancy rose to 100.0% as at December 31, 2014 from 98.9% at the same time last year. The weighted average term to maturity for the lease portfolio was approximately 5.8 years at year end.

SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $341.6 million at December 31, 2014, up from $310.4 million at December 31, 2013. The increase is due primarily to acquisitions completed during the year, partially offset by the sale of a 75% interest in an Ottawa property to a new joint venture partner and 100% of a non-core Red Deer Alberta property to a third party.

Total debt decreased to $188.7 million at December 31, 2014 from $189.0 million at the prior year end.  Proceeds from the 75% sale of an Ottawa property in May 2014 and the June 2014 offering were used to repay approximately $39.6 million of the REIT's revolving credit facility debt. In conjunction with the three property acquisitions completed in June, 2014 mortgages of $12.2 million were obtained for a seven-year term at a rate of 3.64%.  In addition, mortgage financing of $17.0 million was obtained for a seven-year term at an interest rate of 3.65% and additional financing of $423,000 was obtained on an existing loan with an interest rate of 4.02% maturing in August 2016. These funds were also used to pay down the revolving credit facility.

Upon the sale of the 75% interest in the Ottawa property and the completion of the June offering, the revolving credit facility was amended. The maximum available was reduced from $68 million to $44 million and the maturity was extended to September 27, 2015. As of December 31, 2014, $36.2 million was drawn on the loan. The Trust's exposure to floating rate debt was 19.2% of total debt as at December 31, 2014.

As at December 31, 2014 the REIT's debt leverage ratio improved to 55.2% from 60.9% at December 31, 2013. The weighted average effective interest rate on the REIT's mortgage portfolio was 3.68% at December 31, 2014, consistent with the prior year end, with a weighted average term to maturity of 4.5 years. Debt service and interest coverage ratios for the year ended December 31, 2014, were 1.72 times and 2.63 times, respectively, compared to 1.93 times and 2.47 times at December 31, 2013.

SUBSEQUENT EVENTS
On January 7, 2015 the Trust completed a public offering of 5,130,000 units at a price of $5.85 per unit for total gross proceeds of approximately $30.0 million. The offering incurred issue costs of $1.5 million for net proceeds of $28.5 million. The offering proceeds were used to repay outstanding debt under the revolving credit facility and to fund acquisitions.

As of February 11, 2015, the Trust entered into a joint venture with Montreal's Groupe Montoni and acquired six light industrial properties in Montreal aggregating 326,409 square feet of GLA. The Trust acquired a 50% interest in the properties for approximately $39.2 million satisfied by the assumption of approximately $11.4 million in existing mortgages with a weighted average remaining term of 4.1 years bearing an average interest rate of 3.45% and the balance in cash.

On February 23, 2015, the Trust acquired four single-tenant light industrial properties in the Greater Toronto Area, aggregating 339,404 square feet of GLA for approximately $25.3 million. The properties are 100% occupied. The acquisition was satisfied by a new $15.2 million seven-year mortgage bearing an interest rate of 3.30% and the balance in cash. 

With the completion of the above acquisitions and equity offering, the REIT's property portfolio as at February 25, 2015, totals 44 properties aggregating approximately 4.4 million square feet of GLA with approximately 67.5% of the total portfolio located in the REIT's target GTA region. The REIT's leverage ratio stood at 55.4% as at February 25, 2015, 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 $110.5 million in new properties as of February 25, 2015.

INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II's management team on Thursday, February 26 at 10.00 am ET. The telephone numbers to participate in the conference call are North America Toll Free: (866) 696-5910 and Local Toronto / International: (416) 340-2217. 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 7453149#. 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



2014

2013


2014

2013








Portfolio Performance







Occupancy (%) (1) 


100.0%

98.9%


100.0%

98.9%

Revenue from income properties


$              7,532

$               7,570


$            28,740

$            22,047

Property operating expenses


2,073

2,240


7,526

5,555

Net operating income


5,459

5,330


21,214

16,492

Interest expense


1,767

1,857


7,160

5,280

Net income


3,158

3,300


11,476

10,282








Operating Performance







FFO


3,250

2,946


12,447

9,707

AFFO


3,004

2,677


11,032

8,875

Net income per unit - Basic and diluted(2)


0.135

0.182


0.542

0.629

FFO per Unit (2)


0.139

0.163


0.588

0.593

AFFO per Unit (2)


0.129

0.148


0.521

0.543

Distributions declared to Unitholders


2,945

2,220


10,604

7,376

Distributions per Unit declared to Unitholders


0.1260

0.1224


0.4992

0.4080

Distributions paid (3)


2,612

1,920


8,806

5,805

FFO payout ratio without DRIP benefit


90.6%

75.3%


84.9%

68.7%

FFO payout ratio with DRIP benefit (3)


80.4%

65.2%


70.7%

59.8%

AFFO payout ratio without DRIP benefit


98.0%

82.9%


95.8%

75.2%

AFFO payout ratio with DRIP benefit (3)


87.0%

71.7%


79.8%

65.4%

Weighted average Units outstanding(2)


23,368

18,126


21,164

16,356








Liquidity and Leverage







Total assets


341,646

310,413


341,646

310,413

Total debt (loans and borrowings)


188,677

189,045


188,677

189,045

Weighted average effective mortgage interest rate


3.68%

3.68%


3.68%

3.68%

Weighted average mortgage term (years)


4.45

4.95


4.45

4.95

Leverage ratio


55.2%

60.9%


55.2%

60.9%

Interest coverage (times) 


2.72

2.47


2.63

2.74

Debt service coverage (times) 


1.69

1.69


1.72

1.93








Other







Properties acquired


1

4


5

22

Non-core properties disposed


1

-


1

2

(1) Approximately 268,000 square feet of the 287,000 square feet has been leased to date.

(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 public offering.
An additional 4,968,000 Units were issued June 5, 2014 on completion of a public 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. On May 6, 2014, the Trust announced a cash distribution increase to $0.042 per Trust Unit.

Summit II's Audited Consolidated Financial Statements and MD&A for the year ended December 31, 2014 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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