Q3 2022 HIGHLIGHTS
FINANCIAL:
- Revenue from investment properties increased by 19.8% to
$63.0 million . - Net rental income increased by 17.1% to
$47.1 million . - FFO1 increased 16.8% to
$35.7 million ($0.188 per Unit), excluding the non-recurring secured mortgage prepayment costs incurred in Q3 2021. - On
September 14, 2022 ,DBRS Limited upgraded the REIT's issuer rating and senior unsecured debentures rating to BBB with positive trends. - Subsequent to quarter end, the REIT repaid
$25.3 million of secured term mortgages at maturity. - Approximately
$1.4 billion of available liquidity1 and$3.5 billion of unencumbered assets atSeptember 30, 2022 .
OPERATIONS:
- Near-full occupancy at 99.6% with an average lease term of 5.5 years and 2.4% average annual contractual rent steps.
- Future lease commitments on 22,212 sq. ft. (or 24.2% of vacancy) as at
September 30, 2022 . - Same property NOI1 increased 6.3% with
Ontario andQuebec contributing 8.8% and 4.9%, respectively. - Completed over 2.4 million sq. ft. of lease renewals and new lease deals year-to-date generating a 56.0% overall increase in rents, including 89.9% in
Ontario and 66.8% inQuebec (excluding contractual renewals). - Pre-leasing completed on approximately 395,000 sq. ft. (100%) of GLA under construction for development properties that are expected to be completed and transferred to income-producing properties in 2022.
- Completed construction on approximately 534,000 sq. ft. of GLA in 2022 YTD and transferred to income-producing properties, with an additional 395,000 sq. ft. of GLA expected to be completed before the end of 2022.
______________________________________ |
1 Non-GAAP measure. Refer to "Non-GAAP Measures" section in this press release for further information. |
PROPERTY PORTFOLIO:
- Acquired two industrial properties totalling 174,790 sq. ft. in
Mississauga, Ontario , for a purchase price of$59.3 million at a going-in capitalization rate of 4.9%. - Completed construction on one property under development totalling 91,782 sq. ft. in
Guelph, Ontario and transferred it from investment properties under development to income-producing investment properties. - Subsequent to quarter end, the REIT acquired a 50% interest in a 26.8-acre development site in
Kitchener, Ontario , through a joint venture partnership. The development site was acquired by the joint venture partnership for an aggregate purchase price of$26.2 million and has the potential to develop two industrial properties totalling approximately 483,000 square feet.
OTHER:
- Insider ownership fully aligned with 6.9% of REIT Units outstanding held by management and Trustees at
September 30, 2022 . - On
November 7, 2022 , the REIT announced that it had entered into an agreement with GIC and Dream Industrial REIT, pursuant to which a joint venture between GIC and Dream Industrial REIT will acquire all of the assets and assume all of the liabilities of the REIT in an all-cash transaction, and the REIT will pay a special distribution and redeem all of its units for$23.50 per unit in cash. Closing of the transaction is expected to occur during the first quarter of 2023, subject to customary conditions, including REIT Unitholder, court and regulatory approvals. REIT Unitholders of record as ofOctober 31, 2022 will receive the previously-declared monthly distribution for October that will be paid onNovember 15, 2022 , following which the REIT has agreed to suspend its monthly distribution through closing.
This press release should be read in conjunction with Summit's Unaudited Condensed Consolidated Interim Financial Statements for the three and nine months ended
FINANCIAL AND OPERATING HIGHLIGHTS
Summit's key financial and operating metrics for the three and nine months ended
Q3 2022 | Q3 2021 | ||||||
(in thousands of Canadian dollars, except per Unit amounts) | Q3 2022 | Q3 2021 | YTD | YTD | |||
Portfolio Performance | |||||||
Occupancy | 99.6 % | 99.2 % | 99.6 % | 99.2 % | |||
Revenue from investment properties | $ 63,048 | $ 52,636 | $ 184,423 | $ 160,060 | |||
Property operating expenses | $ 15,942 | $ 12,412 | $ 47,344 | $ 39,895 | |||
Net rental income | $ 47,106 | $ 40,224 | $ 137,079 | $ 120,165 | |||
Finance costs(2) | $ 10,459 | $ 24,887 | $ 28,999 | $ 48,263 | |||
Fair value adjustments to investment properties | $ 4,081 | $ 239,773 | $ 259,184 | $ 933,418 | |||
Net income | $ 39,427 | $ 253,028 | $ 364,393 | $ 1,003,754 | |||
Operating Performance | |||||||
FFO(1)(2) | $ 35,701 | $ 14,506 | $ 104,543 | $ 68,763 | |||
FFO per Unit(1)(2) | $ 0.188 | $ 0.086 | $ 0.563 | $ 0.408 | |||
Net income per Unit - basic | $ 0.208 | $ 1.492 | $ 1.961 | $ 5.956 | |||
Same property NOI (1) | $ 41,592 | $ 39,141 | $ 114,540 | $ 108,558 | |||
Same property NOI(1) growth | 6.3 % | 5.4 % | 5.5 % | 4.9 % | |||
Distributions | |||||||
Distributions declared to Unitholders | $ 27,583 | $ 24,141 | $ 80,440 | $ 70,183 | |||
Distributions per Unit declared to Unitholders | $ 0.145 | $ 0.141 | $ 0.430 | $ 0.415 | |||
FFO payout ratio without DRIP benefit(1)(2) | 77.3 % | 164.9 % | 76.4 % | 101.7 % | |||
FFO payout ratio with DRIP benefit(1)(2) | 73.1 % | 127.2 % | 64.3 % | 80.0 % | |||
Weighted average Units outstanding (in thousands) | 189,942 | 169,599 | 185,837 | 168,530 | |||
Liquidity and Leverage | |||||||
Total assets | $ 5,219,015 | $ 4,393,410 | $ 5,219,015 | $ 4,393,410 | |||
Total unencumbered assets | $ 3,451,958 | $ 2,809,100 | $ 3,451,958 | $ 2,809,100 | |||
Total debt | $ 1,384,770 | $ 1,286,456 | $ 1,384,770 | $ 1,286,456 | |||
Weighted average effective interest rate | 2.72 % | 2.51 % | 2.72 % | 2.51 % | |||
Weighted average term to maturity (years) | 4.8 | 4.9 | 4.8 | 4.9 | |||
Leverage(1) | 26.5 % | 29.3 % | 26.5 % | 29.3 % | |||
Interest coverage(1) | 4.3x | 4.3x | 4.5x | 4.0x | |||
Debt service coverage(1) | 3.5x | 3.2x | 3.5x | 2.8x | |||
Debt-to-adjusted EBITDA(1) | 7.8x | 8.4x | 8.0x | 8.6x | |||
DBRS Issuer Rating | BBB Positive | BBB Positive | BBB Positive | BBB Positive | |||
Number of properties acquired | 2 | — | 6 | 3 | |||
Number of properties disposed | — | — | 1 | 6 | |||
Total number of properties | 162 | 154 | 162 | 154 | |||
Total GLA | 21,806 | 20,129 | 21,806 | 20,129 | |||
(1) Non-GAAP Measure. Refer to "Non-GAAP Measures" section in this press release for further information. |
(2) Finance costs and FFO includes strategic non-recurring mortgage prepayment costs of |
PORTFOLIO GROWTH
During Q3 2022, the REIT acquired two industrial properties totalling 174,790 sq. ft. located in
To date in 2022, the REIT acquired six income-producing properties totalling 698,820 sq. ft., and five development properties totalling approximately 75 acres with the potential to add approximately 1.4 million sq. ft. of GLA to the portfolio, including the 91,782 sq. ft. property in
At
CONTINUED STRONG OPERATING PERFORMANCE
Revenue from investment properties for Q3 2022 and 2022 YTD rose 19.8% and 15.2% compared to the same prior year periods due primarily to acquisitions completed over the prior twelve months, continuing strong occupancy and higher overall rental rates on leasing activities. Occupancy remained strong at
Net rental income for Q3 2022 and 2022 YTD increased 17.1% and 14.1% compared to the same prior year periods due primarily to continuing strong occupancy, higher overall rental rates on leasing activities and acquisitions completed over the prior twelve months.
Excluding the non-recurring secured mortgage prepayment costs of
Same property NOI1 rose 6.3% for Q3 2022 (5.5% for 2022 YTD), including a 8.8% increase in
STRATEGIC LEASING PROGRAM
The REIT completed over 2.4 million sq. ft. of lease renewals and new lease deals 2022 YTD with a retention rate of 54.0%, generating an average increase in monthly rents of 56.0% over the expiring rent with a significant 89.9% increase over expiring rents in
The REIT maintained near-full 99.6% occupancy in Q3 2022 with limited to no downtime, while also taking advantage of significantly higher market rents on turnover of the space, with some re-leasing at rental rates in excess of 100% of the expiring rent.
Furthermore, the REIT secured future lease commitments on 22,212 sq. ft. (or 24.2% of vacancy) as at
STRONG BALANCE SHEET AND LIQUIDITY
Total assets increased to
On
During 2022 YTD, the REIT repaid
The REIT's debt metrics remained strong during the third quarter of 2022. At
Debt-to-adjusted EBITDA was 7.8x and 8.0x for the three and nine months ended
At
ARRANGEMENT AGREEMENT TO ACQUIRE THE REIT
On
The Transaction, expected to close in the first quarter of 2023, is subject to customary conditions, including REIT Unitholder, court and regulatory approvals, and is expected to occur via a plan of arrangement under the Canada Business Corporations Act, pursuant to which the Joint Venture will acquire all of the assets and assume all of the liabilities of the REIT, and the REIT will pay a special distribution and redeem all of its units for
As a result of the announcement of the Transaction, Summit will not host a conference call and webcast to discuss the financial results and operations for the third quarter.
NON-GA
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 and nine months ended
Reconciliation of Non-GAAP Measures
The following tables reconcile the REIT's non-GAAP measures to the most comparable IFRS measures for the three and nine months ended
Available Liquidity
The REIT's available liquidity is calculated as follows:
2022 | 2021 | |
Unencumbered assets | $ 3,451,958 | $ 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) | (520,000) | (390,000) |
Green Unsecured Development Credit Facility(3) | (260,000) | (130,000) |
Unencumbered assets available to be encumbered | 1,469,458 | 1,273,833 |
Borrowing Capacity on Unencumbered Assets(4) | $ 808,202 | $ 700,608 |
Cash | 31,375 | 16,052 |
Undrawn portion of unsecured revolving credit facility(5) | 400,000 | 300,000 |
Undrawn portion of Green Unsecured Development Credit Facility(5) | 189,000 | 90,000 |
Borrowing capacity on unencumbered assets (per above) | 808,202 | 700,608 |
Available Liquidity | $ 1,428,577 | $ 1,106,660 |
(1) Calculated as 1.3 times | ||
(2) Calculated as 1.3 times | ||
(3) Calculated as 1.3 times | ||
(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. |
FFO
The REIT's FFO, FFO per Unit and FFO payout ratio are calculated as follows:
Q3 2022 | Q3 2021 | |||
Q3 2022 | Q3 2021 | YTD | YTD | |
Net income | $ 39,427 | $ 253,028 | $ 364,393 | $ 1,003,754 |
Adjustments: | ||||
Free rent amortization | 367 | 300 | 1,037 | 920 |
Amortization of other assets | 74 | 88 | 369 | 235 |
Fair value adjustment to deferred unit compensation | (86) | 863 | (2,072) | 1,963 |
Fair value adjustment to loans receivable | — | — | — | (4,691) |
Fair value adjustment to investment properties | (4,081) | (239,773) | (259,184) | (933,418) |
FFO(1) | $ 35,701 | $ 14,506 | $ 104,543 | $ 68,763 |
FFO per Unit(1) | $ 0.188 | $ 0.086 | $ 0.563 | $ 0.408 |
Distributions declared to Unitholders | $ 27,583 | $ 24,141 | $ 80,440 | $ 70,183 |
Distributions per Unit declared to Unitholders | $ 0.145 | $ 0.141 | $ 0.430 | $ 0.415 |
Cash Distributions paid | $ 26,114 | $ 18,448 | $ 67,259 | $ 55,020 |
Regular FFO payout ratio without DRIP benefit(1) | 77.3 % | 164.9 % | 76.4 % | 101.7 % |
Regular FFO payout ratio with DRIP benefit(1) | 73.1 % | 127.2 % | 64.3 % | 80.0 % |
Weighted average number of Units outstanding (in thousands) | 189,942 | 169,599 | 185,837 | 168,530 |
Units issued and outstanding at the end of the period (in thousands) | 189,977 | 175,446 | 189,977 | 175,446 |
Other items: | ||||
Straight-line rent adjustment | $ (1,412) | $ (1,080) | $ (3,830) | $ (4,226) |
Non-recoverable capital expenditures | $ (790) | $ (402) | $ (2,780) | $ (788) |
Leasing costs | $ (4,478) | $ (1,764) | $ (12,845) | $ (7,240) |
(1) FFO includes strategic non-recurring mortgage prepayment costs of |
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 tables reconcile same property NOI to net rental income for the periods presented:
Change | Change | ||||
GLA | Q3 2022 | Q3 2021 | ($) | ( %) | |
10,267 | $ 21,113 | $ 19,403 | $ 1,710 | 8.8 % | |
4,019 | 7,889 | 7,520 | 369 | 4.9 % | |
5,177 | 12,492 | 12,120 | 372 | 3.1 % | |
Other | 42 | 98 | 98 | — | 0.0 % |
Same property NOI | 19,505 | $ 41,592 | $ 39,141 | $ 2,451 | 6.3 % |
Acquisitions/dispositions/redevelopments | 2,301 | 4,469 | 303 | 4,166 | |
Straight-line rent | 1,412 | 1,080 | 332 | ||
Free rent amortization | (367) | (300) | (67) | ||
Net rental income | 21,806 | $ 47,106 | $ 40,224 | $ 6,882 |
Q3 2022 | Q3 2021 | Change | Change | ||
GLA | YTD | YTD | ($) | ( %) | |
9,924 | $ 60,569 | $ 55,467 | $ 5,102 | 9.2 % | |
3,254 | 16,928 | 16,411 | 517 | 3.2 % | |
5,177 | 36,749 | 36,389 | 360 | 1.0 % | |
Other | 42 | 294 | 291 | 3 | 1.0 % |
Same property NOI | 18,397 | $ 114,540 | $ 108,558 | $ 5,982 | 5.5 % |
Acquisitions/dispositions/redevelopments | 3,409 | 19,746 | 8,301 | 11,445 | |
Straight-line rent | 3,830 | 4,226 | (396) | ||
Free rent amortization | (1,037) | (920) | (117) | ||
Net rental income | 21,806 | $ 137,079 | $ 120,165 | $ 16,914 |
Financial Ratios
The REIT's interest coverage ratio, debt service coverage ratio and debt-to-adjusted EBITDA are calculated as follows:
Q3 2022 | Q3 2021 | |||
Q3 2022 | Q3 2021 | YTD | YTD | |
Net income | $ 39,427 | $ 253,028 | $ 364,393 | $ 1,003,754 |
Adjustments: | ||||
Free rent amortization | 367 | 300 | 1,037 | 920 |
Amortization of other assets | 74 | 88 | 369 | 235 |
Straight-lining of rents | (1,412) | (1,080) | (3,830) | (4,226) |
Fair value adjustment to deferred unit compensation | (86) | 863 | (2,072) | 1,963 |
Fair value adjustment to loans receivable | — | — | — | (4,691) |
Fair value adjustment to investment properties | (4,081) | (239,773) | (259,184) | (933,418) |
Finance costs(1) | 10,459 | 24,887 | 28,999 | 48,263 |
Adjusted EBITDA | $ 44,748 | $ 38,313 | $ 129,712 | $ 112,800 |
Adjustments to finance costs: | ||||
Non-recurring mortgage prepayment costs(1) | — | (16,062) | — | (20,036) |
Interest expense (finance costs) excluding adjustments | $ 10,459 | $ 8,825 | $ 28,999 | $ 28,227 |
Interest Coverage | 4.3x | 4.3x | 4.5x | 4.0x |
Principal repayments (excluding mortgage payouts) | $ 2,468 | $ 3,280 | $ 7,931 | $ 12,530 |
Principal and interest payments | $ 12,927 | $ 12,105 | $ 36,930 | $ 40,757 |
Debt Service Coverage | 3.5x | 3.2x | 3.5x | 2.8x |
Non-current loans and borrowings | $ 1,305,392 | $ 1,213,815 | $ 1,305,392 | $ 1,213,815 |
Current loans and borrowings | 79,378 | 72,641 | 79,378 | 72,641 |
Total loans and borrowings | 1,384,770 | 1,286,456 | 1,384,770 | 1,286,456 |
Adjustments: | ||||
Unamortized premium on debt | (1,666) | (2,243) | (1,666) | (2,243) |
Unamortized deferred financing charges | 4,679 | 5,685 | 4,679 | 5,685 |
Total loans and borrowings (principal outstanding) | $ 1,387,783 | $ 1,289,898 | $ 1,387,783 | $ 1,289,898 |
Adjusted EBITDA per above, annualized | $ 178,992 | $ 153,252 | $ 172,949 | $ 150,400 |
Debt-to-Adjusted EBITDA | 7.8x | 8.4x | 8.0x | 8.6x |
(1) The REIT incurred non-recurring mortgage prepayment costs of |
About Summit Industrial Income REIT
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's property portfolio; the Transaction and the terms thereof; the anticipated closing of the Transaction including the timing thereof; the expected October monthly distribution and the suspension of distribution thereof of Summit. There can be no assurance that the proposed Transaction will be completed or that it will be completed on the terms and conditions contemplated in this news release. The proposed Transaction could be modified, restructured or terminated in accordance with its terms. 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 the REIT's assumptions as compared to prior periods. These risks and uncertainties include, but are not limited to, the anticipated benefits of the Transaction to unitholders, the receipt in a timely manner of regulatory, court, Unitholder and other approvals for the Transaction, the availability of cash flow from operations to meet monthly distributions, the ability to satisfy the conditions applicable to the Transaction, tenant risks, current economic environment, including disputes between nations, war and international sanctions, environmental matters, general insured and uninsured risks 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.
SOURCE
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