Summit Industrial Income REIT Reports Record Growth and Operating Performance in 2019
Summit Industrial Income REIT Reports Record Growth and Operating Performance in 2019
Canada NewsWire
TORONTO, Feb. 19, 2020
TORONTO, Feb. 19, 2020 /CNW/ - Summit Industrial Income REIT ("Summit II" or the "REIT") (TSX: SMU.UN) announced today record operating and financial performance for the three months and year ended December 31, 2019.
2019 Highlights:
- Revenues up 54.3% on portfolio growth, high stable occupancies and rent increases.
- Occupancy strong at 98.5% with average lease term of 5.3 years and 1.6% annual contractual rent steps.
- Net rental income up 59.0% on revenue increase, organic growth and strong operating performance.
- Fair value gain in the property portfolio of $188.2 million or $1.63 per Unit.
- Same property NOI1 up 6.0% with Toronto, Montreal and Alberta contributing 6.4%, 2.8% and 15.6%, respectively.
- Funds from operations ("FFO")1 increased 54.1% to $67.2 million ($0.582 per Unit).
- Growth accretive as FFO per Unit1 up 3.9% despite 48.4% increase in Units outstanding.
- Monthly cash distributions increased 4.7% in May to $0.045 per Unit or $0.54 annualized.
- Sold interest in data centre property for $107.5 million and realized gain of $41.5 million ($0.35 per Unit).
- Paid special distribution of $0.070 per Unit on realized gain on October 2, 2019.
- Completed internalization of property and asset management functions to eliminate fees, reduce costs and enhance ability to make more accretive acquisitions.
- Completed two bought-deal equity offerings raising $379.6 million.
- Established new $382.2 million bridge credit facility to acquire Alberta portfolio.
- Completed $219.8 million in new and assumed mortgage financing at 3.74% average interest rate with 9.0 year term to maturity.
- Acquired 42 light industrial properties totaling 4.2 million sq. ft. for $709.2 million at an overall cap rate of 5.5%.
- Acquired 50% interest in 49 acres of development land in a Guelph industrial park for $20.6 million to develop an estimated 774,000 sq. ft. of new Class A space.
- Completed 1.5 million sq. ft. of 2019 renewals with a strong 98.2% retention rate.
- 2019 leasing activities generated 12.0% increase in rents (16.0% in GTA).
- Completed 1.1 million sq. ft. of 2020 renewals generating a 17.1% increase in rents (24.2% in the GTA). Only 6% of the total portfolio remains to be renewed in 2020.
- Insider ownership fully aligned with 10% interest in REIT Units outstanding.
Subsequent Events:
- Acquired a light industrial property in Markham, Ontario totaling 184,561 square feet of GLA for approximately $39.8 million at a 4.2% cap rate.
- Acquired a light industrial property in Oakville, Ontario totaling 51,490 square feet of GLA for approximately $13.3 million at a 4.7% cap rate.
- Waived conditions to acquire a six-building GTA industrial park in Markham, Ontario totaling 228,719 square feet of GLA for approximately $45.2 million at a cap rate of 4.3%.
"Our significant portfolio growth and strong operating performance in 2019 led to another record year for Summit. We expanded our presence and increased our size and scale in our key target markets. We accelerated our new property development and expansion activities, projects that will generate strong accretive returns. Importantly, we maintained a highly conservative financial position, providing us with the resources and flexibility to continue our track record of accretive growth," commented Paul Dykeman, Chief Executive Officer. "With our strong growth and portfolio diversification over the last few years, we are now focused on expanding our presence primarily in the Greater Toronto Area, Canada's strongest and most vibrant industrial property market."
PORTFOLIO GROWTH AND STRONG OPERATING PEFORMANCE GENERATE RECORD RESULTS
Revenue from income producing properties for the three months and year ended December 31, 2019 rose 53.9% and 54.3% to $41.2 million and $142.2 million, respectively, compared to the same periods in 2018. The increases are due primarily to acquisitions completed in 2019, continuing strong occupancies and increased rents.
Net rental income for the three months and year ended December 31, 2019 increased 58.9% and 59.0% to $29.7 million and $103.1 million, respectively, compared to the same periods in 2018. The growth in net rental income is due to the strong increase in same property NOI1, higher overall rental rates on leasing activities, contractual steps in rent, and accretive acquisitions completed in 2019.
For properties acquired prior to January 1, 2018 and owned during both years, same property NOI1 rose 6.9% and 6.0% for the three months and year ended December 31, 2019, respectively, compared to the same prior year periods. For the REIT's target GTA, Montreal and Alberta portfolios, same property NOI1 in 2019 rose 6.4%, 2.8% and 15.6%, respectively, compared to last year. Same property NOI1 represented approximately 52.9% of total NOI1 and 47.6% of total GLA for the year ended December 31, 2019.
For the three months and year ended December 31, 2019, FFO1 was $19.3 million ($0.144 per Unit) and $67.2 million ($0.582 per Unit), respectively, compared to $12.6 million ($0.141 per Unit) and $43.6 million ($0.560 per Unit), respectively, in the same prior year periods. The increase in FFO1 is due primarily to acquisitions completed in 2019, partially offset by the sale of a 75% interest in four properties in May 2018 and the sale of the REIT's 50% interest in a data centre property in September 2019.
The REIT's FFO payout ratio1 for 2019 was 91.5% (80.1% including the benefit of the REIT's DRIP program) compared to 92.1% (79.1% including the benefit of the REIT's DRIP program) in 2018. The FFO payout ratio was impacted by equity offerings completed over the prior twelve months and the timing of fully investing the resulting funds. Including the net realized gain and total distributions on the sale of the REIT's 50% interest in a data centre property in September 2019, and the resulting special distribution, the REIT's payout ratio was 64.0% for the year ended December 31, 2019.
PROACTIVE LEASING PROGRAM TO DRIVE STRONG GROWTH
Occupancy in the industrial portfolio was 98.5% at December 31, 2019 with a weighted average lease term of approximately 5.3 years. The REIT continues to be proactive in addressing lease expiries well in advance of the expiry date.
The REIT completed 1.5 million square feet of lease renewals in 2019 with a very strong retention rate of 98.2%. Overall, the 2019 renewals generated an average 12.0% increase in monthly rents from the expiring rent with a significant 16.0% increase over expiring rents in the REIT's GTA target market. During 2019, the REIT also completed renewals of 1.1 million square feet expiring in 2020. The 2020 renewals generated an average 17.1% increase in monthly rents from the expiring rent with a significant 24.2% increase over expiring rents in the GTA market. In addition, the REIT completed early renewals of 336,134 square feet that were set to expire in 2021 and 2022. As at December 31, 2019 only 6.0% of the portfolio remains to be renewed in 2020.
SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $2.6 billion at December 31, 2019, up from $1.8 billion as at December 31, 2018. Total debt was $1.1 billion at December 31, 2019 compared to $834.2 million at December 31, 2018. Financing activities in 2019 included locking in longer-term mortgages which added a full year of average term to maturity which is now 5.8 years compared to 4.8 years at the prior year end.
Proceeds from the $91.0 million and $62.0 million in mortgage financings completed during March 2019 were used to repay the temporary non-revolving credit facilities put in place to acquire properties in December 2018. During the second quarter of 2019, the revolving operating facility was increased to $150.0 million, subject to requisite borrowing base security. As at December 31, 2019, there was registered security in place to draw up to $124.9 million. Proceeds from the June 2019 offering were used to repay $119.5 million on the revolving operating facility. As at December 31, 2019, there was $5.0 million (December 31, 2018 - $63.6 million) of an available $126.5 million (December 31, 2018 - $71.5 million) drawn from the revolving operating facility. In addition, in November 2019, the Trust established a new $382.2 million bridge credit facility, all of which was drawn at December 31, 2019. As at December 31, 2019, the Trust's exposure to floating rate debt is approximately 36.0% of total debt (December 31, 2018 - 33.5%).
As at December 31, 2019 the REIT's debt leverage ratio was 43.2% compared to 47.0% at the end of 2018. Acquisition capacity to bring leverage to the target 50% was approximately $350.0 million as at December 31, 2019. The weighted average effective interest rate on the REIT's mortgage portfolio was 3.68% at December 31, 2019 compared to 3.72% at December 31, 2018. Debt service and interest coverage ratios1 were 1.80 times and 2.83 times, respectively, compared to 1.79 times and 2.96 times respectively, at December 31, 2018.
PROPERTY DEVELOPMENTS & EXPANSIONS
In late 2019, the REIT completed the expansion of a property in Kitchener, Ontario based on tenant demand, adding 64,860 square feet for a cost of $6.6 million and an 8% return on cost.
In mid 2020, the REIT intends to begin development of two new buildings on land it owns in Mississauga and Burlington, Ontario which, combined, will add 232,500 square feet to the portfolio. Completion is expected by early 2021.
In September 2019, the REIT acquired a 50% interest in 49 acres of development land in a new industrial park in Guelph, Ontario. Two buildings are currently under construction, which will add 386,929 square feet of GLA to the portfolio. Approximately 132,000 square feet of this new space has been pre-leased to two tenants with an average lease term of 7.5 years. The park can accommodate another 386,887 square feet of GLA in additional new developments. The REIT has the option to acquire 100% of all these new buildings once completed and leased.
DISTRIBUTION INCREASE
On May 7, 2019, the REIT announced a 4.7% increase in monthly cash distributions to $0.045 per Unit ($0.54 per Unit annualized).
SPECIAL DISTRIBUTION
As a result of the net realized gain of $41.5 million or $0.35 per Unit created on the sale of the Trust's 50% interest in a data centre property in September 2019, the Trustees approved a special distribution of $0.070 per Unit payable to shareholders of record on September 19, 2019, which was paid on October 2, 2019. The total amount of this special distribution was $8.4 million or $7.8 million net of DRIP participation.
SUBSEQUENT EVENTS
On January 14, 2020, the Trust acquired a light industrial property in Markham, Ontario, aggregating 184,561 square feet of GLA for $39.8 million. The acquisition was satisfied with proceeds from the revolving operating facility.
On January 27, 2020, the Trust acquired a light industrial property in Oakville, Ontario, aggregating 51,490 square feet of GLA for $13.3 million. The acquisition was satisfied with proceeds from the revolving operating facility.
On January 29, 2020, the Trust announced that it had waived conditions to acquire six light industrial properties in Markham, Ontario, aggregating 228,719 square feet of GLA for $45.2 million. The acquisition will be satisfied with proceeds from the revolving operating facility and will close before the end of February.
In January 2020, the Trust added additional security to the revolving operating facility, increasing the amount available to be drawn to $149.0 million.
INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II's management team on Thursday, February 20, 2020 at 8.30 am EST. The telephone numbers to participate in the conference call are North America Toll Free: (800) 273-9672 and Local Toronto / International: (416) 340-2216.
A slide presentation to accompany management's comments during the conference call will be available prior to the conference call. To view the slides, access the Summit II website at www.summitIIreit.com, click on "Investor Information" and follow the link on the page. The live 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 2611378#. The Instant Replay will be available until midnight, March 21, 2020. A webcast of the call will also be archived on the REIT's web site at www.summitIIreit.com.
FOOTNOTE
1 Non-GAAP measure. Refer to the "Non-GAAP Measures" section of this document, and "Section II – Key Performance Indicators – Financial Indicators" in the Management's Discussion and Analysis ("MD&A") for the three months and year ended December 31, 2019 for further information on non-GAAP measures (including definitions and reconciliations of the non-GAAP measures). |
FINANCIAL AND OPERATING HIGHLIGHTS
(in thousands of Canadian dollars) | Three months ended December 31 | Year ended December 31 | ||||||||||||
(except per Unit amounts) | 2019 (10) | 2018 | 2019 (10) | 2018 | 2017 | |||||||||
Portfolio Performance | ||||||||||||||
Industrial occupancy (%) (9) | 98.5% | 99.4% | 98.5% | 99.4% | 98.4% | |||||||||
Revenue from income properties | $ | 41,229 | $ | 26,790 | $ | 142,193 | $ | 92,150 | $ | 58,573 | ||||
Property operating expenses | 11,508 | 8,087 | 39,118 | 27,310 | 17,996 | |||||||||
Net rental income | 29,721 | 18,703 | 103,075 | 64,840 | 40,577 | |||||||||
Interest expense (finance costs) | 9,883 | 7,043 | 36,068 | 22,491 | 11,413 | |||||||||
Net income (2) | 66,338 | 59,320 | 147,586 | 180,407 | 62,900 | |||||||||
Operating Performance | ||||||||||||||
FFO (1) | 19,330 | 12,576 | 67,156 | 43,591 | 26,960 | |||||||||
Net income per unit - basic (5) | 0.493 | 0.667 | 1.278 | 2.319 | 1.317 | |||||||||
FFO per Unit (1)(3)(4)(5) | 0.144 | 0.141 | 0.582 | 0.560 | 0.564 | |||||||||
Regular Distributions per Unit declared to Unitholders (5) | 0.135 | 0.129 | 0.532 | 0.516 | 0.512 | |||||||||
Special Distributions per Unit declared to Unitholders (6) | - | - | 0.070 | 0.018 | - | |||||||||
Regular FFO payout ratio without DRIP benefit (1) | 93.9% | 91.3% | 91.5% | 92.1% | 90.7% | |||||||||
Regular FFO payout ratio with DRIP benefit (1) | 79.9% | 77.2% | 80.1% | 79.1% | 76.0% | |||||||||
FFO including net realized gains (1)(7) | 19,330 | 12,576 | 108,634 | 50,791 | 26,960 | |||||||||
FFO per Unit including net realized gain (1)(7) | 0.144 | 0.141 | 0.941 | 0.653 | 0.564 | |||||||||
Total Distributions per Unit declared to Unitholders (5) | 0.135 | 0.129 | 0.602 | 0.534 | 0.512 | |||||||||
FFO including net realized gain payout ratio without DRIP benefit (1)(7) | 93.9% | 91.3% | 64.0% | 81.8% | 90.7% | |||||||||
FFO including net realized gain payout ratio with DRIP benefit (1)(7) | 79.9% | 77.2% | 56.7% | 70.0% | 76.0% | |||||||||
Weighted average Units outstanding(3)(4)(5) | 134,502 | 88,959 | 115,465 | 77,803 | 47,767 | |||||||||
Liquidity and Leverage | ||||||||||||||
Total assets | 2,608,679 | 1,774,604 | 2,608,679 | 1,774,604 | 1,003,239 | |||||||||
Total debt (loans and borrowings and lease liability) | 1,127,919 | 834,176 | 1,127,919 | 834,176 | 515,018 | |||||||||
Weighted average effective mortgage interest rate | 3.68% | 3.72% | 3.68% | 3.72% | 3.50% | |||||||||
Weighted average mortgage term (years) | 5.77 | 4.80 | 5.77 | 4.80 | 3.97 | |||||||||
Leverage ratio (1) | 43.2% | 47.0% | 43.2% | 47.0% | 51.3% | |||||||||
Interest coverage (times) (1) | 2.89 | 2.86 | 2.83 | 2.96 | 3.24 | |||||||||
Debt service coverage (times) (1) | 1.90 | 1.77 | 1.80 | 1.79 | 1.89 | |||||||||
Debt-to-adjusted EBIDTA (times) (1) | 9.75 | 11.21 | 11.04 | 13.24 | 13.89 | |||||||||
Other | ||||||||||||||
Properties acquired | 39 | 16 | 42 | 24 | 31 | |||||||||
Non-core properties disposed(8) | - | - | 1 | 4 | - | |||||||||
Number of properties(9) | 146 | 108 | 146 | 108 | 84 | |||||||||
Total GLA (in thousands of square feet)(9) | 17,492 | 13,395 | 17,492 | 13,395 | 8,877 | |||||||||
(1) Non-GAAP measure. Refer to "Section II - Key Performance Indicators - Financial Indicators" of the MD&A for further information (including definitions and measures). | |
(2) Includes non-recurring costs associated with the property and asset management internalization costs of $96.6 million. | |
(3) On May 17, 2019, 6,666,666 Units were issued on completion of the internalization of management. On June 12, 2019, 11,960,000 Units were issued on completion of a public offering. On October 17, 2019, 17,836,500 Units were issued on completion of a public offering. On June 15, 2018, 13,299,750 Units were issued on completion of a public offering. On December 10, 2018, 15,055,000 Units were issued on completion of a public offering. | |
(4) On June 18, 2018, 3,292,091 Class B exchangeable Units were issued toward funding a property acquisition. On August 15, 2018, 1,005,780 Class B exchangeable units were issued toward funding a property acquisition. On April 12, 2019, 3,292,091 Class B exchangeable units were exchanged into REIT Units. On October 28, 2019, 357,408 Class B exchangeable units were exchanged into REIT Units. | |
(5) Includes REIT Units and Class B exchangeable units (collectively, the "Units"). | |
(6) On the sale of a 50% interest in the data centre property and repayment of mezzanine loans, the Trustees approved a special distribution of $0.070 per Unit payable to shareholders of record on September 19, 2019, which was paid October 2, 2019. On the sale of a 75% interest in four properties, the Trustees approved a special distribution of $0.018 per Unit payable to shareholders of record on May 16, 2018, which was paid May 31, 2018. | |
(7) The realized gain on sale of investment property is calculated as net proceeds on sale less the actual costs incurred to initially acquire the property and the capital and leasing cost incurred since ownership. | |
(8) Non-core properties disposed in 2018 represents the disposal of a 75% interest in four properties, as disclosed in the "Dispositions" section of the MD&A. | |
(9) Excludes three non-core properties held for sale at December 31, 2019, as disclosed in the "Investment Properties Held for Sale" section of the MD&A. | |
(10) Financial metrics include the three non-core properties held for sale at December 31, 2019, as disclosed in the "Investment Properties Held for Sale" section of the MD&A. |
Summit II's Consolidated Financial Statements and MD&A for the three months and year ended December 31, 2019 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 and other 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.
Non-GAAP Measures
The REIT prepares and releases consolidated financial statements prepared in accordance with IFRS (GAAP). In this release, the REIT discloses and discusses certain non-GAAP financial measures, including FFO, FFO per Unit, FFO payout ratio, NOI, interest coverage ratio, debt service coverage ratio and capitalization rate. The non-GAAP measures are further defined and discussed in the MD&A for the year ended December 31, 2019 and filed on SEDAR, which should be read in conjunction with this release. Since these measures are not determined by IFRS, such measures may not be comparable to similar measures reported by other issuers. The REIT has presented such non-GAAP measures as management believes the measures are a relevant measure of the ability of the REIT to earn and distribute cash returns to Unitholders and to evaluate the REIT's performance. These non-GAAP measures should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with GAAP as an indicator of the REIT's performance. Please refer to "Section II – Key Performance Indicators – Financial Indicators" in the REIT's MD&A for the year ended December 31, 2019.
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 undertakes 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
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