In September 2019, the Toronto Stock Exchange launched the TSX 30 and stated it is “A recognition program featuring some of the most compelling success stories among our listed issuers, including companies operating in traditional areas of strength.”
The TSX 30 comprises of the 30 top-performing TSX stocks over a three-year period based on dividend-adjusted share price appreciation. Summit Industrial Income REIT (TSX:SMU.UN) is part of the index and has seen its revenues go from $38.4 million in 2015 to $95.8 million in 2018.
Based out of Brampton, Ontario, Summit is an open-ended mutual fund real estate investment trust (REIT) focused on growing and managing a portfolio of light industrial properties across Canada.
Summit focusses on light industrial clients in the renting space. Light industrial properties are primarily used for warehousing and logistics and are easy to maintain. As e-commerce keeps growing in Canada, demand for these properties will only increase. An added advantage of these properties is that they can be used by pretty much any firm, which gives Summit a wider client base to work with.
Take a look at the acquisition Summit made in October 2019. The company purchased 37 light industrial properties in Alberta, totaling 3.3 million square feet of gross leasable area at the end of October. It also acquired a 53-acre fully leased parcel of land in Edmonton and paid a total of $588 million for the portfolio.
Occupancy on this portfolio stood at 91.7% at the end of the most recent quarter. The tenant base is made up of primarily transportation, warehouse, and light manufacturing firms. Only 17% of the space is occupied by companies that are in the oil and gas business, and many of those are on long-term leases. Industrial occupancy is at 99.5% with an average lease term of 5.8 years.
The REIT completed 1.39 million square feet of its 2019 renewals with a very strong retention rate of 99.2%.
Strong revenue growth
It’s moves like this that has resulted in robust sales growth for Summit. The company managed to grow sales by 43.4% to $33.1 million in the September quarter. In the first nine months of 2019, sales were up an impressive 54.5% to $101 million.
Net rental income for the three- and nine-month periods ended September 30, 2019, increased 46.2% and 59% to $24.7 million and $73.4 million, respectively, compared to the same periods in 2018.
The company has been working on reducing its debt balance. On September 30, 2019, the REIT’s debt leverage ratio was 37.8% compared to 47% at the end of 2018.
Summit’s stock price has risen from $6 in December 2014 to $12.36 currently. Analysts tracking the stock have given it an average target price of $13.61 over the next 12 months, which might not seem a lot. But the numbers add up when you take into account Summit’s 4.25% forward annual dividend yield.
The stock has gained 34% in the last year. Its growth metrics look solid. The REIT is forecast to improve sales by 55% to $143 million in 2019, 44.8% to $207 million in 2020, and by 11.6% to $231 million in 2021. Its EBITDA is expected to rise from $59.5 million in 2018 to $153 million in 2019.
With all the economic uncertainty, Summit is a good stock to have in your portfolio as you close out the year.
