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Slate Office REIT Reports Third Quarter 2019 Results

November 4, 2019

TORONTO--(BUSINESS WIRE)--Nov 4, 2019--

Slate Office REIT (TSX: SOT.UN) (the “REIT”) reported today financial results for the three months ended September 30, 2019. Senior management is hosting a conference call at 9:00 a.m. ET on Monday, November 4, 2019 to discuss the results and ongoing business initiatives of the REIT. The dial-in details can be found below.

“The REIT maintained positive momentum in the third quarter of 2019, delivering solid operational results for unitholders. With strong leasing, growth in FFO and AFFO and a strengthening balance sheet, the REIT continues to be well positioned for the future” said Scott Antoniak, Chief Executive Officer of Slate Office REIT. “At current trading levels, the REIT continues to offer unitholders a compelling total return investment opportunity. With a current yield of approximately 6.5% and an AFFO payout ratio of 58.8%, unitholders are being rewarded with an attractive and very stable income stream, along with growth in net asset value.”

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

Third Quarter 2019 Highlights

Current Unit Price Continues to Represent a Compelling Investment Opportunity

The current price for the REIT’s units continues to reflect a substantial discount to the REIT’s IFRS net asset value per unit of $8.86 at September 30, 2019. As previously communicated, management continues to believe that there is a substantive basis to support a net asset value of $8.86 per unit, including:

The following is an illustration of the construction of the REIT’s net asset value at September 30, 2019:

(millions, except per unit amounts)

September 30, 2019

GTA Office Portfolio (75% ownership)

$ 411.6

Recent U.S. acquisitions

327.8

Other properties

975.6

Debt and working capital

(1,065.6)

Net asset value

$ 649.4

Net asset value per unit

$ 8.86

This gap between the prevailing trading price and net asset value has created a compelling investment opportunity to purchase units of the REIT. Specifically, the prevailing market price implies an 8.5% capitalization rate for the ‘other properties’ in the table above on next twelve months expected NOI, which is inconsistent with current valuation metrics for comparable properties.

Summary of Q3 2019 Results

Three months ended September 30,

(thousands of dollars, except per unit amounts)

 

2019

 

 

2018

 

Change %

Rental revenue

$

52,539

 

$

54,499

 

(3.6

)%

Net operating income

 

25,435

 

 

25,999

 

(2.2

)%

Net income

 

27,195

 

 

17,697

 

53.7

%

Same-property NOI

 

22,130

 

 

22,520

 

(1.7

)%

Weighted average diluted number of trust units (000s)

 

73,283

 

 

75,203

 

(2.6

)%

Funds from operations ("FFO")

 

14,280

 

 

15,071

 

(5.2

)%

FFO per unit

 

0.19

 

 

0.20

 

(5.0

)%

FFO payout ratio

 

51.2

%

 

93.5

%

(42.3

)%

Core FFO

 

14,906

 

 

15,659

 

(4.8

)%

Core FFO per unit

 

0.20

 

 

0.21

 

(4.8

)%

Core FFO payout ratio

 

49.0

%

 

90.0

%

(41.0

)%

AFFO

 

12,420

 

 

12,755

 

(2.6

)%

AFFO per unit

 

0.17

 

 

0.17

 

%

AFFO payout ratio

 

58.8

%

 

110.4

%

(51.6

)%

 

 

 

 

 

September 30,

December 31,

 

 

 

2019

 

 

2018

 

Change %

Total assets

$

1,751,013

 

$

1,866,729

 

(6.2

)%

Total debt

 

1,044,297

 

 

1,175,826

 

(11.2

)%

Portfolio occupancy (1)

 

86.3

%

 

87.6

%

(1.3

)%

Loan to value ratio

 

59.7

%

 

63.1

%

(3.4

)%

Net debt to adjusted EBITDA leverage (2)

10.2

x

12.5

x

(2.3)

x

Interest coverage ratio (2)

2.1

x

2.2

x

(0.1)

x

(1) Including redevelopment properties.

(2) 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 Monday, November 4, 2019 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/2019/1104. A replay will be accessible until November 18, 2019 via the REIT’s website or by dialing (416) 621-4642 or 1 (800) 585-8367 (access code 5166505) approximately two hours after the live event.

ABOUT SLATE OFFICE REIT (TSX: SOT.UN)

Slate Office REIT is an open-ended real estate investment trust. The REIT’s portfolio comprises 38 strategic and well located real estate assets located primarily across Canada’s major population centres and includes two downtown assets in Chicago, Illinois. The REIT is focused on maximizing value through internal organic rental and occupancy growth and strategic acquisitions. Visit slateofficereit.com to learn more.

ABOUT SLATE ASSET MANAGEMENT

Slate Asset Management is a leading real estate focused alternative investment platform with over $6 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 ir@slateam.com or (416) 644-4264.

FORWARD LOOKING STATEMENTS

Certain statements herein may be forward-looking statements within the meaning of applicable securities laws. These statements reflect management’s expectations regarding objectives, plans, goals, strategies, future growth, results of operations, performance and business prospects and opportunities of the REIT including expectations for the current financial year, and include, but are not limited to, statements with respect to management’s beliefs, plans, estimates and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Statements that contain words such as “could”, “should”, “would”, “anticipate”, “expect”, “believe”, “plan”, “intend”, “will”, “may”, “might” and similar expressions or statements relating to matters that are not historical facts constitute forward-looking statements.

These forward-looking statements are not guarantees of future events or performance and, by their nature, are based on the REIT’s current estimates and assumptions, which are subject to significant risks and uncertainties. Forward- looking statements contained herein are made as the date hereof and accordingly are subject to change after such date. The REIT does not undertake to update any forward-looking statements that are contained herein except as expressly required by applicable securities laws.

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.

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.

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,

 

 

2019

 

 

2018

 

Revenue

$

52,539

 

$

54,499

 

Property operating expenses

 

(25,152

)

 

(26,825

)

IFRIC 21 property tax adjustment (1)

 

(2,330

)

 

(1,151

)

Straight-line rents and other changes

 

378

 

 

(524

)

Net operating income

$

25,435

 

$

25,999

 

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)

 

2019

 

 

2018

 

Net income

$

 

27,195

 

$

 

17,697

 

Add (deduct):

 

 

Leasing costs amortized to revenue

 

1,366

 

 

830

 

Change in fair value of properties

 

(18,579

)

 

(4,058

)

IFRIC 21 property tax adjustment

 

(2,330

)

 

(1,151

)

Change in fair value of financial instruments

 

77

 

 

(1,784

)

Disposition costs

 

3,116

 

 

1,272

 

Depreciation of hotel asset

 

253

 

 

229

 

Deferred income tax expense (recovery)

 

223

 

 

(435

)

Change in fair value of Class B LP units

 

2,431

 

 

1,480

 

Distributions to Class B unitholders

 

528

 

 

991

 

FFO(1)

$

 

 

14,280

 

$

 

 

15,071

 

Finance income on finance lease receivable

 

(899

)

 

(937

)

Finance lease payments received

 

1,525

 

 

1,525

 

Core-FFO (1)

$

 

14,906

 

$

 

15,659

 

Amortization of deferred transaction costs

 

671

 

 

793

 

Amortization of debt mark-to-market adjustments

 

(60

)

 

(100

)

Amortization of straight-line rent

 

(988

)

 

(1,353

)

Interest rate subsidy

 

108

 

 

108

 

Guaranteed income supplements

 

289

 

 

300

 

Normalized direct leasing and capital costs

 

(2,506

)

 

(2,652

)

AFFO (1)

$

 

12,420

 

$

 

12,755

 

 

Weighted average number of diluted units outstanding (000s)

 

 

 

73,283

 

 

 

 

 

75,203

 

 

FFO per unit (1)

$

 

0.19

 

$

 

0.20

 

Core-FFO per unit (1)

 

0.20

 

 

0.21

 

AFFO per unit (1)

 

0.17

 

 

0.17

 

FFO payout ratio (1)

 

51.2

%

 

93.5

%

Core-FFO payout ratio (1)

 

49.0

%

 

90.0

%

AFFO payout ratio (1)

 

58.8

%

 

110.4

%

(1) 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,

 

 

2019

 

 

2018

 

Cash flow from operating activities

$

 

19,592

 

$

 

15,360

 

Add (deduct):

Leasing costs amortized to revenue

 

 

 

1,366

 

 

 

 

 

830

 

 

Disposition costs

 

3,116

 

 

1,272

 

Working capital items

 

(9,333

)

 

(3,212

)

Straight-line rent and other changes

 

(378

)

 

524

 

Interest and other finance costs

 

(11,261

)

 

(11,492

)

Interest paid

 

10,650

 

 

10,798

 

Distributions paid to Class B unitholders

 

528

 

 

991

 

FFO

$

 

14,280

 

$

 

15,071

 

Finance income on finance lease receivable

 

(899

)

 

(937

)

Finance lease payments received

 

1,525

 

 

1,525

 

Core-FFO

$

 

14,906

 

$

 

15,659

 

Amortization of deferred transaction costs

 

671

 

 

793

 

Amortization of debt mark-to-market adjustments

 

(60

)

 

(100

)

Amortization of straight-line rent

 

(988

)

 

(1,353

)

Interest rate subsidy

 

108

 

 

108

 

Guaranteed income supplements

 

289

 

 

300

 

Normalized direct leasing and capital costs

 

(2,506

)

 

(2,652

)

AFFO

$

 

12,420

 

$

 

12,755

 

(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,

 

 

2019

 

 

2018

 

Net income

$

 

70,572

 

$

 

63,367

 

Straight line rent and other changes

 

1,179

 

 

(637

)

Interest income

 

(531

)

 

(172

)

Interest and finance costs

 

51,822

 

 

37,688

 

Change in fair value of properties

 

(43,131

)

 

(10,581

)

IFRIC 21 property tax adjustment

 

448

 

 

(2,264

)

Change in fair value of financial instruments

 

13,757

 

 

(7,201

)

Distributions to Class B shareholders

 

2,884

 

 

3,964

 

Disposition costs

 

12,247

 

 

1,326

 

Depreciation of hotel asset

 

1,007

 

 

894

 

Change in fair value of Class B LP units

 

(8,298

)

 

(740

)

Deferred income tax recovery

 

168

 

 

(920

)

Adjusted EBITDA

$

 

102,124

 

$

 

84,724

 

(1) Refer to "Non-IFRS measures" section above.

 

 

The calculation of net debt is as follows:

 

 

 

September 30,

 

 

2019

 

2018

Debt, non-current

$

790,944

$

1,002,763

Debt, current

 

253,353

 

191,665

Debt

$

1,044,297

$

1,194,428

Less: cash on hand

 

6,118

 

7,903

Net debt

$

1,038,179

$

1,186,525

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

 

 

 

Trailing twelve months ended

 

 

September 30,

 

 

2019

 

2018

Net debt

$

1,038,179

$

1,186,525

Adjusted EBITDA (1)

 

102,124

 

84,724

Net debt to adjusted EBITDA (2)

10.2x

14.0x

(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,

 

 

2019

 

2018

Adjusted EBITDA

$

102,124

$

84,724

Interest expense

 

48,064

 

35,574

Interest coverage ratio (1)

2.1x

2.4x

(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, 2019 and December 31, 2018 to the REIT’s consolidated financial statements:

 

September 30,
2019

December 31,
2018

Equity

$

616,016

 

$

611,447

 

Class B LP units

 

33,455

 

 

31,552

 

Deferred unit liability

 

718

 

 

636

 

Deferred tax asset

 

(766

)

 

(757

)

IFRS net asset value

$

649,423

 

$

642,878

 

 

Diluted number of units outstanding (1)

 

 

 

73,277

 

 

 

 

 

75,300

 

 

IFRS net asset value per unit

$

8.86

 

$

8.54

 

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

 

View source version on businesswire.com:https://www.businesswire.com/news/home/20191104005157/en/

CONTACT: Investor Relations

Tel: +1 416 644 4264

Slate Office REIT

ir@slateam.com

KEYWORD: NORTH AMERICA CANADA

INDUSTRY KEYWORD: RESIDENTIAL BUILDING & REAL ESTATE COMMERCIAL BUILDING & REAL ESTATE CONSTRUCTION & PROPERTY REIT

SOURCE: Slate Office REIT

Copyright Business Wire 2019.

PUB: 11/04/2019 07:00 AM/DISC: 11/04/2019 07:01 AM

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