SOT.UN Slate Office REIT

Slate Office REIT (TSX: SOT.UN) (the "REIT"), an owner and operator of high-quality workplace real estate, reported today financial results and highlights for the three months and year ended December 31, 2023.

“Over the last quarter, our team has been laser focused on the key drivers of stability and performance for the REIT,” said Brady Welch, Interim Chief Executive Officer of Slate Office REIT. “We have remained active on new leasing and renewals and are converting the resilient demand for our high-quality office spaces into a robust pipeline of near-term leasing opportunities with rapidly emerging and blue-chip tenants. At the same time, we have made progress on the REIT’s Portfolio Realignment Plan, completing a $19.2 million disposition with an additional $120.0 million of dispositions currently under contract or in negotiations.”

For the CEO’s letter to unitholders in respect of the quarter, please follow the link here.

Highlights

• Maintained stable leasing volume while establishing a robust pipeline of near-term leasing opportunities with strong, growing tenants
  • The REIT completed over 624,779 square feet of total leasing in the year, up 10.9% over 2022 volume
  • Subsequent to quarter end, the REIT completed over 150,000 square feet of new leasing across Ontario and Atlantic Canada at a weighted average lease term of 13.1 years
  • The REIT is currently in active discussions with two users in the Greater Toronto Area for new or expansion leasing totaling nearly 240,000 square feet, which would add to net operating income beginning in late 2024 and into 2025
  • Only 4.8% of the portfolio’s Gross Leasable Area (“GLA”) is set to mature in 2024, with renewal negotiations ongoing
• Gained positive momentum on the REIT’s Portfolio Realignment Plan during the fourth quarter, with many private regional buyers expressing interest in the REIT’s assets identified for disposition
  • Subsequent to quarter end, the REIT completed the sale of The Sheridan Exchange, located at 2655 - 2695 North Sheridan Way in Mississauga, ON, for a gross purchase price of $19.2 million at share
  • As at February 15, 2024, the REIT has approximately $120.0 million at share in assets under contract for disposition or in various stages of negotiation, representing approximately 12.7% of the REIT’s GLA
  • As at February 15, 2024, the REIT has repaid $17.9 million of debt using proceeds from dispositions executed as part of the Portfolio Realignment Plan
• Subsequent to quarter end, the REIT’s unitholders passed a special resolution approving an amendment to the REIT’s Declaration of Trust to temporarily remove the restriction imposed on the REIT not to exceed financial leverage of 65% of its gross book value
  • The amendment to the REIT’s Declaration of Trust provides for greater financial flexibility while management continues to execute on the REIT’s Portfolio Realignment Plan and actively manage the REIT's portfolio, as previously defined

Summary of Q4 2023 Results

 

Three months ended December 31,

(thousands of dollars, except per unit amounts)

2023

2022

Change %

Rental revenue

$

48,787

$

48,633

0.3%

Net operating income ("NOI")

$

24,085

$

24,604

(2.1)%

Net loss

$

(54,694)

$

(86,854)

(37.0)%

Weighted average diluted number of trust units (000s)

85,792

85,578

0.3%

Funds from operations ("FFO")

$

4,805

$

7,917

(39.3)%

FFO per unit

$

0.06

$

0.09

(33.3)%

FFO payout ratio

17.8%

107.7%

(89.9)%

Core-FFO

$

5,721

$

8,778

(34.8)%

Core-FFO per unit

$

0.07

$

0.10

(30.0)%

Core-FFO payout ratio

14.9%

97.1%

(82.2)%

Adjusted FFO ("AFFO")

$

5,521

$

7,562

(27.0)%

AFFO per unit

$

0.06

$

0.09

(33.3)%

AFFO payout ratio

15.5%

112.7%

(97.2)%

 

 

 

 

 

December 31, 2023

December 31, 2022

Change %

Total assets

$

1,747,860

$

1,869,362

(6.5)%

Total debt

$

1,178,734

$

1,153,253

2.2%

Portfolio occupancy

78.5%

81.1%

(2.6)%

Loan-to-value ("LTV") ratio

67.7%

61.9%

5.8%

Net debt to adjusted EBITDA 1

12.9x

12.1x

0.8x

Interest coverage ratio 1

1.5x

2.0x

(0.5)x

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

Conference Call and Presentation Details

Senior management will host a live conference call at 9:00 a.m. ET on Thursday, February 15, 2024 to discuss the results and ongoing business initiatives of the REIT. The conference call can be accessed by dialing (416) 764-8658 or 1 (888) 886-7786. Additionally, the conference call will be available via simultaneous audio found at https://viavid.webcasts.com/starthere.jsp?ei=1651323&tp_key=77c63e6c3b. A replay will be accessible until February 29, 2024 via the REIT's website or by dialing (416) 764-8692 or 1 (877) 674-7070 (access code 874565#) approximately two hours after the live event.

About Slate Office REIT (TSX: SOT.UN)

Slate Office REIT is a global owner and operator of high-quality workplace real estate. The REIT owns interests in and operates a portfolio of strategic and well-located real estate assets in North America and Europe. The majority of the REIT’s portfolio is comprised of government and high-quality credit 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 targeting real assets. We focus on fundamentals with the objective of creating long-term value for our investors and partners. Slate's platform has a range of real estate and infrastructure 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, Core-FFO, AFFO, FFO payout ratio, Core-FFO payout ratio, AFFO payout ratio, NAV, adjusted EBITDA, net debt to adjusted EBITDA ratio, interest coverage ratio, debt service coverage ratio and LTV ratio, in addition to certain measures on a fully-diluted per unit basis.

• NOI is defined as rental revenue, excluding non-cash straight-line rent and leasing costs amortized to revenue, less property operating costs prior to International Financial Reporting Interpretations Committee 21, Levies ("IFRIC 21") adjustments. Rental revenue for purposes of measuring NOI excludes revenue recorded as a result of determining rent on a straight-line basis and the amortization of leasing costs in revenue for IFRS. 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 adjusted for certain items including transaction costs, change in fair value of properties, change in fair value of financial instruments, change in fair value of Class B LP units, deferred income taxes, distributions to Class B unitholders, depreciation and IFRIC 21 property tax adjustments.
• Core-FFO is defined as FFO adjusted for the REIT's share of lease payments received for a data centre in Winnipeg, Manitoba (the "Data Centre"), which for IFRS purposes is accounted for as a finance lease.
• AFFO is defined as FFO adjusted for amortization of deferred transaction costs; de-recognition and amortization of mark-to-market ("MTM") adjustments on mortgages refinanced or discharged; adjustments for interest rate subsidies received; recognition of the REIT's share of lease payments received for the Data Centre, 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 aggregate distributions made in respect of units of the REIT and Class B LP units 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.
• NAV is defined as the aggregate of the carrying value of the REIT's equity, Class B LP units, deferred units, and deferred tax liability.
• 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.
• Net debt to adjusted EBITDA is defined as the aggregate amount of debt outstanding, less cash on hand, divided by the trailing twelve month adjusted EBITDA.
• Interest coverage ratio is defined as adjusted EBITDA divided by the REIT's interest expense for the period.
• Debt service coverage ratio is defined as adjusted EBITDA divided by the debt service requirements for the period, whereby the debt service requirements reflects amortizing principal repayments and interest expensed during the period. Payments related to defeasance, prepayment penalties, or payments upon discharge of a mortgage are excluded from the calculation.
• LTV ratio is defined as total indebtedness divided by total assets less restricted cash.

We use 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 December 31,

(thousands of dollars, except per unit amounts)

2023

2022

Revenue

$

48,787

$

48,633

Property operating expenses

(24,150)

(23,266)

IFRIC 21 property tax adjustment 1

(3,479)

(2,995)

Straight-line rents and other changes

2,927

2,232

Net operating income

$

24,085

$

24,604

 

 

 

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

 

 

 

 

Three months ended December 31,

(thousands of dollars, except per unit amounts)

2023

2022

Net income

$

(54,694)

$

(86,854)

Add (deduct):

 

 

Leasing costs amortized to revenue

2,593

2,424

Change in fair value of properties

52,115

96,875

IFRIC 21 property tax adjustment 1

(3,479)

(2,995)

Change in fair value of financial instruments

10,576

4,700

Transaction costs

—

22

Depreciation of hotel asset

242

242

Deferred income tax expense (recovery)

42

(6,866)

Change in fair value of Class B LP units

(2,643)

(159)

Distributions to Class B LP unitholders

53

528

FFO 2

$

4,805

$

7,917

Finance income on finance lease receivable

(689)

(744)

Finance lease payments received

1,605

1,605

Core-FFO 2

$

5,721

$

8,778

Amortization of deferred transaction costs

1,592

1,224

Amortization of debt mark-to-market adjustments

(10)

(11)

Amortization of straight-line rent

334

(192)

Normalized direct leasing and capital costs

(2,116)

(2,237)

AFFO 2

$

5,521

$

7,562

 

 

 

Weighted average number of diluted units outstanding (000s)

85,792

85,578

FFO per unit 2

$

0.06

$

0.09

Core-FFO per unit 2

$

0.07

$

0.10

AFFO per unit 2

$

0.06

$

0.09

FFO payout ratio 2

17.8%

107.7%

Core-FFO payout ratio 2

14.9%

97.1%

AFFO payout ratio 2

15.5%

112.7%

(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 December 31,

(thousands of dollars)

2023

2022

Cash flow from operating activities

$

15,915

$

12,555

Add (deduct):

 

 

Leasing costs amortized to revenue

2,593

2,424

Transaction costs

—

22

Working capital changes

(9,300)

(4,167)

Straight-line rent and other changes

(2,927)

(2,232)

Interest and finance costs

(17,244)

(13,813)

Interest paid

15,662

12,600

Distributions paid to Class B LP unitholders

106

528

FFO 1

$

4,805

$

7,917

Finance income on finance lease receivable

(689)

(744)

Finance lease payments received

1,605

1,605

Core-FFO 1

$

5,721

$

8,778

Amortization of deferred transaction costs

1,592

1,224

Amortization of debt mark-to-market adjustments

(10)

(11)

Amortization of straight-line rent

334

(192)

Normalized direct leasing and capital costs

(2,116)

(2,237)

AFFO 1

$

5,521

$

7,562

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

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

 

Twelve months ended December 31,

(thousands of dollars)

2023

2022

Net loss

$

(113,117)

$

(16,619)

Straight-line rent and other changes

11,366

9,115

Interest income

(562)

(485)

Interest and finance costs

64,831

52,944

Change in fair value of properties

131,551

87,665

Change in fair value of financial instruments

9,068

(39,144)

Distributions to Class B shareholders

899

2,112

Transaction costs

—

1,240

Depreciation of hotel asset

966

966

Change in fair value of Class B LP units

(18,551)

(3,594)

Strategic review costs

2,591

295

Deferred income tax recovery

(204)

(2,405)

Current income tax expense

1,358

1,584

Adjusted EBITDA 1

$

90,196

$

93,674

(1) 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)

December 31, 2023

December 31, 2022

Debt, non-current

$

647,175

$

779,226

Debt, current

531,559

374,027

Debt

$

1,178,734

$

1,153,253

Less: cash on hand

11,270

19,905

Net debt

$

1,167,464

$

1,133,348

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

 

Twelve months ended December 31,

(thousands of dollars)

2023

2022

Debt

$

1,178,734

$

1,153,253

Less: cash on hand

11,270

19,905

Net debt

$

1,167,464

$

1,133,348

Adjusted EBITDA 1 2

90,196

93,674

Net debt to adjusted EBITDA 2

12.9x

12.1x

(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:

 

Twelve months ended December 31,

(thousands of dollars)

2023

2022

Adjusted EBITDA 1 2

$

90,196

$

93,674

Interest expense

59,535

46,462

Interest coverage ratio 2

1.5x

2.0x

(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 following is the calculation of IFRS NAV on a total and per unit basis at December 31, 2023 and December 31, 2022:

(thousands of dollars, except per unit amounts)

December 31, 2023

December 31, 2022

Equity

$

515,370

$

644,366

Class B LP units

4,281

22,832

Deferred unit liability

489

1,182

Deferred tax liability

254

454

IFRS net asset value

$

520,394

$

668,834

 

 

 

Diluted number of units outstanding (000s) 1

85,937

85,582

IFRS net asset value per unit

$

6.06

$

7.82

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

 

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For Further Information Investor Relations Tel: +1 416 644 4264 E-mail: ir@slateam.com