Just hours before being absorbed by Singapore-based GIC and Toronto’s Dream Industrial REIT, its Canadian partner, Summit Industrial Income REIT issued its final public financial report showing healthy boosts in virtually every measurable metric.

The report reiterated that the transaction, which will take Summit private, is scheduled to close Friday (Feb. 17). The all-cash transaction values Summit at about $5.9 billion, including debt. 

Dream will hold a 10 per cent interest and its subsidiary Dream Asset Management will take over property management duties. GIC will hold a 90 per cent interest.

As part of the transaction, investors will receive $23.50 per unit (it opened at $23.23 this morning on the TSX), and Summit will make a special distribution of remaining funds. When the transaction was announced in November, the deal represented a premium of 19.5 per cent to its then-consensus estimated NAV of $19.66 per unit.

Due to the pending close of the takeover, Summit did not hold its usual conference call with analysts and investors.

Highlights of Summit's financial report

The financial report shows continued strong results both during Q4 and for the year 2022.

Net income for Q4 was $457.7 million (compared to $128.3 million in Q4 2021), and $822.1 million for the year ($1.13 billion in 2021). That included $427.4 million in positive fair value property adjustments in Q4, and $686.6 million in adjustments on the year.

Its operating performance also showed growth. Funds from operations per unit grew from $0.178 in Q4 2021 to $0.199 in Q4 2022, and for the year rose from $0.587 a year ago to $0.761 In 2022. In pure revenue terms, on a year-over-year basis FFO rose from $100 million to $142.3 million. Same property NOI growth was 6.2 per cent in Q4, and 5.7 per cent for the year.

One attractive metric for GIC and Dream will be Summit’s $1.7 billion of available liquidity and its $4.1 of unencumbered assets at the end of the quarter.

On the property front, 2022 saw a total of approximately $350 million in acquisitions, including:

• six income-producing properties comprising 699,000 square feet for a total purchase price of $196 million;
• interests in three development properties, totalling 87 acres, for $114.2 million. In aggregate, they offer the potential to add 1.7 million square feet of leasable space.
• the remaining 50 per cent interest in a property under development that was nearing completion in Guelph, Ont. totalling 91,782 square feet. It was purchased from Summit’s joint venture partner for $12.8 million;
• and a 12-acre parcel of land with the potential to develop approximately 180,000 square feet of space, at the intersection of Appleby Line and Hwy. 407 in Burlington, Ont. for $27.5 million.

Summit disposed of just one property during 2022, a 32,000 square foot, non-core investment property for $4.2 million.

Leasing growth, large rental rate increases

Its operations teams completed construction of approximately 928,000 square feet of new GLA during the year. 

On the leasing front, Summit made significant gains thanks to the nationwide shortage of available industrial space and the ongoing heavy demand from users.

It completed over 2.6 million square feet of renewals and new leasing deals which generated a 53.2 per cent increase in rental rates. In Ontario rents rose 90 per cent, and in Quebec that figure was 54 per cent – excluding contractual renewals.

Net rental income increased 19.3 per cent in Q4, and 15.4 per cent for the year.

Summit’s portfolio remains almost at capacity, with a 99.2 per cent occupancy rate at the end of Q4. The average remaining lease term is 5.4 years, with average contractual annual rent steps of 3.2 per cent.

It owns 165 properties comprising 22.25 million square feet of GLA, an increase from year-ago totals of 156 properties and 20.65 million square feet. Twelve buildings with an additional 2.6 million square feet of GLA are under construction.

Total assets were valued at $5.72 billion at the end of 2022, up from $4.54 billion at the end of 2021. The fair value increases and ongoing efforts to pay down debt resulted in a significant drop in its overall leverage, from 28.5 per cent at the end of 2021 to 25.1 per cent at the end of 2022.

All this also resulted in an upgrade in its credit rating in September from DBRS Limited, which now has it listed as BBB with positive trends.