Summit Industrial Income REIT Unit SMMCF

RBC

[retiredcf]

August 9, 2022

Summit Industrial Income REIT
Headline Q2 ahead, underlying results in line; fundamentals in solid shape

TSX: SMU.UN | CAD 18.78 | Sector Perform | Price Target CAD 21.50

Sentiment: Neutral

Our view: SMU reported Q2/22 FFOPU of $0.19, ahead of RBC/consensus at $0.18E/$0.18E and up from $0.15 last year (+24% YoY; or $0.18 last year excluding debt pre-payment charges). However, excluding $2.4MM ($0.01/unit) of lumpy lease termination income and miscellaneous revenue, Q2 results were in line with our forecast. Fundamentals remain strong, with occupancy rising to >99%, solid renewal leasing spreads, and high-single-digit SP NOI growth (albeit likely aided by the income cited above). The IFRS NAVPU inched up 2% sequentially. Conference call Aug-10 (10 a.m. ET; 1-888-330-2446; ID 7589769).

Highlights:

• SP NOI increased a strong 7.7% YoY (+4.8% YTD), with ON (+13.2% YoY) leading the way, followed by Other (+4.3%), QC (+2.4%), and AB (+1.5%). Growth was driven by higher rents on new and renewal leasing, along with higher other income in Ontario.

• Renewal leasing spreads remain robust at +28% YTD, including +84% in ON and +20% in QC, with AB trailing at +1%.

• Occupancy increased to 99.1% (+90 bps QoQ, +30 bps YoY), mainly from ON rising to 100% (+170 bps QoQ), with AB also rising

  to 96.6% (+10 bps QoQ). QC and Other were flat sequentially at 100%.

• IFRS BVPU (pre-tax): $19.46 (+2% QoQ, +25% YoY). IFRS cap rate 4% (+20 bps QoQ, flat YoY), in line with our 4% NAV cap rate

  but slightly above the current 3.8% implied cap. In Q2, SMU booked $45MM (1% of portfolio value; $0.24/unit) of fair value

  gains, including $34MM in developments.

• Putting some liquidity to work. In Q2, SMU acquired a property in Vaughan, ON for $25MM (4.3% cap rate, $330/sf) and a 50%

  interest in one development property in Guelph, ON, raising its total investment in the project to $22MM (4.8% cap rate). Post

  Q2, SMU bought two properties in Mississauga, ON for $59MM (4.9% cap rate, $340/sf).

• Debt/GBV at 26.7% (-140 bps QoQ, -550 bps YoY); available liquidity at $678MM from cash and undrawn lines.