Summit Industrial Income REIT Announces Continued Growth in First Quarter 2019

Monthly Cash Distributions Increased 4.7% to $0.54 per Unit Annualized

TORONTO, May 7, 2019 /CNW/ - Summit Industrial Income REIT ("Summit II" or the "REIT") (TSX: SMU.UN) announced today a significant increase in its operating and financial results for the three months ended March 31, 2019.

First Quarter 2019 Highlights:

• Acquired one light industrial property totaling 236,134 sq. ft. for a purchase price of $23.0 million at overall cap rate¹ of 5.6%.
• Obtained $153 million of mortgage financing for 10-year term at 3.9% interest rate to repay December 2018 temporary bridge facilities.
• Industrial occupancy strong at 99.4% with average lease term of 5.8 years and contractual rent steps of 1.5% per year.
• Proactively completed 1,244,967 sq. ft. of 2019 renewals with a strong retention rate of 99.8%.
• Only 1.5% of the total portfolio remains to be renewed in 2019.
• 2019 renewals, early renewals and lease expansions generate 11.7% increase in rents (14.5% in GTA).
• Revenues rise 57.8% on portfolio growth, high stable occupancies and rent increases.
• Total net operating income ("NOI")¹ up 64.7% on revenue increase, organic growth and strong operating performance.
• Same property NOI increased 4.9% (GTA up 5.4%, Montreal up 2.4%).
• Funds from operations ("FFO")¹ increases 59.3% to $15.5 million, growth accretive as FFO per Unit up 6.2% despite 49.9% increase in weighted average Units outstanding.

Subsequent Events:

• Announced a monthly cash distribution increase from $0.043 per unit to $0.045 per unit, or $0.54 annualized, a 4.7% increase.
• Entered into an agreement to internalize property and asset management functions, eliminating fees, reducing costs and enhancing ability to make more accretive acquisitions.
• Obtained new $13.5 million five-year mortgage at 3.68% interest rate.
• Increased revolving operating facility availability to $115.0 million.

"Following another record year in 2018, our strong growth and operating performance continued in the first quarter of 2019 as we capitalized on the increase in the size and scale of our property portfolio and generated very solid same property NOI," commented Paul Dykeman, Chief Executive Officer. "Looking ahead, we are confident this growth will continue through the balance of the year. We are also excited about the numerous benefits the proposed internalization will bring to our Unitholders, including reduced operating costs, increased NOI and FFO, and an enhanced ability to make even more accretive acquisitions. We were also very pleased to announce a 4.7% increase in our monthly cash distributions."

PORTFOLIO GROWTH GENERATES STRONG OPERATING AND FINANCIAL RESULTS
Revenue from income producing properties rose 57.8% to $33.8 million for the three months ended March 31, 2019 due to the significant growth in the REIT's property portfolio over the prior twelve months, continuing high stable occupancies and increased rents, partially offset by the sale of a 75% interest in four properties in May 2018.  Occupancy was 99.4% at March 31, 2019, up from 98.5% last year.

Net operating income ("NOI")¹ for the three months ended March 31, 2019 increased 64.7% to $24.3 million compared to last year due to the contribution from acquisitions, strong occupancies, higher rental rates and contractual steps in rent, partially offset by the sale of a 75% interest in four properties in May 2018. For properties acquired prior to January 1, 2018 and owned during both periods, same property NOI rose 4.9% for the three months ended March 31, 2019 compared to the prior year. For the REIT's target GTA and Montreal portfolios, same property NOI rose 5.4% and 2.4%, respectively, compared to last year. The leasing of vacancies in the REIT's Western Canadian properties through 2018 resulted in same property NOI rising 11.4% in this portfolio. Same property NOI represented approximately 55.3% of the total portfolio. The REIT's target GTA and Montreal markets represent approximately 76% of its total portfolio.

For the three months ended March 31, 2019, Funds from Operations ("FFO")¹ were $15.5 million ($0.155 per Unit) compared to $9.7 million ($0.145 per Unit) last year. The increase in FFO is due primarily to the acquisitions completed over the prior twelve months and strong operating performance. The REIT's growth was accretive in the first quarter of 2019 as FFO per Unit rose 6.2% despite the 49.9% increase in the weighted average number of Units due to two successful bought-deal equity offerings during 2018.

The REIT's regular FFO payout ratio¹ for the three months ended March 31, 2019 was 83.4% (74.5% including the benefit of the REIT's DRIP program) compared to 89.1% (77.9% including the benefit of the REIT's DRIP program) last year. The REIT's payout ratio for the three months ended March 31, 2019 was impacted due to the equity offerings completed over the prior twelve months and the timing of fully investing the funds.

Net income for the three months ended March 31, 2019 was $10.9 million compared to $26.6 million in 2018. Increases in operating results due to accretive acquisitions over the prior twelve months, as well as fair value gains for the three months ended March 31, 2019, of $6.7 million (March 31, 2018 - $16.9 million) were offset by fair value loss adjustment to Class B exchangeable units of $10.6 million due to the increase in value of REIT Units at March 31, 2019. Net income and comprehensive income is impacted by fair value adjustments to investment properties, deferred unit compensation and Class B exchangeable units, which are not necessarily indicative of the operating results of the REIT.

PROACTIVE LEASING PROGRAM
Occupancy in the industrial portfolio remained strong at 99.4% at March 31, 2019. The weighted average lease term for the portfolio was approximately 5.8 years. The REIT is proactive in addressing lease expiries well in advance of the expiry date.

To date in 2019 the REIT completed 1,244,967 square feet of its 2019 renewals with a very strong retention rate of 99.8%. Overall, the 2019 renewals generated an average 11.7% increase in monthly rents from the expiring rent with a significant 14.5% increase over expiring rents in the REIT's Greater Toronto Area target market. As at May 7, 2019 only 1.5% of the portfolio remains to be renewed through the balance of 2019. Lease renewals have been agreed to for an additional 81,185 square feet, further reducing the 2019 expiries to 122,122 square feet or 0.9%.

The REIT has completed renewals of 267,713 square feet that were set to expire in 2020. This reduces the 2020 lease expiries from 10.8% to 8.7% of the total portfolio. The REIT has also completed an early renewal of 322,187 square feet that was set to expire in 2022. This reduces the 2022 expiries from 11.5% to 9.1%.

SOLID BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $1.82 billion at March 31, 2019, up from $1.77 billion as at December 31, 2018. Total debt was $872.3 million at March 31, 2019 compared to $834.2 million at December 31, 2018. During the first quarter of 2019 new ten-year mortgage financings were obtained for $91.0 million and $62.0 million at an interest rate of 3.93% and 3.86%, respectively. The proceeds were used to repay the $91.0 million and $62.0 million temporary non-revolving bridge facilities put in place to acquire properties in December 2018. In addition, the REIT's revolving operating facility was increased to $115.0 million during the quarter, subject to requisite borrowing base security. As at March 31, 2019, approximately $96.6 million (December 31, 2018 - $63.6 million), of an available $102.3 million (December 31, 2018 - $71.5 million), was drawn from the revolving operating facility. The Trust's exposure to floating rate debt is approximately 18.3% of total debt as at March 31, 2019.

As at March 31, 2019 the REIT's debt leverage ratio¹ was 47.9% compared to 47.0% at the end of 2018. Acquisition capacity to bring leverage to the target 50% was approximately $125 million as at March 31, 2019. The weighted average effective interest rate on the REIT's mortgage portfolio was 3.75% at March 31, 2019 compared to 3.72% at December 31, 2018. Debt service¹ and interest coverage¹ ratios were 1.81 times and 2.74 times, respectively, compared to 1.77 times and 2.86 times respectively, at December 31, 2018.

SUBSEQUENT EVENTS
On April 12, 2019 approximately 3.3 million Class B exchangeable units were exchanged, at the option of the holder, into Units of the Trust on a one-for-one basis.

In April 2019, the Trust obtained a new $13.5 million five -year mortgage at an interest rate of 3.68%. The proceeds were used to repay $9.7 million in expiring debt on a property.

In May 2019, the Trust added additional security to the revolving operating facility increasing the amount available to be drawn to $115.0 million. The Trust is also in the process of adding further security which will increase the availability to approximately $125.0 million.

In April 2019, the Trust announced it had entered into an agreement to internalize the asset and property management functions, eliminating the annual asset management fee, property management fee, acquisition fee, incentive fee, and other fees payable to its external manager, Sigma Asset Management Limited. The Internalization is expected to close on or about May 17, 2019, subject to unitholder approval and other customary conditions set forth in the Agreement.

Upon closing of the Internalization, the REIT will acquire all of the issued and outstanding shares of the manager for total consideration of $95.0 million. $20.0 million of the consideration will be satisfied with cash, expected to be funded from the REIT's revolving operating facility, and $75.0 million of the consideration will be satisfied with 6,666,666 units of the REIT, based on the 30-day volume weighted average trading price of the REIT's units on all exchanges on which there was trading, up to and including March 20, 2019 of $11.25 per unit. The terms of the Internalization were negotiated and unanimously recommended for approval by a committee composed of all of the independent trustees of the Trust.

The internalization will bring a number of benefits to Unitholders, including increased NOI and FFO through reduced costs, further alignment of interests between the management team and all Unitholders, and more accretive acquisitions due to the reduced fees.

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) to Unitholders of record on May 31, 2019 to be paid on June 14, 2019.

INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II's management team on Wednesday, May 8, 2019 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]. 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 4567737#. A webcast of the call will also be archived on the REIT's web site at www.summitIIreit.com.

2018 ANNUAL UNITHOLDERS' MEETING
Summit II will hold its 2018 Annual Unitholders' Meeting on Wednesday, May 8, 2019 at 10:30 am at McCarthy Tétrault LLP, Suite 5300, TD Bank Tower, 66 Wellington Street West, Toronto, Ontario.

FINANCIAL AND OPERATING HIGHLIGHTS
(in thousands of Canadian dollars)	Three months ended
(except per Unit amounts)	March 31, 2019		March 31, 2018
Portfolio Performance
Industrial occupancy (%)	99.4%		98.5%
Revenue from income properties	$	33,779	$	21,408
Property operating expenses	9,451		6,633
Net operating income ^(1)	24,328		14,775
Interest expense (finance costs)	9,101		4,703
Net income	10,861		26,556
Operating Performance
FFO ^(1)	15,569		9,726
Net income per unit - basic ^(4)	0.108		0.395
FFO per Unit ^(1)(2)^(3)(4)	0.155		0.145
Regular Distributions per Unit declared to Unitholders ^(4)	0.129		0.129
Regular FFO payout ratio without DRIP benefit ^(1)	83.4%		89.1%
Regular FFO payout ratio with DRIP benefit ^(1)	74.5%		77.9%
Total Distributions per Unit declared to Unitholders ^(4)	0.129		0.129
Weighted average Units outstanding^(2)^(3)(4)	100,702		67,158
Liquidity and Leverage
Total assets	1,822,080		1,025,350
Total debt (loans and borrowings)	872,304		515,710
Weighted average effective mortgage interest rate	3.75%		3.62%
Weighted average mortgage term (years)	5.71		4.89
Leverage ratio ^(1)	47.9%		50.3%
Interest coverage (times) ^(1)	2.74		2.97
Debt service coverage (times) ^(1)	1.81		1.81
Debt-to-adjusted EBIDTA (times) ^(1)	9.18		9.23
Other
Properties acquired	1		-
Number of properties	109		84
Total GLA (in thousands of square feet)	13,632		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) On June 15, 2018, approximately 13,299,750 Units were issued on completion of a public offering. On December 10, 2018, approximately 

15,055,000 Units were issued on completion of a public offering. 

(3) On June 18, 2018, approximately 3,292,091 Class B exchangeable Units were issued toward funding a property acquisition. On August 15, 2018, 

approximately 1,005,780 Class B exchangeable Units were issued toward funding a property acquisition. 

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

FOOTNOTE
1. Non-GAAP measures 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 for the three months and three months ended March 31, 2019 for further information on non-GAAP measures (including definitions and reconciliations of the non-GAAP measures).

Summit II's Condensed Consolidated Interim Financial Statements and MD&A for the three months ended March 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 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, net operating income (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, 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 (loss) 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, 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

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

Related Links

www.summitIIreit.com