Summit Industrial Income REIT Announces Continued Growth in Third Quarter of 2014

TORONTO, Nov. 11, 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 nine months ended September 30, 2014.

HIGHLIGHTS:

• Acquisitions, strong property performance drive solid increases in revenue, NOI, FFO and AFFO
• Occupancy rises to 100%
• AFFO payout ratio a conservative 94.9% for nine months ended September 30, 2014
• Four accretive acquisitions year-to-date strengthen presence in targeted GTA region
• Accretively financed acquisitions with $12.2 million 7-year mortgage debt at 3.64%
• Completed additional $17.0 million 7-year mortgage at 3.65%
• Completed bought deal equity offering in June 2014 raising gross proceeds of $28.8 million
• Reduced leverage at 51.7% creates immediate capacity for acquisitions

"We continue to increase our presence in the Greater Toronto Area, targeting properties for acquisition that will benefit from the increased demand and tight supply conditions that characterize the region," stated Paul Dykeman, CEO. "Looking ahead, we are confident our track record of strong, accretive portfolio growth and solid operating performance will continue."

STRONG OPERATING AND FINANCIAL RESULTS
Operating revenues increased to $7.0 million for the three months ended September 30, 2014 from $6.1 million in the same quarter last year. For the first nine months of 2014 operating revenues were $21.2 million compared to $14.5 million for the same period last year. The REIT's revenue growth is due primarily to the acquisition of eight properties over the prior twelve months, continuing strong occupancies, and steady progress in leasing activities.

Net Operating Income (NOI) rose to $5.3 million in the third quarter of 2014 compared to $4.6 million in the prior year's third quarter. For the nine months ended September 30, 2014 NOI was $15.8 million compared to $11.2 million in the prior year.

Funds from Operations (FFO) for the three months ended September 30, 2014 were $3.2 million ($0.138 per Unit), up from $2.9 million ($0.158 per Unit) in the third quarter of 2013. For the first nine months of 2014 FFO was $9.2 million ($0.449 per Unit) compared to $6.8 million ($0.432 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 third quarter of 2014 were $2.8 million ($0.120 per Unit) compared to $2.6 million ($0.144 per Unit) in the third quarter of 2013. For the nine months ended September 30, 2014 AFFO was $8.0 million ($0.393 per Unit) compared to $6.3 million ($0.397 per Unit) last year. The REIT's AFFO payout ratio was 94.9% for the nine months ended September 30, 2014. Including the benefit of the REIT's DRIP program, the effective AFFO payout ratio was 77.2%.

Per Unit amounts in the third quarter were impacted by the fact that proceeds from the June 2014 equity offering were not fully invested during the quarter. 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.  

Overall portfolio occupancy, not including a vacant property held for sale, rose to 100.0% as at September 30, 2014. 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 $313.5 million at September 30, 2014, up from $298.5 million at September 30, 2013 due primarily to acquisitions completed over the prior twelve months.

Total debt decreased to $162.0 million at September 30, 2014, compared to $189.0 million at the prior year end.  Proceeds from the 75% sale of an Ottawa property in May 2014 and the June 2014 offering were used to repay approximately $39.6 million of the REIT's revolving credit facility debt. In conjunction with the four acquisitions completed in 2014, mortgages of $12.2 million were obtained for a seven-year term at a rate of 3.64%.  In addition, during the third quarter of 2014 mortgage financing of $17.0 million was obtained for a seven-year term at an interest rate of 3.65%. These funds were also used to pay down the revolving credit facility.

Upon the sale of the 75% interest in the Ottawa property and the completion of the June offering, the revolving credit facility was amended. The maximum available was reduced from $68 million to $44 million and the maturity was extended to September 27, 2015. In addition, as the above-noted $17 million mortgage obtained during the quarter was for a property used as security on the line, the current availability on the credit facility has been reduced temporarily to $22.9 million. As of September 30, 2014, $9.5 million was drawn on the loan. The Trust's exposure to floating rate debt is 5.9% of total debt as at September 30, 2014.

As at September 30, 2014 the REIT's debt leverage ratio improved to 51.7% from 60.9% at December 31, 2013, 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 3.68% at September 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 nine months ended September 30, 2014, were 1.74 times and 2.60 times, respectively, compared to 1.69 times and 2.47 times at December 31, 2013.

If the REIT increased its borrowing to the 65% maximum allowed under its Declaration of Trust, it would have the capacity to purchase approximately $120 million in new properties as of September 30, 2014. Management expects to complete further acquisitions in 2014 to bring its leverage ratio into the targeted mid-50% range.

RECENT EVENTS

On October 20, 2014 the REIT completed the sale of an 8,000 square foot non-core property located in Red Deer, Alberta for a sale price of $710,000. Proceeds from the sale were used to reduce the REIT's revolving operating credit facility.  

INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II's management team on Wednesday, November 12, 2014 at 9.00 am ET. 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 7927129#. 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 September 30					Nine months ended September 30
			2014		2013			2014		2013
Portfolio Performance
Occupancy (%) ^(1) (4)			100.0%		99.3%			100.0%		99.3%
Revenue from income properties		$	6,987	$	6,139		$	21,208	$	14,477
Property operating expenses			1,736		1,505			5,453		3,315
Net operating income			5,251		4,634			15,755		11,162
Interest expense			1,684		1,460			5,393		3,423
Net income			3,157		3,028			8,318		6,982
Operating Performance
FFO			3,225		2,866			9,163		6,810
AFFO			2,791		2,595			8,027		6,258
Net income per unit - Basic and diluted^(2)			0.135		0.167			0.407		0.443
FFO per Unit ^(2)			0.138		0.158			0.449		0.432
AFFO per Unit ^(2)			0.120		0.144			0.393		0.397
Distributions declared to Unitholders			2,937		2,214			7,658		5,156
Distributions per Unit declared to Unitholders			0.1260		0.1224			0.3732		0.2856
Distributions paid ^(3)			2,555		1,969			6,195		3,885
FFO payout ratio without DRIP benefit			91.1%		77.2%			83.2%		66.1%
FFO payout ratio with DRIP benefit ^(3)			79.2%		68.7%			67.6%		57.0%
AFFO payout ratio without DRIP benefit			105.2%		85.3%			94.9%		71.9%
AFFO payout ratio with DRIP benefit ^(3)			91.5%		75.9%			77.2%		62.1%
Weighted average Units outstanding^(2)			23,308		18,083			20,421		15,759
Liquidity and Leverage
Total assets			313,542		298,483			313,542		298,483
Total debt (loans and borrowings)			162,007		179,847			162,007		179,847
Weighted average effective mortgage interest rate			3.68%		3.68%			3.68%		3.68%
Weighted average mortgage term (years)			4.71		5.20			4.71		5.20
Leverage ratio			51.7%		60.3%			51.7%		60.3%
Interest coverage (times)			2.80		2.87			2.60		2.88
Debt service coverage (times)			1.83		1.97			1.74		2.06
Other
Properties acquired			1		3			4		18
Non-core properties disposed			-		-			-		2
^(1)Approximately 209,757 square feet (6.0% 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 (2.2% 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.
^(4)Adjusted for October 20, 2014, sale of 8,000 square foot vacant Red Deer, Alberta, property.

Summit II's Interim Consolidated Financial Statements and MD&A for the period ended September 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

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