Slate Office REIT Reports First Quarter 2021 Results

TORONTO–(BUSINESS WIRE)–Slate Office REIT (TSX: SOT.UN) (the “REIT”), an owner and operator of North American office real estate, reported today financial results for the three months ended March 31, 2021.

We are pleased to report a solid first quarter that demonstrates the positive leasing momentum in our markets and the continued durability of our income,” said Steve Hodgson, Chief Executive Officer of Slate Office REIT. “We are seeing increased leasing activity in all of our markets, led by Atlantic Canada where travel restrictions have been effective in supporting a more accelerated reopening.”

For the CEO’s letter to unitholders for the quarter, please follow the link here.

Highlights

  • Leasing activity: The REIT completed a total of 102,742 square feet of leasing in the quarter ended March 31, 2021, comprised of 62,154 square feet of renewals and 40,588 square feet of new deals. Subsequent to quarter end, the REIT completed a 103,877 square foot lease renewal with a government tenant at Kings Place in Fredericton, New Brunswick for a term of 10 years.
  • Positive leasing spreads: New lease deals were 4.2% above in-place building rents while renewals were 1.2% above expiring rents, resulting in an overall rental rate spread on leasing of 2.4% for the first quarter of 2021.
  • Durable income: 60% of the REIT’s portfolio is comprised of government or credit rated tenants with only 2.9% of tenants due for renewal in 2021. The REIT’s strong credit tenancies and conservative payout ratio supported an industry leading average distribution yield of 9.3% during the first quarter of 2021.
  • Office utilization rates: We remain encouraged by the office utilization rates across our portfolio which continue to be higher as compared to our peers with assets in more densely populated areas. We expect further increases in utilization rates across our portfolio as vaccine rollouts continue to accelerate and government authorities gradually reverse restrictions in our markets.
  • Same-property NOI growth: Same-property net operating income (“NOI”), excluding the REIT’s hotel asset, for the three months ended March 31, 2021 compared to the most recently completed quarter, increased by 1.7% to $21.4 million.
  • Core FFO and Core-FFO payout ratio: Core funds from operations (“FFO”) was $10.4 million or $0.14 per unit for the quarter ended March 31, 2021. The core FFO payout ratio was 70.1% for the first quarter.
  • AFFO and AFFO payout ratio: Adjusted funds from operations (“AFFO”) was $9.2 million or $0.13 per unit for the quarter ended March 31, 2021. The AFFO payout ratio was 79.2% for the first quarter.

Summary of Q1 2021 Results

 

Three months ended March 31,

(thousands of dollars, except per unit amounts)

2021

2020

Change %

Rental revenue

$

43,161

$

49,694

(13.1)%

Net operating income

$

21,345

$

22,995

(7.2)%

Net income (loss)

$

18,638

$

(14,906)

225.0%

Same-property NOI

$

21,294

$

22,772

(6.5)%

Weighted average diluted number of trust units (000s)

73,266

73,278

—%

Funds from operations (“FFO”)

$

9,634

$

12,408

(22.4)%

FFO per unit

$

0.13

$

0.17

(23.5)%

FFO payout ratio

75.8%

58.9%

16.9%

Core FFO

$

10,406

$

13,054

(20.3)%

Core FFO per unit

$

0.14

$

0.18

(22.2)%

Core FFO payout ratio

70.1%

56.0%

14.1%

AFFO

$

9,211

$

11,189

(17.7)%

AFFO per unit

$

0.13

$

0.15

(13.3)%

AFFO payout ratio

79.2%

65.3%

13.9%

 

 

 

 

 

March 31, 2021

December 31, 2020

Change %

Total assets

$

1,674,255

$

1,679,207

(0.3)%

Total debt

$

968,399

$

972,604

(0.4)%

Portfolio occupancy

83.5%

84.2%

(0.7)%

Loan to value ratio

58.0%

58.0%

—%

Net debt to adjusted EBITDA 1

11.3x

11.1x

0.2x

Interest coverage ratio 1

2.1x

2.2x

1 EBITDA is calculated using trailing twelve month actuals, as calculated below.

Conference Call and Presentation Details

Senior management will host a live conference call at 9:00 a.m. ET on Thursday, May 13, 2021 to discuss the results and ongoing business initiatives of the REIT.

The conference call can be accessed by dialing (647) 427-2311 or 1 (866) 521-4909. Additionally, the conference call will be available via simultaneous audio found at www.snwebcastcenter.com/webcast/slate/2021/0513. A replay will be accessible until May 27, 2021 via the REIT’s website or by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 7958898) approximately two hours after the live event.

About Slate Office REIT (TSX: SOT.UN)

Slate Office REIT is an owner and operator of North American office real estate. The REIT owns interests in and operates a portfolio of 34 strategic and well-located real estate assets across Canada’s major population centres and includes two assets in downtown Chicago, Illinois. 60% of the REIT’s portfolio is comprised of government or credit rated tenants. The REIT acquires quality assets at a discount to replacement cost and creates value for unitholders by applying hands-on asset management strategies to grow rental revenue, extend lease term and increase occupancy. Visit slateofficereit.com to learn more.

About Slate Asset Management

Slate Asset Management is a leading real estate focused alternative investment platform with approximately $6.5 billion in assets under management. Slate is a value-oriented manager and a significant sponsor of all of its private and publicly traded investment vehicles, which are tailored to the unique goals and objectives of its investors. The firm’s careful and selective investment approach creates long-term value with an emphasis on capital preservation and outsized returns. Slate is supported by exceptional people, flexible capital and a demonstrated ability to originate and execute on a wide range of compelling investment opportunities. Visit slateam.com to learn more.

Supplemental Information

All interested parties can access Slate Office REIT’s Supplemental Information online at slateofficereit.com in the Investors section. These materials are also available on SEDAR or upon request at [email protected] or (416) 644-4264.

Forward Looking Statements

Certain information herein constitutes “forward-looking information” as defined under Canadian securities laws which reflect management’s expectations regarding objectives, plans, goals, strategies, future growth, results of operations, performance, business prospects and opportunities of the REIT. The words “plans”, “expects”, “does not expect”, “scheduled”, “estimates”, “intends”, “anticipates”, “does not anticipate”, “projects”, “believes”, or variations of such words and phrases or statements to the effect that certain actions, events or results “may”, “will”, “could”, “would”, “might”, “occur”, “be achieved”, or “continue” and similar expressions identify forward-looking statements. Some of the specific forward-looking statements contained herein include, but are not limited to, statements relating to the impact of the COVID-19 pandemic. Such forward-looking statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations.

Forward-looking statements are necessarily based on a number of estimates and assumptions that, while considered reasonable by management as of the date hereof, are inherently subject to significant business, economic and competitive uncertainties and contingencies. When relying on forward-looking statements to make decisions, the REIT cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties and should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not the times at or by which such performance or results will be achieved. A number of factors could cause actual results to differ, possibly materially, from the results discussed in the forward-looking statements. Additional information about risks and uncertainties is contained in the filings of the REIT with securities regulators.

Non-IFRS Measures

We disclose a number of financial measures in this news release that are not measures used under IFRS, including NOI, same-property NOI, FFO, FFO payout ratio, Core-FFO, Core-FFO payout ratio, AFFO, AFFO payout ratio, IFRS net asset value, adjusted EBITDA, net debt to adjusted EBITDA and the interest coverage ratio, in addition to certain measures on a per unit basis.

  • NOI is defined as rental revenue less operating property expenses, prior to straight-line rent and other changes. Same-property NOI includes those properties owned by the REIT for each of the current period and the relevant comparative period.
  • FFO is defined as net income and comprehensive income adjusted for certain items including leasing costs amortized to revenue, change in fair value of properties, change in fair value of financial instruments, transaction costs, depreciation of hotel asset, change in fair value of Class B LP units, distributions to Class B LP unitholders and subscription receipts equivalent amount.
  • Core-FFO is defined as FFO adjusted for the REIT’s share of lease payments received for its Data Centre asset, which for IFRS purposes is accounted for as a finance lease and removes the impact of mortgage discharge fees (if any).
  • AFFO is defined as FFO adjusted for certain items including guaranteed income supplements, amortization of deferred transaction costs, de-recognition and amortization of mark-to-market adjustments on mortgages refinanced or discharged, adjustments for interest rate subsidies received, recognition of the REIT’s share of lease payments received for its Data Centre asset, which for IFRS purposes is accounted for as a finance lease, amortization of straight-line rent and normalized direct leasing and capital costs.
  • FFO payout ratio, Core-FFO payout ratio and AFFO payout ratio are defined as distributions declared divided by FFO, Core-FFO and AFFO, respectively.
  • FFO per unit, Core-FFO per unit and AFFO per unit are defined as FFO, Core-FFO and AFFO divided by the weighted average diluted number of units outstanding, respectively.
  • IFRS net asset value is defined as the aggregate of the carrying value of the REIT’s equity, Class B LP units and deferred units.
  • Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation, fair value gains (losses) from both financial instruments and investment properties, while also excluding non-recurring items such as transaction costs from dispositions, acquisitions or other events and adjusting income received from the Data Centre to cash received as opposed to finance income recorded for accounting purposes.
  • Net debt to adjusted EBITDA is calculated by dividing the aggregate amount of debt outstanding, less cash on hand, by annualized adjusted EBITDA.
  • Interest coverage ratio is defined as adjusted EBITDA divided by cash interest paid.

We utilize these measures for a variety of reasons, including measuring performance, managing the business, capital allocation and the assessment of risk. Descriptions of why these non-IFRS measures are useful to investors and how management uses each measure are included in Management’s Discussion and Analysis, which readers should read when evaluating the measures included herein. We believe that providing these performance measures on a supplemental basis to our IFRS results is helpful to investors in assessing the overall performance of our businesses in a manner similar to management. These financial measures should not be considered as a substitute for similar financial measures calculated in accordance with IFRS. We caution readers that these non-IFRS financial measures may differ from the calculations disclosed by other businesses, and as a result, may not be comparable to similar measures presented by others.

SOT-FR

Calculation and Reconciliation of Non-IFRS Measures

The tables below summarize a calculation of non-IFRS measures based on IFRS financial information.

The calculation of NOI is as follows:

 

Three months ended March 31,

 

2021

2020

Revenue

$

43,161

$

49,694

Property operating expenses

(31,005)

(34,815)

IFRIC 21 property tax adjustment 1

7,319

7,169

Straight-line rents and other changes

1,870

947

Net operating income

$

21,345

$

22,995

 

 

 

The reconciliation of net income to FFO, Core-FFO and AFFO is as follows:

 

 

 

 

Three months ended March 31,

(thousands of dollars, except per unit amounts)

2021

2020

Net income (loss)

$

18,638

$

(14,906)

Add (deduct):

 

 

Leasing costs amortized to revenue

1,963

1,623

Change in fair value of properties

(9,027)

(2,929)

IFRIC 21 property tax adjustment 1

7,319

7,169

Change in fair value of financial instruments

(11,614)

31,860

Transaction costs

419

Depreciation of hotel asset

254

262

Deferred income tax expense (recovery)

252

(96)

Change in fair value of Class B LP units

1,321

(11,522)

Distributions to Class B unitholders

528

528

FFO 2

$

9,634

$

12,408

Finance income on finance lease receivable

(834)

(879)

Finance lease payments received

1,606

1,525

Core-FFO 2

$

10,406

$

13,054

Amortization of deferred transaction costs

778

670

Amortization of debt mark-to-market adjustments

(40)

(58)

Amortization of straight-line rent

(93)

(676)

Interest rate subsidy

108

108

Guaranteed income supplements

296

Normalized direct leasing and capital costs

(1,948)

(2,205)

AFFO 2

$

9,211

$

11,189

 

 

 

Weighted average number of diluted units outstanding(000s)

73,266

73,278

FFO per unit 2

$

0.13

$

0.17

Core-FFO per unit 2

$

0.14

$

0.18

AFFO per unit 2

$

0.13

$

0.15

FFO payout ratio 2

75.8%

58.9%

Core-FFO payout ratio 2

70.1%

56.0%

AFFO payout ratio 2

79.2%

65.3%

1 In accordance with IFRIC 21, the REIT recognizes property tax liability and expense on its existing U.S. properties as at January 1 of each year, rather than progressively, i.e. ratably throughout the year. The recognition of property taxes as a result of IFRIC 21 has no impact on NOI, FFO or AFFO.

2 Refer to “Non-IFRS measures” section above.

The reconciliation of cash flow from operating activities to FFO, Core-FFO and AFFO is as follows:

 

Three months ended March 31,

 

2021

2020

Cash flow from operating activities

$

9,154

$

7,774

Add (deduct):

 

 

Leasing costs amortized to revenue

1,963

1,623

Transaction costs

419

Working capital items

597

3,623

Straight-line rent and other changes

(1,870)

(947)

Interest and other finance costs

(10,727)

(10,322)

Interest paid

9,989

9,710

Distributions paid to Class B unitholders

528

528

FFO 1

$

9,634

$

12,408

Finance income on finance lease receivable

(834)

(879)

Finance lease payments received

1,606

1,525

Core-FFO 1

$

10,406

$

13,054

Amortization of deferred transaction costs

778

670

Amortization of debt mark-to-market adjustments

(40)

(58)

Amortization of straight-line rent

(93)

(676)

Interest rate subsidy

108

108

Guaranteed income supplements

296

Normalized direct leasing and capital costs

(1,948)

(2,205)

AFFO 1

$

9,211

$

11,189

1 Refer to “Non-IFRS measures” section above.

The calculation of trailing twelve month adjusted EBITDA is as follows:

 

Trailing twelve months ended March 31,

 

2021

2020

Net income

$

47,192

$

41,616

Straight-line rent and other changes

6,547

2,936

Interest income

(521)

(608)

Interest and finance costs

42,902

45,856

Change in fair value of properties

(5,984)

(29,424)

IFRIC 21 property tax adjustment 1

150

72

Change in fair value of financial instruments

(13,671)

31,236

Distributions to Class B shareholders

2,112

2,112

Transaction costs

1,560

12,212

Depreciation of hotel asset

1,050

1,023

Change in fair value of Class B LP units

3,805

(12,896)

Deferred income tax expense (recovery)

252

675

Adjusted EBITDA 2

$

85,394

$

94,810

1 In accordance with IFRIC 21, the REIT recognizes property tax liability and expense on its existing U.S. properties as at January 1 of each year, rather than progressively, i.e. ratably throughout the year. The recognition of property taxes as a result of IFRIC 21 has no impact on NOI, FFO or AFFO.

2 Adjusted EBITDA is based on actuals for the twelve months preceding the balance sheet date.

The calculation of net debt is as follows:

 

March 31, 2021

March 31, 2020

Debt, non-current

$

801,836

$

509,666

Debt, current

166,563

481,391

Debt

$

968,399

$

991,057

Less: cash on hand

2,758

6,369

Net debt

$

965,641

$

984,688

The calculation of net debt to adjusted EBITDA is as follows:

 

Trailing twelve months ended March 31,

 

2021

2020

Debt

$

968,399

$

991,057

Less: cash on hand

2,758

6,369

Net debt

$

965,641

$

984,688

Adjusted EBITDA 1, 2

85,394

94,810

Net debt to adjusted EBITDA 2

11.3x

10.4x

1 Adjusted EBITDA is based on actuals for the twelve months preceding the balance sheet date.

2 Refer to “Non-IFRS measures” section above.

The interest coverage ratio is calculated as follows:

 

Trailing twelve months ended March 31,

 

2021

2020

Adjusted EBITDA 1

$

85,394

$

94,810

Interest expense

39,752

42,413

Interest coverage ratio 1

2.1x

2.2x

1 Refer to “Non-IFRS measures” section above.

 

The following is the calculation of IFRS net asset value on a total and per unit basis at March 31, 2021 and December 31, 2020:

 

March 31, 2021

December 31, 2020

Equity

$

615,020

$

604,743

Class B LP units

23,201

21,880

Deferred unit liability

993

881

Deferred tax liability

250

IFRS net asset value

$

639,464

$

627,504

 

 

 

Diluted number of units outstanding 1

73,277

73,263

IFRS net asset value per unit

$

8.73

$

8.57

1 Represents the fully diluted number of units outstanding and includes outstanding REIT units, DUP units and Class B LP units.

 

Contacts

Investor Relations

Tel: +1 416 644 4264

E-mail: [email protected]

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