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Summit Industrial Income REIT Reports Strong Performance in Third Quarter 2021

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TORONTO, Nov. 8, 2021 /CNW/ - Summit Industrial Income REIT ("Summit" or the "REIT") (TSX: SMU.UN) announced solid growth and strong operating performance for the three and nine months ended September 30, 2021.

2021 HIGHLIGHTS:

FINANCIAL:

  • Revenue up 12.4% in Q3 and 14.6% year-to-date ("YTD") driven by portfolio growth, high stable occupancies and rent increases.

  • Net rental income increased by 15.6% in Q3 and 16.4% YTD.

  • Fair value gains on investment properties of $239.8 million ($1.41 per Unit) in Q3 and $933.4 million ($5.54 per Unit) YTD.

  • Strategically repaid $329.5 million of variable rate secured term mortgages YTD incurring non-recurring prepayment costs of $20.0 million and generating expected annual interest cost savings of approximately $4.5 million.

  • FFO1 of $14.5 million in Q3 and $68.8 million YTD ($30.6 million in Q3 and $88.8 million excluding non-recurring mortgage prepayment costs).

  • FFO per Unit1 of $0.086 per Unit in Q3 and $0.408 per Unit YTD ($0.180 per Unit in Q3 and $0.527 per Unit YTD, excluding non-recurring mortgage prepayment costs).

  • New $75 million Green unsecured revolving credit facility in Q3 to finance current and future industrial property developments, the first labelled Green Loan of its kind in Canada.

  • Completed $225 million Series D senior unsecured debentures offering in Q3 at a fixed rate of 2.44%, maturing on July 14, 2028.

  • DBRS Limited strengthened trends on the REIT's Issuer Rating and Senior Unsecured Debentures rating to Positive from Stable and confirmed the ratings at BBB (low).

  • Completed a bought-deal equity offering of REIT Units in Q3 for gross proceeds of $126.7 million.

  • $1.1 billion of available liquidity at September 30, 2021 including cash, borrowing capacity and potential new financing on REIT's $2.8 billion in unencumbered properties.

OPERATIONS:

  • Occupancy rises to 99.2% at September 30, 2021 from 98.0% at December 31, 2020 and 98.7% at September 30, 2020, with an average lease term of 5.5 years and 1.9% average annual contractual rent steps.

  • Same property NOI1 increased 5.4% in Q3 and 4.9% YTD, with Ontario, Alberta and Quebec each contributing 9.0%, 2.6% and 0.6%, respectively, in Q3 and 6.5%, 4.2% and 2.6%, respectively, YTD.

  • Completed 1.7 million sq. ft. of 2021 lease renewals and new lease deals YTD with a strong 76.1% retention rate, generating a 28.9% increase in rents (67.5% in Ontario and 40.6% in Quebec, excluding contractual renewals).

  • Substantial pre-leasing on development projects of over 580,000 sq. ft or 48% of sq. ft. under development.

  • Future lease commitments on 84,517 sq. ft. or 51.9% of vacancy.

_________________________

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

PROPERTY PORTFOLIO:

  • Acquired 50% interest in 5.3-acre Guelph land parcel in July for $1.5 million with the potential to construct a 91,782 sq. ft. industrial building.

  • Acquired a 725,000 square foot Calgary logistics centre and adjacent trailer parking site in October for $129.6 million.

  • Acquired 50% interest in 11.1-acre Guelph land parcel in November for $3.1 million with potential to construct a 206,000 sq. ft. building.

"We are pleased with the REIT's level of activity in the third quarter, having continued to grow our portfolio, expand our development pipeline and strengthen our balance sheet," commented Paul Dykeman, Chief Executive Officer. "Our proactive leasing programs have resulted in near-full occupancies generating strong increases in average monthly rents. Looking ahead the future looks very bright for Summit as we build on our success and continue capitalizing on the strong fundamentals in the Canadian light industrial real estate sector."

PORTFOLIO GROWTH

Year-to-date in 2021, the REIT acquired four properties, one in the Greater Toronto Area, two in the Greater Montreal Area and one near Calgary, Alberta totalling 1.8 million square feet for total acquisition costs of $380.4 million.

The REIT also acquired a 12.7-acre development site in Burlington, Ontario for $28.0 million with the potential to develop a 243,828 square foot light industrial building, a 50% interest in a 5.3-acre land parcel from a joint venture partner in Guelph, Ontario for $1.5 million with the potential to construct a 91,782 square foot light industrial building, and a 50% interest in a 11.1 acre Guelph land parcel from a joint venture partner in November for $3.1 million with potential to construct a 206,000 square foot light industrial building. The REIT also entered into a conditional agreement to acquire a 50% interest in a 19.5-acre development site in Kitchener, Ontario for an expected purchase price of $5.6 million with potential to construct between 350,000 and 400,000 square feet of GLA, which is expected to close in late 2021 or early 2022.

Through the first nine months of 2021, the REIT sold six non-core properties totaling 335,000 square feet for gross proceeds of $57.1 million.

As at September 30, 2021, the REIT's portfolio totaled 154 properties aggregating 20.1 million square feet with a net book value of approximately $4.2 billion. During the first nine months of 2021, the REIT recognized fair value gains on its investment properties of $933.4 million ($5.54 per Unit), including fair value gains of $239.8 million ($1.41 per Unit) in the third quarter.

CONTINUED STRONG OPERATING PEFORMANCE

Revenue from investment properties for the three and nine months ended September 30, 2021 rose 12.4% and 14.6%, respectively, due primarily to acquisitions completed over the prior twelve months, higher occupancies and increased rents. Occupancy strengthened to 99.2% at September 30, 2021, up from 98.0% at December 31, 2020 and 98.7% at September 30, 2020, with an average lease term of 5.5 years and 1.9% annual contractual rent steps.

Same property NOI1 rose 5.4% and 4.9% for the three and nine months ended September 30, 2021, respectively, due to higher overall rental rates on leasing activities and contractual steps in rent, as well as improved occupancy. In Ontario, Alberta and Quebec same property NOI1 for the three months ended September 30, 2021 rose 9.0%, 2.6% and 0.6%, respectively, compared to the prior year. For the nine months ended September 30, 2021, same property NOI1 rose 6.5%, 4.2% and 2.6% in Ontario, Alberta and Quebec, respectively. Same property NOI1 represented approximately 87.2% and 82.1% of total portfolio NOI1 and 88.8% and 85.1% of total GLA for the three and nine months ended September 30, 2021, respectively.

Net rental income for the three and nine months ended September 30, 2021 increased 15.6% and 16.4%, respectively, compared to the same prior year periods due primarily to higher overall rental rates on leasing activities, acquisitions completed over the prior twelve months, in addition to $0.3 million and $1.0 million in recoveries of allowances for expected credit losses resulting from successful rent collection.

For the three months ended September 30, 2021, FFO1 was $14.5 million ($0.086 per Unit) compared to $24.2 million ($0.168 per Unit) in the same prior year period. For the nine months ended September 30, 2021, FFO1 was $68.8 million ($0.408 per Unit) compared to $69.0 million ($0.492 per Unit) last year. FFO1 for the three and nine months ended September 30, 2021 was impacted by non-recurring mortgage prepayment costs of $16.1 million and $20.0 million, respectively, related to the strategic early repayment of certain secured term mortgages, and was partially offset by the contribution of accretive acquisitions completed over the prior twelve months and strong operating performance. Excluding the mortgage prepayment costs, FFO1 was $30.6 million ($0.180 per Unit) and $88.8 million ($0.527 per Unit) for the three and nine months ended September 30, 2021, respectively. Excluding the mortgage prepayment costs, the REIT's FFO payout ratio1 for the three and nine months ended September 30, 2021 was 78.2% and 78.8%, respectively (60.4% and 62.0%, respectively, including the benefit of the REIT's DRIP).

PROACTIVE LEASING PROGRAM

The REIT completed over 1.7 million square feet of lease renewals and new leases during the first nine months of 2021 with a strong retention rate of 76.1%, generating an average increase in monthly rents of 28.9% over the expiring rent with a significant 68% increase over expiring rents in Ontario and 41% in Quebec (excluding contractual renewals). The REIT also completed pre-leasing of over 580,000 square feet of buildings currently under construction, and future lease commitments on approximately 85,000 square feet representing 51.9% of vacancy at September 30, 2021.

STRONG BALANCE SHEET

Total assets increased to $4.4 billion at September 30, 2021, up from $3.2 billion at December 31, 2020 due primarily to property acquisitions during the period and fair value gains on investment properties. Total debt was $1.3 billion at September 30, 2021 compared to $1.2 billion at December 31, 2020. At September 30, 2021, the REIT's unsecured debt represented 72% of total debt outstanding and it had a pool of approximately $2.8 billion in unencumbered properties.

On July 14, 2021, the REIT completed an offering of $225 million Series D senior unsecured debentures at a fixed rate of 2.44% per annum, payable semi-annually in arrears, maturing on July 14, 2028. The proceeds from the Series D offering were used to fund the early repayment of certain secured term mortgages.

Through the first nine months of 2021 strategically repaid $329.5 million of variable rate secured term mortgages that were fixed using interest rate swaps, using the proceeds from unsecured debenture offerings. Non-recurring mortgage prepayment costs of $20.0 million were incurred as a result of the repayments, and the REIT expects annual interest savings of approximately $4.5 million.

On September 24, 2021, the REIT entered in to a new $75.0 million green unsecured revolving credit facility with a three-year term to maturity, to finance current and future industrial property developments. The total size of the Green Unsecured Development Credit Facility including the $25.0 million conventional tranche is $100.0 million. At September 30, 2021, $nil was drawn from the credit facility.

On September 22, 2021, the REIT completed a bought deal equity offering of 6,060,500 Units at a price of $20.90 per Unit for gross proceeds of $126.7 million.

At September 30, 2021, the REIT's debt leverage ratio1 was 29.3% compared to 38.8% at September 30, 2020. The REIT's weighted average interest rate at September 30, 2021 was 2.51%, down from 3.09% at September 30, 2020. Debt service and interest coverage ratios1 were 2.8x and 4.0x, respectively, for the year-to-date 2021, compared to 2.1x and 3.1x, respectively, for the year-to-date 2020.

At September 30, 2021, the REIT's liquidity position remained very strong at approximately $1.1 billion including cash, available borrowing capacity on its credit facilities, and potential for new financing that could be placed on a portion of its $2.8 billion of unencumbered properties.

INVESTOR CONFERENCE CALL

A conference call will be hosted by Summit's Management team on Tuesday, November 9, 2021 at 10.30 am EST. The telephone numbers to participate in the conference call are North America Toll Free: (866) 541-8795 and International: (778) 560-2852. Please use the access code 6979422# 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 the website at www.summitiireit.com.

FINANCIAL AND OPERATING HIGHLIGHTS




Q3 2021

Q3 2020


Q3 2021

Q3 2020

YTD

YTD






Portfolio Performance





Occupancy

99.2%

98.7%

99.2%

98.7%

Revenue from investment properties

$

52,636

$

46,821

$

160,060

$

139,654

Property operating expenses

$

12,412

$

12,016

$

39,895

$

36,405

Net rental income

$

40,224

$

34,805

$

120,165

$

103,249

Finance costs(2)

$

24,887

$

9,804

$

48,263

$

31,716

Fair value adjustments to investment properties

$

239,773

$

19,395

$

933,418

$

20,178

Net income

$

253,028

$

43,136

$

1,003,754

$

110,916






Operating Performance





FFO(1)(2)

$

14,506

$

24,246

$

68,763

$

68,954

FFO per Unit(1)(2)

$

0.086

$

0.168

$

0.408

$

0.492

Net income per Unit - basic

$

1.492

$

0.300

$

5.956

$

0.792






Distributions





Distributions declared to Unitholders

$

24,141

$

19,997

$

70,183

$

57,276

Distributions per Unit declared to Unitholders

$

0.141

$

0.135

$

0.415

$

0.405






FFO payout ratio without DRIP benefit(1)(2)

164.9%

80.2%

101.7%

82.2%

FFO payout ratio with DRIP benefit(1)(2)

127.2%

64.7%

80.0%

67.1%






Weighted average Units outstanding (in thousands)

169,599

143,962

168,530

140,017






Liquidity and Leverage





Total assets

$

4,393,410

$

2,846,900

$

4,393,410

$

2,846,900

Total unencumbered assets

$

2,809,100

$

1,054,481

$

2,809,100

$

1,054,481

Total debt

$

1,286,456

$

1,103,610

$

1,286,456

$

1,103,610






Weighted average effective interest rate

2.51%

3.09%

2.51%

3.09%

Weighted average term to maturity (years)

4.9

4.7

4.9

4.7






Leverage(1)

29.3%

38.8%

29.3%

38.8%

Interest coverage(1)

4.3x

3.4x

4x

3.1x

Debt service coverage(1)

3.2x

2.3x

2.8x

2.1x

Debt-to-adjusted EBITDA(1)

8.4x

8.3x

8.6x

8.5x






DBRS Issuer Rating

BBB (low) Positive

BBB (low) Stable

BBB (low) Positive

BBB (low) Stable






Investment Properties





Property acquisitions

-

-

3

9

Property dispositions

-

1

6

1

Number of properties

154

153

154

153

Total GLA

20,129

18,207

20,129

18,207






(1) Non-GAAP Financial Measure. Refer Appendix A Non-GAAP Financial Measures for information and reconciliations.

(2) Finance costs and FFO includes strategic non-recurring mortgage prepayment costs of $16.1 million ($0.095 per Unit) and $20.0 million ($0.119 per Unit), respectively, for Q3 and YTD. Excluding the prepayment costs, FFO per Unit was $0.180 per Unit and $0.527 per Unit, respectively, for Q3 and YTD. FFO payout ratio without DRIP benefit excluding the prepayment costs was 78.2% (60.4% including DRIP benefit) and 78.8% (62.0% including DRIP benefit), respectively, for Q3 and YTD.

Summit's Unaudited Condensed Consolidated Interim Financial Statements and MD&A for the three and nine months ended September 30, 2021 are available on the REIT's website at www.summitiireit.com.

About Summit

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 Financial Measures

The REIT prepares and releases unaudited 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, same property NOI, leverage ratio, interest coverage ratio, debt service coverage ratio, and debt-to-adjusted EBITDA. The non-GAAP financial measures are further defined and discussed in the MD&A for the three and nine months ended September 30, 2021 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 financial 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 financial 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 Appendix A | Non-GAAP Financial Measures in the REIT's MD&A for the three and nine months ended September 30, 2021.

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 that it is on track for another record year in 2021, 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, 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.

SOURCE Summit Industrial Income REIT

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