TORONTO, Aug. 6, 2014 /CNW/ - Summit Industrial Income REIT ("Summit II" or the "REIT") (TSX: SMU.UN) announced today its operating and financial results for the three and six months ended June 30, 2014.
•Acquisitions, strong property performance drive solid increases in year-over-year revenue, NOI, FFO and AFFO •Sale of Ottawa property in May generates $4.9 million realized gain •AFFO payout ratio a conservative 89.1% for six months ended June 30, 2014•Continued stable and strong occupancy of 98.9% •Cash distributions increased in June to $0.504 per Unit annualized, a 3% increase •Three accretive GTA properties acquired totaling 260,000 sq. ft. of GLA for $18.2 million at strong 7.45% cap rate •Accretively financed $12.2 million for the GTA acquisition with 7-year mortgage debt at 3.64% •Completed bought deal equity offering raising gross proceeds of $28.8 million•Reduced leverage to 51.3% creating immediate capacity for acquisitions
"We posted another quarter of solid growth and operating performance as our property portfolio continues to grow and strengthen," stated Paul Dykeman, CEO. "Looking ahead, with the completion of our successful bought deal equity offering in June and the proceeds from our innovative sale of an Ottawa property in May, we have significantly enhanced our liquidity position, providing us with the resources and flexibility to further expand our portfolio."
STRONG OPERATING AND FINANCIAL RESULTS
Operating revenues increased to $7.2 million for the three months ended June 30, 2014 from $5.7 million in the same quarter last year. For the first six months of 2014 operating revenues were $14.2 million compared to $8.3 million for the same period last year. The REIT's revenue growth is due primarily to the acquisition of 22 properties over the prior twelve months, continuing strong occupancies, and steady progress in leasing activities.
Net Operating Income (NOI) rose to $5.1 million in the second quarter of 2014 compared to $4.4 million in the prior year's second quarter. For the six months ended June 30, 2014 NOI was $10.5 million compared to $6.5 million in the prior year.
Funds from Operations (FFO) for the three months ended June 30, 2014 were $2.9 million ($0.145 per Unit), up from $2.7 million ($0.151 per Unit) in the second quarter of 2013. For the first six months of 2014 FFO was $5.9 million ($0.313 per Unit) compared to $3.9 million ($0.271 per Unit) last year. The increases are primarily due to the contribution from acquisitions completed over the last twelve months.
Adjusted Funds from Operations (AFFO) in the second quarter of 2014 were $2.4 million ($0.123 per Unit) compared to $2.5 million ($0.139 per Unit) in the second quarter of 2013. For the six months ended June 30, 2014 AFFO was $5.2 million ($0.276 per Unit) compared to $3.7 million ($0.251 per Unit) last year. The REIT's AFFO payout ratio was 89.1% for the six months ended June 30, 2014. Including the benefit of the REIT's DRIP program, the effective AFFO payout ratio was 69.5%. Per Unit amounts were impacted by the successful bought-deal offering of 4.9 million Units in June 2014. Management expects to invest the proceeds of this equity offering in the acquisition of income-producing properties over the near term.
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 December 2016 and September 2015. To date, leases have been secured for 209,757 square feet with discussions currently under way for the one remaining unit of 77,243 square feet.
The occupancy of the portfolio remains strong at 98.9%. As of June 30, 2014, there is only 38,639 square feet of vacancy in two properties. The weighted average term to maturity for the lease portfolio is approximately 5.6 years.
SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $311.6 million at June 30, 2014, up from $253.4 million at June 30, 2013 due primarily to acquisitions completed over the prior twelve months. As discussed below, on May 6, 2014, the REIT sold a 75% interest in an Ottawa property and on June 5, 2014 completed a bought-deal equity offering. As a result, the REIT's debt leverage ratio improved from 60.9% at December 31, 2013 to 51.3% at June 30, 2014, providing management with the resources and flexibility to generate further accretive portfolio growth.
The weighted average effective interest rate on the REIT's mortgage portfolio was 3.69% at June 30, 2014, consistent with the prior year end, with a weighted average term to maturity of 4.7 years. Debt service and interest coverage ratios for the six months ended June 30, 2014, were 1.70 times and 2.50 times, respectively, compared to 1.69 times and 2.47 times at December 31, 2013.
Upon the sale of 75% interest in 501 Palladium Drive and the completion of the June offering, the revolving credit facility was amended. The maximum available has been reduced from $68 million to $44 million and the maturity was extended to September 27, 2015.
Proceeds from the June bought deal offering and the sale of the Ottawa property were used to repay approximately $39.6 million of the revolving credit facility. As of June 30, 2014, $23.3 million was drawn on the loan.
If the REIT increased its borrowing to the 65% maximum allowed under its Declaration of Trust, it would have the capacity to purchase approximately $122 million in new properties as of June 30, 2014. Management expects to complete further acquisitions in 2014 to bring its leverage ratio into the targeted mid-50% range.
On August 5, 2014 the REIT entered into an agreement for a $17.0 million seven-year mortgage incurring an annual interest rate of 3.65% on a property that had been securing the REIT's revolving credit facility. As a result of this new mortgage financing, the amount drawn on the revolving credit facility reduced from $23.3 million as at June 30, 2014 to $6.3 million with floating rate debt representing only 4.0% of total debt, down from 14.6% as at June 30, 2014.
On June 5, 2014, the REIT announced that it had completed a bought-deal public offering of 4,968,000 Units at a price of $5.80 per Unit for total gross proceeds of approximately $28.8 million, including proceeds from the full exercise of an over-allotment option to purchase an additional 648,000 Units.
On June 5, 2014, the REIT announced it had completed the purchase of a portfolio of three light industrial single tenant properties in the Greater Toronto Area totaling approximately 260,000 square feet of gross leaseable for a purchase price of approximately $18.2 million representing a going-in capitalization rate of approximately 7.45%. The purchase was satisfied by cash from the above-mentioned bought-deal offering and a new 7-year mortgage of approximately $12.2 million with an interest rate of 3.64%. The price paid for the properties equates to approximately $70 per square foot, well below replacement cost. The properties were acquired as part of a sale / leaseback transaction with a major North American packaging supplier that entered into an agreement to lease the properties for a period of 10-years including a combination of annual and bi-annual rent escalations. With the completion of this acquisition, the REIT's portfolio increased to 33 properties totaling 3.4 million square feet of GLA as at June 30, 2014.
On May 6, 2014, the REIT announced it had sold a 75% interest in an Ottawa property to a major Canadian institution for proceeds of approximately $25.3 million and generating a realized gain on the sale of approximately $4.9 million. The proceeds of the sale were used to reduce the REIT's floating-rate credit line.
On May 6, 2014, the Board of Trustees approved a cash distribution increase to $0.042 per Unit per month or $0.504 per Unit on an annualized basis, representing a 3% annualized increase over the current distribution. This increase will apply to the Unitholders of record on May 30, 2014. The Board of Trustees have adopted a policy to consider annually increasing the cash distribution by between 2% and 4% while maintaining an AFFO payout ratio below 90%.
INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II's management team on Thursday, August 7, 2014 at 10.00 am ET. The telephone numbers to participate in the conference call are North America Toll Free: (866) 225-6564 and Local Toronto / International: (416) 340-2219. 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 7174108#. 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 June 30
Six months ended June 30
Occupancy (%) (1)
Revenue from income properties
Property operating expenses
Net operating income
Net income per unit - Basic and diluted(2)
FFO per Unit (2)
AFFO per Unit (2)
Distributions declared to Unitholders
Distributions per unit declared to Unitholders
Distributions paid (3)
FFO payout ratio without DRIP benefit
FFO payout ratio with DRIP benefit (3)
AFFO payout ratio without DRIP benefit
AFFO payout ratio with DRIP benefit (3)
Weighted average Units outstanding(2)
Liquidity and Leverage
Total debt (loans and borrowings)
Weighted average effective mortgage interest rate
Weighted average mortgage term (years)
Interest coverage (times)
Debt service coverage (times)
Non-core properties disposed
(1)Approximately 209,757 square feet (6.1% of total GLA) Head Lease space has been leased to date. Discussions are under way for the one remaining
unit of 77,243 square feet (2.3% 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 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 Interim Consolidated Financial Statements and MD&A for the period ended June 30, 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