Summit Industrial Income REIT Reports Q1 2022 Financial Results and 3.0% Increase in Distributions
TORONTO, May 10, 2022 /CNW/ - Summit Industrial Income REIT ("Summit" or the "REIT") (TSX: SMU.UN) announced continued growth and strong operating performance for the three months ended March 31, 2022, and an increase in monthly cash distributions.
"Following another record year in 2021, our growth and operating performance continued to deliver in the first quarter of 2022," commented Paul Dykeman, Chief Executive Officer. "Significant market demand and low availability in all our target markets are driving further increases in rental rates, near-full occupancies and expansion opportunities. Looking ahead, we believe these strong market fundamentals, combined with our proven operating platform and growing development, will generate another strong year for the REIT ahead in 2022."
"We are pleased to announce today, on behalf of our Board of Trustees, a 3.0% increase in our monthly cash distributions. The increase reflects our view of continued strong operating performance, liquidity position, and our commitment to delivering stable and growing returns to our Unitholders," Mr. Dykeman concluded.
2022 HIGHLIGHTS
FINANCIAL:
- Revenue from investment properties increased by 12.2% in Q1 2022 driven by portfolio growth, high stable occupancies and rent increases.
- Net rental income increased by 11.3% in Q1 2022.
- Fair value gains on investment properties of $209.7 million (4.3% of investment property fair value) in Q1 2022.
- FFO1 increased 15.3% to $32.5 million ($0.183 per Unit) in Q1 2022. FFO per Unit1 increased 8.9% compared to Q1 2021, despite 5.9% increase in Units outstanding.
- On April 19, 2022, the REIT increased the total size of its Green Unsecured Development Credit Facility by $100 million to $200 million and extended the term by one year to September 24, 2025.
- On May 4, 2022, the REIT increased its $300 million unsecured revolving credit facility by $100 million to $400 million and extended the term by one year to March 23, 2025.
- On March 31, 2022, the REIT completed a $230 million bought-deal equity offering of REIT Units.
- In May 2022, the REIT entered into $169.7 million of new 10-year secured term mortgage financing at an effective interest rate of 4.43%, a significant portion of which is interest-only.
- Strong liquidity position at March 31, 2022, with approximately $1.2 billion of available liquidity1 including cash, borrowing capacity on the REIT's unsecured revolving credit facility and Green Unsecured Development Credit Facility, and potential new financing that could be placed on a portion of the REIT's $3.4 billion of unencumbered assets.
OPERATIONS:
- Near-full occupancy at 98.2% compared to 99.2% at December 31, 2021, with an average lease term of 5.5 years and 2.0% average annual contractual rent steps.
- Future lease commitments on 200,552 sq. ft. (or 51.3% of vacancy) as at March 31, 2022.
- Same property NOI1 increased 1.8% in Q1 2022 with Ontario and Quebec contributing 4.8% and 0.1%, respectively. Excluding the reversal of bad debt provisions of $0.1 million in Q1 2022 and $0.7 million in Q1 2021, growth in same property NOI1 was 3.5% for Q1 2022 with Ontario and Quebec each contributing 6.7% and 2.0%, respectively.
- Completed over 1.1 million sq. ft. of 2022 lease renewals and new lease deals in Q1 2022 with a 63.5% retention rate generating a 51.5% overall increase in rents, including 66.4% in Ontario and 73.9% in Quebec (excluding contractual renewals).
- Pre-leasing completed on approximately 333,000 sq. ft. (100%) of GLA under construction for development properties that are expected to be completed and transferred to income-producing properties in 2022.
PROPERTY PORTFOLIO:
- Acquired an income-producing property in Montreal, Quebec totaling 226,646 sq. ft. for $56.7 million at an average going-in cap rate of 4.5%.
- Completed acquisition of remaining 50% interest in two recently constructed properties in Guelph, Ontario totaling 441,921 sq. ft. for $54.9 million. Including its existing ownership interest, the REIT's total investment is approximately $84.6 million generating a consolidated cap rate of approximately 4.7%.
- Acquired a 12-acre parcel of land for $27.5 million with the potential to develop 180,000 sq. ft of industrial space in Burlington, Ontario.
- Acquired a 50% interest in two development properties in Kitchener and Guelph, Ontario, through joint venture partnerships. The 59.5-acre development sites were acquired by the joint ventures for an aggregate purchase price of $88.0 million and have the potential to develop approximately 1.2 million sq. ft. of industrial space.
- Disposed of a 32,000 sq. ft. non-core investment property for gross proceeds of $4.2 million.
- On April 4, 2022, the REIT acquired a 76,423 sq. ft. industrial building located in Vaughan, Ontario, for a purchase price of $25.2 million
OTHER:
- Insider ownership fully aligned with 7.1% of REIT Units outstanding held by management and Trustees at March 31, 2022.
DISTRIBUTION INCREASE:
- On May 10, 2022, the REIT announced a 3.0% increase in monthly cash distributions to $0.0484 per Unit ($0.581 per Unit annualized), effective for the May 2022 distribution.
PORTFOLIO GROWTH
During Q1 2022, the REIT acquired three income producing properties, including one 226,646 sq. ft. industrial property in the Greater Montreal Area for $56.7 million, and the remaining 50% interest in two recently constructed income producing properties in Guelph, Ontario totalling 441,921 sq. ft. from the REIT's joint venture partner for $54.9 million.
The REIT sold one non-core property in Edmonton, Alberta during the first quarter of 2022 totaling 32,000 sq. ft. for gross proceeds of $4.2 million.
The REIT continued to expand its pipeline of development projects in Q1 2022 with the acquisition of three development sites totalling approximately 72 acres with the potential to add approximately 1.3 million sq. ft. of GLA to the portfolio. On January 20, 2022, one 12-acre parcel of land was purchased in Burlington, Ontario for $27.5 million with the potential to develop 180,000 sq. ft. of industrial space. A 50% interest in a 19.5-acre development site in Kitchener, Ontario was acquired through a joint venture partnership on February 3, 2022. The development site was acquired by the joint venture for an aggregate purchase price of $11.0 million and has the potential to develop 360,000 sq. ft of GLA. The REIT also acquired a 50% interest in a 40-acre development site in Guelph, Ontario on March 31, 2022, through a joint venture partnership. The development site was acquired by the joint venture for an aggregate purchase price of $77.0 million and has the potential to develop 790,000 sq. ft. of GLA.
At March 31, 2022, the REIT's portfolio totaled 159 properties aggregating 21.5 million sq. ft., with an additional 12 buildings under development aggregating 2.3 million sq. ft. of potential GLA, for a total net book value of approximately $4.9 billion. During the first quarter of 2022, the REIT recognized fair value gains on its investment properties of $209.7 million (4.3% of investment property fair value).
CONTINUED STRONG OPERATING PEFORMANCE
Revenue from investment properties for Q1 2022 rose 12.2% compared to the same prior year quarter due primarily to acquisitions completed over the prior twelve months, stable occupancies and increased rents. Occupancy remained strong at March 31, 2022 at 98.2% with an average lease term of 5.5 years and 2.0% annual contractual rent steps.
Net rental income for Q1 2022 increased 11.3% compared to the same prior year period due primarily to higher overall rental rates on leasing activities and acquisitions completed over the prior twelve months.
FFO1 increased 15.3% to $32.5 million ($0.183 per Unit) during Q1 2022 compared to $28.2 million ($0.168 per Unit) in the same prior year period. FFO per Unit1 increased 8.9% compared to Q1 2021 despite a 5.9% increase in Units outstanding. The REIT's FFO payout ratio1 for Q1 2022 was 77.1% excluding the benefit of the REIT's DRIP (61.3% including the benefit of the REIT's DRIP).
Same property NOI1 rose 1.8% for Q1 2022, including a 4.8% increase in Ontario and 0.1% increase in Quebec. Growth in same property NOI1 in the first quarter of 2022 was driven primarily by rental rate growth from 2021 and Q1 2022 lease renewals and new lease deals, which generated an average of 53.8% and 29.5% increase over expiring rents in Ontario and Quebec, respectively, in 2021, and 62.0% and 44.7% increase over expiring rents in Ontario and Quebec, respectively, in Q1 2022. Growth in same property NOI1 was muted by the reversal of bad debt provisions due to the successful collection of rents. Excluding the reversal of bad debt provisions of $0.1 million in Q1 2022 and $0.7 million in Q1 2021, growth in same property NOI1 was 3.5% in the quarter, including 6.7% in Ontario and 2.0% in Quebec. Same property NOI1 represented approximately 85.1% of total portfolio NOI1 and 85.8% of total GLA at March 31, 2022.
STRATEGIC LEASING PROGRAM
The REIT completed over 1.1 million sq. ft. of lease renewals and new lease deals during the first quarter of 2022 with a retention rate of 63.5%, generating an average increase in monthly rents of 51.5% over the expiring rent with a significant 66.4% increase over expiring rents in Ontario and 73.9% in Quebec (excluding contractual renewals).
Furthermore, the REIT secured future lease commitments on 200,552 sq. ft. (or 51.3% of vacancy) as at March 31, 2022.
STRONG BALANCE SHEET AND LIQUIDITY
Total assets increased to $5.2 billion at March 31, 2022, up from $4.5 billion at December 31, 2021 due primarily to property acquisitions during the period and fair value gains on investment properties. Total debt was $1.5 billion at March 31, 2022 compared to $1.3 billion at December 31, 2021. At March 31, 2022, the REIT's unsecured debt represented 77% of total debt outstanding with approximately $3.4 billion in unencumbered assets.
On April 19, 2022, the REIT amended its Green Unsecured Development Credit Facility to increase the commitment by $100 million and to extend the term by one year to September 24, 2025. Following the amendment, the total credit facility size is $200 million, including a $150 million green tranche and a $50 million conventional tranche.
On May 4, 2022, the REIT amended its unsecured revolving credit facility to increase the commitment by $100 million to $400 million and to extend the term by one year to March 23, 2025.
During the first quarter of 2022, the REIT repaid $23.5 million of maturing secured term mortgages that carried a weighted average interest rate of 3.08%. Subsequent to quarter end, the REIT repaid an additional $22.0 million of maturing secured term mortgages that carried a weighted average interest rate of 2.90%. In May 2022, the REIT entered into $169.7 million of new 10-year secured term mortgage financing at an effective interest rate of 4.43%, a significant portion of which is interest-only.
On March 31, 2022, the REIT completed a bought deal equity offering of 10,384,500 Units at a price of $22.15 per Unit for gross proceeds of $230.0 million. The offering incurred transaction costs of $9.7 million for net proceeds of $220.3 million.
During Q1 2022, the REIT also issued 2,009,700 Units under the ATM Prospectus Supplement at an average price of $22.37 per Unit for gross proceeds of $44.9 million, and incurred commissions and other issuance costs of $0.9 million and $0.2 million, respectively, for net proceeds of $43.8 million.
At March 31, 2022, the REIT's debt leverage ratio1 was 28.1% compared to 35.5% at March 31, 2021. Debt service and interest coverage ratios1 were 3.3x and 4.4x, respectively, at March 31, 2022 compared to 2.5x and 3.9x, respectively, at March 31, 2021.
At March 31, 2022, the REIT's liquidity position remained strong at approximately $1.2 billion of available liquidity1 including cash, available borrowing capacity on its credit facilities, and potential for new financing that could be placed on a portion of its $3.4 billion of unencumbered assets.
MONTHLY CASH DISTRIBUTION INCREASE
On May 10, 2022, the REIT's Board of Trustees announced a 3.0% increase in monthly cash distributions to $0.484 monthly ($0.581 per Unit annualized), effective for the May 2022 distribution.
INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit's management team on Wednesday, May 11, 2022 at 9.00 am EST. The telephone numbers to participate in the conference call are North America Toll Free: (888) 330-2446 and International: (240) 789-2732. Please use the access code 7589769# 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 Summit's website at www.summitiireit.com.
ANNUAL MEETING OF UNITHOLDERS
The REIT will hold its virtual 2021 Annual and Special Meeting of Unitholders on Wednesday, May 11, 2022 at 11.00 am ET. For instructions on accessing the virtual meeting, please visit Summit's website at www.summitiireit.com.
FINANCIAL AND OPERATING HIGHLIGHTS
Q1 2022 |
Q1 2021 |
|
Portfolio Performance |
||
Occupancy |
98.2% |
98.2% |
Revenue from investment properties |
$ 59,115 |
$ 52,710 |
Property operating expenses |
$ 15,978 |
$ 13,936 |
Net rental income |
$ 43,137 |
$ 38,774 |
Finance costs |
$ 9,266 |
$ 9,398 |
Fair value adjustments to investment properties |
$ 209,712 |
$ 104,848 |
Net income |
$ 241,911 |
$ 132,422 |
Operating Performance |
||
FFO(1) |
$ 32,491 |
$ 28,182 |
FFO per Unit(1) |
$ 0.183 |
$ 0.168 |
Net income per Unit - basic |
$ 1.361 |
$ 0.789 |
Same property NOI(1) |
$ 36,716 |
$ 36,068 |
Distributions |
||
Distributions declared to Unitholders |
$ 25,574 |
$ 22,663 |
Distributions per Unit declared to Unitholders |
$ 0.141 |
$ 0.135 |
FFO payout ratio without DRIP benefit(1) |
77.1% |
80.4% |
FFO payout ratio with DRIP benefit(1) |
61.3% |
65.4% |
Weighted average Units outstanding (in thousands) |
177,757 |
167,823 |
Liquidity and Leverage |
||
Total assets |
$ 5,199,949 |
$ 3,294,542 |
Total unencumbered assets |
$ 3,354,890 |
$ 1,548,963 |
Total debt |
$ 1,459,514 |
$ 1,167,999 |
Weighted average effective interest rate |
2.47% |
2.99% |
Weighted average term to maturity (years) |
4.2 |
5.1 |
Leverage(1) |
28.1% |
35.5% |
Interest coverage(1) |
4.4x |
3.9x |
Debt service coverage(1) |
3.3x |
2.5x |
Debt-to-adjusted EBITDA(1)(2) |
9.0x |
8.0x |
DBRS Issuer Rating |
BBB (low) Positive |
BBB (low) Stable |
Investment Properties |
||
Property acquisitions |
3 |
1 |
Property dispositions |
1 |
1 |
Number of properties |
159 |
153 |
Total GLA |
21,514 |
19,393 |
(1) Non-GAAP Measure. Refer to "Non-GAAP Measures" section in this press release for further information. |
||
(2) On April 4, 2022, the REIT repaid $177.2 million of the $202.2 million drawn under its credit facilities, which reduced the REIT's debt-to-adjusted EBITDA ratio to 7.9x |
||
Summit's Condensed Consolidated Interim Financial Statements and MD&A for the three months ended March 31, 2022 are available on the REIT's website at www.summitiireit.com and on SEDAR at www.sedar.com.
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 consolidated financial statements prepared in accordance with IFRS (GAAP). In this release, the REIT discloses and discusses certain non-GAAP measures, including FFO, FFO per Unit, FFO payout ratio, NOI, same property NOI, leverage ratio, interest coverage ratio, debt service coverage ratio, debt-to-adjusted EBITDA and available liquidity. The non-GAAP measures are further defined and discussed in Appendix A | Non-GAAP Measures in the MD&A for the three months ended March 31, 2022 and filed on SEDAR (www.sedar.com), which is incorporated by reference and 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 IFRS as an indicator of the REIT's performance.
Reconciliation of Non-GAAP Measures
The following tables reconcile the REIT's non-GAAP measures to the most comparable IFRS measures for the three months ended March 31, 2022 and 2021.
FFO
The REIT's FFO, FFO per Unit and FFO payout ratio are calculated as follows:
Q1 2022 |
Q1 2021 |
|
Net income |
$ 241,911 |
$ 132,422 |
Adjustments: |
||
Free rent amortization |
321 |
330 |
Amortization of other assets |
221 |
63 |
Fair value adjustment to deferred unit compensation |
(250) |
215 |
Fair value adjustment to investment properties |
(209,712) |
(104,848) |
FFO |
$ 32,491 |
$ 28,182 |
FFO per Unit |
$ 0.183 |
$ 0.168 |
Distributions declared to Unitholders |
$ 25,574 |
$ 22,663 |
Distributions per Unit declared to Unitholders |
$ 0.141 |
$ 0.135 |
Cash Distributions paid |
$ 19,927 |
$ 18,428 |
Regular FFO payout ratio without DRIP benefit |
77.1% |
80.4% |
Regular FFO payout ratio with DRIP benefit |
61.3% |
65.4% |
Weighted average number of Units outstanding (in thousands) |
177,757 |
167,823 |
Units issued and outstanding at the end of the period (in thousands) |
189,531 |
167,980 |
Other items: |
||
Straight-line rent adjustment |
$ (1,158) |
$ (1,199) |
Non-recoverable capital expenditures |
$ (846) |
$ (386) |
Leasing costs |
$ (4,365) |
$ (2,687) |
Same Property NOI
In calculating same property NOI, the impacts from the straight-lining of rents and amortization of free rent have been excluded. Same property NOI excludes properties that would have had changes due to acquisitions, dispositions and redevelopments, as well as properties classified as held for sale.
The following table reconciles same property NOI to net rental income for the periods presented:
Change |
Change |
||||
GLA |
Q1 2022 |
Q1 2021 |
($) |
(%) |
|
Ontario |
9,932 |
$ 19,093 |
$ 18,218 |
$ 875 |
4.8% |
Quebec |
3,254 |
5,464 |
5,458 |
6 |
0.1% |
Alberta |
5,227 |
12,061 |
12,293 |
(232) |
-1.9% |
Other Canada |
42 |
98 |
99 |
(1) |
-1.0% |
Same property NOI |
18,455 |
$ 36,716 |
$ 36,068 |
$ 648 |
1.8% |
Acquisitions/dispositions/redevelopments |
3,059 |
5,584 |
1,838 |
3,746 |
|
Straight-line rent |
1,158 |
1,198 |
(40) |
||
Free rent amortization |
(321) |
(330) |
9 |
||
Net rental income |
21,514 |
$ 43,137 |
$ 38,774 |
$ 4,363 |
Financial Ratios
The REIT's interest coverage ratio, debt service coverage ratio and debt-to-adjusted EBITDA are calculated as follows:
Q1 2022 |
Q1 2021 |
|
Net income |
$ 241,911 |
$ 132,422 |
Adjustments: |
||
Free rent amortization |
321 |
330 |
Amortization of other assets |
221 |
63 |
Straight-lining of rents |
(1,158) |
(1,199) |
Fair value adjustment to deferred unit compensation |
(250) |
215 |
Fair value adjustment to investment properties |
(209,712) |
(104,848) |
Finance costs |
9,266 |
9,398 |
Adjusted EBITDA |
$ 40,599 |
$ 36,381 |
Finance costs |
$ 9,266 |
$ 9,398 |
Interest Coverage |
4.4x |
3.9x |
Principal repayments (excluding mortgage payouts) |
$ 2,913 |
$ 5,133 |
Principal and interest payments |
$ 12,179 |
$ 14,531 |
Debt Service Coverage |
3.3x |
2.5x |
Non-current loans and borrowings |
$ 1,356,571 |
$ 1,123,162 |
Current loans and borrowings |
102,943 |
44,837 |
Total loans and borrowings |
1,459,514 |
1,167,999 |
Adjustments: |
||
Unamortized premium on debt |
(1,935) |
(2,970) |
Unamortized deferred financing charges |
5,076 |
3,760 |
Total loans and borrowings (principal outstanding) |
$ 1,462,655 |
$ 1,168,789 |
Adjusted EBITDA per above, annualized |
$ 162,396 |
$ 145,524 |
Debt-to-Adjusted EBITDA(1) |
9.0x |
8.0x |
(1) On April 4, 2022, the REIT repaid $177.2 million of the $202.2 million drawn under its credit facilities, which reduced the REIT's debt-to-adjusted EBITDA ratio to |
Available Liquidity
The REIT's available liquidity is calculated as follows:
March 31 |
December 31 |
||||||
2022 |
2021 |
||||||
Unencumbered assets |
$ 3,354,890 |
$ 2,996,333 |
|||||
Assets required to be reserved under unsecured debt agreements: |
|||||||
Senior unsecured debentures(1) |
(1,202,500) |
(1,202,500) |
|||||
Unsecured revolving credit facility(2) |
(390,000) |
(390,000) |
|||||
Green Unsecured Development Credit Facility(3) |
(130,000) |
(130,000) |
|||||
Unencumbered assets available to be encumbered |
1,632,390 |
1,273,833 |
|||||
Borrowing Capacity on Unencumbered Assets(4) |
$ 897,815 |
$ 700,608 |
|||||
Cash |
$ 188,936 |
$ 16,052 |
|||||
Undrawn portion of unsecured revolving credit facility(5) |
136,800 |
300,000 |
|||||
Undrawn portion of Green Unsecured Development Credit Facility(5) |
22,000 |
90,000 |
|||||
Borrowing capacity on unencumbered assets (per above) |
897,815 |
700,608 |
|||||
Available Liquidity |
$ 1,245,551 |
$ 1,106,660 |
|||||
(1) Calculated as 1.3 times $925 million in aggregate senior unsecured debentures outstanding. |
|||||||
(2) Calculated as 1.3 times $300 million committed amount of unsecured revolving credit facility. |
|||||||
(3) Calculated as 1.3 times $100 million committed amount of Green Unsecured Development Credit Facility. |
|||||||
(4) Borrowing capacity is calculated as unencumbered assets available to be encumbered multiplied by 55% loan-to-value. |
|||||||
(5) Includes amounts drawn and letters of credit issued under the credit facility agreements. |
|||||||
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 it has a very positive future, Summit's focus on 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, as well as the current geopolitical environment, 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.
_____________ |
1 Non-GAAP measure. Refer to "Non-GAAP Measures" section in this press release for further information. |
SOURCE Summit Industrial Income REIT
Dayna Gibbs, COO at (905) 791-1181 ext. 220, [email protected]
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