Summit Industrial Income REIT Announces Strong Growth in First Quarter 2017

Announces Increase to Monthly Cash Distributions

TORONTO, May 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 months ended March 31, 2017.

Recent Highlights:

  • Monthly cash distributions increased to $0.043 per unit, or $0.516 annualized, a 2.4% increase. 
  • Completed successful $46.0 million bought-deal equity offering on January 31, 2017.
  • Acquired six income-producing properties during the quarter, and one subsequent to the quarter, totalling 1,157,968 sq. ft. for a total purchase price of $98.6 million at average cap rate of 6.25%.
  • Completed new mortgage financing totalling $22.2 million for five year terms at an average interest rate of 2.9%.
  • 24.0% increase in revenues and 28.0% increase in FFO due to revenue growth and strong operating performance.
  • Occupancy remains strong at 99.7% with average lease term of 5.9 years and contractual rent steps of 1.6% per year.
  • Only 3.8% of the 2017 lease expiries remain as at March 31, 2017.
  • Filed final shelf prospectus to enhance flexibility and access to capital markets to fund further growth.
  • Manager and Insiders interest remains strongly aligned with Unitholders through 11.4% ownership of REIT Units outstanding.

"Following an active and successful year in 2016, our portfolio growth accelerated during and subsequent to the first quarter of 2017, augmented by strong operating performance and our proactive leasing activities," commented Paul Dykeman, Chief Executive Officer. "Looking ahead, we expect a record year in 2017 as the significant increase in the size and scale of our property portfolio so far this year contributes to our revenue and FFO growth going forward. In addition, we continue to evaluate a number of additional accretive acquisition opportunities that we believe will further strengthen and diversify our asset base over the coming months."

"We were also pleased to announce a 2.4% increase in cash distributions to Unitholders, a reflection of our solid performance and our confidence in the future," Mr. Dykeman concluded.

STRONG OPERATING AND FINANCIAL RESULTS
Operating revenues increased to $13.0 million for the three months ended March 31, 2017 from $10.2 million in the same period last year due primarily to the REIT's portfolio growth over the last twelve months and successful leasing activities. Occupancy remained essentially full at 99.7% as at March 31, 2017. Net Operating Income (NOI) rose to $8.5 million in the first quarter of 2017 compared to $6.9 million in the same prior year period.

Funds from Operations (FFO) for the three months ended March 31, 2017 were $5.5 million ($0.138 per Unit) up from $4.3 million ($0.149 per Unit) in the same quarter of 2016. The REIT's FFO payout ratio was 91.1% (76.9% including benefit of DRIP) in the first quarter of 2017 compared to 84.4% (71.1% including benefit of DRIP) in the same period in the prior year. The REIT's per Unit amounts and FFO payout ratio in the first quarter of 2017 were temporarily impacted by approximately $0.015 per Unit (approximately 9% of the payout ratio) 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.

ACTIVE LEASING PROGRAM
The portfolio occupancy at March 31, 2017 was essentially full at 99.7%. The weighted average lease term for the portfolio was approximately 5.9 years at March 31, 2017 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 $0.2 million in the period compared to $1.5 million in the first quarter of 2016. During the first quarter of 2017; 32,000 square feet of lease renewals were completed, as well as 10,463 square feet of new leases for a total of 42,463 square feet compared to 449,730 square feet in the first quarter of 2016. The REIT only has 3.8% of the 2017 lease expiries remaining as at March 31, 2017.

STRONG PORTFOLIO GROWTH
During and subsequent to the first quarter of 2017, the REIT acquired seven light industrial properties in its targeted Greater Toronto Area, Quebec and Calgary markets totaling 1.2 million square feet of gross leasable area for a total cost of $98.6 million at an average capitalization rate of 6.25%. With these acquisitions, the REIT's total portfolio as at May 9, 2017 has grown to 60 income producing properties totaling 6.4 million square feet of gross leasable area with net book value of approximately $600.0 million.

SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $591.0 million at March 31, 2017, up from $500.8 million at December 31, 2016 due to the acquisitions of interests in six income producing properties during the first quarter of 2017.

Total debt was $314.2 million at March 31, 2017 compared to $270.6 million at December 31, 2016. On January 17, 2017, $1.4 million in variable rate mortgage debt maturing August 1, 2017, was paid utilizing funds from the revolving operating facility. In conjunction with the acquisition of the Calgary property, the Trust obtained $11.4 million in mortgage financing, at an interest rate of 2.97% and a term to maturity of five years. On acquisition of the Etobicoke properties, the Trust assumed $14.0 million mortgage bearing a fixed interest rate of 3.51% and a term to maturity of five years.  On acquisition of the Lachine properties, a new five year $10.8 million mortgage with a fixed interest rate of 2.82% was obtained. The balance of these transactions as well as the acquisition of the Oakville property was satisfied with funds from the January 2017 offering and the revolving operating facility.

As of March 31, 2017, $44.0 million was drawn on the revolving operating facility. As noted below, on April 7, 2017 the revolving operating facility was increased to $64.0 million.

As of March 31, 2017 the REIT's debt leverage ratio was 53.2% compared to 54.0% at December 31, 2016. The weighted average effective interest rate on the REIT's mortgage portfolio was 3.38% at March 31, 2017, down from 3.43% at the prior year end, with a weighted average term to maturity of 4.4 years, consistent with the prior year end. Debt service and interest coverage ratios were 1.83 times and 3.16 times, respectively, consistent with December 31, 2016.

SUBSEQUENT EVENTS
On April 7, 2017, the Trust acquired a light industrial property in Sherbrooke, Quebec aggregating 138,308 square feet of GLA for $14.8 million. The purchase price was satisfied utilizing funds from the amended and increased revolving operating facility as noted below.

On April 7, 2017, the Trust added the Oakville and Sherbrooke properties acquired in the first quarter of 2017 as security to the revolving operating facility and increased the amount available from $44.0 million to $64.0 million.

On April 27, 2017 the REIT filed and obtained a receipt for a final base shelf prospectus. The prospectus is valid for twenty-five months during which time the REIT may issue units, debt securities and/or subscription receipts having an aggregate offering price up to $400 million. The prospectus provides the REIT with flexibility and efficient access to capital markets.

In May, the Trust paid $2.7 million in maturing mortgage debt which was at an interest rate of 3.70% and refinanced the property with a new lender for a $3.5 million mortgage with a 5-year term and an interest rate of 2.91%.

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 will apply to unitholders of record on May 31, 2017.

INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II's management team on Wednesday, May 10, 2017 at 8:30 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 3166299#. A webcast of the call will also be archived on the REIT's web site at www.summitIIreit.com.

2016 ANNUAL UNITHOLDERS' MEETING
Summit II's 2016 Annual Meeting of Unitholders will be held on Wednesday, May 10, 2017 at 10:30 am in 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, 2017

December 31, 2016

March 31, 2016





Portfolio Performance




Occupancy (%) 

99.7%

98.9%

99.8%

Revenue from income properties

$

12,971

$

12,766

$

10,164

Property operating expenses

4,466

4,429

3,306

Net operating income

8,505

8,337

6,858

Interest expense

2,402

2,382

2,090

Net income

6,187

9,830

4,285





Operating Performance




FFO per Unit (1)

0.138

0.157

0.149

Regular Distributions per Unit declared to Unitholders

0.126

0.126

0.126

Regular FFO payout ratio without DRIP benefit

91.1%

80.0%

84.4%

Regular FFO payout ratio with DRIP benefit 

76.9%

67.5%

71.1%





Total Distributions per Unit declared to Unitholders

0.126

0.126

0.126





Weighted average Units outstanding(1)

40,003

34,934

28,961





Liquidity and Leverage




Total assets

590,990

500,807

423,507

Total debt (loans and borrowings)

314,233

270,635

234,504

Weighted average effective mortgage interest rate

3.38%

3.43%

3.47%

Weighted average mortgage term (years)

4.38

4.51

4.45

Leverage ratio

53.2%

54.0%

55.4%

Interest coverage (times) 

3.16

3.16

2.89

Debt service coverage (times) 

1.83

1.83

1.73





Other




Properties acquired

6

-

4

Non-core properties disposed

-

-

-





(1) On January 31, 2017, approximately 7,423,250 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 months ended March 31, 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

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

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www.summitiireit.com

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