Summit Industrial Income REIT Reports Continued Strong Performance in Second Quarter 2021

TORONTO, Aug. 10, 2021 /CNW/ – Summit Industrial Income REIT («Summit» or the «REIT») (TSX: SMU.UN) announced continued solid growth…

TORONTO, Aug. 10, 2021 /CNW/ – Summit Industrial Income REIT («Summit» or the «REIT») (TSX: SMU.UN) announced continued solid growth and strong operating performance for the three and six months ended June 30, 2021.

2021 HIGHLIGHTS:

  • Acquired three properties totalling 1.1 million sq. ft. and 12.7-acre development site.
  • Sold six non-core properties totalling 0.3 million sq. ft. for $57.1 million.
  • $588.8 million ($3.50 per Unit) fair value gain on investment properties in quarter and $693.6 million ($4.13 per Unit) year-to-date.
  • Revenue rose 18.1% in quarter and 15.7% year-to-date on portfolio growth, increased occupancy and monthly rents.
  • Occupancy rose to 98.8% from 98.2% in first quarter.
  • Net rental income rose 19.3% in quarter and 16.8% year-to-date.
  • Same property net operating income («NOI1«) up 5.5% in quarter and 3.7% year-to-date.
  • Funds from operations («FFO1«) up 12.0% in quarter and 21.4% year-to-date.
  • FFO per Unit1 of $0.155 per Unit in quarter and $0.323 per Unit year-to-date, impacted by $4.0 million one-time mortgage prepayment penalty ($0.024 per Unit) on strategic debt refinancing.
  • Completed inaugural Green Bond offering of $250 million Series C senior unsecured debentures at 2.25%.
  • Collected entire deferred proceeds on DC2 sale and recognized $4.7 million increase in realized gain.
  • Over $800 million liquidity position including cash, borrowing capacity and potential financing on $2.2 billion of unencumbered properties.
  • Proactive leasing generates 27.3% increase in rents (56% in Ontario, 41% in Quebec).
  • Development pipeline continues to grow with potential to add 1.2 million square feet in key target markets.
  • Strong rent collection continues with 93% of deferrals repaid to date (100% on time).
  • 4.4% increase in monthly cash distributions to $0.047 per Unit or $0.564 per Unit annualized.

SUBSEQUENT EVENTS

  • On July 15, 2021, acquired 50% interest in 5.3-acre land parcel in Guelph, Ontario for $1.5 million.
  • On July 14, 2021, completed $225 million, 7-year Series D senior unsecured debenture offering at 2.44%.
  • In July and August 2021, strategically repaid $226.3 million of 2028 and 2029 variable rate secured term mortgages carrying a weighted average interest rate of 3.97%.

«Our track record of strong growth and operating performance continued through the second quarter of 2021,» commented Paul Dykeman, Chief Executive Officer. «Occupancies remain at near full levels, our proactive leasing programs are generating solid increases in average monthly rents, and we continue to accretively grow the size and scale of our property portfolio through our acquisition and development programs. Looking ahead, our strong liquidity position provides the resources and flexibility to continue to grow, and we see another record year for Summit underpinned by the strong fundamentals of the Canadian light industrial real estate sector.»

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1 Non–GAAP financial measure. Refer to «Non–GAAP Measures» section in this press release for further information.

PORTFOLIO GROWTH

Through the first six months of 2021, the REIT acquired three properties, one in the Greater Toronto Area («GTA») and two in the Greater Montreal Area («GMA»), totalling 1.1 million square feet for total acquisition costs of $259.6 million.

The REIT also acquired a 12.7-acre development site in Burlington, Ontario for $28.0 million with the potential to develop a 270,000 square foot light industrial building, and on July 15, 2021, acquired a 50% interest in a 5.3-acre land parcel from its joint venture partner in Guelph, Ontario for $1.5 million with the potential to construct a 92,000 square foot light industrial building.

Through the first six months of 2021, the REIT sold six non-core properties totaling 335,000 square feet for gross proceeds of $57.1 million.

At June 30, 2021, the REIT’s portfolio totaled 156 properties aggregating 20.3 million square feet with a net book value of approximately $4.0 billion. During the first six months of 2021, the REIT recognized fair value gains on its investment properties of $693.6 million ($4.13 per Unit), including fair value gains of $588.8 million ($3.50 per Unit) in the second quarter.

CONTINUED STRONG OPERATING PEFORMANCE

Revenue from investment properties for the three and six months ended June 30, 2021 rose 18.1% and 15.7%, respectively, due primarily to acquisitions completed over the prior twelve months, continuing strong occupancies and increased rents. Occupancy strengthened to 98.8% at June 30, 2021, up from 98.2% at the end of the first quarter and 98.0% at the end of 2020, with an average lease term of 5.7 years and 1.8% annual contractual rent steps.

Same property NOI1 rose 5.5% and 3.7% for the three and six months ended June 30, 2021, respectively, due to higher overall rental rates on leasing activities and contractual steps in rent. In Ontario, Alberta and Quebec, same property NOI1 for the three months ended June 30, 2021 rose 6.7%, 4.7% and 3.7%, respectively, compared to the prior year. For the six months ended June 30, 2021, same property NOI1 rose 5.2%, 1.9% and 3.7% in Ontario, Alberta and Quebec, respectively. Same property NOI1 represented approximately 84.4% and 81.7% of total NOI1 and 88.8% and 85.1% of total GLA for the three and six months ended June 30, 2021, respectively.

Net rental income for the three and six months ended June 30, 2021 increased 19.3% and 16.8%, respectively, compared to the same prior year periods due primarily to higher overall rental rates on leasing activities and acquisitions completed over the prior 12 months.     

For the three months ended June 30, 2021, FFO1 increased 12.0% to $26.1 million ($0.155 per Unit) from the same prior year period. For the six months ended June 30, 2021, FFO1 increased 21.4% to $54.3 million ($0.323 per Unit). The increase in FFO1 was due primarily to accretive acquisitions completed over the prior 12 months and strong operating performance. FFO per Unit1 decreased through the second quarter and first six months of 2021 compared to the prior year periods due to a one-time mortgage prepayment penalty of $4.0 million ($0.024 per Unit) on the strategic early repayment of certain secured term mortgages in the second quarter, lowering the REIT’s weighted average interest rate on the debt from 3.74% to 2.25% (expected annual interest savings of approximately $1.4 million). During the second quarter, the REIT also collected the entire $28.8 million in deferred proceeds from the sale of the DC2 data centre, resulting in a $4.7 million increase in the realized gain on sale, which is not reflected in FFO1.

The REIT’s FFO payout ratio1 for the three and six months ended June 30, 2021 was 89.6% and 84.8%, respectively (69.6% and 67.4%, respectively, including the benefit of the REIT’s DRIP), compared to 80.1% and 83.4%, respectively (67.3% and 68.4%, respectively, including the benefit of the REIT’s DRIP) during the same prior year period. 

PROACTIVE LEASING PROGRAM

Occupancy in the REIT’s portfolio remained strong and stable at 98.8% at June 30, 2021 up from 98.2% in the first quarter, and 98.0% at December 31, 2020, with a weighted average lease term of approximately 5.7 years and 1.8% average contractual rent increases. The REIT continues to be proactive in strategically addressing lease maturities well in advance of their expiry date.

The REIT completed approximately 812,000 square feet of 2021 lease renewals during the first six months of 2021 with a strong retention rate of 77.3%, generating an average increase in monthly rents of 26.5% over the expiring rent (34.6% excluding contractual renewals) with a significant 30% increase over expiring rents in Ontario (51% excluding contractual renewals) and 41% in Quebec. The REIT also completed pre-leasing of over 530,000 square feet of buildings currently under construction, and future lease commitments on approximately 110,000 square feet representing 46.5% of vacancy at June 30, 2021. Included in the remaining 2021 lease expiries is 232,098 square feet of space (47,537 square feet in the GMA and 184,561 square feet in the GTA) that will be redeveloped upon lease maturity. A total of 124,702 square feet of lease maturities (0.6% of occupied GLA) remain to be addressed for 2021.

SOLID BALANCE SHEET AND LIQUIDITY POSITION

Total assets increased to $4.0 billion at June 30, 2021, up from $3.2 billion at December 31, 2020 due primarily to fair value gains on investment properties and property acquisitions during the period. Total debt was $1.3 billion at June 30, 2021 compared to $1.2 billion at December 31, 2020. At June 30, 2021, the REIT’s unsecured debt represented 53% of total debt outstanding and it had a pool of approximately $2.2 billion in unencumbered properties.

At June 30, 2021, the REIT’s debt leverage ratio1 was 33.0% compared to 46.2% at June 30, 2020. The REIT’s weighted average interest rate at June 30, 2021 was 2.80%, down from 3.09% at June 30, 2020. Debt service and interest coverage ratios1 were 2.7x and 3.8x, respectively, at June 30, 2021, compared to 2.1x and 3.1x, respectively, at June 30, 2020.

At June 30, 2021, the REIT’s liquidity position continued to remain very strong at approximately $800 million including cash, available borrowing capacity on its unsecured revolving credit facility, and potential for new financing that could be placed on a portion of its $2.2 billion of unencumbered properties.  

On April 12, 2021, the REIT completed its inaugural Green Bond offering of $250 million Series C senior unsecured debentures. The debentures were assigned a rating of BBB (low) with a stable trend from DBRS Limited («DBRS»). Prior to allocation of the net proceeds to Eligible Green Initiatives as described in Summit’s Green Financing Framework, net proceeds were used to repay existing indebtedness, including indebtedness under the REIT’s unsecured credit agreement, as well as to strategically repay $103.2 million of 2023-2026 secured term mortgages, lowering the REIT’s weighted average interest rate on this debt from 3.74% to 2.25% (expected annual interest savings of approximately $1.4 million). The REIT incurred a one-time payment of $4.0 million on the early repayment of the term mortgages.

STRONG AND STABLE RENT COLLECTION

The REIT has worked diligently with its tenants throughout the pandemic to collect the majority of its rents. During 2020, the REIT entered into $3.7 million of rent deferral agreements with certain tenants. As of August 10, 2021, 93% of this deferred rent has been repaid, all 100% on schedule.

CASH DISTRIBUTION INCREASE

On May 11, 2021, the REIT announced a 4.4% increase in cash distributions to $0.047 monthly, effective for the May 2021 distribution. The increase equates to a new annualized cash distribution of $0.564 per Unit.

SUBSEQUENT EVENTS

On July 15, 2021, the REIT completed the acquisition of a 50% interest in a land parcel from its joint venture partner, totalling 5.3 usable acres with the potential to construct a 92,000 square foot light industrial building in Guelph, Ontario, for a purchase price of $1.5 million.

On July 14, 2021, the REIT completed an offering of $225 million 7-year Series D senior unsecured debentures at a fixed rate of 2.44% per annum, maturing on July 14, 2028. The debentures were assigned a rating of BBB (low) with a stable trend from DBRS.

In July and August 2021, the REIT strategically repaid $226.3 million of 2028 and 2029 variable rate secured term mortgages that were fixed using interest rate swaps, using the proceeds from the Series D senior unsecured debenture offering. A one-time payment of $16.1 million was incurred as a result of the repayment. The term mortgages that were repaid carried a weighted average interest rate of 3.97%, and the REIT expects annual interest savings of approximately $3.1 million. The repayment also increases the REIT’s unencumbered assets from $2.2 billion to $2.7 billion.

INVESTOR CONFERENCE CALL

A conference call will be hosted by Summit’s Management team on Wednesday, August 11, 2021 at 10.30 am EST. The telephone numbers to participate in the conference call are North America Toll Free: (833) 714-0924 and International: (778) 560-2693. Please use the access code 1287648# when requested. 

A slide presentation to accompany Management’s comments during the conference call will be available prior to the conference call on Summit’s website at www.summitiireit.com. The live call will also be available as a webcast. To access the audio webcast please access the link on the website at www.summitiireit.com.

FINANCIAL AND OPERATING HIGHLIGHTS


Three months ended June 30

Six months ended June 30

(in $ thousands, except per Unit amounts, or otherwise indicated)

2021

2020

2021

2020










Portfolio Performance









Occupancy (%)


98.8%


98.8%


98.8%


98.8%

Revenue from investment properties

$

54,715

$

46,318

$

107,424

$

92,832

Property operating expenses

$

13,548

$

11,825

$

27,484

$

24,388

Net rental income 

$

41,167

$

34,493

$

79,940

$

68,444

Interest expense (finance costs)(3)

$

13,977

$

10,480

$

23,375

$

21,912

Fair value adjustments to investment properties

$

588,797

$

2,717

$

693,645

$

783

Net income

$

618,305

$

24,828

$

750,727

$

67,780










Operating Performance









FFO(1) (5)

$

26,076

$

23,273

$

54,258

$

44,708

FFO per Unit (1)(2)(5)

$

0.155

$

0.168

$

0.323

$

0.324

Net income per Unit – basic (2)

$

3.677

$

0.180

$

4.469

$

0.491










Distributions









Distributions declared to Unitholders

$

23,379

$

18,659

$

46,042

$

37,279

Distributions per Unit declared to Unitholders(2)

$

0.139

$

0.135

$

0.274

$

0.270










FFO payout ratio without DRIP benefit(1)


89.6%


80.1%


84.8%


83.4%

FFO payout ratio with DRIP benefit(1)


69.6%


67.3%


67.4%


68.4%










Weighted average Units outstanding(2)


168,147


138,170


167,986


138,023










Liquidity and Leverage









Total assets

$

4,042,557

$

2,820,762

$

4,042,557

$

2,820,762

Total debt (loans and borrowings and lease liability)

$

1,333,485

$

1,304,523

$

1,333,485

$

1,304,523










Weighted average effective interest rate(4)


2.80%


3.09%


2.80%


3.09%

Weighted average term to maturity (years)(4)


5.3


3.7


5.3


3.7










Leverage(1)


33.0%


46.2%


33.0%


46.2%

Interest coverage (1)


 3.8x 


 3.1x 


 3.8x 


 3.0x 

Debt service coverage (1)


 2.7x 


 2.1x 


 2.6x 


 2.0x 

Debt-to-adjusted EBIDTA(1)


 8.6x 


 9.7x 


 8.8x 


 9.9x 










DBRS Issuer Rating


 BBB (low) 



 BBB (low) 











Investment Properties









Property acquisitions


2



3


9

Property dispositions


5



6


Number of properties


156


154


156


154

Total GLA(in thousands of square feet)


20,253


18,229


20,253


18,229










(1) Non-GAAP measure. Refer toSection II – Key Performance Indicators – Financial Indicatorsof the MD&A for further information (including definitions and measures).

(2) Includes REIT Units and Class B Exchangeable Units (collectively, the «Units»).

(3)Includes mortgage prepayment penalty of $4.0 million related to the early payout of certain term mortgages. See Loans and Borrowingssection of the MD&A for further information.

(4) Weighted average effective interest rate and weighted average term to maturity is calculated on total loans and borrowings.

(5)Includes a one-time mortgage prepayment penalty of $4.0 million (impact of $0.024 per Unit). Excluding the penalty, FFO per Unit was $0.179 per Unit and $0.347 per Unit for the three and six months ended June 30, 2021. See Loans and Borrowingssection of the MD&A for further information.

Summit’s Condensed Consolidated Interim Financial Statements and MD&A for the three and six months ended June 30, 2021 are available on the REIT’s website at www.summitiireit.com.

About Summit

Summit Industrial Income REIT is an unincorporated open-end REIT focused on growing and managing a portfolio of light industrial properties across Canada. Summit’s units are listed on the TSX and trade under the symbol SMU.UN. For more information, please visit the REIT’s website at www.summitiireit.com.

Non-GAAP Measures

The REIT prepares and releases condensed consolidated interim 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, same property NOI, leverage ratio, interest coverage ratio, debt service coverage ratio, and debt-to-adjusted EBITDA. The non-GAAP financial measures are further defined and discussed in the MD&A for the three and six months ended June 30, 2021 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 financial 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 financial 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 three and six months ended June 30, 2021.

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 Summit’s belief that it is on track for another record year in 2021, Summit’s returned focus to growth activities and Summit’s proactive approach to addressing lease expiries. The forward-looking statements and information are based on certain key expectations and assumptions made by Summit, including general economic conditions. Although Summit 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 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, and given the impact of the COVID-19 pandemic and government measures to contain it, there is inherently more uncertainty associated with Summit’s assumptions as compared to prior periods. These risks and uncertainties include, but are not limited to risks related to: tenant risks, current economic environment, environmental matters, general insured and uninsured risks, COVID-19, and Summit 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 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