TORONTO, Nov. 13, 2013 /CNW/ - Summit Industrial Income REIT ("Summit II" or the "REIT") (TSX: SMU.UN) announced today its operating and financial results for the three and nine months ended September 30, 2013.
|SUMMARY OF QUARTERLY RESULTS:|
|($,000 except per Unit amounts)||Sept 30, 2013||June 30, 2013||March 30, 2013||Dec. 31, 2012|
|Revenue from Income properties||6,139||5,655||2,683||1,670|
|Net Operating Income (NOI)||4,634||4,419||2,109||1,237|
|Funds from Operations (FFO)||2,866||2,715||1,229||778|
|FFO per Unit||$0.158||$0.151||$0.111||$0.113|
|Adjusted Funds from Operations (AFFO)||2,595||2,502||1,161||720|
|AFFO per Unit||$0.144||$0.139||$0.105||$0.104|
|Weighted Average Units Outstanding||18,083||18,029||11,094||6,893|
|FFO Payout Ratio (%)||77.2%||81.3%||-||-|
|AFFO Payout Ratio (%)||85.3%||88.2%||-||-|
|Total Debt to Gross Book Value (%)||60.3%||53.9%||54.6%||47.0%|
|Debt Service Coverage (times)||1.97||2.04||2.48||2.39|
|Interest Coverage (times)||2.87||2.90||2.98||2.40|
- Strong 85.3% AFFO payout ratio in Q3, 2013, 71.9% through first nine months of 2013
- Successful leasing activities renew majority of 2014 lease expiries and significant progress on leasing of head lease space
- Actual Q3 results continue on target with February 13, 2013 Short Form Prospectus forecast
- Acquisitions, high occupancies and strong leasing activity contribute to significant and accretive growth in FFO and AFFO per unit
- Acquired 21 light industrial properties and one office property year-to-date totaling 2.7 million sq. ft. of GLA for $223.8 million at strong average cap rate of 6.9%
- Attractive and accretive financing arranged for recent acquisitions at an average interest rate of 3.85%
- Total portfolio increases to 30 properties aggregating 3.3 million sq. ft. of GLA
- The Manager is fully aligned with Unitholders through its ownership interest
- Trust Units moved to the Toronto Stock Exchange effective November 11, 2013
"We continued to generate strong and accretive growth in the third quarter, the result of our significant portfolio growth over the last thirteen months, ongoing high occupancies and our successful and active leasing programs," stated Paul Dykeman, CEO. "Looking ahead, we see this progress continuing as our growth initiatives result in solid and accretive increases in our AFFO per unit."
"On the acquisition front, we are evaluating a number of property and portfolio opportunities in our targeted geographic regions, transactions that will further strengthen and diversify our property portfolio and accretively add to our long-term cash flows. The strong capitalization rates we are achieving on our property purchases is being matched by very attractive financings, and as we continue to extend the term to maturity of our mortgage portfolio and take advantage of the current low interest rate environment, we are further enhancing our overall risk profile," Mr. Dykeman added.
"We are also very pleased to have received approval to list our Trust Units on the Toronto Stock Exchange effective November 11, 2013, providing access to a wider and deeper community of investors and enhancing trading liquidity for all our Unitholders," Mr. Dykeman concluded.
STRONG PORTFOLIO GROWTH
Year-to-date the REIT has completed the acquisition of 18 light industrial properties well-located in Edmonton, the Greater Toronto Area, the Greater Montreal Region and New Brunswick aggregating approximately 2.4 million square feet of gross leaseable area (GLA) for a total purchase price of $208.5 million. The acquisitions were funded by cash raised in a successful offering of Trust Units completed on February 26, 2013 raising $75.1 million in gross proceeds, new mortgage financings totaling $93.9 million, and the assumption of existing mortgages of $18.4 million.
Subsequent to the end of the third quarter the REIT completed the financing for the purchase of three recently-acquired light industrial properties and one fully occupied office property totaling 227,471 square feet of GLA for a total purchase price of $15.3 million. The purchases were financed with $10.1 million in new five-year mortgages with a weighted average interest rate of 3.84%, and the balance in cash. The average capitalization rate on the acquired properties is 8.02% with a weighted average remaining lease term of 6.2 years.
With the completion of the above-mentioned acquisitions the REIT's total property portfolio consists of 30 properties totaling approximately 3.3 million square feet of GLA with occupancy of 98.9%.
STRONG FINANCIAL RESULTS
Operating revenues increased to $6.1 million for the three months ended September 30, 2013 compared to $5.7 million for the three months ended June 30, 2013 and $0.3 million in the prior year's third quarter. The REIT's revenue growth is due primarily to acquisitions completed over the last thirteen months, continuing strong occupancies and steady progress in leasing activities. For the nine months ended September 30, 2013 operating revenues were $14.5 million compared to $0.8 million in the same period last year.
Net Operating Income (NOI) rose to $4.6 million in the third quarter of 2013 compared to $4.4 million in the second quarter of the year and $0.3 million in the third quarter of 2012. For the first nine months of 2013 NOI was $11.2 million compared to $0.7 million last year.
Funds from Operations (FFO) for the three months ended September 30, 2013 were $2.9 million ($0.158 per Unit) compared to $2.7 million ($0.151 per Unit) for the second quarter ended June 30, 2013 and $33,000 ($0.035 per Unit) in the third quarter of 2012. The increase in 2013 is due to the contribution from acquisitions completed over the last thirteen months, improved occupancies and strong leasing activities. For the nine months ended September 30, 2013 FFO was $6.8 million ($0.432 per Unit) compared to $128,000 ($0.171 per Unit) in the same period last year.
Adjusted Funds from Operations (AFFO) in the third quarter of 2013 rose to $2.6 million ($0.144 per Unit) from $2.5 million ($0.139 per Unit) in the second quarter of the year and $33,000 ($0.035 per Unit) in the third quarter of 2012. For the nine months ended September 30, 2013 AFFO was $6.3 million ($0.397 per Unit) compared to $128,000 ($0.171 per Unit) in the same period last year. The REIT's AFFO payout ratio improved to 85.3% in the third quarter of 2013 from 88.2% in the second quarter of the year. For the nine months ended September 30, 2013 the AFFO payout ratio was a strong 71.9%. Including the benefit of the REIT's DRIP program, the effective payout ratio was a conservative 75.9% in the third quarter and 62.1% through the first nine months 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.
The REIT's growth has been highly accretive as, despite the 63.0% increase in the weighted average number of Units outstanding since the first quarter of 2013, FFO per Unit and AFFO per Unit have increased 42.3% and 37.1 %, respectively.
ACTIVE LEASING PROGRAM
During and subsequent to the third quarter of 2013 the REIT made significant progress in leasing approximately 287,000 square feet of space subject to leases with applicable property vendors (Head Leases) with terms ending December 2014 and September 2015. To date, leases have been secured for 103,529 square feet of Head Lease space with offers currently under negotiation with tenants who are in occupancy on a month-to-month basis for another 147,648 square feet. During the third quarter leases were renewed for approximately 146,192 of non-Head Lease space.
Overall, leases representing only 0.3% of the total property portfolio, or 8,000 square feet, renew in 2013 with 80,845 square feet, or 2.6% of the total portfolio expiring in 2014. The weighted average term to maturity for the lease portfolio is currently approximately 5.9 years.
SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $298.5 million as at September 30, 2013 compared to $81.6 million at December 31, 2012. Total debt increased to $179.9 million at September 30, 2013 from $38.3 million at December 31, 2013. The increases are due to the REIT's acquisitions and related mortgage and other financings to complete the purchases. At September 30, 2013 the REIT's debt leverage ratio was 60.3% compared to 47.0% at December 31, 2012. The weighted average interest rate on the REIT's mortgage portfolio improved to 3.68% from 4.02% at December 31, 2012, with a weighted average term to maturity of 5.2 years. Debt service and interest coverage ratios for the nine months ended September 30, 2013 improved to 2.06 times and 2.88 times, respectively, compared to 2.39 times and 2.40 times at December 31, 2012.
On August 15, 2013 the REIT increased its revolving credit facility to $68 million, of which $62.8 million was drawn as at September 30, 2013. If the REIT increased its borrowing to the 65% maximum allowed under its Declaration of Trust, it would have the capacity to purchase approximately $40 million in new properties as at September 30, 2013. It is the REIT's long-term objective to operate in the mid-50% range over the long-term.
ALIGNMENT OF INTEREST
Under the terms of the REIT's Management Agreement with Sigma Asset Management Limited (the Manager), the Manager can elect to take the fees payable to it in the form of Trust Units rather than in cash. In the first nine months of 2013 the Manager used its acquisition fee proceeds to acquire 240,444 Units from the February 26, 2013 offering of 11,120,000 Units, further aligning the interests of the Manager with all Unitholders. As well, certain members of the Manager acquired 239,235 Units during the February offering. In addition, through the nine months ended September 30, 2013 certain members of the Manager, Senior Executives and other insiders acquired an additional 255,600 Units on the TSX Venture Exchange. The Manager owns a 6.3% interest in the REIT, on an indirect basis. Certain senior executives and employees of the Manager own, directly or indirectly, a 4.8% interest in the REIT, for a total of 11.1%.
INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II's management team on Thursday, November 14, 2013 at 1.00 pm ET. The telephone numbers to participate in the conference call are North America Toll Free: (866) 226-1792 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 8411129#. 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)||Three months||Three months||Nine Months||Nine Months|
|(except where noted)||September 30, 2013||September 30, 2012||September 30, 2013||September 30, 2012|
|Net operating income (NOI)||4,634||311||11,162||743|
|Funds from operations (FFO)||2,866||33||6,810||128|
|FFO per Unit (basic)||$||0.158||$||0.035||$||0.432||$||0.171|
|Adjusted funds from operations (AFFO)||2,595||33||6,258||128|
|AFFO per Unit (basic)||$||0.144||$||0.035||$||0.397||$||0.171|
|Weighted average number of Units||18,083||940||15,759||750|
|Cash distributions declared||2,214||-||5,156||13,346|
|Cash distributions declared per Unit (basic)||$||0.1224||$||-||$||0.2856||$||1.70|
|Cash distributions paid (2)||1,969||-||3,885||13,346|
|Proceeds from Units issued under DRIP plan (2)||242||-||533||-|
|FFO payout ratio without DRIP benefit (2)||77.2%||N/A||66.1%||N/A|
|FFO payout ratio with DRIP benefit (2)||68.7%||N/A||57.0%||N/A|
|AFFO payout ratio without DRIP benefit (2)||85.3%||N/A||71.9%||N/A|
|AFFO payout ratio with DRIP benefit (2)||75.9%||N/A||62.1%||N/A|
|Liquidity and Leverage|
|Total debt to gross book value||60.3%||40.7%||60.3%||40.7%|
|Weighted average mortgage interest rate||3.68%||4.02%||3.68%||4.02%|
|Weighted average mortgage term (years)||5.2 years||2.9 years||5.2 years||2.9 years|
|Debt service coverage (times)||1.97 times||N/A||2.06 times||N/A|
|Interest coverage (times)||2.87 times||N/A||2.88 times||N/A|
|Properties acquired (3)||3||3||18||3|
|Non-core properties disposed||-||-||2||14|
|(1) Approximately 103,529 square feet (3% of total GLA) Head Lease space has been leased to date. Negotiations are under way for 147,648 square|
|feet (5% of total GLA) leaving 35,675 square feet (1% of total GLA) under head lease.|
|(2) 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.|
|(3) Property acquisitions in 2012 occurred on September 27, 2012.|
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