Slate Office REIT Reports Third Quarter 2021 Results

TORONTO–(BUSINESS WIRE)–Slate Office REIT (TSX: SOT.UN) (the “REIT”), an owner and operator of office real estate, reported today financial results for the three and nine months ended September 30, 2021.

“Slate Office REIT’s strong third quarter results further highlight the attractive total return potential of our stock,” said Steve Hodgson, Chief Executive Officer of Slate Office REIT. “Most notably, we continue to provide stable and attractive yield to our shareholders, while maintaining significant upside potential on the REIT’s share price. At the same time, we’ve created liquidity this quarter through a strategic disposition above our net asset value, and we are actively evaluating compelling opportunities in the market, which will create further value for our unitholders while increasing the REIT’s scale.”

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

Highlights

  • Durable and growing cash flow:
    • The REIT achieved its fourth consecutive quarter of per unit growth in funds from operations (“FFO”), Core-FFO and adjusted FFO (“AFFO”) growth.
    • The REIT’s units traded at a 7.7% distribution yield, which was well covered with an AFFO payout ratio of 66.1% for the three months ended September 30, 2021.
    • Year to date leasing volume at September 30, 2021 totaled 616,854 square feet, which represents a 12% increase as compared to leasing activity during the same period in 2020.
    • Rental rate spreads were a positive 7.7% year to date at the end of the third quarter.
  • Transactions providing capital and validating net asset value:
    • In October 2021, the REIT completed its previously announced disposition of 1 Eva Road in Toronto above the REIT’s most recent IFRS value. This transaction is immediately accretive as proceeds were used to repay debt, and the REIT intends to recycle capital into attractive value creation opportunities.
    • The REIT also refinanced its revolving credit facility in October 2021 which extends the maturity date to October 2023 and improves credit spreads by 50 basis points, which will reduce the REIT’s interest costs going forward.
  • Strong growth outlook:
    • The REIT continues to underwrite a robust pipeline of attractive new investment opportunities and will look to redeploy capital into new investments that will drive value for unitholders and add scale and diversity to the REIT’s operations.

Summary of Q3 2021 Results

 

Three months ended September 30,

(thousands of dollars, except per unit amounts)

2021

2020

Change %

Rental revenue

$

43,636

$

45,852

(4.8)%

Net operating income (“NOI”)

$

23,012

$

24,040

(4.3)%

Net income

$

8,657

$

16,221

(46.6)%

Same-property NOI

$

22,905

$

23,818

(3.8)%

Weighted average diluted number of trust units (000s)

73,283

73,227

0.1%

FFO

$

11,092

$

13,066

(15.1)%

FFO per unit

$

0.15

$

0.18

(16.7)%

FFO payout ratio

65.8%

55.9%

9.9%

Core-FFO

$

11,888

$

13,813

(13.9)%

Core-FFO per unit

$

0.16

$

0.19

(15.8)%

Core-FFO payout ratio

61.4%

52.8%

8.6%

AFFO

$

11,041

$

11,777

(6.2)%

AFFO per unit

$

0.15

$

0.16

(6.3)%

AFFO payout ratio

66.1%

62.0%

4.1%

 

 

 

 

 

September 30, 2021

December 31, 2020

Change %

Total assets

$

1,692,896

$

1,679,207

0.8%

Total debt

$

986,059

$

972,604

1.4%

Portfolio occupancy

83.3%

84.2%

(0.9)%

Loan-to-value ratio

58.3%

58.0%

0.3%

Net debt to adjusted EBITDA 1

11.8x

11.1x

0.7x

Interest coverage ratio 1

2.1x

2.2x

(0.1)x

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, November 4, 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 https://snwebcastcenter.com/webcast/slate/2021/1104. A replay will be accessible until November 18, 2021 via the REIT’s website or by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 4474448) approximately two hours after the live event.

About Slate Office REIT (TSX: SOT.UN)

Slate Office REIT is an owner and operator of office real estate. The REIT owns interests in and operates a portfolio of 32 strategic and well-located real estate assets across Canada’s major population centres and includes two assets in downtown Chicago, Illinois. 61% 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 global alternative investment platform focused on real estate. We focus on fundamentals with the objective of creating long-term value for our investors and partners. Slate’s platform has a range of investment strategies, including opportunistic, value add, core plus and debt investments. We are supported by exceptional people and flexible capital, which enable us 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 ir@slateam.com 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 September 30,

(thousands of dollars, except per unit amounts)

2021

2020

Revenue

$

43,636

$

45,852

Property operating expenses

(20,771)

(21,016)

IFRIC 21 property tax adjustment 1

(2,368)

(2,254)

Straight-line rents and other changes

2,515

1,458

Net operating income

$

23,012

$

24,040

 

 

 

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

 

 

 

 

Three months ended September 30,

(thousands of dollars, except per unit amounts)

2021

2020

Net income

$

8,657

$

16,221

Add (deduct):

 

 

Leasing costs amortized to revenue

2,159

1,825

Change in fair value of properties

(41)

(653)

IFRIC 21 property tax adjustment 1

(2,368)

(2,254)

Change in fair value of financial instruments

1,817

(2,349)

Transaction costs

12

Depreciation of hotel asset

257

264

Deferred income tax expense

823

Change in fair value of Class B LP units

(740)

(528)

Distributions to Class B unitholders

528

528

FFO 2

$

11,092

$

13,066

Finance income on finance lease receivable

(809)

(858)

Finance lease payments received

1,605

1,605

Core-FFO 2

$

11,888

$

13,813

Amortization of deferred transaction costs

778

695

Amortization of debt mark-to-market adjustments

(39)

(214)

Amortization of straight-line rent

356

(367)

Interest rate subsidy

108

108

Guaranteed income supplements

Normalized direct leasing and capital costs

(2,050)

(2,258)

AFFO 2

$

11,041

$

11,777

 

 

 

Weighted average number of diluted units outstanding(000s)

73,283

73,227

FFO per unit 2

$

0.15

$

0.18

Core-FFO per unit 2

0.16

0.19

AFFO per unit 2

0.15

0.16

FFO payout ratio 2

65.8%

55.9%

Core-FFO payout ratio 2

61.4%

52.8%

AFFO payout ratio 2

66.1%

62.0%

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 September 30,

(thousands of dollars)

2021

2020

Cash flow from operating activities

$

12,329

$

17,354

Add (deduct):

 

 

Leasing costs amortized to revenue

2,159

1,825

Transaction costs

12

Working capital items

(670)

(4,714)

Straight-line rent and other changes

(2,515)

(1,458)

Interest and other finance costs

(10,585)

(10,388)

Interest paid

9,846

9,907

Distributions paid to Class B unitholders

528

528

FFO 1

$

11,092

$

13,066

Finance income on finance lease receivable

(809)

(858)

Finance lease payments received

1,605

1,605

Core-FFO 1

$

11,888

$

13,813

Amortization of deferred transaction costs

778

695

Amortization of debt mark-to-market adjustments

(39)

(214)

Amortization of straight-line rent

356

(367)

Interest rate subsidy

108

108

Guaranteed income supplements

Normalized direct leasing and capital costs

(2,050)

(2,258)

AFFO 1

$

11,041

$

11,777

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

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

 

Trailing twelve months ended September 30,

(thousands of dollars)

2021

2020

Net income

$

39,623

$

26,817

Straight-line rent and other changes

8,070

5,152

Interest income

(505)

(573)

Interest and finance costs

43,952

41,788

Change in fair value of properties

(6,685)

(1,337)

IFRIC 21 property tax adjustment 1

45

(216)

Change in fair value of financial instruments

(15,429)

27,081

Distributions to Class B shareholders

2,112

2,112

Transaction costs

402

2,393

Depreciation of hotel asset

1,035

1,049

Change in fair value of Class B LP units

8,667

(14,640)

Deferred income tax expense

1,777

765

Current income tax expense

54

Adjusted EBITDA 2

$

83,118

$

90,391

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:

(thousands of dollars)

September 30, 2021

September 30, 2020

Debt, non-current

$

818,095

$

443,388

Debt, current

167,964

535,616

Debt

$

986,059

$

979,004

Less: cash on hand

5,323

5,290

Net debt

$

980,736

$

973,714

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

 

Trailing twelve months ended September 30,

(thousands of dollars)

2021

2020

Debt

$

986,059

$

979,004

Less: cash on hand

5,323

5,290

Net debt

$

980,736

$

973,714

Adjusted EBITDA 1, 2

83,118

90,391

Net debt to adjusted EBITDA 2

11.8x

10.8x

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 September 30,

(thousands of dollars)

2021

2020

Adjusted EBITDA 1

$

83,118

$

90,391

Interest expense

40,372

39,497

Interest coverage ratio 1

2.1x

2.3x

 

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 September 30, 2021 and December 31, 2020:

(thousands of dollars, except per unit amounts)

September 30, 2021

December 31, 2020

Equity

$

616,962

$

604,743

Class B LP units

27,482

21,880

Deferred unit liability

775

881

Deferred tax liability

1,801

IFRS net asset value

$

647,020

$

627,504

 

 

 

Diluted number of units outstanding (000s) 1

73,200

73,263

IFRS net asset value per unit

$

8.84

$

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: ir@slateam.com

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