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Summit Industrial Income REIT Reports Strong Growth & Record Results in 2020

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TORONTO, Feb. 17, 2021 /CNW/ - Summit Industrial Income REIT ("Summit II" or the "REIT") (TSX: SMU.UN) announced record operating and financial performance for the three months and year ended December 31, 2020.

Highlights:

  • Total revenue increased by 34.3% annually and 24.3% in the fourth quarter on portfolio growth, high stable occupancies and rent increases.

  • Strong occupancy levels at 98.0% compared to 98.7% at September 30, 2020 and 98.5% at December 31, 2019, with an average lease term of 5.5 years and 1.6% annual contractual rent steps.

  • Net rental income increased by 35.9% annually and 24.0% in the fourth quarter on revenue increase, organic growth and strong operating performance.

  • FFO1 increased 40.6% to $94.4 million ($0.651 per Unit) annually and 31.6% to $25.4 million ($0.159 per Unit) in the fourth quarter.

  • FFO per Unit1 increased 11.9% to $0.651 per Unit annually, despite a 25.7% increase in Units outstanding. In the fourth quarter, FFO per Unit1 increased by 10.4% to $0.159 per Unit, despite a 19.1% increase in Units outstanding.

  • Same property NOI1 increased 3.8% annually and 5.1% in the fourth quarter with Montreal and Toronto each contributing 6.5% and 3.9%, respectively (16.9% and 3.1%, respectively, in the fourth quarter).

  • Acquired interests in 23 industrial properties, including the remaining 50% interest in 11 Montreal properties and two Guelph properties from joint venture partners, totalling 1.7 million sq. ft. of GLA for $345.1 million. As a result of the Montreal acquisitions, the Trust internally manages 100% of its investment property portfolio.

  • Disposition of two non-core properties for combined gross proceeds of $7.8 million, as well as the DC2 data centre project in the GTA for a realized gain of $21.0 million.

  • Secured new $300.0 million unsecured revolving credit facility on March 23, 2020, the full balance of which was available to be drawn at December 31, 2020. The unsecured revolving credit facility replaced the REIT's $150.0 million secured revolving credit facility.

  • Completed two bought-deal equity offerings of REIT Units during the year for combined gross proceeds of $368.0 million, further enhancing the Trust's liquidity position.

  • Assigned issuer rating from DBRS Limited of BBB (low) with a stable trend on the successful issuance of two series of senior unsecured debentures: $250.0 million 5-year Series A senior unsecured debentures at a fixed rate of 2.15%, and $200.0 million 5.5-year Series B senior unsecured debentures at a fixed rate of 1.82%, both issued at rates lower than the Trust's current average interest rate on floating rate debt.

  • Fully repaid the Trust's $382.2 million non-revolving bridge credit facility during the year.

  • Strong liquidity position at December 31, 2020, with approximately $600.0 million available including cash, borrowing capacity on the unsecured revolving credit facility, and potential new debt financing that could be placed on a portion of the Trust's $1.4 billion of fully unencumbered properties. As a result of strong rent collection during the year, available liquidity remained untouched.

  • Completed 2.1 million sq. ft. of 2020 renewals with a strong 82.0% retention rate, generating a 23.6% increase in rents (27.3% in the GTA).

  • Insider ownership fully aligned with 8.1% interest in total REIT Units outstanding.

____________________________

1

Non-GAAP measure. Refer to "Non-GAAP Measures" section in this press release for further information.

Subsequent Events:

  • Acquired a 342,830 square foot single-tenant warehousing and logistics facility located at 777 Bayly Street in Ajax, Ontario for a purchase price of $68.0 million in January 2021.

"Despite the pandemic negatively affecting the Canadian economy, we generated another year of strong growth and record operating performance in 2020, a testament to our proven and experienced management team, the strength of our property portfolio, and the resiliency of the Canadian light industrial market," commented Paul Dykeman, Chief Executive Officer. "Looking ahead, we are confident we will continue to expand our property portfolio in our key target markets, realize solid same property NOI growth due to the strong fundamentals in these markets, all contributing to our ultimate goal of delivering stable and sustainable cash distributions and enhanced value to our Unitholders."

STRATEGIC PORTFOLIO GROWTH
During 2020, the REIT acquired interests in 23 light industrial properties adding approximately 1.7 million square feet of gross leasable area to the portfolio for total costs of approximately $345.1 million. Acquisitions in 2020 included the purchase of the remaining 50% interest in two properties from a joint venture development partner in Guelph, Ontario and the remaining 50% interest in a portfolio of 11 properties in Montreal, Quebec from another joint venture partner.

The REIT also sold two non-core properties in 2020 totaling 63,510 square feet of GLA for total proceeds of approximately $7.8 million. At year end, the REIT held three additional non-core properties for sale totaling 119,041 square feet of GLA with an aggregate fair market value of $15.9 million.

In addition, in 2020 the REIT sold its interest in a data centre property in Toronto for a realized gain of $21.0 million.

Given the REIT's growth during the year, its portfolio totaled 156 properties at December 31, 2020 aggregating 19.4 million square feet with a net book value of approximately $3.0 billion. With the acquisition of the remaining 50% interests in properties from its Montreal joint venture partner in 2020, Summit now internally manages 100% of its property portfolio.

GROWTH AND STRONG OPERATING PEFORMANCE GENERATE RECORD RESULTS
Revenue from income producing properties for the three months and year ended December 31, 2020 rose 24.3% and 34.3%, respectively, due primarily to acquisitions completed during the year, continuing strong occupancies and increased rents.

Same property NOI1 rose 5.1% and 3.8% for the three months and year ended December 31, 2020, respectively, compared to the same periods in the prior year. In the REIT's target markets of Montreal and Toronto, same property NOI1 for the year ended December 31, 2020 rose 6.5% and 3.9%, respectively, compared to the prior year, while the Alberta portfolio contributed 0.9% to same property NOI1 growth. Same property NOI1 represented approximately 63.8% of total NOI1 and 68.0% of total GLA for the year ended December 31, 2020.

Net rental income for the three months and year ended December 31, 2020 increased 24.0% and 35.9%, respectively, compared to the same prior year periods due to the increase in same property NOI1, higher overall rental rates on leasing activities, contractual steps in rent, and accretive acquisitions. Net rental income for the year ended December 31, 2020 was negatively impacted by provisions for tenant receivables of approximately $2.1 million, including approximately $0.5 million representing the 25% rent forgiveness required for certain tenants approved for the government-operated Canadian Emergency Commercial Rent Assistance ("CECRA") program.

For the three months ended December 31, 2020, FFO1 was $25.4 million ($0.159 per Unit) up 31.6% from the same prior year period. For the year ended December 31, 2020, FFO1 was $94.4 million ($0.651 per Unit) up 40.6% from the prior year. The increase in FFO1 was due primarily to acquisitions completed over the prior twelve months and strong operating performance, partially offset by the sale of the REIT's 50% interest in a data centre property in September 2019. The REIT's growth was highly accretive to Unitholders in 2020 as FFO per Unit rose 11.9% despite the 25.7% increase in Units outstanding.

The REIT's FFO payout ratio1 for the year ended December 31, 2020 was a conservative 83.0% (67.6% including the benefit of the REIT's DRIP program) compared to 91.5% (80.1% including the benefit of the REIT's DRIP program) in the prior year.

PROACTIVE LEASING PROGRAM
Occupancy in the REIT's portfolio remained stable at 98.0% at December 31, 2020 with a weighted average lease term of approximately 5.5 years. The REIT continues to be proactive in addressing lease expiries well in advance.

The REIT completed 2.1 million square feet of 2020 lease renewals with a strong retention rate of 82.0%. Overall, 2020 renewals generated an average increase in monthly rents of 23.6% over the expiring rent with a significant 27.3% increase over expiring rents in the REIT's GTA target market. The REIT also completed leasing of 671,732 square feet of vacant space with an average lease term of 5.4 years. At December 31, 2020, 9.0% of the portfolio remains to be renewed in 2021.

STRONG BALANCE SHEET AND LIQUIDITY POSITION
Total assets increased to $3.2 billion at December 31, 2020, up from $2.6 billion as at December 31, 2019 due to the acquisition of 23 properties, including the remaining 50% interests 13 properties from the Trust's joint venture partners. Total debt was $1.2 billion at December 31, 2020 compared to $1.1 billion at December 31, 2019. At December 31, 2020, the REIT had a pool of approximately $1.4 billion of unencumbered properties.

On March 23, 2020, the REIT secured a new $300.0 million unsecured revolving credit facility which matures March 23, 2023. At December 31, 2020, this facility remained undrawn.

____________________________

1

Non-GAAP measure. Refer to "Non-GAAP Measures" section in this press release for further information.

On June 30, 2020, the REIT completed an up-financing of an assumed mortgage on a Guelph property. The new $40.0 million mortgage replaced the assumed mortgage of $21.0 million at a blended average interest rate of 3.45% (interest rate of 3.05% on the new debt) for an 8-year term (increase from 1.75-year term). The mortgage proceeds were used to pay down a portion of the unsecured revolving credit facility.

In October 2020, the REIT obtained $30.5 million of new 10-year secured mortgage financing placed on four unencumbered investment properties at a fixed interest rate of 2.91%.

In 2020, the REIT completed two successful bought deal equity offerings of 28.7 million REIT Units for total gross proceeds of approximately $368.0 million, including proceeds from the full exercise of the over-allotment options.

In September 2020, the REIT was assigned an issuer rating from DBRS Limited of BBB (low) with a stable trend. On September 17, 2020, the REIT successfully completed its inaugural offering of $250.0 million 5-year Series A senior unsecured debentures at a fixed annual rate of 2.15%. On December 22, 2020, the REIT successfully completed a subsequent offering of $200.0 million 5.5-year Series B senior unsecured debentures at a fixed annual rate of 1.82%. Proceeds from the unsecured debentures were used to repay the REIT's outstanding balance on its non-revolving bridge credit facility, all 2021 mortgage maturities, as well as to finance an acquisition completed subsequent to year end.

At December 31, 2020, the REIT's liquidity position continued to remain very strong at approximately $600 million including cash, available borrowing capacity on its unsecured revolving credit facility, and potential for new debt financing that could be placed on a portion of its $1.4 billion in unencumbered properties.

At December 31, 2020, the REIT's debt leverage ratio1 was 37.4% compared to 43.2% at December 31, 2019. The weighted average effective interest rate on the REIT's mortgage portfolio was 3.61% at December 31, 2020 compared to 3.68% at December 31, 2019. Debt service and interest coverage ratios1 were 2.2x and 3.2x, respectively, for the year ended December 31, 2020, an increase from 1.8x and 2.8x respectively, at the prior year-end. As at December 31, 2020, the REIT had reduced its exposure to floating interest rates to only 0.5% of total loans and borrowings, down from 36.0% at December 31, 2019.

STRONG AND STABLE RENT COLLECTION
Through the pandemic, the REIT has worked diligently with its tenants to collect the majority of its rents. In the second half of 2020 and continuing into 2021 rent collections have returned to pre-pandemic levels. The REIT entered into rent deferral agreements with certain tenants during 2020 for a total of $3.7 million. As of December 31, 2020, $0.6 million of this deferred rent had been repaid on schedule. Subsequent to year end a further $1.3 million has been repaid as scheduled. Management expects the majority of deferred rent to be repaid by mid-2021.

SUBSEQUENT EVENTS
On January 18, 2021, the REIT acquired a 342,830 square foot single-tenant warehousing and logistics facility in Ajax, Ontario for a purchase price of $68.0 million. The acquisition was financed with proceeds received from the Series B senior unsecured debenture offering that closed on December 22, 2020.

____________________________

1

Non-GAAP measure. Refer to "Non-GAAP Measures" section in this press release for further information.

INVESTOR CONFERENCE CALL
A conference call will be hosted by Summit II's management team on Thursday, February 18, 2021 at 8.30 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 5236379# when requested.

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 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 website at www.summitiireit.com.

FINANCIAL AND OPERATING HIGHLIGHTS





Three months ended December 31

Year Ended December 31

(in $ thousands, except per Unit amounts)

2020(4)


2019

2020(4)


2019


2018










Portfolio Performance









Occupancy (%)(3)

98.0%


98.5%

98.0%


98.5%


99.4%

Revenue from investment properties

$

51,253


$

41,229

$

190,906


$

142,193


$

92,150

Property operating expenses

14,392


11,508

50,796


39,118


27,310

Net rental income

36,861


29,721

140,110


103,075


64,840

Interest expense (finance costs)

9,819


9,883

41,535


36,068


22,491

Net income(6)

95,586


66,338

206,502


147,586


180,407










Operating Performance









FFO(1)

25,436


19,330

94,389


67,156


43,591

FFO per Unit (1)(2)

0.159


0.144

0.651


0.582


0.560

Net income per Unit - basic (2)

0.597


0.493

1.423


1.278


2.319










FFO including net realized gain(1)(5)

25,563


19,330

114,454


108,634


50,790

FFO per Unit including net realized gain(1)(5)

0.160


0.144

0.789


0.941


0.653

FFO including net realized gain payout ratio without DRIP benefit(1)(5)

84.6%


93.9%

68.1%


64.0%


81.8%

FFO including net realized gain payout ratio with DRIP benefit(1)(5)

68.5%


120.2%

55.4%


56.7%


70.0%










Distributions









Regular Distributions declared to Unitholders

21,976


18,651

79,252


62,275


40,680

Special Distributions declared to Unitholders (7)

-


-

-


8,374


1,212

Regular Distributions per Unit declared to Unitholders(2)

0.135


0.135

0.540


0.532


0.516

Special Distributions per Unit declared to Unitholders(7)

-


-

-


0.070


0.018

Total Distributions per Unit declared to Unitholders(2)

0.135


0.135

0.540


0.602


0.534










Regular FFO payout ratio without DRIP benefit(1)

85.0%


93.9%

83.0%


91.5%


92.1%

Regular FFO payout ratio with DRIP benefit(1)

68.8%


79.9%

67.6%


80.1%


79.1%










Weighted average Units outstanding(2)

160,195


134,502

145,089


115,465


77,803










Liquidity and Leverage









Total assets

3,172,213


2,608,679

3,172,213


2,608,679


1,774,604

Total debt (loans and borrowings and lease liability)

1,186,572


1,127,919

1,186,572


1,127,919


834,176

Weighted average effective mortgage interest rate

3.61%


3.68%

3.61%


3.68%


3.72%

Weighted average mortgage term (years)

5.7


5.8

5.7


5.8


4.8

Leverage ratio(1)

37.4%


43.2%

37.4%


43.2%


47.0%

Interest coverage (times)(1)

3.5


2.9

3.2


2.8


3.0

Debt service coverage (times)(1)

2.3


1.9

2.2


1.8


1.8

Debt-to-adjusted EBIDTA (times)(1)

8.5


9.8

8.8


11.0


13.2

DBRS Issuer Rating

BBB (low)


-

BBB (low)


-


-










Other









Property acquisitions(8)

14


39

23


42


24

Property dispositions(9)

1


-

2


1


4

Number of properties(3)

156


146

156


146


108

Total GLA(in thousands of square feet)(3)

19,360


17,492

19,360


17,492


13,395

(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 the non-core properties held for sale at December 31, 2020, as disclosed in the "Investment Properties Held for Sale" section of the MD&A.

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

(5) The realized gain on sale of investment property is calculated as net proceeds on sale less the actual costs incurred to initially acquire the property and any capital and leasing cost incurred since ownership. Refer to "Funds from Operations" section of the MD&A for further information.

(6) 2019 annual results include non-recurring costs of $96.6 million associated with the property and asset management internalization on May 17, 2019.

(7) 2019 results include a special distribution of $0.070 per Unit payable to shareholders of record on September 19, 2020, which was paid on October 2, 2019, as a result of the sale of the 50% interest in the data centre property and repayment of mezzanine loans.

(8) Includes acquisition of 50% interest in 11 properties, and two properties transferred from equity accounted joint ventures to investment properties. Refer to "Acquisitions" section of the MD&A for details of investment properties acquired during 2020 and 2019.

(9) Refer to "Dispositions" section of the MD&A for details on 2020 and 2019 dispositions. 2018 dispositions represent the disposal of 75% interest in four properties.

Summit II's Consolidated Financial Statements and MD&A for the year ended December 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 REIT 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 year ended December 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 year ended December 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 Summit II's belief that it is on track for another record year in 2020, Summit II's returned focus to growth activities and Summit II's proactive approach to addressing lease expiries. 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, and given the impact of COVID-19 and government measures to contain it, there is inherently more uncertainty associated with Summit II'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 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

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