Summit Industrial Income REIT Reports Solid Performance in First Quarter 2020

Steps Taken to Mitigate Impact of COVID-19 Pandemic

TORONTO, May 12, 2020 /CNW/ - Summit Industrial Income REIT ("Summit II" or the "REIT") (TSX: SMU.UN) announced solid operating and financial performance for the three months ended March 31, 2020.

Highlights:

• Revenues increased by 37.7% on portfolio growth, high stable occupancies and rent increases.
• Occupancy strong at 98.4% with average lease term of 5.3 years and 1.6% annual contractual rent steps.
• Net rental income increased by 39.6% on revenue increase, organic growth and strong operating performance.
• Same property NOI¹ increased 5.3% with Toronto, Other Ontario, and Alberta contributing 7.3%, 7.8% and 4.4%, respectively.
• Funds from Operations ("FFO")¹ increased 37.7% to $21.4 million ($0.155 per Unit).
• FFO per Unit¹ remained stable at $0.155 per Unit despite 37.0% increase in Units outstanding.
• Acquired nine light industrial properties totaling 746,903 sq. ft. for $180.4 million at an overall cap rate of 4.4%.
• Established new $300.0 million unsecured revolving credit facility and repaid $43.6 million in maturing mortgage debt, resulting in a significant increase in financial resources and flexibility.
• Strong liquidity with approximately $200.0 million available including cash, borrowing capacity on the revolving credit facility, and potential new financing that could be placed on a portion of the $635.3 million pool of unencumbered assets.
• Completed 1.5 million sq. ft. of 2020 lease renewals with a very strong 95.8% retention rate, generating a 14.3% increase in rents (23.4% in the GTA). Only 3.4% of the total portfolio remains to be renewed in 2020.
• Insider ownership fully aligned with 9.8% interest in REIT Units outstanding.

Subsequent Events:

• Despite the COVID-19 pandemic, collected approximately 96% of April rents, as well as approximately 87% of May rents to date (95% inclusive of tenants for which rent deferral agreements are in place).
• Announced sale of interest in DC2 data centre, generating realized gain of $21.0 million or $0.15 per Unit, and repayment of DC2 data centre mezzanine loan.

"Following another year of record results in 2019, our significant portfolio growth over the last twelve months and strong operating performance drove significant increases in all our key performance benchmarks through the first quarter of the new year," commented Paul Dykeman, Chief Executive Officer. "In the face of the COVID-19 pandemic, we have implemented a number of initiatives and programs to ensure the safety and well-being of our people, tenants and properties, and to mitigate risk, preserve capital, and generate the best possible operating results in these challenging times."

PORTFOLIO GROWTH
During the first quarter of 2020, the REIT acquired nine light industrial properties, all well-located in the strong Greater Toronto Area market, adding approximately 747,000 square feet of gross leasable area to the portfolio for total costs of approximately $180.4 million. At March 31, 2020, the REIT's portfolio totaled 154 properties aggregating 18.2 million square feet with a net book value of approximately $2.7 billion. Effective April 1, 2020, the REIT's acquisition activity has been temporarily suspended in order to preserve capital during the COVID-19 pandemic.

GROWTH AND STRONG OPERATING PEFORMANCE GENERATE SOLID PERFORMANCE
Revenue from income producing properties for the three months ended March 31, 2020 rose 37.7% to $46.5 million compared to the same period in 2019. The increase is due primarily to acquisitions completed over the prior twelve months, continuing strong occupancies and increased rents.

Net rental income for the three months ended March 31, 2020 increased 39.6% to $11.4 million compared to the prior year due to the strong increase in same property NOI, higher overall rental rates on leasing activities, contractual steps in rent, and accretive acquisitions.    

For properties acquired prior to January 1, 2019 and owned during both three-month periods, same property NOI rose 5.3% for the three months ended March 31, 2020 compared to the same prior year period. In the REIT's target markets of Toronto and Montreal, same property NOI for the three months ended March 31, 2020 rose 7.3% and 0.8%, respectively, compared to the same prior year period, while the Alberta and Other Ontario portfolios contributed 4.4% and 7.8%, respectively, to same property NOI growth quarter-over-quarter. Same property NOI represented approximately 64.8% of total NOI and 72.4% of total GLA for the three months ended March 31, 2020.

For the three months ended March 31, 2020, FFO¹ was $21.4 million ($0.155 per Unit) up 37.7% from $15.6 million ($0.155 per Unit) in the same prior year period. The increase in FFO¹ is due primarily to acquisitions completed over the prior twelve months, partially offset by the sale of the REIT's 50% interest in a data centre property in September 2019.

The REIT's FFO payout ratio¹ for the first quarter of 2020 was a conservative 86.8% (69.5% including the benefit of the REIT's DRIP program) compared to 83.4% (74.5% including the benefit of the REIT's DRIP program) in the first quarter of 2019.

PROACTIVE LEASING PROGRAM TO DRIVE STRONG GROWTH
Occupancy in the industrial portfolio was 98.4% at March 31, 2020 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 2020 lease renewals to date with a very strong retention rate of 95.8%. Overall, the 2020 renewals generated an average 14.3% increase in monthly rents from the expiring rent with a significant 23.4% increase over expiring rents in the REIT's GTA target market. At March 31, 2020, only 3.4% of the portfolio remains to be renewed in 2020.

SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $2.8 billion at March 31, 2020, up from $2.6 billion as at December 31, 2019 due to the acquisition of nine properties in the quarter. Total debt was $1.3 billion at March 31, 2020 compared to $1.1 billion at December 31, 2019. Financing activities in the first quarter of 2020 included securing a new $300.0 million unsecured revolving credit facility on March 23, 2020, which matures on March 23, 2023. This unsecured facility replaced the $150.0 million secured revolving credit facility, which was discharged on closing of the new unsecured facility. At March 31, 2020, $254.2 million of the available $300.0 million was drawn from the unsecured facility, which was used to fund all of the acquisitions completed during first quarter, as well as to repay $43.6 million in maturing mortgage debt and $32.2 million on the non-revolving bridge credit facility.

At March 31, 2020, the REIT's debt leverage ratio was 46.7% compared to 47.9% at March 31, 2019. The weighted average effective interest rate on the REIT's mortgage portfolio was 3.65% at March 31, 2020 compared to 3.75% at March 31, 2019. Debt service and interest coverage ratios¹ were 1.94 times and 2.80 times, respectively, compared to 1.81 times and 2.74 times respectively, at March 31, 2019.

SUBSEQUENT EVENTS
In light of the COVID-19 pandemic, the REIT has implemented a number of measures to ensure the safety and well-being of its people, tenants and properties, and to mitigate risk, preserve capital and generate the best possible operating results. These measures include the temporary suspension of all acquisition activity and postponement of new development starts, except in cases where strong long-term tenancies would create immediate full occupancy and significant returns on investment. Management has also been in continuous communication with the REIT's tenant base, working with them to collect rents and to discuss, on a case-by-case basis, any economic hardship caused by the pandemic. Subsequent to March 31, 2020, April and May rents were due. As of May 12, 2020, approximately 96% of April rents were collected and approximately 87% of May rents were collected (95% inclusive of tenants for which rent deferral agreements are in place).

On May 11, 2020, the Trust announced the sale of its interest in the DC2 data centre in Richmond Hill, Ontario. The sale of the DC2 data centre resulted in the repayment of the outstanding balance of the mezzanine loan on closing of approximately $5.5 million, including accrued interest. The transaction will generate a realized gain of approximately $21.0 million or $0.15 per Unit, which is reflected in the fair value of the DC2 data centre mezzanine loan at March 31, 2020. The proceeds from the gain on sale will be paid to the Trust in stages over the ensuing 18 months as construction on the DC2 data centre is completed.

INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II's management team on Thursday, May 13, 2020 at 8.30 am EST. The telephone numbers to participate in the conference call are North America Toll Free: [phone] and Local Toronto / International: [phone].

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 website 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 5146585#. The Instant Replay will be available until midnight, June 12, 2020. A webcast of the call will also be archived on the REIT's website at www.summitiireit.com.                                                                       

FINANCIAL AND OPERATING HIGHLIGHTS
		Three months ended March 31
(in $ thousands, except per Unit amounts)		2020 ^(4)			2019
Portfolio Performance
Industrial occupancy (%) ^(3)		98.4%			99.4%
Revenue from income properties		$	46,514		$	33,779
Property operating expenses		12,563			9,451
Net rental income		33,951			24,328
Interest expense (finance costs)		11,432			9,101
Net income		42,952			10,861
Operating Performance
FFO ^(1)		21,435			15,569
Net income per unit - basic ^(2)		0.312			0.108
FFO per Unit ^(1)^(2)		0.155			0.155
Regular Distributions per Unit declared to Unitholders ^(2)		0.135			0.129
Regular FFO payout ratio without DRIP benefit ^(1)		86.8%			83.4%
Regular FFO payout ratio with DRIP benefit ^(1)		69.5%			74.5%
Total Distributions per Unit declared to Unitholders ^(2)		0.135			0.129
Weighted average Units outstanding^(2)		137,876			100,702
Liquidity and Leverage
Total assets		2,826,722			1,822,080
Total debt (loans and borrowings and lease liability)		1,319,763			872,304
Weighted average effective mortgage interest rate		3.65%			3.75%
Weighted average mortgage term (years)		5.75			5.71
Leverage ratio ^(1)		46.7%			47.9%
Interest coverage (times) ^(1)		2.80			2.74
Debt service coverage (times) ^(1)		1.94			1.81
Debt-to-adjusted EBIDTA (times) ^(1)		10.14			9.18
Other
Properties acquired		9			1
Number of properties^(3)		154			109
Total GLA (in thousands of square feet)^(3)		18,229			13,632

(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 REIT Units and Class B exchangeable units (collectively, the "Units").

(3) Excludes four non-core properties held for sale at March 31, 2020, as disclosed in the "Investment Properties Held for Sale" section of this MD&A.

(4) Financial metrics include the four non-core properties held for sale at March 31, 2020, as disclosed in the "Investment Properties Held for Sale" section of this MD&A.

Summit II's Condensed Consolidated Interim Financial Statements and MD&A for the three months ended March 31, 2020 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 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, 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 three months ended March 31, 2020 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 three months ended March 31, 2020.

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

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

Related Links

www.summitiireit.com