Summit Industrial Income REIT Announces Strong Growth in 2013

TORONTO, Feb. 26, 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 and year ended December 31, 2013.

SUMMARY OF QUARTERLY RESULTS:

Three Months Ended ($,000 except per Unit amounts)	Dec 31, 2013	Sept 30, 2013	Jun 30, 2013	Mar 30, 2013	Dec. 31, 2012
Revenue from Income properties	7,570	6,139	5,655	2,683	1,670
Net Operating Income (NOI)	5,330	4,634	4,419	2,109	1,237
Funds from Operations (FFO)	2,934	2,866	2,715	1,229	778
FFO per Unit ^(1)	$0.162	$0.158	$0.151	$0.111	$0.113
Adjusted Funds from Operations (AFFO)	2,677	2,595	2,502	1,161	720
AFFO per Unit^(1)	$0.148	$0.144	$0.139	$0.105	$0.104
Weighted Average Units Outstanding	18,126	18,083	18,029	11,094	6,893
FFO Payout Ratio (%)	75.6%	77.2%	81.3%	-	-
AFFO Payout Ratio (%)	82.9%	85.3%	88.2%	-	-
As at	Dec 31, 2013	Sept 30, 2013	Jun 30, 2013	Mar 30, 2013	Dec. 31, 2012
Total Debt to Gross Book Value (%)	60.9%	60.3%	53.9%	54.6%	47.0%
Debt Service Coverage (times)	1.93	2.06	2.14	2.48	2.39
Interest Coverage (times)	2.74	2.88	2.89	2.98	2.40
^(1) Includes additional one-time, non-recurring general and administrative costs of $197,000 or $0.011 FFO per unit and AFFO per unit, in the fourth quarter relating to the REIT's move from the TSXV to the TSX on November 11, 2013.

HIGHLIGHTS:

• Acquired 22 properties in 2013 totaling 2.7 million sq. ft. of GLA for $223.8 million at strong 6.87% average cap rate
• Total portfolio increases to 30 properties at year-end aggregating 3.3 million sq. ft. of GLA
• Solid quarter-over-quarter growth in 2013 due to acquisitions, strong property performance
• Q4 2013 operating results exceed February prospectus forecast
• 82.9% AFFO payout ratio in Q4 2013, 74.7% for year ended December 31, 2013
• Renewed 123,252 square feet of the 168,255 square feet set to expire in 2014
• Leased 185,604 square feet of 287,000 square feet of head lease space with a further 77,243 square feet under negotiation at year-end
• Attractive and accretive financing arranged for 2013 acquisitions at an average effective interest rate of 3.68%
• Trust Units listed on Toronto Stock Exchange effective November 11, 2013

"We are very pleased with our performance through the first full year we have managed Summit II's assets and business," stated Paul Dykeman, CEO. "We significantly expanded and diversified our property portfolio with very accretive financing, we generated strong quarter-over-quarter gains in all our performance benchmarks, and we have built a solid business and operating foundation on which further growth can be attained with little additional cost."

"Most importantly, with nearly full occupancies, the majority of our 2014 lease renewals completed, and a well-balanced mortgage portfolio incurring historically low interest rates, we believe our monthly cash distributions are stable, secure and predictable," Mr. Dykeman added.

STRONG PORTFOLIO GROWTH
The REIT completed the acquisition of 22 properties in 2013 well-located in Edmonton Alberta, the Greater Toronto Area, the Greater Montreal Region and Moncton New Brunswick aggregating approximately 2.7 million square feet of gross leaseable area (GLA) for a total purchase price of $223.8 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 $104.0 million, and the assumption of existing mortgages of $18.4 million. The average capitalization rate on the properties acquired in 2013 was 6.87% with a weighted average remaining lease term of 6.0 years.

With the completion of these acquisitions the REIT's total property portfolio at December 31, 2013 consisted of 30 properties totaling approximately 3.3 million square feet of GLA with occupancy of 98.9%.

STRONG FINANCIAL RESULTS
Operating revenues increased to $7.6 million for the three months ended December 31, 2013 compared to $6.1 million for the three months ended September 30, 2013 and $1.7 million in the prior year's fourth quarter. The REIT's revenue growth is due primarily to acquisitions completed in 2013, continuing strong occupancies and steady progress in leasing activities. For the year ended December 31, 2013 operating revenues were $22.0 million compared to $2.5 million last year.

Net Operating Income (NOI) rose to $5.3 million in the fourth quarter of 2013 compared to $4.6 million in the third quarter of the year and $1.2 million in the fourth quarter of 2012. For the year ended December 31, 2013 NOI was $16.5 million compared to $2.0 million last year.

Funds from Operations (FFO) for the three months ended December 31, 2013 were $2.9 million ($0.162 per Unit) compared to $2.9 million ($0.158 per Unit) for the third quarter ended September 30, 2013 and $0.8 million ($0.113 per Unit) in the fourth quarter of 2012. The increase in 2013 is due to the contribution from acquisitions, improved occupancies and strong leasing activities, partially offset by additional one-time, non-recurring general and administrative costs of $0.2 million ($0.01 FFO per unit) in the fourth quarter relating to the REIT's move from the TSXV to the TSX on November 11, 2013. For the year ended December 31, 2013 FFO was $9.7 million ($0.596 per Unit) compared to $0.9 million ($0.395 per Unit) last year.

Adjusted Funds from Operations (AFFO) in the fourth quarter of 2013 were $2.7 million ($0.148 per Unit) compared to $2.6 million ($0.144 per Unit) in the second quarter of the year and $0.7 million ($0.104 per Unit) in the fourth quarter of 2012. For the year ended December 31, 2013 AFFO was $8.9 million ($0.546 per Unit) compared to $0.9 million ($0.395 per Unit) last year. The REIT's AFFO payout ratio was 82.9% in the fourth quarter of 2013 compared to 85.3% in the third quarter of the year. For the year ended December 31, 2013 the AFFO payout ratio was a strong 74.7%. Including the benefit of the REIT's DRIP program, the effective payout ratio was a conservative 65.0% in 2013. For the fourth quarter of 2013 the AFFO and effective AFFO payout ratios were 82.9% and 71.7%, respectively. The REIT established its monthly distribution policy of $0.0408 per Unit, or $0.4896 on an annual basis, on March 15, 2013.

ACTIVE LEASING PROGRAM
During 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 2016 and September 2015. To date, leases have been secured for 185,604 square feet of Head Lease space with offers currently under negotiation for another 77,243 square feet with tenants currently in month-to-month occupancy.

Overall, leases representing only 1.6% of the total property portfolio, or 53,003 square feet, renew in 2014. The weighted average term to maturity for the lease portfolio is currently approximately 6.0 years.

SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $310.4 million as at December 31, 2013 compared to $81.6 million at December 31, 2012. Total debt increased to $189.0 million at December 31, 2013 from $38.3 million at December 31, 2012. The increases are due to the REIT's acquisitions and related mortgage and other financings to complete the purchases. At December 31, 2013 the REIT's debt leverage ratio was 60.9% compared to 47.0% at December 31, 2012. The weighted average effective interest rate on the REIT's mortgage portfolio improved to 3.68% from 4.70% at December 31, 2012, with a weighted average term to maturity of 5.0 years. Debt service and interest coverage ratios for the year ended December 31, 2013 were 1.93 times and 2.74 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 December 31, 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 $37 million in new properties as at December 31, 2013.

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 quarter 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 and other insiders acquired 254,071 Units during the February offering. In addition, through the year ended December 31, 2013 certain members of the Manager, Senior Executives and other insiders acquired an additional 520,504 Units. 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 4.0% interest in the REIT and other insiders own, directly or indirectly, a 1.8% interest in the REIT, for a total of 12.1%.

INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II's management team on Thursday, February 27, 2014 at 10.00 am ET. The telephone numbers to participate in the conference call are North America Toll Free: [phone] and Local Toronto / International: [phone]. 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 [phone] or Local Toronto / International [phone]. The Passcode for the Instant Replay is 7346024#. 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
		2013		2012					2013		2012
Portfolio Performance
Occupancy (%) ^(1)		98.9%		97.0%					98.9%		97.0%
Revenue from income properties	$	7,570	$	1,670				$	22,047	$	2,497
Property operating expenses		2,240		433					5,555		517
Net operating income		5,330		1,237					16,492		1,980
Interest expense		1,857		359					5,280		705
Net income		3,300		7,704					10,282		8,567
Operating Performance
FFO		2,934		778					9,744		906
AFFO		2,677		720					8,935		906
Net income per unit - Basic and diluted^(2)		0.182		1.118					0.629		0.311
FFO per unit ^(2)(3)		0.162		0.113					0.596		0.395
AFFO per unit^(2)(3)		0.148		0.104					0.546		0.395
Distributions declared to Unitholders		2,220		-					7,376		13,347
Distributions per unit declared to Unitholders		0.1224		-					0.4080		1.700
Distributions paid ^(4)		1,920		-					5,805		13,347
FFO payout ratio without DRIP benefit ^(4)		75.6%		N/A					68.5%		N/A
FFO payout ratio with DRIP benefit ^(4)		65.4%		N/A					59.6%		N/A
AFFO payout ratio without DRIP benefit ^(4)		82.9%		N/A					74.7%		N/A
AFFO payout ratio with DRIP benefit ^(4)		71.7%		N/A					65.0%		N/A
Weighted average units outstanding^(2)		18,126		6,893					16,356		2,294
Liquidity and Leverage
Total assets		310,413		81,571					310,413		81,571
Total debt (loans and borrowings and preferred units payable)		189,045		38,299					189,045		38,299
Weighted average effective mortgage interest rate		3.68%		3.89%					3.68%		3.89%
Weighted average mortgage term (years)		4.95		4.70					4.95		4.70
Leverage ratio		60.9%		47.0%					60.9%		47.0%
Interest coverage (times) ^(5)		2.47		2.40					2.74		2.40
Debt service coverage (times) ^(5)		1.69		2.39					1.93		2.39
Other
Properties acquired		4		2					22		5
Non-core properties disposed		-		1					2		15

⁽¹⁾ Approximately 185,604 square feet (5.5% of total GLA) Head Lease space has been leased to date. Negotiations are under way for
77,243 square feet (2.3% of total GLA) leaving 24,153 square feet (0.7% 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⁾ Includes additional one-time, non-recurring general and administrative costs of $197,000, or $0.011 FFO per unit and AFFO per unit, in the fourth quarter
relating to the REIT's move from the TSXV to the TSX on November 11, 2013.

⁽⁴⁾ 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. 

⁽⁵⁾ The 2012 ratio has been calculated based on Q4 2012 results, which aligns the issuance of debt with the new acquisitions in 2012.

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

Paul Dykeman, CEO at [phone]
[email protected]